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Derivatives
6 Months Ended
Jun. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives Derivatives
 
Interest rate risk management

The Company has entered into interest rate swaps to reduce the variability of cash outflows associated with interest payments on its variable rate term loan. These swaps have been designated as cash flow hedges. For additional information on these arrangements, see Note 10, “Debt and Financing Arrangements,” in the Condensed Consolidated Financial Statements.

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 47 million gallons of diesel fuel for use in its operations annually. 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, purchased heating oil call options and New York Mercantile Exchange (“NYMEX”) gulf coast diesel swaps and options. At June 30, 2019, the Company had protected the price on the majority of its expected diesel fuel purchases for the remainder of 2019 with approximately 10 million gallons of heating oil call options with an average strike price of $2.34 per gallon and 12 million gallons of NYMEX gulf coast diesel swaps at an average price of approximately $1.91 per gallon. Additionally, the Company has protected approximately 22% of its expected 2020 purchases using gulf coast diesel call options with an average strike price of $2.30 per gallon. At June 30, 2019, the Company had outstanding heating oil call options and NYMEX gulf coast swaps and options of approximately 32 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 June 30, 2019, the Company held derivatives for risk management purposes that are expected to settle in the following years:
 
(Tons in thousands)
 
2019
 
2020
 
Total
Coal sales
 
1,540

 
489

 
2,029

Coal purchases
 
772

 
225

 
997


 
The Company has also entered into a minimal 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.

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 $0.6 million of losses during the remainder of 2019 and $0.5 million of losses during 2020.

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:
 
 
 
June 30, 2019
 
 
 
December 31, 2018
 
 
Fair Value of Derivatives
 
Asset
 
Liability
 
 
 
Asset
 
Liability
 
 
(In thousands)
 
Derivative
 
Derivative
 
 
 
Derivative
 
Derivative
 
 
Derivatives Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Coal
 
$
7,728

 
$
(637
)
 
 

 
$
2,342

 
$
(805
)
 
 

 
 


 


 
 
 


 


 
 

Derivatives Not Designated as Hedging Instruments
 
 

 
 

 
 

 
 

 
 

 
 

Heating oil -- diesel purchases
 
923

 
(650
)
 
 

 
532

 

 
 

Coal -- held for trading purposes
 
45,685

 
(46,807
)
 
 

 
10,329

 
(10,701
)
 
 

Coal -- risk management
 
33,804

 
(25,150
)
 
 

 
5,672

 
(19,579
)
 
 

Natural gas
 

 

 
 
 
4

 
(4
)
 
 
Total
 
$
80,412

 
$
(72,607
)
 
 

 
$
16,537

 
$
(30,284
)
 
 

Total derivatives
 
$
88,140

 
$
(73,244
)
 
 

 
$
18,879

 
$
(31,089
)
 
 

Effect of counterparty netting
 
(72,594
)
 
72,594

 
 

 
(17,801
)
 
17,801

 
 

Net derivatives as classified in the balance sheets
 
$
15,546

 
$
(650
)
 
$
14,896

 
$
1,078

 
$
(13,288
)
 
$
(12,210
)
 
 
 
 
 
June 30, 2019
 
December 31, 2018
Net derivatives as reflected on the balance sheets (in thousands)
 
 
 
 

Heating oil and coal
 
Other current assets
 
$
15,546

 
$
1,078

Coal
 
Accrued expenses and other current liabilities
 
(650
)
 
(13,288
)
 
 
 
 
$
14,896

 
$
(12,210
)


The Company had a current asset representing cash collateral posted to a margin account for derivative positions primarily related to coal derivatives of $2.1 million and $24.7 million at June 30, 2019 and December 31, 2018, 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 June 30,  
 
 
Gain (Loss) Recognized in Other Comprehensive Income
 
Gains (Losses) Reclassified from Other Comprehensive Income into Income
 
 
2019
 
2018
 
2019
 
2018
Coal sales
(1)
$
4,010

 
$
(15,462
)
 
$
1,743

 
$

Coal purchases
(2)
(340
)
 
2,705

 

 

Totals
 
$
3,670

 
$
(12,757
)
 
$
1,743

 
$


 
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 June 30, 2019 and 2018.  
 
Derivatives Not Designated as Hedging Instruments (in thousands)
Three Months Ended June 30,
 
 
Gain (Loss) Recognized
 
 
2019
 
2018
Coal  trading — realized and unrealized
(3)
$
(718
)
 
$
384

Coal risk management — unrealized
(3)
9,137

 
(15,505
)
Natural gas  trading— realized and unrealized
(3)
(19
)
 
(17
)
Change in fair value of coal derivatives and coal trading activities, net total
 
$
8,400

 
$
(15,138
)
 
 
 
 
 
Coal risk management— realized
(4)
$
(881
)
 
$
(1,649
)
Heating oil — diesel purchases
(4)
$
(1,369
)
 
$
3,657

____________________________________________________________
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)
Six Months Ended June 30,  
 
 
Gain (Loss) Recognized in Other Comprehensive Income
 
Gains (Losses) Reclassified from Other Comprehensive Income into Income
 
 
2019
 
2018
 
2019
 
2018
Coal sales
(1)
$
9,247

 
$
(10,231
)
 
$
2,787

 
$

Coal purchases
(2)
(906
)
 
2,163

 
(686
)
 

Totals
 
$
8,341

 
$
(8,068
)
 
$
2,101

 
$


 
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 six month periods ended June 30, 2019 and 2018.  






Derivatives Not Designated as Hedging Instruments (in thousands)
Six Months Ended June 30,
 
 
Gain (Loss) Recognized
 
 
2019
 
2018
Coal  trading — realized and unrealized
(3)
$
(1,101
)
 
$
942

Coal risk management — unrealized
(3)
22,562

 
(12,630
)
Natural gas  trading— realized and unrealized
(3)
(80
)
 
(36
)
Change in fair value of coal derivatives and coal trading activities, net total
 
$
21,381

 
$
(11,724
)
 
 
 
 
 
Coal risk management— realized
(4)
$
(5,292
)
 
$
(2,680
)
Heating oil — diesel purchases
(4)
$
(732
)
 
$
3,675

____________________________________________________________
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 June 30, 2019, 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 gains of approximately $5.9 million.