2019 Highlights: • Net income of$94 million
• Net payments, including premiums, on total debt of
the year
• Repurchased 1,717,497
average price of
• Coal sales volume of 27.3 million tons is the second strongest year ever
for the PAMC. • The Harvey mine set an individual production record of 5.0 million tons, exceeding its previous record set in 2018 and marking its third consecutive record-setting year. •The CONSOL Marine Terminal achieved record annual revenue of$67.4 million , marking its third consecutive record-setting year.
Outlook for 2020 and 2021
• We expect that the PAMC will produce approximately 24.5 million to 26.5 million tons in 2020.
• We will continue to focus on sales in domestic and international markets.
These markets provide us with pricing upside when markets are strong and with volume stability when markets are weak. For 2020 and 2021, our contracted position, as ofFebruary 11, 2020 , is at 95% and 43%,
respectively, assuming an annual coal sales volume at the midpoint of our
guidance range. We believe our committed and contracted position is well-balanced and provides diversification benefits.
• We are planning to make capital expenditures during 2020 in the range of
How We Evaluate Our Operations
Our management team uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability. The metrics include: (i) coal production, sales volumes and average revenue per ton; (ii) cost of coal sold, a non-GAAP financial measure; (iii) cash cost of coal sold, a non-GAAP financial measure; and (iv) average cash margin per ton, an operating ratio derived from non-GAAP financial measures. Cost of coal sold, cash cost of coal sold, and average cash margin per ton normalize the volatility contained within comparable GAAP measures by adjusting certain non-operating or non-cash transactions. Each of these non-GAAP metrics are used as supplemental financial measures by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:
• our operating performance as compared to the operating performance of
other companies in the coal industry, without regard to financing methods,
historical cost basis or capital structure;
• the ability of our assets to generate sufficient cash flow;
• our ability to incur and service debt and fund capital expenditures;
• the viability of acquisitions and other capital expenditure projects and
the returns on investment of various investment opportunities; and
• the attractiveness of capital projects and acquisitions and the overall
rates of return on alternative investment opportunities.
The non-GAAP financial measures should not be considered an alternative to total costs, net income, operating cash flow, or any other measure of financial performance or liquidity presented in accordance with GAAP. These measures exclude some, but not all, items that affect net income or net cash, 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. 53
--------------------------------------------------------------------------------
Reconciliation of Non-GAAP Financial Measures
We evaluate our cost of coal sold and cash cost of coal sold on an aggregate basis. We define cost of coal sold as operating and other production costs related to produced tons sold, along with changes in coal inventory, both in volumes and carrying values. The cost of coal sold includes items such as direct operating costs, royalty and production taxes, direct administration costs, and depreciation, depletion and amortization costs on production assets. Our costs exclude any indirect costs, such as selling, general and administrative costs, freight expenses, interest expenses, depreciation, depletion and amortization costs on non-production assets and other costs not directly attributable to the production of coal. The GAAP measure most directly comparable to cost of coal sold is total costs and expenses. The cash cost of coal sold includes cost of coal sold less depreciation, depletion and amortization costs on production assets. The GAAP measure most directly comparable to cash cost of coal sold is total costs and expenses. The following table presents a reconciliation of cost of coal sold and cash cost of coal sold to total costs and expenses, the most directly comparable GAAP financial measure, on a historical basis, for each of the periods indicated (in thousands). Years Ended December 31, 2019 2018 2017 Total Costs and Expenses$ 1,332,806 $ 1,344,402 $ 1,242,106 Freight Expense (19,667 ) (43,572 ) (73,692 ) Selling, General and Administrative Costs (67,111 ) (65,346 ) (83,605 ) Loss on Debt Extinguishment (24,455 ) (3,922 ) - Interest Expense, net (66,464 ) (83,848 ) (26,098 ) Other Costs (Non-Production) (101,900 ) (135,081 ) (129,620 ) Depreciation, Depletion and Amortization (Non-Production) (32,388 ) (30,961 ) (15,001 ) Cost of Coal Sold$ 1,020,821 $ 981,672 $ 914,090 Depreciation, Depletion and Amortization (Production) (174,709 ) (170,303 ) (157,001 ) Cash Cost of Coal Sold$ 846,112 $
811,369
We define average cash margin per ton sold as average coal revenue per ton, net of average cash cost of coal sold per ton. The GAAP measure most directly comparable to average cash margin per ton sold is total coal revenue.
