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, 2019 included inCONSOL Energy Inc.'s Form 10-K, filed onFebruary 14, 2020 . 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
CCR Merger As previously disclosed, onOctober 22, 2020 ,CONSOL Energy , the Partnership, the General Partner, a wholly-owned subsidiary ofCONSOL Energy and one of its wholly-owned subsidiaries ("Merger Sub") entered into a definitive merger agreement (the "Merger Agreement") pursuant to which Merger Sub will merge with and into the Partnership, with the Partnership surviving as our indirect, wholly-owned subsidiary (the "CCR Merger"). Under the terms of the Merger Agreement, at the effective time of the CCR Merger, (i) each outstanding CCR common unit other than common units owned byCONSOL Energy and its subsidiaries will be converted into the right to receive, subject to adjustment as described in the Merger Agreement, 0.73 shares ofCONSOL Energy Inc. common stock (the "Merger Consideration"); and (ii) each of the outstanding phantom units and any other awards relating to a common unit issued under a Partnership equity incentive plan, whether vested or not vested, will become fully vested and will be automatically converted into the right to receive, with respect to each common unit subject thereto, the Merger Consideration (plus any accrued but unpaid amounts in relation to distribution equivalent rights). Except for the Partnership's incentive distribution rights, which will be automatically canceled immediately prior to the effective time of the CCR Merger for no consideration, the common units owned byCONSOL Energy and its subsidiaries immediately prior to the effective time of the CCR Merger will remain outstanding as limited partner interests in the surviving entity. In aggregate,CONSOL Energy will issue approximately 8.0 million shares of its common stock as Merger Consideration, representing approximately 22.2% of the totalCONSOL Energy shares that will be outstanding on a pro forma basis. Subject to customary approvals and conditions, the transaction is expected to close in the first quarter of 2021. The transaction is subject to approval by our stockholders, majority approval by the CCR common unitholders and the effectiveness of a registration statement related to the issuance of the newCONSOL Energy shares to CCR's common unitholders. Pursuant to a support agreement entered into in connection with the transaction,CONSOL Energy agreed to vote all of the common units it owns in favor of the transaction.CONSOL Energy currently owns approximately 60.7% of CCR's outstanding common units. 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. In response to two employees testing positive for COVID-19, the Company temporarily curtailed production at theBailey Mine for two weeks at the end of March. To date, several employees have tested positive for COVID-19. However, the Company has not experienced a localized outbreak, which we believe is attributable, in part, to the health and safety procedures put in place by the Company. This has also allowed the Company to continue operating without production curtailment due to positive employee cases. 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. 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. The unprecedented decline in coal demand that began in the first quarter hit its lowest point inMay 2020 , and has improved through the third quarter. In response to the decline in demand for our coal as a result of COVID-19, we idled four of our five longwalls for periods of time beginning in the second quarter. As demand improved, we restarted longwalls and ultimately ran four of the five longwalls for the majority of the third quarter. This decline in coal demand has negatively impacted our operational, sales and financial performances year-to-date and we expect that this negative impact will continue as the pandemic continues. While some government-imposed shut-downs of non-essential businesses inthe United States and abroad have been phased out, there is a possibility that such shut-downs may be reinstated after being lifted if COVID-19 experiences a resurgence. We expect that depressed domestic and international demand for our coal will continue for so long as there are widespread, government-imposed shut-downs of business activity. Depressed demand for our coal may also result from a general recession or reduction in overall business activity caused by COVID-19. Additionally, some of our customers have already attempted, and may in the future attempt, to invoke force majeure or similar provisions in the contracts they have in place with us in order to avoid taking possession of and paying us for our coal that they are contractually obligated to purchase. Sustained decrease in demand for our coal and the failure of our customers to purchase coal from us that they are obligated to purchase pursuant to existing contracts would have a material adverse effect on our results of operations and financial condition. The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the outbreak and the effectiveness of actions globally to contain or mitigate its effects. We expect this will continue to negatively impact our results of operations, cash flows and financial condition. The Company will continue to take steps it believes are appropriate to mitigate the 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. 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 as well as thermal 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 afforded by theCONSOL Marine Terminal to export our coal to thermal and metallurgical end-users inEurope ,Asia ,South America , andAfrica , as well asCanada . 33
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Our operations, including the PAMC and theCONSOL Marine Terminal , have consistently generated strong cash flows. As ofDecember 31, 2019 , the PAMC controls 669.4 million tons of high-qualityPittsburgh seam reserves, enough to allow for approximately 23.5 years of full-capacity production. In addition, we own or control approximately 1.5 billion tons of Greenfield Reserves 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 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 are able to 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 of the PAMC
mines 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. We own a 75% undivided interest in the PAMC, and
the remaining 25% is owned by CCR, as discussed below.
• CCR Ownership:
general partner, 61.4% of the partnership, which is comprised of a 1.7%
general partner interest and a 59.7% limited partner interest. At September
30, 2020, CCR's assets included a 25% undivided interest in, and full
operational control over, the PAMC. See Note 20 - Subsequent Events.
•
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
•
preparation plant, and the pace of construction is dependent upon conditions
in the coal sales market. When fully operational, the Company anticipates
approximately 900 thousand tons per year of high-quality, low-vol coking coal
capacity.
• Greenfield Reserves: We own approximately 1.5 billion tons of high-quality,
undeveloped coal reserves located in NAPP, CAPP and the ILB.
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, which include the Bailey, Enlow Fork and
Harvey mines, produce coal from the Pittsburgh No. 8 Coal Seam using longwall
mining, a highly automated underground mining technique that produces large
volumes of coal at lower costs compared to alternative mining methods. These
three mines collectively operate 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. In 2019,
the PAMC operated three of the top four most productive longwall mines in NAPP.
For the year ending December 31, 2019 , productivity averaged 7.10 tons of coal
per employee hour, compared with an average of 5.28 tons per employee hour for
all other currently-operating NAPP longwalls. Our high productivity helps drive
a low-cost structure. Our efficiency strengthens our margins throughout the
commodity cycle, and has allowed us to continue to generate positive margins
even in challenging pricing environments.
Coal from the PAMC is versatile in that it can be sold either domestically or
abroad, in the thermal coal market or as a crossover product in the
high-volatile metallurgical coal market. We have a well-established and diverse
customer base, comprised primarily of domestic electric-power-producing
companies located in the eastern United States . During the third quarter of
2020, we were successful in securing additional coal sales contracts, bringing
our contracted position to 13.2 million tons for 2021. We remain fully
contracted for 2020 and expect to ship all that we produce in the fourth quarter
of 2020. However, we face significant uncertainties given the ongoing economic
slowdown due to the COVID-19 pandemic-related shutdowns. Similar to the first
half of 2020, we will continue to collaborate with our customers to manage the
contractual obligations we both have, which could result in some additional 2020
contracted volumes being bought out or deferred.
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Table of Contents
Q3 2020 Highlights:
• Executed multiple transactional opportunities to improve financial
flexibility;
• Resumed repurchases of second lien debt;• Coal sales volume rebounded to 4.5 million tons compared to 2.3 million tons
in the second quarter of 2020;
• Coal demand recovery is expected to continue into the fourth quarter of 2020,
with volumes expected to be higher compared to the third quarter of 2020;
• No borrowings on revolving credit facility; and
Operating protocols in place for COVID-19-related response, focused on
• enhanced sanitation, social distancing measures and mitigating the risk of
spread.
