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Derivatives
 3 Months Ended
Mar. 31, 2014
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 2014. 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 March 31, 2014, the Company had protected the price of approximately 87% of its expected purchases for the remainder of 2014 and 30% of its expected purchases during the first half of 2015. At March 31, 2014, the Company had purchased heating oil call options for approximately 61 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 March 31, 2014, the Company held heating oil call options for 3.8 million gallons that will settle ratably in the remainder of 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 price 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 March 31, 2014, the Company held derivatives for risk management purposes that are expected to settle in the following years:
 
(Tons in thousands)
 
2014
 
2015
 
Total
Coal sales
 
3,991

 
1,380

 
5,371

Coal purchases
 
1,778

 
—

 
1,778


 
The Company has also entered into a nominal quantity of natural gas put options to protect the Company from decreases in natural gas prices, which could impact coal demand. These options are not accounted for as hedges.

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 $6.6 million of gains during the remainder of 2014 and $1.4 million of gains in 2015.
 
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:
 
 
 
March 31, 2014
 
 
 
December 31, 2013
 
 
Fair Value of Derivatives
 
Asset
 
Liability
 
 
 
Asset
 
Liability
 
 
(In thousands)
 
Derivative
 
Derivative
 
 
 
Derivative
 
Derivative
 
 
Derivatives Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Coal
 
$
1,101

 
$
(215
)
 
 

 
$
909

 
$
(26
)
 
 

 
 


 


 
 
 


 


 
 

Derivatives Not Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Heating oil -- diesel purchases
 
2,683

 
—

 
 

 
4,681

 
—

 
 

Heating oil -- fuel surcharges
 
152

 
—

 
 

 
422

 
—

 
 

Coal -- held for trading purposes
 
75,886

 
(67,944
)
 
 

 
55,327

 
(45,763
)
 
 

Coal -- risk management
 
4,543

 
(1,453
)
 
 

 
6,342

 
(1,950
)
 
 

Natural gas
 
398

 
—

 
 
 
—

 
—

 
 
Total
 
83,662

 
(69,397
)
 
 

 
66,772

 
(47,713
)
 
 

Total derivatives
 
84,763

 
(69,612
)
 
 

 
67,681

 
(47,739
)
 
 

Effect of counterparty netting
 
(69,612
)
 
69,612

 
 

 
(47,727
)
 
47,727

 
 

Net derivatives as classified in the balance sheets
 
$
15,151

 
$
—

 
$
15,151

 
$
19,954

 
$
(12
)
 
$
19,942

 
 
 
 
 
March 31, 2014
 
December 31, 2013
Net derivatives as reflected on the balance sheets
 
 
 
2835

 
 

Heating oil
 
Other current assets
 
$
2,835

 
$
5,103

Coal
 
Coal derivative assets
 
12,316

 
14,851

 
 
Accrued expenses and other current liabilities
 
—

 
(12
)
 
 
 
 
$
15,151

 
$
19,942



The Company had a current asset for the right to reclaim cash collateral of $6.5 million at March 31, 2014 and $2.2 million at December 31, 2013. 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 March 31,  
 
 
Gain (Loss) Recognized in Other Comprehensive Income(Effective Portion)
 
Gains (Losses) Reclassified from Other Comprehensive Income into Income
(Effective Portion)
 
 
2014
 
2013
 
2014
 
2013
Coal sales
(1) 
$
(515
)
 
$
(176
)
 
$
706

 
$
1,221

Coal purchases
(2) 
589

 
(182
)
 
(404
)
 
(362
)
Totals
 
$
74

 
$
(358
)
 
$
302

 
$
859

 
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 March 31, 2014 and 2013.  
 
Derivatives Not Designated as Hedging Instruments (in thousands)
For the Three Months Ended March 31,
 
 
Gain (Loss) Recognized
 
 
2014
 
2013
Coal — unrealized
(3) 
$
(1,302
)
 
$
1,470

Coal — realized
(4) 
$
2,879

 
$
9,217

Natural gas  — unrealized
(3) 
$
8

 
$
—

Heating oil — diesel purchases
(4) 
$
(2,963
)
 
$
(4,261
)
Heating oil — fuel surcharges
(4) 
$
(254
)
 
$
(565
)
 
 
 
 
 
____________________________________________________________
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 $0.4 million during the three months ended March 31, 2014 and net unrealized and realized losses of $2.8 million during the three months ended March 31, 2013 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 March 31, 2014, gains on derivative contracts designated as hedge instruments in cash flow hedges of approximately $0.9 million are expected to be reclassified from other comprehensive income into earnings during the next twelve months.