4. Derivatives

We are exposed to various types of risk in the normal course of business, including fluctuations in commodity prices and particularly the prices we receive for our coal sales, both domestically and internationally, and the prices we pay for our consumption of certain raw materials such as diesel fuel. We seek to manage some of the volatility of these fluctuations by using derivative financial instruments.

All of our derivative financial instruments are recognized in the balance sheet at fair value. As mark-to-market accounting is applied, changes in the fair value of the derivative financial instruments are included in “Operating income” on the consolidated statements of operations and comprehensive income each period.

Coal Contracts

We use international coal forward contracts linked to Newcastle coal prices to help manage our exposure to variability in future international coal prices. We use domestic coal futures contracts referenced to the 8800 Btu coal price sold from the PRB, as quoted on the Chicago Mercantile Exchange, to help manage our exposure to market changes in domestic coal prices. At June 30, 2013, we held coal derivative positions that are expected to settle in the following years (in thousands):

	2013		2014		2015		2016		Total
International Coal Forward Contracts
Notional amount (tons)	558		1,190		344		132		2,224
Net asset position	$	10,981	$	17,350	$	6,583	$	2,272	$	37,185

Domestic Coal Futures Contracts
Notional amount (tons)	—		1,080		180		—		1,260

WTI Collars

We use costless collars to help manage our exposure to market changes in diesel fuel prices. The collars are indexed to the West Texas Intermediate (“WTI”) crude oil price as quoted on the New York Mercantile Exchange. As such, the nature of the collar does not directly offset market changes to our diesel costs. Under a collar agreement, we pay the difference between the monthly average index price and a floor price if the index price is below the floor, and we receive the difference between the ceiling price and the monthly average index price if the index price is above the ceiling price. No amounts are paid or received if the index price is between the floor and ceiling prices. While we would not receive the full benefit of extreme price decreases, the collars mitigate the risk of extreme crude oil price increases and thereby increased diesel costs that would otherwise have a negative impact on our cash flow. At June 30, 2013, we held the following WTI collars (in thousands except per barrel amounts):

Settlement	Notional	Weighted-Average per Barrel
Period	Amount	Floor		Ceiling
	(barrels)
2013	264	$	71.97	$	112.01
2014	288	70.34		111.26
Total	552	$	71.12	$	111.62

Offsetting and Balance Sheet Presentation

	June 30, 2013
	Gross Amounts of Recognized					Gross Amounts Offset in the Consolidated Balance Sheet					Net Amounts Presented in the Consolidated Balance Sheet
	Assets		Liabilities			Assets			Liabilities		Assets		Liabilities

International coal forward contracts	$	38,677	$	(1,492	)	$	(1,492	)	$	1,492	$	37,185	$	—
WTI collars	73		(67		)	(7		)	7		66		(60		)
Total	$	38,750	$	(1,558	)	$	(1,498	)	$	1,498	$	37,252	$	(60	)

	December 31, 2012
	Gross Amounts of Recognized					Gross Amounts Offset in the Consolidated Balance Sheet					Net Amounts Presented in the Consolidated Balance Sheet
	Assets		Liabilities			Assets			Liabilities		Assets		Liabilities

International coal forward contracts	$	13,677	$	(30	)	$	(30	)	$	30	$	13,647	$	—
WTI collars	138		—			—			—		138		—
Total	$	13,815	$	(30	)	$	(30	)	$	30	$	13,785	$	—

Net amounts of international coal forward contracts and WTI collar assets are included in the Derivative financial instruments line in the consolidated balance sheets. Net amounts of WTI collar liabilities are included in other current liabilities in the consolidated balance sheets. Amounts due to us or to the exchange as a result of changes in the market price of our open domestic coal futures contracts and to fulfill margin requirements are received or paid through our brokerage bank on a daily basis; therefore, there is no asset or liability on the balance sheets. There were no cash collateral requirements at June 30, 2013 or December 31, 2012.

Derivative Gains and Losses

Derivative mark-to-market (gains) and losses recognized in the consolidated statement of operations and comprehensive income were (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
International coal forward contracts	$	(12,402	)	$	(20,119	)	$	(26,184	)	$	(18,063	)
Domestic coal futures contracts	93			—			117			—
WTI collars	25			(64		)	132			(64		)
Total	$	(12,284	)	$	(20,183	)	$	(25,936	)	$	(18,127	)

See Note 5 for a discussion related to the fair value of derivative financial instruments.