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Derivatives
9 Months Ended
Sep. 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 and other financial instruments, as well as certain fixed price purchase and sale contracts (which do not qualify for hedge accounting or are not elected for as normal purchase normal sale) 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 September 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Hedge

 

2011

 

Commodity contracts for firm commitment hedging (long)

 

1,423

 

GAL

 

$

 (0.16

)

$

 (232

)

 

 

2011

 

Commodity contracts for firm commitment hedging (short)

 

3,696

 

GAL

 

0.11

 

422

 

 

 

2011

 

Commodity contracts for inventory hedging (short)

 

38,183

 

GAL

 

0.14

 

5,396

 

 

 

2011

 

Commodity contracts for firm commitment hedging (long)

 

81

 

MT

 

(2.40

)

(196

)

 

 

2011

 

Commodity contracts for inventory hedging (short)

 

86

 

MT

 

17.77

 

1,519

 

 

 

2012

 

Commodity contracts for firm commitment hedging (long)

 

610

 

GAL

 

(0.18)

 

(109

)

 

 

2012

 

Commodity contracts for firm commitment hedging (long)

 

155

 

MT

 

(11.65

)

(1,805

)

 

 

 

 

 

 

 

 

 

 

 

 

$

4,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Designated

 

2011

 

Commodity contracts (long)

 

62,201

 

GAL

 

$

 (0.00

)

$

 (309

)

 

 

2011

 

Commodity contracts (short)

 

63,021

 

GAL

 

0.02

 

1,271

 

 

 

2011

 

Commodity contracts (long)

 

2,721

 

MT

 

(12.74

)

(34,676

)

 

 

2011

 

Commodity contracts (short)

 

2,086

 

MT

 

17.96

 

37,454

 

 

 

2011

 

Foreign currency contracts (long)

 

407

 

BRL

 

(0.04

)

(18

)

 

 

2011

 

Foreign currency contracts (short)

 

5,200

 

CAD

 

0.02

 

103

 

 

 

2011

 

Foreign currency contracts (long)

 

2,640,202

 

CLP

 

(0.00

)

(396

)

 

 

2011

 

Foreign currency contracts (short)

 

7,500

 

EUR

 

0.02

 

140

 

 

 

2011

 

Foreign currency contracts (long)

 

18,451

 

GBP

 

(0.03

)

(574

)

 

 

2011

 

Foreign currency contracts (short)

 

71,968

 

GBP

 

0.04

 

2,980

 

 

 

2011

 

Foreign currency contracts (long)

 

126,381

 

MXN

 

0.00

 

112

 

 

 

2011

 

Foreign currency contracts (short)

 

47,863

 

MXN

 

0.00

 

—

 

 

 

2011

 

Foreign currency contracts (long)

 

1,231

 

SGD

 

(0.01

)

(12

)

 

 

2011

 

Foreign currency contracts (short)

 

382

 

AUD

 

0.07

 

29

 

 

 

2011

 

Foreign currency contracts (short)

 

13,000,000

 

COP

 

0.00

 

571

 

 

 

2011

 

Foreign currency contracts (long)

 

9,160

 

UYU

 

(0.00

)

(30

)

 

 

2012

 

Commodity contracts (long)

 

19,038

 

GAL

 

(0.01

)

(243

)

 

 

2012

 

Commodity contracts (short)

 

71,642

 

GAL

 

0.11

 

7,648

 

 

 

2012

 

Commodity contracts (long)

 

1,878

 

MT

 

(16.07

)

(30,182

)

 

 

2012

 

Commodity contracts (short)

 

1,185

 

MT

 

19.45

 

23,063

 

 

 

2013

 

Commodity contracts (long)

 

2,153

 

GAL

 

(0.08

)

(173

)

 

 

2013

 

Commodity contracts (short)

 

5,408

 

GAL

 

0.26

 

1,403

 

 

 

2013

 

Commodity contracts (long)

 

58

 

MT

 

(22.86

)

(1,328

)

 

 

2013

 

Commodity contracts (short)

 

14

 

MT

 

50.24

 

703

 

 

 

2014

 

Commodity contracts (long)

 

3

 

MT

 

(61.85

)

(186

)

 

 

2014

 

Commodity contracts (short)

 

3

 

MT

 

63.59

 

191

 

 

 

 

 

 

 

 

 

 

 

 

 

$

7,541

 

 

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

 

 

 

 

 

September 30,

 

December 31,

 

 

 

Balance Sheet Location

 

2011

 

2010

 

Derivative assets:

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Short-term derivative assets, net

 

$

914

 

$

439

 

Commodity contracts

 

Non-current other assets

 

—

 

