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Derivatives
 9 Months Ended
Sep. 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 September 30, 2013, the Company had protected the price of approximately 94% of its expected purchases for the remainder of 2013 and 82% of its expected 2014 purchases. At September 30, 2013, the Company had purchased heating oil call options for approximately 65 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 September 30, 2013, the Company held heating oil call options for 2.8 million gallons that will settle in the remainder of 2013 and 3.8 million gallons that will settle ratably in 2014 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 September 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
 
2,314

 
4,458

 
780

 
7,552

Coal purchases
 
609

 
1,260

 
—

 
1,869


 
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 $7.0 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:
 
 
 
September 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
 
$
3,009

 
$
(4
)
 
 

 
$
3,277

 
$
(10
)
 
 

 
 


 


 
 
 


 


 
 

Derivatives Not Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Heating oil -- diesel purchases
 
3,825

 
—

 
 

 
7,379

 
—

 
 

Heating oil -- fuel surcharges
 
400

 
—

 
 

 
1,961

 
—

 
 

Coal -- held for trading purposes
 
59,789

 
(52,383
)
 
 

 
17,403

 
(16,933
)
 
 

Coal -- risk management
 
15,907

 
(3,903
)
 
 

 
24,843

 
(7,342
)
 
 

Total
 
79,921

 
(56,286
)
 
 

 
51,586

 
(24,275
)
 
 

Total derivatives
 
82,930

 
(56,290
)
 
 

 
54,863

 
(24,285
)
 
 

Effect of counterparty netting
 
(55,869
)
 
55,869

 
 

 
(22,548
)
 
22,548

 
 

Net derivatives as classified in the balance sheets
 
$
27,061

 
$
(421
)
 
$
26,640

 
$
32,315

 
$
(1,737
)
 
$
30,578

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

 
 

Heating oil
 
Other current assets
 
$
4,225

 
$
9,340

Coal
 
Coal derivative assets
 
22,836

 
22,975

 
 
Coal derivative liabilities
 
(421
)
 
(1,737
)
 
 
 
 
$
26,640

 
$
30,578



The Company had a current liability for the obligation to post cash collateral of $4.9 million at September 30, 2013 and a current asset for the right to reclaim cash collateral of $16.2 million at December 31, 2012. 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:
 
Derivatives used in Cash Flow Hedging Relationships (in thousands)
For the three months ended September 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) 
$
3,132

 
$
259

 
$
911

 
$
542

Coal purchases
(2) 
(942
)
 
(178
)
 
(123
)
 
—

Totals
 
$
2,190

 
$
81

 
$
788

 
$
542

 
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, 2013 and 2012.  
 
Derivatives Not Designated as Hedging Instruments (in thousands)
For the three months ended September 30,
 
 
Gain (Loss) Recognized
 
 
2013
 
2012
Coal — unrealized
(3) 
$
(10,668
)
 
$
(11,328
)
Coal — realized
(4) 
$
9,929

 
$
14,072

Heating oil — diesel purchases
(4) 
$
(288
)
 
$
5,184

Heating oil — fuel surcharges
(4) 
$
(222
)
 
$
1,092

____________________________________________________________
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 nine months ended September 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) 
$
2,308

 
$
4,983

 
$
2,822

 
$
1,552

Coal purchases
(2) 
(511
)
 
(1,122
)
 
(633
)
 
—

Totals
 
$
1,797

 
$
3,861

 
$
2,189

 
$
1,552

 
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, 2013 and 2012.  
 
Derivatives Not Designated as Hedging Instruments (in thousands)
For the nine months ended September 30
 
 
Gain (Loss) Recognized
 
 
2013
 
2012
Coal — unrealized
(3) 
$
(5,089
)
 
$
23,670

Coal — realized
(4) 
$
25,725

 
$
25,901

Heating oil — diesel purchases
(4) 
$
(9,760
)
 
$
(16,902
)
Heating oil — fuel surcharges
(4) 
$
(817
)
 
$
(1,140
)
____________________________________________________________
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 $0.9 million and $5.5 million during the three months ended September 30, 2013 and 2012, respectively, related to its trading portfolio. The Company recognized net unrealized and realized gains of $3.0 million and $6.2 million during the nine months ended September 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 September 30, 2013, gains on derivative contracts designated as hedge instruments in cash flow hedges of approximately $2.9 million are expected to be reclassified from other comprehensive income into earnings during the next twelve months.