UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended June 30, 2021March 31, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                     to                     

 

Commission file number: 001-38147

CONSOL Energy Inc. 

(Exact name of registrant as specified in its charter)

 

Delaware

 

82-1954058

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1000 CONSOL Energy275 Technology Drive, Suite 100101

Canonsburg, PA 15317-650615317-9565

(724) 416-8300

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

CEIX

New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  ☒    No   ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

 

Large accelerated filer  ☐    Accelerated filer  ☒    Non-accelerated filer  ☐    Smaller reporting company      Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐   No  ☒

 

CONSOL Energy Inc. had 34,480,18134,814,486 shares of common stock, $0.01 par value, outstanding at July 23, 2021.April 22, 2022.

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

Part I. Financial Information

Page

 

 

 

Item 1.

Financial Statements

 

 

Consolidated Statements of Income for the three and six months ended June 30,March 31, 2022 and 2021 and 2020

4

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30,March 31, 2022 and 2021 and 2020

5

 

Consolidated Balance Sheets at June 30, 2021March 31, 2022 and December 31, 20202021

6

 

Consolidated Statements of Stockholders' Equity for the three and six months ended June 30,March 31, 2022 and 2021 and 2020

8

 

Consolidated Statements of Cash Flows for the sixthree months ended June 30,March 31, 2022 and 2021 and 2020

9

 

Notes to Consolidated Financial Statements

10

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

2927

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

5344

 

 

 

Item 4.

Controls and Procedures

5445

 

 

 

 

Part II. Other Information

 

 

 

 

Item 1.

Legal Proceedings

5445

 

 

 

Item 1A.

Risk Factors

5445

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

5546

 

 

 

Item 3.Defaults Upon Senior Securities5546
   

Item 4.

Mine Safety Disclosures

5546

   
Item 5.Other Information5546

 

 

 

Item 6.

Exhibits

5647

 

 

 

 

Signatures

5748

 

 

2

  

 

 

IMPORTANT DEFINITIONS REFERENCED IN THIS QUARTERLY REPORT

Unless the context otherwise requires:

 

 

“CONSOL Energy,” “we,” “our,” “us,” “our Company” and “the Company” refer to CONSOL Energy Inc. and its subsidiaries;

 

 

“Btu” means one British Thermal unit;

 

 “CCR Merger” refers to the merger under that certain Agreement and Plan of Merger, dated as of October 22, 2020, among the Company, Transformer LP Holdings Inc. (“Holdings”), a wholly-owned subsidiary of the Company, Transformer Merger Sub LLC, a wholly-owned subsidiary of Holdings (“Merger Sub”), the Partnership and the General Partner, pursuant to which Merger Sub merged with and into the Partnership, with the Partnership surviving as an indirect, wholly-owned subsidiary of the Company, which merger closed on December 30, 2020;
   
 

“Coal Business” refers to all of our interest in(i) the Pennsylvania Mining Complex (PAMC) and certain relatedother coal assets, including: (i) our 100% interest in the Partnership, which owns a 25% undivided interest in the PAMC;assets; (ii) the CONSOL Marine Terminal; (iii) development of the Itmann Mine; and (iv) undeveloped coal reserves (Greenfield Reserves) located in the Northern Appalachian, Central AppalachianGreenfield Reserves and Illinois basinsResources and certain related coal assets and liabilities;

 

 

“CONSOL Marine Terminal” refers to the Company's terminal operations located at the Port of Baltimore;

 

 

“former parent” refers to CNX Resources Corporation and its consolidated subsidiaries;

 

 

“General Partner” refers to PA Mining Complex GP LLC (formerly known as CONSOL Coal Resources GP LLC,LLC), a Delaware limited liability company and the general partner of the Partnership;

 

 

“Greenfield Reserves”Reserves and Resources” means those undeveloped reserves and resources owned by the Company in the Northern Appalachian, Central Appalachian and Illinois basins that are not associated with the Pennsylvania Mining Complex or the Itmann Mine project;

 

 

“Itmann Mine” refers to the ownership and development of a metallurgical coal mine and coal preparation plant located in Wyoming County, West Virginia;

 

 

Partnership,” “CCR” or “CONSOLPartnership” refers to PA Mining Complex LP (formerly known as CONSOL Coal Resources” refers toResources LP), a Delaware limited partnership that is a wholly-owned subsidiary of the Company and holds a 25%an undivided interest in, and is the sole operator of, the Pennsylvania Mining Complex;

 

 

“Pennsylvania Mining Complex” or “PAMC” refers to the Bailey, Enlow Fork and Harvey coal mines, the Central Preparation Plant, coal reserves and related assets and operations located primarily in southwestern Pennsylvania;Pennsylvania and northern West Virginia; and

 

 

“separation and distribution” refers to the separation of the Coal Business from our former parent’s other businesses on November 28, 2017 and the pro rata distribution of the Company's issued and outstanding shares of common stock to its former parent's stockholders on November 29,28, 2017, and the creation, as a result of the distribution, of an independent, publicly-traded company (the Company) to hold the assets and liabilities associated with the Coal Business after the distribution.

 

3

  

 

PART I : FINANCIAL INFORMATION

 

ITEM 1.    FINANCIAL STATEMENTS

 

CONSOL ENERGY INC.

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(unaudited)

 

 

Three Months Ended

 

Six Months Ended

  

Three Months Ended

 
 

June 30,

  

June 30,

  

March 31,

 

Revenue and Other Income:

 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

 

Coal Revenue

 $259,832  $102,313  $545,367  $357,765  $476,368  $285,535 

Terminal Revenue

 17,380  15,898  35,592  32,399  21,397  18,212 

Freight Revenue

 26,010  3,085  53,023  6,232  38,389  27,013 

Miscellaneous Other (Loss) Income

 (18,403) 33,936  (15,214) 50,106 

Loss on Commodity Derivatives, net

 (188,154) 0 

Miscellaneous Other Income

 4,348  3,189 

Gain on Sale of Assets

  2,340   7,329   10,542   7,315   6,181   8,202 

Total Revenue and Other Income

 287,159  162,561  629,310  453,817  358,529  342,151 

Costs and Expenses:

            

Operating and Other Costs

 175,048  116,406  360,158  328,681  218,535  185,110 

Depreciation, Depletion and Amortization

 52,199  46,155  112,096  101,098  55,954  59,897 

Freight Expense

 26,010  3,085  53,023  6,232  38,389  27,013 

Selling, General and Administrative Costs

 22,542  10,939  46,506  28,609  37,149  23,964 

Gain on Debt Extinguishment

 (106) 0  (789) (16,833)

Loss (Gain) on Debt Extinguishment

 2,122  (683)

Interest Expense, net

  16,187   14,722   31,448   30,393   14,352   15,261 

Total Costs and Expenses

  291,880   191,307   602,442   478,180   366,501   310,562 

(Loss) Earnings Before Income Tax

 (4,721) (28,746) 26,868  (24,363) (7,972) 31,589 

Income Tax Benefit

  (8,893)  (7,683)  (3,708)  (5,775)

Net Income (Loss)

 4,172  (21,063) 30,576  (18,588)

Less: Net Loss Attributable to Noncontrolling Interest

  0  (3,080)  0  (2,972)

Net Income (Loss) Attributable to CONSOL Energy Inc. Stockholders

 $4,172  $(17,983) $30,576  $(15,616)

Income Tax (Benefit) Expense

  (3,522)  5,185 

Net (Loss) Income

 $(4,450) $26,404 
  

Earnings (Loss) per Share:

        

Total Basic Earnings (Loss) per Share

 $0.12 $(0.69) $0.89 $(0.60)

Total Dilutive Earnings (Loss) per Share

 $0.12 $(0.69) $0.87 $(0.60)

(Loss) Earnings per Share:

    

Total Basic (Loss) Earnings per Share

 $(0.13) $0.77 

Total Dilutive (Loss) Earnings per Share

 $(0.13) $0.75 

 

The accompanying notes are an integral part of these consolidated financial statements.

  

4

  

 

CONSOL ENERGY INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(unaudited)

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Net Income (Loss)

 $4,172  $(21,063) $30,576  $(18,588)
                 

Other Comprehensive Income:

                

Actuarially Determined Long-Term Liability Adjustments (Net of tax: ($1,427), ($1,214), ($2,591), ($2,428))

  4,125   3,624   7,485   7,248 

Unrealized Gain (Loss) on Cash Flow Hedges (Net of tax: ($135), $4, ($279), $937)

  391   (12)  805   (2,785)

Other Comprehensive Income

  4,516   3,612   8,290   4,463 
                 

Comprehensive Income (Loss)

 $8,688  $(17,451) $38,866  $(14,125)
                 

Less: Comprehensive Loss Attributable to Noncontrolling Interest

  0   (3,065)  0   (2,942)
                 

Comprehensive Income (Loss) Attributable to CONSOL Energy Inc. Stockholders

 $8,688  $(14,386) $38,866  $(11,183)
  

Three Months Ended

 
  

March 31,

 
  

2022

  

2021

 

Net (Loss) Income

 $(4,450) $26,404 
         

Other Comprehensive Income:

        

Actuarially Determined Long-Term Liability Adjustments (Net of tax: ($508), (1,164))

  1,525   3,360 

Unrealized Gain on Cash Flow Hedges (Net of tax: ($130), ($144))

  391   414 

Other Comprehensive Income

  1,916   3,774 
         

Comprehensive (Loss) Income

 $(2,534) $30,178 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5

  

 

CONSOL ENERGY INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

(Unaudited)

    

(Unaudited)

   
 

June 30,

 

December 31,

  

March 31,

 

December 31,

 
 

2021

  

2020

  

2022

  

2021

 

ASSETS

            

Current Assets:

          

Cash and Cash Equivalents

 $146,667  $50,850  $222,901  $149,913 

Restricted Cash - Current

 31,669 0  33,854 32,605 

Accounts and Notes Receivable

          

Trade Receivables, net

 99,716  118,289  178,446  104,099 

Other Receivables, net

 15,592  42,157  11,342  11,631 

Inventories

 59,299  56,200  58,798  62,876 

Prepaid Expenses and Other Assets

  19,009   25,445 

Prepaid Expenses and Other Current Assets

  23,051   25,216 

Total Current Assets

 371,952  292,941  528,392  386,340 

Property, Plant and Equipment:

          

Property, Plant and Equipment

 5,171,233  5,143,696  5,293,905  5,250,805 

Less - Accumulated Depreciation, Depletion and Amortization

  3,168,407   3,094,634   3,323,580   3,272,255 

Total Property, Plant and Equipment—Net

 2,002,826  2,049,062  1,970,325  1,978,550 

Other Assets:

          

Deferred Income Taxes

 69,656  68,821  61,452  57,011 

Right of Use Asset - Operating Leases

 35,113  53,436  22,333  21,956 

Restricted Cash - Non-current

 21,867 0  12,253 15,688 

Other, net

  56,517   59,106 

Salary Retirement

 44,011 38,947 

Other Noncurrent Assets, net

  76,194   75,025 

Total Other Assets

  183,153   181,363   216,243   208,627 

TOTAL ASSETS

 $2,557,931  $2,523,366  $2,714,960  $2,573,517 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6

  

CONSOL ENERGY INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

(Unaudited)

    

(Unaudited)

   
 

June 30,

 

December 31,

  

March 31,

 

December 31,

 
 

2021

  

2020

  

2022

  

2021

 

LIABILITIES AND EQUITY

            

Current Liabilities:

          

Accounts Payable

 $68,073  $71,229  $109,454  $80,343 

Current Portion of Long-Term Debt

 50,861  53,846  62,321  57,332 

Operating Lease Liability

 8,564 20,241 

Operating Lease Liability, Current Portion

 8,271 6,682 

Commodity Derivatives

 200,185 52,204 

Other Accrued Liabilities

  242,759   223,154   247,188   248,671 

Total Current Liabilities

 370,257  368,470  627,419  445,232 

Long-Term Debt:

          

Long-Term Debt

 609,326  566,858  534,902  568,052 

Finance Lease Obligations

  30,548   36,203   21,990   26,598 

Total Long-Term Debt

 639,874  603,061  556,892  594,650 

Deferred Credits and Other Liabilities:

          

Postretirement Benefits Other Than Pensions

 379,221  387,637  327,352  329,659 

Pneumoconiosis Benefits

 227,929  229,720  201,800  203,473 

Asset Retirement Obligations

 214,937  228,182  211,427  210,718 

Workers’ Compensation

 62,132  64,390  57,621  58,148 

Salary Retirement

 20,215  35,359  25,876  26,013 

Operating Lease Liability

 26,549  35,655  14,062  15,274 

Other

  24,084   17,373 

Other Noncurrent Liabilities

  24,103   17,537 

Total Deferred Credits and Other Liabilities

  955,067   998,316   862,241   860,822 

TOTAL LIABILITIES

 1,965,198  1,969,847  2,046,552  1,900,704 
  

Stockholders' Equity:

          

Common Stock, $0.01 Par Value; 62,500,000 Shares Authorized, 34,480,181 Shares Issued and Outstanding at June 30, 2021; 34,031,374 Shares Issued and Outstanding at December 31, 2020

 345  340 

Common Stock, $0.01 Par Value; 62,500,000 Shares Authorized, 34,814,486 Shares Issued and Outstanding at March 31, 2022; 34,480,181 Shares Issued and Outstanding at December 31, 2021

 348  345 

Capital in Excess of Par Value

 643,033  642,887  645,071  646,945 

Retained Earnings

 277,426  246,850  276,510  280,960 

Accumulated Other Comprehensive Loss

  (328,071)  (336,558)  (253,521)  (255,437)

TOTAL EQUITY

  592,733   553,519   668,408   672,813 

TOTAL LIABILITIES AND EQUITY

 $2,557,931  $2,523,366  $2,714,960  $2,573,517 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7

  

 

CONSOL ENERGY INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Dollars in thousands)

 

 

  

Common Stock

  

Capital in Excess of Par Value

  

Retained Earnings

  

Accumulated Other Comprehensive (Loss) Income

  

Total Equity

 

December 31, 2020

 $340  $642,887  $246,850  $(336,558) $553,519 

(Unaudited)

                    

Net Income

        26,404      26,404 

Actuarially Determined Long-Term Liability Adjustments (Net of $1,164 Tax)

  0   0   0   3,360   3,360 

Interest Rate Hedge (Net of $144 Tax)

  0   0   0   414   414 

Comprehensive Income

  0   0   26,404   3,774   30,178 

Issuance of Common Stock

  4   (4)  0   0   0 

Amortization of Stock-Based Compensation Awards

  0   1,509   0   0   1,509 

Shares Withheld for Taxes

  0   (2,072)  0   0   (2,072)

CCR Merger

  0   (266)  0   197   (69)

March 31, 2021

 $344  $642,054  $273,254  $(332,587) $583,065 

(Unaudited)

                    

Net Income

        4,172      4,172 

Actuarially Determined Long-Term Liability Adjustments (Net of $1,427 Tax)

  0   0   0   4,125   4,125 

Interest Rate Hedge (Net of $135 Tax)

  0   0   0   391   391 

Comprehensive Income

  0   0   4,172   4,516   8,688 

Issuance of Common Stock

  1   (1)  0   0   0 

Amortization of Stock-Based Compensation Awards

  0   1,210   0   0   1,210 

Shares Withheld for Taxes

  0   (230)  0   0   (230)

June 30, 2021

 $345  $643,033  $277,426  $(328,071) $592,733 
  

Common Stock

  

Capital in Excess of Par Value

  

Retained Earnings

  

Accumulated Other Comprehensive (Loss) Income

  

Total Equity

 

December 31, 2021

 $345  $646,945  $280,960  $(255,437) $672,813 

(Unaudited)

                    

Net Loss

  0   0   (4,450)  0   (4,450)

Actuarially Determined Long-Term Liability Adjustments (Net of $508 Tax)

  0   0   0   1,525   1,525 

Interest Rate Hedge (Net of $130 Tax)

  0   0   0   391   391 

Comprehensive (Loss) Income

  0   0   (4,450)  1,916   (2,534)

Issuance of Common Stock

  3   (3)  0   0   0 

Amortization of Stock-Based Compensation Awards

  0   4,201   0   0   4,201 

Shares Withheld for Taxes

  0   (6,072)  0   0   (6,072)

March 31, 2022

 $348  $645,071  $276,510  $(253,521) $668,408 

 

  

Common Stock

  

Capital in Excess of Par Value

  

Retained Earnings

  

Accumulated Other Comprehensive (Loss) Income

  

Total CONSOL Energy Inc. Stockholders' Equity

  

Noncontrolling Interest

  

Total Equity

 

December 31, 2019

 $259  $523,762  $259,903  $(348,725) $435,199  $137,196  $572,395 

(Unaudited)

                            

Net Income

  0   0   2,367   0   2,367   108   2,475 

Actuarially Determined Long-Term Liability Adjustments (Net of $1,214 Tax)

  0   0   0   3,609   3,609   15   3,624 

Interest Rate Hedge (Net of ($933) Tax)

  0   0   0   (2,773)  (2,773)  0   (2,773)

Comprehensive Income

  0   0   2,367   836   3,203   123   3,326 

Adoption of ASU 2016-13 (Net of ($1,109) Tax)

  0   0   (3,298)  0   (3,298)  0   (3,298)

Issuance of Common Stock

  1   (1)  0   0   0   0   0 

Amortization of Stock-Based Compensation Awards

  0   4,856   0   0   4,856   158   5,014 

Shares/Units Withheld for Taxes

  0   (555)  0   0   (555)  (217)  (772)

Distributions to Noncontrolling Interest

  0   0   0   0   0   (5,575)  (5,575)

March 31, 2020

 $260  $528,062  $258,972  $(347,889) $439,405  $131,685  $571,090 

(Unaudited)

                            

Net Loss

        (17,983)     (17,983)  (3,080)  (21,063)

Actuarially Determined Long-Term Liability Adjustments (Net of $1,214 Tax)

  0   0   0   3,609   3,609   15   3,624 

Interest Rate Hedge (Net of ($4) Tax)

  0   0   0   (12)  (12)  0   (12)

Comprehensive (Loss) Income

  0   0   (17,983)  3,597   (14,386)  (3,065)  (17,451)

Amortization of Stock-Based Compensation Awards

  0   2,162   0   0   2,162   74   2,236 

June 30, 2020

 $260  $530,224  $240,989  $(344,292) $427,181  $128,694  $555,875 
  

Common Stock

  

Capital in Excess of Par Value

  

Retained Earnings

  

Accumulated Other Comprehensive (Loss) Income

  

Total Equity

 

December 31, 2020

 $340  $642,887  $246,850  $(336,558) $553,519 

(Unaudited)

                    

Net Income

  0   0   26,404   0   26,404 

Actuarially Determined Long-Term Liability Adjustments (Net of $1,164 Tax)

  0   0   0   3,360   3,360 

Interest Rate Hedge (Net of $144 Tax)

  0   0   0   414   414 

Comprehensive Income

  0   0   26,404   3,774   30,178 

Issuance of Common Stock

  4   (4)  0   0   0 

Amortization of Stock-Based Compensation Awards

  0   1,509   0   0   1,509 

Shares Withheld for Taxes

  0   (2,072)  0   0   (2,072)

CCR Merger

  0   (266)  0   197   (69)

March 31, 2021

 $344  $642,054  $273,254  $(332,587) $583,065 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

8

  

 

CONSOL ENERGY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

 

 

Six Months Ended

  

Three Months Ended

 
 

June 30,

  

March 31,

 
 

2021

  

2020

  

2022

  

2021

 

Cash Flows from Operating Activities:

          

Net Income (Loss)

 $30,576  $(18,588)

Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:

     

Net (Loss) Income

 $(4,450) $26,404 

Adjustments to Reconcile Net (Loss) Income to Net Cash Provided by Operating Activities:

     

Depreciation, Depletion and Amortization

 112,096  101,098  55,954  59,897 

Gain on Sale of Assets

 (10,542) (7,315) (6,181) (8,202)

Stock/Unit-Based Compensation

 2,719  7,250 

Stock-Based Compensation

 4,201  1,509 

Amortization of Debt Issuance Costs

 4,331  3,146  2,020  2,140 

Gain on Debt Extinguishment

 (789) (16,833)

Loss on Commodity Derivative Instruments

 20,437 0 

Loss (Gain) on Debt Extinguishment

 2,122  (683)

Unrealized Mark-to-Market Loss on Commodity Derivative Instruments

 101,902 0 

Deferred Income Taxes

 (3,708) (5,775) (5,078) 5,185 

Equity in Earnings of Affiliates

 312  586  162  206 

Changes in Operating Assets:

          

Accounts and Notes Receivable

 45,093  42,469  (74,050) (5,764)

Inventories

 (3,099) (6,910) 4,078  475 

Prepaid Expenses and Other Assets

 6,436  11,936  2,165  1,620 

Changes in Other Assets

 (345) 2,989  (5,582) (1,459)

Changes in Operating Liabilities:

          

Accounts Payable

 (6,995) (37,669) 23,456  (73)

Other Operating Liabilities

 2,880  (7,004) 45,196  9,242 

Changes in Other Liabilities

  (26,797)  (22,700)  2,292   (12,501)

Net Cash Provided by Operating Activities

  172,605   46,680   148,207   77,996 

Cash Flows from Investing Activities:

          

Capital Expenditures

 (57,455) (46,447) (36,643) (13,800)

Proceeds from Sales of Assets

 11,918  689  6,478  8,488 

Other Investing Activity

  (182)  0   (1,329)  (182)

Net Cash Used in Investing Activities

  (45,719)  (45,758)  (31,494)  (5,494)

Cash Flows from Financing Activities:

          

Proceeds from Finance Lease Obligations

 0  16,293 

Payments on Finance Lease Obligations

 (14,625) (11,928) (6,328) (8,498)

Payments on Term Loan A

 (12,500) (10,000) (6,250) (6,250)

Payments on Term Loan B

 (6,223) (1,375) (687) (5,536)

Payments on Second Lien Notes

 (14,153) (25,480) (26,387) (9,338)

Proceeds from Long-Term Debt

 75,000 0 

Payments on Asset-Backed Financing

 (362) (349) (187) (181)

Distributions to Noncontrolling Interest

 0  (5,575)

Shares/Units Withheld for Taxes

 (2,302) (772)

Debt-Related Financing Fees

  (2,368)  (9,002)

Net Cash Provided by (Used in) Financing Activities

  22,467   (48,188)

Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash

 149,353  (47,266)

Shares Withheld for Taxes

  (6,072)  (2,072)

Net Cash Used in Financing Activities

  (45,911)  (31,875)

Net Increase in Cash and Cash Equivalents and Restricted Cash

 70,802  40,627 

Cash and Cash Equivalents and Restricted Cash at Beginning of Period

  50,850   80,293   198,206   50,850 

Cash and Cash Equivalents and Restricted Cash at End of Period

 $269,008  $91,477 
 

Cash and Cash Equivalents

 $222,901 $91,174 

Restricted Cash - Current

 33,854 303 

Restricted Cash - Non-current

  12,253  0 

Cash and Cash Equivalents and Restricted Cash at End of Period

 $200,203  $33,027  $269,008 $91,477 
  

Non-Cash Investing and Financing Activities:

          

Finance Lease

 $8,226  $13,003  $4,166  $8,226 

Other Equipment Financing

 $0  $11,153 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

9

  

CONSOL ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollars in thousands, except per share data)

 

NOTE 1—BASIS OF PRESENTATION:

 

Basis of Presentation

 

The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 810-0301 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and sixmonths ended June 30, 2021March 31, 2022 are not necessarily indicative of the results that may be expected for future periods.

 

The Consolidated Balance Sheet at December 31, 20202021 has been derived from the Audited Consolidated Financial Statements at that date but does not include all disclosures required by GAAP. This Form 10-Q report should be read in conjunction with CONSOL Energy Inc.'s Annual Report on Form 10-K for the year ended December 31, 20202021.

All dollar amounts discussed in these Notes to Consolidated Financial Statements are in thousands of U.S. dollars, except for per unit amounts, and unless otherwise indicated.

 

Basis of Consolidation

 

The Consolidated Financial Statements include the accounts of CONSOL Energy Inc. and its wholly-owned and majority-owned and/or controlled subsidiaries. The portion of these entities that is not owned by the Company is presented as non-controlling interest. All significant intercompany transactions and accounts have been eliminated in consolidation.

 

Recent Accounting Pronouncements

 

In May 2021,March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2022-02 - Financial Instruments—Credit Losses (Topic 326). The amendments in this update eliminate the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The amendments in this update require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Management is currently evaluating the impact of this guidance, but does not expect this update to have a material impact on the Company's financial statements.

In October 2021, the FASB issued ASU 2021-08 - Business Combinations (Topic 805). The amendments in this update apply to all entities that enter into a business combination within the scope of Subtopic 805-10, Business Combinations—Overall. The amendments in this update require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The amendments in this update do not affect the accounting for other assets or liabilities that may arise from revenue contracts with customers in accordance with Topic 606. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Management is currently evaluating the impact of this guidance, but does not expect this update to have a material impact on the Company's financial statements.

In May 2021, the FASB issued ASU 2021-04 - Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments in this update affect all entities that issue freestanding written call options that are classified in equity. Specifically, the amendments affect those entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. The amendments that relate to the recognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in Topic 260, Earnings Per Share. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Management is currently evaluating the impact ofThe Company adopted this guidance but doesin the notthree expect this update to have amonths ended March 31, 2022, and there was no material impact on the Company's financial statements.

 

10

 

Earnings per Share

 

Basic earnings per share are computed by dividing net income (loss) attributable to CONSOL Energy Inc. stockholdersincome by the weighted average number of shares outstanding during the reporting period. Dilutive earnings per share are computed similarly to basic earnings per share, except that the weighted average number of shares outstanding is increased to include additional shares from restricted stock units and performance share units, if dilutive. The number of additional shares is calculated by assuming that outstanding restricted stock units and performance share units were released, and that the proceeds from such activities, as applicable, were used to acquire shares of common stock at the average market price during the reporting period. 

 

The table below sets forth the share-based awards that have been excluded from the computation of diluted earnings per share because their effect would be anti-dilutive:

 

 

Three Months Ended

 

Six Months Ended

  

Three Months Ended

 
 

June 30,

  

June 30,

  

March 31,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

 

Anti-Dilutive Restricted Stock Units

 42,321  1,516,956  51,101  1,259,588  952,942  61,650 

Anti-Dilutive Performance Share Units

  0   29,062   0   29,061   94,904   0 
  42,321   1,546,018   51,101   1,288,649   1,047,846   61,650 

 

The computations for basic and dilutive (loss) earnings per share are as follows:

 

  

Three Months Ended

  

Six Months Ended

 

Dollars in thousands, except per share data

 

June 30,

  

June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Numerator:

                

Net Income (Loss)

 $4,172  $(21,063) $30,576  $(18,588)

Less: Net Loss Attributable to Noncontrolling Interest

  0   (3,080)  0   (2,972)

Net Income (Loss) Attributable to CONSOL Energy Inc. Stockholders

 $4,172  $(17,983) $30,576  $(15,616)
                 

Denominator:

                

Weighted-average shares of common stock outstanding

  34,446,605   26,031,103   34,327,282   26,009,129 

Effect of dilutive shares*

  643,892   0   734,388   0 

Weighted-average diluted shares of common stock outstanding

  35,090,497   26,031,103   35,061,670   26,009,129 
                 

Earnings (Loss) per Share:

                

Basic

 $0.12  $(0.69) $0.89  $(0.60)

Dilutive

 $0.12  $(0.69) $0.87  $(0.60)

  

Three Months Ended

 

Dollars in thousands, except per share data

 

March 31,

 
  

2022

  

2021

 

Numerator:

        

Net (Loss) Income

 $(4,450) $26,404 
         

Denominator:

        

Weighted-average shares of common stock outstanding

  34,660,713   34,206,632 

Effect of dilutive shares*

  0   837,450 

Weighted-average diluted shares of common stock outstanding

  34,660,713   35,044,082 
         

(Loss) Earnings per Share:

        

Basic

 $(0.13) $0.77 

Dilutive

 $(0.13) $0.75 

*During periods in which the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all equity awards is anti-dilutive.

