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Derivatives | 6 Months Ended
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Jun. 30, 2011
Derivatives |
Derivatives |
2. Derivatives We enter into financial derivative contracts in order to mitigate the risk of market price fluctuations in aviation, marine and land fuel, to offer our customers fuel pricing alternatives to meet their needs and to mitigate the risk of fluctuations in foreign currency exchange rates. We also enter into proprietary derivative transactions, primarily intended to capitalize on arbitrage opportunities related to basis or time spreads for fuel products that we sell. We have applied the normal purchase and normal sales exception (“NPNS”), as provided by accounting guidance for derivative instruments and hedging activities, to certain of our physical forward sales and purchase contracts. While these contracts are considered derivative instruments under the guidance for derivative instruments and hedging activities, they are not recorded at fair value, but rather are recorded in our consolidated financial statements when physical settlement of the contracts occurs. If it is determined that a transaction designated as NPNS no longer meets the scope of the exception, the fair value of the related contract is recorded as an asset or liability on the consolidated balance sheet and the difference between the fair value and the contract amount is immediately recognized through earnings. The following describes our derivative classifications: Cash Flow Hedges. Includes certain of our foreign currency forward contracts we enter into in order to mitigate the risk of currency exchange rate fluctuations. Fair Value Hedges. Includes derivatives we enter into in order to hedge price risk associated with our inventory and certain firm commitments relating to fixed price purchase and sale contracts. Non-designated Derivatives. Includes derivatives we primarily enter into in order to mitigate the risk of market price fluctuations in aviation, marine and land fuel in the form of swaps as well as certain fixed price purchase and sale contracts (which do not qualify for hedge accounting) to offer our customers fuel pricing alternatives to meet their needs and for proprietary trading. In addition, non-designated derivatives are also entered into to hedge the risk of currency rate fluctuations. As of June 30, 2011, our derivative instruments, at their respective fair value positions were as follows (in thousands, except mark-to-market prices):
Hedge Strategy |  |  | Settlement Period |  | Derivative Instrument |  | Notional |  | Unit |  | Mark-to- Market Prices |  | Mark-to- Market Gain (Loss) |
Fair Value Hedge |  | 2011 |  | Commodity contracts for firm commitment hedging (long) |  | 3,435 |  | GAL |  | $ | (0.06 | ) | $ | (193 | )
|  | 2011 |  | Commodity contracts for firm commitment (short) |  | 4,578 |  | GAL |  | (0.11 | ) |  | (485 | )
|  | 2011 |  | Commodity contracts for inventory hedging (short) |  | 60,438 |  | GAL |  | (0.01 | ) | (822 | )
|  | 2011 |  | Commodity contracts for firm commitment hedging (long) |  | 114 |  | MT |  | 22.32 |  | 2,545 |
|  | 2011 |  | Commodity contracts for inventory hedging (short) |  | 75 |  | MT |  | (16.97 | ) | (1,273 | )
|  | 2012 |  | Commodity contracts for firm commitment hedging (long) |  | 106 |  | GAL |  | 0.10 |  | 11 |
|  | 2012 |  | Commodity contracts for firm commitment hedging (long) |  | 95 |  | MT |  | 30.33 |  | 2,881 |
|  |  |  |  |  |  |  |  |  |  |  | $ | 2,664 |
Non-Designated |  | 2011 |  | Commodity contracts (long) |  | 68,796 |  | GAL |  |  | 0.04 |  | 2,419 |
|  | 2011 |  | Commodity contracts (short) |  | 45,943 |  | GAL |  | (0.11 | ) | (5,127 | )
|  | 2011 |  | Commodity contracts (long) |  | 1,309 |  | MT |  | 11.19 |  | 14,349 |
|  | 2011 |  | Commodity contracts (short) |  | 1,037 |  | MT |  | (13.58 | ) | (13,785 | )
|  | 2011 |  | Foreign currency contracts (long) |  | 696 |  | BRL |  | 0.01 |  | 5 |
|  | 2011 |  | Foreign currency contracts (short) |  | 7,298 |  | BRL |  | (0.01 | ) | (104 | )
|  | 2011 |  | Foreign currency contracts (short) |  | 5,700 |  | CAD |  | (0.02 | ) | (131 | )
|  | 2011 |  | Foreign currency contracts (long) |  | 2,880,216 |  | CLP |  | (0.00 | ) | (33 | )
|  | 2011 |  | Foreign currency contracts (long) |  | 679 |  | EUR |  | 0.01 |  | 8 |
|  | 2011 |  | Foreign currency contracts (short) |  | 4,600 |  | EUR |  | (0.02 | ) | (76 | )