How We Evaluate Our Operations
Our management team uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability. The metrics include: (i) coal production, sales volumes and average revenue per ton; (ii) cost of coal sold, a non-GAAP financial measure; (iii) cash cost of coal sold, a non-GAAP financial measure; (iv) average margin per ton sold, an operating ratio derived from non-GAAP financial measures; and (v) average cash margin per ton sold, an operating ratio derived from non-GAAP financial measures. Cost of coal sold, cash cost of coal sold, 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. 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, 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. Our costs
exclude any indirect costs, such as selling, general and administrative costs,
freight expenses, interest expenses, depreciation, depletion and amortization
costs on non-production assets and other costs not directly attributable to the
production of coal. The cash cost of coal sold includes cost of coal sold less
depreciation, depletion and amortization costs on production assets. The GAAP
measure most directly comparable to cost of coal sold and cash cost of coal sold
is total costs and expenses.
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Table of Contents
The following table presents a reconciliation of cost of coal sold and cash cost
of coal sold to total costs and expenses, the most directly comparable GAAP
financial measure, on a historical basis, for each of the periods indicated (in
thousands).
Three Months Ended
September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Total Costs and Expenses $ 246,661 $ 323,907 $ 724,841 $ 1,012,355
Freight Expense (12,909 ) (3,599 ) (19,141 ) (14,115 )
Selling, General and Administrative
Costs (11,117 ) (14,690 ) (39,726 ) (52,901 )
Gain (Loss) on Debt Extinguishment 1,078 (801 ) 17,911 (25,444 )
Interest Expense, net (15,723 ) (15,598 ) (46,116 ) (50,240 )
Other Costs (Non-Production) (22,994 ) (22,786 ) (100,707 ) (76,856 )
Depreciation, Depletion and Amortization
(Non-Production) (9,327 ) (12,105 ) (35,211 ) (23,111 )
Cost of Coal Sold $ 175,669 $ 254,328 $ 501,851 $ 769,688
Depreciation, Depletion and Amortization
(Production) (45,632 ) (42,265 ) (120,846 ) (128,134 )
Cash Cost of Coal Sold $ 130,037 $ 212,063 $ 381,005 $ 641,554
We define average margin per ton sold as average revenue per ton sold, net of
average cost of coal sold per ton. We define average cash margin per ton sold as
average revenue per ton sold, net of average cash cost of coal sold per ton. The
GAAP measure most directly comparable to average margin per ton sold and average
cash margin per ton sold is total coal revenue.
The following table presents a reconciliation of 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
September 30 ,
Nine Months Ended
2020 2019 2020 2019
Total Coal Revenue (PAMC Segment)
153,031 234,849 481,712 718,410
Less: Other Costs (Non-Production) (22,994 ) (22,786 ) (100,707 ) (76,856 )
Total Cash Cost of Coal Sold 130,037 212,063 381,005 641,554
Add: Depreciation, Depletion and
Amortization 54,959 54,370 156,057 151,245
Less: Depreciation, Depletion and
Amortization (Non-Production) (9,327 ) (12,105 ) (35,211 ) (23,111 )
Total Cost of Coal Sold $ 175,669 $ 254,328 $ 501,851 $ 769,688
Total Tons Sold (in millions) 4.5 6.5 12.8 20.6
Average Revenue per Ton Sold $ 40.55 $ 46.59 $ 42.35 $ 47.84
Average Cash Cost of Coal Sold per Ton 28.64 32.78 29.88 31.16
Depreciation, Depletion and Amortization
Costs per Ton Sold 10.06 6.51 9.37 6.23
Average Cost of Coal Sold per Ton 38.70 39.29 39.25 37.39
Average Margin per Ton Sold 1.85 7.30 3.10 10.45
Add: Depreciation, Depletion and
Amortization Costs per Ton Sold 10.06 6.51 9.37 6.23
Average Cash Margin per Ton Sold $ 11.91 $ 13.81 $ 12.47 $ 16.68
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Table of Contents Results of Operations
Three Months Ended
Net (Loss) Income Attributable to
CONSOL Energy consists of thePennsylvania Mining Complex , as well as various corporate and other business activities that are not allocated to the PAMC. The other business activities include the CONSOL Marine Terminal, development of theItmann Mine , the Greenfield Reserves, closed mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities. PAMC ANALYSIS: The PAMC division's principal activities consist of mining, preparation and marketing of thermal coal, sold primarily to power generators. The division also includes selling, general and administrative costs, as well as various other activities assigned to the PAMC division, but not included in the cost components on a per unit basis. The PAMC division had a loss before income tax of$7 million for the three months endedSeptember 30, 2020 , compared to earnings before income tax of$31 million for the three months endedSeptember 30, 2019 . Variances are discussed below. Three Months Ended September 30, (in millions) 2020 2019 Variance Revenue: Coal Revenue$ 184 $ 302 $ (118 ) Freight Revenue 13 4 9 Miscellaneous Other Income - 4 (4 ) Total Revenue and Other Income 197 310 (113 ) Cost of Coal Sold: Operating Costs 130 212 (82 ) Depreciation, Depletion and Amortization 46 42 4 Total Cost of Coal Sold 176 254 (78 ) Other Costs: Other Costs 2 3 (1 ) Depreciation, Depletion and Amortization 4 4 - Total Other Costs 6 7 (1 ) Freight Expense 13 4 9 Selling, General and Administrative Costs 9 14 (5 ) Total Costs and Expenses 204 279 (75 ) (Loss) Earnings Before Income Tax$ (7 ) $ 31 $ (38 ) 37
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Table of Contents Coal Production
The table below presents total tons produced (in thousands) from the
Three Months Ended September 30,
Mine 2020 2019 Variance
Bailey 1,808 2,782 (974 )
Enlow Fork 1,436 2,384 (948 )
Harvey 1,291 1,326 (35 )
Total 4,535 6,492 (1,957 )
Coal production was 4.5 million tons for the three months ended September 30,
2020 , compared to 6.5 million tons for the three months ended September 30,
2019 . The PAMC division's coal production decreased primarily due to a reduced
operating schedule in light of the decline in global demand due to the COVID-19
pandemic. For the majority of the current quarter, the PAMC ran four of its five
longwalls.
Coal Operations
The PAMC division's coal revenue and cost components on a per unit basis for the
three months ended September 30, 2020 and 2019 are detailed in the table below.
The PAMC division's operations also include various costs such as selling,
general and administrative, freight and other costs not included in the unit
cost analysis because these costs are not directly associated with coal
production.