 

As of June 30, 2021March 31, 2022, CONSOL Energy has 500,000 shares of preferred stock authorized, noneNaN of which are issued or outstanding.

 

Reclassifications

 

During the year ended December 31, 2020, the Company added the CONSOL Marine Terminal to its reportable segments, as disclosed in Note 17 - Segment Information. As a result, certain reclassifications of 2020 segment information have been made to conform to the 2021 presentation. Additionally, certainCertain amounts in prior periods have been reclassified to conform with the report classifications of the current period, including the reclassification of the current portion of the Company's operating leasecommodity derivatives liability, previously included in Other Accrued Liabilities on the Consolidated Balance Sheets. These reclassificationsThis reclassification had no effect on previously reported total assets, net income, stockholders' equity or cash flows from operating activities.

 

11

  
 

NOTE 2MAJOR TRANSACTIONS:

Merger with CONSOL Coal Resources LP

On October 22, 2020, CONSOL Energy, the Partnership, the General Partner, a wholly-owned subsidiary of CONSOL Energy, and Merger Sub entered into a definitive merger agreement (the “Merger Agreement”) pursuant to which Merger Sub merged with and into the Partnership, with the Partnership surviving as an indirect, wholly-owned subsidiary of CONSOL Energy. On December 30, 2020, the CCR Merger was completed and CONSOL Energy issued 7,967,690 shares of common stock to acquire the 10,912,138 common units of CCR not2—REVENUE owned by CONSOL Energy prior to the CCR Merger at a fixed exchange ratio of 0.73 shares of CONSOL Energy common stock for each CCR unit, for total implied consideration of $51,710. As a result of the CCR Merger, CCR's common units are no longer publicly traded.

Except for the Partnership's incentive distribution rights, which were automatically canceled immediately prior to the effective time of the CCR Merger for no consideration in accordance with CCR's partnership agreement, the interests in CCR owned by CONSOL Energy and its subsidiaries remain outstanding as limited partner interests in the surviving entity. The General Partner will continue to own the non-economic general partner interest in the surviving entity.

Since CONSOL Energy controlled CCR prior to the CCR Merger and continues to control CCR after the CCR Merger, CONSOL Energy accounted for the change in its ownership interest in CCR as an equity transaction, which was reflected as a reduction of noncontrolling interest with corresponding increases to common stock and capital in excess of par value. No gain or loss was recognized in CONSOL Energy's Consolidated Statements of Income as a result of the CCR Merger. The tax effects of the CCR Merger were reported as adjustments to deferred income taxes and capital in excess of par value.

Prior to the effective date of the CCR Merger, public unitholders held a 39.3% equity interest in CCR's outstanding common units and CONSOL Energy owned the remaining 60.7% equity interest in CCR's outstanding common units. The earnings of CCR that were attributed to its common units held by the public prior to the CCR Merger are reflected in Net Loss Attributable to Noncontrolling Interest in the Consolidated Statements of Income. 

The Company incurred $9,822 of transaction costs directly attributable to the CCR Merger during the year ended December 31, 2020, including financial advisory, legal service and other professional fees, which were recorded to Selling, General and Administrative Costs in the Consolidated Statements of Income.

Settlement Transaction with Murray Energy

On September 16, 2020, CONSOL entered into a settlement transaction with (i) Murray Energy Holdings Co., Murray Energy Corporation, and their direct and indirect subsidiaries (such entities that are debtors in possession in Murray Energy Holdings Co.’s jointly administered Chapter 11 bankruptcy cases) and (ii) ACNR Holdings, Inc. to fully and finally resolve the disputes raised in the litigation captioned CONSOL Energy Inc. v Murray Energy Holdings Co., et al., Adversary Case 2:20-ap-02036, arising out of Murray Energy Holdings Co.'s bankruptcy proceedings and any and all other disputes, controversies, or causes of action between and among them. The underlying agreements and compromises, which have been memorialized in definitive documentation, were treated as a single, integrated transaction. As of June 30, 2021, this single, integrated transaction resulted in $4,867 of Other Receivables, net, and $21,339 of Other Assets, net, included in the Consolidated Balance Sheets. As of December 31, 2020, this single, integrated transaction resulted in $4,867 of Other Receivables, net, and $22,055 of Other Assets, net, included in the Consolidated Balance Sheets. See Note 14 - Commitments and Contingent Liabilities with respect to additional information relating to certain liabilities of the Company under the Coal Act (as defined below).

12

NOTE 3—REVENUE:FROM CONTRACTS WITH CUSTOMERS:

 

The following table disaggregatestables disaggregate CONSOL Energy's revenue from contracts with customers to depict how the nature, amount, timing and uncertainty of the Company's revenues and cash flows are affected by economic factors:

 

 

Three Months Ended

 

Six Months Ended

  

Three Months Ended March 31, 2022

 
 

June 30, 2021

  

June 30, 2020

  

June 30, 2021

  

June 30, 2020

  

Domestic

  

Export

  

Total

 

Domestic Coal Revenue

 $117,161 $69,317 $276,377 $217,427 

Export Coal Revenue

  142,671   32,996   268,990   140,338 

Power Generation

 $223,500  $120,441  $343,941 

Industrial

 1,944  97,549  99,493 

Metallurgical

  0   32,934   32,934 

Total Coal Revenue

 225,444  250,924  476,368 

Terminal Revenue

 17,380  15,898  35,592  32,399       21,397 

Freight Revenue

  26,010   3,085   53,023   6,232         38,389 

Total Revenue from Contracts with Customers

 $303,222  $121,296  $633,982  $396,396        $536,154 

  

Three Months Ended March 31, 2021

 
  

Domestic

  

Export

  

Total

 

Power Generation

 $155,310  $33,131  $188,441 

Industrial

  2,836   80,574   83,410 

Metallurgical

  1,070   12,614   13,684 

Total Coal Revenue

  159,216   126,319   285,535 

Terminal Revenue

          18,212 

Freight Revenue

          27,013 

Total Revenue from Contracts with Customers

         $330,760 

 

Coal Revenue

 

The Company has disaggregated its coal revenue, derived from the PAMC and Itmann operations, between domestic and export revenues, which depicts the pricingas well as industrial, power generation and contract differences between the two.metallurgical markets. Domestic coal revenue is characterized bytends to be derived from contracts that typically have a term of one year or longer and the pricing is typically fixed. Export coal revenue is generallytends to be derived byfrom spot or short-termshorter-term contracts with pricing determined atcloser to the time of shipment or based on a market index.index; however, the Company has recently begun to secure several long-term export contracts with varying pricing arrangements. Coal revenue derived from the Itmann operations consists primarily of metallurgical coal sales, while coal revenue derived from the PAMC services all markets due to the nature of its coal quality characteristics.

 

CONSOL Energy's coal revenue is generally recognized when title passes to the customer and the price is fixed and determinable. Generally, title passes when coal is loaded at the central preparation facility, the CONSOL Marine Terminalat terminal locations or on occasion, other customer destinations. The Company's coal contract revenue per ton is fixed and determinable based upon either fixed forward pricing or pricing derived from established indices and adjusted for nominal quality characteristics. Some coal contracts also contain positive electric power price-related adjustments, which represent market-driven price adjustments, wherein no additional value is exchanged, in addition to a fixed base price per ton. The Company’s coal contracts generally do not allow for retroactive adjustments to pricing after title to the coal has passed. The Company's coal supply contractspassed and other sales and operating revenue contracts vary in length from short-term to long-term contracts andtypically do not typically have significant financing components.

 

The estimated transaction price from each of the Company's contracts is based on the total amount of consideration to which the Company expects to be entitled under the contract. Included in the transaction price for certain coal supply contracts is the impact of variable consideration, including quality price adjustments, handling services and per ton price fluctuations based on certain coal sales price indices. The estimated transaction price for each contract is allocated to the Company's performance obligations based on relative stand-alone selling prices determined at contract inception. The Company has determined that each ton of coal represents a separate and distinct performance obligation. Some of the Company's contracts span multiple years and have annual pricing modifications, based upon market-driven or inflationary adjustments, where no additional value is exchanged. Management believes that the invoice price is the most appropriate rate at which to recognize revenue.

 

While CONSOL Energy does, from time to time, experience costs of obtaining coal customer contracts with amortization periods greater than one year, those costs are generally immaterial to the Company's net income. At June 30, 2021March 31, 2022 and December 31, 20202021, the Company did not have any capitalized costs to obtain customer contracts on its Consolidated Balance Sheets. As of and for the three and sixmonths ended June 30, 2021March 31, 2022 and 20202021, the Company has not recognized any amortization of previously existing capitalized costs of obtaining customer contracts. Further, the Company has not recognized any coal revenue in the current period that is not a result of current period performance.

 

Terminal Revenue

 

Terminal revenues are attributable to the Company's CONSOL Marine Terminal and include revenues earned from providing receipt and unloading of coal from rail cars, transporting coal from the receipt point to temporary storage or stockpile facilities located at the Terminal, stockpiling, blending, weighing, sampling, redelivery, and loading of coal onto vessels. Revenues for these services are earned on a ratable basis, and performance obligations are considered fulfilled as the services are performed.

    

The CONSOL Marine Terminal does not normally experience material costs of obtaining customer contracts with amortization periods greater than one year. At June 30, 2021March 31, 2022 and December 31, 20202021, the Company did not have any capitalized costs to obtain customer contracts on its Consolidated Balance Sheets. As of and for the three and sixmonths ended June 30, 2021March 31, 2022 and 20202021, the Company has not recognized any amortization of previously existing capitalized costs of obtaining Terminal customer contracts. Further, the Company has not recognized any revenue in the current period that is not a result of current period performance.

 

12

Freight Revenue

 

Some of CONSOL Energy's coal contracts require that the Company sell its coal at locations other than its central preparation plant. The cost to transport the Company's coal to the ultimate sales point is passed through to the Company's customers and CONSOL Energy recognizes the freight revenue equal to the transportation costs when title of the coal passes to the customer.

 

Contract Balances

 

Contract assets are recorded separately from trade receivables in the Company's Consolidated Balance Sheets and are reclassified to trade receivables as title passes to the customer and the Company's right to consideration becomes unconditional. Payments for coal shipments are typically due within two to four weeks from the invoice date. CONSOL Energy typically does not have material contract assets that are stated separately from trade receivables since the Company's performance obligations are satisfied as control of the goods or services passes to the customer, thereby granting the Company an unconditional right to receive consideration. Contract liabilities relate to consideration received in advance of the satisfaction of the Company's performance obligations. Contract liabilities are recognized as revenue at the point in time when control of the goodgoods passes to the customer, or over time when services are provided.

 

13

 

NOTE 4—3—MISCELLANEOUS OTHER (LOSS) INCOME:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Interest Income

 $811  $122  $1,669  $366 

Royalty Income - Non-Operated Coal

  673   2,893   2,274   7,397 

Rental Income

  245   325   460   822 

Contract Buyout

  0   30,144   0   40,969 

Unrealized Loss on Commodity Derivative Instruments

  (20,437)  0   (20,437)  0 

Other

  305   452   820   552 

Miscellaneous Other (Loss) Income

 $(18,403) $33,936  $(15,214) $50,106 

Contract buyout income earned during 2020 was primarily the result of partial contract buyouts that involved negotiations to reduce coal quantities several customers were otherwise obligated to purchase under contracts in exchange for payment of certain fees to the Company, and do not impact forward contract terms.

During the second quarter of 2021, the Company initiated a targeted commodity price hedging strategy, layering in 2.0 million metric tons of commodity derivative contracts in the API2 market at a weighted average API2 price of $79.34 per ton. The continued API2 pricing strength throughout the second quarter of 2021 resulted in mark-to-market losses of $20,437.

  

Three Months Ended March 31,

 
  

2022

  

2021

 

Interest Income

 $1,329  $858 

Royalty Income - Non-Operated Coal

  1,062   1,601 

Property Easements and Option Income

  714   98 

Rental Income

  460   215 

Other

  783   417 

Miscellaneous Other Income

 $4,348  $3,189 

  

 

NOTE 5—4—COMPONENTS OF PENSION AND OTHER POST-EMPLOYMENT BENEFIT (OPEB) PLANS NET PERIODIC BENEFIT COSTS:

 

The components of Net Periodic Benefit (Credit) Cost are as follows:

 

 

Pension Benefits

  

Other Post-Employment Benefits

  

Pension Benefits

  

Other Post-Employment Benefits

 
 

Three Months Ended

 

Six Months Ended

 

Three Months Ended

 

Six Months Ended

  

Three Months Ended

 

Three Months Ended

 
 

June 30,

  

June 30,

  

June 30,

  

June 30,

  

March 31,

  

March 31,

 
 

2021

  

2020

  

2021

  

2020

  

2021

  

2020

  

2021

  

2020

  

2022

  

2021

  

2022

  

2021

 

Service Cost

 $279  $295  $558  $591  $0  $0  $0  $0  $302  $279  $0  $0 

Interest Cost

 3,554  5,044  7,104  10,088  1,819  3,199  3,637  6,398  4,135  3,550  1,974  1,818 

Expected Return on Plan Assets

 (10,542) (10,455) (21,084) (20,910) 0  0  0  0  (9,319) (10,542) 0  0 

Amortization of Prior Service Credits

 0  0  0  0  (601) (602) (1,202) (1,203) 0  0  (601) (601)

Amortization of Actuarial Loss

 1,367  1,731  2,734  3,461  1,629  2,320  3,258  4,639   758   1,367   879   1,629 

Settlement Loss Recognized

  22   0   22   0   0   0   0   0 

Net Periodic Benefit (Credit) Cost

 $(5,320) $(3,385) $(10,666) $(6,770) $2,847  $4,917  $5,693  $9,834  $(4,124) $(5,346) $2,252  $2,846 

 

(Credits) expenses related to pension and other post-employment benefits are reflected in Operating and Other Costs in the Consolidated Statements of Income.

  

For the three and six months ended June 30, 2021, lump sum payments exceeded the total of the projected service cost and interest cost for the plan year, triggering settlement accounting. Accordingly, CONSOL Energy recognized expense of $22 for the three and six months ended June 30, 2021 in Operating and Other Costs in the Consolidated Statements of Income. The settlement charges represented a pro rata portion of the net unrecognized loss based on the percentage reduction in the projected benefit obligation due to the lump sum payments. The settlement charges noted above also resulted in a remeasurement of the pension plan at June 30, 2021, which reduced the pension liability by $1,009. The settlement and corresponding remeasurement of the pension plan resulted in an adjustment of $766 to Other Comprehensive Income, net of $265 in deferred taxes. If CONSOL Energy continues to make additional lump sum payments, the Company may incur additional settlement charges in 2021, and the pension plan would be remeasured using updated assumptions.

 

NOTE 6—5—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:

 

The components of Net Periodic Benefit Cost are as follows:

 

 

CWP

  

Workers' Compensation

  

CWP

  

Workers' Compensation

 
 

Three Months Ended

 

Six Months Ended

 

Three Months Ended

 

Six Months Ended

  

Three Months Ended

 

Three Months Ended

 
 

June 30,

  

June 30,

  

June 30,

  

June 30,

  

March 31,

  

March 31,

 
 

2021

  

2020

  

2021

  

2020

  

2021

  

2020

  

2021

  

2020

  

2022

  

2021

  

2022

  

2021

 

Service Cost

 $1,115  $1,151  $2,230  $2,302  $1,059  $1,569  $2,118  $3,138  $726  $1,115  $1,230  $1,059 

Interest Cost

 1,177  1,552  2,355  3,103  282  461  564  922  1,265  1,178  342  282 

Amortization of Actuarial Loss (Gain)

 2,091  1,401  4,182  2,802  (45) (122) (90) (244) 1,060  2,091  (105) (45)

State Administrative Fees and Insurance Bond Premiums

  0   0   0   0   444   461   912   1,082   0   0   437   468 

Net Periodic Benefit Cost

 $4,383  $4,104  $8,767  $8,207  $1,740  $2,369  $3,504  $4,898  $3,051  $4,384  $1,904  $1,764 

 

Expenses related to CWP and workers’ compensation are reflected in Operating and Other Costs in the Consolidated Statements of Income.

 

1413

  
 

NOTE 7—6—INCOME TAXES:

 

Due to a change in forecasted earnings, theThe Company recorded its provision for income taxes for the three and six months ended June 30, 2021 of ($8,893) and ($3,708), respectively, based on its annual estimated income tax rate adjusted for discrete items. This was different than the year-to-date actual calculation used for the threemonths ended March 31, 2021. The effective tax rate for the three2022 and six months ended June 30, 2021 differs from the U.S. federal statutory rate of 21%($3,522), primarily due to the income tax benefit for excess percentage depletion, partially offset by tax expense related to compensation. These tax provision amounts also include discrete tax adjustments related to prior years' taxes, state tax law changes and equity compensation.

The provision for or 44.2% of earnings before income taxes, for the three and six months ended June 30, 2020 was ($7,683) and ($5,775), respectively, which was based on the Company'sits annual estimated income tax rate adjusted for discrete items. The effective tax rate for the three months ended March 31, 2022 differs from the U.S. federal statutory rate of 21%, primarily due to $2,295 of discrete tax benefits related to equity compensation, as well as effective tax rate impacts of excess percentage depletion and foreign derived intangible income, partially offset by compensation. 

The provision for income taxes for the sixthree months ended June 30, 2020March 31, 2021 was $5,185, or 16.4% of earnings before income taxes, based on the actual year-to-date effective rate. The income tax provision for interim periods is generally determined using an estimate of the Company's annual effective tax rate and adjusting for discrete items. However, due to operating activities in 2021 and considering the significant benefit from excess percentage depletion, estimating a reliable annual effective tax rate was difficult as small changes to forecasted results could produce significant changes to the Company's annual effective tax rate. Therefore, the Company determined the actual year-to-date effective tax rate was the best estimate for the reporting period. The effective tax rate for the three months ended March 31, 2021 differed from the U.S. federal statutory rate of 21%, primarily due to $339 of discrete tax expense related to equity compensation, as well as the incomeeffective tax benefitrate impacts of excess percentage depletion, partially offset by tax expense related to equity compensation. These tax provision amounts also include discrete tax adjustments related to tax law changes and equity compensation.

 

TheDue to the expectation of taxable income for the year 2022, the Company utilizeshas recognized a benefit of $937 related to the “more likely than not” standard in recognizingrelease of a valuation allowance for state tax benefitnet operating losses in its financial statements. Forannual effective tax rate for the sixthree months ended June 30, 2021 and the year ended DecemberMarch 31, 20202022, the Company did not have any unrecognized tax benefits. .

 

The Company is subject to taxation in the United States and its various states, as well as Canada and its various provinces. Under the provisions of the tax matters agreement entered into between the Company and its former parent on November 28, 2017 (the “TMA”), certain subsidiaries of the Company are subject to examination for the period January 1, 2017 through November 28, 2017. As a separate taxpayer, theThe Company is subject to examination for the period November 28, 2017 tax periods 2018through December 31, 2020 2021for federal and state returns.

  

 

NOTE 8—7—CREDIT LOSSES:

 

EffectiveTrade receivables are recorded at the invoiced amount and do January 1, 2020, not bear interest. The Company markets its coal and terminal services to top-performing rail-served power plants in its core market areas. The Company also serves power generation, industrial and metallurgical consumers in international markets. Credit is extended based on an evaluation of a customer's financial condition and a customer's ability to perform its obligations. Trade receivable balances are monitored against approved credit terms. Credit terms are reviewed and adjusted as considered necessary based on changes to a customer's credit profile. If a customer's credit deteriorates, the Company adopted ASU 2016may -013,Financial Instruments - Credit Losses (Topic 326): Measurementreduce credit risk exposure by reducing credit terms, obtaining letters of Credit Losses on Financial Instruments using a modified retrospective approach. This ASU replaces the incurred loss impairment model with an expected credit, loss impairment modelobtaining credit insurance, or requiring pre-payment for financial instruments, including tradeshipments.

Other non-trade contractual arrangements consist primarily of overriding royalty agreements and other receivables.financial arrangements between the Company and various counterparties. The amendment requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses forfollowing table excludes fully reserved receivables that are current or not yet due, which were not considered under previous accounting guidance. The Company recorded a cumulative-effect adjustment to retained earningsassociated with certain transactions defined as other non-trade contractual arrangements in the amount of $3,298, net of $1,109 of income taxes,$8,263 at March 31, 2022 and December 31, 2021, as management believes it is probable that these outstanding balances will not be collected. At March 31, 2022, the allowance for expected credit losses associated with other non-trade contractual arrangements was $12,436 and $3,457, included in Other Receivables, net and Other Noncurrent Assets, net, respectively, on financial assets at the adoption date.

The following table illustratesConsolidated Balance Sheets. At December 31, 2021, the impact of ASC 326.allowance for credit losses associated with other non-trade contractual arrangements was $12,329 and $2,882, included in Other Receivables, net and Other Noncurrent Assets, net, respectively, on the Consolidated Balance Sheets.

  

January 1, 2020

 
  As Reported Under ASC 326  Pre-ASC 326 Adoption  Impact of ASC 326 Adoption 
             

Trade Receivables

 $3,051  $2,100  $951 

Other Receivables

  3,372   711   2,661 

Other Assets

  795   0   795 

Allowance for Credit Losses on Receivables

 $7,218  $2,811  $4,407 

 

The Company is exposed to credit losses primarily through sales of products and services. The Company's expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade and other accounts receivables. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on an aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company's monitoring activities include timely account reconciliations, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions.

Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding the novel coronavirus (COVID-19) pandemic and determined that the estimate of credit losses was not significantly impacted.

 

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for changes to the assessment of anticipated payment, changes in economic conditions, current industry trends in the markets the Company serves, and changes in the financial health of the Company's counterparties.

 

1514

 

The following table provides a roll-forward of the allowance for credit losses by portfolio segment that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.

 

  

Trade Receivables

  

Other Receivables

  

Other Assets

 
             

Beginning Balance, December 31, 2020

 $4,426  $4,710  $1,661 

Provision for expected credit losses

  (45)  1,748   (88)

Ending Balance, June 30, 2021

 $4,381  $6,458  $1,573 
  

Trade Receivables

  

Other Non-Trade Contractual Arrangements

 
         

Beginning Balance, December 31, 2021

 $4,597  $6,948 

Provision for expected credit losses

  1,348   682 

Ending Balance, March 31, 2022

 $5,945  $7,630 

  

 

NOTE 9—8—INVENTORIES:

 

Inventory components consist of the following:

 

 

June 30,

 

December 31,

  

March 31,

 

December 31,

 
 

2021

  

2020

  

2022

  

2021

 

Coal

 $12,457  $7,163  $9,735  $12,078 

Supplies

  46,842   49,037   49,063   50,798 

Total Inventories

 $59,299  $56,200  $58,798  $62,876 

 

Inventories are stated at the lower of cost or net realizable value. The cost of coal inventories is determined by the first-in, first-out (“FIFO”) method. Coal inventory costs include labor, supplies, equipment costs, operating overhead, depreciation, depletion, amortization and other related costs. The cost of supplies inventory is determined by the average cost method and includes operating and maintenance supplies to be used in the Company's coal operations.

  

 

NOTE 10—9—ACCOUNTS RECEIVABLE SECURITIZATION:

 

CONSOL Energy and certain of its U.S. subsidiaries are parties to a trade accounts receivable securitization facility with financial institutions for the sale on a continuous basis of eligible trade accounts receivable. In March 2020, the securitization facility was amended to, among other things, extend the maturity date from August 30, 2021 to March 27, 2023.

 

Pursuant to the securitization facility, CONSOL Thermal Holdings LLC, an indirect, wholly-owned subsidiary of the Partnership,Company, sells current and future trade receivables to CONSOL Pennsylvania Coal Company LLC, a wholly-owned subsidiary of the Company. CONSOL Marine Terminals LLC, a wholly-owned subsidiary of the Company, and CONSOL Pennsylvania Coal Company LLC sell and/or contribute current and future trade receivables (including receivables sold to CONSOL Pennsylvania Coal Company LLC by CONSOL Thermal Holdings LLC) to CONSOL Funding LLC, a wholly-owned subsidiary of the Company (the “SPV”). The SPV, in turn, pledges its interests in the receivables to PNC Bank, N.A., which either makes loans or issues letters of credit on behalf of the SPV. The maximum amount of advances and letters of credit outstanding under the securitization facility may not exceed $100 million.

 

Loans under the securitization facility accrue interest at a reserve-adjusted LIBOR market index rate equal to the one-month Eurodollar rate. Loans and letters of credit under the securitization facility also accrue a program fee and a letter of credit participation fee, respectively, ranging from 2.00% to 2.50% per annum depending on the total net leverage ratio of CONSOL Energy. In addition, the SPV paid certain structuring fees to PNC Capital Markets LLC and pays other customary fees to the lenders, including a fee on unused commitments equal to 0.60% per annum.

 

At June 30, 2021March 31, 2022, the Company's eligible accounts receivable yielded $24,730$29,858 of borrowing capacity. At June 30, 2021March 31, 2022, the facility had 0 outstanding borrowings and $24,305$29,681 of letters of credit outstanding, leaving available borrowing capacity of $425.$177. At December 31, 20202021, the Company's eligible accounts receivable yielded $31,868$21,649 of borrowing capacity. At December 31, 20202021, the facility had 0 outstanding borrowings and $31,218$21,806 of letters of credit outstanding, leaving available borrowing capacity0 unused capacity. CONSOL Energy posted $157 of $650.cash collateral to secure the difference in the outstanding letters of credit and the eligible accounts receivable. Cash collateral of $157 is included in Restricted Cash - Current in the Consolidated Balance Sheets. Costs associated with the receivables facility totaled $257$275 and $518$261 for the three and sixmonths ended June 30, 2021March 31, 2022 , respectively, and $292 and $633 for the threeand six months ended June 30, 20202021, respectively. These costs have been recorded as financing fees which are included in Operating and Other Costs in the Consolidated Statements of Income. The Company has not derecognized any receivables due to its continued involvement in the collections efforts.

 

1615

  
 

NOTE 11—10—PROPERTY, PLANT AND EQUIPMENT:

 

Property, plant and equipment consists of the following:

 

 

June 30,

 

December 31,

  

March 31,

 

December 31,

 
 

2021

  

2020

  

2022

  

2021

 

Plant and Equipment

 $3,150,799  $3,134,149  $3,252,874  $3,213,512 

Coal Properties and Surface Lands

 876,297  874,567  876,794  877,271 

Airshafts

 461,804  452,976  476,588  473,866 

Mine Development

 356,172  354,691  358,909  357,479 

Advance Mining Royalties

  326,161   327,313   328,740   328,677 

Total Property, Plant and Equipment

 5,171,233  5,143,696  5,293,905  5,250,805 

Less: Accumulated Depreciation, Depletion and Amortization

  3,168,407   3,094,634   3,323,580   3,272,255 

Total Property, Plant and Equipment, Net

 $2,002,826  $2,049,062  $1,970,325  $1,978,550 

 

Coal reserves are either owned in fee or controlled by lease. The duration of the leases vary; however, the lease terms are generally extended automatically to the exhaustion of economically recoverable reserves, as long as active mining continues. Coal interests held by lease provide the same rights as fee ownership for mineral extraction and are legally considered real property interests.

 

As of June 30, 2021March 31, 2022 and December 31, 20202021, property, plant and equipment includes gross assets under finance leases of $74,599$80,225 and $112,334,$80,232, respectively. Accumulated amortization for finance leases was $25,757$36,056 and $56,761$34,036 at June 30, 2021March 31, 2022 and December 31, 20202021, respectively. Amortization expense for assets under finance leases approximated $6,428$6,230 and $5,538$8,619 for the three months ended June 30, 2021March 31, 2022 and 2020, respectively, and $15,047 and $10,502 for the six months ended June 30, 2021and 2020, respectively, and is included in Depreciation, Depletion and Amortization in the accompanying Consolidated Statements of Income.

