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Fair Value Measurements
 3 Months Ended
Mar. 31, 2012
Fair Value Measurements  
Fair Value Measurements

7.     Fair Value Measurements

 

The carrying amounts of cash and cash equivalents, accounts receivable, net, accounts payable and accrued expenses and other current liabilities approximate fair value based on the short-term maturities of these instruments.  We believe the carrying values of our notes receivable and debt approximate fair value since these instruments bear interest either at variable rates or fixed rates which are not significantly different than market rates.  Based on the fair value hierarchy, notes receivable of $7.0 million as of March 31, 2012 and $6.8 million as of December 31, 2011 are categorized in Level 3, the debt under our Term Loan Facility of $250.0 million as of March 31, 2012 and December 31, 2011 is categorized in Level 2 and all other debt of $35.7 million as of March 31, 2012 and $37.1 million as of December 31, 2011 is categorized in Level 3.

 

The following table presents information about our assets and liabilities that are measured at estimated fair value on a recurring basis (in thousands):

 

 

 

Level 1

 

Level 2

 

Level 3

 

Sub-Total

 

Netting
and
Collateral

 

Total

 

As of March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

33,122

 

$

133,574

 

$

—

 

$

166,696

 

$

(128,148

)

$

38,548

 

Foreign currency contracts

 

—

 

1,270

 

—

 

1,270

 

(1,086

)

184

 

Hedged item commitments

 

—

 

443

 

—

 

443

 

(27

)

416

 

Total

 

$

33,122

 

$

135,287

 

$

—

 

$

168,409

 

$

(129,261

)

$

39,148

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

25,534

 

$

120,216

 

$

—

 

$

145,750

 

$

(103,865

)

$

41,885

 

Foreign currency contracts

 

—

 

2,394

 

—

 

2,394

 

(1,086

)

1,308

 

Hedged item inventories

 

—

 

438

 

—

 

438

 

—

 

438

 

Hedged item commitments

 

—

 

157

 

—

 

157

 

(27

)

130

 

Earn-out

 

—

 

—

 

4,323

 

4,323

 

—

 

4,323

 

Total

 

$

25,534

 

$

123,205

 

$

4,323

 

$

153,062

 

$

(104,978

)

$

48,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

14,038

 

$

51,033

 

$

—

 

$

65,071

 

$

(43,275

)

$

21,796

 

Foreign currency contracts

 

—

 

2,994

 

—

 

2,994

 

(893

)

2,101

 

Hedged item inventories

 

—

 

3,216

 

—

 

3,216

 

—

 

3,216

 

Hedged item commitments

 

—

 

206

 

—

 

206

 

—

 

206

 

Total

 

$

14,038

 

$

57,449

 

$

—

 

$

71,487

 

$

(44,168

)

$

27,319

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

10,148

 

$

46,754

 

$

—

 

$

56,902

 

$

(43,291

)

$

13,611

 

Foreign currency contracts

 

—

 

1,018

 

—

 

1,018

 

(893

)

125

 

Hedged item inventories

 

—

 

24

 

—

 

24

 

—

 

24

 

Earn-out

 

—

 

—

 

4,194

 

4,194

 

—

 

4,194

 

Total

 

$

10,148

 

$

47,796

 

$

4,194

 

$

62,138

 

$

(44,184

)

$

17,954

 

 

Fair value of commodity contracts and hedged item commitments is derived using forward prices that take into account commodity prices, basis differentials, interest rates, credit risk ratings, option volatility and currency rates.  Fair value of hedged item inventories is derived using spot commodity prices and basis differentials.  Fair value of foreign currency contracts is derived using forward prices that take into account interest rates, credit risk ratings and currency rates.

 

For our derivative contracts, we may enter into master netting, collateral and offset agreements with counterparties. These agreements provide us the ability to offset a counterparty’s rights and obligations, request additional collateral when necessary or liquidate the collateral in the event of counterparty default. We net fair value of cash collateral paid or received against fair value amounts recognized for net derivative positions executed with the same counterparty under the same master netting or offset agreement.

 

As of March 31, 2012, included within netting and collateral in the above table, the amounts recognized for the obligation to return cash collateral and the right to reclaim cash collateral that have been offset against fair value assets and fair value liabilities were $24.7 million and $0.4 million, respectively. As of December 31, 2011, included within netting and collateral in the above table, the amounts recognized for the obligation to return cash collateral and the right to reclaim cash collateral that have been offset against fair value assets and fair value liabilities were $1.0 million and $0.8 million, respectively.

 

The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis that utilized Level 3 inputs for the periods presented (in thousands):

 

 

 

Beginning
of Period,
(Liabilities)
Assets

 

Realized and
Unrealized
Losses
Included in
Earnings

 

Settlements

 

End of
Period,
Liabilities

 

Change in
Unrealized
Losses
Relating to
Instruments

Still Held as of end
of Period

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earn-out

 

(4,194

)

(129

)

—

 

(4,323

)

(129

)

Total

 

$

(4,194

)

$

(129

)

$

—

 

$

(4,323

)

$

(129

)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts, net

 

$

90

 

$

—

 

$

(90

)

$

—

 

$

—

 

Earn-out

 

(5,012

)

(139

)

—

 

(5,151

)

(139

)

Total

 

$

(4,922

)

$

(139

)

$

(90

)

$

(5,151

)

$

(139

)

 

Our policy is to recognize transfers between Level 1, 2 or 3 as of the beginning of the reporting period in which the event or change in circumstances caused the transfer to occur.  There were no transfers between Level 1, 2 or 3 during the periods presented.  In addition, there were no Level 3 purchases, sales or issuances for the periods presented.

 

Earn-out Relating to 2009 Acquisition

 

In connection with an acquisition made in 2009, we entered into an earn-out agreement with the sellers based on achieving certain operating targets over a three year period ending April 3, 2012.  As of March 31, 2012 and 2011, the estimated fair value of the earn-out liability is $4.3 million and $5.2 million, respectively.  During the three months ended March 31, 2012 and 2011, there was a $0.1 million Level 3 adjustment related to unrealized foreign currency losses.  The impact of the acquisition’s revenue and net income did not have a significant impact on our results for the three months ended March 31, 2012 and 2011.