UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31,September 30, 2019
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-14901

CONSOL Coal Resources LP
(Exact name of registrant as specified in its charter)


Delaware 47-3445032
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1000 CONSOL Energy Drive, Suite 100
Canonsburg, PA15317-6506
(724) (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 Units representing limited partner interestsCCRNew 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.
Yesx    No  o
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).
Yesx    No   o
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  oAccelerated filerx Non-accelerated filer  o Smaller Reporting Company  x Emerging Growth Company x
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 x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o    No   x
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 Units representing limited partner interests     CCR     New York Stock Exchange
CONSOL Coal Resources LP had 16,021,69927,632,824 common units, 11,611,067 subordinated units and a 1.7% general partner interest outstanding at AprilOctober 25, 2019.
 




TABLE OF CONTENTS


  Page
 Part I. Financial Information 
   
Item 1.Financial Statements 
 Consolidated Statements of Operations for the three and nine months ended March 31,September 30, 2019 and 2018
 Consolidated Statements of Comprehensive Income for the three and nine months ended March 31,September 30, 2019 and 2018
 Consolidated Balance Sheets at March 31,September 30, 2019 and December 31, 2018
 
Consolidated Statement of Partners Capital for the three and nine months ended March 31,September 30, 2019 and 2018
 Consolidated Statements of Cash Flows for the threenine months ended March 31,September 30, 2019 and 2018
 Notes to the Consolidated Financial Statements
   
Item 2.
   
Item 4.
   
 Part II. Other Information 
   
Item 1.
   
Item 1A.
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
   
Item 4.
   
Item 6.
   
 






Significant Relationships and Other Terms Referenced in this Quarterly Report


“CONSOL Coal Resources LP,” the “Partnership,” “we,” “our,” “us” and similar terms refer to CONSOL Coal Resources LP, a Delaware limited partnership, and its subsidiaries, with common units listed for trading on the New York Stock Exchange under the ticker “CCR”;


“Affiliated Company Credit Agreement” refers to an agreement entered into on November 28, 2017 among the Partnership and certain of its subsidiaries (collectively, the “Credit Parties”), CONSOL Energy, as lender and administrative agent, and PNC Bank, National Association, as collateral agent (“PNC”), as amended by Amendment No. 1 to Affiliated Company Credit Agreement, dated March 28, 2019. The Affiliated Company Credit Agreement provides for a revolving credit facility in an aggregate principal amount of up to $275 million to be provided by CONSOL Energy, as lender;


“common units” refer to the limited partner interests in CONSOL Coal Resources LP. The holders of common units are entitled to participate in partnership distributions and are entitled to exercise the rights or privileges of limited partners under the Partnership Agreement. The common units are listed on the New York Stock Exchange under the symbol “CCR”;


“CONSOL Coal Finance” refers to CONSOL Coal Finance Corporation, a Delaware corporation and a direct, wholly owned subsidiary of the Partnership;


“CONSOL Energy” and our “sponsor” refer to CONSOL Energy Inc., a Delaware corporation and the parent of our general partner, and its subsidiaries other than our general partner, us and our subsidiaries;


“CONSOL Operating” refers to CONSOL Operating LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of the Partnership;


“CONSOL Thermal Holdings” refers to CONSOL Thermal Holdings LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of CONSOL Operating; CONSOL Thermal Holdings owns a 25% undivided interest in the assets, liabilities, revenues and expenses comprising the Pennsylvania Mining Complex;

“Conrhein” refers to Conrhein Coal Company, a Pennsylvania general partnership and a wholly owned subsidiary of CONSOL Energy;


“CPCC” refers to CONSOL Pennsylvania Coal Company LLC, a Delaware limited liability company and a wholly owned subsidiary of CONSOL Energy;


“general partner” refers to CONSOL Coal Resources GP LLC, a Delaware limited liability company and our general partner;


“Omnibus Agreement” refers to the Omnibus Agreement dated July 7, 2015, as replaced by the First Amended and Restated Omnibus Agreement dated as of September 30, 2016, and as amended by the First Amendment to the First Amended and Restated Omnibus Agreement, dated November 28, 2017;


“Partnership Agreement” refers to the Third Amended and Restated Partnership Agreement dated as of November 28, 2017;


“Pennsylvania Mining Complex” refers to the Bailey, Enlow Fork, and Harvey coal mines, coal reserves and related assets and operations, located primarily in southwestern Pennsylvania. The Pennsylvania Mining Complex is owned 75% by our sponsor and its subsidiaries and 25% by CONSOL Thermal Holdings;

“preferred units” refer to any limited partnership interests, other than the common units and subordinated units, issued in accordance with the Partnership Agreement that, as determined by our general partner, have special voting rights to which our common units are not entitled. As of the date of this Quarterly Report on Form 10-Q, there are no outstanding preferred units;


“SEC” refers to the United States Securities and Exchange Commission;


“sponsor” or “our sponsor” refers to CONSOL Energy; and


“subordinated units” refer to limited partner interests in CONSOL Coal Resources LP having the rights and obligations specified with respect to subordinated units in the Partnership Agreement. AllOn August 16, 2019, all 11,611,067 subordinated units, which were owned entirely by CONSOL Energy Inc., were converted into common units on a one-for-one basis. As of ourthe date of this Quarterly Report on Form 10-Q, there are no outstanding subordinated units are held by CONSOL Energy.units.





PART I : FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
CONSOL COAL RESOURCES LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except unit data)
(unaudited)


Three Months Ended
March 31,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
2019 20182019 2018 2019 2018
Coal Revenue$83,126
 $87,752
$75,385
 $73,700
 $246,166
 $254,126
Freight Revenue1,665
 4,472
900
 611
 3,529
 9,444
Other Income1,316
 2,277
1,096
 1,003
 3,440
 4,302
Total Revenue and Other Income86,107
 94,501
77,381
 75,314
 253,135
 267,872
          
Operating and Other Costs 1
52,094
 52,287
53,998
 49,540
 164,542
 159,126
Depreciation, Depletion and Amortization11,217
 10,814
11,086
 11,059
 33,639
 33,769
Freight Expense1,665
 4,472
900
 611
 3,529
 9,444
Selling, General and Administrative Expenses 2
4,560
 3,020
2,840
 3,899
 10,353
 10,260
Interest Expense, Net 3
1,351
 1,951
1,587
 1,560
 4,495
 5,295
Total Costs70,887
 72,544
70,411
 66,669
 216,558
 217,894
Net Income$15,220
 $21,957
$6,970
 $8,645
 $36,577
 $49,978


 



 

 

 

Less: General Partner Interest in Net Income257
 372
118
 146
 617
 846
Limited Partner Interest in Net Income$14,963
 $21,585
$6,852
 $8,499
 $35,960
 $49,132
          
Net Income per Limited Partner Unit - Basic$0.54
 $0.79
$0.25
 $0.31
 $1.30
 $1.79
Net Income per Limited Partner Unit - Diluted$0.54
 $0.78
$0.25
 $0.31
 $1.30
 $1.78
          
Limited Partner Units Outstanding - Basic27,589,172
 27,482,544
27,632,770
 27,521,519
 27,618,396
 27,508,275
Limited Partner Units Outstanding - Diluted27,645,697
 27,567,690
27,667,477
 27,628,202
 27,654,684
 27,592,838
          
Cash Distributions Declared per Unit 4
   $0.5125
 $0.5125
 $1.5375
 $1.5375
Common Unit$0.5125
 $0.5125
Subordinated Unit$0.5125
 $0.5125




1 Related Party of $763$838 and $685$725 for the three months ended March 31,and $2,368 and $2,172 for the nine months ended September 30, 2019 and March 31,September 30, 2018, respectively.
2 Related Party of $3,056$1,902 and $1,645$2,345 for the three months ended March 31,and $6,932 and $5,943 for the nine months ended September 30, 2019 and March 31,September 30, 2018, respectively.
3Related party of $1,351$1,587 and $1,951$1,560 for the three months ended March 31,and $4,495 and $5,295 nine months ended September 30, 2019 and March 31,September 30, 2018, respectively.
4 Represents the cash distributions declared related to the period presented. See Note 16 - Subsequent Events.

















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




CONSOL COAL RESOURCES LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)


Three Months Ended
March 31,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
2019 20182019 2018 2019 2018
Net Income$15,220
 $21,957
$6,970
 $8,645
 $36,577
 $49,978
          
Recognized Net Actuarial Gain(3) (2)(5) (2) (11) (6)
Other Comprehensive Loss(3) (2)(5) (2) (11) (6)
          
Comprehensive Income$15,217
 $21,955
$6,965
 $8,643
 $36,566
 $49,972






























































































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




CONSOL COAL RESOURCES LP
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)  (unaudited)  
March 31,
2019
 December 31,
2018
September 30,
2019
 December 31,
2018
ASSETS      
Current Assets:      
Cash$405
 $1,003
$10,611
 $1,003
Trade Receivables26,968
 21,871
27,245
 21,871
Other Receivables2,564
 1,068
56
 1,068
Inventories12,645
 11,066
11,339
 11,066
Prepaid Expenses4,620
 5,096
7,094
 5,096
Total Current Assets47,202
 40,104
56,345
 40,104
Property, Plant and Equipment:      
Property, Plant and Equipment955,884
 946,298
977,418
 946,298
Less—Accumulated Depreciation, Depletion and Amortization537,727
 526,747
559,538
 526,747
Total Property, Plant and Equipment—Net418,157
 419,551
417,880
 419,551
Other Assets:      
Right of Use AssetOperating Leases
19,190
 
16,855
 
Other Assets14,190
 14,908
13,298
 14,908
Total Other Assets33,380
 14,908
30,153
 14,908
TOTAL ASSETS$498,739
 $474,563
$504,378
 $474,563
LIABILITIES AND PARTNERS CAPITAL
      
Current Liabilities:      
Accounts Payable$26,535
 $24,834
$23,405
 $24,834
Accounts PayableRelated Party
6,002
 3,831
2,882
 3,831
Current Portion of Long-Term Debt4,599
 3,503
Other Accrued Liabilities42,276
 35,419
38,192
 31,916
Total Current Liabilities74,813
 64,084
69,078
 64,084
Long-Term Debt:      
Affiliated Company Credit AgreementRelated Party
161,500
 163,000
181,400
 163,000
Finance Lease Obligations4,093
 5,067
2,085
 5,067
Total Long-Term Debt165,593
 168,067
183,485
 168,067
Other Liabilities:      
Pneumoconiosis Benefits4,477
 4,260
4,897
 4,260
Workers Compensation
3,094
 3,119
2,914
 3,119
Asset Retirement Obligations9,973
 9,775
10,939
 9,775
Operating Lease Liability15,191
 
14,224
 
Other529
 518
547
 518
Total Other Liabilities33,264
 17,672
33,521
 17,672
TOTAL LIABILITIES273,670
 249,823
286,084
 249,823
Partners Capital:
      
Common Units (16,021,699 Units Outstanding at March 31, 2019; 15,911,211 Units Outstanding at December 31, 2018)212,104
 212,122
Subordinated Units (11,611,067 Units Outstanding at March 31, 2019 and December 31, 2018)(11,085) (11,421)
Common Units (27,632,824 Units Outstanding at September 30, 2019; 15,911,211 Units Outstanding at December 31, 2018)194,378
 212,122
Subordinated Units (No Units Outstanding at September 30, 2019; 11,611,067 Units Outstanding at December 31, 2018)
 (11,421)
General Partner Interest12,133
 12,119
12,007
 12,119
Accumulated Other Comprehensive Income11,917
 11,920
11,909
 11,920
Total Partners Capital
225,069
 224,740
218,294
 224,740
TOTAL LIABILITIES AND PARTNERS CAPITAL
$498,739
 $474,563
$504,378
 $474,563

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




CONSOL COAL RESOURCES LP
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
(Dollars in thousands)




Limited Partners      Limited Partners      
Common Subordinated General Partner Accumulated Other Comprehensive Income (Loss) TotalCommon Subordinated General Partner Accumulated Other Comprehensive Income (Loss) Total
Balance at December 31, 2018$212,122
 $(11,421) $12,119
 $11,920
 $224,740
$212,122
 $(11,421) $12,119
 $11,920
 $224,740
(unaudited)                  
Net Income8,676
 6,287
 257
 
 15,220
8,676
 6,287
 257
 
 15,220
Unitholder Distributions(8,211) (5,951) (243) 
 (14,405)(8,211) (5,951) (243) 
 (14,405)
Unit-Based Compensation397
 
 
 
 397
397
 
 
 
 397
Units Withheld for Taxes(880) 
 
 
 (880)(880) 
 
 
 (880)
Actuarially Determined Long-Term Liability Adjustments
 
 
 (3) (3)
 
 
 (3) (3)
Balance at March 31, 2019$212,104
 $(11,085) $12,133
 $11,917
 $225,069
$212,104
 $(11,085) $12,133
 $11,917
 $225,069
Net Income8,201
 5,944
 242
 
 14,387
Unitholder Distributions(8,211) (5,950) (243) 
 (14,404)
Unit-Based Compensation341
 
 
 
 341
Actuarially Determined Long-Term Liability Adjustments
 
 
 (3) (3)
Balance at June 30, 2019$212,435
 $(11,091) $12,132
 $11,914
 $225,390
Net Income6,852
 
 118
 
 6,970
Unitholder Distributions(8,211) (5,951) (243) 
 (14,405)
Conversion of Subordinated Units to Common Units1
(17,042) 17,042
 
 
 
Unit-Based Compensation344
 
 
 
 344
Actuarially Determined Long-Term Liability Adjustments
 
 
 (5) (5)
Balance at September 30, 2019$194,378
 $
 $12,007
 $11,909
 $218,294



1All subordinated units were converted to common units on a 1-for-one basis on August 16, 2019. For purposes of calculating net income per common and subordinated unit, the conversion of the subordinated units is deemed to have occurred on July 1, 2019. See Note 3 - Net Income Per Limited Partner and General Partner Interest.