|  | 2011 |  | Foreign currency contracts (long) |  | 3,884 |  | GBP |  | (0.01 | ) | (25 | )
|  | 2011 |  | Foreign currency contracts (short) |  | 27,529 |  | GBP |  | 0.01 |  | 238 |
|  | 2011 |  | Foreign currency contracts (short) |  | 584 |  | AUD |  | (0.01 | ) | (5 | )
|  | 2011 |  | Foreign currency contracts (long) |  | 498 |  | DKK |  | 0.00 |  | 2 |
|  | 2011 |  | Foreign currency contracts (short) |  | 4,000 |  | DKK |  | (0.00 | ) | (10 | )
|  | 2011 |  | Foreign currency contracts (long) |  | 281 |  | NOK |  | 0.00 |  | 1 |
|  | 2011 |  | Foreign currency contracts (short) |  | 2,700 |  | CZK |  | (0.00 | ) | (2 | )
|  | 2011 |  | Foreign currency contracts (short) |  | 6,261,150 |  | COP |  | (0.00 | ) | (15 | )
|  | 2011 |  | Foreign currency contracts (short) |  | 600 |  | CHF |  | 0.01 |  | 8 |
|  | 2012 |  | Commodity contracts (long) |  | 5,959 |  | GAL |  | 0.13 |  | 773 |
|  | 2012 |  | Commodity contracts (short) |  | 14,365 |  | GAL |  | (0.04 | ) | (609 | )
|  | 2012 |  | Commodity contracts (long) |  | 347 |  | MT |  | 9.41 |  | 2,635 |
|  | 2012 |  | Commodity contracts (short) |  | 261 |  | MT |  | (6.72 | ) | (1,124 | )
|  | 2013 |  | Commodity contracts (long) |  | 679 |  | GAL |  | 0.20 |  | 139 |
|  | 2013 |  | Commodity contracts (short) |  | 679 |  | GAL |  | (0.19 | ) | (132 | )
|  | 2013 |  | Commodity contracts (short) |  | 6 |  | MT |  | (21.00 | ) | (126 | )
|  |  |  |  |  |  |  |  |  |  |  | $ | (727 | )
The following table presents information about our derivative instruments measured at fair value and their locations on the consolidated balance sheet (in thousands):
|  |  |  | As of |
|  |  |  | June 30, |  | December 31, |
|  | Balance Sheet Location |  | 2011 |  | 2010 |
Derivative assets: |  |  |  |  |  |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |
Commodity contracts |  | Short-term derivative assets, net |  | $ | 5,348 |  | $ | 439 |
Commodity contracts |  | Non-current other assets |  | 1,085 |  | 448 |
Commodity contracts |  | Short-term derivative liabilities, net |  | 155 |  | — |
Total hedging instrument derivatives |  |  |  | 6,588 |  | 887 |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |
Commodity contracts |  | Short-term derivative assets, net |  | 25,195 |  | 11,296 |
Commodity contracts |  | Short-term derivative liabilities, net |  | 1,139 |  | 2,195 |
Commodity contracts |  | Non-current other assets |  | 1,468 |  | 637 |
Commodity contracts |  | Other long-term liabilities |  | 122 |  | — |
Foreign exchange contracts |  | Short-term derivative assets, net |  | 319 |  | 369 |
Foreign exchange contracts |  | Short-term derivative liabilities, net |  | 31 |  | 92 |
Total non-designated derivatives |  |  |  | 28,274 |  | 14,589 |
Total derivative assets |  |  |  | $ | 34,862 |  | $ | 15,476 |
Derivative liabilities: |  |  |  |  |  |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |
Commodity contracts |  | Short-term derivative assets, net |  | $ | 1,838 |  | $ | 229 |
Commodity contracts |  | Short-term derivative liabilities, net |  | 2,086 |  | 2,853 |
Total hedging instrument derivatives |  |  |  | 3,924 |  | 3,082 |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |
Commodity contracts |  | Short-term derivative assets, net |  | 7,203 |  | 4,001 |
Commodity contracts |  | Short-term derivative liabilities, net |  | 19,983 |  | 9,519 |
Commodity contracts |  | Non-current other assets |  | 617 |  | 81 |
Commodity contracts |  | Other long-term liabilities |  | 709 |  | 502 |
Foreign exchange contracts |  | Short-term derivative assets, net |  | 39 |  | 185 |
Foreign exchange contracts |  | Short-term derivative liabilities, net |  | 450 |  | 389 |
Total non-designated derivatives |  |  |  | 29,001 |  | 14,677 |
Total derivative liabilities |  |  |  | $ | 32,925 |  | $ | 17,759 |
The following table presents the effect and financial statement location of our derivative instruments and related hedged items in fair value hedging relationships on our consolidated statements of income (in thousands):
Derivatives |  |  | Location |  | Realized and Unrealized Gain (Loss) |  | Hedged Items |  | Location |  | Realized and Unrealized Gain (Loss) |
|  |  |  | 2011 |  | 2010 |  |  |  |  |  | 2011 |  | 2010 |
Three months ended June 30, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Revenue |  | $ | 5,518 |  | $ | (8,032 | ) | Firm commitments |  | Revenue |  | $ | (5,356 | ) | $ | 8,306 |
