CONSOL Energy Inc. - Quarter Report: 2023 June (Form 10-Q)
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, 2023
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 31,985,081 shares of common stock, $0.01 par value, outstanding at July 31, 2023.
TABLE OF CONTENTS
| Page | ||||||||
Unaudited Financial Statements | ||||||||
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2023 and 2022 | ||||||||
Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 | ||||||||
2
IMPORTANT DEFINITIONS REFERENCED IN THIS QUARTERLY REPORT
•“CONSOL Energy,” “we,” “our,” “us,” “our Company” and “the Company” refer to CONSOL Energy Inc. and its subsidiaries;
•“Btu” means one British thermal unit;
•“CONSOL Marine Terminal” refers to the Company's terminal operations located at the Port of Baltimore, Maryland;
•“former parent” refers to CNX Resources Corporation and its consolidated subsidiaries;
•“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 Mining Complex;
•“Itmann Mining Complex” refers to the Company's Itmann No. 5 metallurgical coal mine and coal preparation plant located in Wyoming County, West Virginia, and surrounding reserves to be processed and sold through the Itmann Mining Complex coal preparation plant; and
•“Pennsylvania Mining Complex” or “PAMC” refers to the Bailey, Enlow Fork and Harvey coal mines, the Central Preparation Plant, and related coal reserves, assets and operations located in southwestern Pennsylvania and northern West Virginia.
3
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Revenue and Other Income: | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Coal Revenue | $ | 541,099 | $ | 532,726 | $ | 1,124,478 | $ | 1,009,110 | |||||||||||||||
| Terminal Revenue | 31,368 | 21,779 | 58,079 | 43,176 | |||||||||||||||||||
| Freight Revenue | 81,556 | 50,411 | 149,063 | 88,800 | |||||||||||||||||||
| Loss on Commodity Derivatives, net | — | (68,352) | — | (256,506) | |||||||||||||||||||
| Miscellaneous Other Income | 6,934 | 7,690 | 12,218 | 12,022 | |||||||||||||||||||
| Gain on Sale of Assets | 10 | 365 | 5,736 | 6,546 | |||||||||||||||||||
| Total Revenue and Other Income | 660,967 | 544,619 | 1,349,574 | 903,148 | |||||||||||||||||||
| Costs and Expenses: | |||||||||||||||||||||||
| Operating and Other Costs | 276,596 | 244,217 | 537,223 | 463,299 | |||||||||||||||||||
| Depreciation, Depletion and Amortization | 64,528 | 57,880 | 124,079 | 113,834 | |||||||||||||||||||
| Freight Expense | 81,556 | 50,411 | 149,063 | 88,800 | |||||||||||||||||||
| General and Administrative Costs | 25,147 | 27,911 | 42,445 | 64,513 | |||||||||||||||||||
| Loss on Debt Extinguishment | 688 | 1,565 | 2,063 | 3,687 | |||||||||||||||||||
| Interest Expense | 7,155 | 13,121 | 17,434 | 27,473 | |||||||||||||||||||
| Total Costs and Expenses | 455,670 | 395,105 | 872,307 | 761,606 | |||||||||||||||||||
| Earnings Before Income Tax | 205,297 | 149,514 | 477,267 | 141,542 | |||||||||||||||||||
| Income Tax Expense | 37,574 | 23,223 | 79,167 | 19,701 | |||||||||||||||||||
| Net Income | $ | 167,723 | $ | 126,291 | $ | 398,100 | $ | 121,841 | |||||||||||||||
| Earnings per Share: | |||||||||||||||||||||||
| Total Basic Earnings per Share | $ | 5.00 | $ | 3.62 | $ | 11.69 | $ | 3.51 | |||||||||||||||
| Total Dilutive Earnings per Share | $ | 4.94 | $ | 3.54 | $ | 11.53 | $ | 3.42 | |||||||||||||||
| Dividends Declared per Common Share | $ | 1.10 | $ | — | $ | 2.20 | $ | — | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOL ENERGY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net Income | $ | 167,723 | $ | 126,291 | $ | 398,100 | $ | 121,841 | |||||||||||||||
| Other Comprehensive (Loss) Income: | |||||||||||||||||||||||
Actuarially Determined Long-Term Liability Adjustments (Net of tax: $274, ($508), $548, ($1,016)) | (900) | 1,524 | (1,801) | 3,049 | |||||||||||||||||||
Unrealized Loss on Investments in Available-for-Sale Securities (Net of tax: $77, $—, $13, $—) | (255) | — | (43) | — | |||||||||||||||||||
Unrealized Gain on Cash Flow Hedges (Net of tax: $—, ($75), $—, ($205)) | — | 224 | — | 615 | |||||||||||||||||||
| Other Comprehensive (Loss) Income | (1,155) | 1,748 | (1,844) | 3,664 | |||||||||||||||||||
| Comprehensive Income | $ | 166,568 | $ | 128,039 | $ | 396,256 | $ | 125,505 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
CONSOL ENERGY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| (Unaudited) | |||||||||||
| June 30, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and Cash Equivalents | $ | 189,539 | $ | 273,070 | |||||||
| Short-Term Investments | 100,699 | — | |||||||||
| Accounts and Notes Receivable | |||||||||||
| Trade Receivables, net | 113,825 | 158,127 | |||||||||
| Other Receivables, net | 10,349 | 38,517 | |||||||||
| Inventories | 97,675 | 66,290 | |||||||||
| Other Current Assets | 66,337 | 62,479 | |||||||||
| Total Current Assets | 578,424 | 598,483 | |||||||||
| Property, Plant and Equipment: | |||||||||||
| Property, Plant and Equipment | 5,484,648 | 5,408,577 | |||||||||
| Less - Accumulated Depreciation, Depletion and Amortization | 3,553,045 | 3,448,495 | |||||||||
| Total Property, Plant and Equipment—Net | 1,931,603 | 1,960,082 | |||||||||
| Other Assets: | |||||||||||
| Right of Use Asset - Operating Leases | 16,910 | 19,799 | |||||||||
| Salary Retirement | 44,797 | 38,548 | |||||||||
| Other Noncurrent Assets, net | 106,615 | 87,465 | |||||||||
| Total Other Assets | 168,322 | 145,812 | |||||||||
| TOTAL ASSETS | $ | 2,678,349 | $ | 2,704,377 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
CONSOL ENERGY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| (Unaudited) | |||||||||||
| June 30, 2023 | December 31, 2022 | ||||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts Payable | $ | 122,015 | $ | 130,232 | |||||||
| Current Portion of Long-Term Debt | 19,182 | 28,846 | |||||||||
| Operating Lease Liability, Current Portion | 4,775 | 4,922 | |||||||||
| Commodity Derivatives | — | 15,142 | |||||||||
| Other Accrued Liabilities | 267,759 | 269,656 | |||||||||
| Total Current Liabilities | 413,731 | 448,798 | |||||||||
| Long-Term Debt: | |||||||||||
| Long-Term Debt | 207,464 | 342,110 | |||||||||
| Finance Lease Obligations | 7,299 | 13,225 | |||||||||
| Total Long-Term Debt | 214,763 | 355,335 | |||||||||
| Deferred Credits and Other Liabilities: | |||||||||||
| Postretirement Benefits Other Than Pensions | 228,830 | 232,593 | |||||||||
| Pneumoconiosis Benefits | 146,033 | 148,390 | |||||||||
| Asset Retirement Obligations | 223,775 | 221,858 | |||||||||
| Workers’ Compensation | 41,433 | 40,951 | |||||||||
| Salary Retirement | 20,552 | 20,585 | |||||||||
| Operating Lease Liability | 12,491 | 15,073 | |||||||||
| Deferred Income Taxes | 21,353 | 21,914 | |||||||||
| Other Noncurrent Liabilities | 20,193 | 33,054 | |||||||||
| Total Deferred Credits and Other Liabilities | 714,660 | 734,418 | |||||||||
| TOTAL LIABILITIES | 1,343,154 | 1,538,551 | |||||||||
| Stockholders' Equity: | |||||||||||
Common Stock, $0.01 Par Value; 62,500,000 Shares Authorized, 32,698,939 Shares Issued and Outstanding at June 30, 2023; 34,746,904 Shares Issued and Outstanding at December 31, 2022 | 327 | 347 | |||||||||
| Capital in Excess of Par Value | 595,566 | 646,237 | |||||||||
| Retained Earnings | 890,786 | 668,882 | |||||||||
| Accumulated Other Comprehensive Loss | (151,484) | (149,640) | |||||||||
| TOTAL EQUITY | 1,335,195 | 1,165,826 | |||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 2,678,349 | $ | 2,704,377 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
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, 2022 | $ | 347 | $ | 646,237 | $ | 668,882 | $ | (149,640) | $ | 1,165,826 | |||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||
| Net Income | — | — | 230,377 | — | 230,377 | ||||||||||||||||||||||||
Actuarially Determined Long-Term Liability Adjustments (Net of $274 Tax) | — | — | — | (901) | (901) | ||||||||||||||||||||||||
Investments in Available-for-Sale Securities (Net of $64 Tax) | — | — | — | 212 | 212 | ||||||||||||||||||||||||
| Comprehensive Income (Loss) | — | — | 230,377 | (689) | 229,688 | ||||||||||||||||||||||||
| Issuance of Common Stock | 3 | (3) | — | — | — | ||||||||||||||||||||||||
Repurchases of Common Stock (1,207,409 Shares) | (11) | (22,446) | (44,676) | — | (67,133) | ||||||||||||||||||||||||
| Excise Tax on Repurchases of Common Stock | — | — | (478) | — | (478) | ||||||||||||||||||||||||
| Amortization of Stock-Based Compensation Awards | — | 4,792 | — | — | 4,792 | ||||||||||||||||||||||||
| Shares Withheld for Taxes | — | (12,708) | — | — | (12,708) | ||||||||||||||||||||||||
Dividends on Common Shares ($1.10/share) | — | — | (38,287) | — | (38,287) | ||||||||||||||||||||||||
| Dividend Equivalents Earned on Stock-Based Compensation Awards | — | — | (803) | — | (803) | ||||||||||||||||||||||||
| March 31, 2023 | $ | 339 | $ | 615,872 | $ | 815,015 | $ | (150,329) | $ | 1,280,897 | |||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||
| Net Income | — | — | 167,723 | — | 167,723 | ||||||||||||||||||||||||
Actuarially Determined Long-Term Liability Adjustments (Net of $274 Tax) | — | — | — | (900) | (900) | ||||||||||||||||||||||||
Investments in Available-for-Sale Securities (Net of $77 Tax) | — | — | — | (255) | (255) | ||||||||||||||||||||||||
| Comprehensive Income (Loss) | — | — | 167,723 | (1,155) | 166,568 | ||||||||||||||||||||||||
Repurchases of Common Stock (1,225,134 Shares) | (12) | (22,261) | (53,354) | — | (75,627) | ||||||||||||||||||||||||
| Excise Tax on Repurchases of Common Stock | — | — | (728) | — | (728) | ||||||||||||||||||||||||
| Amortization of Stock-Based Compensation Awards | — | 1,993 | — | — | 1,993 | ||||||||||||||||||||||||
| Shares Withheld for Taxes | — | (38) | — | — | (38) | ||||||||||||||||||||||||
Dividends on Common Shares ($1.10/share) | — | — | (37,187) | — | (37,187) | ||||||||||||||||||||||||
| Dividend Equivalents Earned on Stock-Based Compensation Awards | — | — | (683) | — | (683) | ||||||||||||||||||||||||
| June 30, 2023 | $ | 327 | $ | 595,566 | $ | 890,786 | $ | (151,484) | $ | 1,335,195 | |||||||||||||||||||
8
| 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 | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
9
CONSOL ENERGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net Income | $ | 398,100 | $ | 121,841 | |||||||
| Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | |||||||||||
| Depreciation, Depletion and Amortization | 124,079 | 113,834 | |||||||||
| Gain on Sale of Assets | (5,736) | (6,546) | |||||||||
| Stock-Based Compensation | 6,785 | 5,470 | |||||||||
| Amortization of Debt Issuance Costs | 3,389 | 3,980 | |||||||||
| Loss on Debt Extinguishment | 2,063 | 3,687 | |||||||||
| Deferred Income Taxes | (561) | (7,762) | |||||||||
| Other Adjustments to Net Income | (1,413) | 291 | |||||||||
| Changes in Operating Assets: | |||||||||||
| Accounts and Notes Receivable | 72,470 | (33,585) | |||||||||
| Inventories | (31,385) | (5,567) | |||||||||
| Other Current Assets | 1,773 | 6,845 | |||||||||
| Changes in Other Assets | (25,654) | (10,356) | |||||||||
| Changes in Operating Liabilities: | |||||||||||
| Accounts Payable | (14,810) | 29,053 | |||||||||
| Commodity Derivatives, net Liability | (15,142) | 122,724 | |||||||||
| Other Operating Liabilities | (3,868) | 5,066 | |||||||||
| Changes in Other Liabilities | (34,006) | (2,417) | |||||||||
| Net Cash Provided by Operating Activities | 476,084 | 346,558 | |||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Capital Expenditures | (76,082) | (76,061) | |||||||||
| Proceeds from Sales of Assets | 6,239 | 7,418 | |||||||||
| Investments in Mining-Related Activities | (4,731) | — | |||||||||
| Proceeds from Sales of Short-Term Investments | 30,419 | — | |||||||||
| Purchases of Short-Term Investments | (129,757) | — | |||||||||
| Other Investing Activity | — | (1,483) | |||||||||
| Net Cash Used in Investing Activities | (173,912) | (70,126) | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Payments on Finance Lease Obligations | (13,898) | (12,086) | |||||||||
| Payments on Term Loan A | — | (41,250) | |||||||||
| Payments on Term Loan B | (63,590) | (75,687) | |||||||||
| Payments on Second Lien Notes | (77,063) | (26,387) | |||||||||
| Payments on Other Debt | (480) | (375) | |||||||||
| Shares Withheld for Taxes | (12,746) | (6,194) | |||||||||
| Repurchases of Common Stock | (140,519) | — | |||||||||
| Debt-Related Financing Fees | (2,684) | — | |||||||||
| Dividends | (75,474) | — | |||||||||
| Net Cash Used in Financing Activities | (386,454) | (161,979) | |||||||||
| Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash | (84,282) | 114,453 | |||||||||
| Cash and Cash Equivalents and Restricted Cash at Beginning of Period | 326,952 | 198,206 | |||||||||
| Cash and Cash Equivalents and Restricted Cash at End of Period | $ | 242,670 | $ | 312,659 | |||||||
| Non-Cash Investing and Financing Activities: | |||||||||||
| Finance Lease | $ | 588 | $ | 4,166 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
10
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, 2023 are not necessarily indicative of the results that may be expected for future periods.
The Consolidated Balance Sheet at December 31, 2022 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, 2022.
All dollar amounts discussed in these Notes to Consolidated Financial Statements are in thousands of U.S. dollars, except for per share 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 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-02 - Investments—Equity Method and Joint Ventures (Topic 323). The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. The amendments in this update apply to all reporting entities that hold (1) tax equity investments that meet the conditions for and elect to account for them using the proportional amortization method or (2) an investment in a low-income-housing tax credit (LIHTC) structure through a limited liability entity that is not accounted for using the proportional amortization method and to which certain LIHTC-specific guidance removed from Subtopic 323-740, Investments—Equity Method and Joint Ventures—Income Taxes, has been applied. The amendments in this update are effective for fiscal years beginning after December 15, 2023, 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.
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.
11
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Anti-Dilutive Restricted Stock Units | 470 | 189 | 331 | 7,056 | |||||||||||||||||||
| Anti-Dilutive Performance Share Units | — | — | — | — | |||||||||||||||||||
| 470 | 189 | 331 | 7,056 | ||||||||||||||||||||
The computations for basic and dilutive earnings per share are as follows:
| Dollars in thousands, except per share data | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net Income | $ | 167,723 | $ | 126,291 | $ | 398,100 | $ | 121,841 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares of common stock outstanding | 33,557,761 | 34,846,037 | 34,043,815 | 34,753,887 | |||||||||||||||||||
| Effect of dilutive shares | 399,384 | 877,437 | 490,396 | 897,904 | |||||||||||||||||||
| Weighted-average diluted shares of common stock outstanding | 33,957,145 | 35,723,474 | 34,534,211 | 35,651,791 | |||||||||||||||||||
| Earnings per Share: | |||||||||||||||||||||||
| Basic | $ | 5.00 | $ | 3.62 | $ | 11.69 | $ | 3.51 | |||||||||||||||
| Dilutive | $ | 4.94 | $ | 3.54 | $ | 11.53 | $ | 3.42 | |||||||||||||||
As of June 30, 2023, 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, stockholders' equity, net income or cash flows from operating activities.
12
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, 2023 | |||||||||||||||||
| Domestic | Export | Total | |||||||||||||||
| Power Generation | $ | 122,779 | $ | 117,767 | $ | 240,546 | |||||||||||
| Industrial | 12,230 | 205,063 | 217,293 | ||||||||||||||
| Metallurgical | 6,302 | 76,958 | 83,260 | ||||||||||||||
| Total Coal Revenue | 141,311 | 399,788 | 541,099 | ||||||||||||||
| Terminal Revenue | 31,368 | ||||||||||||||||
| Freight Revenue | 81,556 | ||||||||||||||||
| Total Revenue from Contracts with Customers | $ | 654,023 | |||||||||||||||
| Three Months Ended June 30, 2022 | |||||||||||||||||
| Domestic | Export | Total | |||||||||||||||
| Power Generation | $ | 203,853 | $ | 52,878 | $ | 256,731 | |||||||||||
| Industrial | 8,849 | 132,853 | 141,702 | ||||||||||||||
| Metallurgical | — | 134,293 | 134,293 | ||||||||||||||
| Total Coal Revenue | 212,702 | 320,024 | 532,726 | ||||||||||||||
| Terminal Revenue | 21,779 | ||||||||||||||||
| Freight Revenue | 50,411 | ||||||||||||||||
| Total Revenue from Contracts with Customers | $ | 604,916 | |||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||
| Domestic | Export | Total | |||||||||||||||
| Power Generation | $ | 307,455 | $ | 233,602 | $ | 541,057 | |||||||||||
| Industrial | 18,738 | 390,673 | 409,411 | ||||||||||||||
| Metallurgical | 10,627 | 163,383 | 174,010 | ||||||||||||||
| Total Coal Revenue | 336,820 | 787,658 | 1,124,478 | ||||||||||||||
| Terminal Revenue | 58,079 | ||||||||||||||||
| Freight Revenue | 149,063 | ||||||||||||||||
| Total Revenue from Contracts with Customers | $ | 1,331,620 | |||||||||||||||
| Six Months Ended June 30, 2022 | |||||||||||||||||
| Domestic | Export | Total | |||||||||||||||
| Power Generation | $ | 427,356 | $ | 143,072 | $ | 570,428 | |||||||||||
| Industrial | 10,794 | 260,661 | 271,455 | ||||||||||||||
| Metallurgical | — | 167,227 | 167,227 | ||||||||||||||
| Total Coal Revenue | 438,150 | 570,960 | 1,009,110 | ||||||||||||||
| Terminal Revenue | 43,176 | ||||||||||||||||
| Freight Revenue | 88,800 | ||||||||||||||||
| Total Revenue from Contracts with Customers | $ | 1,141,086 | |||||||||||||||
13
Coal Revenue
The Company has disaggregated its coal revenue, derived from the PAMC and the Itmann Mining Complex, 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. Historically, export coal revenue tended 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 secured several long-term export contracts with varying pricing arrangements. Coal revenue derived from the Itmann Mining Complex consists primarily of metallurgical coal sales, while coal revenue derived from the PAMC services the industrial, power generation and metallurgical markets due to the nature of its coal quality characteristics.
