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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM
__________________________________________________
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
__________________________________________________
CONSOL Energy Inc.
(Exact name of registrant as specified in its charter)
| |
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| (State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(
(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 |
| | | |
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.
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).
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 ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
CONSOL Energy Inc. had
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Part I. Financial Information |
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| Item 1. |
Financial Statements |
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Consolidated Statements of Income for the three months ended March 31, 2022 and 2021 |
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Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021 |
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Consolidated Balance Sheets at March 31, 2022 and December 31, 2021 |
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Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2022 and 2021 |
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Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 |
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Notes to Consolidated Financial Statements |
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| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
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| Item 4. |
Controls and Procedures |
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Part II. Other Information |
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| Item 1. |
Legal Proceedings |
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| Item 1A. |
Risk Factors |
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| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
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| Item 3. | Defaults Upon Senior Securities | 46 |
| Item 4. |
Mine Safety Disclosures |
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| Item 5. | Other Information | 46 |
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| Item 6. |
Exhibits |
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Signatures |
IMPORTANT DEFINITIONS REFERENCED IN THIS QUARTERLY REPORT
Unless the context otherwise requires:
| • |
“CONSOL Energy,” “we,” “our,” “us,” “our Company” and “the Company” refer to CONSOL Energy Inc. and its subsidiaries; |
| • |
“Btu” means one British Thermal unit; |
| • | “CCR Merger” refers to the merger under that certain Agreement and Plan of Merger, dated as of October 22, 2020, among the Company, Transformer LP Holdings Inc. (“Holdings”), a wholly-owned subsidiary of the Company, Transformer Merger Sub LLC, a wholly-owned subsidiary of Holdings (“Merger Sub”), the Partnership and the General Partner, pursuant to which Merger Sub merged with and into the Partnership, with the Partnership surviving as an indirect, wholly-owned subsidiary of the Company, which merger closed on December 30, 2020; | |
| • |
“Coal Business” refers to (i) the Pennsylvania Mining Complex (PAMC) and certain other coal assets; (ii) the CONSOL Marine Terminal; (iii) development of the Itmann Mine; and (iv) the Greenfield Reserves and Resources and certain related coal assets and liabilities; |
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“CONSOL Marine Terminal” refers to the Company's terminal operations located at the Port of Baltimore; |
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“former parent” refers to CNX Resources Corporation and its consolidated subsidiaries; |
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“General Partner” refers to PA Mining Complex GP LLC (formerly known as CONSOL Coal Resources GP LLC), a Delaware limited liability company and the general partner of the Partnership; |
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“Greenfield Reserves and Resources” means those undeveloped reserves and resources owned by the Company in the Northern Appalachian, Central Appalachian and Illinois basins that are not associated with the Pennsylvania Mining Complex or the Itmann Mine project; |
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“Itmann Mine” refers to the ownership and development of a metallurgical coal mine and coal preparation plant located in Wyoming County, West Virginia; |
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“Partnership” refers to PA Mining Complex LP (formerly known as CONSOL Coal Resources LP), a Delaware limited partnership that is a wholly-owned subsidiary of the Company and holds an undivided interest in, and is the sole operator of, the Pennsylvania Mining Complex; |
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“Pennsylvania Mining Complex” or “PAMC” refers to the Bailey, Enlow Fork and Harvey coal mines, the Central Preparation Plant, coal reserves and related assets and operations located in southwestern Pennsylvania and northern West Virginia; and |
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“separation and distribution” refers to the separation of the Coal Business from our former parent’s other businesses on November 28, 2017 and the pro rata distribution of the Company's issued and outstanding shares of common stock to its former parent's stockholders on November 28, 2017, and the creation, as a result of the distribution, of an independent, publicly-traded company (the Company) to hold the assets and liabilities associated with the Coal Business after the distribution. |
PART I : FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(unaudited)
| Three Months Ended |
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| March 31, |
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| Revenue and Other Income: |
2022 |
2021 |
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| Coal Revenue |
$ | $ | ||||||
| Terminal Revenue |
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| Freight Revenue |
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| Loss on Commodity Derivatives, net |
( |
) | ||||||
| Miscellaneous Other Income |
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| Gain on Sale of Assets |
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| Total Revenue and Other Income |
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| Costs and Expenses: |
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| Operating and Other Costs |
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| Depreciation, Depletion and Amortization |
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| Freight Expense |
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| Selling, General and Administrative Costs |
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| Loss (Gain) on Debt Extinguishment |
( |
) | ||||||
| Interest Expense, net |
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| Total Costs and Expenses |
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| (Loss) Earnings Before Income Tax |
( |
) | ||||||
| Income Tax (Benefit) Expense |
( |
) | ||||||
| Net (Loss) Income |
$ | ( |
) | $ | ||||
| (Loss) Earnings per Share: |
||||||||
| Total Basic (Loss) Earnings per Share |
$ | ( |
) | $ | ||||
| Total Dilutive (Loss) Earnings per Share |
$ | ( |
) | $ | ||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net (Loss) Income | $ | ( | ) | $ | ||||
| Other Comprehensive Income: | ||||||||
| Actuarially Determined Long-Term Liability Adjustments (Net of tax: ($), ()) | ||||||||
| Unrealized Gain on Cash Flow Hedges (Net of tax: ($), ($)) | ||||||||
| Other Comprehensive Income | ||||||||
| Comprehensive (Loss) Income | $ | ( | ) | $ | ||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| (Unaudited) |
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| March 31, |
December 31, |
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| 2022 |
2021 |
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| ASSETS |
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| Current Assets: |
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| Cash and Cash Equivalents |
$ | $ | ||||||
| Restricted Cash - Current |
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| Accounts and Notes Receivable |
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| Trade Receivables, net |
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| Other Receivables, net |
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| Inventories |
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| Prepaid Expenses and Other Current Assets |
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| Total Current Assets |
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| Property, Plant and Equipment: |
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| Property, Plant and Equipment |
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| Less - Accumulated Depreciation, Depletion and Amortization |
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| Total Property, Plant and Equipment—Net |
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| Other Assets: |
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| Deferred Income Taxes |
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| Right of Use Asset - Operating Leases |
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| Restricted Cash - Non-current |
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| Salary Retirement |
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| Other Noncurrent Assets, net |
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| Total Other Assets |
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| TOTAL ASSETS |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOL ENERGY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| (Unaudited) | ||||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable | $ | $ | ||||||
| Current Portion of Long-Term Debt | ||||||||
| Operating Lease Liability, Current Portion | ||||||||
| Commodity Derivatives | ||||||||
| Other Accrued Liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Debt: | ||||||||
| Long-Term Debt | ||||||||
| Finance Lease Obligations | ||||||||
| Total Long-Term Debt | ||||||||
| Deferred Credits and Other Liabilities: | ||||||||
| Postretirement Benefits Other Than Pensions | ||||||||
| Pneumoconiosis Benefits | ||||||||
| Asset Retirement Obligations | ||||||||
| Workers’ Compensation | ||||||||
| Salary Retirement | ||||||||
| Operating Lease Liability | ||||||||
| Other Noncurrent Liabilities | ||||||||
| Total Deferred Credits and Other Liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Stockholders' Equity: | ||||||||
| Common Stock, $ Par Value; Shares Authorized, Shares Issued and Outstanding at March 31, 2022; Shares Issued and Outstanding at December 31, 2021 | ||||||||
| Capital in Excess of Par Value | ||||||||
| Retained Earnings | ||||||||
| Accumulated Other Comprehensive Loss | ( | ) | ( | ) | ||||
| TOTAL EQUITY | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
| Common Stock | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Total Equity | ||||||||||||||||
| December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| (Unaudited) | ||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||
| Actuarially Determined Long-Term Liability Adjustments (Net of $ Tax) | ||||||||||||||||||||
| Interest Rate Hedge (Net of $ Tax) | ||||||||||||||||||||
| Comprehensive (Loss) Income | ( | ) | ( | ) | ||||||||||||||||
| Issuance of Common Stock | ( | ) | ||||||||||||||||||
| Amortization of Stock-Based Compensation Awards | ||||||||||||||||||||
| Shares Withheld for Taxes | ( | ) | ( | ) | ||||||||||||||||
| March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Common Stock | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Total Equity | ||||||||||||||||
| December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| (Unaudited) | ||||||||||||||||||||
| Net Income | ||||||||||||||||||||
| Actuarially Determined Long-Term Liability Adjustments (Net of $ Tax) | ||||||||||||||||||||
| Interest Rate Hedge (Net of $ Tax) | ||||||||||||||||||||
| Comprehensive Income | ||||||||||||||||||||
| Issuance of Common Stock | ( | ) | ||||||||||||||||||
| Amortization of Stock-Based Compensation Awards | ||||||||||||||||||||
| Shares Withheld for Taxes | ( | ) | ( | ) | ||||||||||||||||
| CCR Merger | ( | ) | ( | ) | ||||||||||||||||
| March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net (Loss) Income | $ | ( | ) | $ | ||||
| Adjustments to Reconcile Net (Loss) Income to Net Cash Provided by Operating Activities: | ||||||||
| Depreciation, Depletion and Amortization | ||||||||
| Gain on Sale of Assets | ( | ) | ( | ) | ||||
| Stock-Based Compensation | ||||||||
| Amortization of Debt Issuance Costs | ||||||||
| Loss (Gain) on Debt Extinguishment | ( | ) | ||||||
| Unrealized Mark-to-Market Loss on Commodity Derivative Instruments | ||||||||
| Deferred Income Taxes | ( | ) | ||||||
| Equity in Earnings of Affiliates | ||||||||
| Changes in Operating Assets: | ||||||||
| Accounts and Notes Receivable | ( | ) | ( | ) | ||||
| Inventories | ||||||||
| Prepaid Expenses and Other Assets | ||||||||
| Changes in Other Assets | ( | ) | ( | ) | ||||
| Changes in Operating Liabilities: | ||||||||
| Accounts Payable | ( | ) | ||||||
| Other Operating Liabilities | ||||||||
| Changes in Other Liabilities | ( | ) | ||||||
| Net Cash Provided by Operating Activities | ||||||||
| Cash Flows from Investing Activities: | ||||||||
| Capital Expenditures | ( | ) | ( | ) | ||||
| Proceeds from Sales of Assets | ||||||||
| Other Investing Activity | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Payments on Finance Lease Obligations | ( | ) | ( | ) | ||||
| Payments on Term Loan A | ( | ) | ( | ) | ||||
| Payments on Term Loan B | ( | ) | ( | ) | ||||
| Payments on Second Lien Notes | ( | ) | ( | ) | ||||
| Payments on Asset-Backed Financing | ( | ) | ( | ) | ||||
| Shares Withheld for Taxes | ( | ) | ( | ) | ||||
| Net Cash Used in Financing Activities | ( | ) | ( | ) | ||||
| Net Increase in Cash and Cash Equivalents and Restricted Cash | ||||||||
| Cash and Cash Equivalents and Restricted Cash at Beginning of Period | ||||||||
| Cash and Cash Equivalents and Restricted Cash at End of Period | $ | $ | ||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Restricted Cash - Current | ||||||||
| Restricted Cash - Non-current | ||||||||
| Cash and Cash Equivalents and Restricted Cash at End of Period | $ | $ | ||||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Finance Lease | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands, except per share data)
NOTE 1—BASIS OF PRESENTATION:
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for future periods.
The Consolidated Balance Sheet at December 31, 2021 has been derived from the Audited Consolidated Financial Statements at that date but does not include all disclosures required by GAAP. This Form 10-Q report should be read in conjunction with CONSOL Energy Inc.'s Annual Report on Form 10-K for the year ended December 31, 2021.
All dollar amounts discussed in these Notes to Consolidated Financial Statements are in thousands of U.S. dollars, except for per unit amounts, and unless otherwise indicated.
Basis of Consolidation
The Consolidated Financial Statements include the accounts of CONSOL Energy Inc. and its wholly-owned and majority-owned and/or controlled subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.
Recent Accounting Pronouncements
In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02 - Financial Instruments—Credit Losses (Topic 326). The amendments in this update eliminate the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The amendments in this update require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Management is currently evaluating the impact of this guidance, but does not expect this update to have a material impact on the Company's financial statements.
In October 2021, the FASB issued ASU 2021-08 - Business Combinations (Topic 805). The amendments in this update apply to all entities that enter into a business combination within the scope of Subtopic 805-10, Business Combinations—Overall. The amendments in this update require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The amendments in this update do not affect the accounting for other assets or liabilities that may arise from revenue contracts with customers in accordance with Topic 606. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Management is currently evaluating the impact of this guidance, but does not expect this update to have a material impact on the Company's financial statements.
In May 2021, the FASB issued ASU 2021-04 - Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments in this update affect all entities that issue freestanding written call options that are classified in equity. Specifically, the amendments affect those entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. The amendments that relate to the recognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in Topic 260, Earnings Per Share. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted this guidance in the three months ended March 31, 2022, and there was no material impact on the Company's financial statements.
Earnings per Share
Basic earnings per share are computed by dividing net (loss) income by the weighted average number of shares outstanding during the reporting period. Dilutive earnings per share are computed similarly to basic earnings per share, except that the weighted average number of shares outstanding is increased to include additional shares from restricted stock units and performance share units, if dilutive. The number of additional shares is calculated by assuming that outstanding restricted stock units and performance share units were released, and that the proceeds from such activities, as applicable, were used to acquire shares of common stock at the average market price during the reporting period.
The table below sets forth the share-based awards that have been excluded from the computation of diluted earnings per share because their effect would be anti-dilutive:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Anti-Dilutive Restricted Stock Units | ||||||||
| Anti-Dilutive Performance Share Units | ||||||||
The computations for basic and dilutive (loss) earnings per share are as follows:
| Three Months Ended | ||||||||
| Dollars in thousands, except per share data | March 31, | |||||||
| 2022 | 2021 | |||||||
| Numerator: | ||||||||
| Net (Loss) Income | $ | ( | ) | $ | ||||
| Denominator: | ||||||||
| Weighted-average shares of common stock outstanding | ||||||||
| Effect of dilutive shares* | ||||||||
| Weighted-average diluted shares of common stock outstanding | ||||||||
| (Loss) Earnings per Share: | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Dilutive | $ | ( | ) | $ | ||||
*During periods in which the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all equity awards is anti-dilutive.
As of March 31, 2022, CONSOL Energy has
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 the Company's commodity derivatives liability, previously included in Other Accrued Liabilities on the Consolidated Balance Sheets. This reclassification had no effect on previously reported total assets, net income, stockholders' equity or cash flows from operating activities.
NOTE 2—REVENUE FROM CONTRACTS WITH CUSTOMERS:
The following tables disaggregate CONSOL Energy's revenue from contracts with customers to depict how the nature, amount, timing and uncertainty of the Company's revenues and cash flows are affected by economic factors:
| Three Months Ended March 31, 2022 | ||||||||||||
| Domestic | Export | Total | ||||||||||
| Power Generation | $ | $ | $ | |||||||||
| Industrial | ||||||||||||
| Metallurgical | ||||||||||||
| Total Coal Revenue | ||||||||||||
| Terminal Revenue | ||||||||||||
| Freight Revenue | ||||||||||||
| Total Revenue from Contracts with Customers | $ | |||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||
| Domestic | Export | Total | ||||||||||
| Power Generation | $ | $ | $ | |||||||||
| Industrial | ||||||||||||
| Metallurgical | ||||||||||||
| Total Coal Revenue | ||||||||||||
| Terminal Revenue | ||||||||||||
| Freight Revenue | ||||||||||||
| Total Revenue from Contracts with Customers | $ | |||||||||||
Coal Revenue
The Company has disaggregated its coal revenue, derived from the PAMC and Itmann operations, between domestic and export revenues, as well as industrial, power generation and metallurgical markets. Domestic coal revenue tends to be derived from contracts that typically have a term of one year or longer and the pricing is typically fixed. Export coal revenue tends to be derived from spot or shorter-term contracts with pricing determined closer to the time of shipment or based on a market index; however, the Company has recently begun to secure several long-term export contracts with varying pricing arrangements. Coal revenue derived from the Itmann operations consists primarily of metallurgical coal sales, while coal revenue derived from the PAMC services all markets due to the nature of its coal quality characteristics.
