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Derivatives
 9 Months Ended
Sep. 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 September 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flow Hedge

 

2012

 

Foreign currency contracts (long)

 

473

 

EUR

 

$

0.05

 

$

26

 

 

 

2013

 

Foreign currency contracts (long)

 

1,758

 

EUR

 

0.05

 

88

 

 

 

 

 

 

 

 

 

 

 

 

 

$

114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Hedge

 

2012

 

Commodity contracts for inventory hedging (long)

 

16,999

 

GAL

 

$

0.12

 

$

2,041

 

 

 

2012

 

Commodity contracts for inventory hedging (short)

 

71,083

 

GAL

 

(0.05

)

(3,398

)

 

 

2012

 

Commodity contracts for inventory hedging (long)

 

19

 

MT

 

(0.21

)

(4

)

 

 

2012

 

Commodity contracts for inventory hedging (short)

 

51

 

MT

 

(3.69

)

(188

)

 

 

 

 

 

 

 

 

 

 

 

 

$

(1,549

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Designated

 

2012

 

Commodity contracts (long)

 

111,788

 

GAL

 

$

0.06

 

$

6,376

 

 

 

2012

 

Commodity contracts (short)

 

182,095

 

GAL

 

(0.07

)

(12,388

)

 

 

2012

 

Commodity contracts (long)

 

3,766

 

MT

 

11.81

 

44,487

 

 

 

2012

 

Commodity contracts (short)

 

2,976

 

MT

 

(11.07

)

(32,939

)

 

 

2013

 

Commodity contracts (long)

 

30,498

 

GAL

 

0.09

 

2,810

 

 

 

2013

 

Commodity contracts (short)

 

86,249

 

GAL

 

(0.04

)

(3,022

)

 

 

2013

 

Commodity contracts (long)

 

2,248

 

MT

 

6.52

 

14,659

 

 

 

2013

 

Commodity contracts (short)

 

1,087

 

MT

 

(7.04

)

(7,653

)

 

 

2014

 

Commodity contracts (long)

 

263

 

GAL

 

0.05

 

12

 

 

 

2014

 

Commodity contracts (short)

 

1,048

 

GAL

 

0.07

 

76

 

 

 

2014

 

Commodity contracts (long)

 

10

 

MT

 

2.70

 

27

 

 

 

2014

 

Commodity contracts (short)

 

13

 

MT

 

6.08

 

79

 

 

 

2015

 

Commodity contracts (long)

 

2

 

MT

 

1.00

 

2

 

 

 

2015

 

Commodity contracts (short)

 

2

 

MT

 

(1.00

)

(2

)

 

 

2012

 

Foreign currency contracts (long)

 

1,448

 

AUD

 

0.00

 

2

 

 

 

2012

 

Foreign currency contracts (short)

 

4,092

 

AUD

 

0.00

 

4

 

 

 

2012

 

Foreign currency contracts (long)

 

1,451

 

BRL

 

0.01

 

8

 

 

 

2012

 

Foreign currency contracts (long)

 

17,978

 

CAD

 

0.01

 

114

 

 

 

2012

 

Foreign currency contracts (short)

 

14,600

 

CAD

 

(0.03

)

(471

)

 

 

2012

 

Foreign currency contracts (long)

 

3,614,091

 

CLP

 

0.00

 

61

 

 

 

2012

 

Foreign currency contracts (short)

 

75,536

 

CLP

 

(0.00

)

(2

)

 

 

2012

 

Foreign currency contracts (short)

 

8,455,751

 

COP

 

0.00

 

14

 

 

 

2012

 

Foreign currency contracts (long)

 

16,400

 

DKK

 

0.01

 

126

 

 

 

2012

 

Foreign currency contracts (short)

 

17,000

 

DKK

 

(0.01

)

(134

)

 

 

2012

 

Foreign currency contracts (long)

 

16,628

 

EUR

 

0.03

 

541

 

 

 

2012

 

Foreign currency contracts (short)

 

34,834

 

EUR

 

(0.04

)

(1,521

)

 

 

2012

 

Foreign currency contracts (long)

 

58,715

 

GBP

 

0.03

 

1,621

 

 

 

2012

 

Foreign currency contracts (short)

 

82,701

 

GBP

 

(0.03

)

(2,872

)

 

 

2012

 

Foreign currency contracts (long)

 

22,502

 

JPY

 

0.00

 

1

 

 

 

2012

 

Foreign currency contracts (short)

 

175,189

 

JPY

 

(0.00

)

(14

)

 

 

2012

 

Foreign currency contracts (long)

 

352,026

 

MXN

 

0.00

 

303

 

 

 

2012

 

Foreign currency contracts (short)

 

267,447

 

MXN

 

(0.00

)

(148

)

 

 

2012

 

Foreign currency contracts (long)

 

14,000

 

NOK

 

0.00

 

20

 

 

 

2012

 

Foreign currency contracts (short)

 

33,288

 

NOK

 

(0.00

)

(130

)

 

 

2012

 

Foreign currency contracts (short)

 

6,367

 

RON

 

(0.02

)

(100

)

 

 

2012

 

Foreign currency contracts (long)

 

18,902

 

SGD

 

0.02

 

356

 

 

 

2012

 

Foreign currency contracts (short)

 

22,537

 

SGD

 

(0.02

)

(375

)

 

 

2013

 

Foreign currency contracts (long)

 

28,390

 

GBP

 

0.03

 

972

 

 

 

2013

 

Foreign currency contracts (short)

 

49,180

 

