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Form 10-Q CONSOL Energy Inc. For: Jun 30

August 4, 2022 6:51 AM EDT

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0001710366 CONSOL Energy Inc false --12-31 Q2 2022 508 1,427 1,016 2,591 75 135 205 279 0.01 0.01 62,500,000 62,500,000 34,867,738 34,867,738 34,480,181 34,480,181 508 130 508 75 797,594 1,164 144 1,427 135 592,733 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 22 21 21 2018 2019 2020 2021 8,263 163,590 239,277 351 687 6.17 4.61 11.00 11.00 5.75 5.75 9.00 9.00 5.25 8.01 8.01 7 3.61 50,000 2 20,437 2 40,996 49,752 112,321 34,439 71,038 0 0 4 3 1.00 During periods in which the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all equity awards is anti-dilutive. Refer to “Reconciliation of Segment Information to Consolidated Amounts” for the reconciliation of Adjusted EBITDA, a non-GAAP measure, to its most directly comparable GAAP measure. Revenues from these customers during the periods presented were less than 10% of the Company's total sales. Excludes current portion of Finance Lease Obligations of $22,238 and $20,743 at June 30, 2022 and December 31, 2021, respectively. 00017103662022-01-012022-06-30 xbrli:shares 00017103662022-07-22 thunderdome:item iso4217:USD 0001710366ceix:CoalRevenueMember2022-04-012022-06-30 0001710366ceix:CoalRevenueMember2021-04-012021-06-30 0001710366ceix:CoalRevenueMember2022-01-012022-06-30 0001710366ceix:CoalRevenueMember2021-01-012021-06-30 0001710366ceix:TerminalRevenueMember2022-04-012022-06-30 0001710366ceix:TerminalRevenueMember2021-04-012021-06-30 0001710366ceix:TerminalRevenueMember2022-01-012022-06-30 0001710366ceix:TerminalRevenueMember2021-01-012021-06-30 0001710366ceix:FreightRevenueMember2022-04-012022-06-30 0001710366ceix:FreightRevenueMember2021-04-012021-06-30 0001710366ceix:FreightRevenueMember2022-01-012022-06-30 0001710366ceix:FreightRevenueMember2021-01-012021-06-30 00017103662022-04-012022-06-30 00017103662021-04-012021-06-30 00017103662021-01-012021-06-30 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________

 

FORM 10-Q

__________________________________________________

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended June 30, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission file number: 001-38147

__________________________________________________

CONSOL Energy Inc. 

(Exact name of registrant as specified in its charter)

 

Delaware

 

82-1954058

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

275 Technology Drive Suite 101

Canonsburg, PA 15317-9565

(724) 416-8300

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

__________________________________________________

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

CEIX

New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  ☒    No   ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

 

Large accelerated filer  ☐    Accelerated filer  ☒    Non-accelerated filer  ☐    Smaller reporting company      Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No  ☒

 

CONSOL Energy Inc. had 34,867,738 shares of common stock, $0.01 par value, outstanding at July 22, 2022.

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

Part I. Financial Information

Page

 

 

 

Item 1.

Financial Statements

 

 

Consolidated Statements of Income for the three and six months ended June 30, 2022 and 2021

4

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021

5

 

Consolidated Balance Sheets at June 30, 2022 and December 31, 2021

6

 

Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2022 and 2021

8

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021

9

 

Notes to Consolidated Financial Statements

10

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

28

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

51

 

 

 

Item 4.

Controls and Procedures

52

 

 

 

 

Part II. Other Information

 

 

 

 

Item 1.

Legal Proceedings

52

 

 

 

Item 1A.

Risk Factors

52

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

53

 

 

 

Item 3. Defaults Upon Senior Securities 53
     

Item 4.

Mine Safety Disclosures

53

     
Item 5. Other Information 53

 

 

 

Item 6.

Exhibits

54

 

 

 

 

Signatures

55

 

 

  

 

 

IMPORTANT DEFINITIONS REFERENCED IN THIS QUARTERLY REPORT

Unless the context otherwise requires:

 

 

“CONSOL Energy,” “we,” “our,” “us,” “our Company” and “the Company” refer to CONSOL Energy Inc. and its subsidiaries;

 

 

“Btu” means one British Thermal unit;

 

  “CCR Merger” refers to the merger under that certain Agreement and Plan of Merger, dated as of October 22, 2020, among the Company, Transformer LP Holdings Inc. (“Holdings”), a wholly-owned subsidiary of the Company, Transformer Merger Sub LLC, a wholly-owned subsidiary of Holdings (“Merger Sub”), the Partnership and the General Partner, pursuant to which Merger Sub merged with and into the Partnership, with the Partnership surviving as an indirect, wholly-owned subsidiary of the Company, which merger closed on December 30, 2020;
     