Three Months Ended September 30,
2020 2019 Variance
Total Tons Sold (in millions) 4.5 6.5 (2.0 )
Average Revenue per Ton Sold $ 40.55 $
46.59
Average Cash Cost of Coal Sold per Ton (1)$ 28.64 $ 32.78 $ (4.14 ) Depreciation, Depletion and Amortization Costs per Ton Sold (Non-Cash Cost) 10.06 6.51 3.55
Average Cost of Coal Sold per Ton (1)
$ 1.85 $ 7.30 $ (5.45 ) Add: Depreciation, Depletion and Amortization Costs per Ton Sold 10.06 6.51 3.55 Average Cash Margin per Ton Sold (1)$ 11.91 $ 13.81 $ (1.90 ) (1) Average cash cost of coal sold per ton and average cost of coal sold per ton are non-GAAP measures, and average margin per ton sold and average cash margin per ton sold are operating ratios derived from non-GAAP measures. See "How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures" for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Coal Revenue Coal revenue was$184 million for the three months endedSeptember 30, 2020 , compared to$302 million for the three months endedSeptember 30, 2019 . Total tons sold decreased in the period-to-period comparison as a result of lingering effects of the unprecedented contraction inUnited States and global economic activity due to the COVID-19 pandemic. Additionally, lower natural gas prices as compared to the prior year quarter have contributed to electric generation trending toward gas, rather than coal, as a fuel source.
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. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both$13 million for the three months endedSeptember 30, 2020 , compared to$4 million for the three months endedSeptember 30, 2019 . The$9 million increase was due to increased shipments to customers where the Company was contractually obligated to provide transportation services. 38
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Table of Contents Miscellaneous Other Income The$4 million decrease in miscellaneous other income was primarily due to sales of externally purchased coal to blend and resell and customer contract buyouts in the three months endedSeptember 30, 2019 , none of which occurred during the three months endedSeptember 30, 2020 . 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 costs of coal sold include 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$176 million for the three months endedSeptember 30, 2020 , or$78 million lower than the$254 million for the three months endedSeptember 30, 2019 . Average cost of coal sold per ton was$38.70 for the three months endedSeptember 30, 2020 , compared to$39.29 for the three months endedSeptember 30, 2019 . The decrease in the total cost of coal sold was primarily driven by the reduction in production volume and reduced operating days, as the Company sought to match production with demand and limit discretionary spending. Other Costs Other costs include items that are assigned to the PAMC division but are not included in unit costs, such as idle mine costs, coal reserve holding costs and purchased coal costs. Total other costs remained materially consistent in the period-to-period comparison.
Selling, General, and Administrative Costs
The amount of selling, general and administrative costs related to the PAMC division was$9 million for the three months endedSeptember 30, 2020 , compared to$14 million for the three months endedSeptember 30, 2019 . The$5 million decrease in the period-to-period comparison was primarily related to several initiatives launched by management to reduce costs, including compensation reductions, curtailment of discretionary expenses and headcount management. 39
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Table of Contents OTHER ANALYSIS: The other division includes revenue and expenses from various corporate and diversified business activities that are not allocated to the PAMC division. The diversified business activities include the CONSOL Marine Terminal, development of theItmann Mine , the Greenfield Reserves, closed mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities. Other business activities had earnings before income tax of$4 million for the three months endedSeptember 30, 2020 , compared to a loss before income tax of$22 million for the three months endedSeptember 30, 2019 . Variances are discussed below. Three Months Ended September 30, (in millions) 2020 2019 Variance Revenue: Terminal Revenue$ 17 $ 16 $ 1 Miscellaneous Other Income 21 7 14 Gain on Sale of Assets 8 1 7 Total Revenue and Other Income 46 24
22
Other Costs and Expenses: Operating and Other Costs 20 20 - Depreciation, Depletion and Amortization 5 8 (3 ) Selling, General and Administrative Costs 2 1 1 (Gain) Loss on Debt Extinguishment (1 ) 1 (2 ) Interest Expense, net 16 16 - Total Other Costs and Expenses 42 46 (4 ) Earnings (Loss) Before Income Tax$ 4 $ (22 ) $ 26 Terminal Revenue 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. CONSOL Marine Terminal revenue was$17 million for the three months endedSeptember 30, 2020 , compared to$16 million for the three months endedSeptember 30, 2019 . The$1 million increase in the period-to-period comparison was primarily attributable to an increase in revenues associated with throughput tons and services not covered by the Company's take-or-pay contract.
Miscellaneous Other Income
Miscellaneous other income was$21 million for the three months endedSeptember 30, 2020 , compared to$7 million for the three months endedSeptember 30, 2019 . The change is due to the following items: Three Months Ended September 30, (in millions) 2020 2019 Variance
Sale of Certain Coal Lease Contracts
18
Royalty Income - Non-Operated Coal 2 5 (3 ) Interest Income - 1 (1 ) Rental Income - 1 (1 ) Other Income 1 - 1
Total Miscellaneous Other Income
14
The increase in income resulting from the sale of certain coal lease contracts
is attributable to one of several transactions completed in the three months
ended September 30, 2020 related to the Company's non-operating surface and
mineral assets outside of the PAMC. These transactions helped to enhance the
Company's liquidity and improve its financial flexibility. See Note 2 - Major
Transactions in the Notes to the Consolidated Financial Statements in Item 1 of
this Form 10-Q for additional information.
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Table of Contents Gain on Sale of Assets Gain on sale of assets increased$7 million in the period-to-period comparison primarily due to the sale of various gas wells and the related equipment during the three months endedSeptember 30, 2020 . Operating and Other Costs Operating and other costs were$20 million for the three months endedSeptember 30, 2020 , compared to$20 million for the three months endedSeptember 30, 2019 . Operating and other costs remained materially consistent in the period-to-period comparison. Three Months Ended September 30, (in millions) 2020 2019 Variance Terminal Operating Costs $ 5 $ 6 $ (1 ) Employee-Related Legacy Liability Expense 7 9 (2 ) Coal Reserve Holding Costs 2 1 1 Closed Mines 1 1 - Other 5 3 2 Total Operating and Other Costs $ 20 $ 20 $ -
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization decreased
Selling, General and Administrative Costs
Selling, general and administrative costs are allocated to the Company's Other division based on a percentage of resources utilized, a percentage of total revenue and a percentage of total projected capital expenditures. The increase of$1 million is a result of increases in the portion of selling, general and administrative expenses allocated to the Other division due to an increase of resources utilized at the CONSOL Marine Terminal, theItmann Mine , closed mines and in other business development activities as compared to the prior quarter.