The following table presents a reconciliation of 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). Years Ended December 31, 2019 2018 2017 Total Coal Revenue$ 1,288,529 $ 1,364,292 $ 1,187,654 Operating and Other Costs 948,012 946,450 886,709 Less: Other Costs (Non-Production) (101,900 ) (135,081 ) (129,620 ) Total Cash Cost of Coal Sold 846,112
811,369 757,089
Add: Depreciation, Depletion and Amortization 207,097 201,264 172,002
Less: Depreciation, Depletion and Amortization (Non-Production) (32,388 ) (30,961 ) (15,001 ) Total Cost of Coal Sold$ 1,020,821 $ 981,672 $ 914,090 Total Tons Sold (in millions) 27.3 27.7 26.1 Average Revenue per Ton Sold$ 47.17 $ 49.28 $ 45.52 Average Cash Cost of Coal Sold per Ton 30.97 29.29 29.02 Depreciation, Depletion and Amortization Costs per Ton Sold 6.40 6.17 6.01 Average Cost of Coal Sold per Ton 37.37 35.46 35.03 Average Margin per Ton Sold 9.80 13.82 10.49 Add: Depreciation, Depletion and Amortization Costs per Ton Sold 6.40 6.17 6.01 Average Cash Margin per Ton Sold$ 16.20 $ 19.99 $ 16.50 54
-------------------------------------------------------------------------------- Results of Operations: Year EndedDecember 31, 2019 Compared with the Year EndedDecember 31, 2018 Net Income Attributable toCONSOL Energy Inc. ShareholdersCONSOL Energy reported net income attributable toCONSOL Energy Inc. shareholders of$76 million for the year endedDecember 31, 2019 , compared to net income attributable toCONSOL Energy Inc. shareholders of$153 million for the year endedDecember 31, 2018 .CONSOL Energy consists of thePennsylvania Mining Complex , as well as various corporate and other business activities that are not allocated to the PAMC. The other business activities include theCONSOL Marine Terminal , development of theItmann Mine , the Greenfield Reserves, closed and idle mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities. PAMC ANALYSIS: The PAMC division's principal activities consist of mining, preparation and marketing of thermal coal, sold primarily to power generators. The division also includes selling, general and administrative costs, as well as various other activities assigned to the PAMC division, but not included in the cost components on a per unit basis. The PAMC division had earnings before income tax of$197 million for the year endedDecember 31, 2019 , compared to earnings before income tax of$291 million for the year endedDecember 31, 2018 . Variances are discussed below. For the Years Ended December 31, (in millions) 2019 2018 Variance Revenue: Coal Revenue$ 1,289 $ 1,364 $ (75 ) Freight Revenue 20 44 (24 ) Miscellaneous Other Income 23 21 2 Total Revenue and Other Income 1,332 1,429 (97 ) Cost of Coal Sold: Operating Costs 846 811 35 Depreciation, Depletion and Amortization 175 170 5 Total Cost of Coal Sold 1,021 981 40 Other Costs: Other Costs 20 44 (24 ) Depreciation, Depletion and Amortization 11 9 2 Total Other Costs 31 53 (22 ) Freight Expense 20 44 (24 ) Selling, General and Administrative Costs 63 60 3 Total Costs and Expenses 1,135 1,138 (3 ) Earnings Before Income Tax$ 197 $ 291 $ (94 ) 55
--------------------------------------------------------------------------------
Coal Production
The table below presents total tons produced (in thousands) from the
For the Years Ended December 31, Mine 2019 2018 Variance Bailey 12,218 12,735 (517 ) Enlow 10,043 9,876 167 Harvey 5,024 4,981 43 Total 27,285 27,592 (307 ) Coal production was 27.3 million tons for the year endedDecember 31, 2019 , compared to 27.6 million tons for the year endedDecember 31, 2018 . The PAMC division's coal production decreased slightly, mainly due to reduced production at the Bailey mine resulting from one additional longwall move and other operational delays. This was partially offset by increased production at the Enlow Fork mine, as geological conditions improved throughout the first half of 2019 compared to the year-ago period. The Harvey mine set an individual production record in 2019, exceeding its previous record set in 2018, and marking its third consecutive record-setting year. Coal Operations The PAMC division's coal revenue and cost components on a per unit basis for these periods were as follows: For the Years
Ended
2019 2018 Variance Total Tons Sold (in millions) 27.3 27.7 (0.4 ) Average Revenue per Ton Sold$ 47.17 $
49.28
Average Cash Cost of Coal Sold per Ton (1)$ 30.97 $
29.29
6.40
6.17 0.23
Average Cost of Coal Sold per Ton (1)$ 37.37 $
35.46
Average Margin per Ton Sold$ 9.80 $
13.82
Add: Depreciation, Depletion and Amortization Costs per Ton Sold
6.40
6.17 0.23
Average Cash Margin per Ton Sold (1)$ 16.20 $
19.99
(1) Average cash cost of coal sold per ton and average cost of coal sold per ton are non-GAAP measures and average cash margin per ton sold is an operating ratio derived from non-GAAP measures. See "How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures" for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.