  

 

NOTE 12—11—OTHER ACCRUED LIABILITIES:

 

 

June 30,

 

December 31,

  

March 31,

 

December 31,

 
 

2021

  

2020

  

2022

  

2021

 

Subsidence Liability

 $92,090  $89,554  $95,059  $93,871 

Accrued Payroll and Benefits

 21,232  21,179 

Commodity Derivatives

 16,867 0 

Accrued Compensation and Benefits

 47,429  50,146 

Accrued Interest

 7,587  6,236  8,866  9,042 

Accrued Other Taxes

 4,564 7,126  5,168 5,556 

Litigation

  3,335 3,625 

Accrued Equipment Obligations

 2,302  6,698 

Other

 21,485  20,220  17,693  16,415 

Current Portion of Long-Term Liabilities:

          

Asset Retirement Obligations

 26,020  20,587  27,400  27,400 

Postretirement Benefits Other than Pensions

 25,662  26,073  23,452  23,638 

Pneumoconiosis Benefits

 12,063  12,203  12,328  12,398 

Workers' Compensation

  9,552   9,653   9,793   10,205 

Total Other Accrued Liabilities

 $242,759  $223,154  $247,188  $248,671 

 

1716

  
 

NOTE 13—12—LONG-TERM DEBT:

 

 

June 30,

 

December 31,

  

March 31,

 

December 31,

 
 

2021

  

2020

  

2022

  

2021

 

Debt:

          

Term Loan B due in September 2024 (Principal of $263,965 and $270,188 less Unamortized Discount of $813 and $938, 4.61% and 4.65% Weighted Average Interest Rate, respectively)

 $263,152  $269,250 

Term Loan B due in September 2024 (Principal of $238,590 and $239,277 less Unamortized Discount of $567 and $687, 4.96% and 4.61% Weighted Average Interest Rate, respectively)

 $238,023  $238,590 

11.00% Senior Secured Second Lien Notes due November 2025

 151,957  167,147  124,107  149,107 

MEDCO Revenue Bonds in Series due September 2025 at 5.75%

 102,865  102,865  102,865  102,865 

9.00% PEDFA Solid Waste Disposal Revenue Bonds due April 2028

 75,000 0  75,000 75,000 

Term Loan A due in March 2023 (5.25% and 5.50% Weighted Average Interest Rate, respectively)

 53,750  66,250 

Term Loan A due in March 2023 (5.00% and 5.25% Weighted Average Interest Rate, respectively)

 35,000  41,250 

Other Asset-Backed Financing Arrangements

 2,451  2,813  1,895  2,082 

Advance Royalty Commitments (13.68% Weighted Average Interest Rate)

 2,185  2,185 

Advance Royalty Commitments (8.01% Weighted Average Interest Rate)

 4,858  4,858 

Less: Unamortized Debt Issuance Costs

  10,639   9,921   7,751   9,111 
 640,721  600,589  573,997  604,641 

Less: Amounts Due in One Year*

  31,395   33,731   39,095   36,589 

Long-Term Debt

 $609,326  $566,858  $534,902  $568,052 

 

* Excludes current portion of Finance Lease Obligations of $19,466$23,226 and $20,115$20,743 at June 30, 2021March 31, 2022 and December 31, 20202021, respectively.

Senior Secured Credit Facilities

 

In November 2017, CONSOL Energy entered into a revolving credit facility with PNC Bank, N.A. with commitments up to $300,000 (the “Revolving Credit Facility”), a Term Loan A Facility of up to $100,000 (the “TLA Facility”) and a Term Loan B Facility of up to $400,000 (the “TLB Facility”, and together with the Revolving Credit Facility and the TLA Facility, the “Senior Secured Credit Facilities”). On March 28, 2019, the Company amended the Senior Secured Credit Facilities to increase the borrowing commitment of the Revolving Credit Facility to $400,000 and reallocate the principal amounts outstanding under the TLA Facility and the TLB Facility. On March 29, 2021, the Company amended the Senior Secured Credit Facilities to revise the negative covenant with respect to other indebtedness to allow the Company to incur obligations under the tax-exempt solid waste disposal revenue bonds. On April 13, 2021, the Pennsylvania Economic Development Financing Authority (“PEDFA”) Solid Waste Disposal Revenue Bonds were issued. On June 5, 2020, the Company amended the Senior Secured Credit Facilities (the “amendment”) to provide eight quarters of financial covenant relaxation, effect an increase in the rate at which borrowings under the Revolving Credit Facility and the TLA Facility bear interest, and add an anti-cash hoarding provision. On March 29, 2021, the Company amended the Senior Secured Credit Facilities to revise the negative covenant with respect to other indebtedness to allow the Company to incur obligations under the tax-exempt solid waste disposal revenue bonds. On April 13, 2021, the Pennsylvania Economic Development Financing Authority ("PEDFA") Solid Waste Disposal Revenue Bonds were issued. Borrowings under the Company's Senior Secured Credit Facilities bear interest at a floating rate which can be, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an alternate base rate plus an applicable margin. The applicable margin for the Revolving Credit Facility and the TLA Facility depends on the total net leverage ratio, whereas the applicable margin for the TLB Facility is fixed. The amendment increased the applicable margin by 50 basis points on both the Revolving Credit Facility and the TLA Facility. The administrative agents of our Senior Secured Credit Facilities, in consultation with CONSOL, will choose a replacement index for LIBOR and the parties will execute an amendment to the facilities. LIBOR tenors of 1-week and 2-month have been discontinued as of December 31, 2021. However, LIBOR will still be published in its current form for the overnight, 1-month, 3-month, 6-month and 12-month tenors with a planned cessation after June 30, 2023. In the event that LIBOR would no longer be a published rate index, the allowable alternative base rate and replacement index may increase the Company's interest costs associated with those facilities. The maturity date of the Revolving Credit and TLA Facilities is March 28, 2023. The TLB Facility's maturity date is September 28, 2024. Obligations under the Senior Secured Credit Facilities are guaranteed by (i) all owners of the PAMC held by the Company, (ii) any other members of the Company’s group that own any portion of the collateral securing the Revolving Credit Facility, and (iii) subject to certain customary exceptions and agreed materiality thresholds, all other existing or future direct or indirect wholly-owned restricted subsidiaries of the Company. The obligations are secured by, subject to certain exceptions (including a limitation of pledges of equity interests in certain subsidiaries and certain thresholds with respect to real property), a first-priority lien on (i) the Company’s interest in the PAMC, (ii) the limited partner units ofequity interests in the Partnership held by the Company, (iii) the equity interests in the General Partner held by the Company, (iv) the CONSOL Marine Terminal, (v)(iv) the Itmann Mine and (vi)(v) the 1.51.4 billion tons of Greenfield Reserves.Reserves and Resources.

 

The Senior Secured Credit Facilities contain a number of customary affirmative covenants. In addition, the Senior Secured Credit Facilities contain a number of negative covenants, including (subject to certain exceptions) limitations on (among other things): indebtedness, liens, investments, acquisitions, dispositions, restricted payments and prepayments of junior indebtedness. The amendment added additional conditions to be met for the covenants relating to investments in joint ventures, general investments, share repurchases, dividends and repurchases of Second Lien Notes.Notes (as defined below). The additional conditions require that the Company have 0 outstanding borrowings and no more than $200,000 of outstanding letters of credit on the Revolving Credit Facility. Further restrictions apply to investments in joint ventures, share repurchases and dividends that require the Company's total net leverage ratio shall not be greater than 2.00 to 1.00.

 

1817

 

The Revolving Credit Facility and the TLA Facility also include covenants relating to (i) a maximum first lien gross leverage ratio, (ii) a maximum total net leverage ratio, and (iii) a minimum fixed charge coverage ratio. The maximum first lien gross leverage ratio is calculated as the ratio of Consolidated First Lien Debt to Consolidated EBITDA. Consolidated EBITDA, as used in the covenant calculation, excludes non-cash compensation expenses, non-recurring transaction expenses, extraordinary gains and losses, gains and losses on discontinued operations, non-cash charges related to legacy employee liabilities and gains and losses on debt extinguishment, and subtracts cash payments related to legacy employee liabilities. The maximum total net leverage ratio is calculated as the ratio of Consolidated Indebtedness, minus Cash on Hand, to Consolidated EBITDA. The minimum fixed charge coverage ratio is calculated as the ratio of Consolidated EBITDA to Consolidated Fixed Charges. Consolidated Fixed Charges, as used in the covenant calculation, include cash interest payments, cash payments for income taxes, scheduled debt repayments, dividends paid and Maintenance Capital Expenditures. The amendment revised the financial covenants applicable to the Revolving Credit Facility and the TLA Facility relating to the maximum first lien gross leverage ratio, maximum total net leverage ratio and minimum fixed charge coverage ratio, so that for the fiscal quarters ending June 30, 2020 through March 31, 2021, the maximum first lien gross leverage ratio shall be 2.50 to 1.00, the maximum total net leverage ratio shall be 3.75 to 1.00, and the minimum fixed charge coverage ratio shall be 1.00 to 1.00; for the fiscal quarters ending June 30, 2021 through September 30, 2021, the maximum first lien gross leverage ratio shall be 2.25 to 1.00 and the maximum total net leverage ratio shall be 3.50 to 1.00; for the fiscal quarters ending June 30, 2021 through March 31, 2022, the minimum fixed charge coverage ratio shall be 1.05 to 1.00;among other things:

for the fiscal quarters ending June 30, 2021 through March 31, 2022, the minimum fixed charge coverage ratio shall be 1.05 to 1.00;
for the fiscal quarters ending December 31, 2021 through March 31, 2022, the maximum first lien gross leverage ratio shall be 2.00 to 1.00 and the maximum total net leverage ratio shall be 3.25 to 1.00; and for the fiscal quarters ending on or after June 30, 2022, the maximum first lien gross leverage ratio shall be 1.75 to 1.00, the maximum total net leverage ratio shall be 2.75 to 1.00 and the minimum fixed charge coverage ratio shall be 1.10 to 1.00. lien gross leverage ratio shall be 2.00 to 1.00 and the maximum total net leverage ratio shall be 3.25 to 1.00; and
for the fiscal quarters ending on or after June 30, 2022, the maximum first lien gross leverage ratio shall be 1.75 to 1.00, the maximum total net leverage ratio shall be 2.75 to 1.00 and the minimum fixed charge coverage ratio shall be 1.10 to 1.00.

The maximumCompany's first lien gross leverage ratio was 1.140.79 to 1.00 at June 30, 2021March 31, 2022. The maximumCompany's total net leverage ratio was 1.700.99 to 1.00 at June 30, 2021March 31, 2022. The minimumCompany's fixed charge coverage ratio was 1.892.09 to 1.00 at June 30, 2021March 31, 2022. TheAccordingly, the Company was in compliance with all of its financial covenants under the Senior Secured Credit Facilities as of June 30, 2021March 31, 2022

 

The TLB Facility also includes a financial covenant that requires the Company to repay a certain amount of its borrowings under the TLB Facility within ten business days after the date it files its Annual Report on Form 10-K with the Securities and Exchange Commission if the Company has excess cash flow (as defined in the credit agreement for the Senior Secured Credit Facilities) during the year covered by the applicable Annual Report on Form 10-K. As a result of achieving certain financial metrics as of December 31, 2021, the Company was not required to make an excess cash flow payment with respect to the year ended December 31, 2021. During the sixthree months ended June 30,March 31, 2021, CONSOL Energy made the required repayment of approximately $5,000$4,848 based on the amount of the Company's excess cash flow as of December 31, 20202020. . The required repayment is equal to a certain percentage of the Company’s excess cash flow for such year, ranging from 0% to 75% depending on the Company’s total net leverage ratio, less the amount of certain voluntary prepayments made by the Company, if any, under the TLB Facility during such fiscal year. The amount of excess cash flow is a covenant feature only applicable as of the Company's year-end and will be calculated as of December 31, 2021.

 

At June 30, 2021, the Revolving Credit Facility had no borrowings outstanding and $146,934 of letters of credit outstanding, leaving $253,066 of unused capacity. At DecemberMarch 31, 20202022, the Revolving Credit Facility had 0 borrowings outstanding and $125,938$163,626 of letters of credit outstanding, leaving $274,062$236,374 of unused capacity. At December 31, 2021, the Revolving Credit Facility had 0 borrowings outstanding and $169,241 of letters of credit outstanding, leaving $230,759 of unused capacity. From time to time, CONSOL Energy is required to post financial assurances to satisfy contractual and other requirements generated in the normal course of business. Some of these assurances are posted to comply with federal, state or other government agencies' statutes and regulations. CONSOL Energy sometimes uses letters of credit to satisfy these requirements and these letters of credit reduce the Company's borrowing facility capacity.

 

1918

 

Second Lien Notes

In November 2017, CONSOL Energy issued $300,000 in aggregate principal amount of 11.00% Senior Secured Second Lien Notes due 2025 (the “Second Lien Notes”) pursuant to an indenture (the “Indenture”) dated as of November 13, 2017, 13,2017,by and between the Company and UMB Bank, N.A., a national banking association, as trustee and collateral trustee (the “Trustee”). On November 28, 2017, certain subsidiaries of the Company executed a supplement to the Indenture and became party to the Indenture as a guarantor (the “Guarantors”). The Second Lien Notes are secured by second priority liens on substantially all of the assets of the Company and the Guarantors that are pledged on a first-priority basis as collateral securing the Company’s obligations under the Senior Secured Credit Facilities (described above), subject to certain exceptions under the Indenture. The Indenture contains covenants that will limit the ability of the Company and the Guarantors to (i) incur, assume or guarantee additional indebtedness or issue preferred stock; (ii) create liens to secure indebtedness; (iii) declare or pay dividends on the Company’s common stock, redeem stock or make other distributions to the Company’s stockholders; (iv) make investments; (v) restrict dividends, loans or other asset transfers from the Company’s restricted subsidiaries; (vi) merge or consolidate, or sell, transfer, lease or dispose of substantially all of the Company’s assets; (vii) sell or otherwise dispose of certain assets, including equity interests in subsidiaries; (viii) enter into transactions with affiliates; and (ix) create unrestricted subsidiaries. These covenants are subject to important exceptions and qualifications. If the Second Lien Notes achieve an investment grade rating from both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc. and no default under the Indenture exists, many of the foregoing covenants will terminate and cease to apply.

 

The only non-guarantor subsidiary of the Senior Secured Credit Facilities is the SPV, which holds the assets pledged to the Accounts Receivable Securitization Facility. The SPV had total assets of $100,209$178,726 and $123,468,$104,548, comprised mainly of $99,716$178,446 and $122,639$104,099 trade receivables, net, as of June 30, 2021March 31, 2022 and December 31, 20202021, respectively. Net (loss) income attributable to the SPV was ($3,284)$684 and $312$1,160 for the three months ended June 30, 2021March 31, 2022 and 2020, respectively, and ($2,125) and $1,359 for the six months ended June 30, 2021and 2020, respectively, which primarily reflected intercompany fees related to purchasing the receivables, which are eliminated in the Consolidated Financial Statements contained within this Quarterly Report on Form 10-Q. During the sixthree months ended June 30, 2021March 31, 2022 and 20202021, there were no borrowings or payments under the Accounts Receivable Securitization Facility. See Note 109 - Accounts Receivable Securitization for additional information. All other subsidiaries are guarantors of the Senior Secured Credit Facilities.

 

During the sixthree months ended June 30,March 31, 2022, the Company spent $26,387 to retire $25,000 of its outstanding Second Lien Notes. During the three months ended March 31, 2021, the Company spent $14,153$9,338 to retire $15,190$10,190 of its outstanding 11.00% Senior Secured Second Lien Notes due in 2025 and made a required repayment of approximately $5,000$4,848 on the TLB Facility (discussed above)previously). During the six months ended June 30, 2020, the Company spent $25,480 to retire $43,176 of its outstanding 11.00% Senior Secured Second Lien Notes due in 2025.As parta result of these transactions, $106a loss on debt extinguishment of $2,122 and $789 wasa gain on debt extinguishment of ($683) were realized, which are included in GainLoss (Gain) on Debt Extinguishment on the accompanying Consolidated Statements of Income for the three and sixmonths ended June 30, March 31, 2022 and 2021, respectively, and $16,833 was included in Gain on Debt Extinguishment on the Consolidated Statements of Income for the six months ended June 30, 2020.respectively.

PEDFA Bonds

 

In April 2021, CONSOL Energy borrowed the proceeds received from the sale of tax exempttax-exempt bonds issued by PEDFA in an aggregate principal amount of $75,000 (the “PEDFA Bonds“Bonds”). The PEDFA Bonds bear interest at a fixed rate of 9.00% for an initial term of seven years. The PEDFA Bonds mature on April 1, 2051 but are subject to mandatory purchase by the Company on April 13, 2028, at the expiration of the initial term rate period. The PEDFA Bonds were issued pursuant to an indenture (the “PEDFA Indenture”) dated as of April 1, 2021, by and between PEDFA and Wilmington Trust, N.A., a national banking association, as trustee (the “PEDFA Notes Trustee”). PEDFA made a loan of the proceeds of the PEDFA Bonds to the Company pursuant to a Loan Agreement (the “Loan Agreement”) dated as of April 1, 2021 between PEDFA and the Company. Under the terms of the Loan Agreement, the Company agreed to make all payments of principal, interest and other amounts at any time due on the PEDFA Bonds or under the PEDFA Indenture. PEDFA assigned its rights as lender under the Loan Agreement, excluding certain reserved rights, to the PEDFA Notes Trustee. Certain subsidiaries of the Company (the “PEDFA Notes Guarantors”) executed a Guaranty Agreement (the “Guaranty”) dated as of April 1, 2021 in favor of the PEDFA Notes Trustee, guarantying the obligations of the Company under the Loan Agreement to pay the PEDFA Bonds when and as due. The obligations of the Company under the Loan Agreement and of the PEDFA Notes Guarantors under the Guaranty are secured by second priority liens on substantially all of the assets of the Company and the PEDFA Notes Guarantors on parity with the Second Lien Notes. The Loan Agreement and Guaranty incorporate by reference covenants in the Indenture under which the Second Lien Notes were issued (discussed above).

 

The Company started a capital construction project on the PAMC coarse refuse disposal area in 2017, which is now funded, in part, by the $75,000 of PEDFA Bond proceeds loaned to the Company. The Company expects to expend these funds over approximately the next two years, as qualified work is completed. During the three months ended June 30, 2021, March 31, 2022, the Company received reimbursement for qualified expensesutilized restricted cash in the amount of $21,464, which dates back to the initial inducement date in mid-2020.$3,031 for qualified expenses. Additionally, the Company has $53,536had $43,107 and $46,136 in restricted cash at March 31, 2022 and December 31, 2021, respectively, associated with this financing that will be used to fund future spending on the coarse refuse disposal area.

Other Indebtedness

 

The Company is a borrower under an asset-backed financing arrangement related to certain equipment. The equipment, which had an approximate value of $2,451$1,895 and $2,813$2,082 at June 30, 2021March 31, 2022 and December 31, 20202021, respectively, fully collateralizes the loan. As of June 30, 2021March 31, 2022, the total outstanding loan of $2,451$1,895 matures in September 2024. The loan had a weighted average interest rate of 3.61% at June 30, 2021March 31, 2022 and December 31, 20202021.

 

During the year ended December 31, 2019, the Company entered into interest rate swaps, which effectively converted $150,000 of the TLB Facility's floating interest rate to a fixed interest rate for the twelve months ending December 31, 2020 and 2021, and $50,000 of the TLB Facility's floating interest rate to a fixed interest rate for the twelve months ending December 31, 2022. The interest rate swaps qualify for cash flow hedge accounting treatment and as such, the change in the fair value of the interest rate swaps is recorded on the Company's Consolidated Balance Sheets as an asset or liability. The effective portion of the gains or losses is reported as a component of accumulated other comprehensive loss and the ineffective portion is reported in earnings. At June 30, 2021 and DecemberMarch 31, 20202022, the interest rate swap contracts were reflected in the Consolidated Balance Sheets at their fair value of $1,7495, which was recorded in Prepaid Expenses and $2,834, respectively,Other Current Assets. At December 31, 2021, the interest rate swap contracts were reflected in the Consolidated Balance Sheets at their fair value of$517, which iswas recorded in Other Accrued Liabilities and Other Liabilities. The fair value of the interest rate swaps reflected an unrealized gaingains of $391 (net of $135$130 tax) and an unrealized gain of $805$414 (net of $279$144 tax) for the three and sixmonths ended June 30, 2021March 31, 2022 , respectively. The fair value of the interest rate swaps reflected an unrealized loss of $12 (net of $4 tax) and an unrealized loss of $2,785 (net of $937 tax) for the threeand six months ended June 30, 20202021, respectively. These unrealized gains (losses) are included on the Consolidated Statements of Stockholders' Equity as part of accumulated other comprehensive loss, as well as on the Consolidated Statements of Comprehensive Income as unrealized gain (loss) on cash flow hedges. Some of the Company's interest rate swaps reached their effective date in the three and sixmonths ended June 30, 2021March 31, 2022 and 2020.2021. As such, losses of $555$167 and $1,087$532 were recognized in interest expense in the Consolidated Statements of Income for the three and sixmonths ended June 30, 2021, respectively, and losses of $434 and $430 were recognized in interest expense in the Consolidated Statements of Income for the threeMarch 31, 2022 and six2021, months ended June 30, 2020, respectively. During 2021,2022, notional amounts of $150,000$50,000 will become effective. Based on the fair value of the Company's cash flow hedges at June 30, 2021March 31, 2022, the Company expects expensea gain of approximately $1,369$159 to be reclassified into earnings in the nextremaining 12nine months.months of 2022.

 

2019

  
 

NOTE 14—13—COMMITMENTS AND CONTINGENT LIABILITIES:

 

The Company is subject to various lawsuits and claims with respect to such matters as personal injury, wrongful death, damage to property, exposure to hazardous substances, governmental regulations including environmental remediation, employment and contract disputes and other claims and actions arising out of the normal course of business. The Company accrues the estimated loss for these lawsuits and claims when the loss is probable and reasonably estimable. The Company’s estimated accruals related to these pending claims, individually and in the aggregate, are immaterial to the financial position, results of operations or cash flows of the Company as of June 30, 2021March 31, 2022. It is possible that the aggregate loss in the future with respect to these lawsuits and claims could ultimately be material to the Company’s financial position, results of operations or cash flows; however, such amounts cannot be reasonably estimated. The amount claimed against the Company as of June 30, 2021March 31, 2022 is disclosed below when an amount is expressly stated in the lawsuit or claim, which is not often the case.

 

Fitzwater Litigation: Three nonunion retired coal miners have sued Fola Coal Company LLC, Consolidation Coal Company (“CCC”) and CONSOL of Kentucky Inc. (“COK”) (as well as the Company's former parent) in the U.S. District Court for the Southern District of West Virginia alleging ERISA violations in the termination of retiree health care benefits. The Plaintiffs contend they relied to their detriment on oral statements and promises of “lifetime health benefits” allegedly made by various members of management during Plaintiffs’ employment and that they were allegedly denied access to Summary Plan Documents that clearly reserved to the Company the right to modify or terminate the Retiree Health and Welfare Plan subject to Plaintiffs’ claims. Pursuant to Plaintiffs’ amended complaint filed on April 24, 2017, Plaintiffs request that retiree health benefits be reinstated and seek to represent a class of all nonunion retirees who were associated with AMVEST and COK areas of operation. On October 15, 2019, Plaintiffs’ supplemental motion for class certification was denied on all counts. On July 15, 2020, Plaintiffs filed an interlocutory appeal with the Fourth Circuit Court of Appeals on the Order denying class certification. The Fourth Circuit denied Plaintiffs' appeal on August 14, 2020. On October 1, 2020, the District Court entered a pretrial order setting the trial date, which was held in February 2021. No ruling has been issued by the judge. The Company believes it has a meritorious defense and intends to vigorously defend this suit.

 

Casey Litigation: A class action lawsuit was filed on August 23, 2017 on behalf of two nonunion retired coal miners against CCC, COK, CONSOL Buchanan Mining Co., LLC and Kurt Salvatori, the Company's Chief Administrative Officer, in the U.S. District Court for the Southern District of West Virginia alleging ERISA violations in the termination of retiree health care benefits. Filed by the same lawyers who filed the Fitzwater litigation, and raising nearly identical claims, the Plaintiffs contend they relied to their detriment on oral promises of “lifetime health benefits” allegedly made by various members of management during Plaintiffs’ employment and that they were not provided with copies of Summary Plan Documents clearly reserving to the Company the right to modify or terminate the Retiree Health and Welfare Plan. Plaintiffs request that retiree health benefits be reinstated for them and their dependents and seek to represent a class of all nonunion retirees of any subsidiary of the Company's former parent that operated or employed individuals in McDowell or Mercer Counties, West Virginia, or Buchanan or Tazewell Counties, Virginia whose retiree welfare benefits were terminated. On December 1, 2017, the trial court judge in Fitzwater signed an order to consolidate Fitzwater with Casey. The Casey complaint was amended on March 1, 2018 to add new plaintiffs, add defendant CONSOL Pennsylvania Coal Company, LLC and eliminate defendant CONSOL Buchanan Mining Co., LLC in an attempt to expand the class of retirees. On October 15, 2019, Plaintiffs’ supplemental motion for class certification was denied on all counts. On July 15, 2020, Plaintiffs filed an interlocutory appeal with the Fourth Circuit Court of Appeals on the Order denying class certification. The Fourth Circuit denied Plaintiffs' appeal on August 14, 2020. On October 1, 2020, the District Court entered a pretrial order setting the trial date, which was held in February 2021. No ruling has been issued by the judge. The Company believes it has a meritorious defense and intends to vigorously defend this suit.

 

United Mine Workers of America 1992 Benefit Plan Litigation: In 2013, Murray Energy and its subsidiaries (“Murray”) entered into a stock purchase agreement (the “Murray sale agreement”) with the Company's former parent pursuant to which Murray acquired the stock of CCC and certain subsidiaries and certain other assets and liabilities. At the time of sale, the liabilities included certain retiree medical liabilities under the Coal Industry Retiree Health Benefit Act of 1992 (“Coal Act”) and certain federal black lung liabilities under the Black Lung Benefits Act (“BLBA”). Based upon information available, the Company estimates that the annual servicing costs of these liabilities are approximately $10 million to $20 million per year for the next ten years. The annual servicing cost would decline each year since the beneficiaries of the Coal Act consist principally of miners who retired prior to 1994. Murray filed for Chapter 11 bankruptcy in October 2019. As part of the bankruptcy proceedings, Murray unilaterally entered into a settlement with the United Mine Workers of America 1992 Benefit Plan ((the “1992 Benefit Plan”) to transfer retirees in the Murray Energy Section 9711 Plan to the 1992 Benefit Plan. This was approved by the bankruptcy court on April 30, 2020. On May 2, 2020, the 1992 Benefit Plan filed an action in the United States District Court for the District of Columbia asking the court to make a determination whether the Company's former parent or the Company has any continuing retiree medical liabilities under the Coal Act.Act (the “1992 Plan Lawsuit”). The Murray sale agreement includes indemnification by Murray with respect to the Coal Act and BLBA liabilities. In addition, the Company had agreed to indemnify its former parent relative to certain pre-separation liabilities. As of September 16, 2020, the Company entered into a settlement agreement with Murray and withdrew its claims in bankruptcy. See NoteOn 2September 11, 2020, the Defendants in the 1992 - Major Transactions forPlan Lawsuit filed a discussion of this settlement agreement. Motion to Dismiss Plaintiffs' Second Amended Complaint which was denied by the Court on March 29, 2022. The Company will continue to vigorously defend any claims that attempt to transfer any of such liabilities directly or indirectly to the Company, including raising all applicable defenses against the 1992 Benefit Plan’s suit and those of any other party including the Company's former parent.suit.