(Gain) Loss on Debt Extinguishment
Gain on debt extinguishment of$1 million was recognized in the three months endedSeptember 30, 2020 due to the open market repurchases of the Company's 11.00% Senior Secured Second Lien Notes due 2025. Loss on debt extinguishment of$1 million was recognized in the three months endedSeptember 30, 2019 due to the open market repurchases of the Company's 11.00% Senior Secured Second Lien Notes due 2025. Interest Expense, net Interest expense, net of amounts capitalized, is comprised of interest on the Company's Senior Secured Credit Facilities, the 11.00% Senior Secured Second Lien Notes due 2025 and the 5.75% MEDCO Revenue Bonds. Interest expense, net of amounts capitalized, remained materially consistent in the period-to-period comparison. 41
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Table of Contents
Nine Months Ended
Net (Loss) Income Attributable to
CONSOL Energy consists of thePennsylvania Mining Complex , as well as various corporate and other business activities that are not allocated to the PAMC. The other business activities include the CONSOL Marine Terminal, development of theItmann Mine , the Greenfield Reserves, closed mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities. PAMC ANALYSIS: The PAMC division's principal activities consist of mining, preparation and marketing of thermal coal, sold primarily to power generators. The division also includes selling, general and administrative costs, as well as various other activities assigned to the PAMC division, but not included in the cost components on a per unit basis. The PAMC division had a loss before income tax of$18 million for the nine months endedSeptember 30, 2020 , compared to earnings before income tax of$156 million for the nine months endedSeptember 30, 2019 . Variances are discussed below. Nine Months Ended September 30, (in millions) 2020 2019 Variance Revenue: Coal Revenue$ 542 $ 985 $ (443 ) Freight Revenue 19 14 5 Miscellaneous Other Income 41 14 27 Total Revenue and Other Income 602 1,013 (411 ) Cost of Coal Sold: Operating Costs 381 642 (261 ) Depreciation, Depletion and Amortization 121 128 (7 ) Total Cost of Coal Sold 502 770 (268 ) Other Costs: Other Costs 43 15 28 Depreciation, Depletion and Amortization 24 8 16 Total Other Costs 67 23 44 Freight Expense 19 14 5 Selling, General and Administrative Costs 31 50 (19 ) Interest Expense, net 1 - 1 Total Costs and Expenses 620 857 (237 ) (Loss) Earnings Before Income Tax$ (18 ) $ 156 $ (174 ) 42
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Table of Contents Coal Production
The table below presents total tons produced (in thousands) from the
Nine Months Ended September 30,
Mine 2020 2019 Variance
Bailey 5,619 8,955 (3,336 )
Enlow Fork 4,054 7,676 (3,622 )
Harvey 3,222 3,933 (711 )
Total 12,895 20,564 (7,669 )
Coal production was 12.9 million tons for the nine months ended September 30,
2020 , compared to 20.6 million tons for the nine months ended September 30,
2019 . The PAMC division's coal production decreased primarily due to the
temporary idling of longwalls at the Bailey and Enlow Fork mines. This was
mainly in response to weakened customer demand as a result of a warmer than
normal winter, followed by a decline in global demand due to the COVID-19
pandemic and, in response, the widespread government-imposed shut-downs, which
have significantly reduced electricity consumption and, therefore, demand for
the Company's coal.
Coal Operations
The PAMC division's coal revenue and cost components on a per unit basis for the
nine months ended September 30, 2020 and 2019 are detailed in the table below.
The PAMC division's operations also include various costs such as selling,
general and administrative, freight and other costs not included in the unit
cost analysis because these costs are not directly associated with coal
production.
Nine Months Ended September 30,
2020 2019 Variance
Total Tons Sold (in millions) 12.8 20.6 (7.8 )
Average Revenue per Ton Sold $ 42.35 $
47.84
Average Cash Cost of Coal Sold per Ton (1)$ 29.88 $ 31.16 $ (1.28 ) Depreciation, Depletion and Amortization Costs per Ton Sold (Non-Cash Cost) 9.37 6.23 3.14
Average Cost of Coal Sold per Ton (1)
$ 3.10 $ 10.45 $ (7.35 ) Add: Depreciation, Depletion and Amortization Costs per Ton Sold 9.37 6.23 3.14 Average Cash Margin per Ton Sold (1)$ 12.47 $ 16.68 $ (4.21 ) (1) Average cash cost of coal sold per ton and average cost of coal sold per ton are non-GAAP measures, and average margin per ton sold and average cash margin per ton sold are operating ratios derived from non-GAAP measures. See "How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures" for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Coal Revenue Coal revenue was$542 million for the nine months endedSeptember 30, 2020 , compared to$985 million for the nine months endedSeptember 30, 2019 . Total tons sold decreased in the period-to-period comparison in response to weakened customer demand due to a warmer than normal winter followed by the COVID-19 pandemic, each of which have reduced electricity consumption and, therefore, demand for the Company's coal. Additionally, lower natural gas prices as compared to the prior year quarter have contributed to electric generation trending toward gas, rather than coal, as a fuel source. The decrease in customer demand and the overall decline in electric power markets also resulted in lower pricing received on the Company's sales contracts.
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. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both$19 million for the nine months endedSeptember 30, 2020 , compared to$14 million for the nine months endedSeptember 30, 2019 . The$5 million increase was due to increased shipments to customers where the Company was contractually obligated to provide transportation services. 43
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Table of Contents Miscellaneous Other Income Miscellaneous other income was$41 million for the nine months endedSeptember 30, 2020 , compared to$14 million for the nine months endedSeptember 30, 2019 . The$27 million increase was primarily the result of additional customer contract buyouts in the nine months endedSeptember 30, 2020 , offset, in part, by a decrease in sales of externally purchased coal to blend and resell. These partial contract buyouts involved negotiations to reduce coal quantities of several customer contracts in exchange for payment of certain fees to the Company, and do not impact forward contract terms. 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 costs of coal sold include 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$502 million for the nine months endedSeptember 30, 2020 , or$268 million lower than the$770 million for the nine months endedSeptember 30, 2019 . Average cost of coal sold per ton was$39.25 for the nine months endedSeptember 30, 2020 , compared to$37.39 for the nine months endedSeptember 30, 2019 . The decrease in the total cost of coal sold was primarily driven by decreased production activity during the nine months endedSeptember 30, 2020 , mainly in response to weakened market demand. On a per unit basis, the decreased production resulted in an overall increase in the average cost of coal sold per ton. Other Costs Other costs include items that are assigned to the PAMC division but are not included in unit costs, such as idle mine costs, coal reserve holding costs and purchased coal costs. Total other costs increased$44 million in the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . The increase was primarily attributable to the temporary idling of longwalls at the Bailey andEnlow Fork mines due to the COVID-19 pandemic and, in response, the widespread government-imposed shutdowns, which have significantly reduced electricity consumption and power prices and, therefore, demand for the Company's coal.