CONSOL Energy's coal revenue is generally recognized when title passes to the customer and the price is fixed and determinable. Generally, title passes when coal is loaded at the central preparation facility, at terminal locations or other customer destinations. The Company's coal contract revenue per ton is fixed and determinable based upon either fixed forward pricing or pricing derived from established indices and adjusted for nominal quality characteristics. Some coal contracts also contain positive electric power price-related adjustments, which represent market-driven price adjustments, wherein no additional value is exchanged, in addition to a fixed base price per ton. The Company’s coal contracts generally do not allow for retroactive adjustments to pricing after title to the coal has passed and typically do not have significant financing components.
The estimated transaction price from each of the Company's contracts is based on the total amount of consideration to which the Company expects to be entitled under the contract. Included in the transaction price for certain coal supply contracts is the impact of variable consideration, including quality price adjustments, handling services and per ton price fluctuations based on certain coal sales price indices. The estimated transaction price for each contract is allocated to the Company's performance obligations based on relative stand-alone selling prices determined at contract inception. The Company has determined that each ton of coal represents a separate and distinct performance obligation. Some of the Company's contracts span multiple years and have annual pricing modifications, based upon market-driven or inflationary adjustments, where no additional value is exchanged. Management believes that the invoice price is the most appropriate rate at which to recognize revenue.
While CONSOL Energy does, from time to time, experience costs of obtaining coal customer contracts with amortization periods greater than one year, those costs are generally immaterial to the Company's net income. At March 31, 2022 and December 31, 2021, the Company did have any capitalized costs to obtain customer contracts on its Consolidated Balance Sheets. As of and for the three months ended March 31, 2022 and 2021, the Company has recognized any amortization of previously existing capitalized costs of obtaining customer contracts. Further, the Company has not recognized any coal revenue in the current period that is not a result of current period performance.
Terminal Revenue
Terminal revenues are attributable to the Company's CONSOL Marine Terminal and include revenues earned from providing receipt and unloading of coal from rail cars, transporting coal from the receipt point to temporary storage or stockpile facilities located at the Terminal, stockpiling, blending, weighing, sampling, redelivery, and loading of coal onto vessels. Revenues for these services are earned on a ratable basis, and performance obligations are considered fulfilled as the services are performed.
The CONSOL Marine Terminal does not normally experience material costs of obtaining customer contracts with amortization periods greater than one year. At March 31, 2022 and December 31, 2021, the Company did have any capitalized costs to obtain customer contracts on its Consolidated Balance Sheets. As of and for the three months ended March 31, 2022 and 2021, the Company has recognized any amortization of previously existing capitalized costs of obtaining Terminal customer contracts. Further, the Company has recognized any revenue in the current period that is not a result of current period performance.
Freight Revenue
Some of CONSOL Energy's coal contracts require that the Company sell its coal at locations other than its central preparation plant. The cost to transport the Company's coal to the ultimate sales point is passed through to the Company's customers and CONSOL Energy recognizes the freight revenue equal to the transportation costs when title of the coal passes to the customer.
Contract Balances
Contract assets are recorded separately from trade receivables in the Company's Consolidated Balance Sheets and are reclassified to trade receivables as title passes to the customer and the Company's right to consideration becomes unconditional. Payments for coal shipments are typically due within two to four weeks from the invoice date. CONSOL Energy typically does not have material contract assets that are stated separately from trade receivables since the Company's performance obligations are satisfied as control of the goods or services passes to the customer, thereby granting the Company an unconditional right to receive consideration. Contract liabilities relate to consideration received in advance of the satisfaction of the Company's performance obligations. Contract liabilities are recognized as revenue at the point in time when control of the goods passes to the customer, or over time when services are provided.
NOTE 3—MISCELLANEOUS OTHER INCOME:
| Three Months Ended March 31, |
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| 2022 |
2021 |
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| Interest Income |
$ | $ | ||||||
| Royalty Income - Non-Operated Coal |
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| Property Easements and Option Income |
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| Rental Income |
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| Other |
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| Miscellaneous Other Income |
$ | $ | ||||||
NOTE 4—COMPONENTS OF PENSION AND OTHER POST-EMPLOYMENT BENEFIT (OPEB) PLANS NET PERIODIC BENEFIT COSTS:
The components of Net Periodic Benefit (Credit) Cost are as follows:
| Pension Benefits |
Other Post-Employment Benefits |
|||||||||||||||
| Three Months Ended |
Three Months Ended |
|||||||||||||||
| March 31, |
March 31, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Service Cost |
$ | $ | $ | $ | ||||||||||||
| Interest Cost |
||||||||||||||||
| Expected Return on Plan Assets |
( |
) | ( |
) | ||||||||||||
| Amortization of Prior Service Credits |
( |
) | ( |
) | ||||||||||||
| Amortization of Actuarial Loss |
||||||||||||||||
| Net Periodic Benefit (Credit) Cost |
$ | ( |
) | $ | ( |
) | $ | $ | ||||||||
(Credits) expenses related to pension and other post-employment benefits are reflected in Operating and Other Costs in the Consolidated Statements of Income.
NOTE 5—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:
The components of Net Periodic Benefit Cost are as follows:
| CWP |
Workers' Compensation |
|||||||||||||||
| Three Months Ended |
Three Months Ended |
|||||||||||||||
| March 31, |
March 31, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Service Cost |
$ | $ | $ | $ | ||||||||||||
| Interest Cost |
||||||||||||||||
| Amortization of Actuarial Loss (Gain) |
( |
) | ( |
) | ||||||||||||
| State Administrative Fees and Insurance Bond Premiums |
||||||||||||||||
| Net Periodic Benefit Cost |
$ | $ | $ | $ | ||||||||||||
Expenses related to CWP and workers’ compensation are reflected in Operating and Other Costs in the Consolidated Statements of Income.
NOTE 6—INCOME TAXES:
The Company recorded its provision for income taxes for the three months ended March 31, 2022 of ($
The provision for income taxes for the three months ended March 31, 2021 was $
Due to the expectation of taxable income for the year 2022, the Company has recognized a benefit of $
The Company is subject to taxation in the United States and its various states, as well as Canada and its various provinces. The Company is subject to examination for the tax periods through 2021 for federal and state returns.
NOTE 7—CREDIT LOSSES:
Trade receivables are recorded at the invoiced amount and do not bear interest. The Company markets its coal and terminal services to top-performing rail-served power plants in its core market areas. The Company also serves power generation, industrial and metallurgical consumers in international markets. Credit is extended based on an evaluation of a customer's financial condition and a customer's ability to perform its obligations. Trade receivable balances are monitored against approved credit terms. Credit terms are reviewed and adjusted as considered necessary based on changes to a customer's credit profile. If a customer's credit deteriorates, the Company may reduce credit risk exposure by reducing credit terms, obtaining letters of credit, obtaining credit insurance, or requiring pre-payment for shipments.
Other non-trade contractual arrangements consist primarily of overriding royalty agreements and other financial arrangements between the Company and various counterparties. The following table excludes fully reserved receivables associated with certain transactions defined as other non-trade contractual arrangements in the amount of $
The Company is exposed to credit losses primarily through sales of products and services. The Company's expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade and other accounts receivables. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on an aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company's monitoring activities include timely account reconciliations, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for changes to the assessment of anticipated payment, changes in economic conditions, current industry trends in the markets the Company serves, and changes in the financial health of the Company's counterparties.
The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.
| Trade Receivables | Other Non-Trade Contractual Arrangements | |||||||
| Beginning Balance, December 31, 2021 | $ | $ | ||||||
| Provision for expected credit losses | ||||||||
| Ending Balance, March 31, 2022 | $ | $ | ||||||
NOTE 8—INVENTORIES:
Inventory components consist of the following:
| March 31, |
December 31, |
|||||||
| 2022 |
2021 |
|||||||
| Coal |
$ | $ | ||||||
| Supplies |
||||||||
| Total Inventories |
$ | $ | ||||||
Inventories are stated at the lower of cost or net realizable value. The cost of coal inventories is determined by the first-in, first-out (“FIFO”) method. Coal inventory costs include labor, supplies, equipment costs, operating overhead, depreciation, depletion, amortization and other related costs. The cost of supplies inventory is determined by the average cost method and includes operating and maintenance supplies to be used in the Company's coal operations.
NOTE 9—ACCOUNTS RECEIVABLE SECURITIZATION:
CONSOL Energy and certain of its U.S. subsidiaries are parties to a trade accounts receivable securitization facility with financial institutions for the sale on a continuous basis of eligible trade accounts receivable. In March 2020, the securitization facility was amended to, among other things, extend the maturity date from August 30, 2021 to March 27, 2023.
Pursuant to the securitization facility, CONSOL Thermal Holdings LLC, an indirect, wholly-owned subsidiary of the Company, sells current and future trade receivables to CONSOL Pennsylvania Coal Company LLC, a wholly-owned subsidiary of the Company. CONSOL Marine Terminals LLC, a wholly-owned subsidiary of the Company, and CONSOL Pennsylvania Coal Company LLC sell and/or contribute current and future trade receivables (including receivables sold to CONSOL Pennsylvania Coal Company LLC by CONSOL Thermal Holdings LLC) to CONSOL Funding LLC, a wholly-owned subsidiary of the Company (the “SPV”). The SPV, in turn, pledges its interests in the receivables to PNC Bank, N.A., which either makes loans or issues letters of credit on behalf of the SPV. The maximum amount of advances and letters of credit outstanding under the securitization facility may not exceed $
Loans under the securitization facility accrue interest at a reserve-adjusted LIBOR market index rate equal to the one-month Eurodollar rate. Loans and letters of credit under the securitization facility also accrue a program fee and a letter of credit participation fee, respectively, ranging from
At March 31, 2022, the Company's eligible accounts receivable yielded $
NOTE 10—PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
| March 31, |
December 31, |
|||||||
| 2022 |
2021 |
|||||||
| Plant and Equipment |
$ | $ | ||||||
| Coal Properties and Surface Lands |
||||||||
| Airshafts |
||||||||
| Mine Development |
||||||||
| Advance Mining Royalties |
||||||||
| Total Property, Plant and Equipment |
||||||||
| Less: Accumulated Depreciation, Depletion and Amortization |
||||||||
| Total Property, Plant and Equipment, Net |
$ | $ | ||||||
Coal reserves are either owned in fee or controlled by lease. The duration of the leases vary; however, the lease terms are generally extended automatically to the exhaustion of economically recoverable reserves, as long as active mining continues. Coal interests held by lease provide the same rights as fee ownership for mineral extraction and are legally considered real property interests.
As of March 31, 2022 and December 31, 2021, property, plant and equipment includes gross assets under finance leases of $
NOTE 11—OTHER ACCRUED LIABILITIES:
| March 31, |
December 31, |
|||||||
| 2022 |
2021 |
|||||||
| Subsidence Liability |
$ | $ | ||||||
| Accrued Compensation and Benefits |
||||||||
| Accrued Interest |
||||||||
| Accrued Other Taxes |
||||||||
| Other |
||||||||
| Current Portion of Long-Term Liabilities: |
||||||||
| Asset Retirement Obligations |
||||||||
| Postretirement Benefits Other than Pensions |
||||||||
| Pneumoconiosis Benefits |
||||||||
| Workers' Compensation |
||||||||
| Total Other Accrued Liabilities |
$ | $ | ||||||
NOTE 12—LONG-TERM DEBT:
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Debt: | ||||||||
| Term Loan B due in September 2024 (Principal of $ and $ less Unamortized Discount of $ and $, % and % Weighted Average Interest Rate, respectively) | $ | $ | ||||||
| % Senior Secured Second Lien Notes due November 2025 | ||||||||
| MEDCO Revenue Bonds in Series due September 2025 at % | ||||||||
| % PEDFA Solid Waste Disposal Revenue Bonds due April 2028 | ||||||||
| Term Loan A due in March 2023 (% and % Weighted Average Interest Rate, respectively) | ||||||||
| Other Asset-Backed Financing Arrangements | ||||||||
| Advance Royalty Commitments (% Weighted Average Interest Rate) | ||||||||
| Less: Unamortized Debt Issuance Costs | ||||||||
| Less: Amounts Due in One Year* | ||||||||
| Long-Term Debt | $ | $ | ||||||
* Excludes current portion of Finance Lease Obligations of $
Senior Secured Credit Facilities
In November 2017, CONSOL Energy entered into a revolving credit facility with PNC Bank, N.A. with commitments up to $
The Senior Secured Credit Facilities contain a number of customary affirmative covenants. In addition, the Senior Secured Credit Facilities contain a number of negative covenants, including (subject to certain exceptions) limitations on (among other things): indebtedness, liens, investments, acquisitions, dispositions, restricted payments and prepayments of junior indebtedness. The amendment added additional conditions to be met for the covenants relating to investments in joint ventures, general investments, share repurchases, dividends and repurchases of Second Lien Notes (as defined below). The additional conditions require that the Company have
The Revolving Credit Facility and the TLA Facility also include covenants relating to (i) a maximum first lien gross leverage ratio, (ii) a maximum total net leverage ratio, and (iii) a minimum fixed charge coverage ratio. The maximum first lien gross leverage ratio is calculated as the ratio of Consolidated First Lien Debt to Consolidated EBITDA. Consolidated EBITDA, as used in the covenant calculation, excludes non-cash compensation expenses, non-recurring transaction expenses, extraordinary gains and losses, gains and losses on discontinued operations, non-cash charges related to legacy employee liabilities and gains and losses on debt extinguishment, and subtracts cash payments related to legacy employee liabilities. The maximum total net leverage ratio is calculated as the ratio of Consolidated Indebtedness, minus Cash on Hand, to Consolidated EBITDA. The minimum fixed charge coverage ratio is calculated as the ratio of Consolidated EBITDA to Consolidated Fixed Charges. Consolidated Fixed Charges, as used in the covenant calculation, include cash interest payments, cash payments for income taxes, scheduled debt repayments, dividends paid and Maintenance Capital Expenditures. The amendment revised the financial covenants applicable to the Revolving Credit Facility and the TLA Facility relating to the maximum first lien gross leverage ratio, maximum total net leverage ratio and minimum fixed charge coverage ratio, so that among other things:
| • | for the fiscal quarters ending June 30, 2021 through March 31, 2022, the minimum fixed charge coverage ratio shall be |
| • | for the fiscal quarters ending December 31, 2021 through March 31, 2022, the maximum first lien gross leverage ratio shall be |
| • | for the fiscal quarters ending on or after June 30, 2022, the maximum first lien gross leverage ratio shall be |
The Company's first lien gross leverage ratio was
The TLB Facility also includes a financial covenant that requires the Company to repay a certain amount of its borrowings under the TLB Facility within ten business days after the date it files its Annual Report on Form 10-K with the Securities and Exchange Commission if the Company has excess cash flow (as defined in the credit agreement for the Senior Secured Credit Facilities) during the year covered by the applicable Annual Report on Form 10-K. As a result of achieving certain financial metrics as of December 31, 2021, the Company was not required to make an excess cash flow payment with respect to the year ended December 31, 2021. During the three months ended March 31, 2021, CONSOL Energy made the required repayment of $
At March 31, 2022, the Revolving Credit Facility had
Second Lien Notes
In November 2017, CONSOL Energy issued $
The only non-guarantor subsidiary of the Senior Secured Credit Facilities is the SPV, which holds the assets pledged to the Accounts Receivable Securitization Facility. The SPV had total assets of $
During the three months ended March 31, 2022, the Company spent $
PEDFA Bonds
In April 2021, CONSOL Energy borrowed the proceeds received from the sale of tax-exempt bonds issued by PEDFA in an aggregate principal amount of $
The Company started a capital construction project on the PAMC coarse refuse disposal area in 2017, which is now funded, in part, by the $
Other Indebtedness
The Company is a borrower under an asset-backed financing arrangement related to certain equipment. The equipment, which had an approximate value of $
During the year ended December 31, 2019, the Company entered into interest rate swaps, which effectively converted $
NOTE 13—COMMITMENTS AND CONTINGENT LIABILITIES:
The Company is subject to various lawsuits and claims with respect to such matters as personal injury, wrongful death, damage to property, exposure to hazardous substances, governmental regulations including environmental remediation, employment and contract disputes and other claims and actions arising out of the normal course of business. The Company accrues the estimated loss for these lawsuits and claims when the loss is probable and reasonably estimable. The Company’s estimated accruals related to these pending claims, individually and in the aggregate, are immaterial to the financial position, results of operations or cash flows of the Company as of March 31, 2022. It is possible that the aggregate loss in the future with respect to these lawsuits and claims could ultimately be material to the Company’s financial position, results of operations or cash flows; however, such amounts cannot be reasonably estimated. The amount claimed against the Company as of March 31, 2022 is disclosed below when an amount is expressly stated in the lawsuit or claim, which is not often the case.