 Limited Partners      
 Common Subordinated General Partner Accumulated Other Comprehensive Income (Loss) Total
Balance at December 31, 2017$205,974
 $(15,225) $11,964
 $10,443
 $213,156
(unaudited)         
Net Income12,477
 9,108
 372
 
 21,957
Unitholder Distributions(8,153) (5,951) (242) 
 (14,346)
Unit-Based Compensation359
 
 
 
 359
Units Withheld for Taxes(899) 
 
 
 (899)
Actuarially Determined Long-Term Liability Adjustments
 
 
 (2) (2)
Balance at March 31, 2018$209,758
 $(12,068) $12,094
 $10,441
 $220,225










































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



 Limited Partners      
 Common Subordinated General Partner Accumulated Other Comprehensive Income (Loss) Total
Balance at December 31, 2017$205,974
 $(15,225) $11,964
 $10,443
 $213,156
(unaudited)         
Net Income12,477
 9,108
 372
 
 21,957
Unitholder Distributions(8,153) (5,951) (242) 
 (14,346)
Unit-Based Compensation359
 
 
 
 359
Units Withheld for Taxes(899) 
 
 
 (899)
Actuarially Determined Long-Term Liability Adjustments
 
 
 (2) (2)
Balance at March 31, 2018$209,758
 $(12,068) $12,094
 $10,441
 $220,225
Net Income11,013
 8,035
 328
 
 19,376
Unitholder Distributions(8,153) (5,950) (244) 
 (14,347)
Unit-Based Compensation508
 
 
 
 508
Actuarially Determined Long-Term Liability Adjustments
 
 
 (2) (2)
Balance at June 30, 2018$213,126
 $(9,983) $12,178
 $10,439
 $225,760
Net Income4,914
 3,585
 146
 
 8,645
Unitholder Distributions(8,154) (5,951) (243) 
 (14,348)
Unit-Based Compensation503
 
 
 
 503
Units Withheld for Taxes(13) 
 
 
 (13)
Actuarially Determined Long-Term Liability Adjustments
 
 
 (2) (2)
Balance at September 30, 2018$210,376
 $(12,349) $12,081
 $10,437
 $220,545





































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




CONSOL COAL RESOURCES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Three Months Ended
March 31,
Nine Months Ended
September 30,
2019 20182019 2018
Cash Flows from Operating Activities:      
Net Income$15,220
 $21,957
$36,577
 $49,978
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:      
Depreciation, Depletion and Amortization11,217
 10,814
33,639
 33,769
Gain on Sale of Assets(5) (76)
Loss (Gain) on Sale of Assets5
 (62)
Unit-Based Compensation397
 359
1,082
 1,370
Changes in Operating Assets:      
Accounts and Notes Receivable(6,588) 1,240
(4,353) 13,393
Inventories(1,579) (1,818)(273) 278
Prepaid Expenses476
 224
(1,998) (1,708)
Changes in Other Assets718
 791
1,610
 531
Changes in Operating Liabilities:      
Accounts Payable185
 (1,931)(2,041) 680
Accounts Payable—Related Party2,171
 (2,136)(949) (1,498)
Other Operating Liabilities2,811
 (575)3,645
 (2,483)
Changes in Other Liabilities195
 415
561
 886
Net Cash Provided by Operating Activities25,218
 29,264
67,505
 95,134
Cash Flows from Investing Activities:      
Capital Expenditures(8,093) (4,929)(29,354) (20,256)
Proceeds from Sales of Assets
 75
4
 170
Net Cash Used in Investing Activities(8,093) (4,854)(29,350) (20,086)
Cash Flows from Financing Activities:      
Payments on Finance Leases(938) (367)(2,853) (2,125)
Net Payments on Related Party Long-Term Notes(1,500) (9,583)
Net Proceeds from (Payments on) Related Party Long-Term Notes18,400
 (29,583)
Payments for Unitholder Distributions(14,405) (14,346)(43,214) (43,041)
Units Withheld for Taxes(880) (899)(880) (912)
Net Cash Used in Financing Activities(17,723) (25,195)(28,547) (75,661)
Net Decrease in Cash(598) (785)
Net Increase (Decrease) in Cash9,608
 (613)
Cash at Beginning of Period1,003
 1,533
1,003
 1,533
Cash at End of Period$405
 $748
$10,611
 $920
      
Non-Cash Investing and Financing Activities:      
Finance Lease$
 $5,658
$
 $11,495
Longwall Shield Rebuild959
 










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




CONSOL COAL RESOURCES LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per unit amounts)
NOTE 1—BASIS OF PRESENTATION:


The accompanying unaudited Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. 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.


For the three and nine months ended March 31,September 30, 2019 and 2018, the unaudited Consolidated Financial Statements include the accounts of CONSOL Operating and CONSOL Thermal Holdings, wholly owned and controlled subsidiaries.


The Partnership is a master limited partnership formed on March 16, 2015 to manage and further develop all of our sponsor's active coal operations in Pennsylvania. As of March 31,September 30, 2019, the Partnership's assets are comprised of a 25% undivided interest in, and operational control over, the Pennsylvania Mining Complex. The Partnership's common units trade on the New York Stock Exchange under the ticker symbol “CCR.”


Recent Accounting Pronouncements:


In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15 - Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40) to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments in update 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements of capitalizing implementation costcosts incurred to develop or obtain internal-use software. These changes will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Management is currently evaluating thedoes not expect this update to have a material impact this guidance may have on the Partnership’sPartnership's financial statements.


In August 2018, the FASB issued ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by GAAP. The amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. These changes will be effective for fiscal years ending after December 15, 2020, including interim periods within those fiscal years. Management is currently evaluating the impact this guidance may have on the Partnership's financial statements.


In August 2018, the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820) to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by GAAP. The amendments modify the disclosure requirements on fair value measurements, including the consideration of costs and benefits. These changes will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Management is currently evaluating the impact this guidance may have on the Partnership's financial statements.

In June 2018, the FASB issued ASU 2018-07 - Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting. The amendments indoes not expect this update seek to simplify accounting for nonemployee share-based payments by clarifying and improving the areas of the overall measurement objective, measurement date, and awards with performance conditions. This update was adopted during the three months ended March 31, 2019 and did not have a material impact on the Partnership's financial statements.


In June 2016, the FASB issued ASU 2016-13 - Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this, the amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The measurement of expected credit losses will be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. In May 2019, the FASB updated Topic 326 by issuing ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, which provides entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments-Credit Losses - Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments-Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The amendments in this ASUthese updates will be applied using a modified-retrospective approach and, for public entities, are effective for fiscal years beginning after December 15, 2019 and interim periods within


those annual periods. Management does not expect this update to have a material impact on the Partnership's financial statements.


Reclassifications:

Certain 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 Long-Term Debt, previously included in Other Accrued Liabilities on the Consolidated Balance Sheets. These reclassifications had no effect on previously reported Total Current Liabilities and are not material to the prior year presentation.


NOTE 2—REVENUE:


The following table disaggregates our revenue by major source for the three and nine months ended March 31,September 30, 2019 and March 31,September 30, 2018:
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Coal Revenue$75,385
 $73,700
 $246,166
 $254,126
Freight Revenue900
 611
 3,529
 9,444
Total Revenue from Contracts with Customers$76,285
 $74,311
 $249,695
 $263,570

 Three Months Ended March 31, 2019  Three Months Ended March 31, 2018
Coal Revenue$83,126
  $87,752
Freight Revenue1,665
  4,472
Total Revenue from Contracts with Customers$84,791
  $92,224


Our revenue is recognized when title passes to the customer. We have determined that each ton of coal represents a separate and distinct performance obligation. Our coal supply contracts and other sales and operating revenue contracts vary in length from short-term to long-term contracts and do not typically have significant financing components.


The estimated transaction price from each of our contracts is based on the total amount of consideration to which we expect 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, per tonper-ton price fluctuations based on certain coal sales price indices and anticipated payments in lieu of shipments. The estimated transaction price for each contract is allocated to our performance obligations based on relative standalone selling prices determined at contract inception.


Coal Revenue


Revenues are recognized when title passes to the customers and the price is fixed and determinable. Generally, title passes when coal is loaded at the central preparation facility and, on occasion, at terminal locations or other customer destinations. Our coal contract revenue per ton is fixed and determinable and adjusted for nominal quality adjustments. Some coal contracts also contain positive electric power price-related adjustments in addition to a fixed base-price per ton. None of the Partnership's coal contracts allow for retroactive adjustments to pricing after title to the coal has passed.


Some of our contracts span multiple years and have annual pricing modification provisions, based upon market-driven or inflationary adjustments, where no additional value is exchanged. Also, some of our contracts contain favorable electric power price relatedprice-related adjustments, which represent market-driven price adjustments, wherein there is no additional value being exchanged. Management believes that the invoice price is the most appropriate rate at which to recognize revenue.


While we do, from time to time, experience costs of obtaining coal customer contracts with amortization periods greater than one year, those costs have been immaterial to our net income. As of and for the three and nine months ended March 31,September 30, 2019 and March 31,September 30, 2018, we do not have any capitalized costs to obtain customer contracts on our balance sheet nor have we recognized any amortization of previously existing capitalized costs of obtaining customer contracts. Further, the Partnership has not recognized any revenue in the current period from performance obligations satisfied (or partially satisfied) in previous periods.


Freight Revenue


Some of our coal contracts require that we sell our coal at locations other than our central preparation plant. The cost to transport our coal to the ultimate sales point is passed through to our customers and we recognize the freight revenue equal to the transportation cost when title of the coal passes to the customer.


Contract Balances


Contract assets are recorded as trade receivables and reported separately in the Partnership's unaudited Consolidated Balance Sheets from other contract assets as title passes to the customer and the Partnership's right to consideration becomes


unconditional. Payments for coal shipments are typically due within two to four weeks of the invoice date. The Partnership typically does not have material contract assets that are stated separately from trade receivables as the Partnership's performance obligations are satisfied as control of the goods or services passes to the customer, thereby granting the Partnership an unconditional right to receive consideration. Contract liabilities relate to consideration received in advance of


the satisfaction of the Partnership's performance obligations. Contract liabilities are recognized as revenue at the point in time when control of the good or service passes to the customer.
NOTE 3—NET INCOME PER LIMITED PARTNER AND GENERAL PARTNER INTEREST:
The Partnership allocates net income among our general partner and limited partners using the two-class method in accordance with applicable authoritative accounting guidance. Under the two-class method, we allocate our net income to our limited partners and our general partner in accordance with the terms of our Partnership Agreement. We also allocate any earnings in excess of distributions to our limited partners and our general partner in accordance with the terms of our Partnership Agreement. We allocate any distributions in excess of earnings for the period to our general partner and our limited partners based on their respective proportionate ownership interests in us, after taking into account distributions to be paid with respect to the incentive distribution rights, as set forth in the Partnership Agreement.
Diluted net income per limited partner unit reflects the potential dilution that could occur if securities or agreements to issue common units, such as awards under the long-term incentive plan, were exercised, settled or converted into common units. When it is determined that potential common units resulting from an award subject to performance or market conditions should be included in the diluted net income per limited partner unit calculation, the impact is reflected by applying the treasury stock method.

