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WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
value hedging instrument becomes ineffective and any previously recorded fair market value changes are not
adjusted until the fuel is sold.
Cash Flow Hedges. We enter into interest rate swaps in order to mitigate the risk of fluctuations in interest
rates. As of December 31, 2005, we recorded unrealized net gain of $0.2 million on these cash flow hedges,
which was included in accumulated other comprehensive income.
Fair Value Hedges. We enter into derivatives in order to hedge price risk associated with our inventories.
Effective July 1, 2005, fair value hedge accounting is applied to hedged inventory. Accordingly, inventories
designated as “hedged items” are marked to market through the statement of income, as is the derivative that
serves as the hedge. As a result, gains and losses attributable to changes in fuel prices offset based on the
effectiveness of the hedge in the period in which the hedge is in effect. As of December 31, 2005, we recorded
unrealized net loss of $0.1 million on these fair value hedges. During 2005, hedge ineffectiveness resulted in a
realized net loss of $0.6 million.
Non-designated Derivatives. Our non-designated derivatives are primarily entered into in order to mitigate
the risk of market price fluctuations in marine and aviation fuel and to offer our customers fuel pricing
alternatives to meet their needs. These derivatives are in the form of swaps and fixed price purchase and sales
contracts. In addition, non-designated derivatives are also entered into through the use of swaps in order to hedge
foreign currency fluctuation. The changes in fair value of our non-designated derivatives are recorded as a
component of cost of sales in the statement of income. As of December 31, 2005, we recorded unrealized loss of
$0.1 million.
As of December 31, 2005 we had the following commodity related derivative instruments outstanding with
average underlying prices that represent hedged prices of commodities at various market locations (in thousands,
except average underlying prices):
Settlement
Period Derivative Instrument Hedge Strategy
Notional Amount Average
Underlying
Prices
Fair Value
Asset
(Liability)
Marine
(metric tons)
Aviation
(gallons)
2006 Swap Fair value 47 $277.40 $ 29
Hedged Item Fair value 47 256.48 (424)
Swap Non-designated 456 238.63 21,318
Swap Non-designated 1,180 274.03 (23,668)
Swap Non-designated 77 303.82 (554)
Swap Non-designated 802 285.27 2,839
Futures Fair value 7,434 1.78 70
Hedged Item Fair value 7,434 1.81 266
Swap Non-designated 106,157 0.89 4,422
Swap Non-designated 106,157 0.89 (4,421)
2007 Swap Non-designated 3 147.32 414
Swap Non-designated 3 147.75 (414)
$ 272
46