Fitzwater Litigation: Three nonunion retired coal miners have sued Fola Coal Company LLC, Consolidation Coal Company (“CCC”) and CONSOL of Kentucky Inc. (“COK”) (as well as the Company's former parent) in the U.S. District Court for the Southern District of West Virginia alleging ERISA violations in the termination of retiree health care benefits. The Plaintiffs contend they relied to their detriment on oral statements and promises of “lifetime health benefits” allegedly made by various members of management during Plaintiffs’ employment and that they were allegedly denied access to Summary Plan Documents that clearly reserved to the Company the right to modify or terminate the Retiree Health and Welfare Plan subject to Plaintiffs’ claims. Pursuant to Plaintiffs’ amended complaint filed on April 24, 2017, Plaintiffs request that retiree health benefits be reinstated and seek to represent a class of all nonunion retirees who were associated with AMVEST and COK areas of operation. On October 15, 2019, Plaintiffs’ supplemental motion for class certification was denied on all counts. On July 15, 2020, Plaintiffs filed an interlocutory appeal with the Fourth Circuit Court of Appeals on the Order denying class certification. The Fourth Circuit denied Plaintiffs' appeal on August 14, 2020. On October 1, 2020, the District Court entered a pretrial order setting the trial date, which was held in February 2021. No ruling has been issued by the judge. The Company believes it has a meritorious defense and intends to vigorously defend this suit.
Casey Litigation: A class action lawsuit was filed on August 23, 2017 on behalf of nonunion retired coal miners against CCC, COK, CONSOL Buchanan Mining Co., LLC and Kurt Salvatori, the Company's Chief Administrative Officer, in the U.S. District Court for the Southern District of West Virginia alleging ERISA violations in the termination of retiree health care benefits. Filed by the same lawyers who filed the Fitzwater litigation, and raising nearly identical claims, the Plaintiffs contend they relied to their detriment on oral promises of “lifetime health benefits” allegedly made by various members of management during Plaintiffs’ employment and that they were not provided with copies of Summary Plan Documents clearly reserving to the Company the right to modify or terminate the Retiree Health and Welfare Plan. Plaintiffs request that retiree health benefits be reinstated for them and their dependents and seek to represent a class of all nonunion retirees of any subsidiary of the Company's former parent that operated or employed individuals in McDowell or Mercer Counties, West Virginia, or Buchanan or Tazewell Counties, Virginia whose retiree welfare benefits were terminated. On December 1, 2017, the trial court judge in Fitzwater signed an order to consolidate Fitzwater with Casey. The Casey complaint was amended on March 1, 2018 to add new plaintiffs, add defendant CONSOL Pennsylvania Coal Company, LLC and eliminate defendant CONSOL Buchanan Mining Co., LLC in an attempt to expand the class of retirees. On October 15, 2019, Plaintiffs’ supplemental motion for class certification was denied on all counts. On July 15, 2020, Plaintiffs filed an interlocutory appeal with the Fourth Circuit Court of Appeals on the Order denying class certification. The Fourth Circuit denied Plaintiffs' appeal on August 14, 2020. On October 1, 2020, the District Court entered a pretrial order setting the trial date, which was held in February 2021. No ruling has been issued by the judge. The Company believes it has a meritorious defense and intends to vigorously defend this suit.
United Mine Workers of America 1992 Benefit Plan Litigation: In 2013, Murray Energy and its subsidiaries (“Murray”) entered into a stock purchase agreement (the “Murray sale agreement”) with the Company's former parent pursuant to which Murray acquired the stock of CCC and certain subsidiaries and certain other assets and liabilities. At the time of sale, the liabilities included certain retiree medical liabilities under the Coal Industry Retiree Health Benefit Act of 1992 (“Coal Act”) and certain federal black lung liabilities under the Black Lung Benefits Act (“BLBA”). Based upon information available, the Company estimates that the annual servicing costs of these liabilities are approximately $
Other Matters: On July 27, 2021, the Company's former parent informed the Company that it had received a request from the UMWA 1974 Pension Plan for information related to the facts and circumstances surrounding the former parent's 2013 sale of certain of its coal subsidiaries to Murray (the “Letter Request”). The Letter Request indicates that litigation by the UMWA 1974 Pension Plan against the Company's former parent related to potential withdrawal liabilities from the plan created by the 2019 bankruptcy of Murray is reasonably foreseeable. There has been no indication of potential claims against the Company by the UMWA 1974 Pension Plan and, at this time, no liability of the Company's former parent has been assessed.
Various Company subsidiaries are defendants in certain other legal proceedings arising out of the conduct of the Coal Business prior to the separation and distribution, and the Company is also a defendant in other legal proceedings following the separation and distribution. In the opinion of management, based upon an investigation of these matters and discussion with legal counsel, the ultimate outcome of such other legal proceedings, individually and in the aggregate, is not expected to have a material adverse effect on the Company’s financial position, results of operations or liquidity.
As part of the separation and distribution, the Company assumed various financial obligations relating to the Coal Business and agreed to reimburse its former parent for certain financial guarantees relating to the Coal Business that its former parent retained following the separation and distribution. Employee-related financial guarantees have primarily been provided to support the 1992 Benefit Plan and federal black lung and various state workers’ compensation self-insurance programs. Environmental financial guarantees have primarily been provided to support various performance bonds related to reclamation and other environmental issues. Other financial guarantees have been extended to support sales contracts, insurance policies, surety indemnity agreements, legal matters, full and timely payments of mining equipment leases, and various other items necessary in the normal course of business.
The following is a summary, as of March 31, 2022, of the financial guarantees, unconditional purchase obligations and letters of credit to certain third parties. These amounts represent the maximum potential of total future payments that the Company could be required to make under these instruments, or under the separation and distribution agreement to the extent retained by the Company's former parent on behalf of the Coal Business. Certain letters of credit included in the table below were issued against other commitments included in this table. These amounts have not been reduced for potential recoveries under recourse or collateralization provisions. Generally, recoveries under reclamation bonds would be limited to the extent of the work performed at the time of the default. No amounts related to these commitments are recorded as liabilities in the financial statements. The Company’s management believes that these commitments will not have a material adverse effect on the Company’s financial condition.
| Amount of Commitment Expiration per Period |
||||||||||||||||||||
| Total Amounts Committed | Less Than 1 Year |
1-3 Years |
3-5 Years |
Beyond 5 Years |
||||||||||||||||
| Letters of Credit: |
||||||||||||||||||||
| Employee-Related |
$ | $ | $ | $ | $ | |||||||||||||||
| Environmental |
||||||||||||||||||||
| Other |
||||||||||||||||||||
| Total Letters of Credit |
$ | $ | $ | $ | $ | |||||||||||||||
| Surety Bonds: |
||||||||||||||||||||
| Employee-Related |
$ | $ | $ | $ | $ | |||||||||||||||
| Environmental |
||||||||||||||||||||
| Other |
||||||||||||||||||||
| Total Surety Bonds |
$ | $ | $ | $ | $ | |||||||||||||||
The Company regularly evaluates the likelihood of default for all guarantees based on an expected loss analysis and records the fair value, if any, of its guarantees as an obligation in the Consolidated Financial Statements.
NOTE 14—DERIVATIVES
Interest Rate Risk Management
During the year ended December 31, 2019, the Company entered into interest rate swaps to manage exposures to interest rate risk on long-term debt in order to achieve a mix of fixed and variable rate debt that it deems appropriate. These interest rate swaps have been designated as cash flow hedges of future variable interest payments. For additional information on these arrangements, refer to Note 12 - Long-Term Debt.
Coal Price Risk Management Positions
The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market in order to manage its exposure to coal prices. The Company has exposure to the risk of fluctuating coal prices related to forecasted or index-priced sales of coal or to the risk of changes in the fair value of a fixed price physical sales contract. As of March 31, 2022, the Company held coal-related financial contracts to sell an aggregate notional volume of
Tabular Derivatives Disclosures
The Company has master netting agreements with all of its counterparties which allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. Such netting arrangements reduce the Company's credit exposure related to these counterparties to the extent the Company has any liability to such counterparties. For classification purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or liability in the Consolidated Balance Sheets. The fair value of derivatives reflected in the accompanying Consolidated Balance Sheets are set forth in the table below.
| March 31, 2022 |
December 31, 2021 |
|||||||||||||||
| Asset Derivatives |
Liability Derivatives |
Asset Derivatives |
Liability Derivatives |
|||||||||||||
| Coal Swap Contracts |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Effect of Counterparty Netting |
( |
) | ( |
) | ||||||||||||
| Net Derivatives as Classified in the Consolidated Balance Sheets |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
The net amount of liability derivatives is included in Commodity Derivatives in the accompanying Consolidated Balance Sheets.
Currently, the Company does not seek cash flow hedge accounting treatment for its coal-related derivative financial instruments and therefore, changes in fair value are reflected in current earnings. During the three months ended March 31, 2022, the Company settled a portion of its coal-related derivatives at a loss of $
The Company classifies the cash effects of its derivatives within the Cash Flows from Operating Activities section of the Consolidated Statements of Cash Flows.
NOTE 15—FAIR VALUE OF FINANCIAL INSTRUMENTS:
CONSOL Energy determines the fair value of assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources (including LIBOR-based discount rates), while unobservable inputs reflect the Company’s own assumptions of what market participants would use.
The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below.
Level One - Quoted prices for identical instruments in active markets.
Level Two - The fair value of the assets and liabilities included in Level 2 are based on standard industry income approach models that use significant observable inputs, including LIBOR-based discount rates. The Company's Level 2 assets and liabilities include interest rate swaps and coal commodity contracts with fair values derived from quoted prices in over-the-counter markets.
Level Three - Unobservable inputs significant to the fair value measurement supported by little or no market activity.
In those cases when the inputs used to measure fair value meet the definition of more than one level of the fair value hierarchy, the lowest level input that is significant to the fair value measurement in its totality determines the applicable level in the fair value hierarchy.
The financial instruments measured at fair value on a recurring basis are summarized below:
| Fair Value Measurements at |
Fair Value Measurements at |
|||||||||||||||||||||||
| March 31, 2022 |
December 31, 2021 |
|||||||||||||||||||||||
| Description |
Level 1 |
Level 2 |
Level 3 |
Level 1 |
Level 2 |
Level 3 |
||||||||||||||||||
| Commodity Derivatives |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Interest Rate Swaps |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||
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:
| March 31, 2022 |
December 31, 2021 |
|||||||||||||||
| Carrying |
Fair |
Carrying |
Fair |
|||||||||||||
| Amount |
Value |
Amount |
Value |
|||||||||||||
| Long-Term Debt |
$ | $ | $ | $ | ||||||||||||
Certain of the Company’s debt is actively traded on a public market and, as a result, constitutes Level 1 fair value measurements. The portion of the Company’s debt obligations that is not actively traded is valued through reference to the applicable underlying benchmark rate and, as a result, constitutes Level 2 fair value measurements.
NOTE 16—SEGMENT INFORMATION:
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management to make decisions on and assess performance of the Company’s reportable segments. CONSOL Energy presently consists of
The Company evaluates the performance of its segments utilizing Adjusted EBITDA and various sales and production metrics. Adjusted EBITDA is not a measure of financial performance determined in accordance with GAAP, and items excluded from Adjusted EBITDA may be significant in understanding and assessing the Company's financial condition. Therefore, Adjusted EBITDA should not be considered in isolation, nor as an alternative to net income, income from operations, or cash flows from operations, or as a measure of the Company's profitability, liquidity, or performance under GAAP. The Company uses Adjusted EBITDA to measure the operating performance of its segments and to allocate resources to its segments. Investors should be aware that the Company's presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.
Reportable segment results for the three months ended March 31, 2022 are:
| PAMC |
CONSOL Marine Terminal |
Other |
Adjustments and Eliminations |
Consolidated |
||||||||||||||||
| Coal Revenue |
$ | $ | $ | $ | $ | |||||||||||||||
| Terminal Revenue |
||||||||||||||||||||
| Freight Revenue |
||||||||||||||||||||
| Total Revenue from Contracts with Customers |
$ | $ | $ | $ | $ | |||||||||||||||
| Adjusted EBITDA(a) |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||
| Segment Assets |
$ | $ | $ | $ | $ | |||||||||||||||
| Depreciation, Depletion and Amortization |
$ | $ | $ | $ | $ | |||||||||||||||
| Capital Expenditures |
$ | $ | $ | $ | $ | |||||||||||||||
(a) Refer to “Reconciliation of Segment Information to Consolidated Amounts” for the reconciliation of Adjusted EBITDA, a non-GAAP measure, to its most directly comparable GAAP measure.
Reportable segment results for the three months ended March 31, 2021 are:
| PAMC |
CONSOL Marine Terminal |
Other |
Adjustments and Eliminations |
Consolidated |
||||||||||||||||
| Coal Revenue |
$ | $ | $ | $ | $ | |||||||||||||||
| Terminal Revenue |
||||||||||||||||||||
| Freight Revenue |
||||||||||||||||||||
| Total Revenue from Contracts with Customers |
$ | $ | $ | $ | $ | |||||||||||||||
| Adjusted EBITDA(a) |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||
| Segment Assets |
$ | $ | $ | $ | $ | |||||||||||||||
| Depreciation, Depletion and Amortization |
$ | $ | $ | $ | $ | |||||||||||||||
| Capital Expenditures |
$ | $ | $ | $ | $ | |||||||||||||||
(a) Refer to “Reconciliation of Segment Information to Consolidated Amounts” for the reconciliation of Adjusted EBITDA, a non-GAAP measure, to its most directly comparable GAAP measure.
For the three months ended March 31, 2022 and 2021, the Company's reportable segments had revenues from the following customers, each comprising over 10% of the Company's total sales:
| Three Months Ended March 31, |
||||||||
| 2022 |
2021 |
|||||||
| Customer A |
$ | $ | ||||||
| Customer B |
* | $ | ||||||
| Customer C |
* | $ | ||||||
| Customer D |
* | $ | ||||||
| Customer E |
$ | * | ||||||
| Customer F |
$ | * | ||||||
*Revenues from these customers during the periods presented were less than 10% of the Company's total sales.
Reconciliation of Segment Information to Consolidated Amounts
Adjusted EBITDA is a non-GAAP measure and is presented in the following tables to reconcile the segment operating performance measure to its most directly comparable GAAP measure, Net Income (Loss).
| Three Months Ended March 31, 2022 |
||||||||||||||||
| PAMC |
CONSOL Marine Terminal |
Other |
Total Company |
|||||||||||||
| Net Income (Loss) |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||
| Less: Income Tax Benefit |
( |
) | ( |
) | ||||||||||||
| Add: Interest Expense, net |
||||||||||||||||
| Less: Interest Income |
( |
) | ( |
) | ( |
) | ||||||||||
| Earnings (Loss) Before Interest & Taxes (EBIT) |
( |
) | ||||||||||||||
| Add: Depreciation, Depletion & Amortization |
||||||||||||||||
| Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA) |
$ | $ | $ | ( |
) | $ | ||||||||||
| Adjustments: |
||||||||||||||||
| Stock-Based Compensation |
$ | $ | $ | $ | ||||||||||||
| Loss on Debt Extinguishment |
||||||||||||||||
| Unrealized Mark-to-Market Loss on Commodity Derivative Instruments |
||||||||||||||||
| Total Pre-tax Adjustments |
||||||||||||||||
| Adjusted EBITDA |
$ | $ | $ | ( |
) | $ | ||||||||||
| Three Months Ended March 31, 2021 |
||||||||||||||||
| PAMC |
CONSOL Marine Terminal |
Other |
Total Company |
|||||||||||||
| Net Income (Loss) |
$ | $ | $ | ( |
) | $ | ||||||||||
| Add: Income Tax Expense |
||||||||||||||||
| Add: Interest Expense, net |
||||||||||||||||
| Less: Interest Income |
( |
) | ( |
) | ||||||||||||
| Earnings (Loss) Before Interest & Taxes (EBIT) |
( |
) | ||||||||||||||
| Add: Depreciation, Depletion & Amortization |
||||||||||||||||
| Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA) |
$ | $ | $ | ( |
) | $ | ||||||||||
| Adjustments: |
||||||||||||||||
| Stock-Based Compensation |
$ | $ | $ | $ | ||||||||||||
| Gain on Debt Extinguishment |
( |
) | ( |
) | ||||||||||||
| Total Pre-tax Adjustments |
( |
) | ||||||||||||||
| Adjusted EBITDA |
$ | $ | $ | ( |
) | $ | ||||||||||
NOTE 17—STOCK AND DEBT REPURCHASES:
In December 2017, CONSOL Energy’s Board of Directors approved a program to repurchase, from time to time, the Company's outstanding shares of common stock or its Second Lien Notes. Since its inception, the Company's Board of Directors has subsequently amended the program several times, the most recent of which amendment in April 2021 raised the aggregate limit of the Company's repurchase authority to $
Under the terms of the program, CONSOL Energy is permitted to make repurchases in the open market, in privately negotiated transactions, accelerated repurchase programs or in structured share repurchase programs. CONSOL Energy is also authorized to enter into one or more 10b5-1 plans with respect to any of the repurchases. Any repurchases of common stock or notes are to be funded from available cash on hand or short-term borrowings. The program does not obligate CONSOL Energy to acquire any particular amount of its common stock or notes, and the program can be modified or suspended at any time at the Company’s discretion. The program is conducted in compliance with applicable legal requirements and within the limits imposed by any credit agreement, receivables purchase agreement, indenture, or the tax matters agreement between the Company and its former parent, and is subject to market conditions and other factors.