 

Other Matters: On July 27, 2021, the Company's former parent informed the Company that it had received a request from the UMWA 1974 Pension Plan for information related to the facts and circumstances surrounding the former parent's 2013 sale of certain of its coal subsidiaries to Murray (the “Letter Request”). The Letter Request indicates that litigation by the UMWA 1974 Pension Plan against the Company's former parent related to potential withdrawal liabilities from the plan created by the 2019 bankruptcy of Murray is reasonably foreseeable. The Company's former parent seeks indemnification from the Company under the separation and distribution agreement with regard to any costs and liabilities relating to the Letter Request. There has been no indication of potential claims against the Company by the UMWA 1974 Pension Plan and, at this time, no liability of the Company's former parent has been assessed.

Various Company subsidiaries are defendants in certain other legal proceedings arising out of the conduct of the Coal Business prior to the separation and distribution, and the Company is also a defendant in other legal proceedings following the separation and distribution. In the opinion of management, based upon an investigation of these matters and discussion with legal counsel, the ultimate outcome of such other legal proceedings, individually and in the aggregate, is not expected to have a material adverse effect on the Company’s financial position, results of operations or liquidity.

 

2120

 

As part of the separation and distribution, the Company assumed various financial obligations relating to the Coal Business and agreed to reimburse its former parent for certain financial guarantees relating to the Coal Business that its former parent retained following the separation and distribution. Employee-related financial guarantees have primarily been provided to support the 1992 Benefit Plan and federal black lung and various state workers’ compensation self-insurance programs. Environmental financial guarantees have primarily been provided to support various performance bonds related to reclamation and other environmental issues. Other financial guarantees have been extended to support sales contracts, insurance policies, surety indemnity agreements, legal matters, full and timely payments of mining equipment leases, and various other items necessary in the normal course of business.

 

The following is a summary, as of June 30, 2021March 31, 2022, of the financial guarantees, unconditional purchase obligations and letters of credit to certain third parties. These amounts represent the maximum potential of total future payments that the Company could be required to make under these instruments, or under the separation and distribution agreement to the extent retained by the Company's former parent on behalf of the Coal Business. Certain letters of credit included in the table below were issued against other commitments included in this table. These amounts have not been reduced for potential recoveries under recourse or collateralization provisions. Generally, recoveries under reclamation bonds would be limited to the extent of the work performed at the time of the default. No amounts related to these commitments are recorded as liabilities in the financial statements. The Company’s management believes that these commitments will not have a material adverse effect on the Company’s financial condition.

 

  

Amount of Commitment Expiration per Period

 
  Total Amounts Committed  

Less Than 1 Year

  

1-3 Years

  

3-5 Years

  

Beyond 5 Years

 

Letters of Credit:

                    

Employee-Related

 $58,068  $41,869  $16,199  $0  $0 

Environmental

  398   398   0   0   0 

Other

  112,773   104,099   8,674   0   0 

Total Letters of Credit

 $171,239  $146,366  $24,873  $0  $0 

Surety Bonds:

                    

Employee-Related

 $83,524  $83,524  $0  $0  $0 

Environmental

  537,230   523,370   13,860   0   0 

Other

  4,254   3,577   677   0   0 

Total Surety Bonds

 $625,008  $610,471  $14,537  $0  $0 

Guarantees:

                    

Other

 $8,141  $8,141  $0  $0  $0 

Included in the above table are commitments and guarantees entered into in conjunction with the sale of Consolidation Coal Company and certain of its subsidiaries, which contain all five of its longwall coal mines in West Virginia and its river operations, to a third party. As part of the separation and distribution, the Company's former parent agreed to indemnify the Company and the Company agreed to indemnify its former parent in each case with respect to guarantees of certain equipment lease obligations that were assumed by the third party. In the event that the third party would default on the obligations defined in the agreements, the Company could be required to perform under the guarantees. As of June 30, 2021, the Company has not been required to perform under these guarantees. The equipment lease obligations are collateralized by the underlying assets. The current maximum estimated exposure under these guarantees as of June 30, 2021 and December 31, 2020 is believed to be approximately $8,000. 

  

Amount of Commitment Expiration per Period

 
  Total Amounts Committed  

Less Than 1 Year

  

1-3 Years

  

3-5 Years

  

Beyond 5 Years

 

Letters of Credit:

                    

Employee-Related

 $58,835  $58,835  $0  $0  $0 

Environmental

  398   398   0   0   0 

Other

  134,074   134,074   0   0   0 

Total Letters of Credit

 $193,307  $193,307  $0  $0  $0 

Surety Bonds:

                    

Employee-Related

 $81,524  $63,989  $17,535  $0  $0 

Environmental

  535,303   501,335   33,968   0   0 

Other

  4,315   3,483   832   0   0 

Total Surety Bonds

 $621,142  $568,807  $52,335  $0  $0 

 

The Company regularly evaluates the likelihood of default for all guarantees based on an expected loss analysis and records the fair value, if any, of its guarantees as an obligation in the Consolidated Financial Statements.

 

2221

  
 

NOTE 15—14—DERIVATIVES

 

Interest Rate Risk Management

 

During the year ended December 31, 2019, the Company entered into interest rate swaps to manage exposures to interest rate risk on long-term debt in order to achieve a mix of fixed and variable rate debt that it deems appropriate. These interest rate swaps have been designated as cash flow hedges of future variable interest payments. For additional information on these arrangements, refer to Note 1312 - Long-Term Debt.

 

Coal Price Risk Management Positions

 

The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market in order to manage its exposure to coal prices. The Company has exposure to the risk of fluctuating coal prices related to forecasted or index-priced sales of coal or to the risk of changes in the fair value of a fixed price physical sales contract. As of June 30, 2021, March 31, 2022, the Company held coal-related financial contracts related to a portion of its forecasted sales forsell an aggregate notional volume of 2.01.3 million metric tons and to buy an aggregate notional volume of 450 thousand metric tons, which will settle in 2022.

 

Tabular Derivatives Disclosures

 

The Company has master netting agreements with all 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 to the extent the Company has any liability to such 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 Consolidated Balance Sheets. The fair value of derivatives reflected in the accompanying Consolidated Balance Sheets are set forth in the table below.

 

 

June 30, 2021

  

December 31, 2020

  

March 31, 2022

  

December 31, 2021

 
 

Asset Derivatives

  

Liability Derivatives

  

Asset Derivatives

  

Liability Derivatives

  

Asset Derivatives

  

Liability Derivatives

  

Asset Derivatives

  

Liability Derivatives

 

Coal Contracts Related to Forecasted Sales

 $160  $(20,597) $0  $0 

Coal Swap Contracts

 $75,132  $(275,317) $1,086  $(53,290)

Effect of Counterparty Netting

  (160)  160   0   0   (75,132)  75,132   (1,086)  1,086 

Net Derivatives as Classified in the Consolidated Balance Sheets

 $0  $(20,437) $0  $0  $0  $(200,185) $0  $(52,204)

 

The net amount of liability derivatives is included in Other Accrued Liabilities and Other LiabilitiesCommodity Derivatives in the accompanying Consolidated Balance Sheets.

 

Currently, the Company does not seek cash flow hedge accounting treatment for its coal-related derivative financial instruments and therefore, changes in fair value are reflected in current earnings. During the three andmonths ended sixMarch 31, 2022, the Company settled a portion of its coal-related derivatives at a loss of $86,252. Additionally, during the three months ended June 30, 2021, March 31, 2022, the Company recognized unrealized mark-to-market losses on its coal-related derivatives of $20,437.$101,902. These settlements and unrealized mark-to-market losses are included in Miscellaneous Other (Loss) IncomeLoss on Commodity Derivatives, net on the accompanying Consolidated Statements of Income.

 

The Company classifies the cash effects of its derivatives within the Cash Flows from Operating Activities section of the Consolidated Statements of Cash Flows.

 

2322

 
 

NOTE 16—15—FAIR VALUE OF FINANCIAL INSTRUMENTS:

 

CONSOL Energy determines the fair value of assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources (including LIBOR-based discount rates), while unobservable inputs reflect the Company’s own assumptions of what market participants would use.

 

The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below.

 

Level One - Quoted prices for identical instruments in active markets.

 

Level Two - The fair value of the assets and liabilities included in Level 2 are based on standard industry income approach models that use significant observable inputs, including LIBOR-based discount rates. The Company's Level 2 assets and liabilities include interest rate swaps and coal commodity contracts with fair values derived from quoted prices in over-the-counter markets.

 

Level Three - Unobservable inputs significant to the fair value measurement supported by little or no market activity. 

 

In those cases when the inputs used to measure fair value meet the definition of more than one level of the fair value hierarchy, the lowest level input that is significant to the fair value measurement in its totality determines the applicable level in the fair value hierarchy.

 

The financial instruments measured at fair value on a recurring basis are summarized below:

 

 

Fair Value Measurements at

 

Fair Value Measurements at

  

Fair Value Measurements at

 

Fair Value Measurements at

 
 

June 30, 2021

  

December 31, 2020

  

March 31, 2022

  

December 31, 2021

 

Description

 

Level 1

  

Level 2

  

Level 3

  

Level 1

  

Level 2

  

Level 3

  

Level 1

  

Level 2

  

Level 3

  

Level 1

  

Level 2

  

Level 3

 

Commodity Derivatives

 $0 $(200,185) $0 $0 $(52,204) $0 

Interest Rate Swaps

 $0  $(1,749) $0  $0  $(2,834) $0  $0  $5  $0  $0  $(517) $0 

Commodity Derivatives

 $0 $(20,437) $0 $0 $0 $0 

 

The following methods and assumptions were used to estimate the fair value for which the fair value option was not elected:

 

Long-term debt: The fair value of long-term debt is measured using unadjusted quoted market prices or estimated using discounted cash flow analyses. The discounted cash flow analyses are based on current market rates for instruments with similar cash flows.

 

The carrying amounts and fair values of financial instruments for which the fair value option was not elected are as follows:

 

  

June 30, 2021

  

December 31, 2020

 
  

Carrying

  

Fair

  

Carrying

  

Fair

 
  

Amount

  

Value

  

Amount

  

Value

 

Long-Term Debt

 $651,360  $654,410  $610,510  $517,862 
  

March 31, 2022

  

December 31, 2021

 
  

Carrying

  

Fair

  

Carrying

  

Fair

 
  

Amount

  

Value

  

Amount

  

Value

 

Long-Term Debt

 $581,748  $599,734  $613,752  $628,431 

 

Certain of the Company’s debt is actively traded on a public market and, as a result, constitutes Level 1 fair value measurements. The portion of the Company’s debt obligations that is not actively traded is valued through reference to the applicable underlying benchmark rate and, as a result, constitutes Level 2 fair value measurements.

 

2423

  
 

NOTE 17—16—SEGMENT INFORMATION:

 

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management to make decisions on and assess performance of the Company’s reportable segments. CONSOL Energy presently consists of two2 reportable segments, the PAMC and the CONSOL Marine Terminal. The PAMC includes the Bailey Mine, the Enlow Fork Mine, the Harvey Mine and a centralized preparation plant. The PAMC segment’s principal activities include the mining, preparation and marketing of bituminous coal, sold primarily to power generators, industrial end-users power generators and metallurgical end-users. The CONSOL Marine Terminal provides coal export terminal services through the Port of Baltimore. Selling, general and administrative costs are allocated to the Company’s segments based on a percentage of resources utilized, a percentage of total revenue and a percentage of total projected capital expenditures. CONSOL Energy’s Other segment includes revenue and expenses from various corporate and diversified business activities that are not allocated to the PAMC or the CONSOL Marine Terminal segments. The diversified business activities include the development of the Itmann Mine, the Greenfield Reserves closed and idleResources, closed mine activities, other income, gain on asset sales related to non-core assets, and gain/loss on debt extinguishment. Additionally, interest expense and income taxes, as well as various other non-operated activities, none of which are individually significant to the Company, are also reflected in CONSOL Energy's Other segment and are not allocated to the PAMC and CONSOL Marine Terminal segments.

 

The Company evaluates the performance of its segments utilizing Adjusted EBITDA and various sales and production metrics. Adjusted EBITDA is not a measure of financial performance determined in accordance with GAAP, and items excluded from Adjusted EBITDA may be significant in understanding and assessing the Company's financial condition. Therefore, Adjusted EBITDA should not be considered in isolation, nor as an alternative to net income, income from operations, or cash flows from operations, or as a measure of the Company's profitability, liquidity, or performance under GAAP. The Company uses Adjusted EBITDA to measure the operating performance of its segments and to allocate resources to its segments. Investors should be aware that the Company's presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

 

The CONSOL Marine Terminal has been disclosed in CONSOL Energy’s OtherReportable segment during prior years dueresults for the three months ended March 31, 2022 are:

  

PAMC

  

CONSOL Marine Terminal

  

Other

  

Adjustments and Eliminations

  

Consolidated

 

Coal Revenue

 $472,960  $0  $3,408  $0  $476,368 

Terminal Revenue

  0   21,397   0   0   21,397 

Freight Revenue

  38,389   0   0   0   38,389 

Total Revenue from Contracts with Customers

 $511,349  $21,397  $3,408  $0  $536,154 

Adjusted EBITDA(a)

 $158,258  $14,477  $(3,505) $0  $169,230 

Segment Assets

 $1,734,316  $80,135  $900,509  $0  $2,714,960 

Depreciation, Depletion and Amortization

 $50,956  $1,165  $3,833  $0  $55,954 

Capital Expenditures

 $12,978  $172  $23,493  $0  $36,643 

(a) Refer to “Reconciliation of Segment Information to Consolidated Amounts” for the reconciliation of Adjusted EBITDA, a non-GAAP measure, to its relative contribution to the Company’s Adjusted EBITDA. The recent COVID-19 pandemic negatively impacted the Company’s 2020 financial performance and influenced its outlook with respect to the importance of coal exports. Effective December 31, 2020, the Company disclosed the CONSOL Marine Terminal in a separate reportable segment due to its increased contribution to Adjusted EBITDA as well as the increased reliance on coal exports serviced by the CONSOL Marine Terminal in accordance with how the Company's chief operating decision maker receives and reviews financial information. The Company has revised the consolidated segment information for all periods presented in this Quarterly Report on Form 10-Q to reflect this reclassification.most directly comparable GAAP measure.

 

Reportable segment results for the three months ended June 30,March 31, 2021 are:

 

 

PAMC

  

CONSOL Marine Terminal

  

Other

  

Adjustments and Eliminations

  

Consolidated

   

PAMC

  

CONSOL Marine Terminal

  

Other

  

Adjustments and Eliminations

  

Consolidated

 

Coal Revenue

 $258,482  $0  $1,350  $0  $259,832 

(A)

 $284,465  $0  $1,070  $0  $285,535 

Terminal Revenue

 0  17,380  0  0  17,380   0  18,212  0  0  18,212 

Freight Revenue

  26,010   0   0   0   26,010    27,013   0   0   0   27,013 

Total Revenue from Contracts with Customers

 $284,492  $17,380  $1,350  $0  $303,222   $311,478  $18,212  $1,070  $0  $330,760 

Adjusted EBITDA(a)

 $78,267  $10,965  $(4,815) $0  $84,417   $99,185  $11,961  $(4,431) $0  $106,715 

Segment Assets

 $1,799,848  $104,848  $653,235  $0  $2,557,931   $1,855,878  $106,603  $558,079  $0  $2,520,560 

Depreciation, Depletion and Amortization

 $50,169  $1,200  $830  $0  $52,199   $54,781  $1,214  $3,902  $0  $59,897 

Capital Expenditures

 $39,874  $52  $3,729  $0  $43,655   $12,579  $60  $1,161  $0  $13,800 

 

Reportable segment results(a) Refer to “Reconciliation of Segment Information to Consolidated Amounts” for the reconciliation of Adjusted EBITDA, a non-GAAP measure, to its most directly comparable GAAP measure.

24

For the three months ended June 30, 2020 are:

  

PAMC

  

CONSOL Marine Terminal

  

Other

  

Adjustments and Eliminations

  

Consolidated

  

Coal Revenue

 $102,026  $0  $287  $0  $102,313 

(A)

Terminal Revenue

  0   15,898   0   0   15,898  

Freight Revenue

  3,085   0   0   0   3,085  

Total Revenue from Contracts with Customers

 $105,111  $15,898  $287  $0  $121,296  

Adjusted EBITDA

 $26,882  $10,660  $(3,297) $0  $34,245  

Segment Assets

 $1,889,557  $99,942  $576,633  $0  $2,566,132  

Depreciation, Depletion and Amortization

 $46,793  $1,260  $(1,898) $0  $46,155  

Capital Expenditures

 $16,262  $514  $2,493  $0  $19,269  

25

Reportable segment results for the six months ended June 30, 2021 are:

  

PAMC

  

CONSOL Marine Terminal

  

Other

  

Adjustments and Eliminations

  

Consolidated

  

Coal Revenue

 $542,948  $0  $2,419  $0  $545,367 

(A)

Terminal Revenue

  0   35,592   0   0   35,592  

Freight Revenue

  53,023   0   0   0   53,023  

Total Revenue from Contracts with Customers

 $595,971  $35,592  $2,419  $0  $633,982  

Adjusted EBITDA

 $177,451  $22,926  $(9,245) $0  $191,132  

Segment Assets

 $1,799,848  $104,848  $653,235  $0  $2,557,931  

Depreciation, Depletion and Amortization

 $104,950  $2,414  $4,732  $0  $112,096  

Capital Expenditures

 $52,453  $112  $4,890  $0  $57,455  

Reportable segment results for the six months ended June 30, 2020 are:

  

PAMC

  

CONSOL Marine Terminal

  

Other

  

Adjustments and Eliminations

  

Consolidated

  

Coal Revenue

 $357,478  $0  $287  $0  $357,765 

(A)

Terminal Revenue

  0   32,399   0   0   32,399  

Freight Revenue

  6,232   0   0   0   6,232  

Total Revenue from Contracts with Customers

 $363,710  $32,399  $287  $0  $396,396  

Adjusted EBITDA

 $90,460  $21,214  $(14,495) $0  $97,179  

Segment Assets

 $1,889,557  $99,942  $576,633  $0  $2,566,132  

Depreciation, Depletion and Amortization

 $95,210  $2,517  $3,371  $0  $101,098  

Capital Expenditures

 $36,954  $620  $8,873  $0  $46,447  

(A) For the three and six months ended June 30, 2021March 31, 2022 and 20202021, the PAMC segmentCompany's reportable segments had revenues from the following customers, each comprising over 10% of the Company's total sales:

 

 

Three Months Ended June 30,

  

Six Months Ended June 30,

  

Three Months Ended March 31,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

 

Customer A

 $32,236   *  $89,916  $48,829  $66,289  $57,680 

Customer B

 $38,957  $30,032  $72,196  $134,386  *  $38,999 

Customer C

 $34,439  $14,060  $71,038  $49,743  *  $36,599 

Customer D

 $37,121  *  $81,357  *  *  $62,569 

Customer E

 $30,439 * * *  $100,313  * 

Customer F

 $86,585  * 

 

*Revenues from these customers during the periods presented were less than 10% of the Company's total sales.

 

26

Reconciliation of Segment Information to Consolidated Amounts:

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 

(Loss) Earnings Before Income Tax

 $(4,721) $(28,746) $26,868  $(24,363)

Interest Expense, net

  16,187   14,722   31,448   30,393 

Gain on Debt Extinguishment

  (106)  0   (789)  (16,833)

Interest Income

  (811)  (122)  (1,669)  (366)

Depreciation, Depletion and Amortization

  52,199   46,155   112,096   101,098 

Unrealized Loss on Commodity Derivative Instruments

  20,437   0   20,437   0 

Pension Settlement

  22   0   22   0 

Stock/Unit-Based Compensation

  1,210   2,236   2,719   7,250 

Adjusted EBITDA

 $84,417  $34,245  $191,132  $97,179 

NOTE 18—RELATED PARTY TRANSACTIONS:Amounts

 

CONSOL Coal Resources LPAdjusted EBITDA is a non-GAAP measure and is presented in the following tables to reconcile the segment operating performance measure to its most directly comparable GAAP measure, Net Income (Loss).

 

On December 30, 2020, CONSOL Energy completed the acquisition of all of the outstanding common units of CONSOL Coal Resources, and CONSOL Coal Resources became the Company's indirect wholly-owned subsidiary (see Note 2 - Major Transactions). In connection with the closing of the CCR Merger, CONSOL Energy issued 7,967,690 shares of its common stock to acquire the 10,912,138 common units of CCR held by third-party CCR investors at a fixed exchange ratio of 0.73 shares of CEIX common stock for each CCR unit, for total implied consideration of $51,710.

  

Three Months Ended March 31, 2022

 
  

PAMC

  

CONSOL Marine Terminal

  

Other

  

Total Company

 

Net Income (Loss)

 $2,097  $11,613  $(18,160) $(4,450)
                 

Less: Income Tax Benefit

  0   0   (3,522)  (3,522)

Add: Interest Expense, net

  189   1,531   12,632   14,352 

Less: Interest Income

  (415)  0   (914)  (1,329)

Earnings (Loss) Before Interest & Taxes (EBIT)

  1,871   13,144   (9,964)  5,051 
                 

Add: Depreciation, Depletion & Amortization

  50,956   1,165   3,833   55,954 
                 

Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA)

 $52,827  $14,309  $(6,131) $61,005 
                 

Adjustments:

                

Stock-Based Compensation

 $3,529  $168  $504  $4,201 

Loss on Debt Extinguishment

  0   0   2,122   2,122 

Unrealized Mark-to-Market Loss on Commodity Derivative Instruments

  101,902   0   0   101,902 

Total Pre-tax Adjustments

  105,431   168   2,626   108,225 
                 

Adjusted EBITDA

 $158,258  $14,477  $(3,505) $169,230 

 

Prior to the CCR Merger, CONSOL Energy, certain of its subsidiaries and the Partnership were party to various agreements, including an Omnibus Agreement dated September 30, 2016, as amended on November 28, 2017, and an Affiliated Company Credit Agreement. Under the Omnibus Agreement, CONSOL Energy provided the Partnership with certain services in exchange for payments by the Partnership for those services. In connection with the closing of the CCR Merger, the Affiliated Company Credit Agreement was terminated, all obligations and guarantees thereunder repaid and discharged and all liens granted in connection therewith released. In connection with the termination of the Affiliated Company Credit Agreement and in exchange for, and in satisfaction of, payment of the outstanding balance of approximately $176,535 thereunder, CCR issued 37,322,410 CCR common units to the Company.

Charges for services from the Company to CCR prior to the CCR Merger include the following:

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2020

  

2020

 

Operating and Other Costs

 $856  $1,709 

Selling, General and Administrative Costs

  1,864   4,657 

Total Services from CONSOL Energy

 $2,720  $6,366 

Operating and Other Costs included pension service costs and insurance expenses. Selling, General and Administrative Costs included charges for incentive compensation, an annual administrative support fee and reimbursement for the provision of certain management and operating services provided by the Company.

  

Three Months Ended March 31, 2021

 
  

PAMC

  

CONSOL Marine Terminal

  

Other

  

Total Company

 

Net Income (Loss)

 $42,450  $9,149  $(25,195) $26,404 
                 

Add: Income Tax Expense

  0   0   5,185   5,185 

Add: Interest Expense, net

  642   1,537   13,082   15,261 

Less: Interest Income

  0   0   (858)  (858)

Earnings (Loss) Before Interest & Taxes (EBIT)

  43,092   10,686   (7,786)  45,992 
                 

Add: Depreciation, Depletion & Amortization

  54,781   1,214   3,902   59,897 
                 

Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA)

 $97,873  $11,900  $(3,884) $105,889 
                 

Adjustments:

                

Stock-Based Compensation

 $1,312  $61  $136  $1,509 

Gain on Debt Extinguishment

  0   0   (683)  (683)

Total Pre-tax Adjustments

  1,312   61   (547)  826 
                 

Adjusted EBITDA

 $99,185  $11,961  $(4,431) $106,715 

 

2725

 
 

NOTE 19—17—STOCK AND DEBT REPURCHASES:

 

In December 2017, CONSOL Energy’s Board of Directors approved a program to repurchase, from time to time, the Company's outstanding shares of common stock or its 11.00% Senior Secured Second Lien Notes due 2025.Notes. Since its inception, the Company's Board of Directors has subsequently amended the program several times, the most recent of which amendment in April 2021 raised the aggregate limit of the Company's repurchase authority to $320,000 and extended the program until December 31, 2022.

 

Under the terms of the program, CONSOL Energy is permitted to make repurchases in the open market, in privately negotiated transactions, accelerated repurchase programs or in structured share repurchase programs. CONSOL Energy is also authorized to enter into one or more 10b5-1 plans with respect to any of the repurchases. Any repurchases of common stock or notes are to be funded from available cash on hand or short-term borrowings. The program does not obligate CONSOL Energy to acquire any particular amount of its common stock or notes, and itthe program can be modified or suspended at any time at the Company’s discretion. The program is conducted in compliance with applicable legal requirements and within the limits imposed by any credit agreement, receivables purchase agreement, indenture, or the TMA,tax matters agreement between the Company and its former parent, and is subject to market conditions and other factors.

 

During the sixthree months ended June 30, 2021March 31, 2022 and 20202021, the Company spent $14,153$26,387 to retire $15,190$25,000 and spent $25,480$9,338 to retire $43,176$10,190 of its 11.00% Senior Secured Second Lien Notes, due 2025, respectively. NaN shares of common stock were repurchased under this program during the sixthree months ended June 30, 2021March 31, 2022 and 20202021.

 

2826

  
 

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in conjunction with the Consolidated Financial Statements and corresponding notes included elsewhere in this Form 10-Q. In addition, this Form 10-Q report should be read in conjunction with the Consolidated Financial Statements for the three-year period ended December 31, 20202021 included in CONSOL Energy Inc.'s Form 10-K, filed on February 12, 2021.11, 2022. This MD&A contains forward-looking statements and the matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

 

All amounts discussed are in millions of U.S. dollars, unless otherwise indicated.

 

Recent Developments

Russia-Ukraine War

February 24, 2022 marked a significant escalation in the Russia-Ukraine war. The extent and duration of the military conflict involving Russia and Ukraine, resulting sanctions and future market or supply disruptions in the region, are impossible to predict, but could be significant and may have a severe adverse effect on the region. Globally, various governments have banned imports from Russia including commodities such as oil, natural gas and coal. These events have caused volatility in the aforementioned commodity markets. This volatility, including market expectations of potential changes in coal prices and inflationary pressures on steel products, may significantly affect market prices and overall demand for our coal and the cost of supplies and equipment, as well as the prices of, and demand for, competing sources of energy for our electric power plant customers, like natural gas. Although we have not experienced a material adverse impact from the war and the resulting sanctions as of the date of this report, we are closely monitoring the potential effects on the market.

COVID-19 Update

 

The Company is monitoring the impact of the COVID-19 pandemic (“COVID-19”) and has taken, and will continue to take, steps to mitigate the potential risks and impact on the Company and its employees. The health and safety of our employees is paramount. To date, the Company has experienced a few localized outbreaks, but due, in part, to the health and safety procedures put in place by the Company, we have been able to continue operating. The Company continues to monitor the health and safety of its employees closely in order to limit potential risks to our employees, contractors, family members and the community.

 

Additionally, COVID-19 led to an unprecedented decline in coal demand that began in the first quarter of 2020 and hit its lowest point in May 2020, largely driven by government-imposed shutdowns of non-essential businesses. We are considered a critical infrastructure company by the U.S. Department of Homeland Security. As a result, we were exempt from Pennsylvania Governor Tom Wolf's executive order, issued in March 2020, closing all businesses that are not life sustaining until Pennsylvania's phased reopening, which began in the second quarter of 2020. COVID-19 led to an unprecedented decline in coal demand that began in the first quarter of 2020 hit its lowest point in May 2020 and has improved through the second quarter of 2021.

