CONSOL Energy (CEIX) - 2021 Q4 - Annual Report

PART I ITEM 1. Business CONSOL Energy is a leading low-cost Appalachian coal producer, managing core assets and pursuing strategic financial goals - CONSOL Energy Inc. was incorporated in Delaware on June 21, 2017, becoming an independent, publicly-traded company on November 28, 2017, after separating its coal business[18] - The company's core businesses include the Pennsylvania Mining Complex (PAMC), CONSOL Marine Terminal, the developing Itmann Mine, and Greenfield Reserves and Resources[24][26] - The strategic vision focuses on maximizing cash flow, reducing debt, returning capital, and pursuing growth/diversification opportunities, including innovative coal uses[23][28][33] Key Operational and Financial Highlights (2021) | Metric | Value | |:-------------------------------------|:------------------------------------| | PAMC Recoverable Coal Reserves | 612.1 million tons (20+ years production) | | Greenfield Reserves and Resources | 1.4 billion tons | | Itmann Mine Recoverable Coal Reserves| 20.5 million tons (20+ years production) | | PAMC Coal Production (2021) | 23.9 million tons | | Itmann Mine Coal Production (2021) | 101 thousand tons | | 2021 Export Sales | 11.0 million tons (record for PAMC) | | 2021 Non-Power Generation Sales | 37% of total PAMC sales | | 2022 Capital Expenditure Budget | $162 - $195 million | | CONSOL Marine Terminal Throughput (2021)| 13.8 million tons | | CONSOL Marine Terminal Capacity | 15 million tons annually | | Total Employees (as of Dec 31, 2021) | 1,575 employees | - The company's coal features high energy content (average 12,938 Btu/lb for remaining reserves) and relatively low sulfur, suitable for metallurgical, industrial, and power generation[21][41] - In 2021, 46% of coal sales were to export markets, and 37% of total PAMC sales were for non-power generation, a significant increase from 2017[35][108][112] - Operations are subject to stringent federal and state environmental regulations (e.g., Clean Air Act, Clean Water Act, SMCRA) and climate change initiatives, increasing operating costs and affecting coal demand[129][133][143][156][162] ITEM 1A. Risk Factors CONSOL Energy faces significant risks from market volatility, operational disruptions, stringent regulations, and capital market access challenges - Economic conditions, coal price volatility, and the COVID-19 pandemic are significant risks affecting demand, operational results, and cash flows[185][187][190][192] - Operational risks include significant downtime of mining equipment, inability to obtain parts, reliance on a single preparation plant, and adverse geological conditions[196][197][199][242] - Customer concentration is a risk, with three customers accounting for approximately 40% of total coal sales revenue in fiscal year 2021[206] - Extensive environmental regulations (e.g., Clean Air Act, Clean Water Act, SMCRA) and climate change initiatives are expected to increase operating costs, reduce coal demand, and potentially decrease coal asset value[231][232][234][237][238] - The company faces litigation risks, including lawsuits related to climate change effects and potential liabilities from the Murray Energy bankruptcy regarding retiree medical benefits[235][236][293][294][295] - Access to capital markets may be restricted due to increased consideration of ESG practices, potentially excluding the company's securities from certain investment funds and increasing financing costs[256][257] - The company's debt agreements impose financial and restrictive covenants, and non-compliance could materially adversely affect its business, financial condition, and cash flows[297][298] ITEM 1B. Unresolved Staff Comments There are no unresolved staff comments to report ITEM 2. Properties Information regarding the company's mining properties, including the CONSOL Marine Terminal and principal executive offices, is incorporated by reference from Item 1 - Details on mining properties, including the CONSOL Marine Terminal, are provided in Item 1 of this report[337] ITEM 3. Legal Proceedings The company is not currently subject to any material litigation other than those described in Note 23, 'Commitments and Contingent Liabilities,' in the Notes to the Audited Consolidated Financial Statements - The company is not currently subject to any material litigation, apart from those detailed in Note 23 of the financial statements[338] ITEM 4. Mine Safety and Health Administration Safety Data Information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 of this annual report - Mine safety data, including