During the three months ended March 31, 2022 and 2021, the Company spent $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in conjunction with the Consolidated Financial Statements and corresponding notes included elsewhere in this Form 10-Q. In addition, this Form 10-Q report should be read in conjunction with the Consolidated Financial Statements for the three-year period ended December 31, 2021 included in CONSOL Energy Inc.'s Form 10-K, filed on February 11, 2022. This MD&A contains forward-looking statements and the matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
All amounts discussed are in millions of U.S. dollars, unless otherwise indicated.
Recent Developments
Russia-Ukraine War
February 24, 2022 marked a significant escalation in the Russia-Ukraine war. The extent and duration of the military conflict involving Russia and Ukraine, resulting sanctions and future market or supply disruptions in the region, are impossible to predict, but could be significant and may have a severe adverse effect on the region. Globally, various governments have banned imports from Russia including commodities such as oil, natural gas and coal. These events have caused volatility in the aforementioned commodity markets. This volatility, including market expectations of potential changes in coal prices and inflationary pressures on steel products, may significantly affect market prices and overall demand for our coal and the cost of supplies and equipment, as well as the prices of, and demand for, competing sources of energy for our electric power plant customers, like natural gas. Although we have not experienced a material adverse impact from the war and the resulting sanctions as of the date of this report, we are closely monitoring the potential effects on the market.
COVID-19 Update
The Company is monitoring the impact of the COVID-19 pandemic (“COVID-19”) and has taken, and will continue to take, steps to mitigate the potential risks and impact on the Company and its employees. The health and safety of our employees is paramount. To date, the Company has experienced a few localized outbreaks, but due, in part, to the health and safety procedures put in place by the Company, we have been able to continue operating. The Company continues to monitor the health and safety of its employees closely in order to limit potential risks to our employees, contractors, family members and the community.
Additionally, COVID-19 led to an unprecedented decline in coal demand that began in the first quarter of 2020 and hit its lowest point in May 2020, largely driven by government-imposed shutdowns of non-essential businesses. We are considered a critical infrastructure company by the U.S. Department of Homeland Security. As a result, we were exempt from Pennsylvania Governor Tom Wolf's executive order, issued in March 2020, closing all businesses that are not life sustaining until Pennsylvania's phased reopening, which began in the second quarter of 2020. While many government-imposed shutdowns of non-essential businesses in the United States and abroad have been phased out, in significant population centers in the People's Republic of China lock-down orders have been re-imposed and there is a possibility that such shut-downs may be reinstated elsewhere. Depressed demand for our coal may also result from a general recession or reduction in overall business activity caused by COVID-19.
Over the past year, the general business environment has improved, resulting in higher demand for our product as government-imposed shutdowns and other COVID-19-related restrictions have been eased. However, imbalances in the global supply chain coupled with inflationary pressures have had both positive and negative impacts to our operations. The extent to which COVID-19 may impact our business depends on future developments, which are highly uncertain and unpredictable, including Presidential mandates, federal and state regulations, new information concerning the severity of COVID-19 variants, the pace and effectiveness of vaccination efforts and the effectiveness of actions globally to contain or mitigate its effects. We expect this could continue to impact our results of operations, cash flows and financial condition. The Company will continue to take steps it believes are appropriate to mitigate the negative impacts of COVID-19 on its operations, liquidity and financial condition.
Our Business
We are a leading, low-cost producer of high-quality bituminous coal, focused on the extraction and preparation of coal in the Appalachian Basin due to our ability to efficiently produce and deliver large volumes of high-quality coal at competitive prices, the strategic location of our mines and the industry experience of our management team.
Our most significant assets are the PAMC and the CONSOL Marine Terminal. Coal from the PAMC is valued because of its high energy content (as measured in Btu per pound), relatively low levels of sulfur and other impurities, and strong thermoplastic properties that enable it to be used in metallurgical, industrial and power generation applications. We take advantage of these desirable quality characteristics and our extensive logistical network, which is directly served by both the Norfolk Southern and CSX railroads, to aggressively market our product to a broad base of strategically selected, top-performing power plant customers in the eastern United States. We also capitalize on the operational synergies and logistical advantages afforded by the CONSOL Marine Terminal, which is likewise served by both the Norfolk Southern and CSX railroads, to export our coal to industrial, power generation and metallurgical end-users globally.
We are also expanding our presence in the metallurgical coal market through the development of our Itmann Mine in West Virginia, which we expect to be fully operational following the relocation and recommissioning of a recently purchased preparation plant, which is planned for completion during the second half of 2022.
Our operations, including the PAMC and the CONSOL Marine Terminal, have consistently generated strong cash flows, even throughout the COVID-19 pandemic. As of December 31, 2021, the PAMC controls 612.1 million tons of high-quality Pittsburgh seam reserves, enough to allow for more than 20 years of full-capacity production. In addition, we own or control approximately 1.4 billion tons of Greenfield Reserves and Resources located in the Northern Appalachian (“NAPP”), the Central Appalachian (“CAPP”) and the Illinois Basins (“ILB”), which we believe provide future growth and monetization opportunities. Our vision is to maximize cash flow generation through the safe, compliant, and efficient operation of this core asset base, while strategically reducing debt, returning capital through share buybacks or dividends, and, when prudent, allocating capital toward compelling growth and diversification opportunities.
Our core businesses consist of our:
| • |
Pennsylvania Mining Complex: The PAMC, which includes the Bailey Mine, the Enlow Fork Mine, the Harvey Mine and the Central Preparation Plant, has extensive high-quality coal reserves. We mine our reserves from the Pittsburgh No. 8 Coal Seam, which is a large contiguous formation of high-Btu coal that is ideal for high productivity, low-cost longwall operations. The design of the PAMC is optimized to produce large quantities of coal on a cost-efficient basis. We can sustain high production volumes at comparatively low operating costs due to, among other things, our technologically advanced longwall mining systems, logistics infrastructure and safety. All our mines at the PAMC utilize longwall mining, which is a highly automated underground mining technique that produces large volumes of coal at lower costs compared to other underground mining methods. |
| • |
CONSOL Marine Terminal: Through our subsidiary CONSOL Marine Terminals LLC, we provide coal export terminal services through the Port of Baltimore. The terminal can either store coal or load coal directly into vessels from rail cars. It is also the only major east coast United States coal terminal served by two railroads, Norfolk Southern Corporation and CSX Transportation Inc. |
| • |
Itmann Mine: Construction of the Itmann Mine, located in Wyoming County, West Virginia, began in the second half of 2019; development mining began in April 2020, and full production is expected following the relocation and recommissioning of a recently purchased preparation plant, which is planned for completion during the second half of 2022. When fully operational, the Company anticipates approximately 900 thousand product tons per year of high-quality, low-vol coking coal production from the Itmann Mine, with an anticipated mine life of 20+ years. The preparation plant being recommissioned will also include a highly efficient rail loadout and the capability for processing up to an additional 750 thousand to 1 million third-party product tons annually. This third-party processing revenue is expected to provide an additional avenue of growth for the Company. |
These low-cost assets and the diverse markets they serve provide us opportunities to generate cash across a wide variety of demand and pricing scenarios. The three mines at the PAMC typically operate four to five longwalls, and the production from all three mines is processed at a single, centralized preparation plant, which is connected via conveyor belts to each mine. The Central Preparation Plant, which can clean and process up to 8,200 raw tons of coal per hour, provides economies of scale while also maintaining the ability to segregate and blend coal based on quality. This infrastructure enables us to tailor our production levels and quality specifications to meet market demands. It also results in a highly productive, low-cost operation as compared to other NAPP coal mines. To our knowledge, the PAMC is the most productive and efficient coal mining complex in NAPP. For the year ending December 31, 2021, productivity averaged 8.15 tons of coal per employee hour, compared with an average of 5.70 tons per employee hour for all other currently-operating NAPP longwalls. Our high productivity helps drive a low-cost structure. Our efficiency strengthens our margins throughout the commodity cycle and has allowed us to continue to generate positive margins even in challenging pricing environments.
Q1 2022 Highlights:
| • | Coal shipments of 6.5 million tons. | |
| • |
Debt repayments, excluding premiums, of $38.5 million – payments on Term Loan A, Term Loan B, Second Lien Notes (each as defined below), and equipment-financed debt outstanding of $6.3 million, $0.7 million, $25.0 million and $6.5 million, respectively. |
Outlook for 2022:
| • | We expect that the PAMC will sell approximately 23 million to 25 million tons in fiscal year 2022. | |
| • | We expect PAMC average realized coal revenue per ton sold, an operating ratio derived from non-GAAP financial measures, to be $58.00 - $61.00 and PAMC average cash cost of coal sold per ton, an operating ratio derived from non-GAAP financial measures, to be $29.00-$31.00.(1) | |
| • | We are planning to make capital expenditures during 2022 in the range of $162 million to $195 million, including development of the Itmann project. | |
| • | We expect that the Itmann Mine will produce approximately 0.3 million to 0.5 million tons (on a clean coal equivalent basis) in 2022 with the majority of this production occurring in the second half of 2022. |
(1) Average realized coal revenue per ton sold and average cash cost of coal sold per ton are operating ratios derived from non-GAAP financial measures. CONSOL Energy is unable to provide a reconciliation of this guidance to any measures calculated in accordance with GAAP due to the unknown effect, timing and potential significance of certain income statement items.
How We Evaluate Our Operations
Our management team uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability. The metrics include: (i) coal production and sales volumes; (ii) realized coal revenue, a non-GAAP financial measure; (iii) cost of coal sold, a non-GAAP financial measure; (iv) cash cost of coal sold, a non-GAAP financial measure; (v) average realized coal revenue per ton sold, an operating ratio derived from non-GAAP financial measures; (vi) average cash cost of coal sold per ton, an operating ratio derived from non-GAAP financial measures; (vii) average margin per ton sold, an operating ratio derived from non-GAAP financial measures; (viii) average cash margin per ton sold, an operating ratio derived from non-GAAP financial measures; and (ix) adjusted EBITDA, a non-GAAP financial measure.
Realized coal revenue, average realized coal revenue per ton sold, cost of coal sold, cash cost of coal sold, average cash cost of coal sold per ton, average margin per ton sold and average cash margin per ton sold normalize the volatility contained within comparable GAAP measures by adjusting certain non-operating or non-cash transactions. We believe that adjusted EBITDA provides a helpful measure of comparing our operating performance with the performance of other companies that have different financing, capital structures and tax rates than ours. We believe realized coal revenue and average realized coal revenue per ton sold provide useful information to investors because they better reflect our earnings by including the settled costs (or gains) of our coal-related derivatives for the period. Each of these non-GAAP metrics are used as supplemental financial measures by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:
| • |
our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure; |
| • |
the ability of our assets to generate sufficient cash flow; |
| • |
our ability to incur and service debt and fund capital expenditures; |
| • |
the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities; and |
| • |
the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities. |
These non-GAAP financial measures should not be considered an alternative to total costs, total coal revenue, net income, operating cash flow or any other measure of financial performance or liquidity presented in accordance with GAAP. These measures exclude some, but not all, items that affect measures presented in accordance with GAAP, and these measures and the way we calculate them may vary from those of other companies. As a result, the items presented below may not be comparable to similarly titled measures of other companies.
Reconciliation of Non-GAAP Financial Measures
We evaluate our cost of coal sold and cash cost of coal sold on an aggregate basis. We define cost of coal sold as operating and other production costs related to produced tons sold, along with changes in coal inventory, both in volumes and carrying values. The cost of coal sold includes items such as direct operating costs, royalty and production taxes, direct administration costs, and depreciation, depletion and amortization costs on production assets. Cost of coal sold excludes any indirect costs, such as selling, general and administrative costs, freight expenses, interest expenses, depreciation, depletion and amortization costs on non-production assets and other costs not directly attributable to the production of coal. The cash cost of coal sold includes cost of coal sold less depreciation, depletion and amortization costs on production assets. We define average cash cost of coal sold per ton as cash cost of coal sold divided by tons sold. The GAAP measure most directly comparable to cost of coal sold, cash cost of coal sold and average cash cost of coal sold per ton is total costs and expenses.
The following table presents a reconciliation of cost of coal sold, cash cost of coal sold and average cash cost of coal sold per ton to total costs and expenses, the most directly comparable GAAP financial measure, on a historical basis, for each of the periods indicated (in thousands, except per ton information).
| Three Months Ended March 31, |
||||||||
| 2022 |
2021 |
|||||||
| Total Costs and Expenses |
$ | 366,501 | $ | 310,562 | ||||
| Less: Freight Expense |
(38,389 | ) | (27,013 | ) | ||||
| Less: Selling, General and Administrative Costs |
(37,149 | ) | (23,964 | ) | ||||
| Less: (Loss) Gain on Debt Extinguishment |
(2,122 | ) | 683 | |||||
| Less: Interest Expense, net |
(14,352 | ) | (15,261 | ) | ||||
| Less: Other Costs (Non-Production) |
(23,434 | ) | (18,246 | ) | ||||
| Less: Depreciation, Depletion and Amortization (Non-Production) |
(7,869 | ) | (7,883 | ) | ||||
| Cost of Coal Sold |
$ | 243,186 | $ | 218,878 | ||||
| Less: Depreciation, Depletion and Amortization (Production) |
(48,085 | ) | (52,014 | ) | ||||
| Cash Cost of Coal Sold |
$ | 195,101 | $ | 166,864 | ||||
| Total Tons Sold (in millions) |
6.5 | 6.9 | ||||||
| Average Cost of Coal Sold per Ton |
$ | 37.48 | $ | 31.85 | ||||
| Less: Depreciation, Depletion and Amortization Costs per Ton Sold |
7.57 | 7.41 | ||||||
| Average Cash Cost of Coal Sold per Ton |
$ | 29.91 | $ | 24.44 | ||||
We evaluate our average realized coal revenue per ton sold, average margin per ton sold and average cash margin per ton sold on a per-ton basis. We define average realized coal revenue per ton sold as total coal revenue, net of settlements of commodity derivatives divided by tons sold. We define average margin per ton sold as average realized coal revenue per ton sold, net of average cost of coal sold per ton. We define average cash margin per ton sold as average realized coal revenue per ton sold, net of average cash cost of coal sold per ton. The GAAP measure most directly comparable to average realized coal revenue per ton sold, average margin per ton sold and average cash margin per ton sold is total coal revenue.