On August 16, 2019, all 11,611,067 subordinated units were converted into common units on a 1-for-one basis. For purposes of calculating net income per common and subordinated unit, the conversion of the subordinated units is deemed to have occurred on July 1, 2019. The conversion did not impact the amount of the cash distribution paid or the total number of the Partnership’s outstanding units representing limited partner interests. Upon payment of the cash distribution for the second quarter of 2019, the financial requirements for the conversion of all subordinated units were satisfied.

The following table illustrates the Partnership’s calculation of net income per unit for common units and subordinated units (in thousands, except for per unit information):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Net Income$6,970
 $8,645
 $36,577
 $49,978
Less: General Partner Interest in Net Income118
 146
 617
 846
Net Income Allocable to Limited Partner Units$6,852
 $8,499
 $35,960
 $49,132
        
Limited Partner Interest in Net Income - Common Units$6,852
 $4,914
 $23,729
 $28,404
Limited Partner Interest in Net Income - Subordinated Units
 3,585
 12,231
 20,728
Limited Partner Interest in Net Income - Basic & Diluted$6,852
 $8,499
 $35,960
 $49,132
        
Weighted Average Limited Partner Units Outstanding - Basic27,632,770
 27,521,519
 27,618,396
 27,508,275
        
Weighted Average Limited Partner Units Outstanding - Diluted27,667,477
 27,628,202
 27,654,684
 27,592,838
        
Net Income Per Limited Partner Unit - Basic       
 Common Units$0.25
 $0.31
 $1.30
 $1.79
 Subordinated Units$
 $0.31
 $1.05
 $1.79
Net Income Per Limited Partner Unit - Basic$0.25
 $0.31
 $1.30
 $1.79
        
Net Income Per Limited Partner Unit - Diluted       
 Common Units$0.25
 $0.31
 $1.30
 $1.78
 Subordinated Units$
 $0.31
 $1.05
 $1.79
Net Income Per Limited Partner Unit - Diluted$0.25
 $0.31
 $1.30
 $1.78

  Three Months Ended March 31,
  2019 2018
Net Income $15,220
 $21,957
Less: General Partner Interest in Net Income 257
 372
Net Income Allocable to Limited Partner Units $14,963
 $21,585
     
Limited Partner Interest in Net Income - Common Units $8,676
 $12,477
Limited Partner Interest in Net Income - Subordinated Units 6,287
 9,108
Limited Partner Interest in Net Income - Basic & Diluted $14,963
 $21,585
     
Weighted Average Limited Partner Units Outstanding - Basic    
 Common Units 15,978,105
 15,871,477
 Subordinated Units 11,611,067
 11,611,067
 Total 27,589,172
 27,482,544
     
Weighted Average Limited Partner Units Outstanding - Diluted    
 Common Units 16,034,630
 15,956,623
 Subordinated Units 11,611,067
 11,611,067
 Total 27,645,697
 27,567,690
     
Net Income Per Limited Partner Unit - Basic    
 Common Units $0.54
 $0.79
 Subordinated Units $0.54
 $0.78
Net Income Per Limited Partner Unit - Basic $0.54
 $0.79
     
Net Income Per Limited Partner Unit - Diluted    
 Common Units $0.54
 $0.78
 Subordinated Units $0.54
 $0.78
Net Income Per Limited Partner Unit - Diluted $0.54
 $0.78


There were zero0 phantom units excluded from the computation of the diluted earnings per unit, because their effect would be anti-dilutive for the three and nine months ended March 31, 2019. There were 129,850 phantom units excluded from the computation of the diluted earnings per unit, because their effect would be anti-dilutive for the three months ended March 31,September 30, 2019 and 2018.
NOTE 4—INVENTORIES:
 September 30,
2019
 December 31,
2018
Coal$993
 $1,160
Supplies10,346
 9,906
      Total Inventories$11,339
 $11,066

 March 31,
2019
 December 31,
2018
Coal$2,213
 $1,160
Supplies10,432
 9,906
      Total Inventories$12,645
 $11,066


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 and 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 our coal operations.
NOTE 5—PROPERTY, PLANT AND EQUIPMENT:


 September 30,
2019
 December 31,
2018
Coal and Other Plant and Equipment$663,048
 $636,105
Coal Properties and Surface Lands123,933
 122,679
Airshafts105,148
 102,275
Mine Development81,538
 81,538
Advance Mining Royalties3,751
 3,701
Total Property, Plant and Equipment977,418
 946,298
Less: Accumulated Depreciation, Depletion and Amortization559,538
 526,747
Total Property, Plant and Equipment, Net$417,880
 $419,551

 March 31,
2019
 December 31,
2018
Coal and Other Plant and Equipment$643,363
 $636,105
Coal Properties and Surface Lands122,679
 122,679
Airshafts104,596
 102,275
Mine Development81,538
 81,538
Advance Mining Royalties3,708
 3,701
Total Property, Plant and Equipment955,884
 946,298
Less: Accumulated Depreciation, Depletion and Amortization537,727
 526,747
Total Property, Plant and Equipment, Net$418,157
 $419,551


Coal reserves are controlled either through fee ownership or by lease. The duration of the leases vary; however, the lease terms generally are 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 March 31,September 30, 2019 and December 31, 2018, property, plant and equipment includes gross assets under finance lease of $11,894$11,879 and $11,919, respectively. Accumulated amortization for finance leases was $4,460$6,380 and $3,529 at March 31,September 30, 2019 and December 31, 2018, respectively. Amortization expense for assets under finance leases approximated $967$966 and $327$967 for the three months ended March 31,and $2,899 and $2,262 for the nine months ended September 30, 2019 and March 31,September 30, 2018, respectively, and is included in Depreciation, Depletion and Amortization in the accompanying unaudited Consolidated Statements of Operations.
NOTE 6—LEASES:

On January 1, 2019, the Partnership adopted Accounting Standards Codification (“ASC”) Topic 842 using the transition option, “Comparatives Under 840 Option,” established by ASU 2018-11, Leases (Topic 842), Targeted Improvements. As allowed under this guidance, the Partnership elected not to recast the comparative periods presented when transitioning to ASC 842. As most of the Partnership's leases do not provide an implicit rate, CONSOL Coal Resourcesthe Partnership has taken a portfolio approach of applying its incremental borrowing rate based on the information available at the adoption date to calculate the present value of lease payments over the lease term. The Partnership has elected the package of practical expedients permitted under the transition guidance within the standard, which allows the Partnership (1) to not reassess whether any expired or existing contracts are or contain leases, (2) to not reassess the lease classification for any expired or existing leases, and (3) to not reassess initial direct costs for any existing leases. The Partnership has also elected the practical expedient to not evaluate land easements that existed or expired before its adoption of Topic 842 and the practical expedient to not separate lease and non-lease components; that is, to account lease and non-lease components in a contract as a single lease component for all


classes of underlying assets. Further, the Partnership made an accounting policy election to keep leases with an initial term of twelve


months or less off the balance sheet. CONSOL Coal ResourcesConsolidated Balance Sheets. The Partnership will recognize those lease payments in the unaudited Consolidated Statements of Operations over the lease term. For the three and nine months ended March 31,September 30, 2019, these short term lease expenses were not material to the Partnership's financial statements.

Based on the Partnership's lease portfolio, the standard had a material impact on the Partnership’s unaudited Consolidated Balance Sheet,Sheets, but did not have a significant impact on the Partnership’s consolidated net earnings and cash flows. The most significant impact was the recognition of Right of Use (“ROU”) assets and lease liabilities for operating leases, while the accounting for finance leases remained substantially unchanged. The Partnership's bank covenants were not affected by this update. The Partnership recorded operating lease ROU assets and operating lease liabilities of approximately $20 million as of January 1, 2019, primarily related to mining equipment, based on the present value of the future lease payments on the date of adoption.

The Partnership determines if an arrangement is an operating or finance lease at inception of the applicable lease. For leases where the Partnership is the lessee, ROU assets represent the Partnership’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Partnership’s leases do not provide an implicit interest rate, the Partnership uses its incremental borrowing rate based on the information available on the commencement date in determining the present value of lease payments. The ROU asset also consists of any prepaid lease payments, lease incentives received, and costs which will be incurred in exiting a lease. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Partnership will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense using the interest method of recognition.

The Partnership has operating leases for mining or other equipment used in operations and office space. Many leases include one or more options to renew, some of which include options to extend the leases, and some leases include options to terminate or buy out the leases within a set period of time. In certainsome of the Partnership’s lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for inflation and/or changes in other indexes. Many of our operating lease payments for mining equipment contain a variable component which is calculated based upon production metrics such as feet of advance or raw tonnage mined. While most of our leases contain clauses regarding the general condition of the equipment upon lease termination, they do not contain residual value guarantees.

For the three monthsand nine ended March 31,September 30, 2019, the components of operating lease expense were as follows:
Three Months Ended
September 30, 2019
 Nine Months Ended
September 30, 2019
Fixed Operating Lease Expense$1,642
$1,494
 $4,674
Variable Operating Lease Expense763
711
 2,303
Total Operating Lease Expense$2,405
$2,205
 $6,977
Supplemental cash flow information related to the Partnership’s operating leases for the threenine months ended March 31,September 30, 2019 was as follows:
Cash Paid for Amounts Included in the Measurement of Operating Lease Liabilities$2,367
ROU Assets Obtained in Exchange for Operating Lease Obligations$

Cash Paid for Amounts Included in the Measurement of Operating Lease Liabilities$936
ROU Assets Obtained in Exchange for Operating Lease Obligations$

The following table presents the lease balances within the unaudited Consolidated Balance Sheet,Sheets, weighted average lease term, and weighted average discount rates related to the Partnership’s operating leases as of March 31,September 30, 2019:




Lease Assets and LiabilitiesClassificationAmount
Assets:  
Operating Lease ROU AssetsOther Assets$16,855
   
Liabilities:  
Current:  
     Operating Lease LiabilitiesOther Accrued Liabilities$3,829
Long-Term:  
     Operating Lease LiabilitiesOperating Lease Liabilities$14,224
Total Operating Lease Liabilities $18,053
   
Weighted Average Remaining Lease Term (in Years) 4.10
Weighted Average Discount Rate 6.7%
Lease Assets and LiabilitiesClassificationAmount
Assets:  
Operating Lease ROU AssetsOther Assets$19,190
   
Liabilities:  
Current:  
     Operating Lease LiabilitiesOther Accrued Liabilities$4,791
Long-Term:  
     Operating Lease LiabilitiesOperating Lease Liabilities15,191
Total Operating Lease Liabilities $19,982
   
Weighted Average Remaining Lease Term (in Years) 4.53
Weighted Average Discount Rate 6.68%

The Partnership also enters into finance leases for mining equipment and automobiles. Assets arising from finance leases are included in Property, Plant and Equipment, Net and the liabilities are included in Other Accrued Liabilities and Long-Term Debt in the Partnership's unaudited Consolidated Balance Sheet.Sheets.

For the three and nine months ended March 31,September 30, 2019, the components of finance lease expense were as follows:
Three Months Ended
September 30, 2019
 Nine Months Ended
September 30, 2019
Amortization of Right of Use Assets$967
$966
 $2,899
Interest Expense$109
$83
 $288
The following table presents the weighted average lease term and weighted average discount rates related to the Partnership’s finance leases as of March 31,September 30, 2019:
Weighted Average Remaining Lease Term (in Years)1.951.45

Weighted Average Discount Rate5.255.24%

The following table presents the future maturities of the Partnership’s operating and finance lease liabilities, together with the present value of the net minimum lease payments, at March 31,September 30, 2019:

Finance LeasesOperating Leases
Remainder of 2019$700
$2,114
20204,179
5,722
20211,054
5,483
202214
3,029
202311
1,314
Thereafter
2,941
Total minimum lease payments$5,958
$20,603
Less amount representing interest233
2,550
Present value of minimum lease payments$5,725
$18,053

Finance LeasesOperating Leases
Remainder of 2019$2,794
$4,719
20204,181
5,686
20211,055
5,483
202215
3,029
202311
1,314
Thereafter
3,003
Total minimum lease payments$8,056
$23,234
Less amount representing interest413
3,252
Present value of minimum lease payments$7,643
$19,982

As of March 31,September 30, 2019, the Partnership had no additional significant operating or finance leases that had not yet commenced.