While many government-imposed shut-downsshutdowns of non-essential businesses in the United States and abroad have been phased out, in significant population centers in the People's Republic of China lock-down orders have been re-imposed and there is a possibility that such shut-downs may be reinstated after being lifted as COVID-19 continues to spread.elsewhere. Depressed demand for our coal may also result from a general recession or reduction in overall business activity caused by COVID-19.  Additionally, some of our customers have already attempted, and may

Over the past year, the general business environment has improved, resulting in the future attempt, to invoke force majeure or similar provisions in the contracts they have in place with us in order to avoid taking possession of and paying us for our coal that they are contractually obligated to purchase. A decrease inhigher demand for our coal, the failure of our customers to purchase coal from us that they are obligated to purchase pursuant to existing contracts, or disruptionsproduct as government-imposed shutdowns and other COVID-19-related restrictions have been eased. However, imbalances in the logisticsglobal supply chain preventing us from shippingcoupled with inflationary pressures have had both positive and negative impacts to our coal would have a material adverse effect on our results of operations and financial condition.operations. The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including Presidential mandates, federal and state regulations, new information concerning the severity of the outbreak,COVID-19 variants, the pace and effectiveness of vaccination efforts and the effectiveness of actions globally to contain or mitigate its effects. We expect this could continue to negatively impact our results of operations, cash flows and financial condition. The Company will continue to take steps it believes are appropriate to mitigate the negative impacts of COVID-19 on its operations, liquidity and financial condition.

 

Our Business

 

We are a leading, low-cost producer of high-quality bituminous coal, focused on the extraction and preparation of coal in the Appalachian Basin due to our ability to efficiently produce and deliver large volumes of high-quality coal at competitive prices, the strategic location of our mines and the industry experience of our management team. We are also entering into the metallurgical coal market through the development of our Itmann Mine in West Virginia, which we expect to be fully operational following construction of a preparation plant near the mine site, which is planned for completion during the second half of 2022.

 

Our most significant assets are the PAMC and the CONSOL Marine Terminal. Coal from the PAMC is valued because of its high energy content (as measured in Btu per pound), relatively low levels of sulfur and other impurities, and strong thermoplastic properties that enable it to be used in metallurgical, industrial as well as thermaland power generation applications. We take advantage of these desirable quality characteristics and our extensive logistical network, which is directly served by both the Norfolk Southern and CSX railroads, to aggressively market our product to a broad base of strategically selected, top-performing power plant customers in the eastern United States. We also capitalize on the operational synergies and logistical advantages afforded by the CONSOL Marine Terminal, which is likewise served by both the Norfolk Southern and CSX railroads, to export our coal to industrial, power generation and metallurgical end-users globally.

 

We are also expanding our presence in the metallurgical coal market through the development of our Itmann Mine in West Virginia, which we expect to be fully operational following the relocation and recommissioning of a recently purchased preparation plant, which is planned for completion during the second half of 2022.

2927

 

Our operations, including the PAMC and the CONSOL Marine Terminal, have consistently generated strong cash flows, even throughout the COVID-19 pandemic. As of December 31, 2020,2021, the PAMC controls 657.9612.1 million tons of high-quality Pittsburgh seam reserves, enough to allow for more than 20 years of full-capacity production. In addition, we own or control approximately 1.51.4 billion tons of Greenfield Reserves and Resources located in the Northern Appalachian (“NAPP”), the Central Appalachian (“CAPP”) and the Illinois Basins (“ILB”), which we believe provide future growth and monetization opportunities. Our vision is to maximize cash flow generation through the safe, compliant, and efficient operation of this core asset base, while strategically reducing debt, returning capital through share buybacks or dividends, and, when prudent, allocating capital toward compelling growth and diversification opportunities.

 

Our core businesses consist of our:

 

 

Pennsylvania Mining Complex: The PAMC, which includes the Bailey Mine, the Enlow Fork Mine, the Harvey Mine and the Central Preparation Plant, has extensive high-quality coal reserves. We mine our reserves from the Pittsburgh No. 8 Coal Seam, which is a large contiguous formation of high-Btu coal that is ideal for high productivity, low-cost longwall operations. The design of the PAMC is optimized to produce large quantities of coal on a cost-efficient basis. We can sustain high production volumes at comparatively low operating costs due to, among other things, our technologically advanced longwall mining systems, logistics infrastructure and safety. All our mines at the PAMC utilize longwall mining, which is a highly automated underground mining technique that produces large volumes of coal at lower costs compared to other underground mining methods. 

 

CONSOL Marine Terminal: Through our subsidiary CONSOL Marine Terminals LLC, we provide coal export terminal services through the Port of Baltimore. The terminal can either store coal or load coal directly into vessels from rail cars. It is also the only major east coast United States coal terminal served by two railroads, Norfolk Southern Corporation and CSX Transportation Inc.

 

Itmann Mine: Construction of the Itmann Mine, located in Wyoming County, West Virginia, began in the second half of 2019; development mining began in April 2020, and full production is expected following constructionthe relocation and recommissioning of a recently purchased preparation plant, near the mine site, which is planned for completion during the second half of 2022. When fully operational, the Company anticipates approximately 900 thousand product tons per year of high-quality, low-vol coking coal production from the Itmann Mine.Mine, with an anticipated mine life of 20+ years. The Company has also expanded the capacity of the preparation plant being constructed torecommissioned will also include a highly efficient rail loadout and the capability for processing up to an additional 750 thousand to 1 million third-party product tons annually. This third-party processing revenue is expected to provide an additional avenue of growth for the Company.

 

These low-cost assets and the diverse markets they serve provide us opportunities to generate cash across a wide variety of demand and pricing scenarios. The three mines at the PAMC typically operate four to five longwalls, and the production from all three mines is processed at a single, centralized preparation plant, which is connected via conveyor belts to each mine. The Central Preparation Plant, which can clean and process up to 8,200 raw tons of coal per hour, provides economies of scale while also maintaining the ability to segregate and blend coal based on quality. This infrastructure enables us to tailor our production levels and quality specifications to meet market demands. It also results in a highly productive, low-cost operation as compared to other NAPP coal mines. To our knowledge, the PAMC is the most productive and efficient coal mining complex in NAPP. For the year ending December 31, 2020,2021, productivity averaged 7.218.15 tons of coal per employee hour, compared with an average of 4.905.70 tons per employee hour for all other currently-operating NAPP longwalls. Our high productivity helps drive a low-cost structure. Our efficiency strengthens our margins throughout the commodity cycle and has allowed us to continue to generate positive margins even in challenging pricing environments.

 

Coal from the PAMC is versatile in that it can be sold either domestically or abroad, in industrial applications and power generation or as a crossover product in the high-volatile metallurgical coal market. Our marketing team sold 5.9 million tons of coal during the second quarter of 2021 at an average revenue per ton of $44.02, compared to 2.3 million tons at an average revenue per ton of $43.82 in the year-ago period. Demand for our product has remained robust and was significantly improved from the COVID-19 demand trough in the second quarter of 2020. As a result, on the volume front, the 3.6 million ton increase in the second quarter of 2021 compared to the year-ago period was a function of the significant improvement in demand for our product.

In the domestic market, we continued to see further improvement in the commodity pricing environment during the second quarter of 2021 due to higher natural gas prices and economic recovery. The higher natural gas prices have led to a larger percentage of generation coming from coal-fired power plants, and as such, we believe that coal inventories are on the decline and will continue to decline if alternative fuel costs remain elevated. Consistent with these trends, the majority of our domestic customer stockpiles are below target levels for this time of year. As such, we have seen domestic customer demand increase and have remained opportunistic in securing additional coal sales contracts for 2021 and 2022, bringing our contracted positions for those years to 24.6 million and 10.9 million tons, respectively.

On the export front, seaborne thermal coal markets have remained very strong throughout 2021 thus far. API2 spot prices continued to rise in the second quarter of 2021 and ended the second quarter of 2021 improved by 82% compared to the second quarter of 2020. We continue to see high pet coke prices, which improves the demand for our product into high calorific value markets, particularly in India. Following a Company record first quarter 2021 export sales volume, we successfully placed a near-record 3.2 million tons in the export market in the second quarter of 2021, representing approximately 55% of our total shipments in the second quarter. Given the ongoing strength in export coal pricing, we initiated a targeted commodity price hedging strategy during the second quarter of 2021. Since then, we have layered in 2.0 million metric tons of commodity derivative contracts in the API2 market for calendar year 2022 at a weighted average API2 price of $79.34/ton. Additionally, as of August 3, 2021, we have also layered in approximately 2.0 million tons of physical contracts for 2022 which are tied to API2 prices. Furthermore, assuming the midpoint of our updated 2021 tonnage guidance, we have approximately 13.3 million tons of our coal unsold for 2022, a significant portion of which is expected to be sold into the export market. This will allow us to continue to benefit from continued API2 pricing strength even though, in the near term, our commodity derivatives could subject us to unrealized mark-to-market fluctuations.

3028

 

In early 2019, we announced the commencement of the development of our Itmann Mine project, a low-vol metallurgical coal mining operation in Wyoming County, West Virginia. However, due to the unprecedented decline in both the demand for our product and our earnings because of the COVID-19 pandemic in 2020, we made the capital allocation decision to pull back spending on this project in order to focus our discretionary capital towards repurchasing our open market second lien notes, which were trading well below par value at that time. We have committed to relocating a state-of-the-art preparation plant to the Itmann project site. This decision allows us to essentially double the capacity of the preparation plant versus the initial project plan in order to create additional growth opportunity and higher revenue potential by adding additional third-party annual processing capacity of 750 thousand to 1 million product tons, which will add a slight increase to the overall project cost. It also reduces procurement risk by insulating the project from long equipment lead times and recent increases in prices for steel and other materials. We view the Itmann Mine as the next phase of our strategy, which focuses on targeted growth and diversification as an additional avenue to increase value for our stockholders. This project is strategically important as it will diversify our portfolio by adding a new metallurgical coal product stream to the mix, and it aligns well with our current operations by being low cost, high margin and high quality.

The following are our current expectations relating to the Itmann Mine:

900+ thousand tons per year of high-quality, low-vol coking coal production from the Itmann Mine at full run rate.
Anticipated mine life of 20+ years.

Annual cash cost of coal sold per ton of $65-$70, once steady-state production is achieved.
Full production is expected in 12-18 months, upon the completion of the new preparation plant.
Remaining capital expenditures to complete the project of $65-$70 million (including loss on development).

Q2 2021Q1 2022 Highlights:

 

 Coal shipments of 5.96.5 million tons, of which 55% went into the export market and 47% into non-power generation applications.
Adjusted EBITDA(1) of $84.4 million.tons.
 

Recommencing the Itmann metallurgical coal project with expanded scope to accelerate our diversification strategy.
Borrowed the proceedsDebt repayments, excluding premiums, of the issuance$38.5 million – payments on Term Loan A, Term Loan B, Second Lien Notes (each as defined below), and equipment-financed debt outstanding of $75.0$6.3 million, in tax-exempt bonds to fund the solid waste disposal project at the PAMC.
Spent $18.4$0.7 million, for an early buyout of an existing operating lease for a set of longwall shields reducing monthly cash cost by $0.9 million.$25.0 million and $6.5 million, respectively.

 

Guidance and Outlook for 2021:2022:

 

 We expect that the PAMC will sell approximately 23.523 million to 25.0 million tons.

For 2021 and 2022, our contracted position, as of August 3, 2021 is at 24.625 million tons and 10.9 million tons, respectively.

in fiscal year 2022.
 We expect ourPAMC average realized coal revenue per ton sold, an operating ratio derived from non-GAAP financial measures, to be $58.00 - $61.00 and PAMC average cash cost of coal sold per ton, willan operating ratio derived from non-GAAP financial measures, to be between $27.00 per ton and $28.00 per ton.$29.00-$31.00.(2)(1)
 We are planning to make capital expenditures during 20212022 in the range of $160$162 million to $180$195 million, including development of the Itmann project.
We expect that the Itmann Mine will produce approximately 0.3 million to 0.5 million tons (on a clean coal equivalent basis) in 2022 with the majority of this production occurring in the second half of 2022.

 

(1) Adjusted EBITDA is aAverage realized coal revenue per ton sold and average cash cost of coal sold per ton are operating ratios derived from non-GAAP financial measure. Please see “How We Evaluate Our Operations” for a reconciliation of Adjusted EBITDA to the most comparable measure calculated in accordance with GAAP. 

(2)measures. CONSOL Energy is unable to provide a reconciliation of this guidance to any measures calculated in accordance with GAAP due to the unknown effect, timing and potential significance of certain income statement items.

 

How We Evaluate Our Operations

 

Our management team uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability. The metrics include: (i) coal production and sales volumes and averagevolumes; (ii) realized coal revenue, per ton; (ii)a non-GAAP financial measure; (iii) cost of coal sold, a non-GAAP financial measure; (iii)(iv) cash cost of coal sold, a non-GAAP financial measure; (iv)(v) average realized coal revenue per ton sold, an operating ratio derived from non-GAAP financial measures; (vi) average cash cost of coal sold per ton, an operating ratio derived from non-GAAP financial measures; (vii) average margin per ton sold, an operating ratio derived from non-GAAP financial measures; (v)(viii) average cash margin per ton sold, an operating ratio derived from non-GAAP financial measures; and (vi)(ix) adjusted EBITDA, a non-GAAP financial measure.

 

CostRealized coal revenue, average realized coal revenue per ton sold, cost of coal sold, cash cost of coal sold, average cash cost of coal sold per ton, average margin per ton sold and average cash margin per ton sold normalize the volatility contained within comparable GAAP measures by adjusting certain non-operating or non-cash transactions. We believe that adjusted EBITDA provides a helpful measure of comparing our operating performance with the performance of other companies that have different financing, capital structures and tax rates than ours. We believe realized coal revenue and average realized coal revenue per ton sold provide useful information to investors because they better reflect our earnings by including the settled costs (or gains) of our coal-related derivatives for the period. Each of these non-GAAP metrics are used as supplemental financial measures by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:

 

 

our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure;

 

the ability of our assets to generate sufficient cash flow;

 

our ability to incur and service debt and fund capital expenditures;

 

the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities; and

 

the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.

 

These non-GAAP financial measures should not be considered an alternative to total costs, total coal revenue, net income, operating cash flow or any other measure of financial performance or liquidity presented in accordance with GAAP. These measures exclude some, but not all, items that affect measures presented in accordance with GAAP, and these measures and the way we calculate them may vary from those of other companies. As a result, the items presented below may not be comparable to similarly titled measures of other companies.

 

3129

 

Reconciliation of Non-GAAP Financial Measures

 

We evaluate our cost of coal sold and cash cost of coal sold on an aggregate basis. We define cost of coal sold as operating and other production costs related to produced tons sold, along with changes in coal inventory, both in volumes and carrying values. The cost of coal sold includes items such as direct operating costs, royalty and production taxes, direct administration costs, and depreciation, depletion and amortization costs on production assets. Cost of coal sold excludes any indirect costs, such as selling, general and administrative costs, freight expenses, interest expenses, depreciation, depletion and amortization costs on non-production assets and other costs not directly attributable to the production of coal. The cash cost of coal sold includes cost of coal sold less depreciation, depletion and amortization costs on production assets. We define average cash cost of coal sold per ton as cash cost of coal sold divided by tons sold. The GAAP measure most directly comparable to cost of coal sold, and cash cost of coal sold and average cash cost of coal sold per ton is total costs and expenses.

 

The following table presents a reconciliation of cost of coal sold, cash cost of coal sold and average cash cost of coal sold per ton to total costs and expenses, the most directly comparable GAAP financial measure, on a historical basis, for each of the periods indicated (in thousands, except per ton information).

 

 

Three Months Ended June 30,

  

Six Months Ended June 30,

  

Three Months Ended March 31,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

 

Total Costs and Expenses

 $291,880  $191,307  $602,442  $478,180  $366,501  $310,562 

Less: Freight Expense

 (26,010) (3,085) (53,023) (6,232) (38,389) (27,013)

Less: Selling, General and Administrative Costs

 (22,542) (10,939) (46,506) (28,609) (37,149) (23,964)

Less: Gain on Debt Extinguishment

 106    789  16,833 

Less: (Loss) Gain on Debt Extinguishment

 (2,122) 683 

Less: Interest Expense, net

 (16,187) (14,722) (31,448) (30,393) (14,352) (15,261)

Less: Other Costs (Non-Production)

 (10,852) (56,831) (29,096) (77,713) (23,434) (18,246)

Less: Depreciation, Depletion and Amortization (Non-Production)

  (5,034)  (16,521)  (12,918)  (25,884)  (7,869)  (7,883)

Cost of Coal Sold

 $211,361  $89,209  $430,240  $326,182  $243,186  $218,878 

Less: Depreciation, Depletion and Amortization (Production)

  (47,165)  (29,634)  (99,178)  (75,214)  (48,085)  (52,014)

Cash Cost of Coal Sold

 $164,196  $59,575  $331,062  $250,968  $195,101  $166,864 

Total Tons Sold (in millions)

 5.9 2.3 12.7 8.2  6.5  6.9 

Average Cost of Coal Sold per Ton

 $36.00 $38.32 $33.76 $39.55  $37.48  $31.85 

Less: Depreciation, Depletion and Amortization Costs per Ton Sold

  7.98  12.42  7.67  9.00   7.57   7.41 

Average Cash Cost of Coal Sold per Ton

 $28.02 $25.90 $26.09 $30.55  $29.91  $24.44 

 

We evaluate our average realized coal revenue per ton sold, average margin per ton sold and average cash margin per ton sold on a per-ton basis. We define average realized coal revenue per ton sold as total coal revenue, net of settlements of commodity derivatives divided by tons sold. We define average margin per ton sold as average realized coal revenue per ton sold, net of average cost of coal sold per ton. We define average cash margin per ton sold as average realized coal revenue per ton sold, net of average cash cost of coal sold per ton. The GAAP measure most directly comparable to average realized coal revenue per ton sold, average margin per ton sold and average cash margin per ton sold is total coal revenue.

 

The following table presents a reconciliation of average realized coal revenue per ton sold, average margin per ton sold and average cash margin per ton sold to total coal revenue, the most directly comparable GAAP financial measure, on a historical basis, for each of the periods indicated (in thousands, except per ton information).

 

 

Three Months Ended June 30,

  

Six Months Ended June 30,

  

Three Months Ended March 31,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

 

Total Coal Revenue (PAMC Segment)

 $258,482  $102,026  $542,948  $357,478  $472,960  $284,465 

Add: Settlements of Commodity Derivatives

  (86,252)   

Total Realized Coal Revenue

 386,708 284,465 

Operating and Other Costs

 175,048  116,406  360,158  328,681  218,535  185,110 

Less: Other Costs (Non-Production)

  (10,852)  (56,831)  (29,096)  (77,713)  (23,434)  (18,246)

Total Cash Cost of Coal Sold

 164,196  59,575  331,062  250,968  195,101  166,864 

Add: Depreciation, Depletion and Amortization

 52,199  46,155  112,096  101,098  55,954  59,897 

Less: Depreciation, Depletion and Amortization (Non-Production)

  (5,034)  (16,521)  (12,918)  (25,884)  (7,869)  (7,883)

Total Cost of Coal Sold

 $211,361  $89,209  $430,240  $326,182  $243,186  $218,878 

Total Tons Sold (in millions)

 5.9  2.3  12.7  8.2  6.5  6.9 

Average Revenue per Ton Sold

 $44.02  $43.82  $42.60  $43.34 

Average Realized Coal Revenue per Ton Sold

 $59.60  $41.39 

Average Cash Cost of Coal Sold per Ton

 28.02  25.90  26.09  30.55  29.91  24.44 

Depreciation, Depletion and Amortization Costs per Ton Sold

  7.98   12.42   7.67   9.00   7.57   7.41 

Average Cost of Coal Sold per Ton

  36.00   38.32   33.76   39.55   37.48   31.85 

Average Margin per Ton Sold

 8.02  5.50  8.84  3.79  22.12  9.54 

Add: Depreciation, Depletion and Amortization Costs per Ton Sold

  7.98   12.42   7.67   9.00   7.57   7.41 

Average Cash Margin per Ton Sold

 $16.00  $17.92  $16.51  $12.79  $29.69  $16.95 

 

3230

 

We define adjusted EBITDA as (i) net income (loss) plus income taxes, net interest expense and depreciation, depletion and amortization, as adjusted for (ii) certain non-cash items, such as stock-based compensation and unrealized lossmark-to-market gains or losses on commodity derivative instruments. The GAAP measure most directly comparable to adjusted EBITDA is net income (loss).

 

  Three Months Ended June 30, 2021 

Dollars in thousands

 

PA Mining Complex

  

CONSOL Marine Terminal

  

Other

  

Total Company

 

Net Income (Loss)

 $6,166  $8,181  $(10,175) $4,172 
                 

Add: Income Tax Benefit

        (8,893)  (8,893)

Add: Interest Expense, net

  478   1,536   14,173   16,187 

Less: Interest Income

  (36)     (775)  (811)

Earnings (Loss) Before Interest & Taxes (EBIT)

  6,608   9,717   (5,670)  10,655 
                 

Add: Depreciation, Depletion & Amortization

  50,169   1,200   830   52,199 
                 

Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA)

 $56,777  $10,917  $(4,840) $62,854 
                 

Adjustments:

                

Stock-Based Compensation

 $1,053  $48  $109  $1,210 

Gain on Debt Extinguishment

        (106)  (106)

Pension Settlement

        22   22 

Unrealized Loss on Commodity Derivative Instruments

  20,437         20,437 

Total Pre-tax Adjustments

  21,490   48   25   21,563 
                 

Adjusted EBITDA

 $78,267  $10,965  $(4,815) $84,417 

The following tables present a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, on a historical basis, for each of the periods indicated (in thousands).

 

 Three Months Ended June 30, 2020  Three Months Ended March 31, 2022 

Dollars in thousands

 

PA Mining Complex

  

CONSOL Marine Terminal

  

Other

  

Total Company

 

Net (Loss) Income

 $(22,350) $7,750  $(6,463) $(21,063)
  

PAMC

  

CONSOL Marine Terminal

  

Other

  

Total Company

 

Add: Income Tax Benefit

     (7,683) (7,683)

Net Income (Loss)

 $2,097 $11,613 $(18,160) $(4,450)
 

Less: Income Tax Benefit

   (3,522) (3,522)

Add: Interest Expense, net

 527  1,542  12,653  14,722  189 1,531 12,632 14,352 

Less: Interest Income

        (122)  (122)  (415)    (914)  (1,329)

(Loss) Earnings Before Interest & Taxes (EBIT)

 (21,823) 9,292  (1,615) (14,146)

Earnings (Loss) Before Interest & Taxes (EBIT)

 1,871  13,144  (9,964) 5,051 
  

Add: Depreciation, Depletion & Amortization

 46,793  1,260  (1,898) 46,155  50,956 1,165 3,833 55,954 
                  

Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA)

 $24,970  $10,552  $(3,513) $32,009  $52,827  $14,309  $(6,131) $61,005 
  

Adjustments:

                

Stock/Unit-Based Compensation

 $1,912  $108  $216  $2,236 

Stock-Based Compensation

 $3,529 $168 $504 $4,201 

Loss on Debt Extinguishment

     2,122  2,122 

Unrealized Mark-to-Market Loss on Commodity Derivative Instruments

  101,902      101,902 

Total Pre-tax Adjustments

 1,912  108  216  2,236  105,431  168  2,626  108,225 
                  

Adjusted EBITDA

 $26,882  $10,660  $(3,297) $34,245  $158,258  $14,477  $(3,505) $169,230 

  Three Months Ended March 31, 2021 
  

PAMC

  

CONSOL Marine Terminal

  

Other

  

Total Company

 

Net Income (Loss)

 $42,450  $9,149  $(25,195) $26,404 
                 

Add: Income Tax Expense

        5,185   5,185 

Add: Interest Expense, net

  642   1,537   13,082   15,261 

Less: Interest Income

        (858)  (858)

Earnings (Loss) Before Interest & Taxes (EBIT)

  43,092   10,686   (7,786)  45,992 
                 

Add: Depreciation, Depletion & Amortization

  54,781   1,214   3,902   59,897 
                 

Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA)

 $97,873  $11,900  $(3,884) $105,889 
                 

Adjustments:

                

Stock-Based Compensation

 $1,312  $61  $136  $1,509 

Gain on Debt Extinguishment

        (683)  (683)

Total Pre-tax Adjustments

  1,312   61   (547)  826 
                 

Adjusted EBITDA

 $99,185  $11,961  $(4,431) $106,715 

 

33

  

For the Six Months Ended June 30, 2021

 

Dollars in thousands

 

PA Mining Complex

  

CONSOL Marine Terminal

  

Other

  

Total Company

 

Net Income (Loss)

 $48,616  $17,330  $(35,370) $30,576 
                 

Add: Income Tax Benefit

        (3,708)  (3,708)

Add: Interest Expense, net

  1,120   3,073   27,255   31,448 

Less: Interest Income

  (36)     (1,633)  (1,669)

Earnings (Loss) Before Interest & Taxes (EBIT)

  49,700   20,403   (13,456)  56,647 
                 

Add: Depreciation, Depletion & Amortization

  104,950   2,414   4,732   112,096 
                 

Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA)

 $154,650  $22,817  $(8,724) $168,743 
                 

Adjustments:

                

Stock/Unit-Based Compensation

 $2,364  $109  $246  $2,719 

Gain on Debt Extinguishment

        (789)  (789)

Pension Settlement

        22   22 

Unrealized Loss on Commodity Derivative Instruments

  20,437         20,437 

Total Pre-tax Adjustments

  22,801   109   (521)  22,389 
                 

Adjusted EBITDA

 $177,451  $22,926  $(9,245) $191,132 

  

For the Six Months Ended June 30, 2020

 

Dollars in thousands

 

PA Mining Complex

  

CONSOL Marine Terminal

  

Other

  

Total Company

 

Net (Loss) Income

 $(11,475) $15,260  $(22,373) $(18,588)
                 

Add: Income Tax Benefit

        (5,775)  (5,775)

Add: Interest Expense, net

  527   3,086   26,780   30,393 

Less: Interest Income

        (366)  (366)

Earnings (Loss) Before Interest & Taxes (EBIT)

  (10,948)  18,346   (1,734)  5,664 
                 

Add: Depreciation, Depletion & Amortization

  95,210   2,517   3,371   101,098 
                 

Earnings Before Interest, Taxes and DD&A (EBITDA)

 $84,262  $20,863  $1,637  $106,762 
                 

Adjustments:

                

Stock/Unit-Based Compensation

 $6,198  $351  $701  $7,250 

Gain on Debt Extinguishment

        (16,833)  (16,833)

Total Pre-tax Adjustments

  6,198   351   (16,132)  (9,583)
                 

Adjusted EBITDA

 $90,460  $21,214  $(14,495) $97,179 

3431

 

Results of Operations

Operations: Three Months Ended June 30, 2021March 31, 2022 Compared with the Three Months Ended June 30, 2020March 31, 2021

 

Net (Loss) Income (Loss) Attributable to CONSOL Energy Inc. Stockholders

 

CONSOL Energy reported a net income attributable to CONSOL Energy Inc. stockholdersloss of $4 million for the three months ended June 30, 2021,March 31, 2022, compared to a net loss attributable to CONSOL Energy Inc. stockholdersincome of $18$26 million for the three months ended June 30, 2020.March 31, 2021. CONSOL Energy reported an adjusted EBITDA of $169 million for the three months ended March 31, 2022, compared to an adjusted EBITDA of $107 million for the three months ended March 31, 2021. The significant contributors to adjusted EBITDA are realized coal revenue and cash cost of coal sold, which are discussed below.

 

CONSOL Energy's business consists of the Pennsylvania Mining Complex and the CONSOL Marine Terminal segments, as well as various corporate and other business activities that are not allocated to the PAMC or the CONSOL Marine Terminal segments. The other business activities include the development of the Itmann Mine, the Greenfield Reserves and Resources, closed mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities.

 

PAMC ANALYSIS:

 

The PAMC division'ssegment's principal activities consist of mining, preparation and marketing of bituminous coal, sold primarily to power generators, industrial end-users power generators and metallurgical end-users. The divisionsegment also includes selling, general and administrative costs, as well as various other activities assigned to the PAMC division,segment, but not included in the cost components on a per unit basis.