Selling, General, and Administrative Costs
The amount of selling, general and administrative costs related to the PAMC division was$31 million for the nine months endedSeptember 30, 2020 , compared to$50 million for the nine months endedSeptember 30, 2019 . The$19 million decrease in the period-to-period comparison was primarily related to reduced expense under the Company's Performance Incentive Plan, as well as several initiatives launched by management to reduce costs, including compensation reductions, curtailment of discretionary expenses and headcount management. Interest Expense, net Interest expense, net of amounts capitalized, primarily relates to obligations under various finance leases entered into during the nine months endedSeptember 30, 2020 . No such transactions occurred during the nine months endedSeptember 30, 2019 . 44
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Table of Contents OTHER ANALYSIS: The other division includes revenue and expenses from various corporate and diversified business activities that are not allocated to the PAMC division. The diversified business activities include the CONSOL Marine Terminal, development of theItmann Mine , the Greenfield Reserves, closed mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities. Other business activities had a loss before income tax of$10 million for the nine months endedSeptember 30, 2020 , compared to a loss before income tax of$80 million for the nine months endedSeptember 30, 2019 . Variances are discussed below. Nine Months Ended September 30, (in millions) 2020 2019 Variance Revenue: Terminal Revenue$ 49 $ 51 $ (2 ) Miscellaneous Other Income 31 22 9 Gain on Sale of Assets 15 2 13 Total Revenue and Other Income 95 75 20 Other Costs and Expenses: Operating and Other Costs 58 62 (4 ) Depreciation, Depletion and Amortization 11 15 (4 ) Selling, General and Administrative Costs 9 3 6 (Gain) Loss on Debt Extinguishment (18 ) 25 (43 ) Interest Expense, net 45 50 (5 ) Total Other Costs and Expenses 105 155 (50 ) Loss Before Income Tax$ (10 ) $ (80 ) $ 70 Terminal Revenue 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. CONSOL Marine Terminal revenue was$49 million for the nine months endedSeptember 30, 2020 , compared to$51 million for the nine months endedSeptember 30, 2019 . The$2 million decrease in the period-to-period comparison was primarily attributable to a decrease in revenues associated with throughput tons and services not covered by the Company's take-or-pay contract. Miscellaneous Other Income Miscellaneous other income was$31 million for the nine months endedSeptember 30, 2020 , compared to$22 million for the nine months endedSeptember 30, 2019 . The change is due to the following items: Nine Months Ended September 30, (in millions) 2020 2019 Variance
Sale of Certain Coal Lease Contracts
10 17 (7 )
Property Easements and Option Income - 1 (1 )
Rental Income 1 2 (1 )
Interest Income - 2 (2 )
Other Income 2 - 2
Total Miscellaneous Other Income
The increase in income resulting from the sale of certain coal lease contracts is attributable to one of several transactions completed in the nine months endedSeptember 30, 2020 related to the Company's non-operating surface and mineral assets outside of the PAMC. These transactions helped to enhance the Company's liquidity and improve its financial flexibility. See Note 2 - Major Transactions in the Notes to the Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information. Royalty Income - Non-Operated Coal decreased in the period-to-period comparison due to a decline in the revenues earned as a result of less operating activity by third-party companies mining in reserves to which we have a royalty claim. 45
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Table of Contents Gain on Sale of Assets Gain on sale of assets increased$13 million in the period-to-period comparison primarily due to the sale of various gas wells and the related equipment during the nine months endedSeptember 30, 2020 . Operating and Other Costs Operating and other costs were$58 million for the nine months endedSeptember 30, 2020 , compared to$62 million for the nine months endedSeptember 30, 2019 . Operating and other costs decreased in the period-to-period comparison due to the following items: Nine Months Ended September 30, (in millions) 2020 2019 Variance Terminal Operating Costs $ 14 $ 17 $ (3 ) Employee-Related Legacy Liability Expense 19 28 (9 ) Coal Reserve Holding Costs 4 3 1 Lease Rental Expense 1 1 - Closed Mines 3 2 1 Litigation Expense 4 4 - Bank Fees 1 1 - Other 12 6 6 Total Operating and Other Costs $ 58 $ 62 $ (4 ) Employee-Related Legacy Liability Expense decreased$9 million in the period-to-period comparison primarily due to modifications made to the actuarial calculation of net periodic benefit cost at the beginning of each year mainly due to decreases in discount rates.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization decreased
Selling, General and Administrative Costs
Selling, general and administrative costs are allocated to the Company's Other division based on a percentage of resources utilized, a percentage of total revenue and a percentage of total projected capital expenditures. The increase of$6 million is a result of increases in the portion of selling, general and administrative expenses allocated to the Other division due to an increase of resources utilized at the CONSOL Marine Terminal, theItmann Mine , closed mines and in other business development activities as compared to the prior year.
(Gain) Loss on Debt Extinguishment
Gain on debt extinguishment of$18 million was recognized in the nine months endedSeptember 30, 2020 due to the open market repurchases of the Company's 11.00% Senior Secured Second Lien Notes due 2025, which traded well below par value. Loss on debt extinguishment of$25 million was recognized in the nine months endedSeptember 30, 2019 due to the open market repurchases of the Company's 11.00% Senior Secured Second Lien Notes due 2025, the$110 million required repayment on the Term Loan B Facility, and the refinancing of the Company's Revolving Credit Facility, Term Loan A Facility and Term Loan B Facility. See Note 13 - Long-Term Debt in the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q for additional information. Interest Expense, net Interest expense, net of amounts capitalized, is comprised of interest on the Company's Senior Secured Credit Facilities, the 11.00% Senior Secured Second Lien Notes due 2025 and the 5.75% MEDCO Revenue Bonds. Interest expense, net of amounts capitalized, decreased$5 million in the period-to-period comparison, primarily related to the$110 million required repayment on the Term Loan B Facility, as well as the refinancing of the Company's Revolving Credit Facility, Term Loan A Facility and Term Loan B Facility, both of which occurred during the first quarter of 2019. The decrease is also attributable to repurchases of the Company's 11.00% Senior Secured Second Lien Notes due 2025 during the nine months endedSeptember 30, 2020 and 2019, totaling approximately$45 million and$35 million , respectively (see Note 19 - Stock, Unit and Debt Repurchases in the Notes to the Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information). 46
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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 should be sufficient to meet its short-term working capital requirements, long-term capital expenditure requirements, and debt servicing obligations, as well as to provide required letters of credit. The demand for coal experienced unprecedented decline toward the end of the first quarter of 2020, which continued through the third quarter of 2020, driven by widespread government-imposed lockdowns caused by the COVID-19 pandemic. This decline in coal demand has negatively impacted our operational, sales and financial performances year-to-date and we expect that this negative impact will continue as the pandemic continues. However, we saw steady improvement in the demand for our coal throughout the third quarter of 2020. During the quarter, the Company made repayments of$7 million ,$6 million ,$2 million and$1 million on its finance leases, Term Loan A Facility, 11.00% Senior Secured Second Lien Notes and Term Loan B Facility, respectively. As ofSeptember 30, 2020 , our total liquidity was$323 million , including$22 million of cash and cash equivalents. As ofSeptember 30, 2020 , our$400 million revolving credit facility has no borrowings and is currently only used for providing letters of credit with$99 million issued. While some government-imposed shut-downs of non-essential businesses inthe United States and abroad have been phased out, there is a possibility that such shut-downs may be reinstated if COVID-19 experiences a resurgence. We expect that depressed demand for our coal will continue for so long as there is a widespread, government-imposed shut-down of business activity. Depressed demand for our coal may also result from a general recession or reduction in overall business activity caused by COVID-19. Additionally, some of our customers have already attempted, and may in the future attempt, to invoke force majeure or similar provisions in the contracts they have in place with us in order to avoid taking possession of and paying us for our coal that they are contractually obligated to purchase. Sustained decrease in demand for our coal and the failure of our customers to purchase coal from us that they are obligated to purchase pursuant to existing contracts would have a material adverse effect on our results of operations and financial condition. The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the outbreak and the effectiveness of actions globally to contain or mitigate its effects. We expect this matter to negatively impact our results of operations, cash flows and financial condition. The Company will continue to take the appropriate steps to mitigate the impact on the Company's operations, liquidity and financial condition. During the first quarter, the Company withdrew its previously announced operational and financial guidance for 2020. Given the ongoing uncertainty associated with the COVID-19 pandemic-driven economic slowdown, and due to the difficulty in forecasting the duration of this economic slowdown, the Company's 2020 guidance remains suspended. Cost containment and capital expenditure