Derivative Financial Instruments

9 Months Ended

Sep. 30, 2013

Derivative Financial Instruments

Derivative Financial Instruments

Note 9—Derivative Financial Instruments

Interest Rate Swaps

        On June 27, 2011, the Company entered into an interest rate swap agreement with a notional value of $450.0 million. The objective of the swap is to protect against the variability in expected future cash flows attributable to changes in the benchmark interest rate related to interest payments required under the 2011 Credit Agreement. The interest rate on the debt is subject to change due to fluctuations in the benchmark interest rate of 3-month LIBOR. The structure of the hedge is a three year amortizing interest rate swap based on a 1.17% fixed rate with quarterly fixed rate and floating rate payment dates beginning on July 18, 2011. The hedge will be settled upon maturity and is being accounted for as a cash flow hedge. Changes in the fair value of the effective portion of the hedge that take place through the date of maturity are reported in accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The ineffective portion of the change in the fair value of derivatives is recognized directly in earnings included in other income (loss) in the Condensed Consolidated Statements of Operations.

        On December 30, 2008, the Company entered into an interest rate hedge agreement with a notional value of $31.5 million. The objective of the hedge is to protect against the variability in expected future cash flows attributable to changes in the benchmark interest rate related to 62 of the 64 monthly interest payments required under an equipment financing arrangement for a new longwall shield system entered into on October 21, 2008. The interest rate on the debt is subject to change due to fluctuations in the benchmark interest rate of 1-month LIBOR. The structure of the hedge is a 62 month amortizing interest rate swap based on a 1.84% fixed rate with monthly fixed rate and floating rate payment dates beginning on February 1, 2009. The hedge will be settled upon maturity and is being accounted for as a cash flow hedge. Changes in the fair value of the hedge that take place through the date of maturity are reported in accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.

Interest Rate Cap

        On June 27, 2011, the Company entered into an interest rate cap agreement related to interest payments required under the 2011 Credit Agreement with a notional value of $255.0 million. The objective of the cap is to protect against the variability in expected future cash flows attributable to changes in the benchmark interest rate above 2.00%. The interest rate on the debt is subject to change due to fluctuations in the benchmark interest rate of 3-month LIBOR. The structure of the hedge is a three year amortizing interest rate cap based on a strike price of 2.00% with quarterly fixed rate and floating rate payment dates beginning on July 7, 2011. The hedge will be settled upon maturity and is being accounted for as a cash flow hedge. Changes in the fair value of the hedge that take place through the date of maturity are reported in accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.

Natural Gas Hedge

        Revenues derived from the sale of natural gas are subject to volatility based on changes in market prices. In order to reduce the risk associated with natural gas price volatility, on June 7, 2011 the Company entered into a one year swap contract to hedge 4.2 million MMBTUs of natural gas sales beginning in July 2011 and ending June 2012, at a price of $5.00 per MMBTU. The swap agreement hedged approximately 30% of anticipated natural gas sales from July 2011 through June 2012. The hedge was settled upon maturity and was accounted for as a cash flow hedge. The Company did not have any commodity hedges outstanding at September 30, 2013.

        The following table presents the fair values of the Company's derivative instruments as well as their classification within the Condensed Consolidated Balance Sheets (in thousands). See Note 11 for additional information related to the fair values of the Company's derivative instruments.

	September 30, 2013		December 31, 2012
Asset derivatives designated as cash flow hedging instruments:
Interest rate cap(1)	$	2	$	12
Total asset derivatives	$	2	$	12
Liability derivatives designated as cash flow hedging instruments:
Interest rate swaps(2)	$	4,005	$	6,615
Total liability derivatives	$	4,005	$	6,615

(1)

$2 thousand and $8 thousand were included in other current assets within the Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012, respectively, while $4 thousand was included in other long-term assets as of December 31, 2012.

(2)

$4.0 million and $4.1 million were included within other current liabilities within the Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012, respectively, while $2.5 million was included within other long-term liabilities as of December 31, 2012.

        The following tables present the gains and losses from derivative instruments for the three and nine months ended September 30, 2013 and 2012 and their location within the condensed consolidated financial statements (in thousands).

	Gain (loss), net of tax, recognized in accumulated other comprehensive income (loss)						Gain, net of tax, reclassified from accumulated other comprehensive income (loss) to earnings(1)(2)						Loss, net of tax, reclassified from accumulated other comprehensive income (loss) to earnings (ineffective portion)(3)
	Three months ended September 30,						Three months ended September 30,						Three months ended September 30,
Derivatives designated as cash flow hedging instruments	2013			2012			2013			2012			2013		2012
Interest rate swaps	$	1,057		$	9		$	(636	)	$	(518	)	$	235	$	—
Interest rate cap		(3	)		(36	)		—			—			—		—
Total	$	1,054		$	(27	)	$	(636	)	$	(518	)	$	235	$	—

	Gain (loss), net of tax, recognized in accumulated other comprehensive income (loss)						(Gain) loss, net of tax, reclassified from accumulated other comprehensive income (loss) to earnings(1)(2)						Loss, net of tax, reclassified from accumulated other comprehensive income (loss) to earnings (ineffective portion)(3)
	Nine months ended September 30,						Nine months ended September 30,						Nine months ended September 30,
Derivatives designated as cash flow hedging instruments	2013			2012			2013			2012			2013		2012
Natural gas hedges	$	—		$	(5,798	)	$	—		$	3,279		$	—	$	—
Interest rate swaps		3,538			502			(1,866	)		(1,543	)		235		—
Interest rate cap		(6	)		(255	)		—			—			—		—
Total	$	3,532		$	(5,551	)	$	(1,866	)	$	1,736		$	235	$	—

(1)

Natural gas hedge amounts are recorded within miscellaneous income in the Condensed Consolidated Statements of Operations.

(2)

Interest rate swap amounts are recorded within interest expense in the Condensed Consolidated Statements of Operations.

(3)

The ineffective portion of the interest rate swap is recorded within other income (loss) in the Condensed Consolidated Statements of Operations.