Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2011

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Note 10—Fair Value of Financial Instruments

        Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level hierarchy has been established for valuing assets and liabilities based on how transparent (observable) the inputs are that are used to determine fair value, with the inputs considered most observable categorized as Level 1 and those that are the least observable categorized as Level 3. Hierarchy levels are defined as follows:

Level 1:	Quoted prices in active markets for identical assets and liabilities;
Level 2:	Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and
Level 3:	Unobservable inputs that are supported by little or no market data which require the reporting entity to develop its own assumptions.

        The following table presents information about the Company's assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2011 and indicate the fair value hierarchy of the valuation techniques utilized to determine such values. For some assets, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When this is the case, the asset is categorized based on the level of the most significant input to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the assets being valued.

		September 30, 2011
		Fair Value Measurements Using
(in thousands)		Level 1		Level 2		Level 3		Total Fair Value
Assets:
	Equity securities, trading	$	5,995	$	—	$	—	$	5,995
	Equity securities, available-for-sale		10,902		—		—		10,902
	Interest rate cap		—		476		—		476
	Natural gas hedge		—		3,106		—		3,106
Total assets		$	16,897	$	3,582	$	—	$	20,479
Liabilities:
	Interest rate swaps	$	—	$	7,152	$	—	$	7,152

        Below is a summary of the Company's valuation techniques for Level 1 and Level 2 financial assets and liabilities:

        Equity securities— As of September 30, 2011 the Company held equity investments in other current assets classified as trading and available-for-sale. Changes in the fair value of trading securities are recorded in other income (loss) and determined using observable market prices. For the three and nine months ended September 30, 2011 a loss of $13.1 million and $9.2 million, respectively, was recorded related to trading securities held at the reporting date. Changes in the fair value of available-for-sale securities are recorded in accumulated other comprehensive income (loss) and determined using observable market prices.

        Interest rate cap—The fair value of the interest rate cap was determined using quoted dealer prices for similar contracts in active over-the-counter markets.

        Natural gas hedge—The fair value of the natural gas hedge was determined using quoted dealer prices for similar contracts in active over-the-counter markets.

        Interest rate swaps—The fair value of interest rate swaps were determined using quoted dealer prices for similar contracts in active over-the-counter markets.

        The following methods and assumptions were used to estimate the fair value for which the fair value option was not elected:

        Cash and cash equivalents, receivables and accounts payable—The carrying amounts reported in the balance sheet approximate fair value.

        Debt— On April 1, 2011, the Company entered into a $2.725 billion credit agreement to partially fund the acquisition of Western Coal and to pay off all outstanding loans under the 2005 Credit Agreement (see Note 4). Debt associated with the Company's 2011 term loan A and term loan B in the amount of $935.0 million and $1.397 billion at September 30, 2011, respectively, are carried at cost. There were no outstanding borrowings under the revolving credit facility at September 30, 2011. The estimated fair value of the Company's term loan A and term loan B was $911.6 million and $1.346 billion at September 30, 2011, respectively, based on similar transactions and yields in an active market for similarly rated debt.