CONSOL Energy's coal revenue is 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 facilities, 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.
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. At June 30, 2023 and December 31, 2022, 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, 2023 and 2022, 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 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, 2023 and December 31, 2022, 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, 2023 and 2022, 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 plants. 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 to the coal passes to the customer.
14
Contract Balances
Contract assets, when present, 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 June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||
| Service Cost | $ | 305 | $ | 302 | $ | 609 | $ | 604 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||
| Interest Cost | 6,757 | 4,134 | 13,514 | 8,269 | 3,261 | 1,975 | 6,522 | 3,949 | |||||||||||||||||||||||||||||||||||||||
| Expected Return on Plan Assets | (9,868) | (9,319) | (19,735) | (18,638) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Amortization of Prior Service Credits | — | — | — | — | (602) | (602) | (1,203) | (1,203) | |||||||||||||||||||||||||||||||||||||||
| Amortization of Actuarial Loss | 185 | 761 | 370 | 1,519 | — | 879 | — | 1,758 | |||||||||||||||||||||||||||||||||||||||
| Net Periodic Benefit (Credit) Cost | $ | (2,621) | $ | (4,122) | $ | (5,242) | $ | (8,246) | $ | 2,659 | $ | 2,252 | $ | 5,319 | $ | 4,504 | |||||||||||||||||||||||||||||||
(Credits) expenses related to pension and other post-employment benefits are reflected in Operating and Other Costs in the Consolidated Statements of Income. Amounts reclassified out of accumulated other comprehensive income are reflected in Operating and Other Costs in the Consolidated Statements in Income.
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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 June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||
| Service Cost | $ | 578 | $ | 726 | $ | 1,156 | $ | 1,452 | $ | 1,399 | $ | 1,230 | $ | 2,798 | $ | 2,460 | |||||||||||||||||||||||||||||||
| Interest Cost | 2,072 | 1,265 | 4,143 | 2,530 | 629 | 342 | 1,257 | 684 | |||||||||||||||||||||||||||||||||||||||
| Amortization of Actuarial (Gain) Loss | (262) | 1,059 | (523) | 2,119 | (513) | (105) | (1,025) | (210) | |||||||||||||||||||||||||||||||||||||||
| State Administrative Fees and Insurance Bond Premiums | — | — | — | — | 466 | 448 | 1,011 | 885 | |||||||||||||||||||||||||||||||||||||||
| Net Periodic Benefit Cost | $ | 2,388 | $ | 3,050 | $ | 4,776 | $ | 6,101 | $ | 1,981 | $ | 1,915 | $ | 4,041 | $ | 3,819 | |||||||||||||||||||||||||||||||
Expenses related to CWP and workers’ compensation are reflected in Operating and Other Costs in the Consolidated Statements of Income. Amounts reclassified out of accumulated other comprehensive income are reflected in Operating and Other Costs in the Consolidated Statements in Income.
NOTE 5—INCOME TAXES:
The Company recorded its provision for income taxes for the three and six months ended June 30, 2023 of $37,574, or 18.3%, and $79,167, or 16.6%, 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, 2023 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. These tax provision amounts also include discrete tax adjustments primarily related to equity compensation.
The 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 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, 2022 differed 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 included a discrete tax benefit related to equity compensation.
The Company continues to evaluate the impacts of the Inflation Reduction Act of 2022 signed into law by the President of the United States on August 16, 2022, but does not expect this legislation to have a material impact on the Company's financial statements.
The Company is subject to taxation in the United States and certain of its various states, as well as Canada and certain of its various provinces. The Company is subject to examination for the tax periods 2018 through 2022 for federal and state returns.
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NOTE 6—CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
| June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash and Cash Equivalents | $ | 189,539 | $ | 261,569 | |||||||
Restricted Cash - Current(1) | 45,554 | 43,025 | |||||||||
Restricted Cash - Non-current(1) | 7,577 | 8,065 | |||||||||
| Cash and Cash Equivalents and Restricted Cash | $ | 242,670 | $ | 312,659 | |||||||
(1) Restricted Cash - Current is included in Other Current Assets in the accompanying Consolidated Balance Sheets. Restricted Cash - Non-current is included in Other Noncurrent Assets, net in the accompanying Consolidated Balance Sheets.
During the six months ended June 30, 2023, the Company invested in marketable debt securities, primarily comprised of highly liquid U.S. Treasury securities. The investments are held in the custody of financial institutions. These securities are classified as available-for-sale securities and have maturity dates ranging from July 2023 through April 2024, and thus are classified as current assets.
The Company's investments in available-for-sale securities are as follows:
| June 30, 2023 | |||||||||||||||||
| Gross Unrealized | |||||||||||||||||
| Amortized Cost | Allowance for Credit Losses | Gains | Losses | Fair Value | |||||||||||||
| U.S. Treasury Securities | $ | 100,755 | $ | — | $ | — | $ | (56) | $ | 100,699 | |||||||
Available-for-sale investments are reported at fair value and any unrealized gains or losses are recognized in other comprehensive income, net of tax. The unrealized losses in the Company's portfolio at June 30, 2023 are the result of normal market fluctuations. Interest and dividends are included in net income when earned.
NOTE 7—CREDIT LOSSES:
Trade receivables are recorded at the invoiced amount and do not bear interest. Credit is extended based on an evaluation of a customer's financial condition, the importance of the customer or market for future business 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 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, and 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.
17
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, 2022 | $ | 1,731 | $ | 7,051 | |||||||
| Provision for expected credit losses | (1,329) | (24) | |||||||||
| Write-off of uncollectible accounts | — | (30) | |||||||||
| Ending Balance, June 30, 2023 | $ | 402 | $ | 6,997 | |||||||
NOTE 8—INVENTORIES:
Inventory components consist of the following:
| June 30, 2023 | December 31, 2022 | ||||||||||
| Coal | $ | 28,663 | $ | 11,315 | |||||||
| Supplies | 69,012 | 54,975 | |||||||||
| Total Inventories | $ | 97,675 | $ | 66,290 | |||||||
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 9—ACCOUNTS RECEIVABLE SECURITIZATION:
At June 30, 2023, 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. In July 2022, the securitization facility was again amended to, among other things, extend the maturity date to July 29, 2025.
Pursuant to the securitization facility, CONSOL Thermal Holdings LLC, an indirect, wholly-owned subsidiary of the Company, sells 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 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 $100,000.
Loans under the securitization facility accrue interest at a reserve-adjusted market index rate equal to the applicable term Secured Overnight Financing Rate (“SOFR”). 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.
18
At June 30, 2023, the Company's eligible accounts receivable yielded $51,275 of borrowing capacity. At June 30, 2023, the facility had no outstanding borrowings and $50,921 of letters of credit outstanding, leaving available borrowing capacity of $354. At December 31, 2022, the Company's eligible accounts receivable yielded $85,179 of borrowing capacity. At December 31, 2022, the facility had no outstanding borrowings and $83,465 of letters of credit outstanding, leaving available borrowing capacity of $1,714. Costs associated with the receivables facility totaled $324 and $737 for the three and six months ended June 30, 2023, respectively, and $341 and $616 for the three and six months ended June 30, 2022, respectively. The Company has not derecognized any receivables due to its continued involvement in the collections efforts.
NOTE 10—PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
| June 30, 2023 | December 31, 2022 | ||||||||||
| Plant and Equipment | $ | 3,397,535 | $ | 3,330,755 | |||||||
| Coal Properties and Surface Lands | 904,573 | 898,628 | |||||||||
| Airshafts | 484,502 | 481,090 | |||||||||
| Mine Development | 366,265 | 366,241 | |||||||||
| Advance Mining Royalties | 331,773 | 331,863 | |||||||||
| Total Property, Plant and Equipment | 5,484,648 | 5,408,577 | |||||||||
| Less: Accumulated Depreciation, Depletion and Amortization | 3,553,045 | 3,448,495 | |||||||||
| Total Property, Plant and Equipment - Net | $ | 1,931,603 | $ | 1,960,082 | |||||||
Coal reserves are either owned in fee or controlled by lease. The duration of the leases vary; however, the lease terms are generally extended automatically to the exhaustion of economically recoverable reserves, as long as active mining continues. Coal interests held by lease provide the same rights as fee ownership for mineral extraction and are legally considered real property interests.
As of June 30, 2023 and December 31, 2022, property, plant and equipment includes gross assets under finance leases of $91,544 and $90,516, respectively. Accumulated amortization for finance leases was $67,870 and $54,028 at June 30, 2023 and December 31, 2022, respectively. Amortization expense for assets under finance leases approximated $6,944 and $5,868 for the three months ended June 30, 2023 and 2022, respectively, and $13,845 and $12,098 for the six months ended June 30, 2023 and 2022, respectively, and is included in Depreciation, Depletion and Amortization in the accompanying Consolidated Statements of Income.
NOTE 11—OTHER ACCRUED LIABILITIES:
| June 30, 2023 | December 31, 2022 | ||||||||||
| Subsidence Liability | $ | 98,302 | $ | 96,623 | |||||||
| Accrued Compensation and Benefits | 54,813 | 67,893 | |||||||||
| Accrued Interest | 6,591 | 7,942 | |||||||||
| Accrued Other Taxes | 6,511 | 10,551 | |||||||||
| Accrued Income Taxes | 5,394 | 1,513 | |||||||||
| Other | 18,685 | 9,880 | |||||||||
| Current Portion of Long-Term Liabilities: | |||||||||||
| Asset Retirement Obligations | 32,974 | 29,644 | |||||||||
| Postretirement Benefits Other than Pensions | 21,944 | 22,436 | |||||||||
| Pneumoconiosis Benefits | 12,622 | 12,723 | |||||||||
| Workers' Compensation | 9,923 | 10,451 | |||||||||
| Total Other Accrued Liabilities | $ | 267,759 | $ | 269,656 | |||||||
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NOTE 12—LONG-TERM DEBT:
| June 30, 2023 | December 31, 2022 | ||||||||||
| Debt: | |||||||||||
MEDCO Revenue Bonds in Series due September 2025 at 5.75% | $ | 102,865 | $ | 102,865 | |||||||
9.00% PEDFA Solid Waste Disposal Revenue Bonds due April 2028 | 75,000 | 75,000 | |||||||||
11.00% Senior Secured Second Lien Notes due November 2025 | 24,107 | 99,107 | |||||||||
Term Loan B due in September 2024 (Principal of $63,590 less Unamortized Discount of $106, 8.92% Weighted Average Interest Rate at December 31, 2022) | — | 63,484 | |||||||||
| Other Debt Arrangements | 1,920 | 2,400 | |||||||||
Advance Royalty Commitments (8.09% Weighted Average Interest Rate) | 7,716 | 7,716 | |||||||||
| Less: Unamortized Debt Issuance Costs | (2,125) | (3,721) | |||||||||
| 209,483 | 346,851 | ||||||||||
| Less: Amounts Due in One Year* | (2,019) | (4,741) | |||||||||
| Long-Term Debt | $ | 207,464 | $ | 342,110 | |||||||
* Excludes current portion of Finance Lease Obligations of $17,163 and $24,105 at June 30, 2023 and December 31, 2022, respectively.
Revolving Credit Facility
In November 2017, CONSOL Energy entered into a revolving credit facility with PNC Bank, N.A. (the “Revolving Credit Facility”). The Revolving Credit Facility has been amended several times, the most recent of which occurred in June 2023. This amendment increased the available revolving commitments from $260,000 to $355,000 and provides for the Company's ability to increase the revolving commitments or issue term loans in an additional amount not to exceed $45,000 and up to an aggregate total amount of $400,000. The maturity date of the Revolving Credit Facility is July 18, 2026.
Borrowings under the Company's Revolving Credit Facility bear interest at a floating rate that is, at the Company's option, either (i) SOFR plus the applicable SOFR adjustment (as defined therein) depending on the applicable interest period plus an applicable margin or (ii) an alternate base rate plus an applicable margin. The applicable margin for the Revolving Credit Facility depends on the total net leverage ratio. Obligations under the Revolving Credit Facility are guaranteed by (i) all owners of the PAMC held by the Company, (ii) any other members of the Company’s group that own any portion of the collateral securing the Revolving Credit Facility, and (iii) subject to certain customary exceptions and agreed materiality thresholds, all other existing or future direct or indirect wholly-owned restricted subsidiaries of the Company. The obligations are secured by, subject to certain exceptions (including a limitation of pledges of equity interests in certain subsidiaries and certain thresholds with respect to real property), a first-priority lien on (i) the Company’s interest in the PAMC, (ii) the equity interests in PA Mining Complex LP held by the Company, (iii) the CONSOL Marine Terminal, (iv) the Itmann Mining Complex and (v) the 1.4 billion tons of Greenfield Reserves and Resources.
The Revolving Credit Facility contains a number of customary affirmative covenants and a number of negative covenants, including (subject to certain exceptions) limitations on (among other things): indebtedness, liens, investments, acquisitions, dispositions, restricted payments and prepayments of junior indebtedness.
The Revolving Credit Facility also includes covenants relating to (i) a maximum first lien gross leverage ratio, (ii) a maximum total net leverage ratio, and (iii) a minimum fixed charge coverage ratio. The maximum first lien gross leverage ratio is calculated as the ratio of Consolidated First Lien Debt to Consolidated EBITDA. Consolidated EBITDA, as used in the covenant calculation, excludes non-cash compensation expenses, non-recurring transaction expenses, extraordinary gains and losses, gains and losses on discontinued operations and gains and losses on debt extinguishment. The maximum total net leverage ratio is calculated as the ratio of Consolidated Indebtedness, minus Cash on Hand, to Consolidated EBITDA. The minimum fixed charge coverage ratio is calculated as the ratio of Consolidated EBITDA to Consolidated Fixed Charges. Consolidated Fixed Charges, as used in the covenant calculation, include cash interest payments, cash payments for income taxes, scheduled debt repayments, Maintenance Capital Expenditures and cash payments related to legacy employee liabilities to the extent in excess of amounts accrued in the calculation of Consolidated EBITDA. Under the Revolving Credit Facility, the maximum first lien gross leverage ratio shall be 1.50 to 1.00, the maximum total net leverage ratio shall be 2.50 to 1.00 and the minimum fixed charge coverage ratio shall be 1.10 to 1.00.
20
The Company's first lien gross leverage ratio was 0.02 to 1.00 at June 30, 2023. The Company's total net leverage ratio was (0.06) to 1.00 at June 30, 2023. The Company's fixed charge coverage ratio was 3.54 to 1.00 at June 30, 2023. The Company was in compliance with all of its financial covenants under the Revolving Credit Facility as of June 30, 2023.
At June 30, 2023, the Revolving Credit Facility had no borrowings outstanding and $130,281 of letters of credit outstanding, leaving $224,719 of unused capacity. At December 31, 2022, the Revolving Credit Facility had no borrowings outstanding and $103,029 of letters of credit outstanding, leaving $296,971 of unused capacity. From time to time, CONSOL Energy is required to post financial assurances to satisfy contractual and other requirements generated in the normal course of business. Some of these assurances are posted to comply with federal, state or other government agencies' statutes and regulations. CONSOL Energy sometimes uses letters of credit to satisfy these requirements and these letters of credit reduce the Company's borrowing facility capacity.
Second Lien Notes
In November 2017, CONSOL Energy issued $300,000 in aggregate principal amount of 11.00% Senior Secured Second Lien Notes due 2025 (the “Second Lien Notes”) pursuant to an indenture (the “Indenture”) dated as of November 13, 2017, by and between the Company and UMB Bank, N.A., a national banking association, as trustee and collateral trustee (the “Trustee”). On November 28, 2017, certain subsidiaries of the Company executed a supplement to the Indenture and became party to the Indenture as a guarantor (the “Guarantors”). The Second Lien Notes are secured by second priority liens on substantially all of the assets of the Company and the Guarantors that are pledged on a first-priority basis as collateral securing the Company’s obligations under the Revolving Credit Facility (described above), subject to certain exceptions under the Indenture. The Indenture contains covenants that limit the ability of the Company and the Guarantors to (i) incur, assume or guarantee additional indebtedness or issue preferred stock; (ii) create liens to secure indebtedness; (iii) declare or pay dividends on the Company’s common stock, redeem stock or make other distributions to the Company’s stockholders; (iv) make investments; (v) restrict dividends, loans or other asset transfers from the Company’s restricted subsidiaries; (vi) merge or consolidate, or sell, transfer, lease or dispose of substantially all of the Company’s assets; (vii) sell or otherwise dispose of certain assets, including equity interests in subsidiaries; (viii) enter into transactions with affiliates; and (ix) create unrestricted subsidiaries. These covenants are subject to important exceptions and qualifications. If the Second Lien Notes achieve an investment grade rating from both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc. and no default under the Indenture exists, many of the foregoing covenants will terminate and cease to apply.
The SPV is a non-guarantor subsidiary of the Second Lien Notes and the Revolving Credit Facility, and the SPV holds the assets pledged to the lender in the securitization facility. The SPV had total assets of $114,470 and $158,877, comprised mainly of $113,825 and $158,127 trade receivables, net, at June 30, 2023 and December 31, 2022, respectively. Net income attributable to the SPV was $1,986 and $3,407 for the three months ended June 30, 2023 and 2022, respectively, and $4,608 and $4,092 for the six months ended June 30, 2023 and 2022, respectively, which primarily reflected intercompany fees related to purchasing the receivables, which are eliminated in the Consolidated Financial Statements contained within this Quarterly Report on Form 10-Q. During the six months ended June 30, 2023 and 2022, there were no borrowings or payments under the Accounts Receivable Securitization Facility. See Note 9 - Accounts Receivable Securitization for additional information.
