CONSOL Energy (CEIX) - 2020 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements This section presents CONSOL Energy Inc.'s unaudited consolidated financial statements, including statements of income, comprehensive income, balance sheets, stockholders' equity, and cash flows, along with detailed notes, reflecting a net loss and decreased assets and equity in 2020 Consolidated Statements of Income The company reported a net loss attributable to CONSOL Energy Inc. shareholders of $7.224 million for the three months and $22.840 million for the nine months ended September 30, 2020, a significant decline from net income in the prior year periods Net (Loss) Income Attributable to CONSOL Energy Inc. Shareholders | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :---------------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net (Loss) Income Attributable to CONSOL Energy Inc. Shareholders | $(7,224) | $4,340 | $(22,840) | $62,055 | Total Revenue and Other Income | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :----------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Total Revenue and Other Income | $243,219 | $333,346 | $697,036 | $1,088,269 | (Loss) Earnings per Share (Basic) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Basic (Loss) Earnings per Share | $(0.28) | $0.16 | $(0.88) | $2.27 | Consolidated Statements of Comprehensive Income The company reported a comprehensive loss of $5.359 million for the three months and $19.484 million for the nine months ended September 30, 2020, a decline from comprehensive income in the prior year periods Comprehensive (Loss) Income | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :---------------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Comprehensive (Loss) Income | $(5,359) | $9,220 | $(19,484) | $83,008 | | Comprehensive (Loss) Income Attributable to CONSOL Energy Inc. Shareholders | $(3,238) | $6,539 | $(14,421) | $68,911 | Consolidated Balance Sheets As of September 30, 2020, total assets decreased to $2.555 billion from $2.694 billion at December 31, 2019, with corresponding decreases in total liabilities and total equity Key Balance Sheet Metrics | Metric | September 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :------------------ | :-------------------------------- | :------------------------------- | | Total Assets | $2,554,838 | $2,693,802 | | Total Liabilities | $2,002,110 | $2,121,407 |\ | Total Equity | $552,728 | $572,395 | - Cash and cash equivalents decreased significantly from $80.293 million at December 31, 2019, to $22.284 million at September 30, 2020[15] - Total current assets decreased from $338.029 million to $251.296 million, primarily driven by the reduction in cash and receivables[15] Consolidated Statements of Stockholders' Equity Total CONSOL Energy Inc. Stockholders' Equity decreased from $435.199 million at December 31, 2019, to $426.079 million at September 30, 2020, influenced by net loss and long-term liability adjustments Total CONSOL Energy Inc. Stockholders' Equity | Metric | December 31, 2019 (in thousands) | September 30, 2020 (in thousands) | | :---------------------------------------------- | :------------------------------- | :-------------------------------- | | Total CONSOL Energy Inc. Stockholders' Equity | $435,199 | $426,079 | - Net loss attributable to CONSOL Energy Inc. Shareholders for the three months ended September 30, 2020, was $7.224 million[22] - Actuarially determined long-term liability adjustments contributed $3.609 million to equity for the three months ended September 30, 2020[22] Consolidated Statements of Cash Flows For the nine months ended September 30, 2020, net cash provided by operating activities significantly decreased to $62.388 million, while net cash used in investing and financing activities also decreased, resulting in a net decrease in cash and cash equivalents of $58.009 million Cash Flow Summary | Metric | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :---------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net Cash Provided by Operating Activities | $62,388 | $223,183 | | Net Cash Used in Investing Activities | $(57,405) | $(129,460) |\ | Net Cash Used in Financing Activities | $(62,992) | $(223,809) |\ | Net Decrease in Cash and Cash Equivalents | $(58,009) | $(130,086) |\ | Cash and Cash Equivalents at End of Period | $22,284 | $134,849 | - Capital expenditures decreased from $131.475 million in 2019 to $65.955 million in 2020, reflecting cost control measures[27] - Payments on Term Loan B decreased significantly from $123.750 million in 2019 to $2.063 million in 2020[27] Notes to Consolidated Financial Statements Note 1—Basis of Presentation The financial statements are prepared in accordance with GAAP for interim information, with operating results not indicative of future periods, and the company adopted several ASUs without expecting material impact - The company adopted ASU 2020-04 (Reference Rate Reform) and ASU 2020-01 (Equity Securities) but does not expect a material impact on its financial statements[34][35] - Anti-dilutive restricted stock units increased from 418,924 in Q3 2019 to 1,561,852 in Q3 2020[40] (Loss) Earnings per Share (Dilutive) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Dilutive (Loss) Earnings per Share | $(0.28) | $0.16 | $(0.88) | $2.26 | Note 2—Major Transactions On September 16, 2020, CONSOL Energy settled disputes with Murray Energy Holdings Co. and Murray NewCo, recognizing $18.561 million in Miscellaneous Other Income, $6.230 million in Gain on Sale of Assets, and a $1.940 million reduction in Operating and Other Costs - Settlement with Murray Energy Holdings Co. and Murray NewCo resulted in significant income and cost reductions[44] Financial Impact of Major Transaction (3 Months Ended Sep 30, 2020) | Metric | Amount (in thousands) | | :----------------------------------- | :-------------------- | | Miscellaneous Other Income | $18,561 | | Gain on Sale of Assets | $6,230 | | Reduction of Operating and Other Costs | $1,940 | Note 3—Revenue Total revenue from contracts with customers significantly decreased for both the three and nine months ended September 30, 2020, compared to the prior year, with coal revenue as the primary component Total Revenue from Contracts with Customers | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :-------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Total Revenue from Contracts with Customers | $214,292 | $321,444 | $610,688 | $1,049,609 | Coal Revenue | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :----------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Coal Revenue | $184,375 | $301,542 | $542,140 | $984,665 | - Coal revenue is generally recognized when title passes, with pricing fixed and determinable, adjusted for quality[46] Note 4—Miscellaneous Other Income Miscellaneous other income significantly increased for both the three and nine months ended September 30, 2020, primarily due to the sale of certain coal lease contracts, partially offset by decreased royalty income Miscellaneous Other Income | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Miscellaneous Other Income | $21,001 | $11,188 | $71,107 | $36,674 | - Sale of certain coal lease contracts contributed $17.847 million to miscellaneous other income for both the three and nine months ended September 30, 2020[54][56] - Royalty income from non-operated coal decreased from $4.976 million to $2.241 million for the three months, and from $16.863 million to $9.638 million for the nine months[54] Note 5—Components of Pension and Other Post-Employment Benefit (OPEB) Plans Net Periodic Benefit Costs Net periodic benefit (credit) cost for pension plans was a credit of $(3.385) million for the three months and $(10.155) million for the nine months ended September 30, 2020, while OPEB plans incurred costs of $4.917 million and $14.751 million respectively Net Periodic Benefit (Credit) Cost | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net Periodic Benefit (Credit) Cost (Pension) | $(3,385) | $(1,454) | $(10,155) | $(4,361) | | Net Periodic Benefit (Credit) Cost (OPEB) | $4,917 | $6,294 | $14,751 | $18,882 | Note 6—Components of Coal Workers' Pneumoconiosis (CWP) and Workers' Compensation Net Periodic Benefit Costs Net periodic benefit cost for CWP increased to $4.103 million for the three months and $12.310 million for the nine months ended September 30, 2020, compared to the prior year, while workers' compensation costs remained stable Net Periodic Benefit Cost (CWP and Workers' Compensation) | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net Periodic Benefit Cost (CWP) | $4,103 | $2,952 | $12,310 | $8,856 | | Net Periodic Benefit Cost (Workers' Compensation) | $2,491 | $2,384 | $7,389 | $7,294 | Note 7—Income Taxes The company's year-to-date effective tax rate for the nine months ended September 30, 2020, was (0.6)%, primarily due to the income tax benefit for excess percentage depletion, offset by discrete tax expenses and the impact of the CARES Act and 163j regulations - The effective tax rate for the nine months ended September 30, 2020, was (0.6)%, compared to (0.3)% in the prior year[62][63] - The CARES Act increased deductible interest from 30% to 50% for tax years 2019 and 2020, reducing cash tax burden but also the base for percentage depletion[62] - The company did not have any unrecognized tax benefits for the nine months ended September 30, 2020, or the year ended December 31, 2019[65] Note 8—Credit Losses Effective January 1, 2020, the company adopted ASU 2016-013, resulting in a cumulative-effect adjustment to retained earnings of $3.298 million, net of tax, and a significant increase in the allowance for credit losses on receivables - Adoption of ASU 2016-013 resulted in a cumulative-effect adjustment to retained earnings of $3.298 million (net of $1.109 million income taxes)[67] Allowance for Credit Losses on Receivables | Metric | As Reported ASC 326 (in thousands) | Pre-ASC 326 Adoption (in thousands) | Impact of ASC 326 Adoption (in thousands) | | :----------------------------------- | :--------------------------------- | :---------------------------------- | :---------------------------------------- | | Allowance for Credit Losses on Receivables | $7,218 | $2,811 | $4,407 | - The company considered the impact of COVID-19 but determined that the estimate of credit losses was not significantly impacted[69] Note 9—Inventories Total inventories increased to $56.577 million at September 30, 2020, from $54.131 million at December 31, 2019, primarily due to an increase in coal inventory Inventory Components | Metric | September 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :---------------- | :-------------------------------- | :------------------------------- | | Coal | $6,640 | $2,484 | | Supplies | $49,937 | $51,647 | | Total Inventories | $56,577 | $54,131 | - Coal inventory costs are determined by the FIFO method and include labor, supplies, equipment, operating overhead, and depreciation[75] Note 10—Accounts Receivable Securitization The company's trade accounts receivable securitization facility was amended in March 2020, extending its maturity to March 27, 2023, with a maximum of $100 million in advances and letters of credit, and $30.100 million in outstanding letters of credit as of September 30, 2020 - Securitization facility maturity extended to March 27, 2023[76] - Maximum borrowing capacity under the securitization facility is $100 million[77] Securitization Facility Status | Metric | September 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :------------------------------------ | :-------------------------------- | :------------------------------- | | Outstanding Borrowings | $0 | $0 |\ | Letters of Credit Outstanding | $30,100 | $41,211 |\ | Available Borrowing Capacity | $560 | $71 | Note 11—Property, Plant and Equipment Total Property, Plant and Equipment, Net, decreased slightly to $2.083 billion at September 30, 2020, from $2.092 billion at December 31, 2019, while gross assets under finance leases increased significantly Property, Plant and Equipment, Net | Metric | September 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------------------- | :-------------------------------- | :------------------------------- | | Total Property, Plant and Equipment, Net | $2,083,240 | $2,092,165 | - Gross assets under finance leases increased from $52.729 million at December 31, 2019, to $85.908 million at September 30, 2020[83] - Amortization expense for assets under finance leases increased for both the three and nine months ended September 30, 2020, compared to 2019[83] Note 12—Other Accrued Liabilities Total Other Accrued Liabilities increased to $247.395 million at September 30, 2020, from $235.769 million at December 31, 2019, primarily due to increases in accrued equipment obligations and accrued interest Total Other Accrued Liabilities | Metric | September 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :---------------------------- | :-------------------------------- | :------------------------------- | | Total Other Accrued Liabilities | $247,395 | $235,769 | - Accrued equipment obligations increased from $0 to $10.097 million[84] - Accrued interest increased from $6.281 million to $9.576 million[84] Note 13—Long-Term Debt Total long-term debt decreased to $587.020 million at September 30, 2020, from $653.802 million at December 31, 2019, due to debt repurchases and payments, while Senior Secured Credit Facilities were amended to relax covenants and increase interest rates Long-Term Debt | Metric | September 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------- | :-------------------------------- | :------------------------------- | | Long-Term Debt | $587,020 | $653,802 | - The company repurchased $45.176 million of its 11.00% Senior Secured Second Lien Notes during the nine months ended September 30, 2020, recognizing a gain on debt extinguishment of $17.911 million[95] - Senior Secured Credit Facilities were amended in June 2020, increasing applicable margins and revising financial covenants for eight quarters[87][89] - The company was in compliance with all debt covenants as of September 30, 2020, with a maximum first lien gross leverage ratio of 2.04 to 1.00, total net leverage ratio of 3.38 to 1.00, and minimum fixed charge coverage ratio of 1.33 to 1.00[89] Note 14—Commitments and Contingent Liabilities The company faces ongoing lawsuits, including ERISA violations and potential Coal Act liabilities from the Murray Energy bankruptcy, and has significant financial guarantees and surety bonds totaling $807.327 million as of September 30, 2020 - Fitzwater and Casey litigations, alleging ERISA violations in retiree health care benefits, are ongoing, with trial dates set for November 16, 2020[101][102] - The company is defending against potential continuing retiree medical liabilities under the Coal Act following Murray Energy's bankruptcy and settlement with the 1992 Benefit Plan[103][105] Total Commitments and Guarantees (as of September 30, 2020) | Type of Commitment | Total Amounts Committed (in thousands) | Less Than 1 Year (in thousands) | 1-3 Years (in thousands) | 3-5 Years (in thousands) | Beyond 5 Years (in thousands) | | :----------------- | :------------------------------------- | :------------------------------ | :----------------------- | :----------------------- | :---------------------------- | | Letters of Credit | $129,226 | $100,831 | $28,395 | $0 | $0 | | Surety Bonds | $667,397 | $610,408 | $56,989 | $0 | $0 | | Guarantees | $10,704 | $6,636 | $3,438 | $398 | $232 | | Total Commitments | $807,327 | $717,875 | $88,822 | $398 | $232 | Note 15—Fair Value of Financial Instruments The company measures fair value using a hierarchy of inputs, classifying lease guarantees as Level 3, derivatives (interest rate swaps) as Level 2, and long-term debt fair value using Level 1 or Level 2 inputs