NOTE 7—OTHER ACCRUED LIABILITIES:


 September 30,
2019
 December 31, 2018
Subsidence Liability$23,301
 $20,883
Accrued Payroll and Benefits3,677
 2,693
Accrued Interest (Related Party)2,300
 1,767
Accrued Other Taxes534
 1,071
Other1,345
 2,440
Current Portion of Long-Term Liabilities:   
Operating Lease Liability3,829
 
Workers’ Compensation1,985
 1,554
Asset Retirement Obligations954
 1,202
Pneumoconiosis Benefits146
 165
Long-Term Disability121
 141
Total Other Accrued Liabilities$38,192
 $31,916
 March 31,
2019
 December 31, 2018
Subsidence Liability$22,264
 $20,883
Accrued Payroll and Benefits3,389
 2,693
Accrued Interest (Related Party)1,796
 1,767
Accrued Other Taxes750
 1,071
Other2,544
 2,440
Current Portion of Long-Term Liabilities:   
Operating Lease Liability4,791
 
Finance Leases3,550
 3,503
Workers’ Compensation1,697
 1,554
Asset Retirement Obligations1,202
 1,202
Pneumoconiosis Benefits159
 165
Long-Term Disability134
 141
Total Other Accrued Liabilities$42,276
 $35,419

NOTE 8—AFFILIATED COMPANY CREDIT AGREEMENT:LONG-TERM DEBT:


 September 30,
2019
 December 31,
2018
Affiliated Company Credit Agreement (4.00% and 3.75% interest rate at September 30, 2019 and December 31, 2018, respectively)$181,400
 $163,000
Other Asset-Backed Financing Maturing in December 2020, 6.35% Weighted Average Interest Rate at September 30, 2019959
 
 182,359
 163,000
Less: Amounts Due in One Year*959
 
Long-Term Debt$181,400
 $163,000

 March 31,
2019
 December 31,
2018
Affiliated Company Credit Agreement (3.75% interest rate at March 31, 2019 and December 31, 2018)$161,500
 $163,000


Affiliated Company Credit Agreement* Excludes current portion of Finance Lease Obligations of $3,640 and at $3,503 at September 30, 2019 and December 31, 2018, respectively.
    
On November 28, 2017, the Partnership and the other Credit Parties entered into the Affiliated Company Credit Agreement by and among the Credit Parties, CONSOL Energy, as lender and administrative agent, and PNC. On March 28, 2019, the Affiliated Company Credit Agreement was amended to extend the maturity date from February 27, 2023 to December 28, 2024. The Affiliated Company Credit Agreement provides for a revolving credit facility in an aggregate principal amount of up to $275,000 to be provided by CONSOL Energy, as lender. In connection with the Partnership’s entry into the Affiliated Company Credit Agreement, the Partnership made an initial draw of $200,583, the net proceeds of which were used to repay the amounts outstanding under the Partnership's prior credit facility. Additional drawings under the Affiliated Company Credit Agreement are available for general partnership purposes. The obligations under the Affiliated Company Credit Agreement are guaranteed by the Partnership’s subsidiaries and secured by substantially all of the assets of the Partnership and its subsidiaries pursuant to the security agreement and various mortgages.


Interest on outstanding obligations under our Affiliated Company Credit Agreement accrues at a fixed rate ranging from 3.75% to 4.75%, depending on the total net leverage ratio. The unused portion of our Affiliated Company Credit Agreement is subject to a commitment fee of 0.50% per annum.


The Partnership had available capacity under the Affiliated Company Credit Agreement of $113,500$93,600 and $112,000 as of March 31,September 30, 2019 and December 31, 2018, respectively. Interest on outstanding borrowings under the Affiliated Company Credit Agreement was accrued at a rate of 4.00% and 3.75% as of March 31,September 30, 2019 and December 31, 2018.2018, respectively. The Affiliated Company Credit Agreement contains certain covenants and conditions that, among other things, limit the Partnership’s ability to: (i) incur or guarantee additional debt; (ii) make cash distributions (subject to certain limited exceptions); provided that we will be able to make cash distributions of available cash to partners so long as no event of default


is continuing or would result therefrom; (iii) incur certain liens or permit them to exist; (iv) make particular investments and loans; provided that we will be able to increase our ownership percentage of our undivided interest in the Pennsylvania Mining Complex and make investments in the Pennsylvania Mining Complex in accordance with our ratable ownership; (v) enter into certain types of transactions with affiliates; (vi) merge or consolidate with another company; and (vii) transfer, sell or otherwise dispose of assets. The Partnership is also subject to covenants that require the Partnership to maintain certain financial ratios.




For example, the Partnership is obligated to maintain at the end of each fiscal quarter (a) maximum first lien gross leverage ratio of 2.75 to 1.00 and (b) a maximum total net leverage ratio of 3.25 to 1.00, each of which will be calculated on a consolidated basis for the Partnership and its restricted subsidiaries at the end of each fiscal quarter. At March 31,September 30, 2019, the Partnership was in compliance with its debt covenants with the first lien gross leverage ratio at 1.461.73 to 1.00 and the total net leverage ratio at 1.451.64 to 1.00.

During the nine months ended September 30, 2019, the Partnership entered into an asset-backed financing arrangement related to certain equipment. The equipment, which has an approximate value of $959, fully collateralizes the loan.
NOTE 9—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:


The Partnership is obligated to CONSOL Energy for medical and disability benefits to certain CPCC employees and their dependents resulting from occurrences of coal workers’ pneumoconiosis disease and is also obligated to CONSOL Energy to compensate certain individuals who are entitled benefits under workers’ compensation laws.


 CWP 
Workers Compensation
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2019 2018 2019 2018 2019 2018 2019 2018
Service Cost$200
 $372
 $600
 $1,117
 $349
 $366
 $1,046
 $1,098
Interest Cost49
 36
 146
 108
 41
 35
 124
 105
Amortization of Actuarial (Gain) Loss6
 (5) 19
 (16) (12) (1) (37) (4)
State Administrative Fees and Insurance Bond Premiums
 
 
 
 53
 18
 149
 47
Net Periodic Benefit Cost$255
 $403
 $765
 $1,209
 $431
 $418
 $1,282
 $1,246
 CWP
Workers Compensation
 Three Months Ended
March 31,
 Three Months Ended
March 31,
 2019 2018 2019 2018
Service Cost$200
 $372
 $349
 $366
Interest Cost49
 36
 41
 35
Amortization of Actuarial (Gain) Loss6
 (5) (12) (1)
State Administrative Fees and Insurance Bond Premiums
 
 51
 7
Net Periodic Benefit Cost$255
 $403
 $429
 $407

NOTE 10—FAIR VALUE OF FINANCIAL INSTRUMENTS:


The Partnership 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 Partnership’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.


Level Three - Unobservable inputs significant to the fair value measurement supported by little or no market activity. The significant unobservable inputs used in the fair value measurement of the Partnership’s third party guarantees are the credit risk of the third party and the third party surety bond markets.




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 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:
 September 30, 2019 December 31, 2018
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Affiliated Company Credit Agreement - Related Party$181,400
 $181,400
 $163,000
 $163,000
 March 31, 2019 December 31, 2018
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Affiliated Company Credit Agreement - Related Party$161,500
 $161,500
 $163,000
 $163,000

The Partnership’s debt obligations are valued through reference to the applicable underlying benchmark rate and, as a result, constitute Level 2 fair value measurements.
NOTE 11—COMMITMENTS AND CONTINGENT LIABILITIES:


The Partnership 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 its business. We accrue the estimated loss for these lawsuits and claims when the loss is probable and can be estimated. Our current 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 Partnership. It is possible that the aggregate loss in the future with respect to these lawsuits and claims could ultimately be material to the financial position, results of operations or cash flows of the Partnership; however, such amounts cannot be reasonably estimated.


At March 31,September 30, 2019, the Partnership was contractually obligated to CONSOL Energy for financial guarantees and letters of credit to certain third parties which were issued by CONSOL Energy on behalf of the Partnership. The maximum potential total of future payments that we could be required to make under these instruments is $89,333.$99,075. The instruments are comprised of $301$1,629 of letters of credit expiring within onethe next year, $79,846$88,834 of environmental surety bonds expiring within the next three years, and $9,186$8,612 of employee-related and other surety bonds expiring within the next three years. Employee-related financial guarantees have primarily been provided to support various state workers’ compensation and federal black lung self-insurance programs. Environmental financial guarantees have primarily been provided to support various performance bonds related to reclamation and other environmental issues. Other guarantees have been extended to support insurance policies, legal matters, full and timely payments of mining equipment leases, and various other items necessary in the normal course of business. 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 financial guarantees and letters of credit are recorded as liabilities on the financial statements. The Partnership’s management believes that these guarantees will expire without being funded, and therefore the commitments will not have a material adverse effect on the financial condition of the Partnership.


NOTE 12RECEIVABLES FINANCING AGREEMENT


On November 30, 2017, (i) CONSOL Marine Terminals LLC, as an originator of receivables, (ii) CPCC, 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”), as buyer, entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”). Concurrently, (i) CONSOL Thermal Holdings, as sub-originator, and (ii) CPCC, as buyer and as initial servicer of the receivables for itself and CONSOL Thermal Holdings, entered into a Sub-Originator Agreement (the “Sub-Originator PSA”). In addition, on that date, the SPV entered into a Receivables Financing Agreement (the “Receivables Financing Agreement”) by and among (i) the SPV, as borrower, (ii) CPCC, as initial servicer, (iii) PNC, 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”). On August 30, 2018, the Securitization was amended, among other things, to extend the scheduled termination date to August 30, 2021.


Pursuant to the Securitization, (i) CONSOL Thermal Holdings will sell current and future trade receivables to CPCC and (ii) the Originators will sell and/or contribute current and future trade receivables (including receivables sold to CPCC by CONSOL Thermal Holdings) to the SPV and the SPV will, in turn, pledge its interests in the receivables to PNC, which will either make loans or issue letters of credit on behalf of the SPV. The maximum amount of advances and letters of credit outstanding under the Securitization may not exceed $100,000. Loans under the Securitization will 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 will accrue a program fee and 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. The SPV’s assets and credit are not available to satisfy the debts and obligations owed to the creditors of CONSOL Energy, CONSOL Thermal Holdings or any of the Originators. CONSOL Thermal Holdings, the Originators and CPCC 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 CONSOL Thermal Holdings, the Originators and CPCC 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.


The Securitization contains 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 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.


As of March 31,September 30, 2019, the Partnership, through CONSOL Thermal Holdings, had sold $26,968$27,245 of trade receivables to CPCC. The Partnership has not derecognized the receivables due to its continued involvement in the collections efforts.
NOTE 13RELATED PARTY:


Omnibus Agreement


The Partnership is a party to the Omnibus Agreement, dated September 30, 2016, as amended on November 28, 2017, with our sponsor and certain of its subsidiaries. Under the Omnibus Agreement, we are obligated to make certain payments to, and reimburse, CONSOL Energy for the provision of certain services in connection with our operations.


Charges for services from CONSOL Energy under the Omnibus Agreement include the following:
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2019 2018 2019 2018
Operating and Other Costs$838
 $725
 $2,368
 $2,172
Selling, General and Administrative Expenses1,902
 2,345
 6,932
 5,943
Total Services from CONSOL Energy$2,740
 $3,070
 $9,300
 $8,115

 Three Months Ended
March 31,
 2019 2018
Operating and Other Costs$763
 $685
Selling, General and Administrative Expenses3,056
 1,645
Total Services from CONSOL Energy$3,819
 $2,330


At March 31,September 30, 2019 and December 31, 2018, the Partnership had a net payable to CONSOL Energy in the amount of $6,002$2,882 and $3,831, respectively. This payable includes reimbursements for business expenses, executive fees, stock-based compensation and other items under the Omnibus Agreement.