reductions remain the focus as volume opportunities remain limited in the near term. InMarch 2020 , the President ofthe United States signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") into law. The CARES Act has various liquidity boosting provisions that affect the Company related to income taxes and employee taxes. The Company has evaluated the various provisions, particularly the increased amount of deductible interest from 30% of adjusted taxable income to 50% for tax years 2019 and 2020. This is expected to reduce the Company's cash burden for 2019 and 2020, resulting in additional free cash flow. In addition to a decrease in the cash paid for income taxes, the Company has deferred the payment of its portion ofSocial Security payroll taxes in accordance with the provisions of the CARES Act. Also, for the nine months endedSeptember 30, 2020 , the Company is entitled to approximately$2 million in payroll retention credits in accordance with the provisions of the CARES Act. These sources of cash flow will aid in reducing uncertainty over the economic and operational impacts of COVID-19. The Company expects to maintain adequate liquidity through its operating cash flow and revolving credit facility to fund its working capital and capital expenditures requirements. The Company's cash flow from operations in 2020 is supported by its contracted position and ongoing cost and capital control measures. While the Company has been experiencing some delays in collections of accounts receivable since the second half of 2019, the COVID-related decline in demand has impacted some of our customers, resulting in continued delays in collections. This trend improved slightly during the third quarter of 2020, although global demand for coal remained challenging. However, if these delays continue or increase, the Company may have less cash flow from operations and may have less borrowing capacity under its securitization facility (under which borrowing capacity is based on certain current accounts receivable). The Company started a capital construction project on the coarse refuse disposal area in 2017, which is expected to continue through 2021. The Company began construction of theItmann Mine in the second half of 2019. Given the ongoing uncertainty in the marketplace, COVID-related demand decline and other corporate priorities, the Company has chosen to slow the spending on construction of theItmann Mine . 47
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Uncertainty in the financial markets brings additional potential risks toCONSOL Energy . These risks include the ability to raise capital in the equity markets due to declines in the Company's stock price, less availability and higher costs of additional credit, potential counterparty defaults, and commercial bank failures. Financial market disruptions may impact the Company's collection of trade receivables. As a result,CONSOL Energy regularly monitors the creditworthiness of its customers and counterparties and manages credit exposure through payment terms, credit limits, prepayments and security. Over the past year, the insurance markets have been increasingly challenging, particularly for coal companies. We have experienced rising premiums, reduced coverage and fewer providers willing to underwrite policies and surety bonds. Terms have generally become more unfavorable, including 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 owns an undivided interest in 75% of the PAMC and the Partnership owns the remaining undivided 25% interest of the PAMC. As ofSeptember 30, 2020 , the Company had a 61.4% economic ownership interest in the Partnership through its various holdings of the general partner and limited partnership interests of the Partnership. 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 during the first three quarters of 2020 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 some modest improvement. However, if the demand for our coal continues to decrease, this could adversely affect our liquidity in future quarters. 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) Nine Months Ended September 30, 2020 2019 Change
Cash Provided by Operating Activities
72
Cash Used in Financing Activities
161 Cash provided by operating activities decreased$161 million in the period-to-period comparison, primarily due to a$104 million decrease in net (loss) income, a$43 million change in (gain) loss on debt extinguishment and other working capital changes that occurred throughout both periods. Cash used in investing activities decreased$72 million in the period-to-period comparison. Capital expenditures decreased primarily as a result of cost control measures put into place in response to the COVID-19 pandemic and the overall decline in coal markets. Nine Months Ended September 30, 2020 2019 Change
Building and Infrastructure
44 (23 )
Refuse Storage Area 12 25 (13 )
IS&T Infrastructure 1 5 (4 )
Other 1 7 (6 )
Total Capital Expenditures $ 66 $ 131 $ (65 )
Cash used in financing activities decreased $161 million in the period-to-period
comparison. During the nine months ended September 30, 2020 , total payments of
$45 million were made on the Company's Term Loan A Facility, Term Loan B
Facility and 11.00% Senior Secured Second Lien Notes. The Company also received
proceeds of approximately $16 million related to a finance leasing arrangement
in the nine months ended September 30, 2020 . In connection with the June 2020
amendment of the Company's credit facility, approximately $8 million of
financing-related fees and charges were paid in the nine months ended September
30, 2020 .
During the nine months ended September 30, 2019 , total payments of $166 million
were made on the Company's Term Loan B Facility, 11.00% Senior Secured Second
Lien Notes and the Term Loan A Facility, which included the required excess cash
flow repayment of $110 million on the Term Loan B Facility (see Note 13 -
Long-Term Debt for additional information). The Company received additional
proceeds on its Term Loan A Facility in the amount of $26 million as a result of
the debt refinancing that occurred during the nine months ended September 30,
2019 . In connection with the debt refinancing, approximately $18 million of
financing-related fees and charges were paid in the nine months ended September
30, 2019 . Also during the nine months ended September 30, 2019 , CONSOL Energy
shares were repurchased and CONSOL Coal Resources LP units were purchased,
totaling $32 million .
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Senior Secured Credit Facilities
InNovember 2017 , the Company entered into a revolving credit facility 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 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. 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 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 75% undivided economic interest in 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 (excluding the Partnership and its wholly-owned subsidiaries). 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 75% undivided economic interest in thePennsylvania Mining Complex , (ii) the limited partner units of the Partnership held by the Company, (iii) the equity interests inCONSOL Coal Resources GP LLC held by the Company (iv) the CONSOL Marine Terminal and (v) the 1.5 billion tons of Greenfield Reserves. 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. 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 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, excluding the Partnership. 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 includes cash distributions received from the Partnership 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, excluding the Partnership. The minimum fixed charge coverage ratio is calculated as the ratio of Consolidated EBITDA to Consolidated Fixed Charges, excluding the Partnership. Consolidated Fixed Charges, as used in the covenant calculation, include cash interest payments, cash payments for income taxes, scheduled debt repayments, dividends paid, andMaintenance Capital Expenditures. The amendment revised the financial covenants applicable to the Revolving Credit Facility and TLA Facility relating to the maximum first lien gross leverage ratio, maximum total net leverage ratio and minimum fixed charge coverage ratio, so that for the fiscal quarters endingJune 30, 2020 throughMarch 31, 2021 , the maximum first lien gross leverage ratio shall be 2.50 to 1.00, the maximum total net leverage ratio shall be 3.75 to 1.00, and the minimum fixed charge coverage ratio shall be 1.00 to 1.00; for the fiscal quarters endingJune 30, 2021 throughSeptember 30, 2021 , the maximum first lien gross leverage ratio shall be 2.25 to 1.00 and the maximum total net leverage ratio shall be 3.50 to 1.00; for the fiscal quarters endingJune 30, 2021 throughMarch 31, 2022 , the minimum fixed charge coverage ratio shall be 1.05 to 1.00; for the fiscal quarters endingDecember 31, 2021 throughMarch 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 afterJune 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 maximum first lien gross leverage ratio was 2.04 to 1.00 atSeptember 30, 2020 . The maximum total net leverage ratio was 3.38 to 1.00 atSeptember 30, 2020 . The minimum fixed charge coverage ratio was 1.33 to 1.00 atSeptember 30, 2020 . The Company was in compliance with all of its debt covenants as ofSeptember 30, 2020 . 49
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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 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 Form 10-K. During the nine months endedSeptember 30, 2019 ,CONSOL Energy made the required repayment of approximately$110 million based on the amount of the Company's excess cash flow as ofDecember 31, 2018 . For fiscal year 2018, such repayment was equal to 75% of the Company's excess cash flow less any voluntary prepayments of its borrowings under the TLB Facility made by the Company during 2018. For all subsequent fiscal years, 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. Based on the Company's excess cash flow calculation, no repayment was required with respect to the year endedDecember 31, 2019 . The amount of excess cash flow is a covenant feature only applicable as of the Company's year-end and will be calculated as ofDecember 31, 2020 . 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.