448

 

Commodity contracts

 

Short-term derivative liabilities, net

 

6,910

 

—

 

Total hedging instrument derivatives

 

 

 

7,824

 

887

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Short-term derivative assets, net

 

23,031

 

11,296

 

Commodity contracts

 

Short-term derivative liabilities, net

 

72,408

 

2,195

 

Commodity contracts

 

Non-current other assets

 

4,738

 

637

 

Commodity contracts

 

Other long-term liabilities

 

2,570

 

—

 

Foreign currency contracts

 

Short-term derivative assets, net

 

3,512

 

369

 

Foreign currency contracts

 

Short-term derivative liabilities, net

 

584

 

92

 

Total non-designated derivatives

 

 

 

106,843

 

14,589

 

Total derivative assets

 

 

 

$

114,667

 

$

15,476

 

 

 

 

 

 

 

 

 

Derivative liabilities:

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Short-term derivative assets, net

 

$

91

 

$

229

 

Commodity contracts

 

Short-term derivative liabilities, net

 

2,156

 

2,853

 

Commodity contracts

 

Other long-term liabilities

 

581

 

—

 

Total hedging instrument derivatives

 

 

 

2,828

 

3,082

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Short-term derivative assets, net

 

6,803

 

4,001

 

Commodity contracts

 

Short-term derivative liabilities, net

 

83,534

 

9,519

 

Commodity contracts

 

Non-current other assets

 

152

 

81

 

Commodity contracts

 

Other long-term liabilities

 

7,623

 

502

 

Foreign currency contracts

 

Short-term derivative assets, net

 

336

 

185

 

Foreign currency contracts

 

Short-term derivative liabilities, net

 

855

 

389

 

Total non-designated derivatives

 

 

 

99,303

 

14,677

 

Total derivative liabilities

 

 

 

$

102,131

 

$

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 September 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

(7,081

)

$

7,622

 

Firm commitments

 

Revenue

 

$

7,284

 

$

(6,411

)

Commodity contracts

 

Cost of revenue

 

1,112

 

(1,844

)

Firm commitments

 

Cost of revenue

 

(855

)

1,290

 

Commodity contracts

 

Cost of revenue

 

14,375

 

(9,537

)

Inventories

 

Cost of revenue

 

(9,136

)

13,079

 

 

 

 

 

$

8,406

 

$

(3,759

)

 

 

 

 

$

(2,707

)

$

7,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

9,124

 

$

5,076

 

Firm commitments

 

Revenue

 

$

(9,505

)

$

(3,116

)

Commodity contracts

 

Cost of revenue

 

(6,718

)

900

 

Firm commitments

 

Cost of revenue

 

7,456

 

(2,393

)

Commodity contracts

 

Cost of revenue

 

(19,219

)

(817

)

Inventories

 

Cost of revenue

 

35,160

 

7,565

 

 

 

 

 

$

(16,813

)

$

5,159

 

 

 

 

 

$

33,111

 

$

2,056

 

 

There were no gains or losses for the three and nine months ended September 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 September 30,

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

$

—

 

$

(122

)

Revenue

 

$

—

 

$

(122

)

Foreign currency contracts

 

—

 

(327

)

Other (expense) income, net

 

—

 

(327

)

 

 

$

—

 

$

(449

)

 

 

$

—

 

$

(449

)

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

$

—

 

$

1,780

 

Revenue

 

$

—

 

$

1,088

 

Foreign currency contracts

 

—

 

(75

)

Other (expense) income, net

 

—

 

(75

)

 

 

$

—

 

$

1,705

 

 

 

$

—

 

$

1,013

 

 

In the event forecasted cash outflows are less than the hedged amounts, a portion or all of the gains or losses recorded in accumulated other comprehensive income (loss) are 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 nine months ended September 30, 2011 and 2010 (in thousands):

 

 

 

 

 

Realized and Unrealized

 

Derivatives

 

 

Location

 

Gain (Loss)

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

3,703

 

$

2,356

 

Commodity contracts

 

Cost of revenue

 

(379

)

(398

)

Foreign currency contracts

 

Revenue

 

1,361

 

—

 

Foreign currency contracts

 

Other (expense) income, net

 

2,054

 

(556

)

 

 

 

 

$

6,739

 

$

1,402

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

6,751

 

$

3,127

 

Commodity contracts

 

Cost of revenue

 

2,844

 

1,850

 

Foreign currency contracts

 

Revenue

 

1,361

 

—

 

Foreign currency contracts

 

Other (expense) income, net

 

(818

)

(174

)

 

 

 

 

$

10,138

 

$

4,803

 

 

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 were not significant as of September 30, 2011.