During the six months ended June 30, 2023, the Company spent $77,063 to redeem $75,000 of its outstanding Second Lien Notes. During the six months ended June 30, 2022, the Company spent $26,387 to repurchase $25,000 of its outstanding Second Lien Notes. As a result of these transactions, $688 and $1,565 was included in Loss on Debt Extinguishment on the Consolidated Statements of Income for the three months ended June 30, 2023 and 2022, respectively, and $2,063 and $3,687 was included in Loss on Debt Extinguishment on the Consolidated Statements of Income for the six months ended June 30, 2023 and 2022, respectively.
PEDFA Bonds
In April 2021, CONSOL Energy borrowed the proceeds received from the sale of tax-exempt bonds issued by the Pennsylvania Economic Development Financing Authority (“PEDFA”) in an aggregate principal amount of $75,000 (the “PEDFA Bonds”). The PEDFA Bonds bear interest at a fixed rate of 9.00% for an initial term of seven years. The PEDFA Bonds mature on April 1, 2051 but are subject to mandatory purchase by the Company on April 13, 2028, at the expiration of the initial term rate period. The PEDFA Bonds were issued pursuant to an indenture (the “PEDFA Indenture”) dated as of April 1, 2021, by and between PEDFA and Wilmington Trust, N.A., a national banking association, as trustee (the “PEDFA Notes Trustee”). PEDFA made a loan of the proceeds of the PEDFA Bonds to the Company pursuant to a Loan Agreement (the “Loan Agreement”) dated as of April 1, 2021 between PEDFA and the Company. Under the terms of the Loan Agreement, the Company agreed to make all payments of principal, interest and other amounts at any time due on the PEDFA Bonds or under the PEDFA Indenture. PEDFA assigned its rights as lender under the Loan Agreement, excluding
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certain reserved rights, to the PEDFA Notes Trustee. Certain subsidiaries of the Company (the “PEDFA Notes Guarantors”) executed a Guaranty Agreement (the “Guaranty”) dated as of April 1, 2021 in favor of the PEDFA Notes Trustee, guarantying the obligations of the Company under the Loan Agreement to pay the PEDFA Bonds when and as due. The obligations of the Company under the Loan Agreement and of the PEDFA Notes Guarantors under the Guaranty are secured by second priority liens on substantially all of the assets of the Company and the PEDFA Notes Guarantors on parity with the Second Lien Notes. The Loan Agreement and Guaranty incorporate by reference covenants in the Indenture under which the Second Lien Notes were issued (discussed above).
The Company started a capital construction project on the PAMC coarse refuse disposal area in 2017, which is now funded, in part, by the $75,000 of PEDFA Bond proceeds loaned to the Company. The Company expects to expend these funds as qualified work is completed. The Company utilized restricted cash in the amount of $4,627 and $7,871 during the three and six months ended June 30, 2023, respectively, and $1,693 and $4,724 during the three and six months ended June 30, 2022, respectively, for qualified expenses. Additionally, the Company had $28,404 and $35,516 in restricted cash at June 30, 2023 and December 31, 2022, respectively, associated with this financing that will be used to fund future spending on the coarse refuse disposal area.
NOTE 13—COMMITMENTS AND CONTINGENT LIABILITIES:
The Company is subject to various lawsuits and claims with respect to such matters as personal injury, wrongful death, damage to property, exposure to hazardous substances, governmental regulations including environmental remediation, employment and contract disputes and other claims and actions arising out of the normal course of business. The Company accrues the estimated loss for these lawsuits and claims when the loss is probable and reasonably estimable. The Company’s estimated accruals related to these pending claims, individually and in the aggregate, are immaterial to the financial position, results of operations or cash flows of the Company as of June 30, 2023. It is possible that the aggregate loss in the future with respect to these lawsuits and claims could ultimately be material to the Company’s financial position, results of operations or cash flows; however, such amounts cannot be reasonably estimated. The amount claimed against the Company as of June 30, 2023 is disclosed below when an amount is expressly stated in the lawsuit or claim, which is not often the case.
Fitzwater Litigation: Three nonunion retired coal miners have sued Fola Coal Company LLC, Consolidation Coal Company (“CCC”) and CONSOL of Kentucky Inc. (“COK”) (as well as the Company's former parent) in the U.S. District Court for the Southern District of West Virginia alleging ERISA violations in the termination of retiree health care benefits. The Plaintiffs contend they relied to their detriment on oral statements and promises of “lifetime health benefits” allegedly made by various members of management during Plaintiffs’ employment and that they were allegedly denied access to Summary Plan Documents that clearly reserved to the Company the right to modify or terminate the Retiree Health and Welfare Plan subject to Plaintiffs’ claims. Pursuant to Plaintiffs’ amended complaint filed on April 24, 2017, Plaintiffs request that retiree health benefits be reinstated and seek to represent a class of all nonunion retirees who were associated with AMVEST and COK areas of operation. On October 15, 2019, Plaintiffs’ supplemental motion for class certification was denied on all counts. On July 15, 2020, Plaintiffs filed an interlocutory appeal with the Fourth Circuit Court of Appeals on the Order denying class certification. The Fourth Circuit denied Plaintiffs' appeal on August 14, 2020. On October 1, 2020, the District Court entered a pretrial order setting the trial date, which was held in February 2021. No ruling has been issued by the judge. The Company believes it has a meritorious defense and intends to vigorously defend this suit.
Casey Litigation: A class action lawsuit was filed on August 23, 2017 on behalf of two nonunion retired coal miners against CCC, COK, CONSOL Buchanan Mining Co., LLC and Kurt Salvatori, the Company's Chief Administrative Officer, in the U.S. District Court for the Southern District of West Virginia alleging ERISA violations in the termination of retiree health care benefits. Filed by the same lawyers who filed the Fitzwater litigation, and raising nearly identical claims, the Plaintiffs contend they relied to their detriment on oral promises of “lifetime health benefits” allegedly made by various members of management during Plaintiffs’ employment and that they were not provided with copies of Summary Plan Documents clearly reserving to the Company the right to modify or terminate the Retiree Health and Welfare Plan. Plaintiffs request that retiree health benefits be reinstated for them and their dependents and seek to represent a class of all nonunion retirees of any subsidiary of the Company's former parent that operated or employed individuals in McDowell or Mercer Counties, West Virginia, or Buchanan or Tazewell Counties, Virginia whose retiree welfare benefits were terminated. On December 1, 2017, the trial court judge in Fitzwater signed an order to consolidate Fitzwater with Casey. The Casey complaint was amended on March 1, 2018 to add new plaintiffs, add defendant CONSOL Pennsylvania Coal Company LLC and eliminate defendant CONSOL Buchanan Mining Co., LLC in an attempt to expand the class of retirees. On October 15, 2019, Plaintiffs’ supplemental motion for class certification was denied on all counts. On July 15, 2020, Plaintiffs filed an interlocutory appeal with the Fourth Circuit Court of Appeals on the Order denying class certification. The Fourth Circuit denied Plaintiffs' appeal on August 14, 2020. On October 1, 2020, the District Court entered a pretrial
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order setting the trial date, which was held in February 2021. No ruling has been issued by the judge. The Company believes it has a meritorious defense and intends to vigorously defend this suit.
United Mine Workers of America 1992 Benefit Plan Litigation: In 2013, Murray Energy and its subsidiaries (“Murray”) entered into a stock purchase agreement (the “Murray sale agreement”) with the Company's former parent pursuant to which Murray acquired the stock of CCC and certain subsidiaries and certain other assets and liabilities. At the time of sale, the liabilities included certain retiree medical liabilities under the Coal Industry Retiree Health Benefit Act of 1992 (“Coal Act”) and certain federal black lung liabilities under the Black Lung Benefits Act (“BLBA”). Based upon information available, the Company estimates that the annual servicing costs of these liabilities are approximately $10 million to $20 million per year for the next ten years. The annual servicing cost would decline each year since the beneficiaries of the Coal Act consist principally of miners who retired prior to 1994. Murray filed for Chapter 11 bankruptcy in October 2019. As part of the bankruptcy proceedings, Murray unilaterally entered into a settlement with the United Mine Workers of America 1992 Benefit Plan (the “1992 Benefit Plan”) to transfer retirees in the Murray Energy Section 9711 Plan to the 1992 Benefit Plan. This was approved by the bankruptcy court on April 30, 2020. On May 2, 2020, the 1992 Benefit Plan filed an action in the United States District Court for the District of Columbia asking the court to make a determination whether the Company's former parent or the Company has any continuing retiree medical liabilities under the Coal Act (the “1992 Plan Lawsuit”). The Murray sale agreement includes indemnification by Murray with respect to the Coal Act and BLBA liabilities. In addition, the Company had agreed to indemnify its former parent relative to certain pre-separation liabilities. As of September 16, 2020, the Company entered into a settlement agreement with Murray and withdrew its claims in bankruptcy. On September 11, 2020, the Defendants in the 1992 Plan Lawsuit filed a Motion to Dismiss Plaintiffs' Second Amended Complaint which was denied by the Court on March 29, 2022. The Company will continue to vigorously defend any claims that attempt to transfer any of such liabilities directly or indirectly to the Company, including raising all applicable defenses against the 1992 Benefit Plan’s suit. With respect to this lawsuit, while a loss is possible, it is not probable and, as a result, no accrual has been recorded.
Other Matters: On July 27, 2021, the Company's former parent informed the Company that it had received a request from the UMWA 1974 Pension Plan for information related to the facts and circumstances surrounding the former parent's 2013 sale of certain of its coal subsidiaries to Murray (the “Letter Request”). The Letter Request indicates that litigation by the UMWA 1974 Pension Plan against the Company's former parent related to potential withdrawal liabilities from the plan created by the 2019 bankruptcy of Murray is reasonably foreseeable. There has been no indication of potential claims against the Company by the UMWA 1974 Pension Plan and, at this time, no liability of the Company's former parent has been assessed.
The Company and various subsidiaries are defendants in certain other legal proceedings. In the opinion of management, based upon an investigation of these matters and discussion with legal counsel, the ultimate outcome of such other legal proceedings, individually and in the aggregate, is not expected to have a material adverse effect on the Company’s financial position, results of operations or liquidity.
The following is a summary, as of June 30, 2023, of the financial guarantees, unconditional purchase obligations and letters of credit to certain third parties. Employee-related financial guarantees have primarily been provided to support the 1992 Benefit Plan and federal black lung and various state workers' compensation self-insurance programs. Environmental financial guarantees have primarily been provided to support various performance bonds related to reclamation and other environmental issues. Other financial guarantees have been extended to support sales contracts, insurance policies, surety indemnity agreements, legal matters, full and timely payments of mining equipment leases, and various other items necessary in the normal course of business. These amounts represent the maximum potential of total future payments that the Company could be required to make under these instruments. Certain letters of credit included in the table below were issued against other commitments included in this table. These amounts have not been reduced for potential recoveries under recourse or collateralization provisions. Generally, recoveries under reclamation bonds would be limited to the extent of the work performed at the time of the default. No amounts related to these commitments are recorded as liabilities in the financial statements. The Company's management believes that these commitments will not have a material adverse effect on the Company's financial condition.
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| Amount of Commitment Expiration per Period | |||||||||||||||||||||||||||||
| Total Amounts Committed | Less Than 1 Year | 1-3 Years | 3-5 Years | Beyond 5 Years | |||||||||||||||||||||||||
| Letters of Credit: | |||||||||||||||||||||||||||||
| Employee-Related | $ | 48,034 | $ | 48,034 | $ | — | $ | — | $ | — | |||||||||||||||||||
| Environmental | 398 | 398 | — | — | — | ||||||||||||||||||||||||
| Other | 132,770 | 132,770 | — | — | — | ||||||||||||||||||||||||
| Total Letters of Credit | $ | 181,202 | $ | 181,202 | $ | — | $ | — | $ | — | |||||||||||||||||||
| Surety Bonds: | |||||||||||||||||||||||||||||
| Employee-Related | $ | 81,010 | $ | 81,010 | $ | — | $ | — | $ | — | |||||||||||||||||||
| Environmental | 521,325 | 521,325 | — | — | — | ||||||||||||||||||||||||
| Other | 3,798 | 3,798 | — | — | — | ||||||||||||||||||||||||
| Total Surety Bonds | $ | 606,133 | $ | 606,133 | $ | — | $ | — | $ | — | |||||||||||||||||||
The Company regularly evaluates the likelihood of default for all guarantees based on an expected loss analysis and records the fair value, if any, of its guarantees as an obligation in the Consolidated Financial Statements.
NOTE 14—DERIVATIVES
Coal Price Risk Management Positions
The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market in order to manage its exposure to coal prices. The Company has exposure to the risk of fluctuating coal prices related to forecasted or index-priced sales of coal or to the risk of changes in the fair value of a fixed price physical sales contract. All of the Company's coal-related derivative contracts were settled as of December 31, 2022.
Tabular Derivatives Disclosures
The Company had master netting agreements with all of its counterparties which allowed for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. Such netting arrangements reduced the Company's credit exposure related to these counterparties to the extent the Company had any liability to such counterparties. For classification purposes, the Company recorded the net fair value of all the positions with a given counterparty as a net asset or liability in the Consolidated Balance Sheets. The fair value of derivatives reflected in the accompanying Consolidated Balance Sheets are set forth in the table below.
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Asset Derivatives | Liability Derivatives | Asset Derivatives | Liability Derivatives | ||||||||||||||||||||
| Coal Swap Contracts | $ | — | $ | — | $ | 6,024 | $ | (21,166) | |||||||||||||||
| Effect of Counterparty Netting | — | — | (6,024) | 6,024 | |||||||||||||||||||
| Net Derivatives as Classified in the Consolidated Balance Sheets | $ | — | $ | — | $ | — | $ | (15,142) | |||||||||||||||
The Company did not seek cash flow hedge accounting treatment for its commodity derivative financial instruments and therefore, changes in fair value were reflected in earnings throughout the terms of those instruments. During the three and six months ended June 30, 2022, the Company settled a portion of its commodity derivatives at losses of $73,923 and $160,175, respectively. Additionally, during the three and six months ended June 30, 2022, the Company recognized adjustments to the fair value of its commodity derivatives of ($5,571) and $96,331, respectively. These settlements and fair value adjustments were included in Loss on Commodity Derivatives, net on the accompanying Consolidated Statements of Income.
The Company classified the cash effects of its derivatives within the Cash Flows from Operating Activities section of the Consolidated Statements of Cash Flows.
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NOTE 15—FAIR VALUE OF FINANCIAL INSTRUMENTS:
CONSOL Energy determines the fair value of assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources (including SOFR-based discount rates and U.S. Treasury-based rates), while unobservable inputs reflect the Company’s own assumptions of what market participants would use.
The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below.
Level One - Quoted prices for identical instruments in active markets. The Company's Level 1 assets include marketable debt securities, primarily highly liquid U.S. Treasury securities.
Level Two - The fair value of the assets and liabilities included in Level 2 are based on standard industry income approach models that use significant observable inputs, including SOFR-based discount rates and U.S. Treasury-based rates. The Company's Level 2 assets and liabilities include coal commodity contracts with fair values derived from quoted prices in over-the-counter markets.
Level Three - Unobservable inputs significant to the fair value measurement supported by little or no market activity.
In those cases when the inputs used to measure fair value meet the definition of more than one level of the fair value hierarchy, the lowest level input that is significant to the fair value measurement in its totality determines the applicable level in the fair value hierarchy.
The financial instruments measured at fair value on a recurring basis are summarized below:
| Fair Value Measurements at | Fair Value Measurements at | ||||||||||||||||||||||||||||||||||
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||
| Commodity Derivatives | $ | — | $ | — | $ | — | $ | — | $ | (15,142) | $ | — | |||||||||||||||||||||||
| U.S. Treasury Securities | $ | 100,699 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
The following methods and assumptions were used to estimate the fair value for which the fair value option was not elected:
Long-term debt: The fair value of long-term debt is measured using unadjusted quoted market prices or estimated using discounted cash flow analyses. The discounted cash flow analyses are based on current market rates for instruments with similar cash flows.
The carrying amounts and fair values of financial instruments for which the fair value option was not elected are as follows:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Long-Term Debt (Excluding Debt Issuance Costs) | $ | 211,608 | $ | 226,470 | $ | 350,572 | $ | 365,789 | |||||||||||||||
Certain of the Company’s debt is actively traded on a public market and, as a result, constitutes Level 1 fair value measurements. The portion of the Company’s debt obligations that is not actively traded is valued through reference to the applicable underlying benchmark rate and, as a result, constitutes Level 2 fair value measurements.
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NOTE 16—SEGMENT INFORMATION:
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management to make decisions on and assess performance of the Company’s reportable segments. CONSOL Energy presently consists of two reportable segments, the PAMC and the CONSOL Marine Terminal. The PAMC includes the Bailey Mine, the Enlow Fork Mine, the Harvey Mine and a centralized preparation plant. The PAMC segment’s principal activities include the mining, preparation and marketing of bituminous coal, sold primarily to power generators, industrial end-users and metallurgical end-users. The CONSOL Marine Terminal provides coal export terminal services through the Port of Baltimore. General and administrative costs are allocated to the Company’s segments based on a percentage of resources utilized, a percentage of total revenue and a percentage of total projected capital expenditures. CONSOL Energy’s Other segment includes revenue and expenses from various corporate and diversified business activities that are not allocated to the PAMC or the CONSOL Marine Terminal segments. The diversified business activities currently include the Itmann Mining Complex, the Greenfield Reserves and Resources, closed mine activities, other income, gain on asset sales related to non-core assets, and gain/loss on debt extinguishment. Additionally, interest expense and income taxes, as well as various other non-operated activities, none of which are individually significant to the Company, are also reflected in CONSOL Energy's Other segment and are not allocated to the PAMC and CONSOL Marine Terminal segments.
The Company evaluates the performance of its segments utilizing Adjusted EBITDA and various sales and production metrics. Adjusted EBITDA measures the operating performance of the Company's segments and is used to allocate resources to the Company's segments.
