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Derivatives and Fair Value Measurements | 6 Months Ended
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Jun. 30, 2021
Fair Value Disclosures [Abstract] |
Derivatives and Fair Value Measurements | Derivatives and Fair Value Measurements Derivatives Corporate Risk Management Activities From time to time, the Company may utilize various types of derivative instruments to manage its exposure to risks in the normal course of business, including (1) foreign currency exchange rate risk and the variability of cash flows associated with forecasted Australian dollar expenditures made in its Australian mining platform, (2) price risk of fluctuating coal prices related to forecasted sales or purchases of coal, or changes in the fair value of a fixed price physical sales contract, (3) price risk and the variability of cash flows related to forecasted diesel fuel purchased for use in its operations and (4) interest rate risk on long-term debt. These risk management activities are actively monitored for compliance with the Company’s risk management policies. As of June 30, 2021, the Company had currency options outstanding with an aggregate notional amount of $580.0 million Australian dollars to hedge currency risk associated with anticipated Australian dollar expenditures over the nine-month period ending March 31, 2022. The instruments are quarterly average rate options which entitle the Company to receive payment on the notional amount should the quarterly average Australian dollar-to-U.S. dollar exchange rate exceed amounts ranging from $0.80 to $0.81 over the nine-month period ending March 31, 2022. As of June 30, 2021, the Company held coal-related financial contracts related to a portion of its forecasted sales for an aggregate notional volume of 2.8 million tonnes. Such financial contracts may include include futures, forwards and options. Of the aggregate notional volume, 0.4 million tonnes will settle during the second half of 2021, 2.0 million tonnes will settle in 2022, and the remainder will settle in 2023. The Company had no diesel fuel or interest rate derivatives in place as of June 30, 2021. Coal Trading Activities On a limited basis, the Company engages in the direct and brokered trading of coal and freight-related contracts (coal trading). Except those contracts for which the Company has elected to apply a normal purchases and normal sales exception, all derivative coal trading contracts are accounted for at fair value. Tabular Derivatives Disclosures The Company has master netting agreements with certain of its counterparties which allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. Such netting arrangements reduce the Company’s credit exposure related to these counterparties. For classification purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or liability in the condensed consolidated balance sheets. The fair value of derivatives reflected in the accompanying condensed consolidated balance sheets are set forth in the table below.
| June 30, 2021 |  | December 31, 2020
| Asset Derivative |  | Liability Derivative |  | Asset Derivative |  | Liability Derivative
| (Dollars in millions)
Foreign currency option contracts | $ | 1.0 |  |  | $ | — |  |  | $ | 10.3 |  |  | $ | — |
Coal contracts related to forecasted sales | 1.8 |  |  | (28.9) |  |  | 0.9 |  |  | (8.8) |
Coal trading contracts | 83.2 |  |  | (88.6) |  |  | 23.4 |  |  | (23.1) |
Total derivatives | 86.0 |  |  | (117.5) |  |  | 34.6 |  |  | (31.9) |
Effect of counterparty netting | (116.0) |  |  | 116.0 |  |  | (30.2) |  |  | 30.2 |
Variation margin posted | 31.9 |  |  | — |  |  | 6.5 |  |  | — |
Net derivatives and margin as classified in the balance sheets | $ | 1.9 |  |  | $ | (1.5) |  |  | $ | 10.9 |  |  | $ | (1.7) |
The net amount of asset derivatives, net of margin, are included in “Other current assets” and the net amount of liability derivatives, net of margin, are included in “Accounts payable and accrued expenses” in the accompanying condensed consolidated balance sheets. The Company had a current asset representing cash collateral held as initial margin for derivative positions primarily related to coal derivatives of $14.4 million and $3.0 million at June 30, 2021 and December 31, 2020, respectively. These amounts are not included with the derivatives presented in the table above and are included in “Other current assets” in the accompanying condensed consolidated balance sheets. Currently, the Company does not seek cash flow hedge accounting treatment for its derivative financial instruments and thus changes in fair value are reflected in current earnings. The tables below show the amounts of pre-tax gains and losses related to the Company’s derivatives.
