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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2012
Derivative Financial Instruments |
Derivative Financial Instruments |
(17) Derivative Financial Instruments Gain (loss) on derivatives, net consisted of the following:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
--- | --- | --- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2012 |  | 2011 |
Realized gain (loss) on derivative agreements |  | $ | (53,272 | ) | $ | 66 |  | $ | (80,426 | ) | $ | (18,298 | )
Unrealized (loss) on derivative agreements |  |  | (115,699 | ) |  | (9,991 | ) |  | (196,980 | ) |  | (6,801 | )
Total gain (loss) on derivatives, net |  | $ | (168,971 | ) | $ | (9,925 | ) | $ | (277,406 | ) | $ | (25,099 | )
CVR is subject to price fluctuations caused by supply conditions, weather, economic conditions, interest rate fluctuations and other factors. To manage price risk on crude oil and other inventories and to fix margins on certain future production, the Company from time to time enters into various commodity derivative transactions. CVR has adopted accounting standards which impose extensive record-keeping requirements in order to designate a derivative financial instrument as a hedge. CVR holds derivative instruments, such as exchange-traded crude oil futures and certain over-the-counter forward swap agreements, which it believes provide an economic hedge on future transactions, but such instruments are not designated as hedges for GAAP purposes. Gains or losses related to the change in fair value and periodic settlements of these derivative instruments are classified as gain (loss) on derivatives, net in the Condensed Consolidated Statements of Operations. CVR maintains a margin account to facilitate other commodity derivative activities. A portion of this account may include funds available for withdrawal. These funds are included in cash and cash equivalents within the Condensed Consolidated Balance Sheets. The maintenance margin balance is included within other current assets within the Condensed Consolidated Balance Sheets. Dependent upon the position of the open commodity derivatives, the amounts are accounted for as an other current asset or an other current liability within the Condensed Consolidated Balance Sheets. From time to time, CVR may be required to deposit additional funds into this margin account. The fair value of the open commodity positions as of September 30, 2012 was a net loss of $0.1 million included in accrued liabilities. For the three months ended September 30, 2012, the Company recognized a realized loss of $8.0 million and an unrealized gain of $0.9 million which is recorded in loss on derivatives, net in the Condensed Consolidated Statement of Operations. For the nine months ended September 30, 2012, the Company recognized a realized loss of $10.1 million and an unrealized loss of $0.8 million which is recorded in loss on derivatives, net in the Condensed Consolidated Statement of Operations. Commodity Swap Beginning September 2011, the Company entered into several commodity swap contracts with effective periods beginning in January 2012. The physical volumes are not exchanged and these contracts are net settled with cash. The contract fair value of the commodity swaps is reflected on the Condensed Consolidated Balance Sheets with changes in fair value currently recognized in the Condensed Consolidated Statements of Operations. Quoted prices for similar assets or liabilities in active markets (Level 2) are considered to determine the fair values for the purpose of marking to market the hedging instruments at each period end. At September 30, 2012, the Company had open commodity hedging instruments consisting of 26.3 million barrels of crack spreads primarily to fix the margin on a portion of its future gasoline and distillate production. The fair value of the outstanding contracts at September 30, 2012 was a net loss of $115.6 million which was comprised of $106.9 million included in current liabilities and $8.7 million included in long-term liabilities. For the three months ended September 30, 2012, the Company recognized a realized loss of $45.3 million and an unrealized loss of $116.5 million which are recorded in loss on derivatives, net in the Condensed Consolidated Statements of Operations. For the nine months ended September 30, 2012, the Company recognized a realized loss of $70.3 million and an unrealized loss of $196.1 million which are recorded in loss on derivatives, net in the Condensed Consolidated Statements of Operations. Partnership Interest Rate Swap On June 30 and July 1, 2011, CRNF entered into two floating-to-fixed interest rate swap agreements for the purpose of hedging the interest rate risk associated with a portion of its $125.0 million floating rate term debt which matures in April 2016. The aggregate notional amount covered under these agreements totals $62.5 million (split evenly between the two agreement dates) and commenced on August 12, 2011 and expires on February 12, 2016. Under the terms of the interest rate swap agreement entered into on June 30, 2011, CRNF will receive a floating rate based on three month LIBOR and pay a fixed rate of 1.94%. Under the terms of the interest rate swap agreement entered into on July 1, 2011, CRNF will receive a floating rate based on three month LIBOR and pay a fixed rate of 1.975%. Both swap agreements are settled every 90 days. The effect of these swap agreements is to lock in a fixed rate of interest of approximately 1.96% plus the applicable margin paid to lenders over three month LIBOR as governed by the CRNF credit agreement. At September 30, 2012, the effective rate was approximately 4.59%. The agreements were designated as cash flow hedges at inception and accordingly, the effective portion of the gain or loss on the swap is reported as a component of accumulated other comprehensive income (loss) ("AOCI"), and will be reclassified into interest expense when the interest rate swap transaction affects earnings. The ineffective portion of the gain or loss will be recognized immediately in current interest expense on the Condensed Consolidated Statement of Operations. The realized loss on the interest rate swap re-classed from AOCI into interest expense was $0.2 million and $0.1 million for the three months ended September 30, 2012 and 2011, respectively. The realized loss on the interest rate swap re-classed from AOCI into interest expense was $0.7 million and $0.1 million for the nine months ended September 30, 2012 and 2011, respectively.

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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