Coal Revenue
Coal revenue was$1,289 million for the year endedDecember 31, 2019 , compared to$1,364 million for the year endedDecember 31, 2018 . The$75 million decrease was primarily attributable to a$2.11 lower average sales price per ton sold in the 2019 period, mainly driven by lower domestic netback contract pricing compared to the year-ago period, as well as a decrease in tons sold. This decrease was partially offset by an increase in prices the Company received for its export coal.
Freight Revenue and Freight Expense
Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both$20 million for the year endedDecember 31, 2019 , compared to$44 million for the year endedDecember 31, 2018 . The$24 million decrease was due to decreased shipments to customers where the Company was contractually obligated to provide transportation services. 56 --------------------------------------------------------------------------------
Miscellaneous Other Income
Miscellaneous other income was$23 million for the year endedDecember 31, 2019 , compared to$21 million for the year endedDecember 31, 2018 . The$2 million increase was primarily the result of customer contract buyouts totaling$10 million in the year endedDecember 31, 2019 , offset, in part, by a decrease in sales of externally purchased coal to blend and resell.
Cost of Coal Sold
Cost of coal sold is comprised of operating costs related to produced tons sold, along with changes in both the volumes and carrying values of coal inventory. The costs of coal sold include items such as direct operating costs, royalties and production taxes, direct administration costs and depreciation, depletion, and amortization costs on production assets. Total cost of coal sold was$1,021 million for the year endedDecember 31, 2019 , or$40 million higher than the$981 million for the year endedDecember 31, 2018 . Total costs per ton sold were$37.37 per ton in the year endedDecember 31, 2019 , compared to$35.46 per ton in the year endedDecember 31, 2018 . The increase in the total cost of coal sold was primarily driven by additional equipment rebuilds and longwall overhauls due to the timing of longwall moves and panel development. Also, the Company faced atypical challenges during 2019, including a roof fall and equipment breakdowns. These geological and equipment-related issues resulted in higher mine maintenance and project expenses. Subsidence expense also increased in the year-to-year comparison, primarily due to the timing and nature of the properties undermined. Other Costs Other costs include items that are assigned to the PAMC division but are not included in unit costs, such as coal reserve holding costs and purchased coal costs. Total other costs decreased$22 million in the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 . The decrease was primarily attributable to additional costs incurred in the year-ago period related to externally purchased coal to blend and resell, discretionary employee benefit expenses and demurrage charges. Selling, General and Administrative Costs AtDecember 31, 2019 ,CONSOL Energy was party to a service agreement with CCR that requiredCONSOL Energy to provide certain selling, general and administrative services to CCR. These services are paid monthly based on an agreed-upon fixed fee that is reset at least annually. See Note 24 - Related Party Transactions of the Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information. An additional portion ofCONSOL Energy's selling, general and administrative costs are allocated to the PAMC division, outside of the service agreement, based on a percentage of total revenue and a percentage of total projected capital expenditures. The amount of selling, general and administrative costs related to the PAMC division was$63 million for the year endedDecember 31, 2019 , compared to$60 million for the year endedDecember 31, 2018 . The$3 million increase in the period-to-period comparison was primarily related to accelerated non-cash amortization recorded in the year endedDecember 31, 2019 for retiree-eligible employees who received awards under the Company's Performance Incentive Plan and an increase in expenditures related to the conversion to and implementation of a different Enterprise Resource and Planning system, partially offset by the reversal of stock-based compensation expense related to forfeitures of awards under the Company's Performance Incentive Plan during the year endedDecember 31, 2019 . 57