 

The PAMC divisionsegment had earnings beforenet income tax of $6$2 million for the three months ended June 30, 2021,March 31, 2022, compared to loss beforenet income tax of $22$42 million for the three months ended June 30, 2020.March 31, 2021. The PAMC segment had adjusted EBITDA of $158 million for the three months ended March 31, 2022, compared to adjusted EBITDA of $99 million for the three months ended March 31, 2021. Included in the 2022 adjusted EBITDA were settlements of commodity derivatives at a loss of $86 million (see Note 14 - Derivatives in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q). Variances are discussed below.

 

 

Three Months Ended

  

Three Months Ended

 
 

June 30,

  

March 31,

 

(in millions)

 

2021

  

2020

  

Variance

  

2022

  

2021

  

Variance

 

Revenue:

         

Realized Coal Revenue:

         

Coal Revenue

 $258 $102 $156  $473 $284 $189 

Settlements of Commodity Derivative Instruments

  (86)    (86)

Total Realized Coal Revenue

 387 284 103 

Freight Revenue

 26 3 23  38 27 11 

Miscellaneous Other (Loss) Income

  (20)  30  (50)

Unrealized Mark-to-Market Loss on Commodity Derivative Instruments

 (102)  (102)

Miscellaneous Other Income

 1  1 

Gain on Sale of Assets

    1  (1)

Total Revenue and Other Income

 264  135  129  324  312  12 

Cost of Coal Sold:

                  

Operating Costs

 164 59 105  195 167 28 

Depreciation, Depletion and Amortization

  47  30  17   48  52  (4)

Total Cost of Coal Sold

 211  89  122  243  219  24 

Other Costs:

                  

Other Costs

 (1) 39 (40) 8 1 7 

Depreciation, Depletion and Amortization

  3  17  (14)  3  3   

Total Other Costs

 2  56  (54) 11  4  7 

Freight Expense

 26 3 23  38 27 11 

Selling, General and Administrative Costs

 19 8 11  30 19 11 

Interest Expense, net

    1  (1)    1  (1)

Total Costs and Expenses

  258   157   101   322   270   52 

Earnings (Loss) Before Income Tax

 $6  $(22) $28 

Earnings Before Income Tax

 $2  $42  $(40)

Interest Expense, net

  1 (1)

Depreciation, Depletion and Amortization

 51 55 (4)

Stock-Based Compensation

 3 1 2 

Unrealized Mark-to-Market Loss on Commodity Derivative Instruments

  102    102 

Adjusted EBITDA

 $158 $99 $59 

 

3532

 

Coal Production

 

The table below presents total tons produced (in thousands) from the Pennsylvania Mining Complex for the periods indicated:

 

 

Three Months Ended June 30,

  

Three Months Ended March 31,

 

Mine

 

2021

  

2020

  

Variance

  

2022

  

2021

  

Variance

 

Bailey

 3,021 1,007 2,014  3,020 3,779 (759)

Enlow Fork

 1,594 243 1,351  1,776 1,996 (220)

Harvey

  1,297  1,136  161   1,560  1,244  316 

Total

  5,912   2,386   3,526   6,356   7,019   (663)

 

Coal production was 5.96.4 million tons for the three months ended June 30, 2021,March 31, 2022, compared to 2.47.0 million tons for the three months ended June 30, 2020.March 31, 2021. The PAMC's coal production increaseddecreased in the period-to-period comparison primarily duebecause the Company ran its five available longwalls in the first quarter of 2021, compared to improved demand forfour available longwalls in the Company's coal. Overall demand forfirst quarter of 2022, as the Company's coalCompany pulled back development of its fifth longwall during the three months ended June 30, 2020 was negatively impacted by the COVID-19 pandemic, which resultedrelated demand decline in the temporary idling of longwalls at the Bailey and Enlow Fork mines. However, demand has steadily improved since the low point in the second quarter of 2020, which has allowed the Company to significantly increase the production at the Bailey and Enlow Fork mines. 2020.

 

Coal Operations

 

The PAMC division'ssegment's realized coal revenue and cost components on a per unit basis for the three months ended June 30, 2021 and 2020 are detailed in the table below. The PAMC division's operations also include various costs suchthese periods were as selling, general and administrative, freight and other costs not included in the unit cost analysis because these costs are not directly associated with coal production.follows:

 

 

Three Months Ended June 30,

  

Three Months Ended March 31,

 
 

2021

  

2020

  

Variance

  

2022

  

2021

  

Variance

 

Total Tons Sold (in millions)

 5.9 2.3 3.6  6.5 6.9 (0.4)

Average Revenue per Ton Sold

 $44.02 $43.82 $0.20 

Average Realized Coal Revenue per Ton Sold (1)

 $59.60 $41.39 $18.21 
  

Average Cash Cost of Coal Sold per Ton (1)

 $28.02 $25.90 $2.12  $29.91 $24.44 $5.47 

Depreciation, Depletion and Amortization Costs per Ton Sold (Non-Cash Cost)

  7.98  12.42  (4.44)  7.57  7.41  0.16 

Average Cost of Coal Sold per Ton (1)

 $36.00  $38.32  $(2.32) $37.48  $31.85  $5.63 

Average Margin per Ton Sold (1)

 $8.02  $5.50  $2.52  $22.12  $9.54  $12.58 

Add: Depreciation, Depletion and Amortization Costs per Ton Sold

  7.98   12.42   (4.44)  7.57   7.41   0.16 

Average Cash Margin per Ton Sold (1)

 $16.00  $17.92  $(1.92) $29.69  $16.95  $12.74 

 

(1) Average cash cost of coal sold per ton and average cost of coal sold per ton are non-GAAP measures, and average realized coal revenue per ton sold, average margin per ton sold and average cash margin per ton sold are operating ratios derived from non-GAAP measures. See “How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures” for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.

 

Coal Revenue and Realized Coal Revenue

 

Coal revenue and realized coal revenue was $258$473 million and $387 million for the three months ended June 30, 2021,March 31, 2022, respectively, compared to $102$284 million and $284 million for the three months ended June 30, 2020. Total tons sold increased in the period-to-period comparison primarily dueMarch 31, 2021, respectively. As a result of continued global tightness of coal supply and higher electric power prices, coupled with higher natural gas prices, which is a competitor to a significant improvement in demand for the Company's coal.  Duringcoal product, the Company realized higher pricing on all of its contracts, including domestic contracts, export contracts, and contracts that contain positive electric power-price adjustments. The Company's realized coal revenue for the three months ended June 30, 2020,March 31, 2022 was also impacted by the COVID-19 pandemic, and in response,settlement of certain commodity derivatives during the widespread government-imposed shut-downs, significantly reduced electricity consumption and, therefore, demand forquarter, whereas during the Company's coal.prior year period, the Company did not have any commodity derivatives.

 

Freight Revenue and Freight Expense

 

Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services to move its coal from the mine to the ultimate sales point. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both $26$38 million for the three months ended June 30, 2021,March 31, 2022, compared to $3$27 million for the three months ended June 30, 2020.March 31, 2021. The $23$11 million increase was dueprimarily related to increased shipments to customers wheretransportation pricing from the Company was contractually obligated to provide transportation services.underlying pricing model, as well as an increase in fuel surcharges.

 

3633

 

Miscellaneous Other (Loss) IncomeUnrealized Mark-to-Market Loss on Commodity Derivative Instruments

 

The $50 million decrease in miscellaneous other (loss) income was primarily the result of $30 million in customer contract buyoutsCompany periodically sells or purchases forward contracts, swaps and options in the three months ended June 30, 2020, noneover-the-counter coal market in order to manage its exposure to coal prices. The increases in forward API2 coal prices resulted in unrealized mark-to-market losses of which occurred$102 million during the three months ended June 30, 2021. DuringMarch 31, 2022 related to these commodity derivative contracts. The Company did not experience similar unrealized mark-to-market gains or losses during the second quarter ofthree months ended March 31, 2021, as the Company initiated a targeted commodity pricedid not previously enter into hedging strategy, layering in 2.0 million metric tons of commodity derivative contracts in the API2 market at a weighted average API2 price of $79.34 per ton. The continued API2 pricing strength throughout the second quarter of 2021 resulted in mark-to-market losses of $20 million.arrangements to manage its exposure to coal prices.

 

Cost of Coal Sold

 

Cost of coal sold is comprised of operating costs related to produced tons sold, along with changes in both the volumes and carrying values of coal inventory. The costscost of coal sold includeincludes items such as direct operating costs, royalties and production taxes, direct administration costs and depreciation, depletion, and amortization costs on production assets. Total cost of coal sold was $211$243 million for the three months ended June 30, 2021,March 31, 2022, or $122$24 million higher than the $89$219 million for the three months ended June 30, 2020.March 31, 2021. Average cost of coal sold per ton was $36.00$37.48 for the three months ended June 30, 2021,March 31, 2022, compared to $38.32$31.85 for the three months ended June 30, 2020.March 31, 2021. The increase in the total cost of coal sold and average cost of coal sold per ton was primarily driven by increased production activity during the three months ended June 30, 2021, mainly in response to a significant improvement in demand for the Company's coal. The Company operated at minimal production levels during the three months ended June 30, 2020 due to the peak ofongoing development work associated with the COVID-19 demand declineCompany's fifth longwall, significant inflationary pressures that continued to weigh on our input costs such as labor, maintenance, supply, contractor and government-imposed lockdowns.project expenses, and lower operating leverage due to less sales tonnage.

 

Other Costs

 

Other costs include items that are assigned to the PAMC divisionsegment but are not included in unit costs, such as idle mine costs and coal reserve holding costs and purchased coal costs. Total other costs decreased $54increased $7 million in the three months ended June 30, 2021March 31, 2022, compared to the three months ended June 30, 2020.March 31, 2021. The decreaseincrease was primarily attributable to additional expenses incurred in the temporary idlingcurrent quarter across various categories, none of longwalls at the Bailey and Enlow Fork mines during the three months ended June 30, 2020 due to the COVID-19 pandemic and, in response, the widespread government-imposed shutdowns, which significantly reduced electricity consumption and industrial activity and, therefore, demand for the Company's coal.were individually material.

 

Selling, General, and Administrative Costs

 

The amount of selling, general and administrative costs related to the PAMC divisionsegment were $30 million for the three months ended March 31, 2022, compared to $19 million for the three months ended June 30, 2021, compared to $8 million for the three months ended June 30, 2020.March 31, 2021. The $11 million increase in the period-to-period comparison was primarily related to increased expense under the long-term and short-term incentive compensation plans earnedplan incurred in the three months ended June 30, 2021,March 31, 2022, due to the Company achieving certain financial metrics, as well as a substantial increase in the Company's share price, compared to the three months ended June 30, 2020.March 31, 2021.

 

3734

 

CONSOL MARINE TERMINAL ANALYSIS:

 

The CONSOL Marine Terminal divisionsegment provides coal export terminal services through the Port of Baltimore. The divisionsegment also includes selling, general and administrative activities and interest expense, as well as various other activities assigned to the CONSOL Marine Terminal division.segment.

 

The CONSOL Marine Terminal divisionsegment had earnings beforenet income tax of $8$12 million for the three months ended June 30, 2021 and 2020.March 31, 2022, compared to net income of $9 million for the three months ended March 31, 2021. The CONSOL Marine Terminal segment had adjusted EBITDA of $15 million for the three months ended March 31, 2022 compared to an adjusted EBITDA of $12 million for the three months ended March 31, 2021.

 

 

Three Months Ended June 30,

  

Three Months Ended March 31,

 

(in millions)

 

2021

  

2020

  

Variance

  

2022

  

2021

  

Variance

 

Revenue:

            

Terminal Revenue

 $17 $16 $1  $21 $18 $3 

Miscellaneous Other Income

  1    1   1  1   

Total Revenue and Other Income

 18  16  2  22  19  3 

Other Costs and Expenses:

            

Operating and Other Costs

 6 4 2  5 6 (1)

Depreciation, Depletion and Amortization

 1 1   1 1  

Selling, General, and Administrative Costs

 1 1   2 1 1 

Interest Expense, net

  2  2     2  2   

Total Other Costs and Expenses

  10   8   2   10   10    

Earnings Before Income Tax

 $8  $8  $  $12  $9  $3 

Interest Expense, net

 2 2  

Depreciation, Depletion and Amortization

  1  1   

Adjusted EBITDA

 $15 $12 $3 

 

Overall earnings before income tax were materially consistentTerminal revenue consists of sales from the CONSOL Marine Terminal, which is located in the period-to-period comparison. There was a significant improvement in throughputPort of Baltimore, Maryland and provides access to international coal markets. Throughput volumes at the CONSOL Marine Terminal were 3.6 million tons as overall demand was substantially improved in the three months ended June 30, 2021March 31, 2022, compared to 4.1 million tons in the three months endedJune 30, 2020due to the COVID-related demand decline that impacted the second quarter of 2020. However, the impact on terminal revenue due to the improvement in throughput tons was somewhat muted due to the take-or-pay contract that was in place during March 31, 2021. CONSOL Marine Terminal sales were $21 million for the three months endedJune 30, 2020. March 31, 2022, compared to $18 million for the three months ended March 31, 2021. Despite lower throughput tonnage, terminal revenue was improved in the period-to-period comparison, primarily attributable to an increase in the rates charged to process coal at the Terminal due to increased export demand and commodity pricing strength.

 

OTHER ANALYSIS:

 

The other divisionsegment includes revenue and expenses from various corporate and diversified business activities that are not allocated to the PAMC or the CONSOL Marine Terminal divisions.segments. The diversified business activities include the development of the Itmann Mine, the Greenfield Reserves and Resources, closed mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities.

 

Other business activities had a net loss before income tax of $19$18 million for the three months ended June 30, 2021,March 31, 2022, compared to a net loss before income tax of $15$25 million for the three months ended June 30, 2020.March 31, 2021. Other business activities had adjusted EBITDA of ($4) million for the three months ended March 31, 2022 and 2021. Variances are discussed below.

 

 

Three Months Ended

  

Three Months Ended

 
 

June 30,

  

March 31,

 

(in millions)

 

2021

  

2020

  

Variance

  

2022

  

2021

  

Variance

 

Revenue:

                  

Coal Revenue

 $2 $ $2 

Coal Revenue - Itmann

 $3 $2 $1 

Miscellaneous Other Income

 1 4 (3) 4 2 2 

Gain on Sale of Assets

  2  7  (5)  6  7  (1)

Total Revenue and Other Income

 5  11  (6) 13  11  2 

Other Costs and Expenses:

                  

Operating and Other Costs

 6 14 (8) 12 11 1 

Depreciation, Depletion and Amortization

 1 (2) 3  4 4  

Selling, General and Administrative Costs

 3 2 1  5 4 1 

Loss (Gain) on Debt Extinguishment

 2 (1) 3 

Interest Expense, net

  14  12  2   12  13  (1)

Total Other Costs and Expenses

  24   26   (2)  35   31   4 

Loss Before Income Tax

 $(19) $(15) $(4) $(22) $(20) $(2)

Interest Expense, net

 12 13 (1)

Interest Income

 (1) (1)  

Depreciation, Depletion and Amortization

 4 4  

Stock-Based Compensation

 1 1  

Loss (Gain) on Debt Extinguishment

  2  (1)  3 

Adjusted EBITDA

 $(4) $(4) $ 

 

Coal Revenue - Itmann

 

Coal revenue consists of the sale of incidental coal mined during the development of the Itmann Mine located in Wyoming County, West Virginia. The increase is due to the significant increase in the price of metallurgical coal in the period-to-period comparison.

35

 

Miscellaneous Other Income 

 

Miscellaneous other income was $1 million for the three months ended June 30, 2021, compared to $4 million for the three months ended June 30, 2020.March 31, 2022, compared to $2 million for the three months ended March 31, 2021. The change is due to the following items:

 

  

Three Months Ended June 30,

 

(in millions)

 

2021

  

2020

  

Variance

 

Royalty Income - Non-Operated Coal

 $  $3  $(3)

Interest Income

  1      1 

Other Income

     1   (1)

Total Miscellaneous Other Income

 $1  $4  $(3

)

Royalty income - non-operated coal decreased in the period-to-period comparison due to a decline in the revenues earned as a result of less operating activity by third-party companies mining in reserves to which we have a royalty claim.

38

  

Three Months Ended March 31,

 

(in millions)

 

2022

  

2021

  

Variance

 

Royalty Income - Non-Operated Coal

 $1  $1  $ 

Property Easements and Option Income

  1      1 

Interest Income

  1   1    

Other Income

  1      1 

Total Miscellaneous Other Income

 $4  $2  $2

 

 

Gain on Sale of Assets

 

Gain on sale of assets decreased $5 millionremained materially consistent in the period-to-period comparison primarily due to the sale of various gas wells and the related equipment during the three months ended June 30, 2020.comparison.

 

Operating and Other Costs

 

Operating and other costs were $6$12 million for the three months ended June 30, 2021,March 31, 2022, compared to $14$11 million for the three months ended June 30, 2020.March 31, 2021. Operating and other costs decreasedincreased in the period-to-period comparison due to the following items:

 

 

Three Months Ended June 30,

  

Three Months Ended March 31,

 

(in millions)

 

2021

  

2020

  

Variance

  

2022

  

2021

  

Variance

 

Employee-Related Legacy Liability Expense

 $3 $6 $(3) $2 $2 $ 

Coal Reserve Holding Costs

 2 1 1  2 3 (1)

Closed Mines

 1 1  

Closed and Idle Mines

 1 1  

Operating Cost of Coal Sold - Itmann

 3 2 1 

Other

    6  (6)  4  3  1 

Total Operating and Other Costs

 $6  $14  $(8) $12  $11  $1 

 

         Employee-Related Legacy Liability Expense decreased $3 million in the period-to-period comparison primarily due to changes in actuarial assumptions made at the beginning of each year. See Note 5 - Pension and Other Postretirement Benefits Plans and Note 6 - Coal Workers' Pneumoconiosis and Workers' Compensation in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization increased $3 million in the period-to-period comparison due to current quarter adjustments to the Company's asset retirement obligations based on current projected cash outflows.

Selling, General and Administrative Costs

Selling, general and administrative costs are allocated to the Company's Other division based on a percentage of resources utilized, a percentage of total revenue and a percentage of total projected capital expenditures. Selling, General and Administrative Costs remained materially consistent in the period-to-period comparison.

Interest Expense, net

Interest expense, net of amounts capitalized, increased in the period-to-period comparison primarily due to interest incurred on the Pennsylvania Economic Development Financing Authority tax-exempt solid waste disposal revenue bonds issued in the second quarter of 2021. This was partially offset by the Company's continued de-leveraging efforts throughout the three months ended June 30, 2021.

39

Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020

Net Income (Loss) Attributable to CONSOL Energy Inc. Stockholders

CONSOL Energy reported net income attributable to CONSOL Energy Inc. stockholders of $31 million for the six months ended June 30, 2021, compared to a net loss attributable to CONSOL Energy Inc. stockholders of $16 million for the six months ended June 30, 2020.

CONSOL Energy's business consists of the Pennsylvania Mining Complex and the CONSOL Marine Terminal segments, as well as various corporate and other business activities that are not allocated to the PAMC or the CONSOL Marine Terminal segments. The other business activities include the development of the Itmann Mine, the Greenfield Reserves, closed mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities.

PAMC ANALYSIS:

The PAMC division's principal activities consist of mining, preparation and marketing of bituminous coal, sold primarily to industrial end-users, power generators and metallurgical end-users. The division also includes selling, general and administrative costs, as well as various other activities assigned to the PAMC division, but not included in the cost components on a per unit basis.

The PAMC division had earnings before income tax of $49 million for the six months ended June 30, 2021, compared to a loss before income tax of $11 million for the six months ended June 30, 2020. Variances are discussed below.

  

Six Months Ended

 
  

June 30,

 

(in millions)

 

2021

  

2020

  

Variance

 

Revenue:

            

Coal Revenue

 $543  $358  $185 

Freight Revenue

  53   6   47 

Gain on Sale of Assets

  1      1 

Miscellaneous Other (Loss) Income

  (21)  41   (62)

Total Revenue and Other Income

  576   405   171 

Cost of Coal Sold:

            

Operating Costs

  331   251   80 

Depreciation, Depletion and Amortization

  99   75   24 

Total Cost of Coal Sold

  430   326   104 

Other Costs:

            

Other Costs

  (1)  40   (41)

Depreciation, Depletion and Amortization

  6   20   (14)

Total Other Costs

  5   60   (55)

Freight Expense

  53   6   47 

Selling, General and Administrative Costs

  38   23   15 

Interest Expense, net

  1   1    

Total Costs and Expenses

  527   416   111 

Earnings (Loss) Before Income Tax

 $49  $(11) $60 

40

Coal Production

The table below presents total tons produced (in thousands) from the Pennsylvania Mining Complex for the periods indicated:

  

Six Months Ended June 30,

 

Mine

 

2021

  

2020

  

Variance

 

Bailey

  6,800   3,811   2,989 

Enlow Fork

  3,590   2,618   972 

Harvey

  2,541   1,930   611 

Total

  12,931   8,359   4,572 

Coal production was 12.9 million tons for the six months ended June 30, 2021, compared to 8.4 million tons for the six months ended June 30, 2020. The PAMC's coal production increased primarily due to improved demand for the Company's coal. Overall demand for the Company's coal during the six months ended June 30, 2020 was negatively impacted by the COVID-19 pandemic, which resulted in the temporary idling of longwalls at the Bailey and Enlow Fork mines. However, demand has steadily improved since the low point in the second quarter of 2020, which has allowed the Company to significantly increase the production at the Bailey and Enlow Fork mines.

Coal Operations

The PAMC division's coal revenue and cost components on a per unit basis for the six months ended June 30, 2021 and 2020 are detailed in the table below. The PAMC division's operations also include various costs such as selling, general and administrative, freight and other costs not included in the unit cost analysis because these costs are not directly associated with coal production.

  

Six Months Ended June 30,

 
  

2021

  

2020

  

Variance

 

Total Tons Sold (in millions)

  12.7   8.2   4.5 

Average Revenue per Ton Sold

 $42.60  $43.34  $(0.74)
             

Average Cash Cost of Coal Sold per Ton (1)

 $26.09  $30.55  $(4.46)

Depreciation, Depletion and Amortization Costs per Ton Sold (Non-Cash Cost)

  7.67   9.00   (1.33)

Average Cost of Coal Sold per Ton (1)

 $33.76  $39.55  $(5.79)

Average Margin per Ton Sold (1)

 $8.84  $3.79  $5.05 

Add: Depreciation, Depletion and Amortization Costs per Ton Sold

  7.67   9.00   (1.33)

Average Cash Margin per Ton Sold (1)

 $16.51  $12.79  $3.72 

(1) Average cash cost of coal sold per ton and average cost of coal sold per ton are non-GAAP measures, and average margin per ton sold and average cash margin per ton sold are operating ratios derived from non-GAAP measures. See “How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures” for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.

Coal Revenue

Coal revenue was $543 million for the six months ended June 30, 2021, compared to $358 million for the six months ended June 30, 2020. Total tons sold increased in the period-to-period comparison primarily due to a significant improvement in demand for the Company's coal as a result of the lifting of COVID-19 restrictions. During the six months ended June 30, 2020, a warmer than normal winter followed by the COVID-19 pandemic, and in response, the widespread government-imposed shut-downs, significantly reduced electricity consumption and, therefore, demand for the Company's coal.

Freight Revenue and Freight Expense

Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services to move its coal from the mine to the ultimate sales point. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both $53 million for the six months ended June 30, 2021, compared to $6 million for the six months ended June 30, 2020. The $47 million increase was due to increased shipments to customers where the Company was contractually obligated to provide transportation services.

41

Miscellaneous Other (Loss) Income

The $62 million decrease in miscellaneous other (loss) income was primarily the result of $41 million of customer contract buyouts in the six months ended June 30, 2020, none of which occurred during the six months ended June 30, 2021. During the second quarter of 2021, the Company initiated a targeted commodity price hedging strategy, layering in 2.0 million metric tons of commodity derivative contracts in the API2 market at a weighted average API2 price of $79.34 per ton. The continued API2 pricing strength throughout the second quarter of 2021 resulted in mark-to-market losses of $20 million.

Operating Cost of Coal Sold

Cost of coal sold - Itmann is comprised of operating costs related to produced tons sold, along with changes in both the volumes and carrying values of coal inventory. The costs of coal sold include items such as direct operating costs, royalties and production taxes and direct administration costs and depreciation, depletion, and amortization costs on production assets. Total cost of coal sold was $430 million for the six months ended June 30, 2021, or $104 million higher than the $326 million for the six months ended June 30, 2020. Average cost of coal sold per ton was $33.76 for the six months ended June 30, 2021, compared to $39.55 for the six months ended June 30, 2020.costs. The increase in the total cost of coal sold was primarily driven by increased production activity during the six months ended June 30, 2021, mainly in response to a significant improvement in demand for the Company's coal. The Company operated at minimal production levels during the six months ended June 30, 2020is due to the peakincreased volume of the COVID-19 demand decline and government-imposed lockdowns that occurred during the second quarter of 2020.

Other Costs

Other costs include items that are assigned to the PAMC division but are not included in unit costs, such as idle mine costs, coal reserve holding costs and purchased coal costs. Total other costs decreased $55 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The decrease was primarily attributable to the temporary idling of longwalls at the Bailey and Enlow Fork mines during the six months ended June 30, 2020 due to the COVID-19 pandemic and, in response, the widespread government-imposed shutdowns, which significantly reduced electricity consumption and industrial activity and, therefore, demand for the Company's coal.

Selling, General, and Administrative Costs

The amount of selling, general and administrative costs related to the PAMC division were $38 million for the six months ended June 30, 2021, compared to $23 million for the six months ended June 30, 2020. The $15 million increase in the period-to-period comparison was primarily related to increased expense under the Company's long-term and short-term incentive compensation plans earned in the six months ended June 30, 2021, due to achieving certain financial metrics, as well as a substantial increase in the Company's share price, compared to the six months ended June 30, 2020. 

42

CONSOL MARINE TERMINAL ANALYSIS:

The CONSOL Marine Terminal division provides coal export terminal services through the Port of Baltimore. The division also includes selling, general and administrative activities and interest expense, as well as various other activities assigned to the CONSOL Marine Terminal division.

The CONSOL Marine Terminal division had earnings before income tax of $17 million for the six months ended June 30, 2021, compared to earnings before income tax of $15 million for the six months ended June 30, 2020.

  

Six Months Ended June 30,

 

(in millions)

 

2021

  

2020

  

Variance

 

Revenue:

            

Terminal Revenue

 $36  $32  $4 

Total Revenue and Other Income

  36   32   4 

Other Costs and Expenses:

            

Operating and Other Costs

  12   9   3 

Depreciation, Depletion and Amortization

  2   3   (1)

Selling, General, and Administrative Costs

  2   2    

Interest Expense, net

  3   3    

Total Other Costs and Expenses

  19   17   2 

Earnings Before Income Tax

 $17  $15  $2 

Terminal Revenue

          Terminal revenue consists of sales from the CONSOL Marine Terminal, which is located at the Port of Baltimore, Maryland and provides access to international coal markets. CONSOL Marine Terminal revenue was $36 million for the six months ended June 30, 2021, compared to $32 million for the six months ended June 30, 2020. The $4 million increase in the period-to-period comparison was primarily attributable to a significant improvement in throughput tons as overall demand was substantially improved in the six months ended June 30, 2021compared to the six months ended June 30, 2020due to the COVID-related demand decline that impacted part of the first half of 2020. However, the impact on terminal revenue due to the improvement in throughput tons was somewhat muted due to the take-or-pay contract that was in place during the six months ended June 30, 2020.

OTHER ANALYSIS:

The other division includes revenue and expenses from various corporate and diversified business activities that are not allocated to the PAMC or the CONSOL Marine Terminal divisions. The diversified business activities include the development of the Itmann Mine, the Greenfield Reserves, closed mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities.