The following table presents a reconciliation of average realized coal revenue per ton sold, average margin per ton sold and average cash margin per ton sold to total coal revenue, the most directly comparable GAAP financial measure, on a historical basis, for each of the periods indicated (in thousands, except per ton information).
| Three Months Ended March 31, |
||||||||
| 2022 |
2021 |
|||||||
| Total Coal Revenue (PAMC Segment) |
$ | 472,960 | $ | 284,465 | ||||
| Add: Settlements of Commodity Derivatives |
(86,252 | ) | — | |||||
| Total Realized Coal Revenue |
386,708 | 284,465 | ||||||
| Operating and Other Costs |
218,535 | 185,110 | ||||||
| Less: Other Costs (Non-Production) |
(23,434 | ) | (18,246 | ) | ||||
| Total Cash Cost of Coal Sold |
195,101 | 166,864 | ||||||
| Add: Depreciation, Depletion and Amortization |
55,954 | 59,897 | ||||||
| Less: Depreciation, Depletion and Amortization (Non-Production) |
(7,869 | ) | (7,883 | ) | ||||
| Total Cost of Coal Sold |
$ | 243,186 | $ | 218,878 | ||||
| Total Tons Sold (in millions) |
6.5 | 6.9 | ||||||
| Average Realized Coal Revenue per Ton Sold |
$ | 59.60 | $ | 41.39 | ||||
| Average Cash Cost of Coal Sold per Ton |
29.91 | 24.44 | ||||||
| Depreciation, Depletion and Amortization Costs per Ton Sold |
7.57 | 7.41 | ||||||
| Average Cost of Coal Sold per Ton |
37.48 | 31.85 | ||||||
| Average Margin per Ton Sold |
22.12 | 9.54 | ||||||
| Add: Depreciation, Depletion and Amortization Costs per Ton Sold |
7.57 | 7.41 | ||||||
| Average Cash Margin per Ton Sold |
$ | 29.69 | $ | 16.95 | ||||
We define adjusted EBITDA as (i) net income (loss) plus income taxes, net interest expense and depreciation, depletion and amortization, as adjusted for (ii) certain non-cash items, such as stock-based compensation and unrealized mark-to-market gains or losses on commodity derivative instruments. The GAAP measure most directly comparable to adjusted EBITDA is net income (loss).
The following tables present a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, on a historical basis, for each of the periods indicated (in thousands).
| Three Months Ended March 31, 2022 | ||||||||||||||||
| PAMC |
CONSOL Marine Terminal |
Other |
Total Company |
|||||||||||||
| Net Income (Loss) |
$ | 2,097 | $ | 11,613 | $ | (18,160 | ) | $ | (4,450 | ) | ||||||
| Less: Income Tax Benefit |
— | — | (3,522 | ) | (3,522 | ) | ||||||||||
| Add: Interest Expense, net |
189 | 1,531 | 12,632 | 14,352 | ||||||||||||
| Less: Interest Income |
(415 | ) | — | (914 | ) | (1,329 | ) | |||||||||
| Earnings (Loss) Before Interest & Taxes (EBIT) |
1,871 | 13,144 | (9,964 | ) | 5,051 | |||||||||||
| Add: Depreciation, Depletion & Amortization |
50,956 | 1,165 | 3,833 | 55,954 | ||||||||||||
| Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA) |
$ | 52,827 | $ | 14,309 | $ | (6,131 | ) | $ | 61,005 | |||||||
| Adjustments: |
||||||||||||||||
| Stock-Based Compensation |
$ | 3,529 | $ | 168 | $ | 504 | $ | 4,201 | ||||||||
| Loss on Debt Extinguishment |
— | — | 2,122 | 2,122 | ||||||||||||
| Unrealized Mark-to-Market Loss on Commodity Derivative Instruments |
101,902 | — | — | 101,902 | ||||||||||||
| Total Pre-tax Adjustments |
105,431 | 168 | 2,626 | 108,225 | ||||||||||||
| Adjusted EBITDA |
$ | 158,258 | $ | 14,477 | $ | (3,505 | ) | $ | 169,230 | |||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||
| PAMC |
CONSOL Marine Terminal |
Other |
Total Company |
|||||||||||||
| Net Income (Loss) |
$ | 42,450 | $ | 9,149 | $ | (25,195 | ) | $ | 26,404 | |||||||
| Add: Income Tax Expense |
— | — | 5,185 | 5,185 | ||||||||||||
| Add: Interest Expense, net |
642 | 1,537 | 13,082 | 15,261 | ||||||||||||
| Less: Interest Income |
— | — | (858 | ) | (858 | ) | ||||||||||
| Earnings (Loss) Before Interest & Taxes (EBIT) |
43,092 | 10,686 | (7,786 | ) | 45,992 | |||||||||||
| Add: Depreciation, Depletion & Amortization |
54,781 | 1,214 | 3,902 | 59,897 | ||||||||||||
| Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA) |
$ | 97,873 | $ | 11,900 | $ | (3,884 | ) | $ | 105,889 | |||||||
| Adjustments: |
||||||||||||||||
| Stock-Based Compensation |
$ | 1,312 | $ | 61 | $ | 136 | $ | 1,509 | ||||||||
| Gain on Debt Extinguishment |
— | — | (683 | ) | (683 | ) | ||||||||||
| Total Pre-tax Adjustments |
1,312 | 61 | (547 | ) | 826 | |||||||||||
| Adjusted EBITDA |
$ | 99,185 | $ | 11,961 | $ | (4,431 | ) | $ | 106,715 | |||||||
Results of Operations: Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021
Net (Loss) Income
CONSOL Energy reported a net loss of $4 million for the three months ended March 31, 2022, compared to net income of $26 million for the three months ended March 31, 2021. CONSOL Energy reported an adjusted EBITDA of $169 million for the three months ended March 31, 2022, compared to an adjusted EBITDA of $107 million for the three months ended March 31, 2021. The significant contributors to adjusted EBITDA are realized coal revenue and cash cost of coal sold, which are discussed below.
CONSOL Energy's business consists of the Pennsylvania Mining Complex and the CONSOL Marine Terminal segments, as well as various corporate and other business activities that are not allocated to the PAMC or the CONSOL Marine Terminal segments. The other business activities include the development of the Itmann Mine, the Greenfield Reserves and Resources, closed mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities.
PAMC ANALYSIS:
The PAMC segment's principal activities consist of mining, preparation and marketing of bituminous coal, sold primarily to power generators, industrial end-users and metallurgical end-users. The segment also includes selling, general and administrative costs, as well as various other activities assigned to the PAMC segment, but not included in the cost components on a per unit basis.
The PAMC segment had net income of $2 million for the three months ended March 31, 2022, compared to net income of $42 million for the three months ended March 31, 2021. The PAMC segment had adjusted EBITDA of $158 million for the three months ended March 31, 2022, compared to adjusted EBITDA of $99 million for the three months ended March 31, 2021. Included in the 2022 adjusted EBITDA were settlements of commodity derivatives at a loss of $86 million (see Note 14 - Derivatives in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q). Variances are discussed below.
| Three Months Ended |
||||||||||||
| March 31, |
||||||||||||
| (in millions) |
2022 |
2021 |
Variance |
|||||||||
| Realized Coal Revenue: |
||||||||||||
| Coal Revenue |
$ | 473 | $ | 284 | $ | 189 | ||||||
| Settlements of Commodity Derivative Instruments |
(86 | ) | — | (86 | ) | |||||||
| Total Realized Coal Revenue |
387 | 284 | 103 | |||||||||
| Freight Revenue |
38 | 27 | 11 | |||||||||
| Unrealized Mark-to-Market Loss on Commodity Derivative Instruments |
(102 | ) | — | (102 | ) | |||||||
| Miscellaneous Other Income |
1 | — | 1 | |||||||||
| Gain on Sale of Assets |
— | 1 | (1 | ) | ||||||||
| Total Revenue and Other Income |
324 | 312 | 12 | |||||||||
| Cost of Coal Sold: |
||||||||||||
| Operating Costs |
195 | 167 | 28 | |||||||||
| Depreciation, Depletion and Amortization |
48 | 52 | (4 | ) | ||||||||
| Total Cost of Coal Sold |
243 | 219 | 24 | |||||||||
| Other Costs: |
||||||||||||
| Other Costs |
8 | 1 | 7 | |||||||||
| Depreciation, Depletion and Amortization |
3 | 3 | — | |||||||||
| Total Other Costs |
11 | 4 | 7 | |||||||||
| Freight Expense |
38 | 27 | 11 | |||||||||
| Selling, General and Administrative Costs |
30 | 19 | 11 | |||||||||
| Interest Expense, net |
— | 1 | (1 | ) | ||||||||
| Total Costs and Expenses |
322 | 270 | 52 | |||||||||
| Earnings Before Income Tax |
$ | 2 | $ | 42 | $ | (40 | ) | |||||
| Interest Expense, net |
— | 1 | (1 | ) | ||||||||
| Depreciation, Depletion and Amortization |
51 | 55 | (4 | ) | ||||||||
| Stock-Based Compensation |
3 | 1 | 2 | |||||||||
| Unrealized Mark-to-Market Loss on Commodity Derivative Instruments |
102 | — | 102 | |||||||||
| Adjusted EBITDA |
$ | 158 | $ | 99 | $ | 59 | ||||||
Coal Production
The table below presents total tons produced (in thousands) from the Pennsylvania Mining Complex for the periods indicated:
| Three Months Ended March 31, |
||||||||||||
| Mine |
2022 |
2021 |
Variance |
|||||||||
| Bailey |
3,020 | 3,779 | (759 | ) | ||||||||
| Enlow Fork |
1,776 | 1,996 | (220 | ) | ||||||||
| Harvey |
1,560 | 1,244 | 316 | |||||||||
| Total |
6,356 | 7,019 | (663 | ) | ||||||||
Coal production was 6.4 million tons for the three months ended March 31, 2022, compared to 7.0 million tons for the three months ended March 31, 2021. The PAMC's coal production decreased in the period-to-period comparison primarily because the Company ran its five available longwalls in the first quarter of 2021, compared to four available longwalls in the first quarter of 2022, as the Company pulled back development of its fifth longwall during the COVID-19 related demand decline in 2020.
Coal Operations
The PAMC segment's realized coal revenue and cost components on a per unit basis for these periods were as follows:
| Three Months Ended March 31, |
||||||||||||
| 2022 |
2021 |
Variance |
||||||||||
| Total Tons Sold (in millions) |
6.5 | 6.9 | (0.4 | ) | ||||||||
| Average Realized Coal Revenue per Ton Sold (1) |
$ | 59.60 | $ | 41.39 | $ | 18.21 | ||||||
| Average Cash Cost of Coal Sold per Ton (1) |
$ | 29.91 | $ | 24.44 | $ | 5.47 | ||||||
| Depreciation, Depletion and Amortization Costs per Ton Sold (Non-Cash Cost) |
7.57 | 7.41 | 0.16 | |||||||||
| Average Cost of Coal Sold per Ton (1) |
$ | 37.48 | $ | 31.85 | $ | 5.63 | ||||||
| Average Margin per Ton Sold (1) |
$ | 22.12 | $ | 9.54 | $ | 12.58 | ||||||
| Add: Depreciation, Depletion and Amortization Costs per Ton Sold |
7.57 | 7.41 | 0.16 | |||||||||
| Average Cash Margin per Ton Sold (1) |
$ | 29.69 | $ | 16.95 | $ | 12.74 | ||||||
(1) Average cash cost of coal sold per ton and average cost of coal sold per ton are non-GAAP measures, and average realized coal revenue per ton sold, average margin per ton sold and average cash margin per ton sold are operating ratios derived from non-GAAP measures. See “How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures” for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.
Coal Revenue and Realized Coal Revenue
Coal revenue and realized coal revenue was $473 million and $387 million for the three months ended March 31, 2022, respectively, compared to $284 million and $284 million for the three months ended March 31, 2021, respectively. As a result of continued global tightness of coal supply and higher electric power prices, coupled with higher natural gas prices, which is a competitor to the Company's coal product, the Company realized higher pricing on all of its contracts, including domestic contracts, export contracts, and contracts that contain positive electric power-price adjustments. The Company's realized coal revenue for the three months ended March 31, 2022 was also impacted by the settlement of certain commodity derivatives during the quarter, whereas during the prior year period, the Company did not have any commodity derivatives.
Freight Revenue and Freight Expense
Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services to move its coal from the mine to the ultimate sales point. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both $38 million for the three months ended March 31, 2022, compared to $27 million for the three months ended March 31, 2021. The $11 million increase was primarily related to increased transportation pricing from the underlying pricing model, as well as an increase in fuel surcharges.
Unrealized Mark-to-Market Loss on Commodity Derivative Instruments
The Company periodically sells or purchases forward contracts, swaps and options in the over-the-counter coal market in order to manage its exposure to coal prices. The increases in forward API2 coal prices resulted in unrealized mark-to-market losses of $102 million during the three months ended March 31, 2022 related to these commodity derivative contracts. The Company did not experience similar unrealized mark-to-market gains or losses during the three months ended March 31, 2021, as the Company did not previously enter into hedging arrangements to manage its exposure to coal prices.
Cost of Coal Sold
Cost of coal sold is comprised of operating costs related to produced tons sold, along with changes in both the volumes and carrying values of coal inventory. The cost of coal sold includes items such as direct operating costs, royalties and production taxes, direct administration costs and depreciation, depletion, and amortization costs on production assets. Total cost of coal sold was $243 million for the three months ended March 31, 2022, or $24 million higher than the $219 million for the three months ended March 31, 2021. Average cost of coal sold per ton was $37.48 for the three months ended March 31, 2022, compared to $31.85 for the three months ended March 31, 2021. The increase in the total cost of coal sold and average cost of coal sold per ton was primarily due to the ongoing development work associated with the Company's fifth longwall, significant inflationary pressures that continued to weigh on our input costs such as labor, maintenance, supply, contractor and project expenses, and lower operating leverage due to less sales tonnage.
Other Costs
Other costs include items that are assigned to the PAMC segment but are not included in unit costs, such as idle mine costs and coal reserve holding costs. Total other costs increased $7 million in the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was primarily attributable to additional expenses incurred in the current quarter across various categories, none of which were individually material.
Selling, General, and Administrative Costs
The amount of selling, general and administrative costs related to the PAMC segment were $30 million for the three months ended March 31, 2022, compared to $19 million for the three months ended March 31, 2021. The $11 million increase in the period-to-period comparison was primarily related to increased expense under the long-term incentive compensation plan incurred in the three months ended March 31, 2022, due to the Company achieving certain financial metrics, as well as a substantial increase in the Company's share price, compared to the three months ended March 31, 2021.
CONSOL MARINE TERMINAL ANALYSIS:
The CONSOL Marine Terminal segment provides coal export terminal services through the Port of Baltimore. The segment also includes selling, general and administrative activities and interest expense, as well as various other activities assigned to the CONSOL Marine Terminal segment.
The CONSOL Marine Terminal segment had net income of $12 million for the three months ended March 31, 2022, compared to net income of $9 million for the three months ended March 31, 2021. The CONSOL Marine Terminal segment had adjusted EBITDA of $15 million for the three months ended March 31, 2022 compared to an adjusted EBITDA of $12 million for the three months ended March 31, 2021.
| Three Months Ended March 31, |
||||||||||||
| (in millions) |
2022 |
2021 |
Variance |
|||||||||
| Revenue: |
||||||||||||
| Terminal Revenue |
$ | 21 | $ | 18 | $ | 3 | ||||||
| Miscellaneous Other Income |
1 | 1 | — | |||||||||
| Total Revenue and Other Income |
22 | 19 | 3 | |||||||||
| Other Costs and Expenses: |
||||||||||||
| Operating and Other Costs |
5 | 6 | (1 | ) | ||||||||
| Depreciation, Depletion and Amortization |
1 | 1 | — | |||||||||
| Selling, General, and Administrative Costs |
2 | 1 | 1 | |||||||||
| Interest Expense, net |
2 | 2 | — | |||||||||
| Total Other Costs and Expenses |
10 | 10 | — | |||||||||
| Earnings Before Income Tax |
$ | 12 | $ | 9 | $ | 3 | ||||||
| Interest Expense, net |
2 | 2 | — | |||||||||
| Depreciation, Depletion and Amortization |
1 | 1 | — | |||||||||
| Adjusted EBITDA |
$ | 15 | $ | 12 | $ | 3 | ||||||
Terminal revenue consists of sales from the CONSOL Marine Terminal, which is located in the Port of Baltimore, Maryland and provides access to international coal markets. Throughput volumes at the CONSOL Marine Terminal were 3.6 million tons in the three months ended March 31, 2022, compared to 4.1 million tons in the three months ended March 31, 2021. CONSOL Marine Terminal sales were $21 million for the three months ended March 31, 2022, compared to $18 million for the three months ended March 31, 2021. Despite lower throughput tonnage, terminal revenue was improved in the period-to-period comparison, primarily attributable to an increase in the rates charged to process coal at the Terminal due to increased export demand and commodity pricing strength.
