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Derivatives
9 Months Ended
Sep. 30, 2017
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 40 to 42 million gallons of diesel fuel for use in its operations during 2017 and 2018. 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, 2017, the Company had protected the price of approximately 83% of its expected diesel fuel purchases for the remainder of 2017 at an average strike price of $1.86 per gallon. Additionally, the Company has protected approximately 40% of its expected 2018 purchases with call options with an average strike price of $1.81 per gallon. At September 30, 2017, the Company had outstanding heating oil call options for approximately 25 million gallons for the purpose of managing the price risk associated with future diesel purchases. These positions are not designated as hedges for accounting purposes, and therefore, changes in the fair value are recorded immediately to earnings.

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, index-priced 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, 2017, the Company held derivatives for risk management purposes that are expected to settle in the following years:
 
(Tons in thousands)
 
2017
 
2018
 
Total
Coal sales
 
267

 
546

 
813

Coal purchases
 
252

 
185

 
437


 
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 thermal coal demand. These options are not designated 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 metallurgical coal demand. These options are not designated 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 $0.5 million of losses during the remainder of 2017 and $1.5 million of losses during 2018.

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, 2017
 
 
 
December 31, 2016
 
 
Fair Value of Derivatives
 
Asset
 
Liability
 
 
 
Asset
 
Liability
 
 
(In thousands)
 
Derivative
 
Derivative
 
 
 
Derivative
 
Derivative
 
 
Derivatives Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Coal
 
$
3

 
$

 
 

 
$

 
$
(15
)
 
 

 
 


 


 
 
 


 


 
 

Derivatives Not Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Heating oil -- diesel purchases
 
2,006

 

 
 

 
4,646

 

 
 

Coal -- held for trading purposes
 
42,203

 
(44,211
)
 
 

 
68,948

 
(68,740
)
 
 

Coal -- risk management
 
1,624

 
(1,915
)
 
 

 
475

 
(580
)
 
 

Natural gas
 
25

 

 
 
 
86

 
(13
)
 
 
Total
 
45,858

 
(46,126
)
 
 

 
74,155

 
(69,333
)
 
 

Total derivatives
 
45,861

 
(46,126
)
 
 

 
74,155

 
(69,348
)
 
 

Effect of counterparty netting
 
(43,830
)
 
43,830

 
 

 
(69,247
)
 
69,247

 
 

Net derivatives as classified in the balance sheets
 
$
2,031

 
$
(2,296
)
 
$
(265
)
 
$
4,908

 
$
(101
)
 
$
4,807

 
 
 
 
 
September 30, 2017
 
December 31, 2016
Net derivatives as reflected on the balance sheets (in thousands)
 
 
 
 

Heating oil and coal
 
Other current assets
 
$
2,031

 
$
4,908

Coal
 
Accrued expenses and other current liabilities
 
(2,296
)
 
(101
)
 
 
 
 
$
(265
)
 
$
4,807



The Company had a current asset for the right to reclaim cash collateral of $9.3 million at September 30, 2017 and $2.8 million at December 31, 2016, 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)
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)
 
 
Successor
Predecessor
 
Successor
Predecessor
 
 
2017
2016
 
2017
2016
Coal sales
(1) 
$
(169
)
$
(612
)
 
$

$
108

Coal purchases
(2) 
152

541

 

(32
)
Totals
 
$
(17
)
$
(71
)
 
$

$
76

 
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, 2017 and 2016.  
 
Derivatives Not Designated as Hedging Instruments (in thousands)
Three Months Ended September 30,
 
 
Gain (Loss) Recognized
 
 
Successor
Predecessor
 
 
2017
2016
Coal — unrealized
(3) 
$
(212
)
$
(566
)
Coal — realized
(4) 
$

$
(133
)
Natural gas  — unrealized
(3) 
$
(120
)
$
(79
)
Heating oil — diesel purchases
(4) 
$
822

$
(770
)
Foreign currency
(4) 
$

$
(314
)
____________________________________________________________
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)
 
 
Successor
Predecessor
 
Successor
Predecessor
 
 
2017
2016
 
2017
2016
Coal sales
(1) 
$
100

$
(672
)
 
$

$
1,634

Coal purchases
(2) 
(82
)
536

 

(1,237
)
Totals
 
$
18

$
(136
)
 
$

$
397

 
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, 2017 and 2016.  
 
Derivatives Not Designated as Hedging Instruments (in thousands)
Nine Months Ended September 30,
 
 
Gain (Loss) Recognized
 
 
Successor
Predecessor
 
 
2017
2016
Coal — unrealized
(3) 
$
(186
)
$
(1,662
)
Coal — realized
(4) 
$

$
(476
)
Natural gas  — unrealized
(3) 
$
(616
)
$
(463
)
Heating oil — diesel purchases
(4) 
$
(3,903
)
$
826

Foreign currency
(4) 
$

$
(451
)
____________________________________________________________
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, 2017, 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 losses of $0.7 million and net unrealized and realized gains $0.1 million during the three months ended September 30, 2017 and 2016, respectively; and net unrealized and realized losses of $2.2 million and $0.9 million during the nine months ended September 30, 2017 and 2016, 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.