FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2011

FAIR VALUE MEASUREMENTS

16. FAIR VALUE MEASUREMENTS

We categorize our financial assets and liabilities using the three-tier hierarchy as follows:

Recurring

The following table sets forth financial assets and liabilities, measured at fair value on a recurring basis, as of the measurement dates, December 31, 2011 and 2010, and the basis for that measurement, by level within the fair value hierarchy (in thousands):

	December 31,
	2011					2010
	Level 1		Level 2			Level 1			Level 2
Financial assets:
Physical fixed price derivative contracts	$	—	$	5,292		$	—		$	1,522
Physical index derivative contracts		—		834			—			—
Futures contracts for refined products		630		—			112			—
Interest rate derivatives		—		—			—			3,892
Financial liabilities:
Physical fixed price derivative contracts		—		(1,245	)		—			(3,900	)
Physical index derivative contracts		—		(614	)		—			—
Futures contracts for refined products		—		—			(12,635	)		—
Futures contracts for natural gas		—		—			(206	)		—
Interest rate derivatives		—		(101,911	)		—			(544	)
Fair value	$	630	$	(97,644	)	$	(12,729	)	$	970

The values of the Level 1 derivative assets and liabilities were based on quoted market prices obtained from the NYMEX.

The values of the Level 2 interest rate derivatives were determined using expected cash flow models, which incorporated market inputs including the implied LIBOR yield curve for the same period as the future interest rate swap settlements.

The values of the Level 2 physical derivative contracts assets and liabilities were calculated using market approaches based on observable market data inputs, including published commodity pricing data, which is verified against other available market data, and market interest rate and volatility data. Level 2 physical derivative contract assets are net of credit value adjustments (“CVA”) determined using an expected cash flow model, which incorporates assumptions about the credit risk of the physical derivative contracts based on the historical and expected payment history of each customer, the amount of product contracted for under the agreement and the customer’s historical and expected purchase performance under each contract. The Energy Services segment determined CVA is appropriate because few of the Energy Services segment’s customers entering into these physical derivative contracts are large organizations with nationally-recognized credit ratings. The Level 2 physical fixed price derivative contracts assets of $5.3 million and $1.5 million as of December 31, 2011 and 2010, respectively, are net of CVA of ($0.1) million for both periods, respectively.

Non-Recurring

Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. During the year ended December 31, 2011, we recorded a non-cash goodwill impairment charge of $169.6 million based on Level 3 inputs. See Note 9 for a discussion of our valuation methodology relating to the goodwill impairment test. During the year ended December 31, 2009, we recorded a non-cash asset impairment charge of $59.7 million based on the proceeds from the sale of our ownership interest in Buckeye NGL in January 2010.