Other business activities had a loss before income tax of $39 million for the six months ended June 30, 2021, compared to a loss before income tax of $28 million for the six months ended June 30, 2020. Variances are discussed below.

  

Six Months Ended

 
  

June 30,

 

(in millions)

 

2021

  

2020

  

Variance

 

Revenue:

            

Coal Revenue

 $2  $  $2 

Miscellaneous Other Income

  5   10   (5)

Gain on Sale of Assets

  10   7   3 

Total Revenue and Other Income

  17   17    

Other Costs and Expenses:

            

Operating and Other Costs

  18   29   (11)

Depreciation, Depletion and Amortization

  5   3   2 

Selling, General and Administrative Costs

  7   4   3 

Gain on Debt Extinguishment

  (1)  (17)  16 

Interest Expense, net

  27   26   1 

Total Other Costs and Expenses

  56   45   11 

Loss Before Income Tax

 $(39) $(28) $(11)

Coal Revenue

Coal revenue consists of the sale of incidental coal mined during the ongoing development of the Itmann Mine located in Wyoming County, West Virginia.

43

Miscellaneous Other Income

Miscellaneous other income was $5 million for the six months ended June 30, 2021, compared to $10 million for the six months ended June 30, 2020. The change is due to the following items:

  

Six Months Ended June 30,

 

(in millions)

 

2021

  

2020

  

Variance

 

Royalty Income - Non-Operated Coal

 $2  $7  $(5)

Property Easements and Option Income

     1   (1)

Rental Income

     1   (1)

Interest Income

  2      2 

Other Income

  1   1    

Total Miscellaneous Other Income

 $5  $10  $(5)

Royalty income - non-operated coal decreased in the period-to-period comparison due to a decline in the revenues earned as a result of less operating activity by third-party companies mining in reserves to which we have a royalty claim.

Gain on Sale of Assets

Gain on sale of assets increased $3 million in the period-to-period comparison primarily due to the sale of various gas wells and the related equipment during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Operating and Other Costs

Operating and other costs were $18 million for the six months ended June 30, 2021, compared to $29 million for the six months ended June 30, 2020. Operating and other costs decreased in the period-to-period comparison due to the following items:

  

Six Months Ended June 30,

 

(in millions)

 

2021

  

2020

  

Variance

 

Employee-Related Legacy Liability Expense

 $4  $13  $(9)

Coal Reserve Holding Costs

  5   2   3 

Closed Mines

  2   2    

Litigation Expense

  2      2 

Bank Fees

  1   1    

Other

  4   11   (7)

Total Operating and Other Costs

 $18  $29  $(11)

Employee-Related Legacy Liability Expense decreased $9 million in the period-to-period comparison primarily due to changes in actuarial assumptions made at the beginning of each year. See Note 5 - Pension and Other Postretirement Benefits Plans and Note 6 - Coal Workers' Pneumoconiosis and Workers' Compensation in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.mine.

 

Depreciation, Depletion and Amortization

 

Depreciation, depletion and amortization increased $2 millionremained materially consistent in the period-to-period comparison due to current quarter adjustments to the Company's asset retirement obligations based on current projected cash outflows.comparison. 

 

Selling, General and Administrative Costs

 

Selling, general and administrative costs are allocated to the Company's Other divisionsegment based on a percentage of resources utilized, a percentage of total revenue and a percentage of total projected capital expenditures. The increase of $3 million is a result of increases in the portion of selling,Selling, general and administrative expenses allocated toremained materially consistent in the Other division due to an increase of resources utilized at the Itmann Mine, closed mines and in other business development activities as compared to the prior year.period-to-period comparison.

 

(Loss) Gain on Debt Extinguishment

 

GainLoss on debt extinguishment of $2 million and gain on debt extinguishment of $1 million and $17 million waswere recognized in the sixthree months ended June 30,March 31, 2022 and March 31, 2021, and June 30, 2020, respectively, due to the open market repurchases of the Company's 11.00% Senior Secured Second Lien Notes due 2025.2025, which experienced an increase in prices in the three months ended March 31, 2022 compared to the March 31, 2021. 

 

Interest Expense, net

 

Interest expense, net of amounts capitalized, increasedremained materially consistent in the period-to-period comparison primarily due to interest incurred on the Pennsylvania Economic Development Financing Authority tax-exempt solid waste disposal revenue bonds issued in the second quarter of 2021. This was partially offset by the Company's continued de-leveraging efforts throughout the six months ended June 30, 2021.comparison.

 

4436

 

Liquidity and Capital Resources

 

CONSOL Energy's potential sources of liquidity include cash generated from operations, cash on hand, borrowings under the revolving credit facility and securitization facility (which are discussed below), the proceeds of the sale of the PEDFA Bonds loaned to us and, if necessary, the ability to issue additional equity or debt securities. The Company believes that cash generated from these sources shouldwill be sufficient to meet its short-term working capital requirements, long-term capital expenditure requirements, and debt servicing obligations, as well as to provide required letters of credit.

 

The demand for coal experienced an unprecedented decline toward the end of the first quarter of 2020, but has steadilysubstantially improved since the significant COVID-related demand trough in the second quarter of 2020. During the secondfirst quarter of 2021,2022, the Company generated cash flows from operating activities of approximately $148 million and utilized a portion of operating cash flows to retire outstanding indebtedness. More specifically, the Company made principaldebt repayments or repurchases of $6$7 million, $6 million, $5 million and $1 million on its finance leases and asset-backed financing arrangements,equipment-financed debt, Term Loan A Facility 11.00% Senior Secured Second Lien Notes and Term Loan B Facility, respectively. Additionally, the Company spent $26 million to repurchase $25 million in principal amount of its Second Lien Notes. As of June 30, 2021, we have no borrowings outstanding underMarch 31, 2022, our $400total liquidity was $459 million, which comprises $223 million of cash and cash equivalents and the remaining capacity of $236 million on our revolving credit facility and the facility is currently only used for providing letters of credit, with $147 million issued. On April 13, 2021, the Company borrowed the proceeds of the sale of $75 million of tax-exempt solid waste disposal revenue bonds issued through the Pennsylvania Economic Development Financing Authority (“PEDFA”). The bonds have a 30-year maturity and were priced in an initial 7-year term rate period with an interest rate of 9.0%. facility.

 

While many government-imposed shut-downs of non-essential businesses in the United States and abroad have been phased out, in significant population centers in the People's Republic of China lock-down orders have been re-imposed and there is a possibility that additional shut-downs may be reinstated elsewhere if COVID-19 continues to spread.the severity of the pandemic grows. Depressed demand for our coal may also result from a general recession or reduction in overall business activity caused by COVID-19. Additionally, someCOVID-19, a significant increase in interest rates or Russia's invasion of our customers have already attempted, and may in the future attempt, to invoke force majeure or similar provisions in the contracts they have in place with us in order to avoid taking possession of and paying us for our coal that they are contractually obligated to purchase.Ukraine. A decrease in demand for our coal, the failure of our customers to purchase coal from us that they are obligated to purchase pursuant to existing contracts, or disruptions in the logistics chain preventing us from shipping our coal would have a material adverse effect on our results of operations and financial condition. During the 2021 fiscal year and continuing into 2022, CONSOL Energy has encountered multiple transportation delays as a result of the disruption of the global supply chain and logistics infrastructure. The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the outbreak,COVID-19 variants, the pace and effectiveness of vaccination efforts and the effectiveness of actions globally to contain or mitigate its effects. We expect this could continue to negatively impact our results of operations, cash flows and financial condition. The Company will continue to take steps it believes are appropriate to mitigate the impact of COVID-19 on its operations, liquidity and financial condition.

 

TheAs access to capital continues to tighten for the Company's industry as a result of banking, institutional and investor environmental, social and governance (ESG) requirements and limitations, which tend to discourage investment in coal or other fossil fuel companies, the Company expects to maintain adequate liquidity through its operating cash flow and revolving credit facilitycash and cash equivalents on hand to fund its working capital and capital expenditures requirements.in the short-term and long-term. The Company also maintains a revolving credit facility and a securitization facility to diversify its access to liquidity. The Company's cash flow from operations in the secondfirst quarter of 20212022 was supported by its contracted position, strong spot market activity and its ongoing cost and capital control measures. The Company started experiencing some delays in collections of accounts receivable in the second half of 2019. This trend has been improving over the past several quarters. However, if these delays continue or increase, the Company may have less cash flow from operations and may have less borrowing capacity under its securitization facility (under which borrowing capacity is based on certain current accounts receivable).

 

The Company started a capital construction project on the coarse refuse disposal area in 2017, which is expected to continue through 2021.2023. The construction on the coarse refuse disposal area is now funded, in part, by the $75 million of tax-exempt solid waste disposal revenue bonds, the proceeds of which were loaned to the Company and which the Company expects to expend over approximately the next two years, as qualified work is completed. InThrough the secondfirst quarter of 2021,2022, the Company received reimbursement for qualified expensesutilized restricted cash held in escrow in the amount of $21.5$32 million which dates back to the initial inducement date in mid-2020. Additionally, thefor qualified expenses. The Company has $53.5$43 million remaining in restricted cash associated with this financing that will be used to fund future spending on the coarse refuse disposal area. The Company also began construction of the Itmann Mine in the second half of 2019; development mining began in April 2020, and full production is expected following construction of a preparation plant near the mine site, which is planned for completion during the second half of 2022. When fully operational, the Company anticipates approximately 900 thousand product tons per year of high-quality, low-vol coking coal production from the Itmann Mine. The Company has also expanded the capacity of the preparation plant being constructed to includealso includes a highly efficient rail loadout and the capability for processing up to an additional 750 thousand to 1 million third-party product tons annually. This potential third-party processing revenue is expected to provide an additional avenue of growth for the Company.

 

4537

 

Uncertainty in the financial markets brings additional potential risks to CONSOL Energy. These risks include a reduction of our ability to raise capital in the equity markets, less availability and higher costs of additional credit and potential counterparty defaults, and commercial bank failures. Financialdefaults. Overall market disruptions, similar to what was experienced in 2020, may impact the Company's collection of trade receivables. As a result, CONSOL Energy regularly monitors the creditworthiness of its customers and counterparties and manages credit exposure through payment terms, credit limits, prepayments and security.

 

Over the past year,few years, the insurance and surety markets have been increasingly challenging, particularly for coal companies. We have experienced rising premiums, reduced coverage and/or fewer providers willing to underwrite policies and surety bonds. Terms have generally become more unfavorable, including increases in the amount of collateral required to secure surety bonds. Further cost burdens on our ability to maintain adequate insurance and bond coverage may adversely impact our operations, financial position and liquidity. 

 

The Company initiated an API2 hedging program in the second quarter of 2021. As a precursor to initiating this strategy, market dynamics demonstrated ongoing pricing volatility and a trend toward shorter-term export contracts. Given these factors, the Company has sought to utilize swap arrangements which are designed to mitigate the pricing volatility and secure future cash flows for a portion of 2022 export sales. These swap arrangements partially mitigate the Company's exposure to pricing volatility associated with its spot market export business and certain of its physical contracts which contain variable pricing based on the API2 index. 

CONSOL Energy participates in the United Mine Workers of America (the “UMWA”) Combined Benefit Fund and the UMWA 1992 Benefit Plan for which benefits are reflected in the Company's consolidated financial statements when paid. These benefit arrangements may result in additional liabilities that are not recognized on the Consolidated Balance Sheet at March 31, 2022. The various multi-employer benefit plans are discussed in Note 17—Other Employee Benefit Plans in the Notes to the Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. CONSOL Energy's total contributions under the Coal Industry Retiree Health Benefit Act of 1992 were $1,053 and $1,224 for the three months ended March 31, 2022 and 2021, respectively. Based on available information at December 31, 2021, CONSOL Energy's obligation for the UMWA Combined Benefit Fund and 1992 Benefit Plan is estimated to be approximately $46,381. CONSOL Energy also uses a combination of surety bonds, corporate guarantees and letters of credit to secure its financial obligations for employee-related, environmental, performance and various other items which are not reflected on the Consolidated Balance Sheet at March 31, 2022. Management believes these items will expire without being funded. See Note 13—Commitments and Contingent Liabilities in the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q for additional details of the various financial guarantees that have been issued by CONSOL Energy.

The Company is continuing to actively monitor the effects of the ongoing COVID-19 pandemic on its liquidity and capital resources. As disclosed previously and above, we took several steps throughout the COVID-19 pandemic to reinforce our liquidity. From a coal shipment perspective, the decline in coal demand seemed to have hit its lowest point in May 2020 and has since shown significant improvement. However, if the demand for our coal decreases due to future COVID-19 variants or any potential government-induced lockdowns, this could adversely affect our liquidity in future quarters.periods. Our Revolving Credit Facility, Term Loan A Facility, Term Loan B Facility, Securitization Facility and the Indenture entered into in connection with our 11.00% Senior Secured Second Lien Notes due 2025 (collectively, the “Credit Facilities”) contain certain financial covenants. Events resulting from the effects of COVID-19 may negatively impact our liquidity and, as a result, our ability to comply with these covenants, which were amended during the second quarter of 2020. These events could lead us to seek further amendments or waivers from our lenders, limit access to or require accelerated repayment of amounts borrowed under the Credit Facilities, or require us to pursue alternative financing. We have no assurance that any such alternative financing, if required, could be obtained at terms acceptable to us, or at all, as a result of the effects of COVID-19 on capital markets at such time.

 

Cash Flows (in millions)

 

Six Months Ended June 30,

 

Three Months Ended March 31,

 

2021

 

2020

 

Change

 

2022

 

2021

 

Change

 

Cash Provided by Operating Activities

$173 $47 $126 $148 $78 $70 

Cash Used in Investing Activities

$(46)$(46)$ $(31)$(5)$(26)

Cash Provided by (Used in) Financing Activities

$22 $(48)$70 

Cash Used in Financing Activities

$(46)$(32)$(14)

 

Cash provided by operating activities increased $126$70 million in the period-to-period comparison, primarily due to a $94$63 million increase in Adjusted EBITDA, as well as other working capital changes that occurred throughout both periods.

 

Cash used in investing activities was $46increased $26 million forin the six months ending June 30, 2021 and 2020.period-to-period comparison. Capital expenditures increased $11$23 million primarily due to an early buyoutthe construction of an existing operating lease for a set of longwall shields. The increase in capital expenditures was offset by an $11 million increase in proceeds frompreparation plant near the sale of assets due to the sale of various gas wells during the six months ended June 30, 2021.Itmann Mine. Further details regarding the Company's capital expenditures are set forth below.

 

 

Six Months Ended June 30,

  

Three Months Ended March 31,

 
 

2021

  

2020

  

Change

  

2022

  

2021

  

Change

 

Building and Infrastructure

 $19 $24 $(5) $26 $7 $19 

Equipment Purchases and Rebuilds

 27 15 12  5 4 1 

Solid Waste Disposal Project

 9 7 2  2 2  

IS&T Infrastructure

 1  1  1 1  

Other

  1    1   3    3 

Total Capital Expenditures

 $57  $46  $11  $37  $14  $23 

 

Cash flows fromused in financing activities increased $70$14 million in the period-to-period comparison, primarily driven by the receipt of $75 million in proceeds loaned to the Company from the issuance of Pennsylvania Economic Development Financing Authority tax-exempt solid waste disposal revenue bonds during the six months ended June 30, 2021. This was offset, in part, by an increase in net payments on indebtedness in the period-to-period comparison due to the Company's ongoing de-leveraging efforts.

 

4638

 

Senior Secured Credit Facilities

 

In November 2017, the Company entered into a revolving credit facility with PNC Bank, N.A. with commitments up to $300 million (the “Revolving Credit Facility”), a Term Loan A Facility of up to $100 million (the “TLA Facility”) and a Term Loan B Facility of up to $400 million (the “TLB Facility”, and together with the Revolving Credit Facility and the TLA Facility, the “Senior Secured Credit Facilities”). On March 28, 2019, the Company amended the Senior Secured Credit Facilities to increase the borrowing commitment of the Revolving Credit Facility to $400 million and reallocate the principal amounts outstanding under the TLA Facility and the TLB Facility. On March 29, 2021, the Company amended the Senior Secured Credit Facilities to revise the negative covenant with respect to other indebtedness to allow the Company to incur obligations under the tax-exempt solid waste disposal revenue bonds. On June 5, 2020, the Company amended the Senior Secured Credit Facilities (the “amendment”) to provide eight quarters of financial covenant relaxation, effect an increase in the rate at which borrowings under the Revolving Credit Facility and the TLA Facility bear interest, and add an anti-cash hoarding provision. On March 29, 2021, the Company amended the Senior Secured Credit Facilities to revise the negative covenant with respect to other indebtedness to allow the Company to incur obligations under the tax-exempt solid waste disposal revenue bonds. Borrowings under the Company's Senior Secured Credit Facilities bear interest at a floating rate which can be, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an alternate base rate plus an applicable margin. The applicable margin for the Revolving Credit Facility and TLA Facility depends on the total net leverage ratio, whereas the applicable margin for the TLB Facility is fixed. The amendment increased the applicable margin by 50 basis points on both the Revolving Credit Facility and the TLA Facility. The administrative agents of our senior secured credit facilities, in consultation with CONSOL, will choose a replacement index for LIBOR and the parties will execute an amendment to the facilities. LIBOR tenors of 1-week and 2-month have been discontinued as of December 31, 2021. However, LIBOR will still be published in its current form for the overnight, 1-month, 3-month, 6-month and 12-month tenors with a planned cessation after June 30, 2023. In the event that LIBOR would no longer be a published rate index, the allowable alternative base rate and replacement index may increase our interest costs associated with those facilities. The maturity date of the Revolving Credit and TLA Facilities is March 28, 2023. The TLB Facility's maturity date is September 28, 2024. In June 2019, the TLA Facility began amortizing in equal quarterly installments of (i) 3.75% of the original principal amount thereof, for four consecutive quarterly installments commencing with the quarter ended June 30, 2019, (ii) 6.25% of the original principal amount thereof for the subsequent eight quarterly installments commencing with the quarter ended June 30, 2020 and (iii) 8.75% of the original principal amount thereof for the quarterly installments thereafter, with the remaining balance due at final maturity. In June 2019, the TLB Facility began amortizing in equal quarterly installments in an amount equal to 0.25% per annum of the amended principal amount thereof, with the remaining balance due at final maturity.

 

Obligations under the Senior Secured Credit Facilities are guaranteed by (i) all owners of the PAMC held by the Company, (ii) any other members of the Company’s group that own any portion of the collateral securing the Revolving Credit Facility, and (iii) subject to certain customary exceptions and agreed materiality thresholds, all other existing or future direct or indirect wholly-owned restricted subsidiaries of the Company. The obligations are secured by, subject to certain exceptions (including a limitation of pledges of equity interests in certain subsidiaries and certain thresholds with respect to real property), a first-priority lien on (i) the Company’s interest in the Pennsylvania Mining Complex, (ii) the limited partner units ofequity interests in the Partnership held by the Company, (iii) the equity interests in the general partner held by the Company, (iv) the CONSOL Marine Terminal, (v)(iv) the Itmann Mine, and (vi)(v) the 1.51.4 billion tons of Greenfield Reserves.Reserves and Resources. The Senior Secured Credit Facilities contain a number of customary affirmative covenants. In addition, the Senior Secured Credit Facilities contain a number of negative covenants, including (subject to certain exceptions) limitations on (among other things): indebtedness, liens, investments, acquisitions, dispositions, restricted payments, and prepayments of junior indebtedness. The amendment added additional conditions to be met for the covenants relating to investments in joint ventures, general investments, share repurchases, dividends, and repurchases of the Second Lien Notes (as defined below). The additional conditions require no outstanding borrowings and no more than $200 million of outstanding letters of credit on the Revolving Credit Facility. Further restrictions apply to investments in joint ventures, share repurchases and dividends that require the total net leverage ratio shall not be greater than 2.00 to 1.00.

 

The Revolving Credit Facility and the TLA Facility also include financial covenants, including (i) a maximum first lien gross leverage ratio, (ii) a maximum total net leverage ratio, and (iii) a minimum fixed charge coverage ratio. The maximum first lien gross leverage ratio is calculated as the ratio of Consolidated First Lien Debt to Consolidated EBITDA. Consolidated EBITDA, as used in the covenant calculation, excludes non-cash compensation expenses, non-recurringnonrecurring transaction expenses, extraordinary gains and losses, gains and losses on discontinued operations, non-cash charges related to legacy employee liabilities and gains and losses on debt extinguishment, and subtracts cash payments related to legacy employee liabilities. The maximum total net leverage ratio is calculated as the ratio of Consolidated Indebtedness, minus Cash on Hand, to Consolidated EBITDA. The minimum fixed charge coverage ratio is calculated as the ratio of Consolidated EBITDA to Consolidated Fixed Charges. Consolidated Fixed Charges, as used in the covenant calculation, include cash interest payments, cash payments for income taxes, scheduled debt repayments, dividends paid, and Maintenance Capital Expenditures. The amendment revised the financial covenants applicable to the Revolving Credit Facility and the TLA Facility relating to the maximum first lien gross leverage ratio, the maximum total net leverage ratio and the minimum fixed charge coverage ratio, so that for the fiscal quarters ending June 30, 2020 through March 31, 2021, the maximum first lien gross leverage ratio shall be 2.50 to 1.00, the maximum total net leverage ratio shall be 3.75 to 1.00, and the minimum fixed charge coverage ratio shall be 1.00 to 1.00; for the fiscal quarters ending June 30, 2021 through September 30, 2021, the maximum first lien gross leverage ratio shall be 2.25 to 1.00 and the maximum total net leverage ratio shall be 3.50 to 1.00; for the fiscal quarters ending June 30, 2021 through March 31, 2022, the minimum fixed charge coverage ratio shall be 1.05 to 1.00; for the fiscal quarters ending December 31, 2021 through March 31, 2022, the maximum first lien gross leverage ratio shall be 2.00 to 1.00 and the maximum total net leverage ratio shall be 3.25 to 1.00; and for the fiscal quarters ending on or after June 30, 2022, the maximum first lien gross leverage ratio shall be 1.75 to 1.00, the maximum total net leverage ratio shall be 2.75 to 1.00 and the minimum fixed charge coverage ratio shall be 1.10 to 1.00. among other things:

for the fiscal quarters ending June 30, 2021 through March 31, 2022, the minimum fixed charge coverage ratio shall be 1.05 to 1.00;

for the fiscal quarters ending December 31, 2021 through March 31, 2022, the maximum first lien gross leverage ratio shall be 2.00 to 1.00 and the maximum total net leverage ratio shall be 3.25 to 1.00; and

for the fiscal quarters ending on or after June 30, 2022, the maximum first lien gross leverage ratio shall be 1.75 to 1.00, the maximum total net leverage ratio shall be 2.75 to 1.00 and the minimum fixed charge coverage ratio shall be 1.10 to 1.00.

The maximumCompany's first lien gross leverage ratio was 1.14 0.79 to 1.00 at June 30, 2021.March 31, 2022. The maximumCompany's total net leverage ratio was 1.70 0.99 to 1.00 at June 30, 2021.March 31, 2022. The minimumCompany's fixed charge coverage ratio was 1.89 2.09 to 1.00 at June 30, 2021. TheMarch 31, 2022. Accordingly, the Company was in compliance with all of its financial covenants under the Senior Secured Credit Facilities as of June 30, 2021.March 31, 2022.

 

4739

 

The TLB Facility also includes a financial covenant that requires the Company to repay a certain amount of its borrowings under the TLB Facility within ten business days after the date it files its Annual Report on Form 10-K with the Securities and Exchange Commission (“SEC”) if the Company has excess cash flow (as defined in the credit agreement for the Senior Secured Credit Facilities) during the year covered by the applicable Annual Report on Form 10-K. During the three months ended March 31, 2021, CONSOL Energy made the required repayment of approximately $5 million based on the amount of the Company's excess cash flow as of December 31, 2020. The required repayment is equal to a certain percentage of the Company’s excess cash flow for such year, ranging from 0% to 75% depending on the Company’s total net leverage ratio, less the amount of certain voluntary prepayments made by the Company, if any, under the TLB Facility during such fiscal year.  There was no required payment during the three months ended March 31, 2022 with respect to the year ended December 31, 2021.

 

During the year ended December 31, 2019, the Company entered into interest rate swaps, which effectively converted $150 million of the TLB Facility's floating interest rate to a fixed interest rate for the twelve months ending December 31, 2020 and 2021, and $50 million of the TLB Facility's floating interest rate to a fixed interest rate for the twelve months ending December 31, 2022.

 

The Senior Secured Credit Facilities contain customary events of default, including with respect to a failure to make payments when due, cross-default and cross-judgment default and certain bankruptcy and insolvency events.

 

At June 30, 2021,March 31, 2022, there were no borrowings outstanding under the Revolving Credit Facility and the facility is currently only used for providing letters of credit, with $147with $164 million of letters of credit outstanding, leaving $253 leaving $236 million of unused capacity. From time to time, CONSOL Energy is required to post financial assurances to satisfy contractual and other requirements generated in the normal course of business. Some of these assurances are posted to comply with federal, state or other government agencies' statutes and regulations. CONSOL Energy sometimes uses letters of credit to satisfy these requirements and these letters of credit reduce the Company's borrowing facility capacity.

 

Securitization Facility

 

On November 30, 2017, (1)(i) CONSOL Marine Terminals LLC, as an originator of receivables, (ii) CONSOL Pennsylvania Coal Company LLC (“CONSOL Pennsylvania”), as an originator of receivables and as initial servicer of the receivables for itself and the other originators (collectively, the “Originators”), each a wholly-owned subsidiary of CONSOL Energy, and (iii) CONSOL Funding LLC (the “SPV”), a Delaware special purpose entity and wholly-owned subsidiary of CONSOL Energy, as buyer, entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) and (2)(i) CONSOL Thermal Holdings LLC, an indirect, wholly-owned subsidiary of the Partnership, as sub-originator (the “Sub-Originator”), and (ii) CONSOL Pennsylvania, as buyer and as initial servicer of the receivables for itself and the Sub-Originator, entered into a Sub-Originator Sale Agreement (the “Sub-Originator PSA”). In addition, on November 30, 2017, the SPV entered into a Receivables Financing Agreement (the “Receivables Financing Agreement”) by and among (i) the SPV, as borrower, (ii) CONSOL Pennsylvania, as initial servicer, (iii) PNC Bank, as administrative agent, LC Bank and lender, and (iv) the additional persons from time to time party thereto as lenders. Together, the Purchase and Sale Agreement, the Sub-Originator PSA and the Receivables Financing Agreement establish the primary terms and conditions of an accounts receivable securitization program (the “Securitization”). In March 2020, the securitization facility was amended to, among other things, extend the maturity date from August 30, 2021 to March 27, 2023.

 

Pursuant to the Securitization, (i) the Sub-Originator sells current and future trade receivables to CONSOL Pennsylvania and (ii) the Originators sell and/or contribute current and future trade receivables (including receivables sold to CONSOL Pennsylvania by the Sub-Originator) to the SPV and the SPV, in turn, pledges its interests in the receivables to PNC Bank, N.A., which either makes loans or issues letters of credit on behalf of the SPV. The maximum amount of advances and letters of credit outstanding under the Securitization may not exceed $100 million.

 

Loans under the Securitization accrue interest at a reserve-adjusted LIBOR market index rate equal to the one-month Eurodollar rate. Loans and letters of credit under the Securitization also accrue a program fee and a letter of credit participation fee, respectively, ranging from 2.00% to 2.50% per annum depending on the total net leverage ratio of CONSOL Energy. In addition, the SPV paid certain structuring fees to PNC Capital Markets LLC and will pay other customary fees to the lenders, including a fee on unused commitments equal to 0.60% per annum.