Affiliated Company Credit Agreement


As described in Note 8, the Partnership is also a party to the Affiliated Company Credit Agreement with CONSOL Energy.


For the three and nine months ended March 31,September 30, 2019, $1,796$2,003 and $5,770, respectively, of interest was incurred under the Affiliated Company Credit Agreement, of which $1,351$1,587 and $4,495, respectively, is included in Interest Expense, Net in the unaudited Consolidated Statements of Operations, and $445$416 and $1,275, respectively, was capitalized and included in


Property, Plant and Equipment in the unaudited Consolidated Balance Sheets. For the three and nine months ended March 31,September 30, 2018, $2,134$1,832 and $5,942, respectively, of interest was incurred under the Affiliated Company Credit Agreement, of which $1,951$1,560 and $5,295, respectively, is included in Interest Expense, Net in the unaudited Consolidated Statements of Operations, and $183$272 and $647, respectively, was capitalized and included in Property, Plant and Equipment in the unaudited Consolidated Balance Sheets. Interest is calculated based upon a fixed rate, determined quarterly, depending on the total net leverage ratio. For the three and nine months ended March 31,September 30, 2019, the average interest rate was 3.88% and March 31,3.79%, respectively. For the three and nine months ended September 30, 2018, the average interest rate was 3.75%3.87% and 4.25%4.04%, respectively. See Note 8 - Affiliated Company Credit AgreementLong-Term Debt for more information.


Repurchase Program


In May 2019, CONSOL Energy Inc.'sEnergy's Board of Directors approved an expansion of the stock, unit and debt repurchase program. The program previously allowed CONSOL Energy to use up to $25 million of the program to purchase CONSOL


Coal Resources LP'sthe Partnership's outstanding common units in the open market.  CONSOL Energy's Board of Directors approved changing the termination date of the program from June 30, 2019 to June 30, 2020. Also, in accordance with CONSOL Energy’s credit facility covenants, asthe total amount that can be used for repurchases of March 31, 2019, CONSOL Energy's limitthe Partnership's outstanding common units was raised to a total$50 million. During the three and nine months ended September 30, 2019, 19,413 and 26,297 common units were purchased at an average price of $50 million$12.88 and $14.05 per unit, respectively. During the three and nine months ended September 30, 2018, 77,536 common units were purchased at an average price of $17.86 per unit, respectively.

Conversion of Subordinated Units

In August 2019, upon payment of the cash distribution with respect to be usedthe quarter ended June 30, 2019, the financial requirements for the purchaseconversion of all the Partnership's subordinated units were satisfied. As a result, all 11,611,067 subordinated units, owned entirely by CONSOL Coal Resources LP's outstandingEnergy Inc., were converted into common units inon a one-for-one basis. The conversion did not impact the open market.amount of the cash distribution paid or the total number of the Partnership’s outstanding units representing limited partner interests.
NOTE 14—LONG-TERM INCENTIVE PLAN:


Under the CONSOL Coal Resources LP 2015 Long-Term Incentive Plan (the “LTIP”), our general partner may issue long-term equity-based awards to directors, officers and employees of our general partner or its affiliates, or to any consultants, affiliates of our general partner or other individuals who perform services for us. These awards are intended to compensate the recipients thereof based on the performance of our common units and their continued service during the vesting period, as well as to align their long-term interests with those of our unitholders. We are responsible for the cost of awards granted under the LTIP and all determinations with respect to awards to be made under the LTIP will be made by the board of directors of our general partner or any committee thereof that may be established for such purpose or by any delegate of the board of directors or such committee, subject to applicable law, which we refer to as the plan administrator.


The LTIP limits the number of units that may be delivered pursuant to vested awards to 2,300,000 common units, subject to proportionate adjustment in the event of unit splits and similar events. Common units subject to awards that are canceled, forfeited, withheld to satisfy exercise prices or tax withholding obligations or otherwise terminated without delivery of the common units will be available for delivery pursuant to other awards. The Partnership recognizes forfeitures as they occur.


The general partner has granted equity-based phantom units that vest over a period of a recipient’s continued service with the Partnership. The phantom units will be paid in common units or an amount of cash equal to the fair market value of a unit based on the vesting date. The awards may accelerate upon a change in control of the Partnership. Compensation expense is recognized on a straight-line basis over the requisite service period, which is generally the vesting term. The Partnership recognized compensation expense of $397$344 and $360$503 for the three months ended March 31,and $1,082 and $1,370 for the nine months ended September 30, 2019 and March 31,September 30, 2018, respectively, which is included in Selling, General and Administrative Expense in the unaudited Consolidated Statements of Operations. As of March 31,September 30, 2019, there is $1,208$471 of unearned compensation that will vest over a weighted average period of 0.840.34 years. The total fair value of phantom units vested during the three months ended March 31,September 30, 2019 and March 31,September 30, 2018 was $2,905$1 and $2,419,$40, respectively. The total fair value of phantom units vested during the nine months ended September 30, 2019 and September 30, 2018 was $2,906 and $2,508, respectively. The following represents the nonvested phantom units and their corresponding weighted average grant date fair value:

 Number of Units Weighted Average Grant Date Fair Value per Unit
Nonvested at December 31, 2018223,676
 $15.67
Granted17,190
 $17.45
Vested(158,491) $13.40
Forfeited(109) $18.95
Nonvested at March 31, 201982,266
 $18.64

 Number of Units Weighted Average Grant Date Fair Value per Unit
Nonvested at December 31, 2018223,676
 $15.67
Granted17,190
 $17.45
Vested(158,554) $13.41
Forfeited(2,723) $18.95
Nonvested at September 30, 201979,589
 $18.63


NOTE 15—FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND FINANCE SUBSIDIARY OF POSSIBLE FUTURE PUBLIC DEBT:


The Partnership filed a Registration Statement on Form S-3 (333-215962)(Reg. No. 333-215962) with the SEC on March 10, 2017, which was declared effective by the SEC on March 14, 2017, to register the offer and sale of various securities, including debt securities. The registration statement registers guarantees of debt securities by CONSOL Operating and CONSOL Thermal Holdings (“Subsidiary Guarantors”). The Subsidiary Guarantors are 100% owned by the Partnership and any guarantees by the Subsidiary Guarantors will be full and unconditional and joint and several. In addition, the registration statement also includes CONSOL Coal Finance, which was formed for the sole purpose of co-issuing future debt securities with the Partnership. CONSOL Coal Finance is wholly owned by the Partnership, has no assets or any liabilities and its activities will be limited to co-issuing debt securities and engaging in other activities incidental thereto. The Partnership does not have any other subsidiaries other than the Subsidiary Guarantors and CONSOL Coal Finance. In addition, the Partnership has no assets or operations independent of the Subsidiary Guarantors, and there are no significant restrictions upon the ability of the Subsidiary Guarantors to distribute funds to the Partnership by dividend or loan other than under the Affiliated Company Credit Agreement described in these notes. In the event that more than one of the Subsidiary Guarantors guarantee public debt securities of the Partnership in the future, those guarantees will be full and unconditional and will constitute the joint and several obligations of


the Subsidiary Guarantors. None of the assets of the Partnership, the Subsidiary Guarantors or CONSOL Coal Finance represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act of 1933, as amended.
NOTE 16—SUBSEQUENT EVENTS:


On April 25,October 30, 2019, the Board of Directors of our general partner declared a cash distribution of $0.5125 per unit for the quarter ended March 31,September 30, 2019 to the limited partner unitholders and the holder of the general partner interest. The cash distribution will be paid on MayNovember 15, 2019 to the unitholders of record at the close of business on May 7,November 11, 2019.

In May 2019, CONSOL Energy Inc.'s Board of Directors approved an expansion of the stock, unit and debt repurchase program. The program previously allowed CONSOL Energy to use up to $25 million of the program to purchase CONSOL Coal Resources LP's outstanding common units in the open market.  CONSOL Energy's Board of Directors approved changing the termination date of the program from June 30, 2019 to June 30, 2020. Also, in accordance with CONSOL Energy’s credit facility covenants, as of March 31, 2019, CONSOL Energy's limit was raised to a total of $50 million to be used for the purchase of CONSOL Coal Resources LP's outstanding common units in the open market.




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


Unless otherwise indicated, the following discussion and analysis of the financial condition and results of operations of our Partnership reflect a 25% undivided interest in the assets, liabilities and results of operations of the Pennsylvania Mining Complex. As used in the following discussion and analysis of the financial condition and results of operations of our Partnership, the terms “we,” “our,” “us,” or like terms refer to the Partnership with respect to its 25% undivided interest in the Pennsylvania Mining Complex’s combined assets, liabilities, revenues and costs. All amounts except per unit or per ton are displayed in thousands.
Overview


We are a master limited partnership formed in 2015 to manage and further develop all of our sponsor's active coal operations in Pennsylvania. Our primary strategy for growing our business and increasing distributions to our unitholders is to increase operating efficiencies to maximize realizations and make acquisitions that increase our distributable cash flow. At March 31,September 30, 2019, the Partnership’s assets include a 25% undivided interest in, and operational control over, CONSOL Energy’s Pennsylvania Mining Complex, which consists of three underground mines and related infrastructure that produce high-Btu coal that is sold primarily to electric utilities in the eastern United States. We believe that 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 position us as a leading producer of high-Btu thermal coal in the Northern Appalachian Basin and the eastern United States.


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, sales volumes and average revenue per ton; (ii) cost of coal sold, a non-GAAP financial measure; (iii) cash cost of coal sold, a non-GAAP financial measure; (iv) average cash margin per ton, an operating ratio derived from non-GAAP financial measures; (v) adjusted EBITDA, a non-GAAP financial measure; and (vi) distributable cash flow, a non-GAAP financial measure.


Cost of coal sold, cash cost of coal sold, average cash margin per ton, adjusted EBITDA and distributable cash flow normalize the volatility contained within comparable GAAP measures by adjusting certain non-operating or non-cash transactions. 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 to make distributions to our partners;


• 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 net income or net cash, 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.


Reconciliation of Non-GAAP Financial Measures


We evaluate our cost of coal sold and cash cost of coal sold on a cost per ton basis. Our cost of coal sold per ton represents our costs of coal sold divided by the tons of coal we sell. 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 per ton includes items such as direct operating costs, royalty and production taxes, direct administration, and depreciation, depletion and amortization costs on production assets. Our costs exclude 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 GAAP measure most directly comparable to cost of coal sold is total costs. The cash cost of coal sold includes cost of coal sold less depreciation, depletion and amortization cost on production assets. The GAAP measure most directly comparable to cash cost of coal sold is total costs.
    
The following table presents a reconciliation of cost of coal sold and cash cost of coal sold to total costs, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated (in thousands).

Three Months Ended March 31,Three Months Ended September 30, Nine Months Ended September 30,
2019 20182019 2018 2019 2018
Total Costs$70,887
 $72,544
$70,411
 $66,669
 $216,558
 $217,894
Freight Expense(1,665) (4,472)(900) (611) (3,529) (9,444)
Selling, General and Administrative Expenses(4,560) (3,020)(2,840) (3,899) (10,353) (10,260)
Interest Expense, Net(1,351) (1,951)(1,587) (1,560) (4,495) (5,295)
Other Costs (Non-Production)(2,264) (4,026)(983) (1,545) (4,154) (9,810)
Depreciation, Depletion and Amortization (Non-Production)(577) (540)(519) (542) (1,605) (1,625)
Cost of Coal Sold$60,470
 $58,535
$63,582
 $58,512
 $192,422
 $181,460
Depreciation, Depletion and Amortization (Production)(10,640) (10,274)(10,567) (10,517) (32,034) (32,144)
Cash Cost of Coal Sold$49,830
 $48,261
$53,015
 $47,995
 $160,388
 $149,316


We define average cash margin per ton as average coal revenue per ton, net of average cash cost of coal sold per ton. The GAAP measure most directly comparable to average cash margin per ton sold is total coal revenue.