violations and regulatory matters, is provided in Exhibit 95 of this annual report[339] PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities CONSOL Energy's common stock trades on the New York Stock Exchange under 'CEIX', with an ongoing repurchase program and discretionary dividend payments subject to financial conditions and debt covenants - CONSOL Energy's common stock is listed on the New York Stock Exchange under the symbol 'CEIX'[341] CONSOL Energy Inc. Stock Performance vs. Benchmarks (November 3, 2017 - December 31, 2021) | Date | CONSOL Energy Inc. | S&P 500 Stock Index | Peer Group | |:--------------------|:-------------------|:--------------------|:-----------| | November 3, 2017 | 100.0 | 100.0 | 100.0 | | November 30, 2017 | 200.0 | 102.3 | 104.9 | | December 31, 2017 | 359.2 | 103.3 | 118.2 | | December 31, 2018 | 288.4 | 96.9 | 101.1 | | December 31, 2019 | 132.1 | 124.9 | 67.0 | | December 31, 2020 | 65.7 | 145.3 | 44.0 | | December 31, 2021 | 206.8 | 184.4 | 137.3 | - As of February 11, 2022, approximately $127 million remained available under the company's stock and debt repurchase program, which can be modified or suspended at any time[347] - Dividend payments are at the discretion of the Board of Directors and are subject to various factors, including financial results and contractual debt restrictions, with a total net leverage ratio of 1.49 to 1.00 as of December 31, 2021[348][349] ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews CONSOL Energy's financial performance, highlighting 2021 results, 2022 outlook, and critical accounting policies, including impacts from the COVID-19 pandemic - The COVID-19 pandemic caused an unprecedented decline in coal demand in early 2020, but demand improved throughout 2021, leading to higher pricing and increased sales volumes[353][354][379] 2021 Highlights and 2022 Outlook | Metric | 2021 Highlight | 2022 Outlook (Expected) | |:----------------------------------------|:--------------------|:-------------------------------------------------------------| | Coal Shipments | 23.7 million tons | 23-25 million tons (PAMC) | | Export Market Shipments | 11.0 million tons | N/A | | Non-Power Generation Sales | 37% of total | N/A | | Total Consolidated Indebtedness Payments| $101.2 million | N/A | | PAMC Average Revenue per Ton Sold | N/A | $55.00-$57.00 per ton | | PAMC Average Cash Cost of Coal Sold per Ton | N/A | $29.00-$31.00 per ton | | Capital Expenditures | N/A | $110-$125 million (PAMC maintenance), $42-$47 million (Itmann Mine), $10-$23 million (Other) | Net Income (Loss) Attributable to CONSOL Energy Inc. Stockholders (in millions) | Year | Net Income (Loss) | |:-----|:------------------| | 2021 | $34.11 million | | 2020 | ($9.76 million) | | 2019 | $76.00 million | PAMC Division Performance (in millions, except per ton) | Metric | 2021 | 2020 | Variance (2021 vs 2020) | |:----------------------------------------|:--------------------|:--------------------|:------------------------| | Earnings Before Income Tax | $94 million | $17 million | $77 million | | Coal Revenue | $1,085 million | $771 million | $314 million | | Total Tons Sold | 23.7 million tons | 18.7 million tons | 5.0 million tons | | Average Revenue per Ton Sold | $45.75 per ton | $41.31 per ton | $4.44 per ton | | Average Cash Cost of Coal Sold per Ton | $28.25 per ton | $29.12 per ton | ($0.87) per ton | | Average Cash Margin per Ton Sold | $17.50 per ton | $12.19 per ton | $5.31 per ton | CONSOL Marine Terminal Division Performance (in millions) | Metric | 2021 | 2020 | Variance (2021 vs 2020) | |:----------------------------|:------------------|:------------------|:------------------------| | Earnings Before Income Tax | $32 million | $33 million | ($1 million) | | Throughput Tons | 13.8 million tons | 10.1 million tons | 3.7 million tons | - Total liquidity as of December 31, 2021, was $381 million, comprising $150 million in cash and cash equivalents and $231 million in unused capacity on the revolving credit facility[457] Cash Flows (in millions) | Activity | 2021 | 2020 | Change | |:------------------------------|:------------------|:------------------|:------------------| | Operating Activities | $306 million | $129 million | $177 million | | Investing Activities | ($127 million)| ($76 million) | ($51 million) | | Financing Activities | ($31 million) | ($82 million) | $51 million | - The company was in compliance with all financial covenants under its Senior Secured Credit Facilities as of December 31, 2021, with a maximum first lien gross leverage ratio of 0.97 to 1.00 and a maximum total net