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Derivatives
 6 Months Ended
Jun. 30, 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 June 30, 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 inventory hedging (short)

 

63,331

 

GAL

 

$

(0.09

)

$

(5,551

)

 

 

2012

 

Commodity contracts for inventory hedging (short)

 

48

 

MT

 

(34.90

)

(1,675

)

 

 

 

 

 

 

 

 

 

 

 

 

$

(7,226

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Designated

 

2012

 

Commodity contracts (long)

 

222,725

 

GAL

 

$

(0.03

)

$

(6,486

)

 

 

2012

 

Commodity contracts (short)

 

321,090

 

GAL

 

0.08

 

28,814

 

 

 

2012

 

Commodity contracts (long)

 

4,792

 

MT

 

(19.26

)

(92,284

)

 

 

2012

 

Commodity contracts (short)

 

3,366

 

MT

 

21.30

 

71,698

 

 

 

2013

 

Commodity contracts (long)

 

16,298

 

GAL

 

(0.02

)

(263

)

 

 

2013

 

Commodity contracts (short)

 

66,505

 

GAL

 

0.20

 

13,500

 

 

 

2013

 

Commodity contracts (long)

 

1,702

 

MT

 

(28.62

)

(48,704

)

 

 

2013

 

Commodity contracts (short)

 

600

 

MT

 

60.64

 

36,384

 

 

 

2014

 

Commodity contracts (long)

 

3

 

MT

 

(42.00

)

(126

)

 

 

2014

 

Commodity contracts (short)

 

6

 

MT

 

50.17

 

301

 

 

 

2012

 

Foreign currency contracts (long)

 

13,442

 

CAD

 

0.01

 

110

 

 

 

2012

 

Foreign currency contracts (short)

 

13,300

 

CAD

 

(0.01

)

(111

)

 

 

2012

 

Foreign currency contracts (long)

 

1,758,457

 

CLP

 

(0.00

)

(5

)

 

 

2012

 

Foreign currency contracts (short)

 

73,000

 

CLP

 

0.00

 

2

 

 

 

2012

 

Foreign currency contracts (long)

 

2,069

 

EUR

 

0.01

 

11

 

 

 

2012

 

Foreign currency contracts (short)

 

15,834

 

EUR

 

(0.00

)

(74

)

 

 

2012

 

Foreign currency contracts (long)

 

19,812

 

GBP

 

0.00

 

6

 

 

 

2012

 

Foreign currency contracts (short)

 

73,601

 

GBP

 

(0.00

)

(168

)

 

 

2012

 

Foreign currency contracts (long)

 

182,641

 

MXN

 

0.00

 

119

 

 

 

2012

 

Foreign currency contracts (short)

 

44,855

 

MXN

 

(0.00

)

(17

)

 

 

2012

 

Foreign currency contracts (long)

 

491

 

AUD

 

0.02

 

8

 

 

 

2012

 

Foreign currency contracts (short)

 

497

 

AUD

 

(0.02

)

(8

)

 

 

2012

 

Foreign currency contracts (long)

 

2,336

 

BRL

 

0.01

 

12

 

 

 

2012

 

Foreign currency contracts (short)

 

5,100

 

RON

 

(0.00

)

(17

)

 

 

2012

 

Foreign currency contracts (short)

 

17,000

 

DKK

 

(0.00

)

(44

)

 

 

2012

 

Foreign currency contracts (short)

 

14,200,000

 

COP

 

0.00

 

23

 

 

 

2012

 

Foreign currency contracts (long)

 

7,000

 

SGD

 

0.00

 

23

 

 

 

2012

 

Foreign currency contracts (short)

 

11,400

 

SGD

 

(0.01

)

(109

)

 

 

2013

 

Foreign currency contracts (long)

 

27,715

 

GBP

 

(0.02

)

(439

)

 

 

2013

 

Foreign currency contracts (short)

 

43,115

 

GBP

 

0.02

 

795

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,946

 

 

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

 

 