Financial Instruments Measured at Fair Value (Recurring Basis) | Description | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | | :---------------- | :--------------------- | :--------------------- | :--------------------- | | Lease Guarantees | $0 | $0 | $(259) | | Derivatives | $0 | $(3,373) | $0 | Carrying Amounts and Fair Values of Long-Term Debt (Fair Value Option Not Elected) | Metric | September 30, 2020 Carrying Amount (in thousands) | September 30, 2020 Fair Value (in thousands) | December 31, 2019 Carrying Amount (in thousands) | December 31, 2019 Fair Value (in thousands) | | :--------------- | :------------------------------------------------ | :------------------------------------------- | :----------------------------------------------- | :------------------------------------------ | | Long-Term Debt | $645,472 | $491,465 | $696,178 | $642,018 | - Interest rate swaps are valued based on observable market swap rates (Level 2)[117] Note 16—Segment Information CONSOL Energy operates one reportable segment, the Pennsylvania Mining Complex (PAMC), focused on thermal coal, with both PAMC and the "Other" division experiencing revenue declines for the three and nine months ended September 30, 2020 - The Pennsylvania Mining Complex (PAMC) is the sole reportable segment, focused on mining, preparation, and marketing of thermal coal[120] - The "Other" division includes the CONSOL Marine Terminal, Itmann Mine development, Greenfield Reserves, and various corporate activities[122] Consolidated Revenue from Contracts with Customers by Segment | Segment | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :------ | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | PAMC | $196,975 | $305,141 | $560,686 | $998,780 | | Other | $17,317 | $16,303 | $50,002 | $50,829 | Note 17—Additional Information With Respect to Unrestricted Subsidiaries The company provides separate financial information for its "Company and Restricted Subsidiaries" and "Unrestricted Subsidiaries" (Partnership and SPV) as required by debt agreements, detailing the distribution of revenue, expenses, assets, and liabilities - Unrestricted Subsidiaries include the Partnership and the SPV[129] Consolidated Revenue and Other Income (3 Months Ended Sep 30, 2020) | Metric | Company and Restricted Subsidiaries (in thousands) | Unrestricted Subsidiaries (in thousands) | Consolidated (in thousands) | | :----------------------------- | :------------------------------------------------- | :--------------------------------------- | :-------------------------- | | Total Revenue and Other Income | $184,370 | $58,849 | $243,219 | Consolidated Total Assets (Sep 30, 2020) | Metric | Company and Restricted Subsidiaries (in thousands) | Unrestricted Subsidiaries (in thousands) | Consolidated (in thousands) | | :------------ | :------------------------------------------------- | :--------------------------------------- | :-------------------------- | | TOTAL ASSETS | $1,989,437 | $565,401 | $2,554,838 | Note 18—Related Party Transactions The company's transition services agreement with its former parent expired in February 2019, and its Affiliated Company Credit Agreement with CONSOL Coal Resources LP (CCR) was amended in June 2020 to relax financial covenants and increase interest rates - Transition services agreement with former parent expired in February 2019[140] - Affiliated Company Credit Agreement with CCR was amended in June 2020, providing financial covenant relaxation and a 50 basis points interest rate increase[145] Interest Incurred under Affiliated Company Credit Agreement | Period | Interest Incurred (in thousands) | | :-------------------------- | :------------------------------- | | 3 Months Ended Sep 30, 2020 | $2,428 | | 3 Months Ended Sep 30, 2019 | $2,003 | | 9 Months Ended Sep 30, 2020 | $6,705 | | 9 Months Ended Sep 30, 2019 | $5,770 | - CCR had a net payable to the company of $8.035 million at September 30, 2020, up from $1.419 million at December 31, 2019[151] Note 19—Stock, Unit and Debt Repurchases The Board of Directors expanded the stock, unit, and debt repurchase program to an aggregate limit of $270 million, extending the termination date to June 30, 2022, with $45.176 million of Senior Secured Second Lien Notes repurchased during the nine months ended September 30, 2020 - Repurchase program expanded to $270 million, with termination date extended to June 30, 2022[153] - During the nine months ended September 30, 2020, the company repurchased $45.176 million of its 11.00% Senior Secured Second Lien Notes[155] - No common shares or Partnership units were repurchased during the nine months ended September 30, 2020[155] Note 20—Subsequent Events On October 23, 2020, CONSOL Energy announced a definitive merger agreement to acquire all outstanding CCR common units not already owned, in an all-stock transaction valued at approximately $34.4 million, expected to close in Q1 2021 - CONSOL Energy entered into a definitive merger agreement to acquire all outstanding CCR common units (not already owned) in an all-stock transaction valued at approximately $34.4 million[157] - The fixed exchange ratio is 0.73 shares of CONSOL Energy common stock for each Public Common Unit[157] - CONSOL Energy will issue approximately 8.0 million shares, representing about 22.2% of total pro