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Derivatives
 9 Months Ended
Sep. 30, 2015
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 55 to 65 million gallons per year of diesel fuel for use in its operations during 2015 and 2016. 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, 2015, the Company had protected the price of approximately 100% of its expected purchases for the remainder of the year with out-of-the-money call options with an average strike price of $3.13 per gallon. Additionally, the Company has protected approximately 67% of our expected 2016 purchases with out-of-the-money call options with an average strike price of $2.26 per gallon. At September 30, 2015, the Company had outstanding heating oil call options for approximately 54 million gallons for the purpose of managing the price risk associated with future diesel purchases. These 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 September 30, 2015, the Company held derivatives for risk management purposes that are expected to settle in the following years:
 
(Tons in thousands)
 
2015
 
2016
 
Total
Coal sales
 
1,205

 
280

 
1,485

Coal purchases
 
696

 
240

 
936


 
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 $1.4 million of gains during the remainder of 2015 and $5.3 million of gains in 2016.
 
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, 2015
 
 
 
December 31, 2014
 
 
Fair Value of Derivatives
 
Asset
 
Liability
 
 
 
Asset
 
Liability
 
 
(In thousands)
 
Derivative
 
Derivative
 
 
 
Derivative
 
Derivative
 
 
Derivatives Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Coal
 
$
1,608

 
$
—

 
 

 
$
6,535

 
$
(2,492
)
 
 

 
 


 


 
 
 


 


 
 

Derivatives Not Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Heating oil -- diesel purchases
 
600

 
—

 
 

 
300

 
—

 
 

Coal -- held for trading purposes
 
121,312

 
(114,636
)
 
 

 
96,898

 
(93,272
)
 
 

Coal -- risk management
 
9,965

 
(6,257
)
 
 

 
8,510

 
(3,688
)
 
 

Natural gas
 
1,215

 
—

 
 
 
—

 
—

 
 
Foreign currency
 
285

 
—

 
 
 
 
 
 
 
 
Total
 
133,377

 
(120,893
)
 
 

 
105,708

 
(96,960
)
 
 

Total derivatives
 
134,985

 
(120,893
)
 
 

 
112,243

 
(99,452
)
 
 

Effect of counterparty netting
 
(120,357
)
 
120,357

 
 

 
(98,686
)
 
98,686

 
 

Net derivatives as classified in the balance sheets
 
$
14,628

 
$
(536
)
 
$
14,092

 
$
13,557

 
$
(766
)
 
$
12,791

 
 
 
 
 
September 30, 2015
 
December 31, 2014
Net derivatives as reflected on the balance sheets (in thousands)
 
 
 
 

Heating oil and foreign currency
 
Other current assets
 
$
885

 
$
300

Coal and natural gas
 
Coal derivative assets
 
13,743

 
13,257

 
 
Accrued expenses and other current liabilities
 
(536
)
 
(766
)
 
 
 
 
$
14,092

 
$
12,791



The Company had a current asset for the right to reclaim cash collateral of $2.9 million at September 30, 2015 and the obligation to return cash collateral of $2.4 million at December 31, 2014, respectively. These amounts are not included with the derivatives presented in the table above and are included in "other current assets" and "accrued expenses and other current liabilities", 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)
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)
 
 
2015
 
2014
 
2015
 
2014
Coal sales
(1) 
$
3,636

 
$
3,449

 
$
6,683

 
$
1,639

Coal purchases
(2) 
(2,561
)
 
(2,041
)
 
(3,084
)
 
(747
)
Totals
 
$
1,075

 
$
1,408

 
$
3,599

 
$
892

 
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, 2015 and 2014.  
 
Derivatives Not Designated as Hedging Instruments (in thousands)
Three Months Ended September 30,
 
 
Gain (Loss) Recognized
 
 
2015
 
2014
Coal — unrealized
(3) 
$
(809
)
 
$
1,610

Coal — realized
(4) 
$
511

 
$
502

Natural gas  — unrealized
(3) 
$
(16
)
 
$
238

Heating oil — diesel purchases
(4) 
$
(5,525
)
 
$
(3,746
)
Heating oil — fuel surcharges
(4) 
$
—

 
$
(104
)
Foreign currency
(4) 
$
(602
)
 
$
—

____________________________________________________________
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) expense, net


Derivatives used in Cash Flow Hedging Relationships (in thousands)
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)
 
 
2015
 
2014
 
2015
 
2014
Coal sales
(1) 
12,738

 
$
4,806

 
$
12,555

 
$
2,568

Coal purchases
(2) 
(6,612
)
 
(2,162
)
 
(5,748
)
 
(1,222
)
Totals
 
$
6,126

 
$
2,644

 
$
6,807

 
$
1,346

 
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, 2015 and 2014.  
 
Derivatives Not Designated as Hedging Instruments (in thousands)
Nine Months Ended September 30,
 
 
Gain (Loss) Recognized
 
 
2015
 
2014
Coal — unrealized
(3) 
$
(2,095
)
 
$
455

Coal — realized
(4) 
$
2,428

 
$
4,699

Natural gas  — unrealized
(3) 
$
(78
)
 
$
(21
)
Heating oil — diesel purchases
(4) 
$
(7,262
)
 
$
(6,709
)
Heating oil — fuel surcharges
(4) 
$
—

 
$
(405
)
Foreign currency
(4) 
$
(602
)
 
$
—

____________________________________________________________
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) expense, net

Based on fair values at September 30, 2015, 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. 

Related to its trading portfolio, the Company recognized net unrealized and realized gains of $4.4 million and $1.9 million during the three months ended September 30, 2015 and 2014, respectively; and net unrealized and realized gains of $3.3 million and $5.4 million during the nine months ended September 30, 2015 and 2014. Gains and losses from trading activities 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.