 

“Coal Business” refers to (i) the Pennsylvania Mining Complex (PAMC) and certain other coal assets; (ii) the CONSOL Marine Terminal; (iii) development of the Itmann Mine; and (iv) the Greenfield Reserves and Resources and certain related coal assets and liabilities;

 

 

“CONSOL Marine Terminal” refers to the Company's terminal operations located at the Port of Baltimore;

 

 

“former parent” refers to CNX Resources Corporation and its consolidated subsidiaries;

 

 

“General Partner” refers to PA Mining Complex GP LLC (formerly known as CONSOL Coal Resources GP LLC), a Delaware limited liability company and the general partner of the Partnership;

 

 

“Greenfield Reserves and Resources” means those undeveloped reserves and resources owned by the Company in the Northern Appalachian, Central Appalachian and Illinois basins that are not associated with the Pennsylvania Mining Complex or the Itmann Mine project;

 

 

“Itmann Mine” refers to the Company's development of a metallurgical coal mine and coal preparation plant located in Wyoming County, West Virginia;

 

 

“Partnership” refers to PA Mining Complex LP (formerly known as CONSOL Coal Resources LP), a Delaware limited partnership that is a wholly-owned subsidiary of the Company and holds an undivided interest in, and is the sole operator of, the Pennsylvania Mining Complex;

 

 

“Pennsylvania Mining Complex” or “PAMC” refers to the Bailey, Enlow Fork and Harvey coal mines, the Central Preparation Plant, coal reserves and related assets and operations located in southwestern Pennsylvania and northern West Virginia; and

 

 

“separation and distribution” refers to the separation of the Coal Business from our former parent’s other businesses on November 28, 2017; the pro rata distribution of the Company's issued and outstanding shares of common stock to its former parent's stockholders on November 28, 2017, and the creation, as a result of the distribution, of an independent, publicly-traded company (the Company) to hold the assets and liabilities associated with the Coal Business after the distribution.

 

  

 

PART I : FINANCIAL INFORMATION

 

ITEM 1.    FINANCIAL STATEMENTS

 

CONSOL ENERGY INC.

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(unaudited)

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 

Revenue and Other Income:

 

2022

  

2021

  

2022

  

2021

 

Coal Revenue

 $532,692  $259,832  $1,009,060  $545,367 

Terminal Revenue

  21,779   17,380   43,176   35,592 

Freight Revenue

  50,411   26,010   88,800   53,023 

Loss on Commodity Derivatives, net

  (68,352)  (20,437)  (256,506)  (20,437)

Miscellaneous Other Income

  7,724   2,034   12,072   5,223 

Gain on Sale of Assets

  365   2,340   6,546   10,542 

Total Revenue and Other Income

  544,619   287,159   903,148   629,310 

Costs and Expenses:

                

Operating and Other Costs

  244,764   175,104   463,299   360,638 

Depreciation, Depletion and Amortization

  57,880   52,199   113,834   112,096 

Freight Expense

  50,411   26,010   88,800   53,023 

General and Administrative Costs

  27,364   22,486   64,513   46,026 

Loss (Gain) on Debt Extinguishment

  1,565   (106)  3,687   (789)

Interest Expense, net

  13,121   16,187   27,473   31,448 

Total Costs and Expenses

  395,105   291,880   761,606   602,442 

Earnings (Loss) Before Income Tax

  149,514   (4,721)  141,542   26,868 

Income Tax Expense (Benefit)

  23,223   (8,893)  19,701   (3,708)

Net Income

 $126,291  $4,172  $121,841  $30,576 
                 

Earnings per Share:

                

Total Basic Earnings per Share

 $3.62  $0.12  $3.51  $0.89 

Total Dilutive Earnings per Share

 $3.54  $0.12  $3.42  $0.87 

 

The accompanying notes are an integral part of these consolidated financial statements.

  

  

 

CONSOL ENERGY INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(unaudited)

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Net Income

 $126,291  $4,172  $121,841  $30,576 
                 

Other Comprehensive Income:

                

Actuarially Determined Long-Term Liability Adjustments (Net of tax: ($508), ($1,427), ($1,016), ($2,591))

  1,524   4,125   3,049   7,485 

Unrealized Gain on Cash Flow Hedges (Net of tax: ($75), ($135), ($205), ($279))

  224   391   615   805 

Other Comprehensive Income

  1,748   4,516   3,664   8,290 
                 

Comprehensive Income

 $128,039  $8,688  $125,505  $38,866 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  

 

CONSOL ENERGY INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

   

(Unaudited)

         
   

June 30,

   

December 31,

 
   

2022

   

2021

 

ASSETS

               

Current Assets:

