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Derivatives
 3 Months Ended
Mar. 31, 2012
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 related to fuel products 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 or futures as well as certain fixed price purchase and sale contracts and proprietary trading. In addition, non-designated derivatives are also entered into to hedge the risk of currency rate fluctuations.

 

As of March 31, 2012, 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

 

2012

 

Commodity contracts for firm commitment hedging (long)

 

992

 

GAL

 

$

0.18

 

$

179

 

 

 

2012

 

Commodity contracts for firm commitment hedging (short)

 

3,780

 

GAL

 

(0.08

)

(318

)

 

 

2012

 

Commodity contracts for inventory hedging (short)

 

50,384

 

GAL

 

0.06

 

2,848

 

 

 

2012

 

Commodity contracts for inventory hedging (short)

 

72

 

MT

 

6.36

 

458

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,167

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Designated

 

2012

 

Commodity contracts (long)

 

128,366

 

GAL

 

$

0.08

 

$

10,610

 

 

 

2012

 

Commodity contracts (short)

 

199,585

 

GAL

 

(0.11

)

(21,789

)

 

 

2012

 

Commodity contracts (long)

 

2,678

 

MT

 

49.70

 

133,103

 

 

 

2012

 

Commodity contracts (short)

 

2,235

 

MT

 

(47.07

)

(105,170

)

 

 

2013

 

Commodity contracts (long)

 

4,516

 

GAL

 

0.24

 

1,106

 

 

 

2013

 

Commodity contracts (short)

 

9,670

 

GAL

 

(0.05

)

(470

)

 

 

2013

 

Commodity contracts (long)

 

73

 

MT

 

23.38

 

1,707

 

 

 

2013

 

Commodity contracts (short)

 

31

 

MT

 

(42.23

)

(1,309

)

 

 

2014

 

Commodity contracts (long)

 

3

 

MT

 

20.33

 

61

 

 

 

2014

 

Commodity contracts (short)

 

6

 

MT

 

(11.67

)

(70

)

 

 

2012

 

Foreign currency contracts (long)

 

8,636

 

CAD

 

(0.00

)

(29

)

 

 

2012

 

Foreign currency contracts (short)

 

15,236

 

CAD

 

(0.00

)

(11

)

 

 

2012

 

Foreign currency contracts (long)

 

2,289,069

 

CLP

 

(0.00

)

(43

)

 

 

2012

 

Foreign currency contracts (long)

 

636

 

EUR

 

0.02

 

14

 

 

 

2012

 

Foreign currency contracts (short)

 

16,000

 

EUR

 

(0.00

)

(50

)

 

 

2012

 

Foreign currency contracts (long)

 

14,947

 

GBP

 

0.01

 

208

 

 

 

2012

 

Foreign currency contracts (short)

 

90,806

 

GBP

 

(0.01

)

(1,160

)

 

 

2012

 

Foreign currency contracts (long)

 

164,573

 

MXN

 

(0.00

)

(104

)

 

 

2012

 

Foreign currency contracts (short)

 

69,684

 

MXN

 

0.00

 

44

 

 

 

2012

 

Foreign currency contracts (long)

 

27

 

AUD

 

(0.04

)

(1

)

 

 

2012

 

Foreign currency contracts (short)

 

269

 

AUD

 

0.02

 

5

 

 

 

2012

 

Foreign currency contracts (long)

 

893

 

BRL

 

0.03

 

26

 

 

 

2012

 

Foreign currency contracts (short)

 

2,623

 

BRL

 

(0.02

)

(63

)

 

 

2012

 

Foreign currency contracts (short)

 

11,001

 

DKK

 

(0.00

)

(2

)

 

 

2012

 

Foreign currency contracts (short)

 

21,800,000

 

COP

 

(0.00

)

(23

)

 

 

2013

 

Foreign currency contracts (long)

 

10,430

 

GBP

 

0.00

 

24

 

 

 

2013

 

