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Fair Value Measurements | 6 Months Ended
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Jun. 30, 2012
Fair Value Measurements |
Fair Value Measurements |
8. 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 $6.7 million as of June 30, 2012 and $6.8 million as of December 31, 2011 are categorized in Level 3, the debt under our senior term loans of $250.0 million as of June 30, 2012 and December 31, 2011 is categorized in Level 2 and all other debt of $82.0 million as of June 30, 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 June 30, 2012 |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | $ | 68,793 |  | $ | 179,333 |  | $ | — |  | $ | 248,126 |  | $ | (177,205 | ) | $ | 70,921 |
Foreign currency contracts |  | — |  | 2,215 |  | — |  | 2,215 |  | (1,710 | ) | 505 |
Hedged item inventories |  | — |  | 5,642 |  | — |  | 5,642 |  | — |  | 5,642 |
Total |  | $ | 68,793 |  | $ | 187,190 |  | $ | — |  | $ | 255,983 |  | $ | (178,915 | ) | $ | 77,068 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | $ | 94,341 |  | $ | 158,182 |  | $ | — |  | $ | 252,523 |  | $ | (232,694 | ) | $ | 19,829 |
Foreign currency contracts |  | — |  | 2,098 |  | — |  | 2,098 |  | (1,710 | ) | 388 |
Hedged item inventories |  | — |  | 608 |  | — |  | 608 |  | — |  | 608 |
Total |  | $ | 94,341 |  | $ | 160,888 |  | $ | — |  | $ | 255,229 |  | $ | (234,404 | ) | $ | 20,825 |
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 June 30, 2012, we had $139.9 million of cash collateral deposits held by financial counterparties of which $76.9 million have been offset against the total amount of commodity fair value liabilities in the above table and the remaining $63.0 million is included in other current assets in the accompanying consolidated balance sheets. In addition, as of June 30, 2012, we have offset $21.4 million of cash collateral received from customers against the total amount of commodity fair value assets in the above table. As of December 31, 2011, we had $11.8 million of cash collateral deposits held by financial counterparties and there were no significant amounts of cash collateral that were offset against the total commodity fair value assets and liabilities in the above table. 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 Gains (Losses) Included in Earnings |  | Settlements |  | End of Period, Liabilities |  | Change in Unrealized Losses Relating to Instruments Still Held at end of Period |
Three months ended June 30, 2012 |  |  |  |  |  |  |  |  |  |  |
Earn-out |  | $ | (4,323 | ) | $ | 19 |  | $ | 4,304 |  | $ | — |  | $ | — |
Three months ended June 30, 2011 |  |  |  |  |  |  |  |  |  |  |
Earn-out |  | $ | (5,151 | ) | $ | (5 | ) | $ | — |  | $ | (5,156 | ) | $ | (5 | )
Six months ended June 30, 2012 |  |  |  |  |  |  |  |  |  |  |
Earn-out |  | $ | (4,194 | ) | $ | (110 | ) | $ | 4,304 |  | $ | — |  | $ | — |
Six months ended June 30, 2011 |  |  |  |  |  |  |  |  |  |  |
Commodity contracts, net |  | $ | 90 |  | $ | — |  | $ | (90 | ) | $ | — |  | $ | — |
Earn-out |  | (5,012 | ) | (144 | ) | — |  | (5,156 | ) | (144 | )
Total |  | $ | (4,922 | ) | $ | (144 | ) | $ | (90 | ) | $ | (5,156 | ) | $ | (144 | )
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 significant 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. The earn-out liability of $4.3 million was paid during the three months ended June 30, 2012. The impact of the acquisition’s revenue and net income did not have a significant impact on our results for the three and six months ended June 30, 2012 and 2011.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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