Arch Coal (ACI)

 

The Company is exposed to price risk with respect to diesel fuel purchased for use in its operations. The Company purchases approximately 50 to 60 million gallons of diesel fuel annually in its operations, including the effect of the acquisition of the Jacobs Ranch operations. To reduce the volatility in the price of diesel fuel for its operations, the Company uses forward physical diesel purchase contracts, as well as heating oil swaps and purchased call options. At December 31, 2009, the Company had protected the price of approximately 55% of its expected purchases for fiscal year 2010. Since the changes in the price of heating oil are highly correlated to changes in the price of the hedged diesel fuel purchases, the heating oil swaps and purchased call options qualify for cash flow hedge accounting. The Company held heating oil swaps and purchased call options for approximately 34.1 million gallons as of December 31, 2009.

 

The Company is exposed to price risk with respect to diesel fuel purchased for use in its operations. The Company purchases approximately 50 million gallons of diesel fuel annually in its operations. To reduce volatility in the price of diesel fuel for its operations, the Company uses forward physical diesel purchase contracts, as well as heating oil swaps and purchased call options, because the changes in the price of heating oil highly correlate to changes in the price of its hedged purchases. Accordingly, the heating oil swaps and purchased call options qualify for hedge accounting and the changes in the fair value of the derivatives are recorded through other comprehensive income. At December 31, 2008, the Company had protected the price of approximately 68% of its purchases for fiscal year 2009 and 10% of its purchases for fiscal year 2010. Approximately 85% of the 2009 hedges have been accomplished through the use of heating oil swaps and purchased call options. The fair value of these derivatives was a current liability of $51.8 million at December 31, 2008, and a current asset of $2.0 million at December 31, 2007.

 

The Company is exposed to price risk with respect to diesel fuel purchased for use in its operations. The Company uses forward physical purchase contracts and heating oil swaps and purchased call options to reduce volatility in the price of diesel fuel for its operations. The changes in the price of heating oil highly correlate to changes in the price of diesel fuel purchases being hedged. Accordingly, the derivatives qualify for hedge accounting and the changes in the fair value of the derivatives are recorded through other comprehensive income. At December 31, 2007, the Company held heating oil swaps and purchased call options protecting approximately 23% of its purchases for fiscal year 2008. The fair value of these positions was a current asset of $2.0 million at December 31, 2007 and a current asset of $0.4 million and a currently liability of $5.5 million at December 31, 2006.