CONSOL ENERGY INC. 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 endedDecember 31, 2021 included inCONSOL Energy Inc.'s Form 10-K, filed onFebruary 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
Recent Developments Russia-Ukraine WarFebruary 24, 2022 marked a significant escalation in theRussia -Ukraine war. The extent and duration of the military conflict involvingRussia andUkraine , 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 fromRussia 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 inMay 2020 , largely driven by government-imposed shutdowns of non-essential businesses. We are considered a critical infrastructure company by theU.S. Department of Homeland Security . As a result, we were exempt fromPennsylvania GovernorTom Wolf's executive order, issued inMarch 2020 , closing all businesses that are not life sustaining untilPennsylvania's phased reopening, which began in the second quarter of 2020. While many government-imposed shutdowns of non-essential businesses inthe United States and abroad have been phased out, in significant population centers inthe 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 theAppalachian 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 theCONSOL 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 easternUnited States . We also capitalize on the operational synergies and logistical advantages afforded by theCONSOL 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 ourItmann Mine inWest 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. 27
--------------------------------------------------------------------------------
Table of Contents
Our operations, including the PAMC and theCONSOL Marine Terminal , have consistently generated strong cash flows, even throughout the COVID-19 pandemic. As ofDecember 31, 2021 , the PAMC controls 612.1 million tons of high-qualityPittsburgh 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:
•
extensive high-quality coal reserves. We mine our reserves from the
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.
•
provide coal export terminal services through the
terminal can either store coal or load coal directly into vessels from rail
cars. It is also the only major east coast
by two railroads, Norfolk Southern Corporation and
•
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
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.
28--------------------------------------------------------------------------------
Table of Contents Q1 2022 Highlights:
• Coal shipments of 6.5 million tons.
• Debt repayments, excluding premiums, of
A, Term Loan B, Second Lien Notes (each as defined below), and
equipment-financed debt outstanding of
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
average cash cost of coal sold per ton, an operating ratio derived from
non-GAAP financial measures, to be
• We are planning to make capital expenditures during 2022 in the range of
million to
We expect that the
• 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.
29--------------------------------------------------------------------------------
Table of Contents
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
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
30--------------------------------------------------------------------------------
Table of Contents
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
CONSOL
Marine
PAMC Terminal Other Total Company
Net Income (Loss) $ 2,097 $ 11,613 $
(18,160 )
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 CONSOL Marine PAMC Terminal OtherTotal 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 31
--------------------------------------------------------------------------------
Table of Contents
Results of Operations: Three Months Ended
Net (Loss) IncomeCONSOL Energy reported a net loss of$4 million for the three months endedMarch 31, 2022 , compared to net income of$26 million for the three months endedMarch 31, 2021 .CONSOL Energy reported an adjusted EBITDA of$169 million for the three months endedMarch 31, 2022 , compared to an adjusted EBITDA of$107 million for the three months endedMarch 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 thePennsylvania 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 theItmann 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 endedMarch 31, 2022 , compared to net income of$42 million for the three months endedMarch 31, 2021 . The PAMC segment had adjusted EBITDA of$158 million for the three months endedMarch 31, 2022 , compared to adjusted EBITDA of$99 million for the three months endedMarch 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 32
--------------------------------------------------------------------------------
Table of Contents Coal Production
The table below presents total tons produced (in thousands) from the
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 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)
$ 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)
$ 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 endedMarch 31, 2022 , respectively, compared to$284 million and$284 million for the three months endedMarch 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 endedMarch 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 endedMarch 31, 2022 , compared to$27 million for the three months endedMarch 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. 33 --------------------------------------------------------------------------------
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 endedMarch 31, 2022 , compared to$19 million for the three months endedMarch 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 endedMarch 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 endedMarch 31, 2021 . 34
--------------------------------------------------------------------------------
Table of Contents
CONSOL MARINE TERMINAL ANALYSIS:
The CONSOL Marine Terminal segment had net income of$12 million for the three months endedMarch 31, 2022 , compared to net income of$9 million for the three months endedMarch 31, 2021 .The CONSOL Marine Terminal segment had adjusted EBITDA of$15 million for the three months endedMarch 31, 2022 compared to an adjusted EBITDA of$12 million for the three months endedMarch 31, 2021 . Three Months Ended March 31, (in millions) 2022 2021 Variance Revenue: Terminal Revenue$ 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 thePort 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 endedMarch 31, 2022 , compared to 4.1 million tons in the three months endedMarch 31, 2021 . CONSOL Marine Terminal sales were$21 million for the three months endedMarch 31, 2022 , compared to$18 million for the three months endedMarch 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 theItmann 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 endedMarch 31, 2022 , compared to a net loss of$25 million for the three months endedMarch 31, 2021 . Other business activities had adjusted EBITDA of($4) million for the three months endedMarch 31, 2022 and 2021. Variances are discussed below. Three Months Ended March 31, (in millions) 2022 2021 Variance Revenue: Coal Revenue - Itmann$ 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 theItmann Mine located inWyoming County, West Virginia . The increase is due to the significant increase in the price of metallurgical coal in the period-to-period comparison. 35
--------------------------------------------------------------------------------
Miscellaneous Other Income
Miscellaneous other income was
Three Months Ended March 31,
(in millions) 2022 2021 Variance
Royalty Income - Non-Operated Coal
-
Property Easements and Option Income 1 - 1 Interest Income 1 1 - Other Income 1 - 1
Total Miscellaneous Other Income
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 endedMarch 31, 2022 , compared to$11 million for the three months endedMarch 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
$ - 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 endedMarch 31, 2022 andMarch 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 endedMarch 31, 2022 compared to theMarch 31, 2021 . Interest Expense, net
Interest expense, net of amounts capitalized, remained materially consistent in the period-to-period comparison.