| Three Months Ended June 30, 2021
| Total (loss) gain recognized in income |  | Gain (loss) realized in income on derivatives |  | Unrealized (loss) gain recognized in income on derivatives
Financial Instrument |  |
| (Dollars in millions)
Foreign currency option contracts | $ | (1.2) |  |  | $ | — |  |  | $ | (1.2) |
Coal contracts related to forecasted sales | (7.6) |  |  | 16.1 |  |  | (23.7) |
Coal trading contracts | 1.4 |  |  | (2.4) |  |  | 3.8 |
Total | $ | (7.4) |  |  | $ | 13.7 |  |  | $ | (21.1) |
| Three Months Ended June 30, 2020
| Total gain (loss) recognized in income |  | (Loss) gain realized in income on derivatives |  | Unrealized gain recognized in income on derivatives
Financial Instrument |  |
| (Dollars in millions)
Foreign currency option contracts | $ | 2.2 |  |  | $ | (0.6) |  |  | $ | 2.8 |
Coal contracts related to forecasted sales | 12.6 |  |  | 5.7 |  |  | 6.9 |
Coal trading contracts | (0.1) |  |  | (1.9) |  |  | 1.8 |
Total | $ | 14.7 |  |  | $ | 3.2 |  |  | $ | 11.5 |
| Six Months Ended June 30, 2021
| Total (loss) gain recognized in income |  | Gain (loss) realized in income on derivatives |  | Unrealized (loss) gain recognized in income on derivatives
Financial Instrument |  |
| (Dollars in millions)
Foreign currency option contracts | $ | (4.2) |  |  | $ | 4.6 |  |  | $ | (8.8) |
Coal contracts related to forecasted sales | 0.6 |  |  | 26.2 |  |  | (25.6) |
Coal trading contracts | 0.7 |  |  | (0.1) |  |  | 0.8 |
Total | $ | (2.9) |  |  | $ | 30.7 |  |  | $ | (33.6) |
| Six Months Ended June 30, 2020
| Total gain (loss) recognized in income |  | (Loss) gain realized in income on derivatives |  | Unrealized gain (loss) recognized in income on derivatives
Financial Instrument |  |
| (Dollars in millions)
Foreign currency option contracts | $ | 1.3 |  |  | $ | (1.6) |  |  | $ | 2.9 |
Coal contracts related to forecasted sales | 4.1 |  |  | (0.6) |  |  | 4.7 |
Coal trading contracts | (0.3) |  |  | 2.2 |  |  | (2.5) |
Total | $ | 5.1 |  |  | $ | — |  |  | $ | 5.1 |
During the three and six months ended June 30, 2021 and 2020, gains and losses on foreign currency option contracts were included in “Operating costs and expenses,” and gains and losses on coal contracts related to forecasted sales and those related to coal trading contracts were included in “Revenues” in the accompanying unaudited condensed consolidated statements of operations. The Company classifies the cash effects of its derivatives within the “Cash Flows From Operating Activities” section of the unaudited condensed consolidated statements of cash flows. Fair Value Measurements The Company uses a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. These levels include: Level 1 - inputs are quoted prices in active markets for the identical assets or liabilities; Level 2 - inputs are other than quoted prices included in Level 1 that are directly or indirectly observable through market-corroborated inputs; and Level 3 - inputs are unobservable, or observable but cannot be market-corroborated, requiring the Company to make assumptions about pricing by market participants. The following tables set forth the hierarchy of the Company’s net financial asset positions for which fair value is measured on a recurring basis:
| June 30, 2021
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| (Dollars in millions)
Foreign currency option contracts | $ | — |  |  | $ | 1.0 |  |  | $ | — |  |  | $ | 1.0 |
Coal contracts related to forecasted sales | — |  |  | (33.7) |  |  | — |  |  | (33.7) |
Coal trading contracts | — |  |  | 33.1 |  |  | — |  |  | 33.1 |
Equity securities | — |  |  | — |  |  | 4.0 |  |  | 4.0 |
Total net financial assets | $ | — |  |  | $ | 0.4 |  |  | $ | 4.0 |  |  | $ | 4.4 |
| December 31, 2020
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| (Dollars in millions)
Foreign currency option contracts | $ | — |  |  | $ | 10.3 |  |  | $ | — |  |  | $ | 10.3 |
Coal contracts related to forecasted sales | — |  |  | (7.9) |  |  | — |  |  | (7.9) |
Coal trading contracts | — |  |  | 6.8 |  |  | — |  |  | 6.8 |
Equity securities | — |  |  | — |  |  | 4.0 |  |  | 4.0 |
Total net financial assets | $ | — |  |  | $ | 9.2 |  |  | $ | 4.0 |  |  | $ | 13.2 |
For Level 1 and 2 financial assets and liabilities, the Company utilizes both direct and indirect observable price quotes, including interest rate yield curves, exchange indices, broker/dealer quotes, published indices, issuer spreads, benchmark securities and other market quotes. In the case of certain debt securities, fair value is provided by a third-party pricing service. Below is a summary of the Company’s valuation techniques for Level 1 and 2 financial assets and liabilities: •Foreign currency option contracts are valued utilizing inputs obtained in quoted public markets (Level 2) except when credit and non-performance risk is considered to be a significant input, then the Company classifies such contracts as Level 3. •Coal contracts related to forecasted sales and coal trading contracts are generally valued based on unadjusted quoted prices in active markets (Level 1) or a valuation that is corroborated by the use of market-based pricing (Level 2) except when credit and non-performance risk is considered to be a significant input (greater than 10% of fair value), then the Company classifies as Level 3. •Investments in equity securities are based on observed prices in an inactive market (Level 3). Other Financial Instruments. The following methods and assumptions were used by the Company in estimating fair values for other financial instruments as of June 30, 2021 and December 31, 2020: •Cash and cash equivalents, restricted cash, accounts receivable, including those within the Company’s accounts receivable securitization program, notes receivable and accounts payable have carrying values which approximate fair value due to the short maturity or the liquid nature of these instruments. •Long-term debt fair value estimates are based on observed prices for securities when available (Level 2), and otherwise on estimated borrowing rates to discount the cash flows to their present value (Level 3). Market risk associated with the Company’s fixed- and variable-rate long-term debt relates to the potential reduction in the fair value and negative impact to future earnings, respectively, from an increase in interest rates. The fair value of debt, shown below, is principally based on reported market values and estimates based on interest rates, maturities, credit risk, underlying collateral and completed market transactions, which have been limited in recent history.
| June 30, 2021 |  | December 31, 2020
| (Dollars in millions)
Total debt at par value | $ | 1,469.9 |  |  | $ | 1,591.3 |
Less: Unamortized debt issuance costs and original issue discount | (51.8) |  |  | (43.5) |
Net carrying amount | $ | 1,418.1 |  |  | $ | 1,547.8 |
Estimated fair value | $ | 1,179.4 |  |  | $ | 987.6 |
The Company’s risk management function, which is independent of the Company’s coal trading function, is responsible for valuation policies and procedures, with oversight from executive management. The fair value of the Company’s coal derivative assets and liabilities reflects adjustments for credit risk. The Company’s exposure is substantially with electric utilities, energy marketers, steel producers and nonfinancial trading houses. The Company had no transfers between Levels 1, 2 and 3 during the three and six months ended June 30, 2021 and 2020. The Company’s policy is to value all transfers between levels using the beginning of period valuation.

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