Commodity contracts |  | Cost of revenue |  | (369 | ) | 2,249 |  | Firm commitments |  | Cost of revenue |  | 274 |  | (2,875 | )
Commodity contracts |  | Cost of revenue |  | 6,665 |  | 11,605 |  | Inventories |  | Cost of revenue |  | (3,045 | ) | (10,243 | )
|  |  |  | $ | 11,814 |  | $ | 5,822 |  |  |  |  |  | $ | (8,127 | ) | $ | (4,812 | )
Six months ended June 30, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Revenue |  | $ | 16,205 |  | $ | (2,546 | ) | Firm commitments |  | Revenue |  | $ | (16,789 | ) | $ | 3,295 |
Commodity contracts |  | Cost of revenue |  | (7,830 | ) | 2,744 |  | Firm commitments |  | Cost of revenue |  | 8,311 |  | (3,683 | )
Commodity contracts |  | Cost of revenue |  | (33,594 | ) | 8,720 |  | Inventories |  | Cost of revenue |  | 44,296 |  | (5,514 | )
|  |  |  | $ | (25,219 | ) | $ | 8,918 |  |  |  |  |  | $ | 35,818 |  | $ | (5,902 | )
There were no gains or losses for the three and six months ended June 30, 2011 and 2010 that were excluded from the assessment of the effectiveness of our fair value hedges. The following table presents the effect and financial statement location of our derivative instruments in cash flow hedging relationships on our accumulated other comprehensive income and consolidated statements of income (in thousands):
|  | Unrealized Gain (Loss) |  |  |  |  |  |  |
|  | Recorded in Accumulated |  | Location of |  |  |  |  |
|  | Other Comprehensive Income |  | Realized Gain (Loss) |  | Realized Gain (Loss) |
Derivatives |  |  | (Effective Portion) |  | (Effective Portion) |  | (Effective Portion) |
|  | 2011 |  | 2010 |  |  |  | 2011 |  | 2010 |
Three months ended June 30, |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | $ | — |  | $ | — |  | Cost of revenue |  | $ | — |  | $ | 417 |
Foreign exchange contracts |  | $ | — |  | $ | — |  | Other income, net |  | $ | — |  | $ | 252 |
|  | $ | — |  | $ | — |  |  |  | $ | — |  | $ | 669 |
Six months ended June 30, |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | $ | — |  | $ | 1,902 |  | Cost of revenue |  | $ | — |  | $ | 1,210 |
Foreign exchange contracts |  | $ | — |  | $ | 252 |  | Other income, net |  | $ | — |  | $ | 252 |
|  | $ | — |  | $ | 2,154 |  |  |  | $ | — |  | $ | 1,462 |
In the event forecasted foreign currency cash outflows are less than the hedged amounts, a portion or all of the gains or losses recorded in accumulated other comprehensive income (loss) would be reclassified to the consolidated statement of income. The following table presents the effect and financial statement location of our derivative instruments not designated as hedging instruments on our consolidated statements of income for the three and six months ended June 30, 2011 and 2010 (in thousands):
|  |  |  | Realized and Unrealized |
Derivatives |  |  | Location |  | Gain (Loss) |
|  |  |  | 2011 |  | 2010 |
Three months ended June 30, |  |  |  |  |  |  |
Commodity contracts |  | Revenue |  | $ | 1,490 |  | $ | (561 | )
Commodity contracts |  | Cost of revenue |  | 2,560 |  | 2,392 |
Foreign exchange contracts |  | Other expense, net |  | (963 | ) | (560 | )
|  |  |  | $ | 3,087 |  | $ | 1,271 |
Six months ended June 30, |  |  |  |  |  |  |
Commodity contracts |  | Revenue |  | $ | 3,048 |  | $ | 771 |
Commodity contracts |  | Cost of revenue |  | 3,223 |  | 2,248 |
Foreign exchange contracts |  | Other (expense) income, net |  | (2,872 | ) | 382 |
|  |  |  | $ | 3,399 |  | $ | 3,401 |
We enter into derivative instrument contracts which may require us to periodically post collateral. Certain of these derivative contracts contain clauses that are similar to credit-risk-related contingent features, including material adverse change, general adequate assurance and internal credit review clauses that may require additional collateral to be posted and/or settlement of the instruments in the event an aforementioned clause is triggered. The triggering events are not a quantifiable measure; rather they are based on good faith and reasonable determination by the counterparty that the triggers have occurred. The net liability position for such contracts, the collateral posted and the amount of assets required to be posted and/or to settle the positions should a contingent feature be triggered was not significant as of June 30, 2011.

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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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