Derivatives and Fair Value Measurements

Risk Management — Non-Coal Trading Activities

The Company is exposed to several risks in the normal course of business, including (1) foreign currency exchange rate risk for non-U.S. dollar expenditures and balances, (2) price risk on coal produced by, and diesel fuel utilized in, the Company's mining operations and (3) interest rate risk that has been partially mitigated by fixed rates on long-term debt. The Company manages a portion of its price risk related to the sale of coal (excluding coal trading activities) using long-term coal supply agreements (those with terms longer than one year), rather than using derivative instruments. Derivative financial instruments have historically been used to manage the Company's risk exposure to foreign currency exchange rate risk, primarily on Australian dollar expenditures made in its Australian mining platform. This risk has historically been managed using forward contracts and options designated as cash flow hedges, with the objective of reducing the variability of cash flows associated with forecasted foreign currency expenditures. The Company has also used derivative instruments to manage its exposure to the variability of diesel fuel prices used in production in the U.S. and Australia with swaps or options, which it has also designated as cash flow hedges, with the objective of reducing the variability of cash flows associated with forecasted diesel fuel purchases. These risk management activities are collectively referred to as "Corporate Hedging" and are actively monitored for compliance with the Company's risk management policies.

The Company's Bankruptcy Petitions constituted an event of default under the Company's derivative financial instrument contracts and the counterparties terminated the agreements shortly thereafter in accordance with contractual terms. The terminated positions were first-lien obligations under the Company's secured credit agreement dated September 24, 2013 (as amended, the 2013 Credit Facility). The resulting net settlement liability of $257.3 million was accounted for as a prepetition liability subject to compromise without credit valuation adjustments. As of March 31, 2017, the Company had no derivative financial instruments in place in relation to diesel fuel or foreign currency exchange rate. Subsequent to the Effective Date, the Company entered into a series of currency options with an aggregate notional amount of approximately $1.3 billion Australian dollars to hedge currency risk associated with anticipated Australian dollar expenditures during the remainder of 2017. The currency options are not expected to receive cash flow hedge accounting treatment and changes in fair value will be reflected in current earnings.

Based on the previous fair value adjustments of the Company's foreign currency and diesel fuel hedge contracts recorded in "Accumulated other comprehensive loss", the net loss expected to be reclassified from comprehensive income to earnings over the next 12 months is approximately $65.0 million (which excludes the impact of fresh start reporting rules in connection with emergence from the Chapter 11 Cases).

The tables below show the classification and amounts of pre-tax gains and losses related to the Company’s Corporate Hedging derivatives during the three months ended March 31, 2017 and March 31, 2016:




			Three Months Ended March 31, 2017
Financial Instrument	Income Statement Classification of (Losses) Gains		Total realized loss recognized in income			Loss reclassified from other comprehensive loss into income			(Loss) gain recognized in income on derivatives		Unrealized gain (loss)recognized in income on non- designated derivatives
		(Dollars in millions)
Commodity swap contracts	Operating costs and expenses		$	(11.0	)	$	(11.0	)	$	—	$	—
Foreign currency forward contracts	Operating costs and expenses		(16.6		)	(16.6		)	—		—
Total			$	(27.6	)	$	(27.6	)	$	—	$	—




			Three Months Ended March 31, 2016
Financial Instrument	Income Statement Classification of (Losses) Gains		Total realized loss recognized in income			Loss reclassified from other comprehensive loss into income			(Loss) gain recognized in income on derivatives			Unrealized gain (loss)recognized in income on non- designated derivatives
		(Dollars in millions)
Commodity swap contracts	Operating costs and expenses		$	(34.9	)	$	(24.8	)	$	(10.1	)	$	(5.4	)
Foreign currency forward contracts	Operating costs and expenses		(76.1		)	(53.9		)	(22.2		)	30.4
Total			$	(111.0	)	$	(78.7	)	$	(32.3	)	$	25.0

Cash Flow Presentation. The Company classifies the cash effects of its Corporate Hedging derivatives within the "Cash Flows From Operating Activities" section of the unaudited condensed consolidated statements of cash flows.

Fair Value Measurements

The Company uses a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. These levels include: Level 1 - inputs are quoted prices in active markets for the identical assets or liabilities; Level 2 - inputs are other than quoted prices included in Level 1 that are directly or indirectly observable through market-corroborated inputs; and Level 3 - inputs are unobservable, or observable but cannot be market-corroborated, requiring the Company to make assumptions about pricing by market participants.

The estimated fair value of the Company’s current and long-term debt as of December 31, 2016 and March 31, 2017 is unable to be determined given it is subject to compromise in connection with the Plan.