The following table presents a reconciliation of 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 March 31,Three Months Ended September 30, Nine Months Ended September 30,
2019 20182019 2018 2019 2018
Total Coal Revenue$83,126
 $87,752
$75,385
 $73,700
 $246,166
 $254,126
Operating and Other Costs52,094
 52,287
53,998
 49,540
 164,542
 159,126
Less: Other Costs (Non-Production)(2,264) (4,026)(983) (1,545) (4,154) (9,810)
Cash Cost of Coal Sold49,830
 48,261
53,015
 47,995
 160,388
 149,316
Add: Depreciation, Depletion and Amortization11,217
 10,814
11,086
 11,059
 33,639
 33,769
Less: Depreciation, Depletion and Amortization (Non-Production)(577) (540)(519) (542) (1,605) (1,625)
Cost of Coal Sold$60,470
 $58,535
$63,582
 $58,512
 $192,422
 $181,460
Total Tons Sold1,683
 1,656
1,618
 1,561
 5,145
 5,175
Average Revenue Per Ton Sold$49.38
 $52.98
$46.59
 $47.21
 $47.84
 $49.11
Average Cash Cost Per Ton Sold29.71
 29.21
Average Cash Cost of Coal Sold Per Ton32.78
 30.88
 31.16
 28.87
Add: Depreciation, Depletion and Amortization Costs Per Ton Sold6.21
 6.13
6.51
 6.60
 6.23
 6.20
Average Cost Per Ton Sold$35.92
 $35.34
Average Cost of Coal Sold Per Ton$39.29
 $37.48
 $37.39
 $35.07
Average Margin Per Ton Sold13.46
 17.64
7.30
 9.73
 10.45
 14.04
Add: Total Depreciation, Depletion and Amortization Costs Per Ton Sold6.21
 6.13
6.51
 6.60
 6.23
 6.20
Average Cash Margin Per Ton Sold$19.67
 $23.77
$13.81
 $16.33
 $16.68
 $20.24


We define adjusted EBITDA as (i) net income (loss) before net interest expense, depreciation, depletion and amortization, as adjusted for (ii) certain non-cash items, such as long-term incentive awards including phantom units under the CONSOL Coal Resources LP 2015 Long-Term Incentive Plan (“Unit-Based Compensation”). The GAAP measure most directly comparable to adjusted EBITDA is net income.


We define distributable cash flow as (i) net income before net interest expense, depreciation, depletion and amortization, as adjusted for (ii) certain non-cash items, such as Unit-Based Compensation, less net cash interest paid and estimated maintenance capital expenditures, which is defined as those forecasted average capital expenditures required to maintain, over the long-term, the operating capacity of our capital assets. These estimated capital expenditures do not reflect the actual cash capital incurred in the period presented. Distributable cash flow will not reflect changes in working capital balances. The GAAP measures most directly comparable to distributable cash flow are net income and net cash provided by operating activities. We define distribution coverage ratio as a ratio of the distributable cash flow to the distributions, which is the $0.5125 per quarter distribution for all limited partner units, including common and subordinated units, issued for the periods presented.


The following table presents a reconciliation of adjusted EBITDA to net income, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated.indicated (in thousands). The table also presents a reconciliation of distributable cash flow to net income and operating cash flows, the most directly comparable GAAP financial measures, on a historical basis for each of the periods indicated (in thousands).

Three Months Ended March 31,Three Months Ended September 30, Nine Months Ended September 30,
2019 20182019 2018 2019 2018
Net Income$15,220
 $21,957
$6,970
 $8,645
 $36,577
 $49,978
Plus:          
Interest Expense, Net1,351
 1,951
1,587
 1,560
 4,495
 5,295
Depreciation, Depletion and Amortization11,217
 10,814
11,086
 11,059
 33,639
 33,769
Unit-Based Compensation397
 359
344
 503
 1,082
 1,370
Adjusted EBITDA$28,185
 $35,081
$19,987
 $21,767
 $75,793
 $90,412
Less:          
Cash Interest1,875
 828
1,832
 2,107
 5,522
 5,265
Estimated Maintenance Capital Expenditures8,981
 8,963
8,937
 8,921
 26,946
 26,969
Distributable Cash Flow$17,329
 $25,290
$9,218
 $10,739
 $43,325
 $58,178
          
Net Cash Provided by Operating Activities$25,218
 $29,264
$20,427
 $16,921
 $67,505
 $95,134
Plus:          
Interest Expense, Net1,351
 1,951
1,587
 1,560
 4,495
 5,295
Other, Including Working Capital1,616
 3,866
(2,027) 3,286
 3,793
 (10,017)
Adjusted EBITDA$28,185
 $35,081
$19,987
 $21,767
 $75,793
 $90,412
Less:          
Cash Interest1,875
 828
1,832
 2,107
 5,522
 5,265
Estimated Maintenance Capital Expenditures8,981
 8,963
8,937
 8,921
 26,946
 26,969
Distributable Cash Flow$17,329
 $25,290
$9,218
 $10,739
 $43,325
 $58,178
Minimum Quarterly Distributions$14,405
 $14,346
$14,405
 $14,350
 $43,214
 $43,044
Distribution Coverage Ratio1.2
 1.8
0.6
 0.7
 1.0
 1.4








Results of Operations


Three Months Ended March 31,September 30, 2019 Compared with the Three Months Ended March 31,September 30, 2018


Total net income was $15,220$6,970 for the three months ended March 31,September 30, 2019 compared to $21,957$8,645 for the three months ended March 31,September 30, 2018. Our results of operations for each of these periods are presented in the table below. Variances are discussed following the table.
For the Three Months EndedFor the Three Months Ended
March 31,September 30,
2019 2018 Variance2019 2018 Variance
(in thousands)(in thousands)
Revenue:          
Coal Revenue$83,126
 $87,752
 $(4,626)$75,385
 $73,700
 $1,685
Freight Revenue1,665
 4,472
 (2,807)900
 611
 289
Other Income1,316
 2,277
 (961)1,096
 1,003
 93
Total Revenue and Other Income86,107
 94,501
 (8,394)77,381
 75,314
 2,067
Cost of Coal Sold:          
Operating Costs49,830
 48,261
 1,569
53,015
 47,995
 5,020
Depreciation, Depletion and Amortization10,640
 10,274
 366
10,567
 10,517
 50
Total Cost of Coal Sold60,470
 58,535
 1,935
63,582
 58,512
 5,070
Other Costs:          
Other Costs2,264
 4,026
 (1,762)983
 1,545
 (562)
Depreciation, Depletion and Amortization577
 540
 37
519
 542
 (23)
Total Other Costs2,841
 4,566
 (1,725)1,502
 2,087
 (585)
Freight Expense1,665
 4,472
 (2,807)900
 611
 289
Selling, General and Administrative Expenses4,560
 3,020
 1,540
2,840
 3,899
 (1,059)
Interest Expense1,351
 1,951
 (600)1,587
 1,560
 27
Total Costs70,887
 72,544
 (1,657)70,411
 66,669
 3,742
Net Income$15,220
 $21,957
 $(6,737)$6,970
 $8,645
 $(1,675)
Adjusted EBITDA$28,185
 $35,081
 $(6,896)$19,987
 $21,767
 $(1,780)
Distributable Cash Flow$17,329
 $25,290
 $(7,961)$9,218
 $10,739
 $(1,521)
Distribution Coverage Ratio1.2
 1.8
 (0.6)0.6
 0.7
 (0.1)










Coal Production


The table below presents total tons produced from the Pennsylvania Mining Complex on our 25% undivided interest basis for the periods indicated:
 Three Months Ended March 31, Three Months Ended September 30,
Mine 2019 2018 Variance 2019 2018 Variance
Bailey 737
 953
 (216) 695
 599
 96
Enlow Fork 707
 504
 203
 597
 646
 (49)
Harvey 268
 218
 50
 331
 348
 (17)
Total 1,712
 1,675
 37
 1,623
 1,593
 30


Coal production was 1,7121,623 tons for the three months ended March 31,September 30, 2019 compared to 1,6751,593 tons for the three months ended March 31,September 30, 2018. The Partnership’s coalCoal production increased slightly dueas a result of one fewer longwall move at the Pennsylvania Mining Complex in the current period compared to increased productionthe year-ago quarter, partially offset by adverse geological conditions and other operational delays at the Enlow Fork mine, as geological conditions improved compared toand Harvey mines. The Pennsylvania Mining Complex achieved record-high third quarter production during the same period in 2018, and at the Harvey mine. This was partially offset by reduced production at the Bailey mine, resulting from a longwall move and other operational delays.three months ended September 30, 2019.
Coal Operations


Coal revenue and cost components on a per unit basis for the three months ended March 31,September 30, 2019 and 2018 are detailed in the table below. Our operations also include various costs such as selling, general and administrative, freight and other costs not included in our unit cost analysis because these costs are not directly associated with coal production.
Three Months Ended March 31,Three Months Ended September 30,
2019 2018 Variance2019 2018 Variance
Total Tons Sold (in thousands)1,683
 1,656
 27
1,618
 1,561
 57
Average Revenue Per Ton Sold$49.38
 $52.98
 $(3.60)$46.59
 $47.21
 $(0.62)
    

    

Average Cash Cost Per Ton Sold$29.71
 $29.21
 $0.50
Average Cash Cost of Coal Sold Per Ton (1)
$32.78
 $30.88
 $1.90
Depreciation, Depletion and Amortization Per Ton Sold (Non-Cash Cost)6.21
 6.13
 0.08
6.51
 6.60
 (0.09)
Total Costs Per Ton Sold$35.92
 $35.34
 $0.58
Average Cost of Coal Sold Per Ton$39.29
 $37.48
 $1.81
Average Margin Per Ton Sold$13.46
 $17.64
 $(4.18)$7.30
 $9.73
 $(2.43)
Add: Depreciation, Depletion and Amortization Costs Per Ton Sold6.21
 6.13
 0.08
6.51
 6.60
 (0.09)
Average Cash Margin Per Ton Sold (1)$19.67
 $23.77
 $(4.10)$13.81
 $16.33
 $(2.52)
(1) Average cash cost of coal sold per ton is a non-GAAP measure and average cash margin per ton is an operating ratio 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.



Revenue and Other Income


Coal revenue was $83,126$75,385 for the three months ended March 31,September 30, 2019 compared to $87,752$73,700 for the three months ended March 31,September 30, 2018. Total sales tons increased in the period-to-period comparison to meet market demand. The $4,626 decrease was primarily attributable to a $3.60 lowerin the average sales pricerevenue per ton sold in the 2019 period,was mainly driven by lower domestic netback pricing compared to the year-ago quarter.contract pricing.


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 for which we contractually provide transportation services. Freight revenue is completely offset in freight expense. Freight revenue and freight expense were both $1,665$900 for the three months ended March 31,September 30, 2019 compared to $4,472$611 for the three months ended March 31,September 30, 2018. The $2,807 decrease$289 increase was due to decreasedincreased shipments to customers where we were contractually obligated to provide transportation services.

Other income is comprised of income generated by the Partnership not in the ordinary course of business.related to non-coal producing activities. Other income remained materially consistent in the period-to-period comparison.






Cost of Coal Sold


Cost of coal sold is comprised of operating costs related to produced tons sold, along with changes in both volumes and carrying values of coal inventory. The cost of coal sold includes items such as direct operating costs, royalties and production taxes, direct administration expenses, and depreciation, depletion, and amortization costs on production assets. Total cost of coal sold was $60,470$63,582 for the three months ended March 31,September 30, 2019, or $1,935$5,070 higher than the $58,535$58,512 for the three months ended March 31,September 30, 2018. Total costs per ton sold were $35.92$39.29 per ton for the three months ended March 31,September 30, 2019, compared to $35.34$37.48 per ton for the three months ended March 31,September 30, 2018. The increase in the total cost of coal sold was primarily driven by
increased project expenses and gas well plugging activities, partially offset by reduced lease/rental expense as two longwall shields' operating leases were refinanced as finance leases non-typical challenges faced in the first quarter of 2018. Since the fourth quarter of 2017, the Partnership has seen modest inflationcurrent period, including a roof fall and equipment breakdowns. These geological and equipment-related issues resulted in the cost of supplies that contain steelhigher mine maintenance and other commodities for which prices are strengthening, as well as in the cost of contract labor. The Partnership has been successful in managing these inflationary pressures and keeping its overall cost increase to a minimum through productivity gains and automation.project expenses.


Total Other Costs


Total other costs are comprised of various costs that are not allocated to eachan individual mine and therefore are not included in unit costs. Total other costs decreased $1,725 for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The decrease was primarily attributable to a decrease in current quarter costs related to externally purchased coal to blend and resell, and demurrage charges incurredremained materially consistent in the year-ago quarter.period-to-period comparison.