Foreign currency contracts (short)

 

23,315

 

GBP

 

0.00

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

$

16,655

 

 

The following table presents information about our derivative instruments measured at fair value and their locations on the consolidated balance sheets (in thousands):

 

 

 

 

 

As of

 

 

 

 

 

March 31,

 

December 31,

 

 

 

Balance Sheet Location

 

2012

 

2011

 

Derivative assets:

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Other current assets

 

$

4,213

 

$

528

 

Commodity contracts

 

Accrued expenses and other current liabilities

 

—

 

22

 

 

 

 

 

4,213

 

550

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Other current assets

 

153,230

 

59,185

 

Commodity contracts

 

Non-current other assets

 

2,225

 

2,065

 

Commodity contracts

 

Accrued expenses and other current liabilities

 

6,985

 

3,231

 

Commodity contracts

 

Other long-term liabilities

 

43

 

40

 

Foreign currency contracts

 

Other current assets

 

254

 

1,912

 

Foreign currency contracts

 

Non-current other assets

 

98

 

1,082

 

Foreign currency contracts

 

Accrued expenses and other current liabilities

 

883

 

—

 

Foreign currency contracts

 

Other long-term liabilities

 

35

 

—

 

 

 

 

 

163,753

 

67,515

 

 

 

 

 

$

167,966

 

$

68,065

 

 

 

 

 

 

 

 

 

Derivative liabilities:

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Other current assets

 

$

1,026

 

$

1,519

 

Commodity contracts

 

Accrued expenses and other current liabilities

 

—

 

21

 

 

 

 

 

1,026

 

1,540

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Other current assets

 

95,140

 

37,713

 

Commodity contracts

 

Non-current other assets

 

241

 

2

 

Commodity contracts

 

Accrued expenses and other current liabilities

 

48,564

 

16,434

 

Commodity contracts

 

Other long-term liabilities

 

779

 

1,213

 

Foreign currency contracts

 

Other current assets

 

66

 

413

 

Foreign currency contracts

 

Non-current other assets

 

102

 

481

 

Foreign currency contracts

 

Accrued expenses and other current liabilities

 

2,080

 

124

 

Foreign currency contracts

 

Other long-term liabilities

 

146

 

—

 

 

 

 

 

147,118

 

56,380

 

 

 

 

 

$

148,144

 

$

57,920

 

 

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 and comprehensive income (in thousands):

 

 

 

 

 

Realized and Unrealized
Gain (Loss)

 

 

 

 

 

Realized and Unrealized
Gain (Loss)

 

Derivatives

 

Location

 

2012

 

2011

 

Hedged Items

 

Location

 

2012

 

2011

 

Three months ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

265

 

$

10,687

 

Firm commitments

 

Revenue

 

$

(201

)

$

(11,433

)

Commodity contracts

 

Cost of revenue

 

(1,417

)

(7,461

)

Firm commitments

 

Cost of revenue

 

739

 

8,037

 

Commodity contracts

 

Cost of revenue

 

(26,329

)

(40,259

)

Inventories

 

Cost of revenue

 

29,428

 

47,341

 

 

 

 

 

$

(27,481

)

$

(37,033

)

 

 

 

 

$

29,966

 

$

43,945

 

 

There were no gains or losses for the three months ended March 31, 2012 and 2011 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 not designated as hedging instruments on our consolidated statements of income and comprehensive income (in thousands):

 

 

 

 

 

Realized and Unrealized

 

Derivatives

 

Location

 

Gain (Loss)

 

 

 

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

(223

)

$

1,558

 

Commodity contracts

 

Cost of revenue

 

7,021

 

663

 

Foreign currency contracts

 

Revenue

 

(1,552

)

—

 

Foreign currency contracts

 

Other income (expense), net

 

(1,662

)

(1,909

)

 

 

 

 

$

3,584

 

$

312

 

 

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 $2.3 million as of March 31, 2012.