 

 

 

June 30,

 

December 31,

 

 

 

Balance Sheet Location

 

2012

 

2011

 

Derivative assets:

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Other current assets

 

$

794

 

$

528

 

Commodity contracts

 

Accrued expenses and other current liabilities

 

—

 

22

 

 

 

 

 

794

 

550

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Other current assets

 

95,748

 

59,185

 

Commodity contracts

 

Non-current other assets

 

9,520

 

2,065

 

Commodity contracts

 

Accrued expenses and other current liabilities

 

142,035

 

3,231

 

Commodity contracts

 

Other long-term liabilities

 

29

 

40

 

Foreign currency contracts

 

Other current assets

 

1,975

 

1,912

 

Foreign currency contracts

 

Non-current other assets

 

165

 

1,082

 

Foreign currency contracts

 

Accrued expenses and other current liabilities

 

75

 

—

 

 

 

 

 

249,547

 

67,515

 

 

 

 

 

$

250,341

 

$

68,065

 

 

 

 

 

 

 

 

 

Derivative liabilities:

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Other current assets

 

$

834

 

$

1,519

 

Commodity contracts

 

Accrued expenses and other current liabilities

 

7,186

 

21

 

 

 

 

 

8,020

 

1,540

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Other current assets

 

12,659

 

37,713

 

Commodity contracts

 

Non-current other assets

 

214

 

2

 

Commodity contracts

 

Accrued expenses and other current liabilities

 

231,173

 

16,434

 

Commodity contracts

 

Other long-term liabilities

 

457

 

1,213

 

Foreign currency contracts

 

Other current assets

 

1,463

 

413

 

Foreign currency contracts

 

Non-current other assets

 

—

 

481

 

Foreign currency contracts

 

Accrued expenses and other current liabilities

 

463

 

124

 

Foreign currency contracts

 

Other long-term liabilities

 

172

 

—

 

 

 

 

 

246,601

 

56,380

 

 

 

 

 

$

254,621

 

$

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 June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

—

 

$

5,518

 

Firm commitments

 

Revenue

 

$

—

 

$

(5,356

)

Commodity contracts

 

Cost of revenue

 

—

 

(369

)

Firm commitments

 

Cost of revenue

 

—

 

274

 

Commodity contracts

 

Cost of revenue

 

36,522

 

6,665

 

Inventories

 

Cost of revenue

 

(32,847

)

(3,045

)

 

 

 

 

$

36,522

 

$

11,814

 

 

 

 

 

$

(32,847

)

$

(8,127

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

265

 

$

16,205

 

Firm commitments

 

Revenue

 

$

(201

)

$

(16,789

)

Commodity contracts

 

Cost of revenue

 

(1,417

)

(7,830

)

Firm commitments

 

Cost of revenue

 

739

 

8,311

 

Commodity contracts

 

Cost of revenue

 

10,193

 

(33,594

)

Inventories

 

Cost of revenue

 

(3,419

)

44,296

 

 

 

 

 

$

9,041

 

$

(25,219

)

 

 

 

 

$

(2,881

)

$

35,818

 

 

There were no gains or losses for the three and six months ended June 30, 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

 

 

 

 

 

Gain (Loss)

 

Derivatives

 

Location

 

2012

 

2011

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

(16,549

)

$

1,490

 

Commodity contracts

 

Cost of revenue

 

22,549

 

2,560

 

Foreign currency contracts

 

Revenue

 

824

 

—

 

Foreign currency contracts

 

Other (expense) income, net

 

978

 

(963

)

 

 

 

 

$

7,802

 

$

3,087

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

(16,772

)

$

3,048

 

Commodity contracts

 

Cost of revenue

 

29,570

 

3,223

 

Foreign currency contracts

 

Revenue

 

(728

)

—

 

Foreign currency contracts

 

Other (expense) income, net

 

(684

)

(2,872

)

 

 

 

 

$

11,386

 

$

3,399

 

 

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 June 30, 2012.