               

Cash and Cash Equivalents

  $ 261,569     $ 149,913  

Restricted Cash - Current

    43,025       32,605  

Accounts and Notes Receivable

               

Trade Receivables, net

    137,346       104,099  

Other Receivables, net

    11,976       11,631  

Inventories

    68,443       62,876  

Prepaid Expenses and Other Current Assets

    18,371       25,216  

Total Current Assets

    540,730       386,340  

Property, Plant and Equipment:

               

Property, Plant and Equipment

    5,333,733       5,250,805  

Less - Accumulated Depreciation, Depletion and Amortization

    3,373,966       3,272,255  

Total Property, Plant and Equipment—Net

    1,959,767       1,978,550  

Other Assets:

               

Deferred Income Taxes

    63,554       57,011  

Right of Use Asset - Operating Leases

    23,882       21,956  

Restricted Cash - Non-current

    8,065       15,688  

Salary Retirement

    49,075       38,947  

Other Noncurrent Assets, net

    75,413       75,025  

Total Other Assets

    219,989       208,627  

TOTAL ASSETS

  $ 2,720,486     $ 2,573,517  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  

CONSOL ENERGY INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

  

(Unaudited)

     
  

June 30,

  

December 31,

 
  

2022

  

2021

 

LIABILITIES AND EQUITY

        

Current Liabilities:

        

Accounts Payable

 $115,004  $80,343 

Current Portion of Long-Term Debt

  26,340   57,332 

Operating Lease Liability, Current Portion

  7,144   6,682 

Commodity Derivatives

  174,928   52,204 

Other Accrued Liabilities

  253,088   248,671 

Total Current Liabilities

  576,504   445,232 

Long-Term Debt:

        

Long-Term Debt

  461,956   568,052 

Finance Lease Obligations

  17,270   26,598 

Total Long-Term Debt

  479,226   594,650 

Deferred Credits and Other Liabilities:

        

Postretirement Benefits Other Than Pensions

  323,763   329,659 

Pneumoconiosis Benefits

  199,836   203,473 

Asset Retirement Obligations

  215,939   210,718 

Workers’ Compensation

  56,921   58,148 

Salary Retirement

  25,739   26,013 

Operating Lease Liability

  16,787   15,274 

Other Noncurrent Liabilities

  28,177   17,537 

Total Deferred Credits and Other Liabilities

  867,162   860,822 

TOTAL LIABILITIES

  1,922,892   1,900,704 
         

Stockholders' Equity:

        

Common Stock, $0.01 Par Value; 62,500,000 Shares Authorized, 34,867,738 Shares Issued and Outstanding at June 30, 2022; 34,480,181 Shares Issued and Outstanding at December 31, 2021

  349   345 

Capital in Excess of Par Value

  646,217   646,945 

Retained Earnings

  402,801   280,960 

Accumulated Other Comprehensive Loss

  (251,773)  (255,437)

TOTAL EQUITY

  797,594   672,813 

TOTAL LIABILITIES AND EQUITY

 $2,720,486  $2,573,517 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  

 

CONSOL ENERGY INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Dollars in thousands)

 

 

  

Common Stock

  

Capital in Excess of Par Value

  

Retained Earnings

  

Accumulated Other Comprehensive (Loss) Income

  

Total Equity

 

December 31, 2021

 $345  $646,945  $280,960  $(255,437) $672,813 

(Unaudited)

                    

Net Loss

        (4,450)     (4,450)

Actuarially Determined Long-Term Liability Adjustments (Net of $508 Tax)

           1,525   1,525 

Interest Rate Hedge (Net of $130 Tax)

           391   391 

Comprehensive (Loss) Income

        (4,450)  1,916   (2,534)

Issuance of Common Stock

  3   (3)         

Amortization of Stock-Based Compensation Awards

     4,201         4,201 

Shares Withheld for Taxes

     (6,072)        (6,072)

March 31, 2022

 $348  $645,071  $276,510  $(253,521) $668,408 

(Unaudited)

                    

Net Income

        126,291      126,291 

Actuarially Determined Long-Term Liability Adjustments (Net of $508 Tax)

           1,524   1,524 

Interest Rate Hedge (Net of $75 Tax)

           224   224 

Comprehensive Income

        126,291   1,748   128,039 

Issuance of Common Stock

  1   (1)         

Amortization of Stock-Based Compensation Awards

     1,269         1,269 

Shares Withheld for Taxes

     (122)        (122)

June 30, 2022

 $349  $646,217  $402,801  $(251,773) $797,594 

 

  

Common Stock

  

Capital in Excess of Par Value

  

Retained Earnings

  

Accumulated Other Comprehensive (Loss) Income

  

Total Equity

 