Reportable segment results for the three months ended June 30, 2023 are:
| PAMC | CONSOL Marine Terminal | Other | Adjustments and Eliminations | Consolidated | |||||||||||||||||||||||||
| Coal Revenue | $ | 521,176 | $ | — | $ | 19,923 | $ | — | $ | 541,099 | |||||||||||||||||||
| Terminal Revenue | — | 31,368 | — | — | 31,368 | ||||||||||||||||||||||||
| Freight Revenue | 77,882 | — | 3,674 | — | 81,556 | ||||||||||||||||||||||||
| Total Revenue from Contracts with Customers | $ | 599,058 | $ | 31,368 | $ | 23,597 | $ | — | $ | 654,023 | |||||||||||||||||||
| Adjusted EBITDA | $ | 270,065 | $ | 23,856 | $ | (17,971) | $ | — | $ | 275,950 | |||||||||||||||||||
| Segment Assets | $ | 1,682,118 | $ | 82,326 | $ | 913,905 | $ | — | $ | 2,678,349 | |||||||||||||||||||
| Depreciation, Depletion and Amortization | $ | 50,268 | $ | 1,176 | $ | 13,084 | $ | — | $ | 64,528 | |||||||||||||||||||
| Capital Expenditures | $ | 37,495 | $ | 1,124 | $ | 3,706 | $ | — | $ | 42,325 | |||||||||||||||||||
Reportable segment results for the three months ended June 30, 2022 are:
| PAMC | CONSOL Marine Terminal | Other | Adjustments and Eliminations | Consolidated | |||||||||||||||||||||||||
| Coal Revenue | $ | 518,976 | $ | — | $ | 13,750 | $ | — | $ | 532,726 | |||||||||||||||||||
| Terminal Revenue | — | 21,779 | — | — | 21,779 | ||||||||||||||||||||||||
| Freight Revenue | 47,386 | — | 3,025 | — | 50,411 | ||||||||||||||||||||||||
| Total Revenue from Contracts with Customers | $ | 566,362 | $ | 21,779 | $ | 16,775 | $ | — | $ | 604,916 | |||||||||||||||||||
| Adjusted EBITDA | $ | 203,980 | $ | 15,077 | $ | (2,718) | $ | — | $ | 216,339 | |||||||||||||||||||
| Segment Assets | $ | 1,735,635 | $ | 80,238 | $ | 904,613 | $ | — | $ | 2,720,486 | |||||||||||||||||||
| Depreciation, Depletion and Amortization | $ | 49,465 | $ | 1,142 | $ | 7,273 | $ | — | $ | 57,880 | |||||||||||||||||||
| Capital Expenditures | $ | 21,673 | $ | 188 | $ | 17,557 | $ | — | $ | 39,418 | |||||||||||||||||||
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Reportable segment results for the six months ended June 30, 2023 are:
| PAMC | CONSOL Marine Terminal | Other | Adjustments and Eliminations | Consolidated | |||||||||||||||||||||||||
| Coal Revenue | $ | 1,084,513 | $ | — | $ | 39,965 | $ | — | $ | 1,124,478 | |||||||||||||||||||
| Terminal Revenue | — | 58,079 | — | — | 58,079 | ||||||||||||||||||||||||
| Freight Revenue | 142,219 | — | 6,844 | — | 149,063 | ||||||||||||||||||||||||
| Total Revenue from Contracts with Customers | $ | 1,226,732 | $ | 58,079 | $ | 46,809 | $ | — | $ | 1,331,620 | |||||||||||||||||||
| Adjusted EBITDA | $ | 601,029 | $ | 44,471 | $ | (23,250) | $ | — | $ | 622,250 | |||||||||||||||||||
| Segment Assets | $ | 1,682,118 | $ | 82,326 | $ | 913,905 | $ | — | $ | 2,678,349 | |||||||||||||||||||
| Depreciation, Depletion and Amortization | $ | 101,639 | $ | 2,332 | $ | 20,108 | $ | — | $ | 124,079 | |||||||||||||||||||
| Capital Expenditures | $ | 64,302 | $ | 1,699 | $ | 10,081 | $ | — | $ | 76,082 | |||||||||||||||||||
Reportable segment results for the six months ended June 30, 2022 are:
| PAMC | CONSOL Marine Terminal | Other | Adjustments and Eliminations | Consolidated | |||||||||||||||||||||||||
| Coal Revenue | $ | 991,953 | $ | — | $ | 17,157 | $ | — | $ | 1,009,110 | |||||||||||||||||||
| Terminal Revenue | — | 43,176 | — | — | 43,176 | ||||||||||||||||||||||||
| Freight Revenue | 85,775 | — | 3,025 | — | 88,800 | ||||||||||||||||||||||||
| Total Revenue from Contracts with Customers | $ | 1,077,728 | $ | 43,176 | $ | 20,182 | $ | — | $ | 1,141,086 | |||||||||||||||||||
| Adjusted EBITDA | $ | 362,239 | $ | 29,554 | $ | (6,224) | $ | — | $ | 385,569 | |||||||||||||||||||
| Segment Assets | $ | 1,735,635 | $ | 80,238 | $ | 904,613 | $ | — | $ | 2,720,486 | |||||||||||||||||||
| Depreciation, Depletion and Amortization | $ | 100,421 | $ | 2,307 | $ | 11,106 | $ | — | $ | 113,834 | |||||||||||||||||||
| Capital Expenditures | $ | 34,651 | $ | 360 | $ | 41,050 | $ | — | $ | 76,061 | |||||||||||||||||||
For the three and six months ended June 30, 2023 and 2022, the Company's reportable segments had revenues from the following customers, each comprising over 10% of the Company's total sales:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| Customer A | $ | 70,725 | $ | 67,174 | $ | 145,034 | * | |||||||||||||
| Customer B | $ | 67,197 | * | $ | 135,412 | * | ||||||||||||||
| Customer C | * | * | $ | 151,404 | * | |||||||||||||||
| Customer D | * | $ | 124,469 | * | $ | 211,055 | ||||||||||||||
| Customer E | * | $ | 64,874 | * | $ | 131,164 | ||||||||||||||
*Revenues from these customers during the periods presented were less than 10% of the Company's total sales.
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Reconciliation of Segment Information to Consolidated Amounts:
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||
| PAMC | CONSOL Marine Terminal | Other | Total Company | ||||||||||||||||||||
| Net Income (Loss) | $ | 218,636 | $ | 21,094 | $ | (72,007) | $ | 167,723 | |||||||||||||||
| Income Tax Expense | — | — | 37,574 | 37,574 | |||||||||||||||||||
| Interest Expense | — | 1,526 | 5,629 | 7,155 | |||||||||||||||||||
| Interest Income | (513) | — | (3,198) | (3,711) | |||||||||||||||||||
| Depreciation, Depletion and Amortization | 50,268 | 1,176 | 13,084 | 64,528 | |||||||||||||||||||
| Stock-Based Compensation | 1,674 | 60 | 259 | 1,993 | |||||||||||||||||||
| Loss on Debt Extinguishment | — | — | 688 | 688 | |||||||||||||||||||
| Adjusted EBITDA | $ | 270,065 | $ | 23,856 | $ | (17,971) | $ | 275,950 | |||||||||||||||
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||
| PAMC | CONSOL Marine Terminal | Other | Total Company | ||||||||||||||||||||
| Net Income (Loss) | $ | 159,404 | $ | 12,354 | $ | (45,467) | $ | 126,291 | |||||||||||||||
| Income Tax Expense | — | — | 23,223 | 23,223 | |||||||||||||||||||
| Interest Expense | 68 | 1,530 | 11,523 | 13,121 | |||||||||||||||||||
| Interest Income | (452) | — | (987) | (1,439) | |||||||||||||||||||
| Depreciation, Depletion and Amortization | 49,465 | 1,142 | 7,273 | 57,880 | |||||||||||||||||||
| Stock-Based Compensation | 1,066 | 51 | 152 | 1,269 | |||||||||||||||||||
| Loss on Debt Extinguishment | — | — | 1,565 | 1,565 | |||||||||||||||||||
| Fair Value Adjustment of Commodity Derivative Instruments | (5,571) | — | — | (5,571) | |||||||||||||||||||
| Adjusted EBITDA | $ | 203,980 | $ | 15,077 | $ | (2,718) | $ | 216,339 | |||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||
| PAMC | CONSOL Marine Terminal | Other | Total Company | ||||||||||||||||||||
| Net Income (Loss) | $ | 494,611 | $ | 38,883 | $ | (135,394) | $ | 398,100 | |||||||||||||||
| Income Tax Expense | — | — | 79,167 | 79,167 | |||||||||||||||||||
| Interest Expense | — | 3,052 | 14,382 | 17,434 | |||||||||||||||||||
| Interest Income | (921) | — | (4,457) | (5,378) | |||||||||||||||||||
| Depreciation, Depletion and Amortization | 101,639 | 2,332 | 20,108 | 124,079 | |||||||||||||||||||
| Stock-Based Compensation | 5,700 | 204 | 881 | 6,785 | |||||||||||||||||||
| Loss on Debt Extinguishment | — | — | 2,063 | 2,063 | |||||||||||||||||||
| Adjusted EBITDA | $ | 601,029 | $ | 44,471 | $ | (23,250) | $ | 622,250 | |||||||||||||||
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| Six Months Ended June 30, 2022 | |||||||||||||||||||||||
| PAMC | CONSOL Marine Terminal | Other | Total Company | ||||||||||||||||||||
| Net Income (Loss) | $ | 161,501 | $ | 23,967 | $ | (63,627) | $ | 121,841 | |||||||||||||||
| Income Tax Expense | — | — | 19,701 | 19,701 | |||||||||||||||||||
| Interest Expense | 257 | 3,061 | 24,155 | 27,473 | |||||||||||||||||||
| Interest Income | (866) | — | (1,902) | (2,768) | |||||||||||||||||||
| Depreciation, Depletion and Amortization | 100,421 | 2,307 | 11,106 | 113,834 | |||||||||||||||||||
| Stock-Based Compensation | 4,595 | 219 | 656 | 5,470 | |||||||||||||||||||
| Loss on Debt Extinguishment | — | — | 3,687 | 3,687 | |||||||||||||||||||
| Fair Value Adjustment of Commodity Derivative Instruments | 96,331 | — | — | 96,331 | |||||||||||||||||||
| Adjusted EBITDA | $ | 362,239 | $ | 29,554 | $ | (6,224) | $ | 385,569 | |||||||||||||||
NOTE 17—STOCK AND DEBT REPURCHASES:
In December 2017, CONSOL Energy’s Board of Directors approved a program to repurchase, from time to time, the Company's outstanding shares of common stock or its Second Lien Notes. Since the program's inception, the Company's Board of Directors has subsequently amended the program several times. The most recent amendment occurred in April 2023, in which the aggregate limit of the Company's repurchase authority was raised to $1,000,000. The program terminates on December 31, 2024.
Under the terms of the program, CONSOL Energy is permitted to make repurchases in the open market, in privately negotiated transactions, accelerated repurchase programs or in structured share repurchase programs. CONSOL Energy is also authorized to enter into one or more 10b5-1 plans with respect to any of the repurchases. Any repurchases of common stock or notes are to be funded from available cash on hand or short-term borrowings. The program does not obligate CONSOL Energy to acquire any particular amount of its common stock or notes, and the program can be modified or suspended at any time at the Company’s discretion. The program is conducted in compliance with applicable legal requirements and within the limits imposed by any credit agreement, receivables purchase agreement or indenture.
During the six months ended June 30, 2023, the Company did not make any open market repurchases of its Second Lien Notes in accordance with this program. During the six months ended June 30, 2022, the Company spent $26,387 to repurchase $25,000 of its Second Lien Notes in accordance with this program. During the six months ended June 30, 2023, the Company repurchased and retired 2,432,543 shares of the Company's common stock at an average price of $58.69 per share. No shares of common stock were repurchased under this program during the six months ended June 30, 2022.
NOTE 18—SUBSEQUENT EVENTS:
On June 26, 2023, CONSOL Energy issued a notice of full and final redemption of the remaining outstanding balance of its Second Lien Notes at 102.75% in the amount of $24 million. The redemption took place on July 26, 2023.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in conjunction with the Consolidated Financial Statements and corresponding notes included elsewhere in this Form 10-Q. In addition, this Form 10-Q report should be read in conjunction with the Consolidated Financial Statements for the three-year period ended December 31, 2022 included in CONSOL Energy Inc.'s Form 10-K, filed on February 10, 2023. This MD&A contains forward-looking statements and the matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
All amounts discussed are in millions of U.S. dollars, unless otherwise indicated. All tons discussed are on a clean coal equivalent basis.
Our Business
We are a leading, low-cost producer of high-quality bituminous coal, focused on the extraction and preparation of coal in the Appalachian Basin due to our ability to efficiently produce and deliver large volumes of high-quality coal at competitive prices, the strategic location of our mines and the industry experience of our management team.
Our most significant tangible assets are the PAMC and the CONSOL Marine Terminal. Coal from the PAMC is valued because of its high energy content (as measured in Btu per pound), relatively low levels of sulfur and other impurities, and strong thermoplastic properties that enable it to be used in metallurgical, industrial and power generation applications. We take advantage of these desirable quality characteristics and our extensive logistical network, which is directly served by both the Norfolk Southern Corporation (“Norfolk Southern”) and CSX Transportation Inc. (“CSX”) railroads, to aggressively market our product to a broad base of strategically selected, top-performing power plant customers in the eastern United States. We also capitalize on the operational synergies afforded by the CONSOL Marine Terminal to export our coal to industrial, power generation and metallurgical end-users globally.
We are continuing to expand our presence in the metallurgical coal market through our Itmann Mining Complex in West Virginia. The Itmann Preparation Plant was constructed in 2022, began processing coal in late September 2022 and shipped its first train in October 2022. The plant includes a train loadout located on the Guyandotte Class I rail line, which can be served by both Norfolk Southern and CSX.
Our operations, including the PAMC and the CONSOL Marine Terminal, have consistently generated strong cash flows, even throughout the COVID-19 pandemic. As of December 31, 2022, the PAMC controls 622.1 million tons of high-quality Pittsburgh seam reserves, enough to allow for more than 20 years of full-capacity production, based on our current estimates. As of December 31, 2022, the Itmann Mining Complex includes 28.7 million tons of recoverable coal reserves that are sufficient to support more than 25 years of full-capacity production, based on our current estimates. In addition, we own or control approximately 1.4 billion tons of Greenfield Reserves and Resources located in the Northern Appalachian Basin (“NAPP”), the Central Appalachian Basin (“CAPP”) and the Illinois Basin (“ILB”). Our vision is to maximize cash flow generation through the safe, compliant, and efficient operation of this core asset base, while strategically reducing debt, returning capital through share buybacks and/or dividends, and, when prudent, allocating capital toward compelling growth and diversification opportunities.
Our core businesses consist of our:
•Pennsylvania Mining Complex: The PAMC, which includes the Bailey Mine, the Enlow Fork Mine, the Harvey Mine and the Central Preparation Plant, has extensive high-quality coal reserves. We mine our reserves from the Pittsburgh No. 8 Coal Seam, which is a large contiguous formation of high-Btu coal that is ideal for high productivity, low-cost longwall mining operations. The design of the PAMC is optimized to produce large quantities of coal on a cost-efficient basis. We can sustain high production volumes at comparatively low operating costs due to, among other things, our technologically advanced longwall mining systems, logistics infrastructure and safety. All our mines at the PAMC utilize longwall mining, which is a highly automated underground mining technique that produces large volumes of coal at lower costs compared to other underground mining methods.
•CONSOL Marine Terminal: Through our subsidiary CONSOL Marine Terminals LLC, we provide coal export terminal services through the Port of Baltimore. The terminal can either store coal or load coal directly into vessels from rail cars. It is also the only major east coast United States coal terminal served by two railroads, Norfolk Southern and CSX.
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•Itmann Mining Complex: Construction of the Itmann No. 5 Mine, located in Wyoming County, West Virginia, began in the second half of 2019; development mining began in April 2020, but the pace of the project was intentionally slowed to minimize capital spending due to the uncertainties surrounding the COVID-19 pandemic. The coal preparation plant was commissioned during the third quarter of 2022 and shipped its first train in October 2022. The Company anticipates approximately 900 thousand tons per year of high-quality, low-vol coking coal production from the Itmann No. 5 Mine once it achieves its full run rate, with an anticipated mine life of 25+ years. The preparation plant also includes a rail loadout and the capability for processing up to an additional 750 thousand to 1 million saleable tons annually from third parties and mining of our surrounding reserves. This additional processing revenue is expected to provide an avenue of growth for the Company.
These low-cost assets and the diverse markets they serve provide us opportunities to generate cash across a wide variety of demand and pricing scenarios. The three mines at the PAMC typically operate four to five longwalls, and the production from all three mines is processed at a single, centralized preparation plant, which is connected via conveyor belts to each mine. The Central Preparation Plant, which can clean and process up to 8,200 raw tons of coal per hour, provides economies of scale while also maintaining the ability to segregate and blend coal based on quality. This infrastructure enables us to tailor our production levels and quality specifications to meet market demands. It also results in a highly productive, low-cost operation as compared to other NAPP coal mines. As of December 31, 2022, and based on production per employee, the PAMC is one of the most productive and efficient coal mining complexes in NAPP, averaging 7.88 tons of coal production per employee hour for the past two years. Our high productivity helps drive a low-cost structure. Our efficiency strengthens our margins throughout the commodity cycle and has allowed us to continue to generate positive margins even in challenging pricing environments.
Q2 2023 Highlights:
•CONSOL Marine Terminal throughput volume of 5.4 million tons.
•Debt repayments of $54.6 million – payments on Second Lien Notes, Term Loan B, and equipment-financed and other debt of $25.0 million, $23.6 million and $6.0 million, respectively.
•Repurchased 1.2 million shares of CONSOL Energy common stock at a weighted average price of $61.73 per share.
•Increased the Revolving Credit Facility capacity by $95.0 million with additional covenant flexibility.
Outlook for 2023:
Based on our current contracted position, estimated prices and production plans, we are providing the following updated financial and operating performance guidance for full fiscal year 2023:
•PAMC coal sales volume of 25.0-27.0 million tons
•PAMC average realized coal revenue per ton sold (1) of $76.00 - $80.00
•PAMC average cash cost of coal sold per ton (1) of $34.00-$36.00
•Itmann Mining Complex production volume of 400 thousand to 500 thousand tons
•Capital expenditures of $160 million to $185 million
(1) Average realized coal revenue per ton sold and average cash cost of coal sold per ton are operating ratios derived from non-GAAP financial measures. CONSOL Energy is unable to provide a reconciliation of this guidance to any measures calculated in accordance with GAAP due to the unknown effect, timing and potential significance of certain income statement items.
