Derivative Instruments

12 Months Ended

Dec. 31, 2011

Derivative Instruments [Abstract]

Derivative Instruments

10.  Derivative Instruments

Diesel fuel price risk management

The Company is exposed to price risk with respect to diesel fuel purchased for use in its operations. The Company anticipates purchasing approximately 80 to 90 million gallons of diesel fuel for use in its operations during 2012. To reduce the volatility in the price of diesel fuel for its operations, the Company uses forward physical diesel purchase contracts, as well as heating oil swaps and purchased call options. At December 31, 2011, the Company had protected the price of approximately 82% of its expected purchases for fiscal year 2012.

At December 31 2011, the Company held heating oil swaps and purchased call options for approximately 69 million gallons for the purpose of managing the price risk associated with future diesel purchases. Since the changes in the price of heating oil highly correlate to changes in the price of the hedged diesel fuel purchases, the heating oil swaps and purchased call options qualify for cash flow hedge accounting.

The Company also purchased heating oil call options to hedge the fuel surcharges on its barge and rail shipments that cover increases in diesel fuel prices. These positions reduce the Company's risk of cash flow fluctuations related to these surcharges but the positions are not accounted for as hedges. At December 31, 2011, Company held purchased call options for approximately 19.1 million gallons for the purpose of managing the fluctuations in cash flows associated with fuel surcharges on future shipments.

Coal risk management positions

The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market in order to manage its exposure to coal prices. The Company has exposure to the risk of fluctuating coal prices related to forecasted sales or purchases of coal or to the risk of changes in the fair value of a fixed price physical sales contract. Certain derivative contracts may be designated as hedges of these risks.

At December 31, 2011, the Company held derivatives for risk management purposes that are expected to settle in the following years :

	2012	2013	2014	2015
(Tons in thousands)
Coal sales	2,416	1,117	1,440	720
Coal purchases	254	—	—	—

Coal trading positions

The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market for trading purposes. The Company is exposed to the risk of changes in coal prices on the value of its coal trading portfolio. The estimated future realization of the value of the trading portfolio is $2.6 million of losses in 2012 and $1.8 million of losses in 2013.

Tabular derivatives disclosures

The Company's contracts with certain of its counterparties allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. Such netting arrangements reduce the Company's credit exposure related to these counterparties. For classification purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or liability in the consolidated balance sheets. The amounts shown in the table below represent the fair value position of individual contracts, regardless of the net position presented in the accompanying consolidated balance sheets. The fair value and location of derivatives reflected in the accompanying consolidated balance sheets are as follows:

Fair Value of Derivatives

(In thousands)

	December 31, 2011								December 31, 2010
	Asset Derivative			Liability Derivative					Asset Derivative			Liability Derivative
Derivatives Designated as Hedging Instruments
Heating oil – diesel purchases	$	8,997		$	—				$	13,475		$	—
Coal	1,109			—					2,009			(2,350		)
Total	10,106			—					15,484			(2,350		)
Derivatives Not Designated as Hedging Instruments
Heating oil  – fuel surcharges	1,797			—					—			—
Coal — held for trading purposes	15,505			(19,927		)			34,445			(24,087		)
Coal	14,855			(6,035		)			1,139			(912		)
Total	32,157			(25,962		)			35,584			(24,999		)
Total derivatives	42,263			(25,962		)			51,068			(27,349		)
Effect of counterparty netting	(18,134		)	18,134					(22,402		)	22,402
Net derivatives as classified in the balance sheets	$	24,129		$	(7,828	)	$	16,301	$	28,666		$	(4,947	)	$	23,719

Net derivatives as reflected on the balance sheets

		December 31, 2011			December 31, 2010
Heating oil	Other current assets	$	10,794		$	13,475
Coal	Coal derivative assets	13,335			15,191
	Coal derivative liabilities	(7,828		)	(4,947		)
		$	16,301		$	23,719

The Company had a current asset for the right to reclaim cash collateral of $12.4 million and $10.3 million at December 31, 2011 and December 31, 2010, respectively. These amounts are not included with the derivatives presented in the table above and are included in "other current assets" in the accompanying consolidated balance sheets.

The effects of derivatives on measures of financial performance are as follows:

Year Ended December 31,

(In thousands)

Derivatives used in Fair Value Hedging	Gain on Derivatives Used in						Hedged Items in Fair Value Hedge	Loss on Hedged Items In Fair Value
Relationships	Fair Value Hedge Relationships						Relationships	Hedge Relationships
	2011		2010		2009			2011		2010		2009
	(In thousands)							(In thousands)
Coal	$        —	(3)	$     —	(3)	$      2,586	(3)	Firm commitments	$                      —	(3)	$     —	(3)	$  (2,586)	(3)

Derivatives used inCash Flow Hedging	Gain (Loss) Recognized in OCI (Effective Portion)										Gains (Losses) Reclassified from OCI into Income (Effective Portion)
Relationships	2011			2010			2009			2011				2010			2009
Heating oil – diesel purchases	$	1,294		$	(149	)	$	10,309		$		14,866	(2)	$	437	(2)	$	(49,055	)	(2)
Coal sales	4,923			(4,714		)	(7,441		)	1,572			(1)	(1,602)		(1)	(6,999		)	(1)
Coal purchases	(2,009		)	5,145			1,089			—			(2)	(1,202)		(2)	(13,181		)	(2)
Totals	$	4,208		$	282		$	3,957		$		16,438		$	(2,367	)	$	(69,235)

Derivatives used inCash Flow Hedging	Gain (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Relationships	2011		2010		2009
Heating oil – diesel purchases	$	—	$	—	$                —
Coal sales	—		—		—
Coal purchases	—		—		—
Totals	$	—	$	—	$	—

Derivatives Not Designated as	Gain (Loss)
Hedging Instruments	2011			2010			2009
Coal — unrealized	$	6,438	(3)	$	(10,991)	(3)	$           9,673	(3)
Coal — realized	$	(7)	(4)	$	4,542	(4)	$                 —	(4)
Heating oil — fuel surcharges — unrealized	$	(2,906)	(4)	$	—	(4)	$                 —	(4)

Location in Statement of Income:

(1)Revenues

(2)Cost of sales

(3)Change in fair value of coal derivatives and coal trading activities, net

(4)Other operating income, net

The Company recognized net unrealized and realized losses of $3.5 million during the year ended December 31, 2011 and net unrealized and realized gains of $2.1 million and $2.4 million, during the years ended December 31, 2010 and 2009, respectively, related to its trading portfolio (including derivative and non-derivative contracts). These balances are included in the caption "Change in fair value of coal derivatives and coal trading activities, net" in the accompanying consolidated statements of income and are not included in the previous table.

During the next twelve months, based on fair values at December 31, 2011, gains on derivative contracts designated as hedge instruments in cash flow hedges of approximately $9.2 million are expected to be reclassified from other comprehensive income into earnings.