-------------------------------------------------------------------------------- OTHER ANALYSIS: The other division includes revenue and expenses from various corporate and diversified business activities that are not allocated to the PAMC division. The diversified business activities include theCONSOL Marine Terminal , development of theItmann Mine , the Greenfield Reserves, closed and idle mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities. Other business activities had a loss before income tax of$99 million for the year endedDecember 31, 2019 , compared to a loss before income tax of$103 million for the year endedDecember 31, 2018 . Variances are discussed below. For the Years Ended December 31, (in millions) 2019 2018 Variance Revenue: Terminal Revenue$ 67 $ 65 $ 2 Miscellaneous Other Income 30 38 (8 ) Gain on Sale of Assets 2 1 1 Total Revenue and Other Income 99 104 (5 ) Other Costs and Expenses: Operating and Other Costs 83 92 (9 ) Depreciation, Depletion and Amortization 21 22 (1 ) Selling, General, and Administrative Costs 4 5 (1 ) Loss on Debt Extinguishment 24 4 20 Interest Expense, net 66 84 (18 ) Total Other Costs and Expenses 198 207 (9 ) Loss Before Income Tax$ (99 ) $ (103 ) $ 4 Terminal Revenue Terminal revenue consists of sales from theCONSOL Marine Terminal , which is located on approximately 200 acres in thePort of Baltimore, Maryland and provides access to international coal markets.CONSOL Marine Terminal sales were$67 million for the year endedDecember 31, 2019 , compared to$65 million for the year endedDecember 31, 2018 . The$2 million increase in the period-to-period comparison resulted from additional revenue earned in the year endedDecember 31, 2019 from one of the Company's customers. Miscellaneous Other Income Miscellaneous other income was$30 million for the year endedDecember 31, 2019 , compared to$38 million for the year endedDecember 31, 2018 . The change is due to the following items: For the Years Ended December 31, (in millions) 2019 2018 Variance Royalty Income - Non-Operated Coal$ 22 $ 25 $ (3 ) Property Easements and Option Income 2 6 (4 ) Rental Income 3 4 (1 ) Interest Income 3 2 1 Other Income - 1 (1 ) Total Miscellaneous Other Income$ 30 $ 38 $ (8 ) 58
--------------------------------------------------------------------------------
Operating and Other Costs
Operating and other costs were$83 million for the year endedDecember 31, 2019 , compared to$92 million for the year endedDecember 31, 2018 . Operating and other costs decreased in the period-to-period comparison due to the following items: For the Years Ended December 31, (in millions) 2019 2018 Variance Terminal Operating Costs $ 22$ 24 $ (2 ) Employee-Related Legacy Liability Expense 37 42 (5 ) Lease Rental Expense 1 2 (1 ) Coal Reserve Holding Costs 5 2 3 Closed and Idle Mines 4 4 - Bank Fees 1 3 (2 ) Litigation Expense 4 4 - Other 9 11 (2 ) Total Operating and Other Costs $ 83 $
92
Employee-Related Legacy Liability Expense decreased$5 million in the period-to-period comparison primarily due to changes in the actuarial measurement of net periodic benefit cost at the beginning of each year. See Note 14 - Pension and Other Postretirement Benefits Plans in the Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization decreased$1 million in the period-to-period comparison due to adjustments to the Company's asset retirement obligations during the year endedDecember 31, 2019 based on current projected cash outflows.
Selling, General and Administrative Costs
Selling, general and administrative costs are allocated to the Company's Other division based on a percentage of total revenue and a percentage of total projected capital expenditures. Selling, general and administrative costs remained materially consistent in the period-to-period comparison.
Loss on Debt Extinguishment
Loss on debt extinguishment of$24 million was recognized in the year endedDecember 31, 2019 due to the open market repurchases of the Company's 11.00% Senior Secured Second Lien Notes due 2025, the$110 million required repayment on the Term Loan B Facility, and the refinancing of the Company's Revolving Credit Facility, Term Loan A Facility and Term Loan B Facility. See Note 12 - Debt in the Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information. Loss on debt extinguishment of$4 million was recognized in the year endedDecember 31, 2018 due to accelerated payments made on the Term Loan A Facility and the open market repurchases of the Company's 11.00% Senior Secured Second Lien Notes due 2025. Interest Expense, net Interest expense, net of amounts capitalized, is comprised of interest on the Company's Senior Secured Credit Facilities, the 11.00% Senior Secured Second Lien Notes due 2025 and the 5.75% MEDCO Revenue Bonds. Interest expense, net of amounts capitalized, decreased$18 million in the period-to-period comparison, primarily related to the$110 million required repayment on the Term Loan B Facility, as well as the refinancing of the Company's Revolving Credit Facility, Term Loan A Facility and Term Loan B Facility, both of which occurred during the first quarter of 2019. The decrease is also attributable to repurchases of the Company's 11.00% Senior Secured Second Lien Notes during the year endedDecember 31, 2019 (see Note 5 - Stock, Unit and Debt Repurchases of the Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information). 59
