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This excerpt taken from the ACI 10-K filed Mar 1, 2007. Sulfur dioxide emission
allowance price risk management |
The Company is exposed to price risk related to the value of
sulfur dioxide emission allowances that are a component of the
quality adjustment provisions in many of its coal supply
agreements. The Company has historically purchased put options
and entered into swap contracts to protect the Company from any
downturn in the price of sulfur dioxide emission allowances. The
Company may also purchase call options to mitigate the risk of
changes in the fair value of a contract that contains a fixed
price for sulfur dioxide emission allowances.
The following is a summary of sulfur dioxide emission allowance
derivatives:
| December 31, 2006 | December 31, 2005 | |||||||||||||||
| Quantity | Fair Value | Quantity | Fair Value | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Swaps – current liability
|
— | $ | — | 12,000 | $ | (11,949 | ) | |||||||||
|
Purchased put options – current asset
|
48,000 | 206 | 48,000 | 239 | ||||||||||||
|
Purchased call options – current asset
|
12,000 | 116 | — | — | ||||||||||||
For all of the outstanding put options at December 31,
2006, the Company elected hedge accounting treatment and the
change in fair value was recorded through other comprehensive
income. All other changes in fair value were recorded in other
operating income, net in the accompanying Consolidated
Statements of Income.
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