AtSeptember 30, 2020 , the Revolving Credit Facility had no borrowings outstanding and$99 million of letters of credit outstanding, leaving$301 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 , 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. 50
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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. 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. AtSeptember 30, 2020 , eligible accounts receivable totaled approximately$31 million . AtSeptember 30, 2020 , the facility had no outstanding borrowings and$30 million of letters of credit outstanding, leaving$1 million of unused capacity. Costs associated with the receivables facility totaled$249 thousand for the three months endedSeptember 30, 2020 . 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 and on a first-priority basis as collateral securing the Company's obligations under the Senior Secured Credit Facilities (described above), subject to certain exceptions under the Indenture. On or afterNovember 15, 2021 , the Company may 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, 2020 , the Company may on one or more occasions redeem up to 35% of the principal amount of the Second Lien Notes with an amount of cash not greater than the amount of the net cash proceeds from one or more equity offerings at a redemption price equal to 111.00% of the principal amount of the Second Lien Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the date of redemption, as long as at least 65% of the aggregate principal amount of the Second Lien Notes originally issued on the issue date (excluding Second Lien Notes held by the Company and its subsidiaries) remains outstanding after each such redemption and the redemption occurs within less than 180 days after the date of the closing of the equity offering. At any time or from time to time prior toNovember 15, 2021 , the Company may also 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). 51
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The Indenture contains covenants that will limit the ability of the Company and the Guarantors, to (i) incur, assume or guarantee additional indebtedness or issue preferred stock; (ii) create liens to secure indebtedness; (iii) declare or pay dividends on the Company's common stock, redeem stock or make other distributions to the Company's stockholders; (iv) make investments; (v) restrict dividends, loans or other asset transfers from the Company's restricted subsidiaries; (vi) merge or consolidate, or sell, transfer, lease or dispose of substantially all of the Company's assets; (vii) sell or otherwise dispose of certain assets, including equity interests in subsidiaries; (viii) enter into transactions with affiliates; and (ix) create unrestricted subsidiaries. These covenants are subject to important exceptions and qualifications. If the Second Lien Notes achieve an investment grade rating from bothStandard & Poor's Ratings Services andMoody'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 is 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.
Affiliated Company Credit Agreement with Partnership
OnNovember 28, 2017 , the Company also entered into an Affiliated Company Credit Agreement with the Partnership and certain of its subsidiaries (the "Partnership Credit Parties") under which the Company provides as lender a revolving credit facility in an aggregate principal amount of up to$275 million to the Partnership Credit Parties. In connection with the completion of the separation, the Partnership drew an initial$201 million , the net proceeds of which were used to repay the Original CCR Credit Facility and to provide working capital for the Partnership following the separation and for other general corporate purposes. OnJune 5, 2020 , the Company amended the Affiliated Company Credit Agreement to provide eight quarters of financial covenant relaxation, effected a 50 basis points increase in the rate at which borrowings under theAffiliated Company Credit Agreement bear interest, and added additional conditions to be met for the covenants relating to general investments, investments in unrestricted subsidiaries, and distributions to equity holders of the Partnership. The Affiliated Company Credit Agreement has a maturity date ofDecember 28, 2024 . The collateral obligations under the Affiliated Company Credit Agreement generally mirror the Original CCR Credit Facility, as does the list of entities that will act as guarantors thereunder. The Affiliated Company Credit Agreement is subject to financial covenants relating to a maximum first lien gross leverage ratio and a maximum total net leverage ratio, which will be calculated on a consolidated basis for the Partnership and its restricted subsidiaries at the end of each fiscal quarter. The Partnership was in compliance with each of these financial covenants atSeptember 30, 2020 . The Affiliated Company Credit Agreement also contains a number of customary affirmative covenants and negative covenants, including limitations on the ability of the Partnership to incur additional indebtedness, grant liens, and make investments, acquisitions, dispositions, restricted payments, and prepayments of junior indebtedness (subject to certain limited exceptions).
See Note 20 - Subsequent Events in the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q for a discussion of the CCR Merger.
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Table of Contents Contractual ObligationsCONSOL Energy is required to make future payments under various contracts.CONSOL Energy also has commitments to fund its pension plans, provide payments for other postretirement benefit plans, and fund capital projects. There have been no material changes to these contractual obligations outside the ordinary course of business sinceMarch 31, 2020 . Debt
At
• An aggregate principal amount of
B (TLB) Facility, due in
discount. 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
A (TLA) Facility, due in
interest at a floating rate.
• An aggregate principal amount of
which were issued to finance the
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
financing. Approximately
average interest rate of 4.30%, and approximately $3 million is due in
September 2024 at an interest rate of 3.61%.
• Advance royalty commitments of
rate of 10.78% per annum.
• An aggregate principal amount of
average interest rate of 5.38% per annum.
At September 30, 2020 , CONSOL Energy had no borrowings outstanding and
approximately $99 million of letters of credit outstanding under the $400
million senior secured Revolving Credit Facility. At September 30, 2020 , CONSOL
Energy had no borrowings outstanding and approximately $30 million of letters of
credit outstanding under the $100 million Securitization Facility.