OTHER ANALYSIS:
The other segment includes revenue and expenses from various corporate and diversified business activities that are not allocated to the PAMC or the CONSOL Marine Terminal segments. The diversified business activities include the development of the Itmann Mine, the Greenfield Reserves and Resources, closed mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities.
Other business activities had a net loss of $18 million for the three months ended March 31, 2022, compared to a net loss of $25 million for the three months ended March 31, 2021. Other business activities had adjusted EBITDA of ($4) million for the three months ended March 31, 2022 and 2021. Variances are discussed below.
| Three Months Ended |
||||||||||||
| March 31, |
||||||||||||
| (in millions) |
2022 |
2021 |
Variance |
|||||||||
| Revenue: |
||||||||||||
| Coal Revenue - Itmann |
$ | 3 | $ | 2 | $ | 1 | ||||||
| Miscellaneous Other Income |
4 | 2 | 2 | |||||||||
| Gain on Sale of Assets |
6 | 7 | (1 | ) | ||||||||
| Total Revenue and Other Income |
13 | 11 | 2 | |||||||||
| Other Costs and Expenses: |
||||||||||||
| Operating and Other Costs |
12 | 11 | 1 | |||||||||
| Depreciation, Depletion and Amortization |
4 | 4 | — | |||||||||
| Selling, General and Administrative Costs |
5 | 4 | 1 | |||||||||
| Loss (Gain) on Debt Extinguishment |
2 | (1 | ) | 3 | ||||||||
| Interest Expense, net |
12 | 13 | (1 | ) | ||||||||
| Total Other Costs and Expenses |
35 | 31 | 4 | |||||||||
| Loss Before Income Tax |
$ | (22 | ) | $ | (20 | ) | $ | (2 | ) | |||
| Interest Expense, net |
12 | 13 | (1 | ) | ||||||||
| Interest Income |
(1 | ) | (1 | ) | — | |||||||
| Depreciation, Depletion and Amortization |
4 | 4 | — | |||||||||
| Stock-Based Compensation |
1 | 1 | — | |||||||||
| Loss (Gain) on Debt Extinguishment |
2 | (1 | ) | 3 | ||||||||
| Adjusted EBITDA |
$ | (4 | ) | $ | (4 | ) | $ | — | ||||
Coal Revenue - Itmann
Coal revenue consists of the sale of coal mined during the development of the Itmann Mine located in Wyoming County, West Virginia. The increase is due to the significant increase in the price of metallurgical coal in the period-to-period comparison.
Miscellaneous Other Income
Miscellaneous other income was $4 million for the three months ended March 31, 2022, compared to $2 million for the three months ended March 31, 2021. The change is due to the following items:
| Three Months Ended March 31, |
||||||||||||
| (in millions) |
2022 |
2021 |
Variance |
|||||||||
| Royalty Income - Non-Operated Coal |
$ | 1 | $ | 1 | $ | — | ||||||
| Property Easements and Option Income |
1 | — | 1 | |||||||||
| Interest Income |
1 | 1 | — | |||||||||
| Other Income |
1 | — | 1 | |||||||||
| Total Miscellaneous Other Income |
$ | 4 | $ | 2 | $ | 2 |
|
|||||
Gain on Sale of Assets
Gain on sale of assets remained materially consistent in the period-to-period comparison.
Operating and Other Costs
Operating and other costs were $12 million for the three months ended March 31, 2022, compared to $11 million for the three months ended March 31, 2021. Operating and other costs increased in the period-to-period comparison due to the following items:
| Three Months Ended March 31, |
||||||||||||
| (in millions) |
2022 |
2021 |
Variance |
|||||||||
| Employee-Related Legacy Liability Expense |
$ | 2 | $ | 2 | $ | — | ||||||
| Coal Reserve Holding Costs |
2 | 3 | (1 | ) | ||||||||
| Closed and Idle Mines |
1 | 1 | — | |||||||||
| Operating Cost of Coal Sold - Itmann |
3 | 2 | 1 | |||||||||
| Other |
4 | 3 | 1 | |||||||||
| Total Operating and Other Costs |
$ | 12 | $ | 11 | $ | 1 | ||||||
Operating Cost of Coal Sold - Itmann is comprised of operating costs related to produced tons sold, along with changes in both the volumes and carrying values of coal inventory. The costs of coal sold include items such as direct operating costs, royalties and production taxes and direct administration costs. The increase is due to the increased volume of coal mined during the ongoing development of the mine.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization remained materially consistent in the period-to-period comparison.
Selling, General and Administrative Costs
Selling, general and administrative costs are allocated to the Company's Other segment based on a percentage of resources utilized, a percentage of total revenue and a percentage of total projected capital expenditures. Selling, general and administrative expenses remained materially consistent in the period-to-period comparison.
(Loss) Gain on Debt Extinguishment
Loss on debt extinguishment of $2 million and gain on debt extinguishment of $1 million were recognized in the three months ended March 31, 2022 and March 31, 2021, respectively, due to the open market repurchases of the Company's 11.00% Senior Secured Second Lien Notes due 2025, which experienced an increase in prices in the three months ended March 31, 2022 compared to the March 31, 2021.
Interest Expense, net
Interest expense, net of amounts capitalized, remained materially consistent in the period-to-period comparison.
Liquidity and Capital Resources
CONSOL Energy's potential sources of liquidity include cash generated from operations, cash on hand, borrowings under the revolving credit facility and securitization facility (which are discussed below), and, if necessary, the ability to issue additional equity or debt securities. The Company believes that cash generated from these sources will be sufficient to meet its short-term working capital requirements, long-term capital expenditure requirements, and debt servicing obligations, as well as to provide required letters of credit.
The demand for coal has substantially improved since the significant COVID-related demand trough in the second quarter of 2020. During the first quarter of 2022, the Company generated cash flows from operating activities of approximately $148 million and utilized a portion of operating cash flows to retire outstanding indebtedness. More specifically, the Company made debt repayments of $7 million, $6 million and $1 million on its equipment-financed debt, Term Loan A Facility and Term Loan B Facility, respectively. Additionally, the Company spent $26 million to repurchase $25 million in principal amount of its Second Lien Notes. As of March 31, 2022, our total liquidity was $459 million, which comprises $223 million of cash and cash equivalents and the remaining capacity of $236 million on our revolving credit facility.
While many government-imposed shut-downs of non-essential businesses in the United States and abroad have been phased out, in significant population centers in the People's Republic of China lock-down orders have been re-imposed and there is a possibility that additional shut-downs may be reinstated elsewhere if the severity of the pandemic grows. Depressed demand for our coal may also result from a general recession or reduction in overall business activity caused by COVID-19, a significant increase in interest rates or Russia's invasion of Ukraine. A decrease in demand for our coal, the failure of our customers to purchase coal from us that they are obligated to purchase pursuant to existing contracts, or disruptions in the logistics chain preventing us from shipping our coal would have a material adverse effect on our results of operations and financial condition. During the 2021 fiscal year and continuing into 2022, CONSOL Energy has encountered multiple transportation delays as a result of the disruption of the global supply chain and logistics infrastructure. The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of COVID-19 variants, the pace and effectiveness of vaccination efforts and the effectiveness of actions globally to contain or mitigate its effects. We expect this could negatively impact our results of operations, cash flows and financial condition. The Company will continue to take steps it believes are appropriate to mitigate the impact of COVID-19 on its operations, liquidity and financial condition.
As access to capital continues to tighten for the Company's industry as a result of banking, institutional and investor environmental, social and governance (ESG) requirements and limitations, which tend to discourage investment in coal or other fossil fuel companies, the Company expects to maintain adequate liquidity through its operating cash flow and cash and cash equivalents on hand to fund its working capital and capital expenditures in the short-term and long-term. The Company also maintains a revolving credit facility and a securitization facility to diversify its access to liquidity. The Company's cash flow from operations in the first quarter of 2022 was supported by its contracted position, strong spot market activity and its ongoing cost and capital control measures.
The Company started a capital construction project on the coarse refuse disposal area in 2017, which is expected to continue through 2023. The construction on the coarse refuse disposal area is now funded, in part, by the $75 million of tax-exempt solid waste disposal revenue bonds, the proceeds of which were loaned to the Company and which the Company expects to expend over approximately the next two years, as qualified work is completed. Through the first quarter of 2022, the Company utilized restricted cash held in escrow in the amount of $32 million for qualified expenses. The Company has $43 million remaining in restricted cash associated with this financing that will be used to fund future spending on the coarse refuse disposal area. The Company also began construction of the Itmann Mine in the second half of 2019; development mining began in April 2020, and full production is expected following construction of a preparation plant near the mine site, which is planned for completion during the second half of 2022. When fully operational, the Company anticipates approximately 900 thousand product tons per year of high-quality, low-vol coking coal production from the Itmann Mine. The preparation plant being constructed also includes a highly efficient rail loadout and the capability for processing up to an additional 750 thousand to 1 million third-party product tons annually. This potential third-party processing revenue is expected to provide an additional avenue of growth for the Company.
Uncertainty in the financial markets brings additional potential risks to CONSOL Energy. These risks include a reduction of our ability to raise capital in the equity markets, less availability and higher costs of additional credit and potential counterparty defaults. Overall market disruptions, similar to what was experienced in 2020, may impact the Company's collection of trade receivables. As a result, CONSOL Energy regularly monitors the creditworthiness of its customers and counterparties and manages credit exposure through payment terms, credit limits, prepayments and security.
Over the past few years, the insurance and surety markets have been increasingly challenging, particularly for coal companies. We have experienced rising premiums, reduced coverage and/or fewer providers willing to underwrite policies and surety bonds. Terms have generally become more unfavorable, including increases in the amount of collateral required to secure surety bonds. Further cost burdens on our ability to maintain adequate insurance and bond coverage may adversely impact our operations, financial position and liquidity.
The Company initiated an API2 hedging program in the second quarter of 2021. As a precursor to initiating this strategy, market dynamics demonstrated ongoing pricing volatility and a trend toward shorter-term export contracts. Given these factors, the Company has sought to utilize swap arrangements which are designed to mitigate the pricing volatility and secure future cash flows for a portion of 2022 export sales. These swap arrangements partially mitigate the Company's exposure to pricing volatility associated with its spot market export business and certain of its physical contracts which contain variable pricing based on the API2 index.
CONSOL Energy participates in the United Mine Workers of America (the “UMWA”) Combined Benefit Fund and the UMWA 1992 Benefit Plan for which benefits are reflected in the Company's consolidated financial statements when paid. These benefit arrangements may result in additional liabilities that are not recognized on the Consolidated Balance Sheet at March 31, 2022. The various multi-employer benefit plans are discussed in Note 17—Other Employee Benefit Plans in the Notes to the Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. CONSOL Energy's total contributions under the Coal Industry Retiree Health Benefit Act of 1992 were $1,053 and $1,224 for the three months ended March 31, 2022 and 2021, respectively. Based on available information at December 31, 2021, CONSOL Energy's obligation for the UMWA Combined Benefit Fund and 1992 Benefit Plan is estimated to be approximately $46,381. CONSOL Energy also uses a combination of surety bonds, corporate guarantees and letters of credit to secure its financial obligations for employee-related, environmental, performance and various other items which are not reflected on the Consolidated Balance Sheet at March 31, 2022. Management believes these items will expire without being funded. See Note 13—Commitments and Contingent Liabilities in the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q for additional details of the various financial guarantees that have been issued by CONSOL Energy.
The Company is continuing to actively monitor the effects of the ongoing COVID-19 pandemic on its liquidity and capital resources. As disclosed previously and above, we took several steps throughout the COVID-19 pandemic to reinforce our liquidity. From a coal shipment perspective, the decline in coal demand seemed to have hit its lowest point in May 2020 and has since shown significant improvement. However, if the demand for our coal decreases due to future COVID-19 variants or any potential government-induced lockdowns, this could adversely affect our liquidity in future periods. Our Revolving Credit Facility, Term Loan A Facility, Term Loan B Facility, Securitization Facility and the Indenture entered into in connection with our 11.00% Senior Secured Second Lien Notes due 2025 (collectively, the “Credit Facilities”) contain certain financial covenants. Events resulting from the effects of COVID-19 may negatively impact our liquidity and, as a result, our ability to comply with these covenants, which were amended during the second quarter of 2020. These events could lead us to seek further amendments or waivers from our lenders, limit access to or require accelerated repayment of amounts borrowed under the Credit Facilities, or require us to pursue alternative financing. We have no assurance that any such alternative financing, if required, could be obtained at terms acceptable to us, or at all, as a result of the effects of COVID-19 on capital markets at such time.
Cash Flows (in millions)
| Three Months Ended March 31, |
|||||||||
| 2022 |
2021 |
Change |
|||||||
| Cash Provided by Operating Activities |
$ | 148 | $ | 78 | $ | 70 | |||
| Cash Used in Investing Activities |
$ | (31 | ) | $ | (5 | ) | $ | (26 | ) |
| Cash Used in Financing Activities |
$ | (46 | ) | $ | (32 | ) | $ | (14 | ) |
Cash provided by operating activities increased $70 million in the period-to-period comparison, primarily due to a $63 million increase in Adjusted EBITDA, as well as other working capital changes that occurred throughout both periods.
Cash used in investing activities increased $26 million in the period-to-period comparison. Capital expenditures increased $23 million primarily due to the construction of a preparation plant near the Itmann Mine. Further details regarding the Company's capital expenditures are set forth below.
| Three Months Ended March 31, |
||||||||||||
| 2022 |
2021 |
Change |
||||||||||
| Building and Infrastructure |
$ | 26 | $ | 7 | $ | 19 | ||||||
| Equipment Purchases and Rebuilds |
5 | 4 | 1 | |||||||||
| Solid Waste Disposal Project |
2 | 2 | — | |||||||||
| IS&T Infrastructure |
1 | 1 | — | |||||||||
| Other |
3 | — | 3 | |||||||||
| Total Capital Expenditures |
$ | 37 | $ | 14 | $ | 23 | ||||||
Cash flows used in financing activities increased $14 million in the period-to-period comparison, primarily driven by an increase in net payments on indebtedness due to the Company's ongoing de-leveraging efforts.
Senior Secured Credit Facilities
In November 2017, the Company entered into a revolving credit facility with PNC Bank, N.A. with commitments up to $300 million (the “Revolving Credit Facility”), a Term Loan A Facility of up to $100 million (the “TLA Facility”) and a Term Loan B Facility of up to $400 million (the “TLB Facility”, and together with the Revolving Credit Facility and the TLA Facility, the “Senior Secured Credit Facilities”). On March 28, 2019, the Company amended the Senior Secured Credit Facilities to increase the borrowing commitment of the Revolving Credit Facility to $400 million and reallocate the principal amounts outstanding under the TLA Facility and the TLB Facility. On June 5, 2020, the Company amended the Senior Secured Credit Facilities (the “amendment”) to provide eight quarters of financial covenant relaxation, effect an increase in the rate at which borrowings under the Revolving Credit Facility and the TLA Facility bear interest, and add an anti-cash hoarding provision. On March 29, 2021, the Company amended the Senior Secured Credit Facilities to revise the negative covenant with respect to other indebtedness to allow the Company to incur obligations under the tax-exempt solid waste disposal revenue bonds. Borrowings under the Company's Senior Secured Credit Facilities bear interest at a floating rate which can be, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an alternate base rate plus an applicable margin. The applicable margin for the Revolving Credit Facility and TLA Facility depends on the total net leverage ratio, whereas the applicable margin for the TLB Facility is fixed. The amendment increased the applicable margin by 50 basis points on both the Revolving Credit Facility and the TLA Facility. The administrative agents of our senior secured credit facilities, in consultation with CONSOL, will choose a replacement index for LIBOR and the parties will execute an amendment to the facilities. LIBOR tenors of 1-week and 2-month have been discontinued as of December 31, 2021. However, LIBOR will still be published in its current form for the overnight, 1-month, 3-month, 6-month and 12-month tenors with a planned cessation after June 30, 2023. In the event that LIBOR would no longer be a published rate index, the allowable alternative base rate and replacement index may increase our interest costs associated with those facilities. The maturity date of the Revolving Credit and TLA Facilities is March 28, 2023. The TLB Facility's maturity date is September 28, 2024. In June 2019, the TLA Facility began amortizing in equal quarterly installments of (i) 3.75% of the original principal amount thereof, for four consecutive quarterly installments commencing with the quarter ended June 30, 2019, (ii) 6.25% of the original principal amount thereof for the subsequent eight quarterly installments commencing with the quarter ended June 30, 2020 and (iii) 8.75% of the original principal amount thereof for the quarterly installments thereafter, with the remaining balance due at final maturity. In June 2019, the TLB Facility began amortizing in equal quarterly installments in an amount equal to 0.25% per annum of the amended principal amount thereof, with the remaining balance due at final maturity.
