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Derivatives
 9 Months Ended
Sep. 30, 2012
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives
Derivatives
 
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 73 to 78 million gallons of diesel fuel for use in its operations during 2012. To protect the Company’s cash flows from increases in the price of diesel fuel for its operations, the Company uses forward physical diesel purchase contracts and purchased heating oil call options, and in the past, heating oil swaps. At September 30, 2012, the Company had protected the price of approximately 80% of its expected purchases for the remainder of 2012 and 67% of its 2013 purchases. At September 30, 2012, the Company had purchased heating oil call options for approximately 63.5 million gallons for the purpose of managing the price risk associated with future diesel purchases.
 
During the first quarter of 2012, the Company determined the effectiveness of the heating oil options could not be established as of December 31, 2011 and on an ongoing basis.  As a result, the amount remaining in accumulated other comprehensive income of $8.2 million, or $5.2 million net of income taxes, was recorded in earnings, in the “other operating income, net” line on the condensed consolidated statement of operations.
 
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 September 30, 2012, the Company held purchased call options for approximately 14 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 September 30, 2012, the Company held derivatives for risk management purposes that are expected to settle in the following years:
 
(Tons in thousands)
 
2012
 
2013
 
2014
 
2015
 
Total
Coal sales
 
2,915

 
5,713

 
4,020

 
720

 
13,368

Coal purchases
 
1,851

 
1,140

 
900

 
—

 
3,891


 
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 $3.6 million of gains in the remainder of 2012 and $1.6 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, and not the net position presented in the accompanying condensed consolidated balance sheets. The fair value and location of derivatives reflected in the accompanying condensed consolidated balance sheets are as follows:
 
 
 
September 30, 2012
 
 
 
December 31, 2011
 
 
Fair Value of Derivatives
 
Asset
 
Liability
 
 
 
Asset
 
Liability
 
 
(In thousands)
 
Derivative
 
Derivative
 
 
 
Derivative
 
Derivative
 
 
Derivatives Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Heating oil--diesel purchases
 
$
—

 
$
—

 
 

 
$
8,997

 
$
—

 
 

Coal
 
4,509

 
(1,679
)
 
 

 
1,109

 
—

 
 

Total
 
4,509

 
(1,679
)
 
 

 
10,106

 
—

 
 

Derivatives Not Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Heating oil -- diesel purchases
 
10,913

 
(57
)
 
 

 
—

 
—

 
 

Heating oil -- fuel surcharges
 
2,839

 
—

 
 

 
1,797

 
—

 
 

Coal -- held for trading purposes
 
27,190

 
(25,171
)
 
 

 
15,505

 
(19,927
)
 
 

Coal -- risk management
 
45,739

 
(13,249
)
 
 

 
14,855

 
(6,035
)
 
 

Total
 
86,681

 
(38,477
)
 
 

 
32,157

 
(25,962
)
 
 

Total derivatives
 
91,190

 
(40,156
)
 
 

 
42,263

 
(25,962
)
 
 

Effect of counterparty netting
 
(36,658
)
 
36,658

 
 

 
(18,134
)
 
18,134

 
 

Net derivatives as classified in the balance sheets
 
$
54,532

 
$
(3,498
)
 
$
51,034

 
$
24,129

 
$
(7,828
)
 
$
16,301

 
 
 
 
 
September 30, 2012
 
December 31, 2011
Net derivatives as reflected on the balance sheets
 
 
 
 

 
 

Heating oil
 
Other current assets
 
$
13,695

 
$
10,794

Coal
 
Coal derivative assets
 
40,837

 
13,335

 
 
Coal derivative liabilities
 
(3,498
)
 
(7,828
)
 
 
 
 
$
51,034

 
$
16,301


 
The Company had a current liability for the obligation to post cash collateral of $7.4 million at September 30, 2012 and a current asset for the right to reclaim cash collateral of $12.4 million at December 31, 2011. These amounts are not included with the derivatives presented in the table above and are included in “accrued expenses and other current liabilities” and “other current assets”, respectively, in the accompanying condensed consolidated balance sheets.