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Stock, Unit 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 11.00% Senior Secured Second Lien Notes due 2025, in an aggregate amount of up to$50 million through the period endingJune 30, 2019 . The program was subsequently amended byCONSOL Energy's Board of Directors inJuly 2018 to allow up to$100 million of repurchases of the Company's common stock or its 11.00% Senior Secured Second Lien Notes due 2025, subject to certain limitations in the Company's current credit agreement and that certain tax matters agreement entered into by and between the Company and its former parent onNovember 28, 2017 (the "TMA"). The Company's Board of Directors also authorized the Company to use up to$25 million of the program to purchase CONSOL Coal Resources LP's outstanding common units in the open market. InMay 2019 ,CONSOL Energy's Board of Directors approved an expansion of the program in the amount of$75 million , bringing the aggregate limit of the program to$175 million . TheMay 2019 expansion also increased the aggregate limit of the amount of CONSOL Coal Resources LP's common units that can be purchased under the program to$50 million , which is consistent with the Company's credit facility covenants that prohibit the Company from using more than$50 million for the purchase of CONSOL Coal Resources LP's outstanding common units. The Company's Board of Directors also approved extending the termination date of the program fromJune 30, 2019 toJune 30, 2020 . InJuly 2019 ,CONSOL Energy's Board of Directors approved an expansion of the program in the amount of$25 million , bringing the aggregate limit of the program to$200 million . OnMay 8, 2020 ,CONSOL Energy's Board of Directors approved an expansion of the stock, unit and debt repurchase program. The aggregate amount of the program's expansion was$70 million , bringing the total amount of the Company's stock, unit and debt repurchase program to$270 million . The Company's Board of Directors also approved extending the termination date of the program fromJune 30, 2020 toJune 30, 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, notes or units 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, notes or units, 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 TMA and is subject to market conditions and other factors. During the nine months endedSeptember 30, 2020 , the Company spent approximately$26 million to retire$45 million of its 11.00% Senior Secured Second Lien Notes due 2025, which continued to trade well below par value. No common shares were repurchased and no common Partnership units were purchased under this program during the nine months endedSeptember 30, 2020 . Total Equity and Dividends Total equity attributable toCONSOL Energy was$553 million atSeptember 30, 2020 and$572 million atDecember 31, 2019 . See the Consolidated Statements of Stockholders' Equity in Item 1 of this Form 10-Q for additional details. 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 3.38 to 1.00 and the cumulative credit was approximately$15 million atSeptember 30, 2020 . The cumulative credit starts with$50 million and builds with excess cash flow commencing in 2018. The calculation of the total net leverage ratio excludes the Partnership. The Senior Secured Credit Facilities do not permit dividend payments in the event of default. The Indenture to the 11.00% Senior Secured Second Lien Notes limits dividends when the Company's total net leverage ratio exceeds 2.00 to 1.00 and 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. The Indenture does not permit dividend payments in the event of default. In connection with the separation, the Partnership entered into an intercompany loan arrangement with the Company with an initial outstanding balance of$201 million . The Partnership used the initial loan to repay outstanding borrowings under the prior revolving credit facility, which was then terminated. The intercompany loan arrangement limits the Partnership's ability to pay distributions to its unitholders (including the Company) when the Partnership's first lien gross leverage ratio exceeds 2.00 to 1.00. 54
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Upon payment of the cash distribution with respect to the quarter endedJune 30, 2019 , the financial requirements for the conversion of all CCR subordinated units were satisfied. As a result, onAugust 16, 2019 , all 11,611,067 subordinated units, owned entirely byCONSOL Energy Inc. , were converted into common units on a one-for-one basis. The conversion did not impact the amount of the cash distribution paid or the total number of CCR's outstanding units representing limited partner interests. OnApril 23, 2020 , the Board of Directors of CCR's general partner made the decision to temporarily suspend the quarterly cash distributions to all of CCR's unitholders due to the ongoing uncertainty in the commodity markets driven by the COVID-19 pandemic-related demand decline. OnJuly 28, 2020 , the Board of Directors of CCR's general partner made the decision to continue the suspension of the quarterly cash distribution. Accordingly, CCR will focus on deleveraging its balance sheet by conserving cash, boosting liquidity and reducing its outstanding debt.
Off-Balance Sheet Arrangements
CONSOL Energy does not maintain off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect onCONSOL Energy's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources which are not disclosed in the Notes to the Consolidated Financial Statements of this Form 10-Q.CONSOL Energy participates in theUnited Mine Workers of America (the "UMWA")Combined Benefit Fund and the UMWA 1992 Benefit Plan which generally accepted accounting principles recognize on a pay-as-you-go basis. These benefit arrangements may result in additional liabilities that are not recognized on the Consolidated Balance Sheet atSeptember 30, 2020 . The various multi-employer benefit plans are discussed in Note 16-Other Employee Benefit Plans in the Notes to the Consolidated Financial Statements in Item 8 of theDecember 31, 2019 Form 10-K.CONSOL Energy's total contributions under the Coal Industry Retiree Health Benefit Act of 1992 were$1,373 and$1,556 for the three months endedSeptember 30, 2020 and 2019, respectively.CONSOL Energy's total contributions under the Coal Industry Retiree Health Benefit Act of 1992 were$4,110 and$4,662 for the nine months endedSeptember 30, 2020 and 2019, respectively. Based on available information atDecember 31, 2019 ,CONSOL Energy's obligation for theUMWA Combined Benefit Fund and 1992 Benefit Plan is estimated to be approximately$62,295 .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 atSeptember 30, 2020 . Management believes these items will expire without being funded. See Note 14-Commitments and Contingent Liabilities in the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q for additional details of the various financial guarantees that have been issued byCONSOL Energy . 55
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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," "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:
the number of shares of CEIX common stock that the holders of CCR common units
may receive in the pending merger between CEIX and CCR (the CCR Merger) is
• based on a fixed exchange ratio and will not be adjusted in the event of any
change in the price of either shares of CEIX common stock or CCR common
units;
the CCR Merger is subject to conditions, including certain conditions that may
not be satisfied or completed on a timely basis, if at all. Failure to
• complete the CCR Merger could have a material and adverse effect on us and,
even if completed, the CCR Merger may not achieve some or all of the
anticipated benefits;
• we may incur transaction-related costs in connection with the proposed CCR
Merger;
we are subject to provisions under the Merger Agreement that, in specified
• circumstances, could require us to pay a termination fee and to be responsible
for CCR's expenses;
• financial projections relating to the combined company after the CCR Merger
may not be achieved;
CEIX and CCR may be targets of securities class action and derivative
• lawsuits, which could result in substantial costs and may delay or prevent the
completion of the CCR Merger;
• CEIX and CCR may not achieve the net benefits from the CCR Merger in the near
term;
the CCR Merger may not be accretive to operating earnings and may cause
• dilution to CEIX's earnings per share, which may negatively affect the market
price of CEIX common stock;
following the merger, approximately 22.0% of the total voting power of CEIX
• common stock will be owned by CCR common unitholders and, as a result, CEIX's
current shareholders may experience significant dilution;
• the effects the COVID-19 pandemic has on our business and results of
operations and on the global economy;
• a restructuring of liabilities of Murray Energy as a result of its bankruptcy
may result in the Company becoming responsible for certain liabilities that
Murray Energy assumed from our former parent in 2013;
• 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;
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• volatility and wide fluctuation in coal prices based upon a number of factors
beyond our control including oversupply relative to the demand available for
our products, weather and the price and availability of alternative fuels;
• 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 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;
• the risks related to the fact that a significant portion of our production is
sold in international markets;
• 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;
• operating 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;
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• the effects of receiving low sustainability 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;
• the effect of our affiliated company credit agreement on our cash flows;
• failure by one or more of the third parties to satisfy certain liabilities it
acquired from our former parent, or failure to perform its obligations under
various arrangements, which our former parent guaranteed and for which we have
indemnification obligations to our former parent;
• 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;
• we may not receive distributions from the Partnership;
• failure to maintain effective internal controls over financial reporting;
• certain risks related to our separation from our former parent;
• a determination by the Internal Revenue Service that the distribution or
certain related transactions should be treated as a taxable transaction;
• 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. 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.
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