December 31, 2020

 $340  $642,887  $246,850  $(336,558) $553,519 

(Unaudited)

                    

Net Income

        26,404      26,404 

Actuarially Determined Long-Term Liability Adjustments (Net of $1,164 Tax)

           3,360   3,360 

Interest Rate Hedge (Net of $144 Tax)

           414   414 

Comprehensive Income

        26,404   3,774   30,178 

Issuance of Common Stock

  4   (4)         

Amortization of Stock-Based Compensation Awards

     1,509         1,509 

Shares Withheld for Taxes

     (2,072)        (2,072)

CCR Merger

     (266)     197   (69)

March 31, 2021

 $344  $642,054  $273,254  $(332,587) $583,065 

(Unaudited)

                    

Net Income

        4,172      4,172 

Actuarially Determined Long-Term Liability Adjustments (Net of $1,427 Tax)

           4,125   4,125 

Interest Rate Hedge (Net of $135 Tax)

           391   391 

Comprehensive Income

        4,172   4,516   8,688 

Issuance of Common Stock

  1   (1)         

Amortization of Stock-Based Compensation Awards

     1,210         1,210 

Shares Withheld for Taxes

     (230)        (230)

June 30, 2021

 $345  $643,033  $277,426  $(328,071) $592,733 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  

 

CONSOL ENERGY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

 

  

Six Months Ended

 
  

June 30,

 
  

2022

  

2021

 

Cash Flows from Operating Activities:

        

Net Income

 $121,841  $30,576 

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

        

Depreciation, Depletion and Amortization

  113,834   112,096 

Gain on Sale of Assets

  (6,546)  (10,542)

Stock-Based Compensation

  5,470   2,719 

Amortization of Debt Issuance Costs

  3,980   4,331 

Loss (Gain) on Debt Extinguishment

  3,687   (789)

Unrealized Mark-to-Market Loss on Commodity Derivative Instruments

  96,331   20,437 

Deferred Income Taxes

  (7,762)  (3,708)

Equity in Earnings of Affiliates

  291   312 

Changes in Operating Assets:

        

Accounts and Notes Receivable

  (33,585)  45,093 

Inventories

  (5,567)  (3,099)

Prepaid Expenses and Other Assets

  6,845   6,436 

Changes in Other Assets

  (10,356)  (345)

Changes in Operating Liabilities:

        

Accounts Payable

  29,053   (6,995)

Other Operating Liabilities

  31,459   2,880 

Changes in Other Liabilities

  (2,417)  (26,797)

Net Cash Provided by Operating Activities

  346,558   172,605 

Cash Flows from Investing Activities:

        

Capital Expenditures

  (76,061)  (57,455)

Proceeds from Sales of Assets

  7,418   11,918 

Other Investing Activity

  (1,483)  (182)

Net Cash Used in Investing Activities

  (70,126)  (45,719)

Cash Flows from Financing Activities:

        

Payments on Finance Lease Obligations

  (12,086)  (14,625)

Payments on Term Loan A

  (41,250)  (12,500)

Payments on Term Loan B

  (75,687)  (6,223)

Payments on Second Lien Notes

  (26,387)  (14,153)

Proceeds from Long-Term Debt

     75,000 

Payments on Asset-Backed Financing

  (375)  (362)

Shares Withheld for Taxes

  (6,194)  (2,302)

Debt-Related Financing Fees

     (2,368)

Net Cash (Used in) Provided by Financing Activities

  (161,979)  22,467 

Net Increase in Cash and Cash Equivalents and Restricted Cash

  114,453   149,353 

Cash and Cash Equivalents and Restricted Cash at Beginning of Period

  198,206   50,850 

Cash and Cash Equivalents and Restricted Cash at End of Period

 $312,659  $200,203 
         

Cash and Cash Equivalents

 $261,569  $146,667 

Restricted Cash - Current

  43,025   31,669 

Restricted Cash - Non-current

  8,065   21,867 

Cash and Cash Equivalents and Restricted Cash at End of Period

 $312,659  $200,203 
         

Non-Cash Investing and Financing Activities:

        

Finance Lease

 $4,166  $8,226 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  

CONSOL ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollars in thousands, except per share data)

 

NOTE 1—BASIS OF PRESENTATION:

 

Basis of Presentation

 

The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for future periods.

 

The Consolidated Balance Sheet at December 31, 2021 has been derived from the Audited Consolidated Financial Statements at that date but does not include all disclosures required by GAAP. This Form 10-Q report should be read in conjunction with CONSOL Energy Inc.'s Annual Report on Form 10-K for the year ended December 31, 2021.

 

All dollar amounts discussed in these Notes to Consolidated Financial Statements are in thousands of U.S. dollars, except for per unit amounts, and unless otherwise indicated.