leverage ratio of 1.49 to 1.00[475][661] Long-Term Debt and Finance Lease Obligations (in millions) as of December 31, 2021 | Debt Type | Amount | |:----------------------------------------|:------------------| | Term Loan B (due Sep 2024) | $239 million | | 11.00% Senior Secured Second Lien Notes (due Nov 2025) | $149 million | | MEDCO Revenue Bonds (due Sep 2025) | $103 million | | 9.00% PEDFA Solid Waste Disposal Revenue Bonds (due Apr 2028) | $75 million | | Term Loan A (due Mar 2023) | $41 million | | Finance Leases | $48 million | | Other Asset-Backed Financing | $2 million | | Advance Royalty Commitments | $5 million | | Total Long-Term Debt and Finance Lease Obligations | $661 million | ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk CONSOL Energy is exposed to market risks from commodity prices, interest rates, and foreign exchange rates, managed through hedging strategies and USD-denominated transactions - The company manages commodity price risk through targeted hedging strategies, utilizing swap arrangements to mitigate volatility in spot export business and index-priced physical contracts[514][516] - Unrealized mark-to-market losses on commodity derivative instruments totaled $52 million for the year ended December 31, 2021, driven by significant API2 coal price fluctuations[516] - Interest rate risk is primarily associated with variable-rate debt ($225 million outstanding as of December 31, 2021), where a 100 basis-point increase would increase annual pre-tax interest expense by $2 million[517] - All transactions are denominated in U.S. dollars, limiting direct foreign exchange rate risk, though currency fluctuations can affect the competitiveness of CONSOL Energy's coal in international markets[518] ITEM 8. Financial Statements and Supplementary Data This section presents CONSOL Energy's audited consolidated financial statements, including the independent auditor's unqualified opinion and a critical audit matter regarding asset retirement obligations - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2021[524][525] - A critical audit matter identified was the auditing of closed-mine asset retirement obligations due to the complexity of assumptions used in measurement, such as future expenditures, mine life, inflation rates, and credit-adjusted risk-free interest rates[530] Consolidated Statements of Income (in millions) | Metric | 2021 | 2020 | 2019 | |:----------------------------------------|:--------------------|:--------------------|:--------------------| | Total Revenue and Other Income | $1,258.95 million | $1,021.64 million | $1,430.90 million | | Total Costs and Expenses | $1,223.54 million | $1,030.89 million | $1,332.81 million | | Earnings (Loss) Before Income Tax | $35.41 million | ($9.24 million) | $98.10 million | | Income Tax Expense | $1.30 million | $3.97 million | $4.54 million | | Net Income (Loss) | $34.11 million | ($13.21 million)| $93.56 million | | Net Income (Loss) Attributable to CONSOL Energy Inc. Stockholders | $34.11 million | ($9.76 million) | $76.00 million | | Basic Earnings (Loss) per Share | $0.99 | ($0.37) | $2.82 | | Dilutive Earnings (Loss) per Share | $0.96 | ($0.37) | $2.81 | Consolidated Balance Sheets (in millions) as of December 31 | Asset/Liability | 2021 | 2020 | |:--------------------------------------|:--------------------|:--------------------| | Total Current Assets | $386.34 million | $292.94 million | | Total Property, Plant and Equipment—Net | $1,978.55 million | $2,049.06 million | | Total Other Assets | $208.63 million | $181.36 million | | TOTAL ASSETS | $2,573.52 million | $2,523.37 million | | Total Current Liabilities | $445.23 million | $368.47 million | | Total Long-Term Debt | $594.65 million | $603.06 million | | Total Deferred Credits and Other Liabilities | $860.82 million | $998.32 million | | TOTAL LIABILITIES | $1,900.70 million | $1,969.85 million | | Total CONSOL Energy Inc. Stockholders' Equity | $672.81 million | $553.52 million | Consolidated Statements of Cash Flows (in millions) | Activity | 2021 | 2020 | 2019 | |:------------------------------|:--------------------|:--------------------|:--------------------| | Net Cash Provided by Operating Activities | $305.57 million | $129.33 million | $244.57 million | | Net Cash Used in Investing Activities | ($127.36 million) | ($76.33 million)| ($172.54 million) | | Net Cash Used in Financing Activities | ($30.85 million) | ($82.44 million)| ($256.67 million) | | Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash | $147.36 million | ($29.44 million)| ($184.64 million) | - Key accounting policies