forma outstanding shares[157] - The transaction is expected to close in Q1 2021, contingent on stockholder and unitholder approvals[159] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition and operating results, highlighting the impact of the pending CCR Merger and COVID-19 pandemic, and discussing liquidity, capital resources, and forward-looking statements CCR Merger CONSOL Energy entered into a definitive merger agreement to acquire all outstanding CCR common units not already owned, involving a fixed exchange ratio of 0.73 shares of CONSOL Energy common stock for each Public Common Unit, with the merger expected to close in Q1 2021 - Merger agreement signed to acquire outstanding CCR common units at a fixed exchange ratio of 0.73 shares of CONSOL Energy common stock per unit[163] - Approximately 8.0 million shares of CONSOL Energy common stock will be issued, representing about 22.2% of total pro forma outstanding shares[164] - The transaction is expected to close in Q1 2021, contingent on stockholder and unitholder approvals[165] COVID-19 Update The COVID-19 pandemic caused a significant decline in coal demand, leading to temporary production curtailments at the Bailey Mine and idled longwalls, with continued negative impacts expected on operations and financial condition - Coal demand experienced an unprecedented decline in Q1 and Q2 2020, hitting its lowest point in May, but improved through Q3[167] - Production at Bailey Mine was temporarily curtailed for two weeks, and four of five longwalls were idled for periods in Q2, with four longwalls running for most of Q3[166][167] - The company expects continued negative impacts on operational, sales, and financial performance due to the pandemic[167][168] Our Business CONSOL Energy is a low-cost producer of high-quality bituminous coal in the Appalachian Basin, leveraging its PAMC assets and CONSOL Marine Terminal, with a strategy focused on maximizing cash flow, debt reduction, capital returns, and strategic growth - CONSOL Energy is a leading, low-cost producer of high-quality bituminous coal in the Appalachian Basin[169] - The Pennsylvania Mining Complex (PAMC) controls 669.4 million tons of Pittsburgh seam reserves, providing approximately 23.5 years of full-capacity production[172] - The company owns or controls 1.5 billion tons of Greenfield Reserves and is developing the Itmann Mine for high-quality, low-vol coking coal[172][173] - Q3 2020 highlights include improved financial flexibility, resumed second lien debt repurchases, and a rebound in coal sales volume to 4.5 million tons[177] How We Evaluate Our Operations Management evaluates operations using financial and operating metrics, including coal production, sales volumes, average revenue per ton, and non-GAAP measures such as cost of coal sold and cash cost of coal sold, to assess performance and financial health - Key metrics include coal production, sales volumes, average revenue per ton, and non-GAAP measures like cost of coal sold and cash cost of coal sold[178][179] - Non-GAAP measures are used to assess operating performance, cash flow generation, debt servicing, and investment opportunities[179] Reconciliation of Cost of Coal Sold and Cash Cost of Coal Sold to Total Costs and Expenses | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :---------------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Total Costs and Expenses | $246,661 | $323,907 | $724,841 | $1,012,355 | | Cost of Coal Sold | $175,669 | $254,328 | $501,851 | $769,688 | | Cash Cost of Coal Sold | $130,037 | $212,063 | $381,005 | $641,554 | Average Margin per Ton Sold and Average Cash Margin per Ton Sold | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | 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 | | 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 | | Average Cash Margin per Ton Sold | $11.91 | $13.81 | $12.47 | $16.68 | Results of Operations Three Months Ended September 30, 2020 Compared with the Three Months Ended September 30, 2019 Net loss attributable to CONSOL Energy Inc. shareholders was $7 million for Q3 2020, compared to net income of $4 million in Q3 2019, driven by a significant decline in coal revenue and lower margins in the PAMC division, partially offset by improved performance in the Other division PAMC ANALYSIS The PAMC division reported a loss before income tax of $7 million for Q3 2020, a significant decline from earnings of $31 million in Q3 2019, primarily due to a $118 million decrease in coal revenue from reduced production and lower natural gas prices PAMC (Loss) Earnings Before Income Tax | Metric | 3 Months Ended Sep 30, 2020 (in millions) | 3 Months Ended Sep 30, 2019 (in millions) | Variance (in millions) | | :------------------------------ | :---------------------------------------- | :---------------------------------------- | :--------------------- | | (Loss) Earnings Before Income Tax | $(7) | $31 | $(38) | Coal Production Coal production from the Pennsylvania Mining Complex decreased by 1,957 thousand tons, from 6,492 thousand tons in Q3 2019 to 4,535 thousand tons in Q3 2020, primarily due to a reduced operating schedule in response to declining global demand from the COVID-19 pandemic Total Tons Produced from PAMC | Mine | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Variance (in