How We Evaluate Our Operations
Our management team uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability. The metrics include: (i) coal production and sales volumes; (ii) realized coal revenue, a non-GAAP financial measure; (iii) cost of coal sold, a non-GAAP financial measure; (iv) cash cost of coal sold, a non-GAAP financial measure; (v) average realized coal revenue per ton sold, an operating ratio derived from non-GAAP financial measures; (vi) average cash cost of coal sold per ton, an operating ratio derived from non-GAAP financial measures; (vii) average cash margin per ton sold, an operating ratio derived from non-GAAP financial measures; (viii) adjusted EBITDA, a non-GAAP financial measure; and (ix) total recurring revenues and other income, a non-GAAP financial measure.
We believe realized coal revenue, average realized coal revenue per ton sold, cost of coal sold, cash cost of coal sold, average cash cost of coal sold per ton, and average cash margin per ton sold normalize the volatility contained within comparable GAAP measures by adjusting for certain non-operating or non-cash transactions. We believe that adjusted EBITDA provides a helpful measure of comparing our operating performance with the performance of other companies
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that have different financing, capital structures and tax rates than ours. We believe realized coal revenue and average realized coal revenue per ton sold provide useful information to investors because they better reflect our earnings by including the settled costs (or gains) of our commodity derivatives for the period. Each of these non-GAAP metrics are used as supplemental financial measures by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:
•our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis, tax rates or capital structure;
•the ability of our assets to generate sufficient cash flow;
•our ability to incur and service debt and fund capital expenditures;
•the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities; and
•the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.
These non-GAAP financial measures should not be considered an alternative to operating and other costs, total coal revenue, net income, or any other measure of financial performance presented in accordance with GAAP. These measures exclude some, but not all, items that affect measures presented in accordance with GAAP, and these measures and the way we calculate them may vary from those of other companies. As a result, the items presented below may not be comparable to similarly titled measures of other companies.
Reconciliation of Non-GAAP Financial Measures
We evaluate our cost of coal sold and cash cost of coal sold on an aggregate basis by segment, and our average cash cost of coal sold per ton on a per-ton basis. Cost of coal sold includes items such as direct operating costs, royalty and production taxes, direct administration costs, and depreciation, depletion and amortization costs on production assets. Cost of coal sold excludes any indirect costs and other costs not directly attributable to the production of coal. The cash cost of coal sold includes cost of coal sold less depreciation, depletion and amortization costs on production assets. We define average cash cost of coal sold per ton as cash cost of coal sold divided by tons sold. The GAAP measure most directly comparable to cost of coal sold, cash cost of coal sold and average cash cost of coal sold per ton is operating and other costs.
The following table presents a reconciliation for the PAMC segment of cash cost of coal sold, cost of coal sold and average cash cost of coal sold per ton to operating and other costs, the most directly comparable GAAP financial measure, on a historical basis, for each of the periods indicated (in thousands, except per ton information).
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Operating and Other Costs | $ | 276,596 | $ | 244,217 | $ | 537,223 | $ | 463,299 | |||||||||||||||
| Less: Other Costs (Non-Production and non-PAMC) | (43,073) | (30,066) | (81,559) | (54,046) | |||||||||||||||||||
| Cash Cost of Coal Sold | $ | 233,523 | $ | 214,151 | $ | 455,664 | $ | 409,253 | |||||||||||||||
| Add: Depreciation, Depletion and Amortization (PAMC Production) | 47,877 | 46,570 | 94,141 | 94,656 | |||||||||||||||||||
| Cost of Coal Sold | $ | 281,400 | $ | 260,721 | $ | 549,805 | $ | 503,909 | |||||||||||||||
| Total Tons Sold (in millions) | 6.4 | 6.2 | 13.1 | 12.7 | |||||||||||||||||||
| Average Cost of Coal Sold per Ton | $ | 43.88 | $ | 42.29 | $ | 41.99 | $ | 39.82 | |||||||||||||||
| Less: Depreciation, Depletion and Amortization Costs per Ton Sold | 7.55 | 7.48 | 7.04 | 7.52 | |||||||||||||||||||
| Average Cash Cost of Coal Sold per Ton | $ | 36.33 | $ | 34.81 | $ | 34.95 | $ | 32.30 | |||||||||||||||
We evaluate our average realized coal revenue per ton sold and average cash margin per ton sold on a per-ton basis. We define realized coal revenue as total coal revenue, net of settlements of commodity derivatives. We define average realized coal revenue per ton sold as total coal revenue, net of settlements of commodity derivatives divided by tons sold. We define average cash margin per ton sold as average realized coal revenue per ton sold, net of average cash cost of coal sold per ton. The GAAP measure most directly comparable to realized coal revenue, average realized coal revenue per ton sold and average cash margin per ton sold is total coal revenue.
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The following table presents a reconciliation for the PAMC segment of realized coal revenue, average realized coal revenue per ton sold and average cash margin per ton sold to total coal revenue, the most directly comparable GAAP financial measure, on a historical basis, for each of the periods indicated (in thousands, except per ton information).
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Total Coal Revenue (PAMC Segment) | $ | 521,176 | $ | 518,976 | $ | 1,084,513 | $ | 991,953 | |||||||||||||||
| Less: Settlements of Commodity Derivatives | — | (73,923) | — | (160,175) | |||||||||||||||||||
| Realized Coal Revenue | 521,176 | 445,053 | 1,084,513 | 831,778 | |||||||||||||||||||
| Operating and Other Costs | 276,596 | 244,217 | 537,223 | 463,299 | |||||||||||||||||||
| Less: Other Costs (Non-Production and non-PAMC) | (43,073) | (30,066) | (81,559) | (54,046) | |||||||||||||||||||
| Cash Cost of Coal Sold | $ | 233,523 | $ | 214,151 | 455,664 | 409,253 | |||||||||||||||||
| Total Tons Sold (in millions) | 6.4 | 6.2 | 13.1 | 12.7 | |||||||||||||||||||
| Average Realized Coal Revenue per Ton Sold | $ | 81.27 | $ | 72.18 | $ | 82.83 | $ | 65.73 | |||||||||||||||
| Less: Average Cash Cost of Coal Sold per Ton | 36.33 | 34.81 | 34.95 | 32.30 | |||||||||||||||||||
| Average Cash Margin per Ton Sold | $ | 44.94 | $ | 37.37 | $ | 47.88 | $ | 33.43 | |||||||||||||||
We define adjusted EBITDA as (i) net income (loss) plus income taxes, interest expense and depreciation, depletion and amortization, as adjusted for (ii) certain non-cash items, such as stock-based compensation, loss on debt extinguishment and fair value adjustments of commodity derivative instruments. The GAAP measure most directly comparable to adjusted EBITDA is net income (loss).
The following tables present a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, on a historical basis, for each of the periods indicated (in thousands).
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||
| PAMC | CONSOL Marine Terminal | Other | Total Company | ||||||||||||||||||||
| Net Income (Loss) | $ | 218,636 | $ | 21,094 | $ | (72,007) | $ | 167,723 | |||||||||||||||
| Add: Income Tax Expense | — | — | 37,574 | 37,574 | |||||||||||||||||||
| Add: Interest Expense | — | 1,526 | 5,629 | 7,155 | |||||||||||||||||||
| Less: Interest Income | (513) | — | (3,198) | (3,711) | |||||||||||||||||||
| Earnings (Loss) Before Interest & Taxes (EBIT) | 218,123 | 22,620 | (32,002) | 208,741 | |||||||||||||||||||
| Add: Depreciation, Depletion & Amortization | 50,268 | 1,176 | 13,084 | 64,528 | |||||||||||||||||||
| Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA) | $ | 268,391 | $ | 23,796 | $ | (18,918) | $ | 273,269 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Add: Stock-Based Compensation | $ | 1,674 | $ | 60 | $ | 259 | $ | 1,993 | |||||||||||||||
| Add: Loss on Debt Extinguishment | — | — | 688 | 688 | |||||||||||||||||||
| Total Pre-tax Adjustments | 1,674 | 60 | 947 | 2,681 | |||||||||||||||||||
| Adjusted EBITDA | $ | 270,065 | $ | 23,856 | $ | (17,971) | $ | 275,950 | |||||||||||||||
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| Three Months Ended June 30, 2022 | |||||||||||||||||||||||
| PAMC | CONSOL Marine Terminal | Other | Total Company | ||||||||||||||||||||
| Net Income (Loss) | $ | 159,404 | $ | 12,354 | $ | (45,467) | $ | 126,291 | |||||||||||||||
| Add: Income Tax Expense | — | — | 23,223 | 23,223 | |||||||||||||||||||
| Add: Interest Expense | 68 | 1,530 | 11,523 | 13,121 | |||||||||||||||||||
| Less: Interest Income | (452) | — | (987) | (1,439) | |||||||||||||||||||
| Earnings (Loss) Before Interest & Taxes (EBIT) | 159,020 | 13,884 | (11,708) | 161,196 | |||||||||||||||||||
| Add: Depreciation, Depletion & Amortization | 49,465 | 1,142 | 7,273 | 57,880 | |||||||||||||||||||
| Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA) | $ | 208,485 | $ | 15,026 | $ | (4,435) | $ | 219,076 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Add: Stock-Based Compensation | $ | 1,066 | $ | 51 | $ | 152 | $ | 1,269 | |||||||||||||||
| Add: Loss on Debt Extinguishment | — | — | 1,565 | 1,565 | |||||||||||||||||||
| Less: Fair Value Adjustment of Commodity Derivative Instruments | (5,571) | — | — | (5,571) | |||||||||||||||||||
| Total Pre-tax Adjustments | (4,505) | 51 | 1,717 | (2,737) | |||||||||||||||||||
| Adjusted EBITDA | $ | 203,980 | $ | 15,077 | $ | (2,718) | $ | 216,339 | |||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||
| PAMC | CONSOL Marine Terminal | Other | Total Company | ||||||||||||||||||||
| Net Income (Loss) | $ | 494,611 | $ | 38,883 | $ | (135,394) | $ | 398,100 | |||||||||||||||
| Add: Income Tax Expense | — | — | 79,167 | 79,167 | |||||||||||||||||||
| Add: Interest Expense | — | 3,052 | 14,382 | 17,434 | |||||||||||||||||||
| Less: Interest Income | (921) | — | (4,457) | (5,378) | |||||||||||||||||||
| Earnings (Loss) Before Interest & Taxes (EBIT) | 493,690 | 41,935 | (46,302) | 489,323 | |||||||||||||||||||
| Add: Depreciation, Depletion & Amortization | 101,639 | 2,332 | 20,108 | 124,079 | |||||||||||||||||||
| Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA) | $ | 595,329 | $ | 44,267 | $ | (26,194) | $ | 613,402 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Add: Stock-Based Compensation | $ | 5,700 | $ | 204 | $ | 881 | $ | 6,785 | |||||||||||||||
| Add: Loss on Debt Extinguishment | — | — | 2,063 | 2,063 | |||||||||||||||||||
| Total Pre-tax Adjustments | 5,700 | 204 | 2,944 | 8,848 | |||||||||||||||||||
| Adjusted EBITDA | $ | 601,029 | $ | 44,471 | $ | (23,250) | $ | 622,250 | |||||||||||||||
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| Six Months Ended June 30, 2022 | |||||||||||||||||||||||
| PAMC | CONSOL Marine Terminal | Other | Total Company | ||||||||||||||||||||
| Net Income (Loss) | $ | 161,501 | $ | 23,967 | $ | (63,627) | $ | 121,841 | |||||||||||||||
| Add: Income Tax Expense | — | — | 19,701 | 19,701 | |||||||||||||||||||
| Add: Interest Expense | 257 | 3,061 | 24,155 | 27,473 | |||||||||||||||||||
| Less: Interest Income | (866) | — | (1,902) | (2,768) | |||||||||||||||||||
| Earnings (Loss) Before Interest & Taxes (EBIT) | 160,892 | 27,028 | (21,673) | 166,247 | |||||||||||||||||||
| Add: Depreciation, Depletion & Amortization | 100,421 | 2,307 | 11,106 | 113,834 | |||||||||||||||||||
| Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA) | $ | 261,313 | $ | 29,335 | $ | (10,567) | $ | 280,081 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Add: Stock-Based Compensation | $ | 4,595 | $ | 219 | $ | 656 | $ | 5,470 | |||||||||||||||
| Add: Loss on Debt Extinguishment | — | — | 3,687 | 3,687 | |||||||||||||||||||
| Add: Fair Value Adjustment of Commodity Derivative Instruments | 96,331 | — | — | 96,331 | |||||||||||||||||||
| Total Pre-tax Adjustments | 100,926 | 219 | 4,343 | 105,488 | |||||||||||||||||||
| Adjusted EBITDA | $ | 362,239 | $ | 29,554 | $ | (6,224) | $ | 385,569 | |||||||||||||||
We define recurring revenues and other income as total revenue and other income, less fair value adjustments of commodity derivatives and gains/losses on sales of assets. The GAAP measure most directly comparable to recurring revenues and other income is total revenue and other income. The following table presents a reconciliation of recurring revenues and other income to total revenue and other income, the most directly comparable GAAP financial measure, on a historical basis, for each of the periods indicated (in thousands).
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Total Revenue and Other Income | $ | 660,967 | $ | 544,619 | $ | 1,349,574 | $ | 903,148 | |||||||||||||||
| Less: Fair Value Adjustments of Commodity Derivatives | — | (5,571) | — | 96,331 | |||||||||||||||||||
| Less: Gain on Sale of Assets | (10) | (365) | (5,736) | (6,546) | |||||||||||||||||||
| Total Recurring Revenues and Other Income | $ | 660,957 | $ | 538,683 | $ | 1,343,838 | $ | 992,933 | |||||||||||||||
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Results of Operations: Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022
Revenue and Other Income
| Three Months Ended June 30, | |||||||||||||||||
| (in millions) | 2023 | 2022 | Variance | ||||||||||||||
| Coal Revenue - PAMC | $ | 521 | $ | 519 | $ | 2 | |||||||||||
| Coal Revenue - Itmann Mining Complex | 20 | 14 | 6 | ||||||||||||||
| Terminal Revenue | 31 | 22 | 9 | ||||||||||||||
| Freight Revenue | 82 | 50 | 32 | ||||||||||||||
| Total Revenues from Contracts with Customers | 654 | 605 | 49 | ||||||||||||||
| Loss on Commodity Derivatives, net | — | (68) | 68 | ||||||||||||||
| Miscellaneous Other Income | 7 | 8 | (1) | ||||||||||||||
| Total Revenue and Other Income | $ | 661 | $ | 545 | $ | 116 | |||||||||||
Revenues from Contracts with Customers
Revenues from contracts with customers were $654 million for the three months ended June 30, 2023, compared to $605 million for the three months ended June 30, 2022.
On a consolidated basis, coal revenue for the three months ended June 30, 2023 was $541 million, which consisted of $521 million from the Pennsylvania Mining Complex and $20 million from the Itmann Mining Complex. The $541 million of coal revenue was sold into the following markets: $241 million into power generation, $217 million into industrial, and $83 million into metallurgical. The Company had consolidated coal revenue of $533 million for the three months ended June 30, 2022, which consisted of $519 million from the Pennsylvania Mining Complex and $14 million from the Itmann Mining Complex. The $533 million of coal revenue was sold into the following markets: $257 million into power generation, $142 million into industrial, and $134 million into metallurgical.
Historically, the majority of the Company's production was directed toward its established base of domestic power plant customers, many of which were secured through spot, annual or multi-year contracts. The domestic power generation market has experienced a lack of growth in recent years. The Company maintains flexibility to diversify its portfolio by placing a growing portion of its production in the export markets, where it sells to power generation, industrial, and metallurgical end-users. These markets tend to provide the Company with pricing upside when markets are strong and with volume stability when markets are weak. In the three months ended June 30, 2023, the Company placed 4.4 million tons of coal, or 68% of its total tons sold, into the export market. Comparatively, in the three months ended June 30, 2022, the Company placed 2.9 million tons of coal, or 47% of its total tons sold, into the export market. Furthermore, when excluding fair value adjustments of commodity derivatives and gains/losses on sales of assets, 64% of the Company's recurring revenues and other income (a non-GAAP measure; see “How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures” above for an explanation and reconciliation of these amounts to the nearest GAAP measure) were derived from non-power generation applications during the three months ended June 30, 2023, compared to 52% for the three months ended June 30, 2022. See “Operational Performance” for further information about segment results.
The Company’s Terminal revenue consists of fees charged for coal loaded at the CONSOL Marine Terminal, which is located in the Port of Baltimore, Maryland, and provides access to international coal markets. Terminal revenues are generated from providing transloading services from rail to vessel or barge, temporary storage or stockpile facilities, as well as blending, weighing, and sampling. Terminal revenues were $31 million for the three months ended June 30, 2023, compared to $22 million for the three months ended June 30, 2022. See “Operational Performance - CONSOL Marine Terminal Analysis” for further information about segment results.
The Company recognizes freight revenue as the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services to move its coal from the mine to the ultimate sales point. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both $82 million for the three months ended June 30, 2023, compared to $50 million for the three months ended June 30, 2022. The $32 million increase was primarily related to increased transportation costs associated with the aforementioned increase of sales into the export market.
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Loss on Commodity Derivatives, net
As of December 31, 2022, all of the Company's coal-related derivative contracts have settled and the Company has not entered into any additional coal-related derivative contracts. During the three months ended June 30, 2022, the Company settled a portion of its coal-related derivatives at a loss of $74 million and recognized fair value adjustments of its commodity derivative instruments of $6 million. See “Operational Performance - PAMC Analysis” for further information about segment results.