include the use of estimates for postretirement benefits, CWP, workers' compensation, asset retirement obligations, and deferred income taxes, with no material impact from FASB ASUs adopted in 2021[559][578][579][580][595][596][597][598][599][600] - The CCR Merger on December 30, 2020, resulted in CONSOL Energy acquiring the remaining common units of PA Mining Complex LP, making it a wholly-owned subsidiary, accounted for as an equity transaction[606][608] ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures There have been no changes in or disagreements with accountants on accounting and financial disclosures ITEM 9A. Controls and Procedures CONSOL Energy's management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with an unqualified attestation report from Ernst & Young LLP - The company's disclosure controls and procedures were deemed effective as of December 31, 2021[775] - Management concluded that CONSOL Energy maintained effective internal control over financial reporting as of December 31, 2021, based on the COSO (2013 framework) criteria[779] - Ernst & Young LLP issued an unqualified attestation report on the company's internal control over financial reporting[780][784] - There were no material changes in the company's internal controls over financial reporting during the period[781] ITEM 9B. Other Information This section details an amendment to the CEO's employment agreement for a retention payment and equity vesting, and reports a resolved mine safety incident at the Bailey Mine - The CEO's employment agreement was amended to include an additional $1 million retention payment and full vesting of equity awards, contingent on continued employment through December 31, 2023[792][795][796] - A mine safety incident occurred at the Bailey Mine on February 9, 2022, where an imminent danger order was issued due to methane, which was subsequently resolved without injury or damage[798] ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to CONSOL Energy Inc PART III ITEM 10. Directors and Executive Officers of the Registrant Information regarding the company's directors, executive officers, and corporate governance, including the Code of Business Conduct and Ethics, is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement[801] - The company maintains a written Code of Business Conduct and Ethics applicable to its principal executive, financial, and accounting officers, available on its website[802] ITEM 11. Executive Compensation Information concerning executive compensation is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders - Executive compensation details are incorporated by reference from the Proxy Statement[804] ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, as well as related stockholder matters, is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders - Security ownership information for beneficial owners and management is incorporated by reference from the Proxy Statement[805] ITEM 13. Certain Relationships and Related Transactions and Director Independence Principal Accounting Fees and Services Information on certain relationships and related transactions, director independence, and principal accounting fees and services is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders - Details on related party transactions, director independence, and accounting fees are incorporated by reference from the Proxy Statement[807][808] PART IV ITEM 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the 10-K report, including the independent auditor's report, consolidated financial statements, and various corporate and debt agreements - The section lists all financial statements, schedules, and exhibits, including the Report of Independent Registered Public Accounting Firm and consolidated financial statements[810] - Exhibits include key agreements such as the Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement, and various credit and financing agreements[810][811][813][815][816][817][819][820] - Management contracts and compensatory plans, such as the Omnibus Performance Incentive Plan and CEO Employment Agreement, are also listed as exhibits[816][817][818][819][820] SIGNATURES This section contains the duly authorized signatures of CONSOL Energy Inc.'s principal executive officer, principal financial officer, principal accounting officer, and directors, certifying the report as of February 11, 2022 - The report is signed by James A. Brock (Director, CEO, and President), Miteshkumar B. Thakkar (CFO), John M. Rothka (Chief Accounting Officer), and other directors, as of February 11, 2022[826][827]