Derivative Financial Instruments

3 Months Ended

Mar. 31, 2015

Derivatives

Derivatives

6. Derivative Financial Instruments

Coal Contracts

We use international coal forward contracts linked to forward Newcastle coal prices to help manage our exposure to variability in 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 (“CME”), to help manage our exposure to market changes in domestic coal prices. At March 31,2015, we held positions that are expected to settle in the following years (in thousands):

	2015		2016		Total
International Coal Forward Contracts
Notional amount (tons)		344		132		476
Net asset position	$	12,408	$	6,698	$	19,106
Domestic Coal Futures Contracts
Notional amount (tons)		1,440		120		1,560

Amounts due to us or to the CME 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 condensed consolidated balance sheets.

WTI Derivatives

We use derivative financial instruments, such as collars and swaps, to help manage our exposure to market changes in diesel fuel prices. The derivatives 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 derivatives 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, or put option, if the index price is below the floor, and we receive the difference between the ceiling price, or call option, 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 price decreases beyond the collars, the collars mitigate the risk of crude oil price increases and thereby increased diesel costs that would otherwise have a negative impact on our cash flow.

Under a swap agreement, if the monthly average index price is higher than the swap price, we receive the difference and if the monthly average index price is lower than the swap price, we pay the difference. We use the swap agreements to help fix a portion of our diesel costs for 2015 and 2016.

During the three months ended March 31, 2015, we settled a portion of our 2015 call options by either closing out those positions or entering into offsetting call option positions. We also entered into new 2015 swap positions.  In addition, we entered into new collar arrangements and swap positions for 2016. At March 31, 2015, we held the following WTI derivative financial instruments:

	Floor			Ceiling			Swaps
Settlement Period	Notional Amount	Weighted-Average per Barrel		Notional Amount	Weighted-Average per Barrel		Notional Amount	Weighted-Average per Barrel
	(barrels in thousands)			(barrels in thousands)			(barrels in thousands)
2015 collar positions (1)	264	$	74.14	264	$	80.00	—	$	—
2015 swap positions (2)	—		—	—		—	255		52.18
2016 collar positions (3)	342		53.94	342		72.88	—		—
2016 swap positions (3)	—		—	—		—	342		63.39
Total	606	$	64.80	606	$	76.46	597	$	58.59

• Represents 75% of expected diesel consumption for the second and third quarters of 2015.
• Represents 25% of expected diesel consumption for the second and third quarters of 2015 and 100% of expected diesel consumption for the fourth quarter of 2015.
• Represents 50% of expected diesel consumption for 2016.

Offsetting and Balance Sheet Presentation

	March 31, 2015
	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	$	19,470	$	(364)	$	(364)	$	364	$	19,106	$	—
WTI derivative financial instruments		—		(8,360)		(4,232)		4,232		(4,232)		(4,128)
Total	$	19,470	$	(8,724)	$	(4,596)	$	4,596	$	14,875	$	(4,128)

	December 31, 2014
	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	$	20,861	$	(129)	$	(129)	$	129	$	20,732	$	—
WTI derivative financial instruments		—		(7,228)		(3,620)		3,620		(3,620)		(3,608)
Total	$	20,861	$	(7,357)	$	(3,749)	$	3,749	$	17,111	$	(3,608)

Net amounts of international coal forward contracts and WTI derivative assets are included in the Derivative financial instruments line and net amounts of WTI derivative liabilities are included in Accrued expenses in the condensed consolidated balance sheets. There were no cash collateral requirements at March 31,2015 or December 31, 2014.

Derivative Gains and Losses

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

	Three Months Ended
	March 31,
	2015		2014
International coal forward contracts	$	(1,968)	$	(10,592)
Domestic coal futures contracts		3,898		(1,833)
WTI derivative financial instruments		2,855		(309)
Total	$	4,785	$	(12,734)

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