 

Basis of Consolidation

 

The Consolidated Financial Statements include the accounts of CONSOL Energy Inc. and its wholly-owned and majority-owned and/or controlled subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

 

Recent Accounting Pronouncements

 

In  March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02 - Financial Instruments—Credit Losses (Topic 326). The amendments in this update eliminate the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The amendments in this update require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Management is currently evaluating the impact of this guidance, but does not expect this update to have a material impact on the Company's financial statements.

 

In  October 2021, the FASB issued ASU 2021-08 - Business Combinations (Topic 805). The amendments in this update apply to all entities that enter into a business combination within the scope of Subtopic 805-10, Business Combinations—Overall. The amendments in this update require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The amendments in this update do not affect the accounting for other assets or liabilities that  may arise from revenue contracts with customers in accordance with Topic 606. The amendments in this update are effective for fiscal years beginning after  December 15, 2022, including interim periods within those fiscal years. Management is currently evaluating the impact of this guidance, but does not expect this update to have a material impact on the Company's financial statements.

 

10

 

Earnings per Share

 

Basic earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the reporting period. Dilutive earnings per share are computed similarly to basic earnings per share, except that the weighted average number of shares outstanding is increased to include additional shares from restricted stock units and performance share units, if dilutive. The number of additional shares is calculated by assuming that outstanding restricted stock units and performance share units were released, and that the proceeds from such activities, as applicable, were used to acquire shares of common stock at the average market price during the reporting period. 

 

The table below sets forth the share-based awards that have been excluded from the computation of diluted earnings per share because their effect would be anti-dilutive:

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Anti-Dilutive Restricted Stock Units

  189   42,321   7,056   51,101 

Anti-Dilutive Performance Share Units

            
   189   42,321   7,056   51,101 

 

The computations for basic and dilutive earnings per share are as follows:

 

  

Three Months Ended

  

Six Months Ended

 

Dollars in thousands, except per share data

 

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Numerator:

                

Net Income

 $126,291  $4,172  $121,841  $30,576 
                 

Denominator:

                

Weighted-average shares of common stock outstanding

  34,846,037   34,446,605   34,753,887   34,327,282 

Effect of dilutive shares

  877,437   643,892   897,904   734,388 

Weighted-average diluted shares of common stock outstanding

  35,723,474   35,090,497   35,651,791   35,061,670 
                 

Earnings per Share:

                

Basic

 $3.62  $0.12  $3.51  $0.89 

Dilutive

 $3.54  $0.12  $3.42  $0.87 

 

As of June 30, 2022, CONSOL Energy has 500,000 shares of preferred stock authorized, none of which are issued or outstanding.

 

Reclassifications

 

Certain amounts in prior periods have been reclassified to conform with the report classifications of the current period. These reclassifications had no effect on previously reported total assets, net income, stockholders' equity or cash flows from operating activities.

 

11

  
 

NOTE 2—REVENUE FROM CONTRACTS WITH CUSTOMERS:

 

The following tables disaggregate CONSOL Energy's revenue from contracts with customers to depict how the nature, amount, timing and uncertainty of the Company's revenues and cash flows are affected by economic factors:

 

  

Three Months Ended June 30, 2022

 
  

Domestic

  

Export

  

Total

 

Power Generation

 $203,846  $29,594  $233,440 

Industrial

  8,849   156,110   164,959 

Metallurgical

     134,293   134,293 

Total Coal Revenue

  212,695   319,997   532,692 

Terminal Revenue

          21,779 

Freight Revenue

          50,411 

Total Revenue from Contracts with Customers

         $604,882 

 

  

Three Months Ended June 30, 2021

 
  

Domestic

  

Export

  

Total

 

Power Generation

 $112,410  $27,105  $139,515 

Industrial

  3,401   92,663   96,064 

Metallurgical

  1,350   22,903   24,253 

Total Coal Revenue

  117,161   142,671   259,832 

Terminal Revenue

          17,380 

Freight Revenue

          26,010 

Total Revenue from Contracts with Customers

         $303,222 

 

  

Six Months Ended June 30, 2022

 
  

Domestic

  

Export

  

Total

 

Power Generation

 $427,346  $150,035  $577,381 

Industrial

  10,794   253,658   264,452 

Metallurgical

     167,227   167,227 

Total Coal Revenue

  438,140   570,920   1,009,060 

Terminal Revenue

          43,176 

Freight Revenue

          88,800 

Total Revenue from Contracts with Customers

         $1,141,036 

 

  

Six Months Ended June 30, 2021

 
  

Domestic

  

Export

  

Total

 