thousands) | | :----------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | | 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) | - Production decreased due to a reduced operating schedule in light of declining global demand from the COVID-19 pandemic[194] Coal Operations Total tons sold decreased by 2.0 million tons in Q3 2020 compared to Q3 2019, with average revenue per ton sold decreasing by $6.04 and average cash cost of coal sold per ton decreasing by $4.14, resulting in a significant $5.45 decline in average margin per ton sold PAMC Coal Operations Per Unit Metrics | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | Variance | | :---------------------------------------------- | :-------------------------- | :-------------------------- | :------- | | Total Tons Sold (in millions) | 4.5 | 6.5 | (2.0) | | Average Revenue per Ton Sold | $40.55 | $46.59 | $(6.04) | | Average Cash Cost of Coal Sold per Ton | $28.64 | $32.78 | $(4.14) | | Average Cost of Coal Sold per Ton | $38.70 | $39.29 | $(0.59) | | Average Margin per Ton Sold | $1.85 | $7.30 | $(5.45) | | Average Cash Margin per Ton Sold | $11.91 | $13.81 | $(1.90) | Coal Revenue Coal revenue for the PAMC division decreased by $118 million to $184 million in Q3 2020, from $302 million in Q3 2019, due to fewer tons sold and lower pricing, driven by the COVID-19 pandemic and lower natural gas prices - Coal revenue decreased by $118 million due to reduced tons sold and lower pricing[191][197] - Lower natural gas prices contributed to electric generation trending toward gas over coal[197] Freight Revenue and Freight Expense Freight revenue and expense both increased by $9 million to $13 million in Q3 2020, from $4 million in Q3 2019, due to increased shipments to customers for whom the company provides transportation services - Freight revenue and expense increased by $9 million to $13 million, fully offsetting each other[199] Miscellaneous Other Income Miscellaneous other income decreased by $4 million in Q3 2020, primarily due to the absence of sales of externally purchased coal and customer contract buyouts that occurred in Q3 2019 - $4 million decrease in miscellaneous other income due to no sales of externally purchased coal and customer contract buyouts in Q3 2020[201] Cost of Coal Sold Total cost of coal sold decreased by $78 million to $176 million in Q3 2020, from $254 million in Q3 2019, primarily due to reduced production volume and operating days, while average cost of coal sold per ton slightly decreased - Total cost of coal sold decreased by $78 million, driven by reduced production volume and operating days[202] - Average cost of coal sold per ton decreased from $39.29 to $38.70[202] Other Costs Total other costs for the PAMC division remained materially consistent in Q3 2020 compared to Q3 2019 - Total other costs remained materially consistent[203] Selling, General, and Administrative Costs Selling, general and administrative costs for the PAMC division decreased by $5 million to $9 million in Q3 2020, from $14 million in Q3 2019, due to cost reduction initiatives including compensation reductions and discretionary expense curtailment - SG&A costs decreased by $5 million due to cost reduction initiatives[204] OTHER ANALYSIS The Other division reported earnings before income tax of $4 million for Q3 2020, a significant improvement from a loss of $22 million in Q3 2019, primarily driven by a $14 million increase in miscellaneous other income from asset sales and a $7 million gain on sale of assets Other Division Earnings (Loss) Before Income Tax | Metric | 3 Months Ended Sep 30, 2020 (in millions) | 3 Months Ended Sep 30, 2019 (in millions) | Variance (in millions) | | :------------------------------ | :---------------------------------------- | :---------------------------------------- | :--------------------- | | Earnings (Loss) Before Income Tax | $4 | $(22) | $26 | Terminal Revenue Terminal revenue increased by $1 million to $17 million in Q3 2020, from $16 million in Q3 2019, primarily due to an increase in revenues associated with throughput tons and services not covered by the company's take-or-pay contract - Terminal revenue increased by $1 million due to higher throughput tons and services[210] Miscellaneous Other Income Miscellaneous other income increased by $14 million to $21 million in Q3 2020, from $7 million in Q3 2019, mainly due to an $18 million increase from the sale of certain coal lease contracts, partially offset by a decrease in royalty income - Miscellaneous other income increased by $14 million, primarily from the sale of certain coal lease contracts ($18 million)[211] Gain on Sale of Assets Gain on sale of assets increased by $7 million in Q3 2020, primarily due to the sale of various gas wells and related equipment - Gain on sale of assets increased by $7 million due to the sale of gas wells and equipment[212] Operating and Other Costs Operating and other costs for the Other division remained materially consistent in Q3 2020 compared to Q3 2019 - Operating and other costs remained materially consistent[213] Depreciation, Depletion and Amortization Depreciation, depletion and amortization decreased by $3 million in Q3 2020, due to current quarter adjustments to asset retirement obligations based on projected cash outflows - DDA decreased