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Derivatives
3 Months Ended
Mar. 31, 2016
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 50 to 55 million gallons of diesel fuel for use in its operations during 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 March 31, 2016, the Company had protected the price of approximately 66% of its expected purchases for the remainder of the year with out-of-the-money call options with an average strike price of $2.26 per gallon. Due to the drop in heating oil prices, the Company has layered in 16.5 million gallons of at-the-money call options for the remainder of 2016 representing 42% of expected purchases at an average strike price of $1.30 per gallon. Additionally, the Company has protected approximately 5% of our expected 2017 purchases with out-of-the-money call options with an average strike price of $1.40 per gallon. At March 31, 2016, the Company had outstanding heating oil call options for approximately 29 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 March 31, 2016, the Company held derivatives for risk management purposes that are expected to settle in the following years:
 
(Tons in thousands)
 
2016
Coal sales
 
325

Coal purchases
 
225


 
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. Additionally, the company has also entered into a nominal quantity of foreign currency put options protecting for decreases in the Australian to United States dollar exchange rate, 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 $4.9 million of gains during the remainder of 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:
 
 
 
March 31, 2016
 
 
 
December 31, 2015
 
 
Fair Value of Derivatives
 
Asset
 
Liability
 
 
 
Asset
 
Liability
 
 
(In thousands)
 
Derivative
 
Derivative
 
 
 
Derivative
 
Derivative
 
 
Derivatives Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Coal
 
$
2

 
$

 
 

 
$
4

 
$
(20
)
 
 

 
 


 


 
 
 


 


 
 

Derivatives Not Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Heating oil -- diesel purchases
 
1,173

 

 
 

 
1,017

 

 
 

Coal -- held for trading purposes
 
76,276

 
(71,370
)
 
 

 
110,653

 
(104,814
)
 
 

Coal -- risk management
 
1,531

 
(681
)
 
 

 
3,912

 
(1,947
)
 
 

Natural gas
 
61

 
(11
)
 
 
 
494

 
(247
)
 
 
Foreign currency
 
208

 

 
 
 

 

 
 
Total
 
79,249

 
(72,062
)
 
 

 
116,076

 
(107,008
)
 
 

Total derivatives
 
79,251

 
(72,062
)
 
 

 
116,080

 
(107,028
)
 
 

Effect of counterparty netting
 
(72,062
)
 
72,062

 
 

 
(107,028
)
 
107,028

 
 

Net derivatives as classified in the balance sheets
 
$
7,189

 
$

 
$
7,189

 
$
9,052

 
$

 
$
9,052

 
 
 
 
 
March 31, 2016
 
December 31, 2015
Net derivatives as reflected on the balance sheets (in thousands)
 
 
 
 

Heating oil and foreign currency
 
Other current assets
 
$
1,381

 
$
1,017

Coal and natural gas
 
Coal derivative assets
 
5,808

 
8,035

 
 
Accrued expenses and other current liabilities
 

 

 
 
 
 
$
7,189

 
$
9,052



The Company had a current liability for the obligation to post cash collateral of $0.9 million at March 31, 2016 and the right to reclaim cash collateral of $1.7 million at December 31, 2015, respectively. 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)
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)
 
 
2016
 
2015
 
2016
 
2015
Coal sales
(1) 
$
13

 
$
10,265

 
$
1,369

 
$
882

Coal purchases
(2) 
(11
)
 
(4,738
)
 
(1,143
)
 
(401
)
Totals
 
$
2

 
$
5,527

 
$
226

 
$
481

 
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, 2016 and 2015.  
 
Derivatives Not Designated as Hedging Instruments (in thousands)
Three Months Ended March 31,
 
 
Gain (Loss) Recognized
 
 
2016
 
2015
Coal — unrealized
(3) 
$
(1,115
)
 
$
(411
)
Coal — realized
(4) 
$
163

 
$
1,091

Natural gas  — unrealized
(3) 
$
(469
)
 
$
159

Heating oil — diesel purchases
(4) 
$
(443
)
 
$
(2,365
)
Foreign currency
(4) 
$
(171
)
 
$

____________________________________________________________
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 March 31, 2016, amounts on derivative contracts designated as hedge instruments in cash flow hedges to be reclassified from other comprehensive income into earnings during the next twelve months are immaterial. 
 
Related to its trading portfolio, the Company recognized net unrealized and realized gains of $0.1 million and net unrealized and realized losses of $1.0 million during the three months ended March 31, 2016 and 2015, respectively. 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.