Obligations under the Senior Secured Credit Facilities are guaranteed by (i) all owners of the PAMC held by the Company, (ii) any other members of the Company’s group that own any portion of the collateral securing the Revolving Credit Facility, and (iii) subject to certain customary exceptions and agreed materiality thresholds, all other existing or future direct or indirect wholly-owned restricted subsidiaries of the Company. The obligations are secured by, subject to certain exceptions (including a limitation of pledges of equity interests in certain subsidiaries and certain thresholds with respect to real property), a first-priority lien on (i) the Company’s interest in the Pennsylvania Mining Complex, (ii) the equity interests in the Partnership held by the Company, (iii) the CONSOL Marine Terminal, (iv) the Itmann Mine, and (v) the 1.4 billion tons of Greenfield Reserves and Resources. The Senior Secured Credit Facilities contain a number of customary affirmative covenants. In addition, the Senior Secured Credit Facilities contain a number of negative covenants, including (subject to certain exceptions) limitations on (among other things): indebtedness, liens, investments, acquisitions, dispositions, restricted payments, and prepayments of junior indebtedness. The amendment added additional conditions to be met for the covenants relating to investments in joint ventures, general investments, share repurchases, dividends, and repurchases of the Second Lien Notes (as defined below). The additional conditions require no outstanding borrowings and no more than $200 million of outstanding letters of credit on the Revolving Credit Facility. Further restrictions apply to investments in joint ventures, share repurchases and dividends that require the total net leverage ratio shall not be greater than 2.00 to 1.00.
The Revolving Credit Facility and the TLA Facility also include financial covenants, including (i) a maximum first lien gross leverage ratio, (ii) a maximum total net leverage ratio, and (iii) a minimum fixed charge coverage ratio. The maximum first lien gross leverage ratio is calculated as the ratio of Consolidated First Lien Debt to Consolidated EBITDA. Consolidated EBITDA, as used in the covenant calculation, excludes non-cash compensation expenses, nonrecurring transaction expenses, extraordinary gains and losses, gains and losses on discontinued operations, non-cash charges related to legacy employee liabilities and gains and losses on debt extinguishment, and subtracts cash payments related to legacy employee liabilities. The maximum total net leverage ratio is calculated as the ratio of Consolidated Indebtedness, minus Cash on Hand, to Consolidated EBITDA. The minimum fixed charge coverage ratio is calculated as the ratio of Consolidated EBITDA to Consolidated Fixed Charges. Consolidated Fixed Charges, as used in the covenant calculation, include cash interest payments, cash payments for income taxes, scheduled debt repayments, dividends paid, and Maintenance Capital Expenditures. The amendment revised the financial covenants applicable to the Revolving Credit Facility and the TLA Facility relating to the maximum first lien gross leverage ratio, the maximum total net leverage ratio and the minimum fixed charge coverage ratio, so that among other things:
| • |
for the fiscal quarters ending June 30, 2021 through March 31, 2022, the minimum fixed charge coverage ratio shall be 1.05 to 1.00; |
|
| • |
for the fiscal quarters ending December 31, 2021 through March 31, 2022, the maximum first lien gross leverage ratio shall be 2.00 to 1.00 and the maximum total net leverage ratio shall be 3.25 to 1.00; and |
| • |
for the fiscal quarters ending on or after June 30, 2022, the maximum first lien gross leverage ratio shall be 1.75 to 1.00, the maximum total net leverage ratio shall be 2.75 to 1.00 and the minimum fixed charge coverage ratio shall be 1.10 to 1.00. |
The Company's first lien gross leverage ratio was 0.79 to 1.00 at March 31, 2022. The Company's total net leverage ratio was 0.99 to 1.00 at March 31, 2022. The Company's fixed charge coverage ratio was 2.09 to 1.00 at March 31, 2022. Accordingly, the Company was in compliance with all of its financial covenants under the Senior Secured Credit Facilities as of March 31, 2022.
The TLB Facility also includes a financial covenant that requires the Company to repay a certain amount of its borrowings under the TLB Facility within ten business days after the date it files its Annual Report on Form 10-K with the Securities and Exchange Commission (“SEC”) if the Company has excess cash flow (as defined in the credit agreement for the Senior Secured Credit Facilities) during the year covered by the applicable Annual Report on Form 10-K. The required repayment is equal to a certain percentage of the Company’s excess cash flow for such year, ranging from 0% to 75% depending on the Company’s total net leverage ratio, less the amount of certain voluntary prepayments made by the Company, if any, under the TLB Facility during such fiscal year. There was no required payment during the three months ended March 31, 2022 with respect to the year ended December 31, 2021.
During the year ended December 31, 2019, the Company entered into interest rate swaps, which effectively converted $150 million of the TLB Facility's floating interest rate to a fixed interest rate for the twelve months ending December 31, 2020 and 2021, and $50 million of the TLB Facility's floating interest rate to a fixed interest rate for the twelve months ending December 31, 2022.
The Senior Secured Credit Facilities contain customary events of default, including with respect to a failure to make payments when due, cross-default and cross-judgment default and certain bankruptcy and insolvency events.
At March 31, 2022, there were no borrowings outstanding under the Revolving Credit Facility and the facility is currently only used for providing letters of credit, with $164 million of letters of credit outstanding, leaving $236 million of unused capacity. From time to time, CONSOL Energy is required to post financial assurances to satisfy contractual and other requirements generated in the normal course of business. Some of these assurances are posted to comply with federal, state or other government agencies' statutes and regulations. CONSOL Energy sometimes uses letters of credit to satisfy these requirements and these letters of credit reduce the Company's borrowing facility capacity.
Securitization Facility
On November 30, 2017, (1)(i) CONSOL Marine Terminals LLC, as an originator of receivables, (ii) CONSOL Pennsylvania Coal Company LLC (“CONSOL Pennsylvania”), as an originator of receivables and as initial servicer of the receivables for itself and the other originators (collectively, the “Originators”), each a wholly-owned subsidiary of CONSOL Energy, and (iii) CONSOL Funding LLC (the “SPV”), a Delaware special purpose entity and wholly-owned subsidiary of CONSOL Energy, as buyer, entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) and (2)(i) CONSOL Thermal Holdings LLC, an indirect, wholly-owned subsidiary of the Partnership, as sub-originator (the “Sub-Originator”), and (ii) CONSOL Pennsylvania, as buyer and as initial servicer of the receivables for itself and the Sub-Originator, entered into a Sub-Originator Sale Agreement (the “Sub-Originator PSA”). In addition, on November 30, 2017, the SPV entered into a Receivables Financing Agreement (the “Receivables Financing Agreement”) by and among (i) the SPV, as borrower, (ii) CONSOL Pennsylvania, as initial servicer, (iii) PNC Bank, as administrative agent, LC Bank and lender, and (iv) the additional persons from time to time party thereto as lenders. Together, the Purchase and Sale Agreement, the Sub-Originator PSA and the Receivables Financing Agreement establish the primary terms and conditions of an accounts receivable securitization program (the “Securitization”). In March 2020, the securitization facility was amended to, among other things, extend the maturity date from August 30, 2021 to March 27, 2023.
Pursuant to the Securitization, (i) the Sub-Originator sells current and future trade receivables to CONSOL Pennsylvania and (ii) the Originators sell and/or contribute current and future trade receivables (including receivables sold to CONSOL Pennsylvania by the Sub-Originator) to the SPV and the SPV, in turn, pledges its interests in the receivables to PNC Bank, N.A., which either makes loans or issues letters of credit on behalf of the SPV. The maximum amount of advances and letters of credit outstanding under the Securitization may not exceed $100 million.
Loans under the Securitization accrue interest at a reserve-adjusted LIBOR market index rate equal to the one-month Eurodollar rate. Loans and letters of credit under the Securitization also accrue a program fee and a letter of credit participation fee, respectively, ranging from 2.00% to 2.50% per annum depending on the total net leverage ratio of CONSOL Energy. In addition, the SPV paid certain structuring fees to PNC Capital Markets LLC and will pay other customary fees to the lenders, including a fee on unused commitments equal to 0.60% per annum.
The SPV’s assets and credit are not available to satisfy the debts and obligations owed to the creditors of CONSOL Energy, the Sub-Originator or any of the Originators. The Sub-Originator, the Originators and CONSOL Pennsylvania as servicer are independently liable for their own customary representations, warranties, covenants and indemnities. In addition, CONSOL Energy has guaranteed the performance of the obligations of the Sub-Originator, the Originators and CONSOL Pennsylvania as servicer, and will guarantee the obligations of any additional originators or successor servicer that may become party to the Securitization. However, neither CONSOL Energy nor its affiliates will guarantee collectability of receivables or the creditworthiness of obligors thereunder.
The agreements comprising the Securitization contain various customary representations and warranties, covenants and default provisions which provide for the termination and acceleration of the commitments and loans under the Securitization in certain circumstances including, but not limited to, failure to make payments when due, breach of representation, warranty or covenant, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other material indebtedness.
At March 31, 2022, eligible accounts receivable yielded $30 million of borrowing capacity. At March 31, 2022, the facility had no outstanding borrowings and approximately $30 million of letters of credit outstanding, leaving $177 thousand of unused capacity. Costs associated with the receivables facility totaled $275 thousand for the three months ended March 31, 2022. These costs have been recorded as financing fees which are included in Operating and Other Costs in the Consolidated Statements of Income. The Company has not derecognized any receivables due to its continued involvement in the collections efforts.
11.00% Senior Secured Second Lien Notes due 2025
On November 13, 2017, the Company issued $300 million in aggregate principal amount of 11.00% Senior Secured Second Lien Notes due 2025 (the “Second Lien Notes”) pursuant to an indenture (the “Indenture”) dated as of November 13, 2017, by and between the Company and UMB Bank, N.A., a national banking association, as trustee and collateral trustee (the “Trustee”). On November 28, 2017, certain subsidiaries of the Company executed a supplement to the Indenture and became party to the Indenture as a guarantor (the “Guarantors”). The Second Lien Notes are secured by second priority liens on substantially all of the assets of the Company and the Guarantors that are pledged on a first-priority basis as collateral securing the Company’s obligations under the Senior Secured Credit Facilities (described above), subject to certain exceptions under the Indenture.
Since November 15, 2021, the Company has been permitted to redeem all or part of the Second Lien Notes at the redemption prices set forth below, plus accrued and unpaid interest, if any, to, but not including, the redemption date (subject to the rights of holders of the Second Lien Notes on the relevant record date to receive interest due on the relevant interest payment date), beginning on November 15 of the years indicated:
| Year |
Percentage |
||
| 2021 |
105.50% | ||
| 2022 |
102.75% | ||
| 2023 and thereafter |
100.00% |
Prior to November 15, 2021, the Company was permitted to redeem all or a part of the Second Lien Notes, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium, as defined in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the redemption date (subject to the rights of holders of the Second Lien Notes on the relevant record date to receive interest due on the relevant interest payment date). As of March 31, 2022, the Company has not redeemed the Second Lien Notes, in part or in full, but it has repurchased Second Lien Notes under its stock and debt repurchase program.
The Indenture contains covenants that limit the ability of the Company and the Guarantors, to (i) incur, assume or guarantee additional indebtedness or issue preferred stock; (ii) create liens to secure indebtedness; (iii) declare or pay dividends on the Company’s common stock, redeem stock or make other distributions to the Company’s stockholders; (iv) make investments; (v) restrict dividends, loans or other asset transfers from the Company’s restricted subsidiaries; (vi) merge or consolidate, or sell, transfer, lease or dispose of substantially all of the Company’s assets; (vii) sell or otherwise dispose of certain assets, including equity interests in subsidiaries; (viii) enter into transactions with affiliates; and (ix) create unrestricted subsidiaries. These covenants are subject to important exceptions and qualifications. If the Second Lien Notes achieve an investment grade rating from both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc. and no default under the Indenture exists, many of the foregoing covenants will terminate and cease to apply. The Indenture also contains customary events of default, including (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due of principal or premium, if any, on the Notes at maturity, upon redemption or otherwise; (iii) covenant defaults; (iv) cross-defaults to certain indebtedness, and (v) certain events of bankruptcy or insolvency with respect to the Company or any of the Guarantors. If an event of default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Second Lien Notes may declare all the Notes to be due and payable immediately. If an event of default arises from certain events of bankruptcy or insolvency, with respect to the Company, any restricted subsidiary of the Company that is a significant subsidiary or any group of restricted subsidiaries of the Company that, taken together, would constitute a significant subsidiary, all outstanding Second Lien Notes will become due and payable immediately without further action or notice.
If the Company experiences certain kinds of changes of control, holders of the Second Lien Notes will be entitled to require the Company to repurchase all or any part of that holder’s Second Lien Notes pursuant to an offer on the terms set forth in the Indenture. The Company will offer to make a cash payment equal to 101% of the aggregate principal amount of the Second Lien Notes repurchased plus accrued and unpaid interest on the Second Lien Notes repurchased to, but not including, the date of purchase, subject to the rights of holders of the Notes on the relevant record date to receive interest due on the relevant interest payment date.
The Second Lien Notes were issued in a private offering that was exempt from the registration requirements of the Securities Act to qualified institutional buyers in accordance with Rule 144A and to persons outside of the United States pursuant to Regulation S under the Securities Act.
Pennsylvania Economic Development Financing Authority Bonds
In April 2021, CONSOL Energy borrowed the proceeds received from the sale of tax-exempt bonds issued by the Pennsylvania Economic Development Financing Authority ("PEDFA") in aggregate principal amount of $75 million. The PEDFA Bonds bear interest at a fixed rate of 9.00% for an initial term of seven years. The PEDFA Bonds mature on April 1, 2051 but are subject to mandatory purchase by the Company on April 13, 2028, at the expiration of the initial term rate period. The PEDFA Bonds were issued pursuant to an indenture (the “PEDFA Indenture”) dated as of April 1, 2021, by and between PEDFA and Wilmington Trust, N.A., a national banking association, as trustee (the “PEDFA Notes Trustee”). PEDFA made a loan of the proceeds of the PEDFA Bonds to the Company pursuant to a Loan Agreement (the “Loan Agreement”) dated as of April 1, 2021 between PEDFA and the Company. Under the terms of the Loan Agreement, the Company agreed to make all payments of principal, interest and other amounts at any time due on the PEDFA Bonds or under the PEDFA Indenture. PEDFA assigned its rights as lender under the Loan Agreement, excluding certain reserved rights, to the PEDFA Notes Trustee. Certain subsidiaries of the Company (the “PEDFA Notes Guarantors”) executed a Guaranty Agreement (the “Guaranty”) dated as of April 1, 2021 in favor of the PEDFA Notes Trustee, guarantying the obligations of the Company under the Loan Agreement to pay the PEDFA Bonds when and as due. The obligations of the Company under the Loan Agreement and of the PEDFA Notes Guarantors under the Guaranty are secured by second priority liens on substantially all of the assets of the Company and the PEDFA Notes Guarantors on parity with the Second Lien Notes. The Loan Agreement and Guaranty incorporate by reference covenants in the Indenture under which the Second Lien Notes were issued (discussed previously).