The effects of derivatives on measures of financial performance are as follows for the three month periods ended September 30:
 
Derivatives used in Cash Flow Hedging Relationships (in thousands)
For the three months ended September 30  
 
 
 
 
 
 
Gains (Losses) Reclassified
 
 
 
 
Gain (Loss) Recognized in Other Comprehensive Income(Effective Portion)
 
from Other Comprehensive Income into Income
(Effective Portion)
 
 
 
 
2012
 
2011
 
2012
 
2011
 
 
Heating oil — diesel purchases
 
$
—

 
$
(6,386
)
 
$
—

 
$
5,122

 
(2) 
Coal sales
 
259

 
1,820

 
542

 
466

 
(1) 
Coal purchases
 
(178
)
 
(1,274
)
 
—

 
—

 
(2) 
Totals
 
$
81

 
$
(5,840
)
 
$
542

 
$
5,588

 
 
 
No ineffectiveness or amounts excluded from effectiveness testing relating to the Company’s cash flow hedging relationships were recognized in the results of operations in the three month periods ended September 30, 2012 and 2011.
 
Derivatives Not Designated as Hedging Instruments (in thousands)
For the three months ended September 30
 
 
 
Gain (Loss) Recognized
 
 
 
 
2012
 
2011
 
 
Coal — unrealized
 
$
(11,328
)
 
$
(6,131
)
 
(3) 
Coal — realized
 
$
14,072

 
$
166

 
(4) 
Heating oil — diesel purchases
 
$
5,184

 
$
—

 
(4) 
Heating oil — fuel surcharges
 
$
1,092

 
$
(2,501
)
 
(4) 
 
____________________________________________________________
Location in statement of operations:
(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 effects of derivatives on measures of financial performance are as follows for the nine month periods ended September 30:
 
Derivatives used in Cash Flow Hedging Relationships (in thousands)
For the nine months ended September 30
 
 
 
 
 
 
 
Gains (Losses) Reclassified from
 
 
 
 
Gain (Loss) Recognized in Other Comprehensive Income(Effective Portion)
 
from Other Comprehensive Income into Income
(Effective Portion)
 
 
 
 
2012
 
2011
 
2012
 
2011
 
 
Heating oil — diesel purchases
 
$
—

 
$
1,535

 
$
—

 
$
14,946

 
(2) 
Coal sales
 
4,983

 
4,570

 
1,552

 
790

 
(1) 
Coal purchases
 
(1,122
)
 
(2,053
)
 
—

 
—

 
(2) 
Totals
 
$
3,861

 
$
4,052

 
$
1,552

 
$
15,736

 
 
 
No ineffectiveness or amounts excluded from effectiveness testing relating to the Company’s cash flow hedging relationships were recognized in the results of operations in the nine month periods ended September 30, 2012 and 2011.
 

Derivatives Not Designated as Hedging Instruments (in thousands)
For the nine months ended September 30
 
 
Gain (Loss) Recognized
 
 
 
 
2012
 
2011
 
 
Coal — unrealized
 
$
23,670

 
$
(7,550
)
 
(3) 
Coal — realized
 
$
25,901

 
$
313

 
(4) 
Heating oil — diesel purchases
 
$
(16,902
)
 
$
—

 
(4) 
Heating oil — fuel surcharges
 
$
(1,140
)
 
$
(2,501
)
 
(4) 

____________________________________________________________
Location in statement of operations:
(1) — Revenues
(2) — Cost of sales
(3) — Change in fair value of coal derivatives and coal trading activities, net
(4) — Other operating income, net
 
Related to the Company's trading portfolio, net unrealized and realized gains of $5.5 million and losses of $2.2 million were recognized during the three months ended September 30, 2012 and 2011, respectively. The Company recognized net unrealized and realized gains of $6.2 million and losses of $1.7 million during the nine months ended September 30, 2012 and 2011, respectively, related to its trading portfolio, which are included in the caption “Change in fair value of coal derivatives and coal trading activities, net” in the accompanying condensed consolidated statements of operations, and are not included in the previous tables reflecting the effects of derivatives on measures of financial performance.
 
Based on fair values at September 30, 2012, gains on derivative contracts designated as hedge instruments in cash flow hedges of approximately $4.0 million are expected to be reclassified from other comprehensive income into earnings during the next twelve months.