Selling, General, and Administrative Expense


Selling, general, and administrative expenses were $4,560$2,840 for the three months ended March 31,September 30, 2019 compared to $3,020$3,899 for the three months ended March 31,September 30, 2018. The $1,540 increase$1,059 decrease in the period-to-period comparison was primarily related to accelerated non-cash amortization recorded in the current period for retiree-eligible employees who received awards under CONSOL Energy's Performance Incentive Plan.lower short-term incentive compensation.


Interest Expense


Interest expense, which primarily relates to obligations under our Affiliated Company Credit Agreement, remained materially consistent in the period-to-period comparison.


Adjusted EBITDA


Adjusted EBITDA was $28,185$19,987 for the three months ended March 31,September 30, 2019 compared to $35,081$21,767 for the three months ended March 31,September 30, 2018. The $6,896$1,780 decrease was primarily a result of a $4.10$2.52 decrease in the average cash margin per ton sold, or $6,900. This waswhich equated to a $3,335 decrease to adjusted EBITDA, partially offset by a slight increase57 additional tons sold in sales tonsthe quarter and changes in variouslower non-production related costs as describeddiscussed above.


Distributable Cash Flow


Distributable cash flow was $17,329$9,218 for the three months ended March 31,September 30, 2019 compared to $25,290$10,739 for the three months ended March 31,September 30, 2018. The $7,961$1,521 decrease was primarily attributable to a $6,896$1,780 decrease in Adjusted EBITDA, as discussed above.



Nine Months Ended September 30, 2019 Compared with the Nine Months Ended September 30, 2018

Total net income was $36,577 for the nine months ended September 30, 2019 compared to $49,978 for the nine months ended September 30, 2018. Our results of operations for each of these periods are presented in the table below. Variances are discussed following the table.
 For the Nine Months Ended
 September 30,
 2019 2018 Variance
 (in thousands)
Revenue:     
Coal Revenue$246,166
 $254,126
 $(7,960)
Freight Revenue3,529
 9,444
 (5,915)
Other Income3,440
 4,302
 (862)
Total Revenue and Other Income253,135
 267,872
 (14,737)
Cost of Coal Sold:     
Operating Costs160,388
 149,316
 11,072
Depreciation, Depletion and Amortization32,034
 32,144
 (110)
Total Cost of Coal Sold192,422
 181,460
 10,962
Other Costs:     
Other Costs4,154
 9,810
 (5,656)
Depreciation, Depletion and Amortization1,605
 1,625
 (20)
Total Other Costs5,759
 11,435
 (5,676)
Freight Expense3,529
 9,444
 (5,915)
Selling, General and Administrative Expenses10,353
 10,260
 93
Interest Expense4,495
 5,295
 (800)
Total Costs216,558
 217,894
 (1,336)
Net Income$36,577
 $49,978
 $(13,401)
Adjusted EBITDA$75,793
 $90,412
 $(14,619)
Distributable Cash Flow$43,325
 $58,178
 $(14,853)
Distribution Coverage Ratio1.0
 1.4
 (0.4)


Coal Production

The table below presents total tons produced from the Pennsylvania Mining Complex on our 25% undivided interest basis for the periods indicated:
  Nine months ended September 30,
Mine 2019 2018 Variance
Bailey 2,239
 2,415
 (176)
Enlow Fork 1,919
 1,846
 73
Harvey 983
 927
 56
Total 5,141
 5,188
 (47)

Coal production was 5,141 tons for the nine months ended September 30, 2019 compared to 5,188 tons for the nine months ended September 30, 2018. Coal production decreased slightly, mainly due to reduced production at the Bailey mine resulting from one additional longwall move and other operational delays. This was partially offset by increased production at the Enlow Fork mine, as geological conditions improved throughout the first half of 2019 compared to the year-ago period, and at the Harvey mine.

Coal Operations

Coal revenue and cost components on a per unit basis for the nine months ended September 30, 2019 and 2018 are detailed in the table below. Our operations also include various costs such as selling, general and administrative, freight and other costs not included in our unit cost analysis because these costs are not directly associated with coal production.
 Nine months ended September 30,
 2019 2018 Variance
Total Tons Sold (in thousands)5,145
 5,175
 (30)
Average Revenue Per Ton Sold$47.84
 $49.11
 $(1.27)
     

Average Cash Cost of Coal Sold Per Ton (1)
$31.16
 $28.87
 $2.29
Depreciation, Depletion and Amortization Per Ton Sold (Non-Cash Cost)6.23
 6.20
 0.03
Average Cost of Coal Sold Per Ton$37.39
 $35.07
 $2.32
Average Margin Per Ton Sold$10.45
 $14.04
 $(3.59)
Add: Depreciation, Depletion and Amortization Costs Per Ton Sold6.23
 6.20
 0.03
Average Cash Margin Per Ton Sold (1)
$16.68
 $20.24
 $(3.56)
(1) Average cash cost of coal sold per ton is a non-GAAP measure and average cash margin per ton is an operating ratio 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.

Revenue and Other Income

Coal revenue was $246,166 for the nine months ended September 30, 2019 compared to $254,126 for the nine months ended September 30, 2018. The $7,960 decrease was primarily attributable to a $1.27 lower average sales price per ton sold in the 2019 period, mainly driven by lower domestic netback contract pricing compared to the year-ago period, as well as a slight decrease in distributable cash flowtons sold. This decrease was alsopartially offset by an increase in prices the Partnership received for its export coal.

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 for which we contractually provide transportation services. Freight revenue is completely offset in freight expense. Freight revenue and freight expense were both $3,529 for the nine months ended September 30, 2019 compared to $9,444 for the nine months ended September 30, 2018. The $5,915 decrease was due to a $1,047 increase in cash interest paid. Although interest expensedecreased shipments to customers where we were contractually obligated to provide transportation services.
Other income is comprised of income generated by the Partnership relating to non-coal producing activities. Other income remained materially consistent in the period-to-period comparison,comparison.


Cost of Coal Sold

Cost of coal sold is comprised of operating costs related to produced tons sold, along with changes in both volumes and carrying values of coal inventory. The cost of coal sold includes items such as direct operating costs, royalties and production taxes, direct administration expenses, and depreciation, depletion, and amortization costs on production assets. Total cost of coal sold was $192,422 for the debt restructuringnine months ended September 30, 2019, or $10,962 higher than the $181,460 for the nine months ended September 30, 2018. Total costs per ton sold were $37.39 per ton for the nine months ended September 30, 2019 compared to $35.07 per ton for the nine months ended September 30, 2018. The increase in November 2017the total cost of coal sold was primarily driven by additional equipment rebuilds and longwall overhauls due to the timing of longwall moves and panel development. Also, the Partnership faced non-typical challenges during the current year, including a roof fall and equipment breakdowns. These geological and equipment-related issues resulted in only one monthhigher mine maintenance and project expenses.

Total Other Costs

Total other costs are comprised of interest being paid duringvarious costs that are not allocated to an individual mine and therefore are not included in unit costs. Total other costs decreased $5,676 in the threenine months ended March 31, 2018September 30, 2019 compared to a full quarter of interest paid during the threenine months ended March 31, 2019.September 30, 2018. The decrease was primarily attributable to additional costs incurred in the year-ago period related to externally purchased coal to blend and resell, discretionary employee benefit expenses and demurrage charges.

Selling, General, and Administrative Expense

Selling, general, and administrative expenses remained materially consistent in the period-to-period comparison.

Interest Expense

Interest expense, which primarily relates to obligations under our Affiliated Company Credit Agreement, remained materially consistent in the period-to-period comparison.

Adjusted EBITDA

Adjusted EBITDA was $75,793 for the nine months ended September 30, 2019 compared to $90,412 for the nine months ended September 30, 2018. The $14,619 decrease was primarily a result of a $3.56 decrease in the average cash margin per ton sold, coupled with 30 fewer tons sold in the period, which equated to a $19,032 decrease to adjusted EBITDA. This was partially offset by lower non-production related costs as discussed above.

Distributable Cash Flow

Distributable cash flow was $43,325 for the nine months ended September 30, 2019 compared to $58,178 for the nine months ended September 30, 2018. The $14,853 decrease was primarily attributable to a $14,619 decrease in Adjusted EBITDA, as discussed above.





Capital Resources and Liquidity


Liquidity and Financing Arrangements


We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our Affiliated Company Credit Agreement, and, if necessary, the issuance of additional equity or debt securities. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and our long-term capital expenditure requirements and to make quarterly cash distributions as declared by the board of directors of our general partner. The Partnership filed a universal shelf registration statement on Form S-3 (333-215962)(Reg. No. 333-215962) on March 10, 2017, which was declared effective by the SEC on March 14, 2017, for an aggregate amount of $750,000 to provide the Partnership with additional flexibility to access capital markets quickly.


We expect to generate adequate cash flow from operations in 2019 through continued demand from the export and domestic thermal marketsdue to our strong contracted position and consistent cost control measures. We started a capital construction project on the coarse refuse disposal area project in 2017, which is expected to continue through 2021. Our total 2019 capital needs, including the coarse refuse disposal area project, are expected to be between $34,000 to $38,000, which is increased from 2018 levels due to additional expected maintenance capital expenditures related to airshaft construction projects, as well as additional belt system related expenditures.


From time to time we change our exposure to various countries depending on the economics and profitability of coal sales. Given that coal markets are global, we expect, if possible, to offset any adverse impact from tariffs that may be imposed by governments in the countries in which one or more of our end users are located, by reallocating our customer base to other countries or to the domestic USU.S. markets.


We expect to generate adequate cash flows and liquidity to meet reasonable increases in the cost of supplies that are passed on from our suppliers. We will also continue to seek alternate sources of supplies and replacement material to offset any unexpected increase in the cost of supplies.


Our Partnership Agreement requires that we distribute all of our available cash to our unitholders. As a result, we expect to rely primarily upon financing under the Affiliated Company Credit Agreement and the issuance of debt and equity securities to fund our acquisitions and expansion capital expenditures, if any.


On April 25,October 30, 2019, the Board of Directors of our general partner declared a cash distribution of $0.5125 per unit for the quarter ended March 31,September 30, 2019 to the limited partner unitholders and the holder of the general partner interest. The cash distribution will be paid on MayNovember 15, 2019 to the unitholders of record at the close of business on May 7,November 11, 2019.


On July 25, 2019, the Board of Directors of our general partner announced that upon payment of the cash distribution with respect to the quarter ended June 30, 2019, the financial requirements for the conversion of all subordinated units had been satisfied. As a result, on August 16, 2019, all 11,611,067 subordinated units, which were owned entirely by CONSOL Energy Inc., were converted into common units on a one-for-one basis. The conversion did not impact the amount of the cash distribution paid or the total number of the Partnership's outstanding units representing limited partner interests.

Affiliated Company Credit Agreement


On November 28, 2017, the Partnership and the other Credit Parties entered into the Affiliated Company Credit Agreement by and among the Credit Parties, CONSOL Energy, as lender and administrative agent, and PNC, as collateral agent. On March 28, 2019, the Affiliated Company Credit Agreement was amended to extend the maturity date from February 27, 2023 to December 28, 2024. The Affiliated Company Credit Agreement provides for a revolving credit facility in an aggregate principal amount of up to $275,000 to be provided by CONSOL Energy, as lender. In connection with the Partnership’s entry into the Affiliated Company Credit Agreement, the Partnership made an initial draw of $200,583, the net proceeds of which were used to repay the amounts outstanding under the Partnership's prior credit facility. Additional drawings under the Affiliated Company Credit Agreement are available for general partnership purposes. The obligations under the Affiliated Company Credit Agreement are guaranteed by the Partnership’s subsidiaries and secured by substantially all of the assets of the Partnership and its subsidiaries pursuant to the security agreement and various mortgages.


Interest on outstanding obligations under our Affiliated Company Credit Agreement accrues at a fixed rate ranging from 3.75% to 4.75% depending on the total net leverage ratio. The unused portion of our Affiliated Company Credit Agreement is subject to a commitment fee of 0.50% per annum.




As of March 31,September 30, 2019, the Partnership had $161,500$181,400 of borrowings outstanding under the Affiliated Company Credit Agreement, leaving $113,500$93,600 of unused capacity. Interest on outstanding borrowings under the Affiliated Company Credit Agreement at March 31,September 30, 2019 was accrued at a rate of 3.75%4.00%.