Miscellaneous Other Income
Miscellaneous other income was $7 million for the three months ended June 30, 2023, compared to $8 million for the three months ended June 30, 2022. The change is due to the following items:
| Three Months Ended June 30, | |||||||||||||||||
| 2023 | 2022 | Variance | |||||||||||||||
| Interest Income | $ | 3 | $ | 1 | $ | 2 | |||||||||||
| Royalty Income - Non-Operated Coal | 2 | 4 | (2) | ||||||||||||||
| Other Income | 2 | 3 | (1) | ||||||||||||||
| Miscellaneous Other Income | $ | 7 | $ | 8 | $ | (1) | |||||||||||
Operating and Other Costs
On a consolidated basis, operating and other costs were $277 million for the three months ended June 30, 2023, compared to $244 million for the three months ended June 30, 2022. Operating and other costs increased in the period-to-period comparison due to the following items:
| Three Months Ended June 30, | |||||||||||||||||
| 2023 | 2022 | Variance | |||||||||||||||
| Operating Costs - PAMC | $ | 234 | $ | 214 | $ | 20 | |||||||||||
| Operating Costs - Itmann Mining Complex | 27 | 9 | 18 | ||||||||||||||
| Operating Costs - Terminal | 7 | 6 | 1 | ||||||||||||||
| Employee-Related Legacy Liability Expense | 3 | 2 | 1 | ||||||||||||||
| Coal Reserve Holding Costs | 3 | 2 | 1 | ||||||||||||||
| Closed and Idle Mines | 1 | 1 | — | ||||||||||||||
| Other | 2 | 10 | (8) | ||||||||||||||
| Operating and Other Costs | $ | 277 | $ | 244 | $ | 33 | |||||||||||
Operating costs for the Pennsylvania Mining Complex include items such as direct operating costs, royalties and production taxes and direct administration costs. In the period-to-period comparison, operating costs - PAMC increased $20 million, primarily due to the added costs of the fifth longwall, which was brought online in the fourth quarter of 2022, and ongoing inflationary pressures. See “Operational Performance - PAMC Analysis” for further information on segment operating costs.
Operating costs for the Itmann Mining Complex primarily consist of costs related to produced tons sold, development costs absorbed by the coal revenue generated during development, and costs incurred to purchase third-party metallurgical coal to blend with Itmann coal. Operating costs - Itmann Mining Complex include items such as direct development and operating costs, royalties and production taxes, hauling of raw coal and direct administration costs. The $18 million increase in operating costs - Itmann Mining Complex was primarily due to an increase in the volume of coal produced and purchased as the operations continued to transition from development mining to the production phase.
Operating costs - Terminal primarily consist of costs related to throughput tons at the CONSOL Marine Terminal, which were materially consistent in the period-to-period comparison. See “Operational Performance - CONSOL Marine Terminal Analysis” for further information on segment operating costs.
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Other costs consist of items that are not related to the Company's mining or terminal operations. Other costs decreased $8 million in the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The decrease was primarily attributable to a decrease in current quarter costs related to discretionary employee benefit expenses and demurrage charges, as well as fewer expenses incurred in the current quarter across various categories, none of which were individually material.
Depreciation, Depletion, and Amortization
On a consolidated basis, depreciation, depletion and amortization costs were $65 million for the three months ended June 30, 2023, compared to $58 million for the three months ended June 30, 2022. Depreciation, depletion and amortization increased $7 million in the period-to-period comparison primarily due to current quarter adjustments to the Company's asset retirement obligations based on current projected cash outflows. The increase was also attributable to the commissioning of the Itmann Preparation Plant and the transition from development mining to the production phase.
General and Administrative Costs
On a consolidated basis, general and administrative costs were $25 million for the three months ended June 30, 2023, compared to $28 million for the three months ended June 30, 2022. The $3 million decrease in the period-to-period comparison was primarily related to decreased expense under the long-term incentive compensation plan incurred in the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to fluctuations in the Company's share price during each of the respective periods.
Interest Expense
On a consolidated basis, interest expense, net of amounts capitalized, was $7 million for the three months ended June 30, 2023, compared to $13 million for the three months ended June 30, 2022. The decrease in the period-to-period comparison was primarily due to less debt outstanding as the Company continued its de-leveraging efforts.
Operational Performance: Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022
CONSOL Energy presently consists of two reportable segments, the PAMC and the CONSOL Marine Terminal. The PAMC includes the Bailey Mine, the Enlow Fork Mine, the Harvey Mine and a centralized preparation plant. The PAMC segment's principal activities include the mining, preparation and marketing of bituminous coal, sold primarily to power generators, industrial end-users and metallurgical end-users. The segment also includes general and administrative activities and interest expense, as well as various other activities assigned to the PAMC segment, but not included in the cost components on a per unit basis. The CONSOL Marine Terminal segment provides coal export terminal services through the Port of Baltimore. The segment also includes general and administrative activities and interest expense, as well as various other activities assigned to the CONSOL Marine Terminal segment.
The Company evaluates the performance of its segments utilizing Adjusted EBITDA and various sales and production metrics. Adjusted EBITDA measures the operating performance of the Company's segments and is used to allocate resources to the Company's segments.
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The following table presents results by reportable segment for each of the periods indicated.
| Three Months Ended June 30, | |||||||||||||||||
| 2023 | 2022 | Variance | |||||||||||||||
| PAMC | |||||||||||||||||
| Total Tons Produced (in millions) | 6.3 | 6.2 | 0.1 | ||||||||||||||
| Total Tons Sold (in millions) | 6.4 | 6.2 | 0.2 | ||||||||||||||
Average Realized Coal Revenue per Ton Sold(1) | $ | 81.27 | $ | 72.18 | $ | 9.09 | |||||||||||
Average Cash Cost of Coal Sold per Ton(1) | $ | 36.33 | $ | 34.81 | $ | 1.52 | |||||||||||
Average Cash Margin per Ton Sold(1) | $ | 44.94 | $ | 37.37 | $ | 7.57 | |||||||||||
Adjusted EBITDA (in thousands)(1) | $ | 270,065 | $ | 203,980 | $ | 66,085 | |||||||||||
| CONSOL Marine Terminal | |||||||||||||||||
| Throughput Tons (in millions) | 5.4 | 3.8 | 1.6 | ||||||||||||||
Adjusted EBITDA (in thousands)(1) | $ | 23,856 | $ | 15,077 | $ | 8,779 | |||||||||||
(1) Adjusted EBITDA is a non-GAAP financial measure, and average realized coal revenue per ton sold, average cash cost of coal sold per ton and average cash margin per ton sold are operating ratios derived from non-GAAP financial measures. See “How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures” above for an explanation and reconciliation of these amounts to the nearest GAAP measures.
PAMC ANALYSIS:
Coal Production
The table below presents total tons produced (in thousands) from the Pennsylvania Mining Complex for the periods indicated:
| Three Months Ended June 30, | |||||||||||||||||
| Mine | 2023 | 2022 | Variance | ||||||||||||||
| Bailey | 2,783 | 3,168 | (385) | ||||||||||||||
| Enlow Fork | 2,324 | 1,732 | 592 | ||||||||||||||
| Harvey | 1,226 | 1,328 | (102) | ||||||||||||||
| Total | 6,333 | 6,228 | 105 | ||||||||||||||
Coal production was 6.3 million tons for the three months ended June 30, 2023, compared to 6.2 million tons for the three months ended June 30, 2022. Despite bottlenecking issues at the central preparation plant and operational delays associated with multiple longwall moves that weighed on the Company's production during the three months ended June 30, 2023, the PAMC's coal production increased in the period-to-period comparison primarily due to the completion of development of the Company's fifth longwall at the PAMC toward the end of the fourth quarter of 2022; it is now fully operational.
Coal Operations
Adjusted EBITDA for the three months ended June 30, 2023 was $270 million, compared to $204 million for the three months ended June 30, 2022. The improvement was primarily attributable to a $9.09 increase in average realized coal revenue per ton sold, as well as a 0.2 million increase in tons sold, partially offset by a $1.52 increase in the average cash cost of coal sold per ton. The increase in average realized coal revenue per ton sold is directly attributable to the Company's strong contracted position and flexibility to place its coal sales into the market that yields the best arbitrage for its product. Specifically, the carryover effect of mild winter weather during the first quarter of 2023, which contributed to increased power plant coal stockpiles and natural gas inventory build, with corresponding softening in coal, natural gas and power prices, led to softening demand for coal-fired electricity generation during the three months ended June 30, 2023. This, in turn, reduced the need for restocking during the second quarter, which is traditionally a shoulder season characterized by reduced electric power demand, putting further pressure on natural gas prices, which is a competitor to the Company's coal product. The Company pivoted away from the domestic market and into stronger export markets, especially export
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industrial markets. The Company's realized coal revenue for the three months ended June 30, 2022 was also impacted by the settlement of certain commodity derivatives at a loss of $74 million. All of the Company's commodity derivatives were settled as of December 31, 2022 (see Note 14 - Derivatives in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q). The increase in the average cash cost of coal sold per ton was primarily due to ongoing inflationary pressures on supplies, maintenance costs and labor costs compared to the prior-year period.
CONSOL MARINE TERMINAL ANALYSIS:
Adjusted EBITDA for the three months ended June 30, 2023 was $24 million, compared to $15 million for the three months ended June 30, 2022. Throughput volumes at the CONSOL Marine Terminal were 5.4 million tons for the three months ended June 30, 2023, compared to 3.8 million tons for the three months ended June 30, 2022. CONSOL Marine Terminal revenue was $31 million for the three months ended June 30, 2023 compared to $22 million for the three months ended June 30, 2022, due to the significantly increased throughput tonnage, which was primarily a result of the shift of Pennsylvania Mining Complex sales into the export market.
Results of Operations: Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022
Revenue and Other Income
| Six Months Ended June 30, | |||||||||||||||||
| (in millions) | 2023 | 2022 | Variance | ||||||||||||||
| Coal Revenue - PAMC | $ | 1,085 | $ | 992 | $ | 93 | |||||||||||
| Coal Revenue - Itmann Mining Complex | 40 | 17 | 23 | ||||||||||||||
| Terminal Revenue | 58 | 43 | 15 | ||||||||||||||
| Freight Revenue | 149 | 89 | 60 | ||||||||||||||
| Total Revenues from Contracts with Customers | 1,332 | 1,141 | 191 | ||||||||||||||
| Loss on Commodity Derivatives, net | — | (257) | 257 | ||||||||||||||
| Miscellaneous Other Income | 12 | 12 | — | ||||||||||||||
| Gain on Sale of Assets | 6 | 7 | (1) | ||||||||||||||
| Total Revenue and Other Income | $ | 1,350 | $ | 903 | $ | 447 | |||||||||||
Revenues from Contracts with Customers
Revenues from contracts with customers were $1,332 million for the six months ended June 30, 2023, compared to $1,141 million for the six months ended June 30, 2022.
On a consolidated basis, coal revenue for the six months ended June 30, 2023 was $1,125 million, which consisted of $1,085 million from the Pennsylvania Mining Complex and $40 million from the Itmann Mining Complex. The $1,125 million of coal revenue was sold into the following markets: $541 million into power generation, $410 million into industrial, and $174 million into metallurgical. The Company had consolidated coal revenue of $1,009 million for the six months ended June 30, 2022, which consisted of $992 million from the Pennsylvania Mining Complex and $17 million from the Itmann Mining Complex. The $1,009 million of coal revenue was sold into the following markets: $570 million into power generation, $272 million into industrial, and $167 million into metallurgical.
Historically, the majority of the Company's production was directed toward its established base of domestic power plant customers, many of which were secured through spot, annual or multi-year contracts. The domestic coal-fired power generation market has experienced a reduction in capacity in recent years. The Company maintains flexibility to diversify its portfolio by placing a growing portion of its production in the export markets, where it sells to industrial, power generation and metallurgical end-users. These markets tend to provide the Company with pricing upside when markets are strong and with volume stability when markets are weak. In the six months ended June 30, 2023, the Company placed 8.3 million tons of coal, or 63% of its total tons sold, into the export market. Comparatively, in the six months ended June 30, 2022, the Company placed 5.7 million tons of coal, or 45% of its total tons sold, into the export market. Furthermore, when excluding fair value adjustments of commodity derivatives and gains/losses on sales of assets, 60% of the Company's recurring revenues and other income (a non-GAAP measure; see “How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures” above for an explanation and reconciliation of these amounts to the nearest GAAP measure) were derived from non-power generation applications during the six months ended June 30, 2023, compared to 43% for the six months ended June 30, 2022. See “Operational Performance” for further information about segment results.
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The Company’s Terminal revenue consists of fees charged for coal loaded at the CONSOL Marine Terminal, which is located in the Port of Baltimore, Maryland and provides access to international coal markets. Terminal revenues are generated from providing transloading services from rail to vessel or barge, temporary storage or stockpile facilities, as well as blending, weighing, and sampling. Terminal revenues were $58 million for the six months ended June 30, 2023 compared to $43 million for the six months ended June 30, 2022. See “Operational Performance - CONSOL Marine Terminal Analysis” for further information about segment results.
The Company recognizes freight revenue as the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services to move its coal from the mine to the ultimate sales point. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both $149 million for the six months ended June 30, 2023, compared to $89 million for the six months ended June 30, 2022. The $60 million increase was primarily related to increased transportation costs associated with the aforementioned increase of sales into the export market.
Loss on Commodity Derivatives, net
As of December 31, 2022, all of the Company's coal-related derivative contracts have settled and the Company has not entered into any additional coal-related derivative contracts. During the six months ended June 30, 2022, the Company settled a portion of its coal-related derivatives at a loss of $160 million and recognized fair value adjustments of its commodity derivative instruments at a loss of $96 million. See “Operational Performance - PAMC Analysis” for further information about segment results.
Miscellaneous Other Income
Miscellaneous other income was $12 million for the six months ended June 30, 2023, compared to $12 million for the six months ended June 30, 2022. The change is due to the following items:
| Six Months Ended June 30, | |||||||||||||||||
| 2023 | 2022 | Variance | |||||||||||||||
| Interest Income | $ | 5 | $ | 3 | $ | 2 | |||||||||||
| Royalty Income - Non-Operated Coal | 4 | 6 | (2) | ||||||||||||||
| Other Income | 3 | 3 | — | ||||||||||||||
| Miscellaneous Other Income | $ | 12 | $ | 12 | $ | — | |||||||||||
Operating and Other Costs
On a consolidated basis, operating and other costs were $537 million for the six months ended June 30, 2023, compared to $463 million for the six months ended June 30, 2022. Operating and other costs increased in the period-to-period comparison due to the following items:
| Six Months Ended June 30, | |||||||||||||||||
| 2023 | 2022 | Variance | |||||||||||||||
| Operating Costs - PAMC | $ | 456 | $ | 409 | $ | 47 | |||||||||||
| Operating Costs - Itmann Mining Complex | 50 | 12 | 38 | ||||||||||||||
| Operating Costs - Terminal | 13 | 12 | 1 | ||||||||||||||
| Employee-Related Legacy Liability Expense | 6 | 3 | 3 | ||||||||||||||
| Coal Reserve Holding Costs | 5 | 5 | — | ||||||||||||||
| Closed and Idle Mines | 2 | 2 | — | ||||||||||||||
| Other | 5 | 20 | (15) | ||||||||||||||
| Operating and Other Costs | $ | 537 | $ | 463 | $ | 74 | |||||||||||
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Operating costs for the Pennsylvania Mining Complex include items such as direct operating costs, royalties and production taxes and direct administration costs. In the period-to-period comparison, operating costs - PAMC increased $47 million, primarily due to additional production, as the fifth longwall was brought online in the fourth quarter of 2022, and ongoing inflationary pressures. See “Operational Performance - PAMC Analysis” for further information on segment operating costs.
Operating costs for the Itmann Mining Complex primarily consist of costs related to produced tons sold, development costs absorbed by the coal revenue generated during development, and costs incurred to purchase third-party metallurgical coal to blend with Itmann coal. Operating costs - Itmann Mining Complex include items such as direct development and operating costs, royalties and production taxes, hauling of raw coal and direct administration costs. The $38 million increase in operating costs - Itmann Mining Complex was primarily due to an increase in the volume of coal produced and purchased as the operations continued to transition from development mining to the production phase as well as increased construction activity for the development of mains.
Operating costs - Terminal primarily consist of costs related to throughput tons at the CONSOL Marine Terminal, which were materially consistent in the period-to-period comparison. See “Operational Performance - CONSOL Marine Terminal Analysis” for further information on segment operating costs.
Other costs consist of items that are not related to the Company's mining or terminal operations. Other costs decreased $15 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The decrease was primarily attributable to a decrease in current year costs related to discretionary employee benefit expenses and fewer expenses incurred in the current year across various categories, none of which were individually material.
Depreciation, Depletion, and Amortization
On a consolidated basis, depreciation, depletion and amortization costs were $124 million for the six months ended June 30, 2023, compared to $114 million for the six months ended June 30, 2022. Depreciation, depletion and amortization increased $10 million in the period-to-period comparison primarily due to current year adjustments to the Company's asset retirement obligations based on current projected cash outflows. The increase was also attributable to the commissioning of the Itmann Preparation Plant and the transition from development mining to the production phase in late 2022.
General and Administrative Costs
On a consolidated basis, general and administrative costs were $42 million for the six months ended June 30, 2023, compared to $65 million for the six months ended June 30, 2022. The $23 million decrease in the period-to-period comparison was primarily related to decreased expense under the long-term incentive compensation plan incurred in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to fluctuations in the Company's share price during each of the respective periods.
Interest Expense
On a consolidated basis, interest expense, net of amounts capitalized, was $17 million for the six months ended June 30, 2023, compared to $27 million for the six months ended June 30, 2022. The decrease in the period-to-period comparison was primarily due to less debt outstanding as the Company continued its de-leveraging efforts.
Operational Performance: Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022
CONSOL Energy presently consists of two reportable segments, the PAMC and the CONSOL Marine Terminal. The PAMC includes the Bailey Mine, the Enlow Fork Mine, the Harvey Mine and a centralized preparation plant. The PAMC segment's principal activities include the mining, preparation and marketing of bituminous coal, sold primarily to power generators, industrial end-users and metallurgical end-users. The segment also includes general and administrative activities and interest expense, as well as various other activities assigned to the PAMC segment, but not included in the cost components on a per unit basis. The CONSOL Marine Terminal segment provides coal export terminal services through the Port of Baltimore. The segment also includes general and administrative activities and interest expense, as well as various other activities assigned to the CONSOL Marine Terminal segment.
The Company evaluates the performance of its segments utilizing Adjusted EBITDA and various sales and production metrics. Adjusted EBITDA measures the operating performance of the Company's segments and is used to allocate resources to the Company's segments.
