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Fair Value Measurements
 6 Months Ended
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.