Power Generation

 $267,720  $60,236  $327,956 

Industrial

  6,237   173,237   179,474 

Metallurgical

  2,420   35,517   37,937 

Total Coal Revenue

  276,377   268,990   545,367 

Terminal Revenue

          35,592 

Freight Revenue

          53,023 

Total Revenue from Contracts with Customers

         $633,982 

 

Coal Revenue

 

The Company has disaggregated its coal revenue, derived from the PAMC and Itmann operations, between domestic and export revenues, as well as industrial, power generation and metallurgical markets. Domestic coal revenue tends to be derived from contracts that typically have a term of one year or longer, and the pricing is typically fixed. Export coal revenue tends to be derived from spot or shorter-term contracts with pricing determined closer to the time of shipment or based on a market index; however, the Company has recently begun to secure several long-term export contracts with varying pricing arrangements. Coal revenue derived from the Itmann operations consists primarily of metallurgical coal sales, while coal revenue derived from the PAMC services all markets due to the nature of its coal quality characteristics.

 

CONSOL Energy's coal revenue is generally recognized when the performance obligation has been satisfied, and the corresponding transaction price has been determined. Generally, title passes when coal is loaded at the coal preparation facility, at terminal locations or other customer destinations. The Company's coal contract revenue per ton is fixed and determinable based upon either fixed forward pricing or pricing derived from established indices and adjusted for nominal quality characteristics. Some coal contracts also contain positive electric power price-related adjustments, which represent market-driven price adjustments, wherein no additional value is exchanged, in addition to a fixed base price per ton. The Company’s coal contracts generally do not allow for retroactive adjustments to pricing after title to the coal has passed and typically do not have significant financing components.

 

The estimated transaction price from each of the Company's contracts is based on the total amount of consideration to which the Company expects to be entitled under the contract. Included in the transaction price for certain coal supply contracts is the impact of variable consideration, including quality price adjustments, handling services and per ton price fluctuations based on certain coal sales price indices. The estimated transaction price for each contract is allocated to the Company's performance obligations based on relative stand-alone selling prices determined at contract inception. The Company has determined that each ton of coal represents a separate and distinct performance obligation. Some of the Company's contracts span multiple years and have annual pricing modifications, based upon market-driven or inflationary adjustments, where no additional value is exchanged. 

 

12

 

While CONSOL Energy does, from time to time, experience costs of obtaining coal customer contracts with amortization periods greater than one year, those costs are generally immaterial to the Company's net income. At June 30, 2022 and December 31, 2021, the Company did not have any capitalized costs to obtain customer contracts on its Consolidated Balance Sheets. As of and for the three and six months ended June 30, 2022 and 2021, the Company has not recognized any amortization of previously existing capitalized costs of obtaining customer contracts. Further, the Company has not recognized any coal revenue in the current period that is not a result of current period performance.

 

Terminal Revenue

 

Terminal revenues are attributable to the Company's CONSOL Marine Terminal and include revenues earned from providing receipt and unloading of coal from rail cars, transporting coal from the receipt point to temporary storage or stockpile facilities located at the Terminal, stockpiling, blending, weighing, sampling, redelivery, and loading of coal onto vessels. Revenues for these services are earned on a ratable basis, and performance obligations are considered fulfilled as the services are performed.

    

The CONSOL Marine Terminal does not normally experience material costs of obtaining customer contracts with amortization periods greater than one year. At June 30, 2022 and December 31, 2021, the Company did not have any capitalized costs to obtain customer contracts on its Consolidated Balance Sheets. As of and for the three and six months ended June 30, 2022 and 2021, the Company has not recognized any amortization of previously existing capitalized costs of obtaining Terminal customer contracts. Further, the Company has not recognized any revenue in the current period that is not a result of current period performance.

 

Freight Revenue

 

Some of CONSOL Energy's coal contracts require that the Company sell its coal at locations other than its coal preparation plant. The cost to transport the Company's coal to the ultimate sales point is passed through to the Company's customers and CONSOL Energy recognizes the freight revenue equal to the transportation costs when title of the coal passes to the customer.

 

Contract Balances

 

Contract assets are recorded separately from trade receivables in the Company's Consolidated Balance Sheets and are reclassified to trade receivables as title passes to the customer and the Company's right to consideration becomes unconditional. Credit is extended based on an evaluation of a customer's financial condition and a customer's ability to perform its obligations. CONSOL Energy typically does not have material contract assets that are stated separately from trade receivables since the Company's performance obligations are satisfied as control of the goods or services passes to the customer, thereby granting the Company an unconditional right to receive consideration. Contract liabilities relate to consideration received in advance of the satisfaction of the Company's performance obligations. Contract liabilities are recognized as revenue at the point in time when control of the goods passes to the customer, or over time when services are provided.