 

The SPV’s assets and credit are not available to satisfy the debts and obligations owed to the creditors of CONSOL Energy, the Sub-Originator or any of the Originators. The Sub-Originator, the Originators and CONSOL Pennsylvania as servicer are independently liable for their own customary representations, warranties, covenants and indemnities. In addition, CONSOL Energy has guaranteed the performance of the obligations of the Sub-Originator, the Originators and CONSOL Pennsylvania as servicer, and will guarantee the obligations of any additional originators or successor servicer that may become party to the Securitization. However, neither CONSOL Energy nor its affiliates will guarantee collectability of receivables or the creditworthiness of obligors thereunder.

 

4840

 

The agreements comprising the Securitization contain various customary representations and warranties, covenants and default provisions which provide for the termination and acceleration of the commitments and loans under the Securitization in certain circumstances including, but not limited to, failure to make payments when due, breach of representation, warranty or covenant, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other material indebtedness.

 

At June 30, 2021,March 31, 2022, eligible accounts receivable totaled approximately $25 million.yielded $30 million of borrowing capacity. At June 30, 2021,March 31, 2022, the facility had no outstanding borrowings and $24 millionapproximately $30 million of letters of credit outstanding, leaving minimal$177 thousand of unused capacity. Costs associated with the receivables facility totaled $257 thousandtotaled $275 thousand for the three months ended June 30, 2021.March 31, 2022. These costs have been recorded as financing fees which are included in Operating and Other Costs in the Consolidated Statements of Income. The Company has not derecognized any receivables due to its continued involvement in the collections efforts.

 

11.00% Senior Secured Second Lien Notes due 2025

 

On November 13, 2017, the Company issued $300 million in aggregate principal amount of 11.00% Senior Secured Second Lien Notes due 2025 (the “Second Lien Notes”) pursuant to an indenture (the “Indenture”) dated as of November 13, 2017, by and between the Company and UMB Bank, N.A., a national banking association, as trustee and collateral trustee (the “Trustee”). On November 28, 2017, certain subsidiaries of the Company executed a supplement to the Indenture and became party to the Indenture as a guarantor (the “Guarantors”). The Second Lien Notes are secured by second priority liens on substantially all of the assets of the Company and the Guarantors that are pledged on a first-priority basis as collateral securing the Company’s obligations under the Senior Secured Credit Facilities (described above), subject to certain exceptions under the Indenture.

 

On or afterSince November 15, 2021, the Company mayhas been permitted to redeem all or part of the Second Lien Notes at the redemption prices set forth below, plus accrued and unpaid interest, if any, to, but not including, the redemption date (subject to the rights of holders of the Second Lien Notes on the relevant record date to receive interest due on the relevant interest payment date), beginning on November 15 of the years indicated:

 

Year

 

Percentage

 

2021

 105.50% 

2022

 102.75% 

2023 and thereafter

 100.00% 

 

At any time or from time to time priorPrior to November 15, 2021, the Company may alsowas permitted to redeem all or a part of the Second Lien Notes, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium, as defined in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the redemption date (subject to the rights of holders of the Second Lien Notes on the relevant record date to receive interest due on the relevant interest payment date).  As of March 31, 2022, the Company has not redeemed the Second Lien Notes, in part or in full, but it has repurchased Second Lien Notes under its stock and debt repurchase program.

 

The Indenture contains covenants that will limit the ability of the Company and the Guarantors, to (i) incur, assume or guarantee additional indebtedness or issue preferred stock; (ii) create liens to secure indebtedness; (iii) declare or pay dividends on the Company’s common stock, redeem stock or make other distributions to the Company’s stockholders; (iv) make investments; (v) restrict dividends, loans or other asset transfers from the Company’s restricted subsidiaries; (vi) merge or consolidate, or sell, transfer, lease or dispose of substantially all of the Company’s assets; (vii) sell or otherwise dispose of certain assets, including equity interests in subsidiaries; (viii) enter into transactions with affiliates; and (ix) create unrestricted subsidiaries. These covenants are subject to important exceptions and qualifications. If the Second Lien Notes achieve an investment grade rating from both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc. and no default under the Indenture exists, many of the foregoing covenants will terminate and cease to apply. The Indenture also contains customary events of default, including (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due of principal or premium, if any, on the Notes at maturity, upon redemption or otherwise; (iii) covenant defaults; (iv) cross-defaults to certain indebtedness, and (v) certain events of bankruptcy or insolvency with respect to the Company or any of the Guarantors. If an event of default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Second Lien Notes may declare all the Notes to be due and payable immediately. If an event of default arises from certain events of bankruptcy or insolvency, with respect to the Company, any restricted subsidiary of the Company that is a significant subsidiary or any group of restricted subsidiaries of the Company that, taken together, would constitute a significant subsidiary, all outstanding Second Lien Notes will become due and payable immediately without further action or notice.

 

If the Company experiences certain kinds of changes of control, holders of the Second Lien Notes will be entitled to require the Company to repurchase all or any part of that holder’s Second Lien Notes pursuant to an offer on the terms set forth in the Indenture. The Company will offer to make a cash payment equal to 101% of the aggregate principal amount of the Second Lien Notes repurchased plus accrued and unpaid interest on the Second Lien Notes repurchased to, but not including, the date of purchase, subject to the rights of holders of the Notes on the relevant record date to receive interest due on the relevant interest payment date.

 

The Second Lien Notes were issued in a private offering that was exempt from the registration requirements of the Securities Act to qualified institutional buyers in accordance with Rule 144A and to persons outside of the United States pursuant to Regulation S under the Securities Act.

 

Pennsylvania Economic Development Financing Authority Bonds

 

In April 2021, CONSOL Energy borrowed the proceeds received from the sale of tax exempttax-exempt bonds issued by the Pennsylvania Economic Development Financing Authority ("PEDFA") in aggregate principal amount of $75 million. The PEDFA Bonds bear interest at a fixed rate of 9.00% for an initial term of seven years. The PEDFA Bonds mature on April 1, 2051 but are subject to mandatory purchase by the Company on April 13, 2028, at the expiration of the initial term rate period. The PEDFA Bonds were issued pursuant to an indenture (the “PEDFA Indenture”) dated as of April 1, 2021, by and between PEDFA and Wilmington Trust, N.A., a national banking association, as trustee (the “PEDFA Notes Trustee”). PEDFA made a loan of the proceeds of the PEDFA Bonds to the Company pursuant to a Loan Agreement (the “Loan Agreement”) dated as of April 1, 2021 between PEDFA and the Company. Under the terms of the Loan Agreement, the Company agreed to make all payments of principal, interest and other amounts at any time due on the PEDFA Bonds or under the PEDFA Indenture. PEDFA assigned its rights as lender under the Loan Agreement, excluding certain reserved rights, to the PEDFA Notes Trustee. Certain subsidiaries of the Company (the “PEDFA Notes Guarantors”) executed a Guaranty Agreement (the “Guaranty”) dated as of April 1, 2021 in favor of the PEDFA Notes Trustee, guarantying the obligations of the Company under the Loan Agreement to pay the PEDFA Bonds when and as due. The obligations of the Company under the Loan Agreement and of the PEDFA Notes Guarantors under the Guaranty are secured by second priority liens on substantially all of the assets of the Company and the PEDFA Notes Guarantors on parity with the Second Lien Notes. The Loan Agreement and Guaranty incorporate by reference covenants in the Indenture under which the Second Lien Notes were issued (discussed above)previously).

 

4941

Material Cash Requirements

CONSOL Energy expects to make payments of $79,041 on its long-term debt obligations, including interest, in the next 12 months. Refer to Note 13 – Long-Term Debt of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information concerning material cash requirements in future years. CONSOL Energy expects to make payments of $34,769 on its operating and finance lease obligations, including interest, in the next 12 months. Refer to Note 14 – Leases of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information concerning material cash requirements in future years. CONSOL Energy expects to make payments of $46,371 on its employee-related long-term liabilities in 2022. Refer to Note 15 – Pension and Other Postretirement Benefit Plans and Note 16 – Coal Workers’ Pneumoconiosis and Workers’ Compensation of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information concerning material cash requirements in future years. CONSOL Energy believes it will be able to satisfy these material requirements with cash generated from operations, cash on hand, borrowings under the revolving credit facility and securitization facility, and, if necessary, cash generated from its ability to issue additional equity or debt securities.

 

Debt

 

At June 30, 2021,March 31, 2022, CONSOL Energy had total long-term debt and finance lease obligations of $701$627 million outstanding, including the current portion of long-term debt of $51$62 million. This long-term debt consisted of:

 

 

An aggregate principal amount of $264$239 million in connection with the TLB Facility, due in September 2024, less $1 million of unamortized discount. Borrowings under the TLB Facility bear interest at a floating rate.

 

An aggregate principal amount of $152$124 million of 11.00% Senior Secured Second Lien Notes due in November 2025. Interest on the notes is payable May 15 and November 15 of each year.

 

An aggregate principal amount of $103 million of industrial revenue bonds which were issued to finance the Baltimore port facility, which bear interest at 5.75% per annum and mature in September 2025. Interest on the industrial revenue bonds is payable March 1 and September 1 of each year. Payment of the principal and interest on the notes is guaranteed by CONSOL Energy.

 An aggregate principal amount of $75 million of tax-exempt solid waste disposal revenue bonds, which were issued to finance the ongoing expansion of the coal refuse disposal area at the Bailey Preparation Plant, which bear interest at 9.00% per annum for an initial term of seven years and mature in April 2051. Interest on the tax-exempt solid waste disposal revenue bonds is payable on February 1 and August 1 of each year.
 An aggregate principal amount of $54$35 million in connection with the TLA Facility, due in March 2023. Borrowings under the TLA Facility bear interest at a floating rate.
 An aggregate principal amount of $52$45 million of finance leases and asset-backed financing arrangements with a weighted average interest rate of 6.07% and 3.61%, respectively.6.28%.
 

AdvanceAdvanced royalty commitments of $2 of $5 million with a weighted average interest rate of 13.68% per 8.01% per annum.

An aggregate principal amount of $2 million of asset-backed financing arrangements due in September 2024 at an interest rate of 3.61%.

 

At June 30, 2021,March 31, 2022, CONSOL Energy had no borrowings outstanding and approximately $164 million of letters of credit outstanding under the $400 million senior secured Revolving Credit Facility. At March 31, 2022, CONSOL Energy had no borrowings outstanding and approximately $147 million of letters of credit outstanding under the $400 million senior secured Revolving Credit Facility. At June $30 2021, CONSOL Energy had no borrowings outstanding and approximately $24 millionmillion of letters of credit outstanding under the $100 million Securitization Facility.

 

Stock and Debt Repurchases

 

In December 2017, CONSOL Energy’s Board of Directors approved a program to repurchase, from time to time, the Company's outstanding shares of common stock or its 11.00% Senior Secured Second Lien Notes due 2025.Notes. Since its inception, the Company's Board of Directors has subsequently amended the program several times, the most recent of which amendment in April 2021 raised the aggregate limit of the Company's repurchase authority to $320 million and extended the program until December 31, 2022.

 

Under the terms of the program, CONSOL Energy is permitted to make repurchases in the open market, in privately negotiated transactions, accelerated repurchase programs or in structured share repurchase programs. CONSOL Energy is also authorized to enter into one or more 10b5-1 plans with respect to any of the repurchases. Any repurchases of common stock or notes are to be funded from available cash on hand or short-term borrowings. The program does not obligate CONSOL Energy to acquire any particular amount of its common stock or notes, and can be modified or suspended at any time at the Company’s discretion. The program is conducted in compliance with applicable legal requirements and within the limits imposed by any credit agreement, receivables purchase agreement, indenture or the TMAtax matters agreement and is subject to market conditions and other factors.

 

During the sixthree months ended June 30, 2021,March 31, 2022, the Company spent approximately $14approximately $26 million to retire $15 million$25 million of its 11.00% Senior Secured Second Lien Notes due 2025, which continued to trade below par value.Notes. No shares of common stock were repurchased under this program during the sixthree months ended June 30, 2021.March 31, 2022.

50

 

Total Equity and Dividends

 

Total equity attributable to CONSOL Energy was $593 millionwas $668 million at June 30, 2021March 31, 2022 and $554 $673 million at December 31, 2020.2021. See the Consolidated Statements of Stockholders' Equity in Item 1 of this Form 10-Q for additional details.

 

The declaration and payment of dividends by CONSOL Energy is subject to the discretion of CONSOL Energy's Board of Directors, and no assurance can be given that CONSOL Energy will pay dividends in the future. The determination to pay dividends in the future will depend upon, among other things, general business conditions, CONSOL Energy's financial results, contractual and legal restrictions regarding the payment of dividends by CONSOL Energy, planned investments by CONSOL Energy and such other factors as the Board of Directors deems relevant. The Company's Senior Secured Credit Facilities limit CONSOL Energy's ability to pay dividends up to $25 million annually, which increases to $50 million annually when the Company's total net leverage ratio is less than 1.50 to 1.00 and subject to an aggregate amount up to a cumulative credit calculation set forth in the facilities, with additional conditions of no outstanding borrowings and no more than $200 million of outstanding letters of credit on the Revolving Credit Facility, and the total net leverage ratio shall not be greater than 2.00 to 1.00. The total net leverage ratio was 1.70 0.99 to 1.00 and the cumulative credit was approximately $89$199 million at June 30, 2021.March 31, 2022. The cumulative credit starts with $50 million and builds with excess cash flow commencing in 2018. The Senior Secured Credit Facilities do not permit dividend payments inSeparately, the event of default. The Indenture to the 11.00% Senior Secured Second Lien Notes limits dividends when the Company's total net leverage ratio exceeds 2.00 to 1.00 and limits dividendssubject to an amount not to exceed an annual rate of 4.0% of the quoted public market value per share of such common stock at the time of the declaration. The Indenture does not permit dividend payments in the event of default.

Off-Balance Sheet Arrangements

CONSOL Energy does not maintain off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on CONSOL Energy’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources which are not disclosed in the Notes to the Consolidated Financial Statements in this Form 10-Q. CONSOL Energy participates in the United Mine Workers of America (the “UMWA”) Combined Benefit Fund and the UMWA 1992 Benefit Plan which generally accepted accounting principles recognize on a pay-as-you-go basis. These benefit arrangements may result in additional liabilities that are not recognized on the Consolidated Balance Sheet at June 30, 2021. The various multi-employer benefit plans are discussed in Note 17—Other Employee Benefit Plans in the Notes to the Consolidated Financial Statements in Item 8 of the December 31, 2020 Form 10-K. CONSOL Energy's total contributions under the Coal Industry Retiree Health Benefit Act of 1992 were $1,231 and $1,373 for the three months ended June 30, 2021 and 2020, respectively. CONSOL Energy's total contributions under the Coal Industry Retiree Health Benefit Act of 1992 were $2,455 and $2,737 for the six months ended June 30, 2021 and 2020, respectively. Based on available information at December 31, 2020, CONSOL Energy's obligation for the UMWA Combined Benefit Fund and 1992 Benefit Plan is estimated to be approximately $56,039. CONSOL Energy also uses a combination of surety bonds, corporate guarantees and letters of credit to secure its financial obligations for employee-related, environmental, performance and various other items which are not reflected on the Consolidated Balance Sheet at June 30, 2021. Management believes these items will expire without being funded. See Note 14—Commitments and Contingent Liabilities in the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q for additional details of the various financial guarantees that have been issued by CONSOL Energy.

 

5142

 

Forward-Looking Statements

 

Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of the federal securities laws. With the exception of historical matters, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that involve risks and uncertainties that could cause actual results and outcomes to differ materially from results expressed in or implied by our forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. When we use the words “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “vision,” “will,” or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following:

 

 deterioration in economic conditions in any of the industries in which our customers operate may decrease demand for our products, impair our ability to collect customer receivables and impair our ability to access capital;
 

volatility and wide fluctuation in coal prices based upon a number of factors beyond our control including future plans to eliminate coal-fired generation activities, oversupply relative to the demand available for our products, weather and the price and availability of alternative fuels;

 

the effects the COVID-19 pandemic has on our business and results of operations and on the global economy;

 

an extended decline in the prices we receive for our coal affecting our operating results and cash flows;

 

significant downtime of our equipment or inability to obtain equipment, parts or raw materials;

 

decreases in the availability of, or increases in the price of, commodities or capital equipment used in our coal mining operations;

 

our customers extending existing contracts or entering into new long-term contracts for coal on favorable terms;

 

our reliance on major customers;

 

our inability to collect payments from customers if their creditworthiness declines or if they fail to honor their contracts;

 

our inability to acquire additional coal reserves or resources that are economically recoverable or our inability to complete the construction of the Itmann Mine on time or at all;recoverable;

 

decreases in demand and changes in coal consumption patterns of electric power generators;

 

the availability and reliability of transportation facilities and other systems, disruption of rail, barge, processing and transportation facilities and other systems that deliver our coal to market and fluctuations in transportation costs;

 

a loss of our competitive position because of the competitive nature of coal industries, or a loss of our competitive position because of overcapacity in these industries impairing our profitability;

 

foreign currency fluctuations that could adversely affect the competitiveness of our coal abroad;

 

recent action and the possibility of future action on trade made by U.S. and foreign governments;

 our inability to complete the construction of the Itmann Mine on time or at all;

the risks related to the fact that a significant portion of our production is sold in international markets;markets and our compliance with export control and anticorruption laws;

 

coal users switching to other fuels in order to comply with various environmental standards related to coal combustion emissions;

 

the impact of potential, as well as any adopted, regulations to address climate change, including any relating to greenhouse gas emissions, on our operating costs as well as on the market for coal;

 

the effects of litigation seeking to hold energy companies accountable for the effects of climate change;

 

the effects of government regulation on the discharge into the water or air, and the disposal and clean-up of, hazardous substances and wastes generated during our coal operations;

 

the risks inherent in coal operations, including being subject to unexpected disruptions caused by adverse geological conditions, equipment failures, delays in moving out longwall equipment, railroad derailments, security breaches or terroristic acts and other hazards, delays in the completion of significant construction or repair of equipment, fires, explosions, seismic activities, accidents and weather conditions;

 

failure to obtain or renew surety bonds on acceptable terms, which could affect our ability to secure reclamation and coal lease obligations;

 

failure to obtain adequate insurance coverages;

 

substantially all of our operations being located in a single geographic area;

 

the effects of coordinating our operations with oil and natural gas drillers and distributors operating on our land;

 

our inability to obtain financing for capital expenditures on satisfactory terms;

 

5243

 

 

the potential effects of receiving low sustainabilityenvironmental, social and governance (“ESG”) scores or high risk ratings associated with ESG assessments conducted by independent third parties, which potentially results in the exclusion of our securities from consideration by certain investment funds and a negative perception by investors;

 

the effect of new or existing tariffs and other trade measures;

 

our inability to find suitable acquisition targets or integrating the operations of future acquisitions into our operations;

 

obtaining, maintaining and renewing governmental permits and approvals for our coal operations;

 

the effects of stringent federal and state employee health and safety regulations, including the ability of regulators to shut down our operations;

 

the potential for liabilities arising from environmental contamination or alleged environmental contamination in connection with our past or current coal operations;

 

the effects of asset retirement obligations and certain other liabilities;

 

uncertainties in estimating our economically recoverable coal reserves;

 

the outcomes of various legal proceedings, including those which are more fully described herein;

 

defects in our chain of title for our undeveloped reserves or failure to acquire additional property to perfect our title to coal rights;

 

exposure to employee-related long-term liabilities;

 

the risk of our debt agreements, our debt and changes in interest rates affecting our operating results and cash flows;

 

the effects of hedging transactions on our cash flow;

 

information theft, data corruption, operational disruption and/or financial loss resulting from a terrorist attack or cyber incident;

 

certain provisions in our multi-year coal sales contracts may provide limited protection during adverse economic conditions, and may result in economic penalties or permit the customer to terminate the contract;

 

the potential failure to retain and attract qualified personnel of the Company and a possible increased reliance on third partythird-party contractors as a result;

 

failure to maintain effective internal controls over financial reporting;

 

uncertainty with respect to the Company’s common stock, potential stock price volatility and future dilution;

 

the consequences of a lack of, or negative, commentary about us published by securities analysts and media;

 

uncertainty regarding the timing of any dividends we may declare;

 

uncertainty as to whether we will repurchase shares of our common stock or outstanding debt securities;

 

restrictions on the ability to acquire us in our certificate of incorporation, bylaws and Delaware law and the resulting effects on the trading price of our common stock;

 

inability of stockholders to bring legal action against us in any forum other than the state courts of Delaware; and

 

other unforeseen factors.

 

The above list of factors is not exhaustive or necessarily in order of importance. Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements include those discussed under “Risk Factors” elsewhere in this report and the other filings we make with the SEC. The Company disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law.

 

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

ForThe Company's exposures to market risk have not materially changed since December 31, 2021. Please see these quantitative and qualitative disclosures about market risk seein Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to the Company's exposures to market risk since December 31, 2020.2021. 

 

5344

 

ITEM 4.    CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

CONSOL Energy, under the supervision and with the participation of its management, including CONSOL Energy's principal executive officer and principal financial officer, evaluated the effectiveness of the Company's “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, CONSOL Energy's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures are effective as of June 30, 2021March 31, 2022 to ensure that information required to be disclosed by CONSOL Energy in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and includes controls and procedures designed to ensure that information required to be disclosed by CONSOL Energy in such reports is accumulated and communicated to CONSOL Energy's management, including CONSOL Energy's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls over Financial Reporting

 

During the fiscal quarter covered by this Quarterly Report on Form 10-Q, there were no changes in the Company's internal controls over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act, that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

 

PART II: OTHER INFORMATION

 

ITEM 1.    LEGAL PROCEEDINGS

 

Our operations are subject to a variety of risks and disputes normally incidental to our business. As a result, we may, at any given time, be a defendant in various legal proceedings and litigation arising in the ordinary course of business. However, we are not currently subject to any material litigation, except as disclosed in Note 1413 - Commitments and Contingent Liabilities in the Notes to the Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q, incorporated herein by this reference.

 

ITEM 1A.    RISK FACTORS

 

In addition to the other information set forth in this quarterly report, including the risk factor set forth below, you should carefully consider the factors described in “Part 1 - Item 1A. Risk Factors” of CONSOL Energy's 20202021 Form 10-K, as updated by any subsequent Form 10-Qs. These described risks are not the only risks the Company faces. Additional risks and uncertainties not currently known to CONSOL Energy or that the Company currently deems to be immaterial also may materially adversely affect CONSOL Energy's business, financial condition and/or operating results.

 

PartThe Russia-Ukraine war, and sanctions brought by the United States and other countries against Russia, have caused significant market disruptions that may lead to increased volatility in the price of our strategy to grow is to completecertain commodities, including oil, natural gas, coal and other sources of energy.

February 24, 2022 marked a significant escalation in the developmentRussia-Ukraine war. The extent and duration of the Itmann Mine withinmilitary conflict involving Russia and Ukraine, resulting sanctions and future market or supply disruptions in the next 12region, are impossible to 18 months after makingpredict, but could be significant capital expenditures.Our failure to complete the development of and transition the Itmann Mine to full operation within the next 12 to 18 months may have a severe adverse effect on the region. Globally, various governments have banned imports from Russia including commodities such as oil, natural gas and coal. These events have caused volatility in the aforementioned commodity markets. Although the Company has not experienced any material adverse effect on its results of operations, financial condition or cash flows as a result of the war or the resulting volatility as of the date of this report, such volatility, including market expectations of potential changes in coal prices and inflationary pressures on steel products, may significantly affect prices for our future profitability.coal or the cost of supplies and equipment, as well as the prices of competing sources of energy for our electric power plant customers, like natural gas. 

 

Our profitabilityThe war, trade and strategy to diversify depends on our ability to complete the constructionmonetary sanctions, as well as any escalation of the Itmann Mineconflict and to transitionfuture developments, could significantly affect worldwide market prices and demand for our coal and cause turmoil in the mine to full operation withincapital markets and generally in the next 12 to 18 months. We expect to spend $65-$75 million over the next 12-18 months to complete the construction. Our failure to complete the construction on time or at all and to make the transition of the Itmann Mine to full operation mayglobal financial system. This could have a material adverse effect on our business, financial condition and results of operations, along with our operating costs, making it difficult to execute our planned capital expenditure program. Additionally, the geopolitical and macroeconomic consequences of the war and associated sanctions cannot be predicted, but could severely impact the world economy. If any of these events occur, the resulting political instability and societal disruption could reduce overall demand for coal-fired electricity, steel made through the use of metallurgical coal or our coal generally, causing a reduction in our revenues or an increase in our costs and thereby materially and adversely affecting our results of operations, financial condition and cash flows.

 

5445

 

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There were no repurchases of the Company's equity securities during the three months ended June 30, 2021.March 31, 2022. Since the December 2017 inception of the Company's current stock and debt repurchase program, CONSOL Energy Inc.'s Board of Directors has approved a $320 million stock and debt repurchase program, which terminates on December 31, 2022. As of AugustMay 3, 2021,2022, approximately $130$101 million remained available under the stock and debt repurchase program. The program does not obligate CONSOL Energy to acquire any particular amount of its common stock or notes, and can be modified or suspended at any time at the Company’s discretion. See Note 1917 - Stock and Debt Repurchases in the Notes to the Consolidated Financial Statements in Item 1 of this Form 10-Q for more information.

 

Limitation Upon Payment of Dividends

The Indenture and the Senior Secured Credit Facilities include certain covenants limiting the Company's ability to declare and pay dividends.

 

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.    MINE SAFETY DISCLOSURES

 

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this Quarterly Report on Form 10-Q.

 

ITEM 5.    OTHER INFORMATION

 

None.

 

5546

 

ITEM 6.    EXHIBITS

 

Exhibits

Description

Method of Filing

 

 

 

4.110.1Indenture, dated asSecond Amendment to Employment Agreement of April 1, 2021, among CONSOL Energy Inc., the subsidiary guarantors party thereto and Wilmington Trust, N.A., as trusteeJames A. Brock*Filed as Exhibit 4.110.44 to Form 8-K10-K (File No. 001-38147) filed on April 19, 2021February 11, 2022
   
4.210.2Loan Agreement, dated asForm Notice of April 1, 2021, between the Pennsylvania Economic Development Financing AuthorityPerformance Based Cash Award and the Company.Terms and Conditions*Filed as Exhibit 4.2 to Form 8-K (File No. 001-38147) filed on April 19, 2021herewith
   
4.310.3Guaranty Agreement, dated asForm Notice of April 1, 2021, among the subsidiary guarantors of CONSOL Energy Inc.Restricted Stock Unit Award and Wilmington Trust, N.A., as trusteeTerms and Conditions*Filed as Exhibit 4.3 to Form 8-K (File No. 001-38147) filed on April 19, 2021herewith
   
10.110.4Form of Notice of Restricted Stock Unit Award2022 Executive Short-Term Incentive Program Terms and Conditions for Non-Employee Directors*Conditions*Filed herewith
   

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

 

 

 

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

 

 

 

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith

 

 

 

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith

 

 

 

95

Mine Safety and Health Administration Safety Data

Filed herewith

 

 

 

101

Interactive Data File (Form 10-Q for the quarterly period ended June 30, 2021,March 31, 2022, furnished in Inline XBRL)

Filed herewith

 

 

 

104

Cover Page Interactive Data File (formatted as Inline XBRL)

Contained in Exhibit 101

 

*Indicates management contract or compensatory plan or arrangement

 

5647

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  
    

 

CONSOL ENERGY INC.

 

 

 

 

 
    

AugustMay 3, 20212022

By:

/s/ JAMES A. BROCK

 

 

 

James A. Brock

 

 

 

Director, Chief Executive Officer and President

(Principal Executive Officer)

 

 

 

 

 
    
AugustMay 3, 20212022

By:

/s/ MITESHKUMAR B. THAKKAR

 

 

 

Miteshkumar B. Thakkar

 

 

 

Chief Financial Officer

(Principal Financial Officer)

 

 

 

 

 
    
AugustMay 3, 20212022

By:

/s/ JOHN M. ROTHKA

 

 

 

John M. Rothka

 

 

 

Chief Accounting Officer
(Principal Accounting Officer)

 

 

 

5748