by $3 million due to adjustments to asset retirement obligations[215] Selling, General and Administrative Costs Selling, general and administrative costs for the Other division increased by $1 million in Q3 2020, due to increased resource utilization at the CONSOL Marine Terminal, Itmann Mine, and other business development activities - SG&A costs increased by $1 million due to increased resource utilization in various business development activities[217] (Gain) Loss on Debt Extinguishment A gain on debt extinguishment of $1 million was recognized in Q3 2020 from repurchases of Senior Secured Second Lien Notes, compared to a $1 million loss in Q3 2019 - $1 million gain on debt extinguishment in Q3 2020 vs. $1 million loss in Q3 2019, both from repurchases of Second Lien Notes[218] Interest Expense, net Interest expense, net, remained materially consistent in Q3 2020 compared to Q3 2019 - Interest expense, net, remained materially consistent[219] Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019 Net loss attributable to CONSOL Energy Inc. shareholders was $23 million for the nine months ended September 30, 2020, compared to net income of $62 million in the prior year, primarily due to a significant decline in coal revenue and increased other costs in the PAMC division, partially offset by a substantial gain on debt extinguishment and increased miscellaneous other income in the Other division PAMC ANALYSIS The PAMC division reported a loss before income tax of $18 million for the nine months ended September 30, 2020, a significant decline from earnings of $156 million in the prior year, primarily due to a $443 million decrease in coal revenue and a $44 million increase in other costs PAMC (Loss) Earnings Before Income Tax | Metric | 9 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2019 (in millions) | Variance (in millions) | | :------------------------------ | :---------------------------------------- | :---------------------------------------- | :--------------------- | | (Loss) Earnings Before Income Tax | $(18) | $156 | $(174) | Coal Production Coal production from the Pennsylvania Mining Complex decreased by 7,669 thousand tons, from 20,564 thousand tons in the nine months ended September 30, 2019, to 12,895 thousand tons in 2020, mainly due to the temporary idling of longwalls in response to weakened customer demand from a warmer winter and the COVID-19 pandemic Total Tons Produced from PAMC | Mine | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Variance (in thousands) | | :----------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | | 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) | - Production decreased due to temporary idling of longwalls in response to weakened customer demand from a warmer winter and the COVID-19 pandemic[232] Coal Operations Total tons sold decreased by 7.8 million tons for the nine months ended September 30, 2020, with average revenue per ton sold decreasing by $5.49 and average cash cost of coal sold per ton decreasing by $1.28, resulting in a significant $7.35 decline in average margin per ton sold PAMC Coal Operations Per Unit Metrics | Metric | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | Variance | | :---------------------------------------------- | :-------------------------- | :-------------------------- | :------- | | Total Tons Sold (in millions) | 12.8 | 20.6 | (7.8) | | Average Revenue per Ton Sold | $42.35 | $47.84 | $(5.49) | | Average Cash Cost of Coal Sold per Ton | $29.88 | $31.16 | $(1.28) | | Average Cost of Coal Sold per Ton | $39.25 | $37.39 | $1.86 | | Average Margin per Ton Sold | $3.10 | $10.45 | $(7.35) | | Average Cash Margin per Ton Sold | $12.47 | $16.68 | $(4.21) | Coal Revenue Coal revenue for the PAMC division decreased by $443 million to $542 million for the nine months ended September 30, 2020, from $985 million in the prior year, due to reduced tons sold, lower pricing from weakened customer demand, and lower natural gas prices - Coal revenue decreased by $443 million due to reduced tons sold, lower pricing, and lower natural gas prices[223][235] Freight Revenue and Freight Expense Freight revenue and expense both increased by $5 million to $19 million for the nine months ended September 30, 2020, from $14 million in the prior year, due to increased shipments to customers for whom the company provides transportation services - Freight revenue and expense increased by $5 million to $19 million, fully offsetting each other[237] Miscellaneous Other Income Miscellaneous other income increased by $27 million to $41 million for the nine months ended September 30, 2020, from $14 million in the prior year, primarily due to additional customer contract buyouts - Miscellaneous other income increased by $27 million, primarily from additional customer contract buyouts[238] Cost of Coal Sold Total cost of coal sold decreased by $268 million to $502 million for the nine months ended September 30, 2020, from $770 million in the prior year, due to decreased production activity, though average cost per ton increased - Total cost of coal sold decreased by $268 million due to decreased production[239] - Average cost of coal sold per ton increased from $37.39 to $39.25 due to decreased production[239] Other Costs Total other costs increased by $44 million for