  

 

NOTE 3—COMPONENTS OF PENSION AND OTHER POST-EMPLOYMENT BENEFIT (OPEB) PLANS NET PERIODIC BENEFIT COSTS:

 

The components of Net Periodic Benefit (Credit) Cost are as follows:

 

  

Pension Benefits

  

Other Post-Employment Benefits

 
  

Three Months Ended

  

Six Months Ended

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

  

2022

  

2021

  

2022

  

2021

 

Service Cost

 $302  $279  $604  $558  $  $  $  $ 

Interest Cost

  4,134   3,554   8,269   7,104   1,975   1,819   3,949   3,637 

Expected Return on Plan Assets

  (9,319)  (10,542)  (18,638)  (21,084)            

Amortization of Prior Service Credits

              (602)  (601)  (1,203)  (1,202)

Amortization of Actuarial Loss

  761   1,367   1,519   2,734   879   1,629   1,758   3,258 

Settlement Loss Recognized

     22      22             

Net Periodic Benefit (Credit) Cost

 $(4,122) $(5,320) $(8,246) $(10,666) $2,252  $2,847  $4,504  $5,693 

 

(Credits) expenses related to pension and other post-employment benefits are reflected in Operating and Other Costs in the Consolidated Statements of Income.

 

For the three and six months ended June 30, 2021, lump sum payments exceeded the total of the projected service cost and interest cost for the plan year, triggering settlement accounting. Accordingly, CONSOL Energy recognized expense of $22 for the three and six months ended June 30, 2021 in Operating and Other Costs in the Consolidated Statements of Income. The settlement charges represented a pro rata portion of the net unrecognized loss based on the percentage reduction in the projected benefit obligation due to the lump sum payments. The settlement charges noted above also resulted in a remeasurement of the pension plan at June 30, 2021. The settlement and corresponding remeasurement of the pension plan resulted in an adjustment of $766 to Other Comprehensive Income, net of $265 in deferred taxes. 

  

13

 
 

NOTE 4—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:

 

The components of Net Periodic Benefit Cost are as follows:

 

   

CWP

   

Workers' Compensation

 
   

Three Months Ended

   

Six Months Ended

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

   

June 30,

   

June 30,

 
   

2022

   

2021

   

2022

   

2021

   

2022

   

2021

   

2022

   

2021

 

Service Cost

  $ 726     $ 1,115     $ 1,452     $ 2,230     $ 1,230     $ 1,059     $ 2,460     $ 2,118  

Interest Cost

    1,265       1,177       2,530       2,355       342       282       684       564  

Amortization of Actuarial Loss (Gain)

    1,059       2,091       2,119       4,182       (105 )     (45 )     (210 )     (90 )

State Administrative Fees and Insurance Bond Premiums

                            448       444       885       912  

Net Periodic Benefit Cost

  $ 3,050     $ 4,383     $ 6,101     $ 8,767     $ 1,915     $ 1,740     $ 3,819     $ 3,504  

 

Expenses related to CWP and workers’ compensation are reflected in Operating and Other Costs in the Consolidated Statements of Income.

 

 

NOTE 5—INCOME TAXES:

 

The Company recorded its provision for income taxes for the three and six months ended June 30, 2022 of $23,223, or 15.5%, and $19,701, or 13.9%, respectively, of earnings before income taxes, based on its annual estimated income tax rate adjusted for discrete items. The effective tax rate for the three and six months ended June 30, 2022 differs from the U.S. federal statutory rate of 21%, primarily due to the tax benefit for excess percentage depletion and foreign derived intangible income, partially offset by tax expense related to compensation. The tax provision amounts also include a discrete tax benefit related to equity compensation.

 

The provision for income taxes for the three and six months ended June 30, 2021 of ($8,893), or (188.3%), and ($3,708), or (13.8%), respectively, of earnings before income taxes was based on the Company's annual estimated income tax rate adjusted for discrete items. The effective tax rate for the three and six months ended June 30, 2021 differed from the U.S. federal statutory rate of 21%, primarily due to the income tax benefit for excess percentage depletion, partially offset by tax expense related to compensation. These tax provision amounts also included discrete tax adjustments related to prior years' taxes, state tax law changes and equity compensation.

 

Due to the expectation of taxable income for the year 2022, the Company has recognized a benefit related to the release of a valuation allowance for state tax net operating losses in its annual effective tax rate for the six months ended June 30, 2022, which resulted in a less than 1% decrease to the Company's annual effective tax rate.

 

The Company is subject to taxation in the United States and its various states, as well as Canada and its various provinces. The Company is subject to examination for the tax periods 2018 through 2021 for federal and state returns.

