Accounting Policies and Standards Update

9 Months Ended

Sep. 30, 2011

Accounting Policies and Standards Update

Accounting Policies and Standards Update

2.  Accounting Policies and Standards Update

Derivative Financial Instruments

We are exposed to various types of risk in the normal course of business, including fluctuations in the price at which we are able to sell our coal in the future.  We may enter into certain derivative financial instruments to help manage our exposure to future coal prices.  Derivative financial instruments are recognized on the balance sheet at fair value.  At September 30, 2011, we held a derivative financial instrument fixing the price for 75,000 metric tonnes of export coal sales that is scheduled to settle in 2012.

The derivative financial instrument did not qualify for hedge accounting; therefore, changes in the fair value of the derivative financial instrument are recorded in “Other income (expense)” on the unaudited condensed consolidated statements of operations each period using marked-to-market accounting.

During the three and nine months ended September 30, 2011, $38,000 of gains related to the derivative financial instrument were included in “Other income (expense)” on the unaudited condensed consolidated statements of operations, resulting in $38,000 being included in “Other current assets” on the unaudited condensed consolidated balance sheet at September 30, 2011.

There were no derivative financial instruments as of December 31, 2010.

Fair Value of Financial Instruments

Our financial instruments included cash equivalents, restricted cash, accounts receivable, amounts due from related parties, accounts payable, and certain current liabilities.  Due to the short-term nature of these instruments, we believe that their carrying amounts approximated fair value.

We categorize assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation.  The fair value of the derivative financial instrument is estimated based on Level 1 inputs and totaled $38,000 at September 30, 2011.  There were no changes between categorization levels during the period.

Recently Issued Accounting Pronouncements

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements.  Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”).  Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to be material to our condensed consolidated financial statements upon adoption.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (international financial reporting standards), which amends current fair value measurement disclosure requirements to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. This update requires the categorization by level for financial instruments not measured at fair value but for which disclosure of fair value is required.  Disclosure of all transfers between Level 1 and Level 2, and additional disclosures for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs are required. The guidance will become effective for interim and annual periods beginning after December 15, 2011, or on January 1, 2012 for us. The guidance will impact our disclosures, but it will not impact our results of operations, financial condition, or cash flows.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which amends current comprehensive income guidance.  The update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, an entity will be required to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The guidance will become effective for interim and annual periods beginning after December 15, 2011, or on January 1, 2012 for us.  The guidance will impact our disclosures, but it will not impact our results of operations, financial condition, or cash flows.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (Topic 350)—Intangibles—Goodwill and Other.  ASU 2011-08 amends current goodwill impairment testing guidance by providing entities with an option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. ASU 2011-08 will become effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011; however, early adoption is permitted.  We believe that this pronouncement will not have a material effect on our results of operations, financial condition, or cash flows.