the nine months ended September 30, 2020, primarily due to the temporary idling of longwalls at the Bailey and Enlow Fork mines in response to the COVID-19 pandemic - Total other costs increased by $44 million, mainly due to temporary idling of longwalls from the COVID-19 pandemic[240] Selling, General, and Administrative Costs Selling, general and administrative costs for the PAMC division decreased by $19 million to $31 million for the nine months ended September 30, 2020, from $50 million in the prior year, due to reduced Performance Incentive Plan expenses and other cost reduction initiatives - SG&A costs decreased by $19 million due to reduced Performance Incentive Plan expenses and cost reduction initiatives[241] Interest Expense, net Interest expense, net, increased by $1 million for the nine months ended September 30, 2020, primarily due to obligations under various finance leases - Interest expense, net, increased by $1 million due to finance lease obligations[242] OTHER ANALYSIS The Other division reported a loss before income tax of $10 million for the nine months ended September 30, 2020, a significant improvement from a loss of $80 million in the prior year, driven by an $18 million gain on debt extinguishment and a $13 million gain on sale of assets Other Division Loss Before Income Tax | Metric | 9 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2019 (in millions) | Variance (in millions) | | :--------------------- | :---------------------------------------- | :---------------------------------------- | :--------------------- | | Loss Before Income Tax | $(10) | $(80) | $70 | Terminal Revenue Terminal revenue decreased by $2 million to $49 million for the nine months ended September 30, 2020, from $51 million in the prior year, primarily due to a decrease in revenues associated with throughput tons and services not covered by the company's take-or-pay contract - Terminal revenue decreased by $2 million due to lower throughput tons and services[247] Miscellaneous Other Income Miscellaneous other income increased by $9 million to $31 million for the nine months ended September 30, 2020, from $22 million in the prior year, mainly due to an $18 million increase from the sale of certain coal lease contracts, partially offset by a $7 million decrease in royalty income - Miscellaneous other income increased by $9 million, driven by $18 million from coal lease contract sales, offset by a $7 million decrease in royalty income[248] Gain on Sale of Assets Gain on sale of assets increased by $13 million for the nine months ended September 30, 2020, primarily due to the sale of various gas wells and related equipment - Gain on sale of assets increased by $13 million due to the sale of gas wells and equipment[249] Operating and Other Costs Operating and other costs decreased by $4 million to $58 million for the nine months ended September 30, 2020, from $62 million in the prior year, primarily due to a $9 million decrease in employee-related legacy liability expense - Operating and other costs decreased by $4 million, mainly due to a $9 million decrease in employee-related legacy liability expense[250][251] Depreciation, Depletion and Amortization Depreciation, depletion and amortization decreased by $4 million for the nine months ended September 30, 2020, due to current quarter adjustments to asset retirement obligations - DDA decreased by $4 million due to adjustments to asset retirement obligations[252] Selling, General and Administrative Costs Selling, general and administrative costs for the Other division increased by $6 million for the nine months ended September 30, 2020, due to increased resource utilization in various business development activities - SG&A costs increased by $6 million due to increased resource utilization in business development activities[253] (Gain) Loss on Debt Extinguishment A gain on debt extinguishment of $18 million was recognized for the nine months ended September 30, 2020, from repurchases of Senior Secured Second Lien Notes, compared to a $25 million loss in the prior year from repurchases and debt refinancing - $18 million gain on debt extinguishment in 2020 vs. $25 million loss in 2019[254][255] Interest Expense, net Interest expense, net, decreased by $5 million for the nine months ended September 30, 2020, primarily due to the $110 million required repayment on the Term Loan B Facility and debt refinancing in 2019, as well as repurchases of Second Lien Notes - Interest expense, net, decreased by $5 million due to Term Loan B repayment and debt refinancing in 2019, and Second Lien Notes repurchases[256] Liquidity and Capital Resources The company's total liquidity was $323 million at September 30, 2020, including $22 million in cash, with the COVID-19 pandemic negatively impacting coal demand and liquidity, though the CARES Act is expected to provide benefits - Total liquidity was $323 million at September 30, 2020, including $22 million of cash and cash equivalents[259] - The $400 million revolving credit facility had no borrowings outstanding and $99 million in letters of credit issued, leaving $301 million of unused capacity at September 30, 2020[259][283] - The CARES Act is expected to reduce the company's cash tax burden for 2019 and 2020, providing additional free cash flow and payroll ret