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The following table presents results by reportable segment for each of the periods indicated.
| Six Months Ended June 30, | |||||||||||||||||
| 2023 | 2022 | Variance | |||||||||||||||
| PAMC | |||||||||||||||||
| Total Tons Produced (in millions) | 13.4 | 12.6 | 0.8 | ||||||||||||||
| Total Tons Sold (in millions) | 13.1 | 12.7 | 0.4 | ||||||||||||||
Average Realized Coal Revenue per Ton Sold(1) | $ | 82.83 | $ | 65.73 | $ | 17.10 | |||||||||||
Average Cash Cost of Coal Sold per Ton(1) | $ | 34.95 | $ | 32.30 | $ | 2.65 | |||||||||||
Average Cash Margin per Ton Sold(1) | $ | 47.88 | $ | 33.43 | $ | 14.45 | |||||||||||
Adjusted EBITDA (in thousands)(1) | $ | 601,029 | $ | 362,239 | $ | 238,790 | |||||||||||
| CONSOL Marine Terminal | |||||||||||||||||
| Throughput Tons (in millions) | 9.9 | 7.4 | 2.5 | ||||||||||||||
Adjusted EBITDA (in thousands)(1) | $ | 44,471 | $ | 29,554 | $ | 14,917 | |||||||||||
(1) Adjusted EBITDA is a non-GAAP financial measure, and average realized coal revenue per ton sold, average cash cost of coal sold per ton and average cash margin per ton sold are operating ratios derived from non-GAAP financial measures. See “How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures” above for an explanation and reconciliation of these amounts to the nearest GAAP measures.
PAMC ANALYSIS:
Coal Production
The table below presents total tons produced (in thousands) from the Pennsylvania Mining Complex for the periods indicated:
| Six Months Ended June 30, | |||||||||||||||||
| Mine | 2023 | 2022 | Variance | ||||||||||||||
| Bailey | 6,056 | 6,189 | (133) | ||||||||||||||
| Enlow Fork | 4,730 | 3,508 | 1,222 | ||||||||||||||
| Harvey | 2,584 | 2,887 | (303) | ||||||||||||||
| Total | 13,370 | 12,584 | 786 | ||||||||||||||
Coal production was 13.4 million tons for the six months ended June 30, 2023, compared to 12.6 million tons for the six months ended June 30, 2022. Despite bottlenecking issues at the central preparation plant and operational delays associated with multiple longwall moves that weighed on the Company's production during the six months ended June 30, 2023, the PAMC's coal production increased in the period-to-period comparison primarily due to the completion of development of the Company's fifth longwall at the PAMC toward the end of the fourth quarter of 2022; it is now fully operational.
Coal Operations
Adjusted EBITDA for the six months ended June 30, 2023 was $601 million, compared to $362 million for the six months ended June 30, 2022. The improvement was primarily attributable to a $17.10 increase in average realized coal revenue per ton sold, as well as a 0.4 million ton increase in tons sold, partially offset by a $2.65 increase in the average cash cost of coal sold per ton. The increase in average realized coal revenue per ton sold is directly attributable to the Company's strong contracted position and flexibility to place its coal sales into the market that yields the best arbitrage for its product. Specifically, the carryover effect of mild winter weather during the first quarter of 2023, which contributed to increased power plant coal stockpiles and natural gas inventory build, with corresponding softening in coal, natural gas and power prices, led to softening demand for coal-fired electricity generation during the first quarter of 2023. This, in turn, reduced the need for restocking during the second quarter, which is traditionally a shoulder season characterized by reduced electric power demand, putting further pressure on natural gas prices, which is a competitor to the Company's coal product. The Company pivoted away from the domestic market and into stronger export markets. The Company's realized
43
coal revenue for the six months ended June 30, 2022 was also impacted by the settlement of certain commodity derivatives at a loss of $160 million. All of the Company's commodity derivatives were settled as of December 31, 2022 (see Note 14 - Derivatives in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q). The increase in the average cash cost of coal sold per ton was primarily due to ongoing inflationary pressures on supplies, maintenance costs and labor costs compared to the prior-year period.
CONSOL MARINE TERMINAL ANALYSIS:
Adjusted EBITDA for the six months ended June 30, 2023 was $44 million, compared to $30 million for the six months ended June 30, 2022. Throughput volumes at the CONSOL Marine Terminal were 9.9 million tons for the six months ended June 30, 2023, compared to 7.4 million tons for the six months ended June 30, 2022. CONSOL Marine Terminal revenue was $58 million for the six months ended June 30, 2023, compared to $43 million for the six months ended June 30, 2022, due to significantly increased throughput tonnage, which was primarily a result of the shift of Pennsylvania Mining Complex sales into the export market.
Liquidity and Capital Resources
CONSOL Energy's potential sources of liquidity include cash generated from operations, cash on hand, short-term investments of U.S Treasury securities, borrowings under the revolving credit facility and securitization facility (which are discussed below), and, if necessary, the ability to issue additional equity or debt securities. The Company believes that cash generated from these sources, without needing to issue additional equity or debt securities, will be sufficient to meet its short-term working capital requirements, long-term capital expenditure requirements, and debt servicing obligations, as well as to provide required letters of credit.
During the second quarter of 2023, the Company amended its revolving credit facility to achieve additional financial flexibility by increasing the capacity of the facility and easing certain restrictive covenants, specifically around investments and shareholder returns. These covenants have been simplified to better align with the significantly improved credit profile of the business and are now leverage and liquidity-based moving forward. The Company was successful in securing incremental commitments in the amount of $95 million, which includes commitments from multiple new lenders to the facility and upsized commitments from 60% of existing lenders. The revolving credit facility now has a borrowing capacity of $355 million and provides for the Company's ability to increase the revolving commitments or issue term loans in an additional amount not to exceed $45,000 and up to an aggregate total amount of $400,000.
During the second quarter of 2023, the Company continued to see softening conditions within the overall coal markets. For example, API2 spot pricing, Henry Hub natural gas spot pricing, and PJM West day-ahead power prices continued to decline throughout the second quarter of 2023. However, pricing for the Company's coal remained elevated compared to historical norms. These higher prices are bolstering the Company's cash flows, which has allowed the Company to accelerate debt reduction and shareholder return objectives. As a result, interest expense and debt servicing costs are declining. These factors will allow the Company to continue to opportunistically reduce its debt levels and return capital to stockholders in the form of stock repurchases and/or dividends. During the three months ended June 30, 2023, the Company generated cash flows from operating activities of approximately $228 million and utilized a portion of operating cash flows to retire outstanding indebtedness. More specifically, the Company made debt repayments of $25 million, $24 million, and $6 million on its Second Lien Notes (as defined below), Term Loan B Facility, and equipment-financed and other debt, respectively. Our total liquidity as of June 30, 2023 was comprised of the following:
| (in millions) | June 30, 2023 | |||||||
| Cash and Cash Equivalents | $ | 189 | ||||||
| Short-Term Investments | 101 | |||||||
| 290 | ||||||||
| Revolving Credit Facility - Current Availability | 355 | |||||||
| Less: Letters of Credit Outstanding | (130) | |||||||
| Total Liquidity | $ | 515 | ||||||
Events that negatively impact our overall financial condition and liquidity could result in our inability to comply with our credit facility's financial covenants. This could limit our access to our credit facilities if we are unable to obtain waivers from our lenders or amend the credit facilities. Additionally, access to capital continues to tighten for the Company's industry as a result of banking, institutional and investor environmental, social and governance (ESG) requirements and limitations, which tend to discourage investment in coal and other fossil fuel companies. However, the Company expects to maintain adequate liquidity through its operating cash flow, cash and cash equivalents on hand, and short-term investments,
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as well as its revolving credit facility and securitization facility, to fund its working capital and capital expenditures in the short-term and long-term.
Uncertainty in the financial markets brings additional potential risks to CONSOL Energy. These risks include a reduction of our ability to raise capital in the equity markets, less availability and higher costs of additional credit and potential counterparty defaults. Overall market disruptions, including as a result of recent or additional bank failures, rising interest rates and sustained high inflation, may impact the Company's collection of trade receivables. As a result, CONSOL Energy regularly monitors the creditworthiness of its customers and counterparties and manages credit exposure through payment terms, credit limits, prepayments and security.
Over the past few years, the insurance and surety markets have been increasingly challenging, particularly for coal companies. We have experienced rising premiums, reduced coverage and/or fewer providers willing to underwrite policies and surety bonds. Terms have generally become more unfavorable, including increases in the amount of collateral required to secure surety bonds. However, more recently, we have seen insurance rates stabilize and even decrease on certain lines of coverage, as new insurance carriers have entered the market. Further cost burdens on our ability to maintain adequate insurance and bond coverage may adversely impact our operations, financial position and liquidity.
CONSOL Energy participates in the United Mine Workers of America (the “UMWA”) Combined Benefit Fund and the UMWA 1992 Benefit Plan for which benefits are reflected in the Company's consolidated financial statements when paid. These benefit arrangements may result in additional liabilities that are not recognized on the Consolidated Balance Sheet at June 30, 2023. The various multi-employer benefit plans are discussed in Note 17—Other Employee Benefit Plans in the Notes to the Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. CONSOL Energy's total contributions under the Coal Industry Retiree Health Benefit Act of 1992 were $1 million and $1 million for the three months ended June 30, 2023 and 2022, respectively. CONSOL Energy's total contributions under the Coal Industry Retiree Health Benefit Act of 1992 were $2 million and $2 million for the six months ended June 30, 2023 and 2022, respectively. Based on available information at December 31, 2022, CONSOL Energy's aggregate obligation for the UMWA Combined Benefit Fund and 1992 Benefit Plan is estimated to be approximately $39 million. CONSOL Energy also uses a combination of surety bonds, corporate guarantees and letters of credit to secure its financial obligations for employee-related, environmental, performance and various other items which are not reflected on the Consolidated Balance Sheet at June 30, 2023. Management believes these items will expire without being funded. See Note 13—Commitments and Contingent Liabilities in the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q for additional details of the various financial guarantees that have been issued by CONSOL Energy.
Cash Flows (in millions)
| Six Months Ended June 30, | |||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||
| Cash Provided by Operating Activities | $ | 476 | $ | 347 | $ | 129 | |||||||||||
| Cash Used in Investing Activities | $ | (174) | $ | (70) | $ | (104) | |||||||||||
| Cash Used in Financing Activities | $ | (386) | $ | (162) | $ | (224) | |||||||||||
Cash provided by operating activities increased $129 million in the period-to-period comparison, primarily due to a $237 million increase in adjusted EBITDA, a non-GAAP financial measure, offset by other working capital changes that occurred throughout both periods.
Cash used in investing activities increased $104 million in the period-to-period comparison, primarily due to a net investment of approximately $100 million into U.S Treasury securities during the six months ended June 30, 2023. Overall capital expenditures were consistent in the period-to-period comparison. There was an increase in equipment-related expenditures and expenditures associated with the solid waste disposal project. These increases were partially offset by a decrease in expenditures due to the completion of construction of the Itmann preparation plant, which was commissioned during the third quarter of 2022. Further details regarding the Company's capital expenditures are set forth below.
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| Six Months Ended June 30, | |||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||
| Building and Infrastructure | $ | 29 | $ | 50 | $ | (21) | |||||||||||
| Equipment Purchases and Rebuilds | 30 | 16 | 14 | ||||||||||||||
| Solid Waste Disposal Project | 11 | 4 | 7 | ||||||||||||||
| IS&T Infrastructure | 1 | 1 | — | ||||||||||||||
| Other | 5 | 5 | — | ||||||||||||||
| Total Capital Expenditures | $ | 76 | $ | 76 | $ | — | |||||||||||
Cash used in financing activities increased $224 million in the period-to-period comparison primarily driven by $141 million in CONSOL Energy share repurchases during the six months ended June 30, 2023, including $8 million for the settlement of shares repurchased on December 29 and 30, 2022. No such repurchases were made during the six months ended June 30, 2022. Additionally, $75 million in dividend payments were made during the six months ended June 30, 2023. No such dividend payments were made during the six months ended June 30, 2022.
Revolving Credit Facility
In November 2017, CONSOL Energy entered into a revolving credit facility with PNC Bank, N.A. (the “Revolving Credit Facility”). The Revolving Credit Facility has been amended several times, the most recent of which occurred in June 2023. This amendment increased the available revolving commitments from $260 million to $355 million and provides for the Company's ability to increase the revolving commitments or issue term loans in an additional amount not to exceed $45 million and up to an aggregate total amount of $400 million.
Borrowings under the Company's Revolving Credit Facility bear interest at a floating rate that is, at the Company's option, either (i) SOFR plus the applicable SOFR adjustment (as defined therein) depending on the applicable interest period plus an applicable margin or (ii) an alternate base rate plus an applicable margin. The applicable margin for the Revolving Credit Facility depends on the total net leverage ratio. The maturity date of the Revolving Credit Facility is July 18, 2026. Obligations under the Revolving Credit Facility are guaranteed by (i) all owners of the PAMC held by the Company, (ii) any other members of the Company’s group that own any portion of the collateral securing the Revolving Credit Facility, and (iii) subject to certain customary exceptions and agreed materiality thresholds, all other existing or future direct or indirect wholly-owned restricted subsidiaries of the Company. The obligations are secured by, subject to certain exceptions (including a limitation of pledges of equity interests in certain subsidiaries and certain thresholds with respect to real property), a first-priority lien on (i) the Company’s interest in the Pennsylvania Mining Complex, (ii) the equity interests in PA Mining Complex LP held by the Company, (iii) the CONSOL Marine Terminal, (iv) the Itmann Mining Complex, and (v) the 1.4 billion tons of Greenfield Reserves and Resources.
The Revolving Credit Facility contains a number of customary affirmative covenants and a number of negative covenants, including (subject to certain exceptions) limitations on (among other things): indebtedness, liens, investments, acquisitions, dispositions, restricted payments, and prepayments of junior indebtedness.
The Revolving Credit Facility also includes financial covenants, including (i) a maximum first lien gross leverage ratio, (ii) a maximum total net leverage ratio, and (iii) a minimum fixed charge coverage ratio. The maximum first lien gross leverage ratio is calculated as the ratio of Consolidated First Lien Debt to Consolidated EBITDA. Consolidated EBITDA, as used in the covenant calculation, excludes non-cash compensation expenses, nonrecurring transaction expenses, extraordinary gains and losses, gains and losses on discontinued operations and gains and losses on debt extinguishment. The maximum total net leverage ratio is calculated as the ratio of Consolidated Indebtedness, minus Cash on Hand, to Consolidated EBITDA. The minimum fixed charge coverage ratio is calculated as the ratio of Consolidated EBITDA to Consolidated Fixed Charges. Consolidated Fixed Charges, as used in the covenant calculation, include cash interest payments, cash payments for income taxes, scheduled debt repayments, Maintenance Capital Expenditures and cash payments related to legacy employee liabilities to the extent in excess of amounts accrued in the calculation of Consolidated EBITDA. Under the Revolving Credit Facility, the maximum first lien gross leverage ratio shall be 1.50 to 1.00, the maximum total net leverage ratio shall be 2.50 to 1.00 and the minimum fixed charge coverage ratio shall be 1.10 to 1.00.
The Company's first lien gross leverage ratio was 0.02 to 1.00 at June 30, 2023. The Company's total net leverage ratio was (0.06) to 1.00 at June 30, 2023. The Company's fixed charge coverage ratio was 3.54 to 1.00 at June 30, 2023. Accordingly, the Company was in compliance with all of its financial covenants under the Revolving Credit Facility as of June 30, 2023.
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The Revolving Credit Facility contains customary events of default, including with respect to a failure to make payments when due, cross-default and cross-judgment default and certain bankruptcy and insolvency events.
At June 30, 2023, there were no borrowings outstanding under the Revolving Credit Facility and the facility is currently only used for providing letters of credit, with $130 million of letters of credit outstanding, leaving $225 million of unused capacity. From time to time, CONSOL Energy is required to post financial assurances to satisfy contractual and other requirements generated in the normal course of business. Some of these assurances are posted to comply with federal, state or other government agencies' statutes and regulations. CONSOL Energy sometimes uses letters of credit to satisfy these requirements and these letters of credit reduce the Company's borrowing facility capacity.
Securitization Facility
At June 30, 2023, 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 July 2022, the securitization facility was amended to, among other things, extend the maturity date to July 29, 2025.
Pursuant to the securitization facility, CONSOL Thermal Holdings LLC, an indirect, wholly-owned subsidiary of the Company, sells 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 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 may not exceed $100 million.
Loans under the Securitization accrue interest at a reserve-adjusted market index rate equal to the applicable term SOFR rate. Loans and letters of credit under the Securitization also accrue a program fee and a letter of credit participation fee, respectively, ranging from 2.00% to 2.50% per annum depending on the total net leverage ratio 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.
The agreements comprising the Securitization contain various customary representations and warranties, covenants and default provisions which provide for the termination and acceleration of the commitments and loans under the Securitization in certain circumstances including, but not limited to, failure to make payments when due, breach of representation, warranty or covenant, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other material indebtedness. CONSOL Energy guarantees the performance of the obligations of CONSOL Thermal Holdings LLC and CONSOL Pennsylvania Coal Company LLC under the securitization, and will guarantee the obligations of any additional originators or successor servicer that may become party to the securitization. However, neither CONSOL Energy nor its affiliates will guarantee collectability of receivables or the creditworthiness of obligors thereunder.
At June 30, 2023, eligible accounts receivable yielded $51 million of borrowing capacity. At June 30, 2023, the facility had no outstanding borrowings and approximately $51 million of letters of credit outstanding, leaving $354 thousand of unused capacity. Costs associated with the receivables facility were less than $1 million for the six months ended June 30, 2023. The Company has not derecognized any receivables due to its continued involvement in the collections efforts.
11.00% Senior Secured Second Lien Notes due 2025
On November 13, 2017, the Company issued $300 million in aggregate principal amount of 11.00% Senior Secured Second Lien Notes due 2025 (the “Second Lien Notes”) pursuant to an indenture (the “Indenture”) dated as of November 13, 2017, by and between the Company and UMB Bank, N.A., a national banking association, as trustee and collateral trustee (the “Trustee”). On November 28, 2017, certain subsidiaries of the Company executed a supplement to the Indenture and became party to the Indenture as a guarantor (the “Guarantors”). The Second Lien Notes are secured by second priority liens on substantially all of the assets of the Company and the Guarantors that are pledged on a first-priority basis as collateral securing the Company’s obligations under the Revolving Credit Facility (described above), subject to certain exceptions under the Indenture.
Since November 15, 2021, the Company has been permitted to redeem all or part of the Second Lien Notes. The redemption price beginning on November 15, 2021 of 105.50% decreased to 102.75% on November 15, 2022 and will decrease to 100.00% on November 15, 2023. Any redemption includes accrued and unpaid interest, if any, to, but not
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including, the redemption date (subject to the rights of holders of the Second Lien Notes on the relevant record date to receive interest due on the relevant interest payment date).
During the three months ended June 30, 2023, the Company partially redeemed its Second Lien Notes at a redemption price of 102.75% of the stated principal outstanding in the amount of $25 million and announced an additional $24 million redemption at 102.75% that settled on July 26, 2023, which represented the final redemption of the full remaining outstanding balance. Prior to November 15, 2021, the Company was permitted to redeem all or a part of the Second Lien Notes at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium, as defined in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the redemption date (subject to the rights of holders of the Second Lien Notes on the relevant record date to receive interest due on the relevant interest payment date).
