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Derivatives
 6 Months Ended
Jun. 30, 2013
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 57 to 67 million gallons of diesel fuel for use in its operations during 2013. 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. At June 30, 2013, the Company had protected the price of approximately 94% of its expected purchases for the remainder of 2013 and 73% of its 2014 purchases. At June 30, 2013, the Company had purchased heating oil call options for approximately 74 million gallons for the purpose of managing the price risk associated with future diesel purchases.
 
The Company has also purchased heating oil call options to manage the price risk associated with fuel surcharges on its barge and rail shipments, which cover increases in diesel fuel prices for the respective carriers. At June 30, 2013, the Company had protected 47% of its expected 2013 diesel fuel usage and 26% of its expected first quarter of 2014 diesel fuel usage on shipments subject to fuel surcharges. The Company held purchased heating oil call options for 4 million gallons for the purpose of managing the fluctuations in cash flows associated with fuel surcharges on future shipments.

These positions reduce the Company’s risk of cash flow fluctuations related to these surcharges but the positions are not accounted for as hedges.
 
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 June 30, 2013, the Company held derivatives for risk management purposes that are expected to settle in the following years:
 
(Tons in thousands)
 
2013
 
2014
 
2015
 
Total
Coal sales
 
$
4,449

 
$
4,458

 
$
780

 
$
9,687

Coal purchases
 
723

 
1,260

 
—

 
1,983


 
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 $0.4 million of gains in the remainder of 2013 and $5.9 million of gains in 2014.
 
Tabular derivatives disclosures
 
The Company has master netting agreements with all of its counterparties which 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 condensed 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:
 
 
 
June 30, 2013
 
 
 
December 31, 2012
 
 
Fair Value of Derivatives
 
Asset
 
Liability
 
 
 
Asset
 
Liability
 
 
(In thousands)
 
Derivative
 
Derivative
 
 
 
Derivative
 
Derivative
 
 
Derivatives Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Coal
 
$
2,298

 
$
(539
)
 
 

 
$
3,277

 
$
(10
)
 
 

 
 


 


 
 
 


 


 
 

Derivatives Not Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Heating oil -- diesel purchases
 
3,475

 
—

 
 

 
7,379

 
—

 
 

Heating oil -- fuel surcharges
 
117

 
—

 
 

 
1,961

 
—

 
 

Coal -- held for trading purposes
 
63,794

 
(57,506
)
 
 

 
17,403

 
(16,933
)
 
 

Coal -- risk management
 
25,767

 
(3,095
)
 
 

 
24,843

 
(7,342
)
 
 

Total
 
93,153

 
(60,601
)
 
 

 
51,586

 
(24,275
)
 
 

Total derivatives
 
95,451

 
(61,140
)
 
 

 
54,863

 
(24,285
)
 
 

Effect of counterparty netting
 
(60,598
)
 
60,598

 
 

 
(22,548
)
 
22,548

 
 

Net derivatives as classified in the balance sheets
 
$
34,853

 
$
(542
)
 
$
34,311

 
$
32,315

 
$
(1,737
)
 
$
30,578

 
 
 
 
 
June 30, 2013
 
December 31, 2012
Net derivatives as reflected on the balance sheets
 
 
 
 

 
 

Heating oil
 
Other current assets
 
$
3,592

 
$
9,340

Coal
 
Coal derivative assets
 
31,261

 
22,975

 
 
Coal derivative liabilities
 
(542
)
 
(1,737
)
 
 
 
 
$
34,311

 
$
30,578



 The Company had a current asset for the right to reclaim cash collateral of $4.7 million and $16.2 million at June 30, 2013 and December 31, 2012, respectively. These amounts are not included with the derivatives presented in the table above and are included in “other current assets” in the accompanying condensed consolidated balance sheets.

The effects of derivatives on measures of financial performance are as follows:
 
Derivatives used in Cash Flow Hedging Relationships (in thousands)
For the three months ended June 30,  
 
 
Gain (Loss) Recognized in Other Comprehensive Income(Effective Portion)
 
Gains (Losses) Reclassified from Other Comprehensive Income into Income
(Effective Portion)
 
 
2013
 
2012
 
2013
 
2012
Coal sales
(1) 
$
(648
)
 
$
2,231

 
$
689

 
$
809

Coal purchases
(2) 
613

 
(742
)
 
(148
)
 
—

Totals
 
$
(35
)
 
$
1,489

 
$
541

 
$
809

 
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 June 30, 2013 and 2012.  
 
Derivatives Not Designated as Hedging Instruments (in thousands)
For the three months ended June 30,
 
 
Gain (Loss) Recognized
 
 
2013
 
2012
Coal — unrealized
(3) 
$
4,109

 
$
27,446

Coal — realized
(4) 
$
6,579

 
$
8,671

Heating oil — diesel purchases
(4) 
$
(5,211
)
 
$
(22,509
)
Heating oil — fuel surcharges
(4) 
$
(30
)
 
$
(2,599
)

____________________________________________________________
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
 
Derivatives used in Cash Flow Hedging Relationships (in thousands)
For the six months ended June 30  
 
 
Gain (Loss) Recognized in Other Comprehensive Income(Effective Portion)
 
Gains (Losses) Reclassified from Other Comprehensive Income into Income
(Effective Portion)
 
 
2013
 
2012
 
2013
 
2012
Coal sales
(1) 
$
(824
)
 
$
4,724

 
$
1,911

 
$
1,010

Coal purchases
(2) 
431

 
(944
)
 
(510
)
 
—

Totals
 
$
(393
)
 
$
3,780

 
$
1,401

 
$
1,010

 
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 six month periods ended June 30, 2013 and 2012.  
 
Derivatives Not Designated as Hedging Instruments (in thousands)
For the six months ended June 30
 
 
Gain (Loss) Recognized
 
 
2013
 
2012
Coal — unrealized
(3) 
$
5,579

 
$
34,998

Coal — realized
(4) 
$
15,796

 
$
11,829

Heating oil — diesel purchases
(4) 
$
(9,472
)
 
$
(22,086
)
Heating oil — fuel surcharges
(4) 
$
(595
)
 
$
(2,232
)

____________________________________________________________
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 Company recognized net unrealized and realized gains of $4.9 million and $4.6 million during the three months ended June 30, 2013 and 2012, respectively, related to its trading portfolio. The Company recognized net unrealized and realized gains of $2.1 million and $0.7 million during the six months ended June 30, 2013 and 2012, 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 June 30, 2013, gains on derivative contracts designated as hedge instruments in cash flow hedges of approximately $1.6 million are expected to be reclassified from other comprehensive income into earnings during the next twelve months.