36--------------------------------------------------------------------------------
Table of Contents
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 ofMarch 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 inthe United States and abroad have been phased out, in significant population centers inthe 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 orRussia's invasion ofUkraine . 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 theItmann Mine in the second half of 2019; development mining began inApril 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 theItmann 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. 37
--------------------------------------------------------------------------------
Table of Contents
Uncertainty in the financial markets brings additional potential risks toCONSOL 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 theUnited 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 atMarch 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 endedDecember 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 endedMarch 31, 2022 and 2021, respectively. Based on available information atDecember 31, 2021 ,CONSOL Energy's obligation for theUMWA 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 atMarch 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 byCONSOL 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 inMay 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
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
Three Months Ended March 31,
2022 2021 Change
Building and Infrastructure
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
38--------------------------------------------------------------------------------
Table of Contents
Senior Secured Credit Facilities
InNovember 2017 , the Company entered into a revolving credit facility withPNC 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"). OnMarch 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. OnJune 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. OnMarch 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 ofDecember 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 afterJune 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 isMarch 28, 2023 . The TLB Facility's maturity date isSeptember 28, 2024 . InJune 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 endedJune 30, 2019 , (ii) 6.25% of the original principal amount thereof for the subsequent eight quarterly installments commencing with the quarter endedJune 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. InJune 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 thePennsylvania Mining Complex , (ii) the equity interests in the Partnership held by the Company, (iii) the CONSOL Marine Terminal, (iv) theItmann 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
minimum fixed charge coverage ratio shall be 1.05 to 1.00;
for the fiscal quarters ending
• 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
• 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
39--------------------------------------------------------------------------------
Table of Contents
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 theSecurities 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 endedMarch 31, 2022 with respect to the year endedDecember 31, 2021 . During the year endedDecember 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 endingDecember 31, 2020 and 2021, and$50 million of the TLB Facility's floating interest rate to a fixed interest rate for the twelve months endingDecember 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.
AtMarch 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 OnNovember 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 ofCONSOL Energy , and (iii)CONSOL Funding LLC (the "SPV"), aDelaware special purpose entity and wholly-owned subsidiary ofCONSOL 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, onNovember 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"). InMarch 2020 , the securitization facility was amended to, among other things, extend the maturity date fromAugust 30, 2021 toMarch 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 toPNC 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 ofCONSOL Energy . In addition, the SPV paid certain structuring fees toPNC 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 ofCONSOL 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, neitherCONSOL Energy nor its affiliates will guarantee collectability of receivables or the creditworthiness of obligors thereunder. 40
--------------------------------------------------------------------------------
Table of Contents
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. AtMarch 31, 2022 , eligible accounts receivable yielded$30 million of borrowing capacity. AtMarch 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 endedMarch 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
OnNovember 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 ofNovember 13, 2017 , by and between the Company andUMB Bank, N.A ., a national banking association, as trustee and collateral trustee (the "Trustee"). OnNovember 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. SinceNovember 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 onNovember 15 of the years indicated: Year Percentage 2021 105.50% 2022 102.75% 2023 and thereafter 100.00% Prior toNovember 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
ofMarch 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 bothStandard & 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 ofthe United States pursuant to Regulation S under the Securities Act.
Pennsylvania Economic Development Financing Authority Bonds
InApril 2021 ,CONSOL Energy borrowed the proceeds received from the sale of tax-exempt bonds issued by thePennsylvania 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 onApril 1, 2051 but are subject to mandatory purchase by the Company onApril 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 ofApril 1, 2021 , by and betweenPEDFA andWilmington 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 ofApril 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 ofApril 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). 41 --------------------------------------------------------------------------------
Material Cash RequirementsCONSOL 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 endedDecember 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 endedDecember 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 endedDecember 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
• An aggregate principal amount of
TLB Facility, due in
Borrowings under the TLB Facility bear interest at a floating rate.
• An aggregate principal amount of
Lien Notes due in
• An aggregate principal amount of
which were issued to finance the
at 5.75% per annum and mature in
revenue bonds is payable
principal and interest on the notes is guaranteed by
• An aggregate principal amount of
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
payable on
An aggregate principal amount of
• Facility, due in
at a floating rate.
• An aggregate principal amount of
average interest rate of 6.28%.
• Advanced royalty commitments of
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
Stock and Debt Repurchases InDecember 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 inApril 2021 raised the aggregate limit of the Company's repurchase authority to$320 million and extended the program untilDecember 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 obligateCONSOL 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 endedMarch 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 endedMarch 31, 2022 . Total Equity and Dividends
Total equity attributable to
The declaration and payment of dividends byCONSOL Energy is subject to the discretion ofCONSOL Energy's Board of Directors, and no assurance can be given thatCONSOL 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 byCONSOL Energy , planned investments byCONSOL Energy and such other factors as the Board of Directors deems relevant. The Company's Senior Secured Credit Facilities limitCONSOL 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 atMarch 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. 42
--------------------------------------------------------------------------------
Table of Contents 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
foreign governments;
• our inability to complete the construction of the
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;
43--------------------------------------------------------------------------------
Table of Contents
• 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 safetyregulations, 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
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.
© Edgar Online, source