  

 

NOTE 6—CREDIT LOSSES:

 

Trade receivables are recorded at the invoiced amount and do not bear interest. The Company markets its coal to top-performing rail-served power plants and other end-users in its core market areas. The Company also serves power generation, industrial and metallurgical consumers in international markets from its mines and export terminal. Credit is extended based on an evaluation of a customer's financial condition and a customer's ability to perform its obligations. Trade receivable balances are monitored against approved credit terms. Credit terms are reviewed and adjusted as considered necessary based on changes to a customer's credit profile. If a customer's credit deteriorates, the Company may reduce credit risk exposure by reducing credit terms, obtaining letters of credit, obtaining credit insurance, or requiring pre-payment for shipments.

 

Other non-trade contractual arrangements consist primarily of overriding royalty agreements and other financial arrangements between the Company and various counterparties. The following table excludes fully reserved receivables associated with certain transactions defined as other non-trade contractual arrangements in the amount of $8,263 at June 30, 2022 and December 31, 2021, as management believes it is probable that these outstanding balances will not be collected. At June 30, 2022, the allowance for credit losses associated with other non-trade contractual arrangements was $12,469 and $3,290, included in Other Receivables, net and Other Noncurrent Assets, net, respectively, on the Consolidated Balance Sheets. At December 31, 2021, the allowance for credit losses associated with other non-trade contractual arrangements was $12,329 and $2,882, included in Other Receivables, net and Other Noncurrent Assets, net, respectively, on the Consolidated Balance Sheets.

 

The Company is exposed to credit losses primarily through sales of products and services. The Company's expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade and other accounts receivables. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on an aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company's monitoring activities include timely account reconciliations, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. 

 

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for changes to the assessment of anticipated payment, changes in economic conditions, current industry trends in the markets the Company serves, and changes in the financial health of the Company's counterparties.

 

14

 

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.

 

  

Trade Receivables

  

Other Non-Trade Contractual Arrangements

 
         

Beginning Balance, December 31, 2021

 $4,597  $6,948 

Provision for expected credit losses

  512   548 

Ending Balance, June 30, 2022

 $5,109  $7,496 

  

 

NOTE 7—INVENTORIES:

 

Inventory components consist of the following:

 

   

June 30,

   

December 31,

 
   

2022

   

2021

 

Coal

  $ 14,974     $ 12,078  

Supplies

    53,469       50,798  

Total Inventories

  $ 68,443     $ 62,876  

 

Inventories are stated at the lower of cost or net realizable value. The cost of coal inventories is determined by the first-in, first-out (“FIFO”) method. Coal inventory costs include labor, supplies, equipment costs, operating overhead, depreciation, depletion, amortization and other related costs. The cost of supplies inventory is determined by the average cost method and includes operating and maintenance supplies to be used in the Company's coal operations.

  

 

NOTE 8—ACCOUNTS RECEIVABLE SECURITIZATION:  

 

At June 30, 2022, CONSOL Energy and certain of its U.S. subsidiaries are parties to a trade accounts receivable securitization facility with financial institutions for the sale on a continuous basis of eligible trade accounts receivable. In March 2020, the securitization facility was amended to, among other things, extend the maturity date from August 30, 2021 to March 27, 2023.

 

Pursuant to the securitization facility, CONSOL Thermal Holdings LLC, an indirect, wholly-owned subsidiary of the Company, sells current and future trade receivables to CONSOL Pennsylvania Coal Company LLC, a wholly-owned subsidiary of the Company. CONSOL Marine Terminals LLC, a wholly-owned subsidiary of the Company, and CONSOL Pennsylvania Coal Company LLC sell and/or contribute current and future trade receivables (including receivables sold to CONSOL Pennsylvania Coal Company LLC by CONSOL Thermal Holdings LLC) to CONSOL Funding LLC, a wholly-owned subsidiary of the Company (the “SPV”). The SPV, in turn, pledges its interests in the receivables to PNC Bank, N.A., which either makes loans or issues letters of credit on behalf of the SPV. The maximum amount of advances and letters of credit outstanding under the securitization facility may not exceed $100 million.

 

Loans under the securitization facility accrue interest at a reserve-adjusted LIBOR market index rate equal to the one-month Eurodollar rate. Loans and letters of credit under the securitization facility also accrue a program fee and a letter of credit participation fee, respectively, ranging from 2.00% to 2.50% per annum depending on the total net leverage ratio of CONSOL Energy. In addition, the SPV paid certain structuring fees to PNC Capital Markets LLC and pays other customary fees to the lenders, including a fee on unused commitments equal to 0.60% per annum.

 

At June 30, 2022, the Company's eligible accounts receivable yielded $31,105 of borrowing capacity. At June 30, 2022, the facility had no outstanding borrowings and $31,231 of letters of credit outstanding, leaving no unused capacity. CONSOL Energy posted $