The Indenture contains covenants that limit the ability of the Company and the Guarantors, to (i) incur, assume or guarantee additional indebtedness or issue preferred stock; (ii) create liens to secure indebtedness; (iii) declare or pay dividends on the Company’s common stock, redeem stock or make other distributions to the Company’s stockholders; (iv) make investments; (v) restrict dividends, loans or other asset transfers from the Company’s restricted subsidiaries; (vi) merge or consolidate, or sell, transfer, lease or dispose of substantially all of the Company’s assets; (vii) sell or otherwise dispose of certain assets, including equity interests in subsidiaries; (viii) enter into transactions with affiliates; and (ix) create unrestricted subsidiaries. These covenants are subject to important exceptions and qualifications. If the Second Lien Notes achieve an investment grade rating from both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc. and no default under the Indenture exists, many of the foregoing covenants will terminate and cease to apply. The Indenture also contains customary events of default, including (i) default for 30 days in the payment when due of interest on the Second Lien Notes; (ii) default in payment when due of principal or premium, if any, on the Second Lien Notes at maturity, upon redemption or otherwise; (iii) covenant defaults; (iv) cross-defaults to certain indebtedness, and (v) certain events of bankruptcy or insolvency with respect to the Company or any of the Guarantors. If an event of default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then-outstanding Second Lien Notes may declare all the Second Lien Notes to be due and payable immediately. If an event of default arises from certain events of bankruptcy or insolvency, with respect to the Company, any restricted subsidiary of the Company that is a significant subsidiary or any group of restricted subsidiaries of the Company that, taken together, would constitute a significant subsidiary, all outstanding Second Lien Notes will become due and payable immediately without further action or notice.
If the Company experiences certain kinds of changes of control, holders of the Second Lien Notes will be entitled to require the Company to repurchase all or any part of that holder’s Second Lien Notes pursuant to an offer on the terms set forth in the Indenture. The Company will offer to make a cash payment equal to 101% of the aggregate principal amount of the Second Lien Notes repurchased plus accrued and unpaid interest on the Second Lien Notes repurchased to, but not including, the date of purchase, subject to the rights of holders of the Second Lien Notes on the relevant record date to receive interest due on the relevant interest payment date.
The Second Lien Notes were issued in a private offering that was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) to qualified institutional buyers in accordance with Rule 144A and to persons outside of the United States pursuant to Regulation S under the Securities Act.
Pennsylvania Economic Development Financing Authority Bonds
In April 2021, CONSOL Energy borrowed the proceeds received from the sale of tax-exempt bonds issued by PEDFA in an aggregate principal amount of $75 million (the “PEDFA Bonds”). The PEDFA Bonds bear interest at a fixed rate of 9.00% for an initial term of seven years. The PEDFA Bonds mature on April 1, 2051 but are subject to mandatory purchase by the Company on April 13, 2028, at the expiration of the initial term rate period. The PEDFA Bonds were issued pursuant to an indenture (the “PEDFA Indenture”) dated as of April 1, 2021, by and between PEDFA and Wilmington Trust, N.A., a national banking association, as trustee (the “PEDFA Notes Trustee”). PEDFA made a loan of the proceeds of the PEDFA Bonds to the Company pursuant to a Loan Agreement (the “Loan Agreement”) dated as of April 1, 2021 between PEDFA and the Company. Under the terms of the Loan Agreement, the Company agreed to make all payments of principal, interest and other amounts at any time due on the PEDFA Bonds or under the PEDFA Indenture. PEDFA assigned its rights as lender under the Loan Agreement, excluding certain reserved rights, to the PEDFA Notes Trustee. Certain subsidiaries of the Company (the “PEDFA Notes Guarantors”) executed a Guaranty Agreement (the “Guaranty”) dated as of April 1, 2021 in favor of the PEDFA Notes Trustee, guarantying the obligations of the Company under the Loan Agreement to pay the PEDFA Bonds when and as due. The obligations of the Company under the Loan Agreement and of the PEDFA Notes Guarantors under the Guaranty are secured by second priority liens on substantially all of the assets of the Company and the PEDFA Notes Guarantors on parity with the Second Lien Notes. The Loan Agreement and Guaranty incorporate by reference covenants in the Indenture under which the Second Lien Notes were issued (discussed previously).
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Material Cash Requirements
CONSOL Energy expects to make payments of $39 million on its long-term debt obligations, including interest and discretionary accelerated debt repayments, in the next 12 months. Refer to Note 13 – Long-Term Debt of our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information concerning material cash requirements in future years.
CONSOL Energy expects to make payments of $24 million on its operating and finance lease obligations, including interest, in the next 12 months. Refer to Note 14 – Leases of our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information concerning material cash requirements in future years.
CONSOL Energy expects to make payments of $49 million on its employee-related long-term liabilities in the next 12 months. Refer to Note 15 – Pension and Other Postretirement Benefit Plans and Note 16 – Coal Workers’ Pneumoconiosis and Workers’ Compensation of our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information concerning material cash requirements in future years.
CONSOL Energy believes it will be able to satisfy these material requirements with cash generated from operations, cash on hand, short-term investments, borrowings under the revolving credit facility and securitization facility, and, if necessary, cash generated from its ability to issue additional equity or debt securities.
Debt
At June 30, 2023, CONSOL Energy had total long-term debt and finance lease obligations of $236 million outstanding, including the current portion of long-term debt of $19 million. This long-term debt consisted of:
•An aggregate principal amount of $103 million of industrial revenue bonds which were issued to finance the Baltimore port facility, which bear interest at 5.75% per annum and mature in September 2025. Interest on the industrial revenue bonds is payable March 1 and September 1 of each year. Payment of the principal and interest on the notes is guaranteed by CONSOL Energy.
•An aggregate principal amount of $75 million of PEDFA Bonds, which were issued to finance the ongoing expansion of the coal refuse disposal area at the Central Preparation Plant, which bear interest at 9.00% per annum for an initial term of seven years and mature in April 2051. Interest on the PEDFA Bonds is payable on February 1 and August 1 of each year.
•An aggregate principal amount of $24 million of Second Lien Notes. Interest on the notes is payable May 15 and November 15 of each year.
•An aggregate principal amount of $24 million of finance leases with a weighted average interest rate of 6.62%
•Advanced royalty commitments of $8 million with a weighted average interest rate of 8.09% per annum.
•An aggregate principal amount of $2 million of other debt arrangements.
At June 30, 2023, CONSOL Energy had no borrowings outstanding and approximately $130 million of letters of credit outstanding under the $355 million senior secured Revolving Credit Facility. At June 30, 2023, CONSOL Energy had no borrowings outstanding and approximately $51 million of letters of credit outstanding under the $100 million Securitization Facility.
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Stock and Debt Repurchases
In December 2017, CONSOL Energy’s Board of Directors approved a program to repurchase, from time to time, the Company's outstanding shares of common stock or its Second Lien Notes. Since the program's inception, the Company's Board of Directors has subsequently amended the program several times, the most recent of which amendment in April 2023 raised the aggregate limit of the Company's repurchase authority to $1 billion. The program expires on December 31, 2024.
Under the terms of the program, CONSOL Energy is permitted to make repurchases in the open market, in privately negotiated transactions, accelerated repurchase programs or in structured share repurchase programs. CONSOL Energy is also authorized to enter into one or more 10b5-1 plans with respect to any of the repurchases. Any repurchases of common stock or notes are to be funded from available cash on hand or short-term borrowings. The program does not obligate CONSOL Energy to acquire any particular amount of its common stock or notes, and the program can be modified or suspended at any time at the Company’s discretion. The program is conducted in compliance with applicable legal requirements and within the limits imposed by any credit agreement, receivables purchase agreement or indenture.
During the six months ended June 30, 2023, the Company did not make any open market repurchases of its Second Lien Notes in accordance with this program. During the six months ended June 30, 2023, the Company repurchased and retired 2,432,543 shares of the Company's common stock at an average price of $58.69 per share.
Total Equity and Dividends
Total equity attributable to CONSOL Energy was $1,335 million at June 30, 2023 and $1,166 million at December 31, 2022. See the Consolidated Statements of Stockholders' Equity in Item 1 of this Form 10-Q for additional details.
The declaration and payment of dividends by CONSOL Energy is subject to the discretion of CONSOL Energy's Board of Directors, and no assurance can be given that CONSOL Energy will pay dividends in the future. The determination to pay dividends in the future will depend upon, among other things, general business conditions, CONSOL Energy's financial results, contractual and legal restrictions regarding the payment of dividends by CONSOL Energy, planned investments by CONSOL Energy and such other factors as the Board of Directors deems relevant. The Company's Revolving Credit Facility, PEDFA Bonds and the Indenture to the Second Lien Notes limit CONSOL Energy's ability to pay dividends based on certain covenants. At June 30, 2023, the available capacity from which the Company can pay dividends was approximately $366 million. The capacity available to pay future dividends will increase as the Company generates earnings and free cash flow, as defined within the Revolving Credit Facility, PEDFA Bonds and the Indenture to the Second Lien Notes.
Critical Accounting Estimates
CONSOL Energy prepares its financial statements in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. There have been no material changes to the Company's critical accounting estimates from the Annual Report on Form 10-K for the year ended December 31, 2022.
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Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of the federal securities laws. With the exception of historical matters, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that involve risks and uncertainties that could cause actual results and outcomes to differ materially from results expressed in or implied by our forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. When we use the words “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will,” “would,” or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following:
•deterioration in economic conditions or changes in consumption patterns of our customers may decrease demand for our products, impair our ability to collect customer receivables and impair our ability to access capital;
•volatility and wide fluctuation in coal prices based upon a number of factors beyond our control;
•an extended decline in the prices we receive for our coal affecting our operating results and cash flows;
•significant downtime of our equipment or inability to obtain equipment, parts or raw materials;
•decreases in the availability of, or increases in the price of, commodities or capital equipment used in our coal mining operations;
•our reliance on major customers, our ability to collect payment from our customers and uncertainty in connection with our customer contracts;
•our inability to acquire additional coal reserves or resources that are economically recoverable;
•the availability and reliability of transportation facilities and other systems that deliver our coal to market and fluctuations in transportation costs;
•a loss of our competitive position;
•foreign currency fluctuations that could adversely affect the competitiveness of our coal abroad;
•the risks related to the fact that a significant portion of our production is sold in international markets and our compliance with export control and anticorruption laws;
•coal users switching to other fuels in order to comply with various environmental standards related to coal combustion emissions;
•the impact of current and future regulations to address climate change, the discharge, disposal and clean-up of hazardous substances and wastes and employee health and safety on our operating costs as well as on the market for coal;
•the risks inherent in coal operations, including being subject to unexpected disruptions caused by adverse geological conditions, equipment failure, delays in moving out longwall equipment, railroad derailments, security breaches or terroristic acts and other hazards, delays in the completion of significant construction or repair of equipment, fires, explosions, seismic activities, accidents and weather conditions;
•failure to obtain or renew surety bonds or insurance coverages on acceptable terms;
•the effects of coordinating our operations with oil and natural gas drillers and distributors operating on our land;
•our inability to obtain financing for capital expenditures on satisfactory terms;
•the effect of new or existing tariffs and other trade measures;
•our inability to find suitable acquisition targets or integrating the operations of future acquisitions into our operations;
•obtaining, maintaining and renewing governmental permits and approvals for our coal operations;
•the effects of asset retirement obligations, employee-related long-term liabilities and certain other liabilities;
•uncertainties in estimating our economically recoverable coal reserves;
•the outcomes of various legal proceedings, including those which are more fully described herein;
•defects in our chain of title for our undeveloped reserves or failure to acquire additional property to perfect our title to coal rights;
•the risk of our debt agreements, our debt and changes in interest rates affecting our operating results and cash flows;
•information theft, data corruption, operational disruption and/or financial loss resulting from a terrorist attack or cyber incident;
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•the potential failure to retain and attract qualified personnel of the Company;
•failure to maintain effective internal controls over financial reporting;
•uncertainty with respect to the Company’s common stock, potential stock price volatility and future dilution;
•uncertainty regarding the timing and value of any dividends we may declare;
•uncertainty as to whether we will repurchase shares of our common stock or outstanding debt securities;
•inability of stockholders to bring legal action against us in any forum other than the state courts of Delaware; and
•other unforeseen factors.
The above list of factors is not exhaustive or necessarily in order of importance. Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements include those discussed under “Risk Factors” elsewhere in this report and the other filings we make with the SEC. The Company disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposures to market risk have not materially changed since December 31, 2022. Please see these quantitative and qualitative disclosures about market risk in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
CONSOL Energy, under the supervision and with the participation of its management, including CONSOL Energy's principal executive officer and principal financial officer, evaluated the effectiveness of the Company's “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, CONSOL Energy's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures are effective as of June 30, 2023 to ensure that information required to be disclosed by CONSOL Energy in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and includes controls and procedures designed to ensure that information required to be disclosed by CONSOL Energy in such reports is accumulated and communicated to CONSOL Energy's management, including CONSOL Energy's principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
During the fiscal quarter covered by this Quarterly Report on Form 10-Q, there were no changes in the Company's internal controls over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act, that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Our operations are subject to a variety of risks and disputes normally incidental to our business. As a result, we may, at any given time, be a defendant in various legal proceedings and litigation arising in the ordinary course of business. However, we are not currently subject to any material litigation, except as disclosed in Note 13 - Commitments and Contingent Liabilities in the Notes to the Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q, incorporated herein by this reference.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this quarterly report, you should carefully consider the factors described in “Part 1 - Item 1A. Risk Factors” of CONSOL Energy's 2022 Form 10-K. These described risks are not the only risks the Company faces. Additional risks and uncertainties not currently known to CONSOL Energy or that the Company currently deems to be immaterial also may materially adversely affect CONSOL Energy's business, financial condition and/or operating results.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth repurchases of the Company's common stock during the three months ended June 30, 2023:
| (a) | (b) | (c) | (d) | ||||||||||||||||||||||||||
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs (000s omitted) (2) | |||||||||||||||||||||||||
| April 1, 2023 - April 30, 2023 | — | $ | — | — | $ | 705,436 | (3) | ||||||||||||||||||||||
| May 1, 2023 - May 31, 2023 | 605,054 | $ | 58.46 | 605,054 | $ | 670,064 | (3) | ||||||||||||||||||||||
| June 1, 2023 - June 30, 2023 | 620,080 | $ | 64.92 | 620,080 | $ | 629,808 | (3) | ||||||||||||||||||||||
(1) In December 2017, CONSOL Energy's Board of Directors approved a program to repurchase, from time to time, the Company's outstanding shares of common stock or its 11.00% Senior Secured Second Lien Notes due 2025. Since the inception of the program, CONSOL Energy Inc.'s Board of Directors has amended the program on several separate occasions. As a result of such amendments, the Company may now repurchase up to $1 billion of its stock and debt until December 31, 2024. As of August 8, 2023, approximately $581 million remained available under the stock and debt repurchase program. The repurchases will be effected from time to time on the open market or in privately negotiated transactions or under a Rule 10b5-1 plan. The program does not obligate CONSOL Energy to acquire any particular amount of its common stock or notes, and the program can be modified or suspended at any time at the Company's discretion.
(2) Management cannot estimate the number of shares that will be repurchased because purchases are made based upon the Company's stock price, the Company's financial outlook and alternative investment options.
(3) In the three months ended June 30, 2023, CONSOL Energy executed approximately $75.6 million of repurchases of its common stock.
Dividends
In the third quarter of the fiscal year ended December 31, 2022, the Company initiated an enhanced shareholder capital return program. The Company currently intends, subject to the discretion of the Company's Board of Directors, to return a planned aggregate of approximately 75% of the Company's quarterly free cash flow in the form of dividends and/or repurchases of shares of common stock. However, the declaration and payment of dividends by CONSOL Energy is subject to the discretion of CONSOL Energy's Board of Directors, and no assurance can be given that CONSOL Energy will continue to pay dividends in the future. The determination to pay dividends in the future will depend upon, among other things, general business conditions, CONSOL Energy's financial results, contractual and legal restrictions regarding the payment of dividends by CONSOL Energy, planned investments by CONSOL Energy and such other factors as the Board of Directors deems relevant. The Company's Revolving Credit Facility, PEDFA Bonds and the Indenture to the Second Lien Notes limit CONSOL Energy's ability to pay dividends and repurchase stock based on certain covenants.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations or 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 (17 CFR 229.104) is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
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ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS
| Exhibits | Description | Method of Filing | ||||||
| Amendment No. 5, dated as of June 12, 2023, to Credit Agreement, dated as of November 28, 2017, among the Company, the various financial institutions from time to time party thereto, PNC Bank, N.A., as administrative agent and collateral agent for the Lenders and the Other Secured Parties referred to therein | Filed as Exhibit 10.1 to Form 8-K (File No. 001-38147) filed on June 13, 2023 | |||||||
| Form Notice of Restricted Stock Unit Award and Terms and Conditions for Non-Employee Directors* | Filed herewith | |||||||
| Form Notice of Performance-based Restricted Stock Unit Award and Terms and Conditions* | Filed herewith | |||||||
| Form Notice of Service-based Restricted Stock Unit Award and Terms and Conditions* | Filed herewith | |||||||
| 2023 Executive Short-Term Incentive Program Terms and Conditions* | Filed herewith | |||||||
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | |||||||
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | |||||||
| Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished herewith | |||||||
| Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished herewith | |||||||
| Mine Safety and Health Administration Safety Data | Filed herewith | |||||||
| 101 | Interactive Data File (Form 10-Q for the quarterly period ended June 30, 2023, furnished in Inline XBRL) | Filed herewith | ||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL) | Contained in Exhibit 101 | ||||||
*Indicates management contract or compensatory plan or arrangement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CONSOL ENERGY INC. | ||||||||
| August 8, 2023 | By: | /s/ JAMES A. BROCK | ||||||
| James A. Brock | ||||||||
| Director, Chief Executive Officer (Principal Executive Officer) | ||||||||
| August 8, 2023 | By: | /s/ MITESHKUMAR B. THAKKAR | ||||||
| Miteshkumar B. Thakkar | ||||||||
| Chief Financial Officer and President (Principal Financial Officer) | ||||||||
| August 8, 2023 | By: | /s/ JOHN M. ROTHKA | ||||||
| John M. Rothka | ||||||||
Chief Accounting Officer (Principal Accounting Officer) | ||||||||
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