GBP

 

(0.03

)

(1,638

)

 

 

2013

 

Foreign currency contracts (short)

 

15,768

 

JPY

 

(0.00

)

(1

)

 

 

2014

 

Foreign currency contracts (long)

 

250

 

GBP

 

(0.01

)

(2

)

 

 

2014

 

Foreign currency contracts (short)

 

1,430

 

GBP

 

(0.04

)

(52

)

 

 

 

 

 

 

 

 

 

 

 

 

$

9,207

 

 

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

 

 

 

 

 

September 30,

 

December 31,

 

 

 

Balance Sheet Location

 

2012

 

2011

 

Derivative assets:

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Other current assets

 

$

3,276

 

$

528

 

Commodity contracts

 

Accrued expenses and other current liabilities

 

—

 

22

 

Foreign currency contracts

 

Accrued expenses and other current liabilities

 

99

 

—

 

Foreign currency contracts

 

Other long-term liabilities

 

15

 

—

 

 

 

 

 

3,390

 

550

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Other current assets

 

128,114

 

59,185

 

Commodity contracts

 

Non-current other assets

 

2,009

 

2,065

 

Commodity contracts

 

Accrued expenses and other current liabilities

 

3,489

 

3,231

 

Commodity contracts

 

Other long-term liabilities

 

2,793

 

40

 

Foreign currency contracts

 

Other current assets

 

647

 

1,912

 

Foreign currency contracts

 

Non-current other assets

 

34

 

1,082

 

Foreign currency contracts

 

Accrued expenses and other current liabilities

 

4,347

 

—

 

Foreign currency contracts

 

Other long-term liabilities

 

48

 

—

 

 

 

 

 

141,481

 

67,515

 

 

 

 

 

$

144,871

 

$

68,065

 

 

 

 

 

 

 

 

 

Derivative liabilities:

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Other current assets

 

$

18

 

$

1,519

 

Commodity contracts

 

Accrued expenses and other current liabilities

 

4,807

 

21

 

 

 

 

 

4,825

 

1,540

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Other current assets

 

90,522

 

37,713

 

Commodity contracts

 

Non-current other assets

 

84

 

2

 

Commodity contracts

 

Accrued expenses and other current liabilities

 

29,402

 

16,434

 

Commodity contracts

 

Other long-term liabilities

 

3,873

 

1,213

 

Foreign currency contracts

 

Other current assets

 

319

 

413

 

Foreign currency contracts

 

Non-current other assets

 

194

 

481

 

Foreign currency contracts

 

Accrued expenses and other current liabilities

 

7,684

 

124

 

Foreign currency contracts

 

Other long-term liabilities

 

196

 

—

 

 

 

 

 

132,274

 

56,380

 

 

 

 

 

$

137,099

 

$

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 September 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

—

 

$

(7,081

)

Firm commitments

 

Revenue

 

$

—

 

$

7,284

 

Commodity contracts

 

Cost of revenue

 

—

 

1,112

 

Firm commitments

 

Cost of revenue

 

—

 

(855

)

Commodity contracts

 

Cost of revenue

 

(38,337

)

14,375

 

Inventories

 

Cost of revenue

 

44,615

 

(9,136

)

 

 

 

 

$

(38,337

)

$

8,406

 

 

 

 

 

$

44,615

 

$

(2,707

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

265

 

$

9,124

 

Firm commitments

 

Revenue

 

$

(201

)

$

(9,505

)

Commodity contracts

 

Cost of revenue

 

(1,417

)

(6,718

)

Firm commitments

 

Cost of revenue

 

739

 

7,456

 

Commodity contracts

 

Cost of revenue

 

(28,144

)

(19,219

)

Inventories

 

Cost of revenue

 

41,196

 

35,160

 

 

 

 

 

$

(29,296

)

$

(16,813

)

 

 

 

 

$

41,734

 

$

33,111

 

 

There were no gains or losses for the three and nine months ended September 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 in cash flow hedging relationships on our accumulated other comprehensive income and consolidated statements of income and comprehensive income (in thousands):

 

 

 

Amount of Gain

 

 

 

Amount of Gain

 

 

 

Recognized in Accumulated

 

 

 

Reclassified from Accumulated

 

 

 

Other Comprehensive Income

 

Location of

 

Other Comprehensive Income

 

 

 

(Effective Portion)

 

Realized Gain

 

(Effective Portion)

 

Derivatives

 

2012

 

2011

 

(Effective Portion)

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Three and nine months ended September 30,

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

$

127

 

$

—

 

Other income (expense), net

 

$

13

 

$

—

 

 

In the event forecasted cash outflows are less than the hedged amounts, a portion or all of the gains or losses recorded in accumulated other comprehensive income are reclassified to the consolidated statements of income and comprehensive income.

 

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 September 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

30,928

 

$

3,703

 

Commodity contracts

 

Cost of revenue

 

(29,272

)

(379

)

Foreign currency contracts

 

Revenue

 

(1,392

)

1,361

 

Foreign currency contracts

 

Other income (expense), net

 

(785

)

2,054

 

 

 

 

 

$

(521

)

$

6,739

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Revenue

 

$

14,156

 

$

6,751

 

Commodity contracts

 

Cost of revenue

 

298

 

2,844

 

Foreign currency contracts

 

Revenue

 

(2,120

)

1,361

 

Foreign currency contracts

 

Other income (expense), net

 

(1,469

)

(818

)

 

 

 

 

$

10,865

 

$

10,138

 

 

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 September 30, 2012.