DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Tables)

6 Months Ended

Jun. 30, 2013

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Commodity Derivative Instruments Outstanding

The following table summarizes our commodity derivative instruments outstanding at June 30, 2013 (amounts in thousands of gallons):

	Volume (1)		Accounting
Derivative Purpose	Current	Long-Term (2)	Treatment
Derivatives NOT designated as hedging instruments:
Physical fixed price derivative contracts	46,926	—	Mark-to-market
Physical index derivative contracts	40,337	—	Mark-to-market
Futures contracts for refined petroleum products	27,423	—	Mark-to-market
Derivatives designated as hedging instruments:
Futures contracts for refined petroleum products	46,284	—	Fair Value Hedge

(1) Volume represents absolute value of net notional volume position.

(2) There were no derivative contracts that extended beyond June 30, 2014.

Fair Value of Each Classification of Derivative Instruments

The following table sets forth the fair value of each classification of derivative instruments and the locations of the derivative instruments on our condensed consolidated balance sheets at the dates indicated (in thousands):

	June 30, 2013
	Derivatives			Derivatives			Gross			Netting
	NOT Designated			Designated			Derivative			Balance
	as Hedging			as Hedging			Carrying			Sheet
	Instruments			Instruments			Value			Adjustment (1)			Net Total
Physical fixed price derivative contracts	$	4,396		$	—		$	4,396		$	(1,330	)	$	3,066
Physical index derivative contracts	594			—			594			(30		)	564
Futures contracts for refined products	60,898			386			61,284			(58,448		)	2,836
Total current derivative assets	65,888			386			66,274			(59,808		)	6,466
Physical fixed price derivative contracts	(3,687		)	—			(3,687		)	1,330			(2,357		)
Physical index derivative contracts	(204		)	—			(204		)	30			(174		)
Futures contracts for refined products	(57,003		)	(1,445		)	(58,448		)	58,448			—
Total current derivative liabilities	(60,894		)	(1,445		)	(62,339		)	59,808			(2,531		)
Interest rate derivatives	—			(35,237		)	(35,237		)	—			(35,237		)
Total non-current derivative liabilities	—			(35,237		)	(35,237		)	—			(35,237		)
Net derivative assets (liabilities)	$	4,994		$	(36,296	)	$	(31,302	)	$	—		$	(31,302	)

(1)  Amounts represent the netting of physical fixed and index contracts’ assets and liabilities when a legal right of offset exists.  Futures contracts are subject to settlement through margin requirements and are additionally presented on a net basis.

	December 31, 2012
	Derivatives			Derivatives			Gross			Netting
	NOT Designated			Designated			Derivative			Balance
	as Hedging			as Hedging			Carrying			Sheet
	Instruments			Instruments			Value			Adjustment (1)			Net Total
Physical fixed price derivative contracts	$	1,489		$	—		$	1,489		$	(335	)	$	1,154
Physical index derivative contracts	724			—			724			(159		)	565
Futures contracts for refined products	10,359			435			10,794			(10,794		)	—
Total current derivative assets	12,572			435			13,007			(11,288		)	1,719
Physical fixed price derivative contracts	(2,377		)	—			(2,377		)	335			(2,042		)
Physical index derivative contracts	(705		)	—			(705		)	159			(546		)
Futures contracts for refined products	(15,268		)	(3,096		)	(18,364		)	10,794			(7,570		)
Interest rate derivatives	—			(72,831		)	(72,831		)	—			(72,831		)
Total current derivative liabilities	(18,350		)	(75,927		)	(94,277		)	11,288			(82,989		)
Interest rate derivatives	—			(57,805		)	(57,805		)	—			(57,805		)
Total non-current derivative liabilities	—			(57,805		)	(57,805		)	—			(57,805		)
Net derivative assets (liabilities)	$	(5,778	)	$	(133,297	)	$	(139,075	)	$	—		$	(139,075	)

(1)  Amounts represent the netting of physical fixed and index contracts’ assets and liabilities when a legal right of offset exists.  Futures contracts are subject to settlement through margin requirements and are additionally presented on a net basis.

Gains and Losses on Derivative Instruments Recognized in Income

The gains and losses on our derivative instruments recognized in income were as follows for the periods indicated (in thousands):

		Three Months Ended						Six Months Ended
		June 30,						June 30,
	Location	2013			2012			2013			2012
Derivatives NOT designated as hedging instruments:
Physical fixed price derivative contracts	Product sales	$	2,795		$	3,791		$	3,376		$	2,898
Physical index derivative contracts	Product sales	700			258			1,109			360
Physical fixed price derivative contracts	Cost of product sales and natural gas storage services	(359		)	784			(445		)	(603		)
Physical index derivative contracts	Cost of product sales and natural gas storage services	(541		)	4			(544		)	(39		)
Futures contracts for refined products	Cost of product sales and natural gas storage services	1,457			1,960			5,797			5,331
Derivatives designated as fair value hedging instruments:
Futures contracts for refined products	Cost of product sales and natural gas storage services	8,159			14,536			8,935			(14,635		)
Physical inventory - hedged items	Cost of product sales and natural gas storage services	(8,959		)	(17,301		)	(9,440		)	11,157
Ineffectiveness excluding the time value component on fair value hedging instruments:
Fair value hedge ineffectiveness (excluding time value)	Cost of product sales and natural gas storage services	(5,212		)	172			(3,627		)	(560		)
Time value excluded from hedge assessment	Cost of product sales and natural gas storage services	4,412			(2,937		)	3,122			(2,917		)
Net loss in income		$	(800	)	$	(2,765	)	$	(505	)	$	(3,477	)

Losses reclassified from accumulated other comprehensive income

The losses reclassified from AOCI to income and the change in value recognized in OCI on our derivatives were as follows for the periods indicated (in thousands):

		Loss Reclassified from AOCI to Income for the
		Three Months Ended						Six Months Ended
		June 30,						June 30,
	Location	2013			2012			2013			2012
Derivatives designated as cash flow hedging instruments:
Interest rate contracts	Interest and debt expense	$	(1,093	)	$	(229	)	$	(1,321	)	$	(459	)

Gains and Losses Reclassified from AOCI to Income and Change in Value Recognized in (OCI) on Derivatives

Gain (Loss) Recognized in OCI on Derivatives for the
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2013		2012			2013		2012
Derivatives designated as cash flow hedging instruments:
Interest rate contracts	$	23,907	$	(40,136	)	$	32,526	$	(23,075	)