Material Cash Requirements
CONSOL Energy expects to make payments of $79,041 on its long-term debt obligations, including interest, in the next 12 months. Refer to Note 13 – Long-Term Debt of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information concerning material cash requirements in future years. CONSOL Energy expects to make payments of $34,769 on its operating and finance lease obligations, including interest, in the next 12 months. Refer to Note 14 – Leases of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information concerning material cash requirements in future years. CONSOL Energy expects to make payments of $46,371 on its employee-related long-term liabilities in 2022. Refer to Note 15 – Pension and Other Postretirement Benefit Plans and Note 16 – Coal Workers’ Pneumoconiosis and Workers’ Compensation of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information concerning material cash requirements in future years. CONSOL Energy believes it will be able to satisfy these material requirements with cash generated from operations, cash on hand, borrowings under the revolving credit facility and securitization facility, and, if necessary, cash generated from its ability to issue additional equity or debt securities.
Debt
At March 31, 2022, CONSOL Energy had total long-term debt and finance lease obligations of $627 million outstanding, including the current portion of long-term debt of $62 million. This long-term debt consisted of:
| • |
An aggregate principal amount of $239 million in connection with the TLB Facility, due in September 2024, less $1 million of unamortized discount. Borrowings under the TLB Facility bear interest at a floating rate. |
| • |
An aggregate principal amount of $124 million of 11.00% Senior Secured Second Lien Notes due in November 2025. Interest on the notes is payable May 15 and November 15 of each year. |
| • |
An aggregate principal amount of $103 million of industrial revenue bonds which were issued to finance the Baltimore port facility, which bear interest at 5.75% per annum and mature in September 2025. Interest on the industrial revenue bonds is payable March 1 and September 1 of each year. Payment of the principal and interest on the notes is guaranteed by CONSOL Energy. |
| • | An aggregate principal amount of $75 million of tax-exempt solid waste disposal revenue bonds, which were issued to finance the ongoing expansion of the coal refuse disposal area at the Bailey Preparation Plant, which bear interest at 9.00% per annum for an initial term of seven years and mature in April 2051. Interest on the tax-exempt solid waste disposal revenue bonds is payable on February 1 and August 1 of each year. | |
| • | An aggregate principal amount of $35 million in connection with the TLA Facility, due in March 2023. Borrowings under the TLA Facility bear interest at a floating rate. | |
| • | An aggregate principal amount of $45 million of finance leases with a weighted average interest rate of 6.28%. | |
| • | Advanced royalty commitments of $5 million with a weighted average interest rate of 8.01% per annum. | |
| • |
An aggregate principal amount of $2 million of asset-backed financing arrangements due in September 2024 at an interest rate of 3.61%. |
At March 31, 2022, CONSOL Energy had no borrowings outstanding and approximately $164 million of letters of credit outstanding under the $400 million senior secured Revolving Credit Facility. At March 31, 2022, CONSOL Energy had no borrowings outstanding and approximately $30 million of letters of credit outstanding under the $100 million Securitization Facility.
Stock and Debt Repurchases
In December 2017, CONSOL Energy’s Board of Directors approved a program to repurchase, from time to time, the Company's outstanding shares of common stock or its Second Lien Notes. Since its inception, the Company's Board of Directors has subsequently amended the program several times, the most recent of which amendment in April 2021 raised the aggregate limit of the Company's repurchase authority to $320 million and extended the program until December 31, 2022.
Under the terms of the program, CONSOL Energy is permitted to make repurchases in the open market, in privately negotiated transactions, accelerated repurchase programs or in structured share repurchase programs. CONSOL Energy is also authorized to enter into one or more 10b5-1 plans with respect to any of the repurchases. Any repurchases of common stock or notes are to be funded from available cash on hand or short-term borrowings. The program does not obligate CONSOL Energy to acquire any particular amount of its common stock or notes, and can be modified or suspended at any time at the Company’s discretion. The program is conducted in compliance with applicable legal requirements and within the limits imposed by any credit agreement, receivables purchase agreement, indenture or the tax matters agreement and is subject to market conditions and other factors.
During the three months ended March 31, 2022, the Company spent approximately $26 million to retire $25 million of its Second Lien Notes. No shares of common stock were repurchased under this program during the three months ended March 31, 2022.
Total Equity and Dividends
Total equity attributable to CONSOL Energy was $668 million at March 31, 2022 and $673 million at December 31, 2021. See the Consolidated Statements of Stockholders' Equity in Item 1 of this Form 10-Q for additional details.
The declaration and payment of dividends by CONSOL Energy is subject to the discretion of CONSOL Energy's Board of Directors, and no assurance can be given that CONSOL Energy will pay dividends in the future. The determination to pay dividends in the future will depend upon, among other things, general business conditions, CONSOL Energy's financial results, contractual and legal restrictions regarding the payment of dividends by CONSOL Energy, planned investments by CONSOL Energy and such other factors as the Board of Directors deems relevant. The Company's Senior Secured Credit Facilities limit CONSOL Energy's ability to pay dividends up to $25 million annually, which increases to $50 million annually when the Company's total net leverage ratio is less than 1.50 to 1.00 and subject to an aggregate amount up to a cumulative credit calculation set forth in the facilities, with additional conditions of no outstanding borrowings and no more than $200 million of outstanding letters of credit on the Revolving Credit Facility, and the total net leverage ratio shall not be greater than 2.00 to 1.00. The total net leverage ratio was 0.99 to 1.00 and the cumulative credit was approximately $199 million at March 31, 2022. The cumulative credit starts with $50 million and builds with excess cash flow commencing in 2018. Separately, the Indenture to the Second Lien Notes limits dividends when the Company's total net leverage ratio exceeds 2.00 to 1.00 and subject to an amount not to exceed an annual rate of 4.0% of the quoted public market value per share of such common stock at the time of the declaration.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of the federal securities laws. With the exception of historical matters, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that involve risks and uncertainties that could cause actual results and outcomes to differ materially from results expressed in or implied by our forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. When we use the words “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “vision,” “will,” or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following:
| • | deterioration in economic conditions in any of the industries in which our customers operate may decrease demand for our products, impair our ability to collect customer receivables and impair our ability to access capital; | |
| • | volatility and wide fluctuation in coal prices based upon a number of factors beyond our control including future plans to eliminate coal-fired generation activities, oversupply relative to the demand available for our products, weather and the price and availability of alternative fuels; |
|
| • |
the effects the COVID-19 pandemic has on our business and results of operations and on the global economy; |
| • |
an extended decline in the prices we receive for our coal affecting our operating results and cash flows; |
| • |
significant downtime of our equipment or inability to obtain equipment, parts or raw materials; |
| • |
decreases in the availability of, or increases in the price of, commodities or capital equipment used in our coal mining operations; |
| • |
our customers extending existing contracts or entering into new long-term contracts for coal on favorable terms; |
| • |
our reliance on major customers; |
| • |
our inability to collect payments from customers if their creditworthiness declines or if they fail to honor their contracts; |
| • |
our inability to acquire additional coal reserves or resources that are economically recoverable; |
| • |
decreases in demand and changes in coal consumption patterns of electric power generators; |
| • |
the availability and reliability of transportation facilities and other systems, disruption of rail, barge, processing and transportation facilities and other systems that deliver our coal to market and fluctuations in transportation costs; |
| • |
a loss of our competitive position because of the competitive nature of coal industries, or a loss of our competitive position because of overcapacity in these industries impairing our profitability; |
| • |
foreign currency fluctuations that could adversely affect the competitiveness of our coal abroad; |
| • |
recent action and the possibility of future action on trade made by U.S. and foreign governments; |
| • | our inability to complete the construction of the Itmann Mine on time or at all; | |
| • |
the risks related to the fact that a significant portion of our production is sold in international markets and our compliance with export control and anticorruption laws; |
| • |
coal users switching to other fuels in order to comply with various environmental standards related to coal combustion emissions; |
| • |
the impact of potential, as well as any adopted, regulations to address climate change, including any relating to greenhouse gas emissions, on our operating costs as well as on the market for coal; |
| • |
the effects of litigation seeking to hold energy companies accountable for the effects of climate change; |
| • |
the effects of government regulation on the discharge into the water or air, and the disposal and clean-up of, hazardous substances and wastes generated during our coal operations; |
| • |
the risks inherent in coal operations, including being subject to unexpected disruptions caused by adverse geological conditions, equipment failures, delays in moving out longwall equipment, railroad derailments, security breaches or terroristic acts and other hazards, delays in the completion of significant construction or repair of equipment, fires, explosions, seismic activities, accidents and weather conditions; |
| • |
failure to obtain or renew surety bonds on acceptable terms, which could affect our ability to secure reclamation and coal lease obligations; |
| • |
failure to obtain adequate insurance coverages; |
| • |
substantially all of our operations being located in a single geographic area; |
| • |
the effects of coordinating our operations with oil and natural gas drillers and distributors operating on our land; |
| • |
our inability to obtain financing for capital expenditures on satisfactory terms; |
| • |
the potential effects of receiving low environmental, social and governance (“ESG”) scores which potentially results in the exclusion of our securities from consideration by certain investment funds and a negative perception by investors; |
| • |
the effect of new or existing tariffs and other trade measures; |
| • |
our inability to find suitable acquisition targets or integrating the operations of future acquisitions into our operations; |
| • |
obtaining, maintaining and renewing governmental permits and approvals for our coal operations; |
| • |
the effects of stringent federal and state employee health and safety regulations, including the ability of regulators to shut down our operations; |
| • |
the potential for liabilities arising from environmental contamination or alleged environmental contamination in connection with our past or current coal operations; |
| • |
the effects of asset retirement obligations and certain other liabilities; |
| • |
uncertainties in estimating our economically recoverable coal reserves; |
| • |
the outcomes of various legal proceedings, including those which are more fully described herein; |
| • |
defects in our chain of title for our undeveloped reserves or failure to acquire additional property to perfect our title to coal rights; |
| • |
exposure to employee-related long-term liabilities; |
| • |
the risk of our debt agreements, our debt and changes in interest rates affecting our operating results and cash flows; |
| • |
the effects of hedging transactions on our cash flow; |
| • |
information theft, data corruption, operational disruption and/or financial loss resulting from a terrorist attack or cyber incident; |
| • |
certain provisions in our multi-year coal sales contracts may provide limited protection during adverse economic conditions, and may result in economic penalties or permit the customer to terminate the contract; |
| • |
the potential failure to retain and attract qualified personnel of the Company and a possible increased reliance on third-party contractors as a result; |
| • |
failure to maintain effective internal controls over financial reporting; |
| • |
uncertainty with respect to the Company’s common stock, potential stock price volatility and future dilution; |
| • |
the consequences of a lack of, or negative, commentary about us published by securities analysts and media; |
| • |
uncertainty regarding the timing of any dividends we may declare; |
| • |
uncertainty as to whether we will repurchase shares of our common stock or outstanding debt securities; |
| • |
restrictions on the ability to acquire us in our certificate of incorporation, bylaws and Delaware law and the resulting effects on the trading price of our common stock; |
| • |
inability of stockholders to bring legal action against us in any forum other than the state courts of Delaware; and |
| • |
other unforeseen factors. |
The above list of factors is not exhaustive or necessarily in order of importance. Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements include those discussed under “Risk Factors” elsewhere in this report and the other filings we make with the SEC. The Company disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposures to market risk have not materially changed since December 31, 2021. Please see these quantitative and qualitative disclosures about market risk in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
CONSOL Energy, under the supervision and with the participation of its management, including CONSOL Energy's principal executive officer and principal financial officer, evaluated the effectiveness of the Company's “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, CONSOL Energy's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures are effective as of March 31, 2022 to ensure that information required to be disclosed by CONSOL Energy in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and includes controls and procedures designed to ensure that information required to be disclosed by CONSOL Energy in such reports is accumulated and communicated to CONSOL Energy's management, including CONSOL Energy's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
During the fiscal quarter covered by this Quarterly Report on Form 10-Q, there were no changes in the Company's internal controls over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act, that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.
PART II: OTHER INFORMATION
Our operations are subject to a variety of risks and disputes normally incidental to our business. As a result, we may, at any given time, be a defendant in various legal proceedings and litigation arising in the ordinary course of business. However, we are not currently subject to any material litigation, except as disclosed in Note 13 - Commitments and Contingent Liabilities in the Notes to the Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q, incorporated herein by this reference.
In addition to the other information set forth in this quarterly report, including the risk factor set forth below, you should carefully consider the factors described in “Part 1 - Item 1A. Risk Factors” of CONSOL Energy's 2021 Form 10-K, as updated by any subsequent Form 10-Qs. These described risks are not the only risks the Company faces. Additional risks and uncertainties not currently known to CONSOL Energy or that the Company currently deems to be immaterial also may materially adversely affect CONSOL Energy's business, financial condition and/or operating results.
The Russia-Ukraine war, and sanctions brought by the United States and other countries against Russia, have caused significant market disruptions that may lead to increased volatility in the price of certain commodities, including oil, natural gas, coal and other sources of energy.
February 24, 2022 marked a significant escalation in the Russia-Ukraine war. The extent and duration of the military conflict involving Russia and Ukraine, resulting sanctions and future market or supply disruptions in the region, are impossible to predict, but could be significant and may have a severe adverse effect on the region. Globally, various governments have banned imports from Russia including commodities such as oil, natural gas and coal. These events have caused volatility in the aforementioned commodity markets. Although the Company has not experienced any material adverse effect on its results of operations, financial condition or cash flows as a result of the war or the resulting volatility as of the date of this report, such volatility, including market expectations of potential changes in coal prices and inflationary pressures on steel products, may significantly affect prices for our coal or the cost of supplies and equipment, as well as the prices of competing sources of energy for our electric power plant customers, like natural gas.
The war, trade and monetary sanctions, as well as any escalation of the conflict and future developments, could significantly affect worldwide market prices and demand for our coal and cause turmoil in the capital markets and generally in the global financial system. This could have a material adverse effect on our business, financial condition and results of operations, along with our operating costs, making it difficult to execute our planned capital expenditure program. Additionally, the geopolitical and macroeconomic consequences of the war and associated sanctions cannot be predicted, but could severely impact the world economy. If any of these events occur, the resulting political instability and societal disruption could reduce overall demand for coal-fired electricity, steel made through the use of metallurgical coal or our coal generally, causing a reduction in our revenues or an increase in our costs and thereby materially and adversely affecting our results of operations, financial condition and cash flows.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no repurchases of the Company's equity securities during the three months ended March 31, 2022. Since the December 2017 inception of the Company's current stock and debt repurchase program, CONSOL Energy Inc.'s Board of Directors has approved a $320 million stock and debt repurchase program, which terminates on December 31, 2022. As of May 3, 2022, approximately $101 million remained available under the stock and debt repurchase program. The program does not obligate CONSOL Energy to acquire any particular amount of its common stock or notes, and can be modified or suspended at any time at the Company’s discretion. See Note 17 - Stock and Debt Repurchases in the Notes to the Consolidated Financial Statements in Item 1 of this Form 10-Q for more information.
Limitation Upon Payment of Dividends
The Indenture and the Senior Secured Credit Facilities include certain covenants limiting the Company's ability to declare and pay dividends.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
None.
| Exhibits |
Description |
Method of Filing |
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| 10.1 | Second Amendment to Employment Agreement of James A. Brock* | Filed as Exhibit 10.44 to Form 10-K (File No. 001-38147) filed on February 11, 2022 |
| 10.2 | Form Notice of Performance Based Cash Award and Terms and Conditions* | Filed herewith |
| 10.3 | Form Notice of Restricted Stock Unit Award and Terms and Conditions* | Filed herewith |
| 10.4 | 2022 Executive Short-Term Incentive Program Terms and Conditions* | Filed herewith |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Filed herewith |
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| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Filed herewith |
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| 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 |
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| 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 |
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| Mine Safety and Health Administration Safety Data |
Filed herewith |
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| 101 |
Interactive Data File (Form 10-Q for the quarterly period ended March 31, 2022, furnished in Inline XBRL) |
Filed herewith |
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| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL) |
Contained in Exhibit 101 |
*Indicates management contract or compensatory plan or arrangement
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.
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CONSOL ENERGY INC. |
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| May 3, 2022 |
By: |
/s/ JAMES A. BROCK |
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James A. Brock |
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Director, Chief Executive Officer and President (Principal Executive Officer) |
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| May 3, 2022 | By: |
/s/ MITESHKUMAR B. THAKKAR |
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Miteshkumar B. Thakkar |
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Chief Financial Officer (Principal Financial Officer) |
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| May 3, 2022 | By: |
/s/ JOHN M. ROTHKA |
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John M. Rothka |
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Chief Accounting Officer |
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