The Affiliated Company Credit Agreement contains certain covenants and conditions that, among other things, limit the Partnership’s ability to: (i) incur or guarantee additional debt; (ii) make cash distributions (subject to certain limited exceptions); provided that we will be able to make cash distributions of available cash to partners so long as no event of default


is continuing or would result therefrom; (iii) incur certain liens or permit them to exist; (iv) make particular investments and loans; provided that we will be able to increase our ownership percentage of our undivided interest in the Pennsylvania Mining Complex and make investments in the Pennsylvania Mining Complex in accordance with our ratable ownership; (v) enter into certain types of transactions with affiliates; (vi) merge or consolidate with another company; and (vii) transfer, sell or otherwise dispose of assets. The Partnership is also subject to covenants that require the Partnership to maintain certain financial ratios. For example, the Partnership is obligated to maintain at the end of each fiscal quarter (a) maximum first lien gross leverage ratio of 2.75 to 1.00 and (b) a maximum total net leverage ratio of 3.25 to 1.00, each of which will be calculated on a consolidated basis for the Partnership and its restricted subsidiaries at the end of each fiscal quarter. At March 31,September 30, 2019, the Partnership was in compliance with its debt covenants with the first lien gross leverage ratio at 1.461.73 to 1.00 and the total net leverage ratio at 1.451.64 to 1.00.


Receivables Financing Agreement


On November 30, 2017, (i) CONSOL Marine Terminals LLC, as an originator of receivables, (ii) CPCC, 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”), as buyer, entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”). Concurrently, (i) CONSOL Thermal Holdings, as sub-originator, and (ii) CPCC, as buyer and as initial servicer of the receivables for itself and CONSOL Thermal Holdings, entered into a Sub-Originator Agreement (the “Sub-Originator PSA”). In addition, on that date, the SPV entered into a Receivables Financing Agreement (the “Receivables Financing Agreement”) by and among (i) the SPV, as borrower, (ii) CPCC, as initial servicer, (iii) PNC, 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”). On August 30, 2018, the Securitization was amended, among other things, to extend the scheduled termination date to August 30, 2021.


Pursuant to the Securitization, (i) CONSOL Thermal Holdings will sell current and future trade receivables to CPCC and (ii) the Originators will sell and/or contribute current and future trade receivables (including receivables sold to CPCC by CONSOL Thermal Holdings) to the SPV and the SPV will, in turn, pledge its interests in the receivables to PNC, which will either make loans or issue letters of credit on behalf of the SPV. The maximum amount of advances and letters of credit outstanding under the Securitization may not exceed $100,000.


Loans under the Securitization will 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 will 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, CONSOL Thermal Holdings or any of the Originators. CONSOL Thermal Holdings, the Originators and CPCC 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 CONSOL Thermal Holdings, the Originators and CPCC 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.


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.




As of March 31,September 30, 2019, the Partnership, through CONSOL Thermal Holdings, had sold $26,968$27,245 of trade receivables to CPCC. The Partnership has not derecognized the receivables due to its continued involvement in the collection efforts.




Cash Flows
Three Months Ended March 31,Nine Months Ended September 30,
2019 2018 Variance2019 2018 Variance
(in thousands)(in thousands)
Cash flows provided by operating activities$25,218
 $29,264
 $(4,046)$67,505
 $95,134
 $(27,629)
Cash used in investing activities$(8,093) $(4,854) $(3,239)$(29,350) $(20,086) $(9,264)
Cash used in financing activities$(17,723) $(25,195) $7,472
$(28,547) $(75,661) $47,114


ThreeNine Months Ended March 31,September 30, 2019 Compared with the ThreeNine Months Ended March 31,September 30, 2018:


Cash flows provided by operating activities decreased $4,046$27,629 in the threenine months ended March 31,September 30, 2019 compared to the threenine months ended March 31,September 30, 2018, primarily due to a decrease in net income and a changechanges in working capital.


Cash used in investing activities increased $3,239$9,264 in the threenine months ended March 31,September 30, 2019 compared to the threenine months ended March 31,September 30, 2018, primarily as a result of increased capital expenditures of $3,164, primarily$9,098, mainly due to an increase in airshaft construction projects, and additional belt system related expenditures.expenditures, new equipment, and rebuilds of current equipment. The table below represents the various items for which cash was used for investing purposes during the nine months ended September 30, 2019 and 2018.
Three Months Ended March 31,Nine Months Ended September 30,
2019 2018 Variance2019 2018 Variance
(in thousands)(in thousands)
Building and Infrastructure$3,692
 $1,600
 $2,092
$12,091
 $7,205
 $4,886
Equipment Purchases and Rebuilds1,761
 1,123
 638
8,689
 5,423
 3,266
Refuse Storage Area1,670
 1,999
 (329)6,346
 6,210
 136
Other970
 207
 763
2,228
 1,418
 810
Total Capital Expenditures$8,093
 $4,929
 $3,164
$29,354
 $20,256
 $9,098


Cash flows used in financing activities decreased $7,472$47,114 in the threenine months ended March 31,September 30, 2019 compared to the threenine months ended March 31,September 30, 2018. The decrease in cash used in financing activities was primarily due to an $8,083 decrease in netless discretionary payments made under the Affiliated Company Credit Agreement. Net payments made under the Affiliated Company Credit Agreement duewere $29,583 in the nine months ended September 30, 2018, compared to a decrease$18,400 in distributable cash flow.net proceeds received under the Affiliated Company Credit Agreement in the nine months ended September 30, 2019.
Off-Balance Sheet Arrangements


We do not maintain off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that have or are reasonably likely to have a material current or future effect on our 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 unaudited Consolidated Financial Statements in this Form 10-Q.




FORWARD-LOOKING STATEMENTS


We are including the following cautionary statement in this Quarterly Report on Form 10-Q to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of us. 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 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 “believe,” “continue,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project,” “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:


changes in coal prices or the costs of mining or transporting coal;
uncertainty in estimating economically recoverable coal reserves and replacement of reserves;
our ability to develop our existing coal reserves, acquire additional reserves and successfully execute our mining plans;
defects in title or loss of any leasehold interests with respect to our properties;
changes in general economic conditions, both domestically and globally;
competitive conditions within the coal industry;
changes in the consumption patterns of coal-fired power plants and steelmakers and other factors affecting the demand for coal by coal-fired power plants and steelmakers;
the availability and price of coal to the consumer compared to the price of alternative and competing fuels;
competition from the same and alternative energy sources;
energy efficiency and technology trends;
our ability to successfully implement our business plan;
the price and availability of debt and equity financing;
operating hazards and other risks incidental to coal mining;
major equipment failures and difficulties in obtaining equipment, parts and raw materials;
availability, reliability and costs of transporting coal;
adverse or abnormal geologic conditions, which may be unforeseen;
natural disasters, weather-related delays, casualty losses and other matters beyond our control;
operating in a single geographic area;
interest rates and interest rate hedging transactions;
our reliance on a few major customers;
labor availability, relations and other workforce factors;
defaults by CONSOL Energy under our operating agreement, employee services agreement and Affiliated Company Credit Agreement;
restrictions in our Affiliated Company Credit Agreement that may adversely affect our business;
changes in our tax status;
delays in the receipt of, failure to receive or revocation of necessary governmental permits;
the effect of existing and future laws and government regulations, including the enforcement and interpretation of environmental laws thereof;
the effect of new or expanded greenhouse gas regulations;
the effects of litigation;
adverse effect of cybersecurity threats;
failure to maintain effective internal controls over financial reporting;
recent action and the possibility of future action on trade by U.S. and foreign governments;
conflicts of interest that may cause our general partner or CONSOL Energy to favor their own interest to our detriment;
the requirement that we distribute all of our available cash; and


other factors discussed in our 2018 Annual Report on Form 10-K under “Risk Factors,” as updated by any subsequent Quarterly Reports on Forms 10-Q, which are on file at the SEC.
ITEM 4.    CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


Under the supervision and with the participation of the management of the Partnership’s general partner, including the Chief Executive Officer and the Chief Financial Officer of the general partner, an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), was conducted as of the end of the period covered by this report. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer of the Partnership’s general partner have concluded that the Partnership’s disclosure controls and procedures were effective as of the end of the period covered by this report.








Changes in Internal Control over Financial Reporting


There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31,September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


The Partnership implemented an enterprise resource planning (“ERP”) system, which is expected to improve the efficiency of certain financial and related transactional processes. During the first quarterhalf of fiscal year 2019, the Partnership completed the implementation of certain processes, and revised and updated the related controls. These changes did not materially affect the Partnership's internal control over financial reporting. As the Partnership implements the remaining functionality under this ERP system over the next year, it will continue to assess the impact on its internal control 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
Refer to paragraph one within Part 1, Item 1. Financial Statements, “Note 11. Commitments and Contingent Liabilities,” which is incorporated herein by reference.
ITEM 1A.    RISK FACTORS


In addition to the other information set forth in this quarterly report, you should carefully consider the factors discussed in “Part I - Item 1A. Risk Factors” of our 2018 Form 10-K, as updated by any subsequent Form 10-Qs. These described risks are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.


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


None.Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table sets forth purchases of the Partnership’s common units during the three months ended September 30, 2019 made by CONSOL Energy:
 (a)(b)(c)(d)
Period
Total Number of Units Purchased (1)
Average Price Paid per UnitTotal Number of Units Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Units that May Yet be Purchased Under the Plans or Programs (in thousands)(1)(2)
July 1, 2019 - July 31, 2019
$

$46,802
August 1, 2019 - August 31, 20199,610
$12.55
9,610
$46,681
September 1, 2019 - September 30, 20199,803
$13.20
9,803
$46,552
Total19,413
$12.88
19,413
 

(1) In May 2019, CONSOL Energy Inc.'s Board of Directors approved an expansion of the stock, unit and debt repurchase program. The program previously allowed CONSOL Energy to use up to $25 million of the program to purchase CONSOL Coal Resources LP's outstanding common units in the open market.  CONSOL Energy's Board of Directors approved changing the termination date of the program from June 30, 2019 to June 30, 2020. Also, in accordance with CONSOL Energy’s credit facility covenants, the total amount that can be used for repurchases of the Partnership's outstanding common units was raised to $50 million.
(2) Management of CONSOL Energy cannot estimate the number of common units that will be purchased because purchases are made based upon the price of the Partnership’s units, the Partnership’s financial outlook and alternative investment options.

Limitation Upon Payment of Dividends
As disclosed above, the Affiliated Company Credit Agreement includes covenants limiting our ability to make cash distributions (subject to certain limited exceptions); provided that we are able to make cash distributions of available cash to partners so long as no event of default is continuing or would result therefrom.
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 6.    EXHIBITS


ExhibitsDescriptionMethod of Filing
   
Amendment No. 1, dated as of March 28, 2019, to Affiliated Company Credit Agreement, dated November 28, 2017, by and among CONSOL Coal Resources LP, certain of its affiliates party thereto, CONSOL Energy Inc. and PNC Bank, National AssociationFiled as Exhibit 10.1 to Form 8-K (#001-37456) filed on April 3, 2019
Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002Filed herewith
   
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed herewith
   
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
   
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
   
Mine Safety and Health Administration Safety Data.Filed herewith
   
101Interactive Data File (Form 10-Q for the quarterly period ended March 31,September 30, 2019, furnished in XBRL).Filed herewith
104Cover Page Interactive Data File (formatted as Inline XBRL)Contained in Exhibit 101




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.


Dated: May 8,November 5, 2019
 CONSOL Coal Resources LP
    
 By: CONSOL Coal Resources GP LLC, its general partner
 By: /s/ JAMES A. BROCK
   James A. Brock
   
Chief Executive Officer, Chairman of the Board and Director
(Duly Authorized Officer and Principal Executive Officer)
    
 By: CONSOL Coal Resources GP LLC, its general partner
 By: /s/ DAVID M. KHANI
   David M. Khani
   
Chief Financial Officer and Director
(Duly Authorized Officer and Principal Financial Officer)
    
 By: CONSOL Coal Resources GP LLC, its general partner
 By: /s/ JOHN M. ROTHKA
   John M. Rothka
   Chief Accounting Officer

(Duly Authorized Officer and Principal Accounting Officer)




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