-------------------------------------------------------------------------------- Results of Operations: Year EndedDecember 31, 2018 Compared with the Year EndedDecember 31, 2017 Net Income Attributable toCONSOL Energy Inc. ShareholdersCONSOL Energy reported net income attributable toCONSOL Energy Inc. shareholders of$153 million for the year endedDecember 31, 2018 , compared to net income attributable toCONSOL Energy Inc. shareholders of$68 million for the year endedDecember 31, 2017 .CONSOL Energy consists of thePennsylvania Mining Complex , as well as various corporate and other business activities that are not allocated to the PAMC. The other business activities include theCONSOL Marine Terminal , the Greenfield Reserves, closed and idle mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities. PAMC ANALYSIS: The PAMC division's principal activities consist of mining, preparation and marketing of thermal coal, sold primarily to power generators. The division also includes selling, general and administrative costs, as well as various other activities assigned to the PAMC division, but not included in the cost components on a per unit basis. The PAMC division had earnings before income tax of$291 million for the year endedDecember 31, 2018 , compared to earnings before income tax of$189 million for the year endedDecember 31, 2017 . Variances are discussed below. For the Years Ended December 31, (in millions) 2018 2017 Variance Revenue: Coal Revenue$ 1,364 $ 1,188 $ 176 Freight Revenue 44 74 (30 ) Miscellaneous Other Income 21 23 (2 ) Gain on Sale of Assets - 6 (6 ) Total Revenue and Other Income 1,429 1,291 138 Cost of Coal Sold: Operating Costs 811 757 54 Depreciation, Depletion and Amortization 170 157 13 Total Cost of Coal Sold 981 914 67 Other Costs: Other Costs 44 22 22 Depreciation, Depletion and Amortization 9 10 (1 ) Total Other Costs 53 32 21 Freight Expense 44 74 (30 ) Selling, General and Administrative Costs 60 72 (12 ) Interest Expense, net - 10 (10 ) Total Costs and Expenses 1,138 1,102 36 Earnings Before Income Tax$ 291 $ 189 $ 102 60
--------------------------------------------------------------------------------
Coal Production
The table below presents total tons produced (in thousands) from the
For the Years Ended December 31, Mine 2018 2017 Variance Bailey 12,735 12,124 611 Enlow 9,876 9,180 696 Harvey 4,981 4,805 176 Total 27,592 26,109 1,483 Coal production was 27.6 million tons for the year endedDecember 31, 2018 , compared to 26.1 million tons for the year endedDecember 31, 2017 . The PAMC division's coal production increased 1.5 million tons, primarily to satisfy increased demand for its products in the domestic and export markets, as well as improved productivity, initial benefits from automation projects and improved geological conditions at the Enlow Fork mine. Coal Operations The PAMC division's coal revenue and cost components on a per unit basis for these periods were as follows: For the Years
Ended
2018 2017 Variance Total Tons Sold (in millions) 27.7 26.1 1.6 Average Revenue per Ton Sold$ 49.28 $
45.52
Average Cash Cost of Coal Sold per Ton (1)$ 29.29 $
29.02
6.17 6.01 0.16 Average Cost of Coal Sold per Ton (1)$ 35.46 $
35.03
Average Margin per Ton Sold$ 13.82 $
10.49
Add: Depreciation, Depletion and Amortization Costs per Ton Sold
6.17 6.01 0.16 Average Cash Margin per Ton Sold (1)$ 19.99 $
16.50
(1) Average cash cost of coal sold per ton and average cost of coal sold per ton are non-GAAP measures and average cash margin per ton sold is an operating ratio derived from non-GAAP measures. See "How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures" for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.
Coal Revenue
Coal revenue was$1,364 million for the year endedDecember 31, 2018 , compared to$1,188 million for the year endedDecember 31, 2017 . The$176 million increase was attributable to a 1.6 million increase in tons sold and a$3.76 higher average sales price per ton sold. The increase in tons sold was driven by increased demand from the Company's domestic customers, largely due to higher burn. The higher average sales price per ton sold in the 2018 period was primarily the result of higher realizations on the Company's netback contracts due to strong power prices and an increased demand in the international thermal and crossover metallurgical coal markets the Company serves. Freight Revenue and Freight Expense Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both$44 million for the year endedDecember 31, 2018 , compared to$74 million for the year endedDecember 31, 2017 . The$30 million decrease was due to decreased shipments to customers where the Company was contractually obligated to provide transportation services. 61 --------------------------------------------------------------------------------
Miscellaneous Other Income
Miscellaneous other income was$21 million for the year endedDecember 31, 2018 , compared to$23 million for the year endedDecember 31, 2017 . The$2 million decrease was primarily the result of a customer contract buyout in the amount of$10 million in the year endedDecember 31, 2017 , offset, in part, by an increase in sales of externally purchased coal to blend and resell in the year endedDecember 31, 2018 .
Gain on Sale of Assets
Gain on sale of assets decreased
Cost of Coal Sold
Cost of coal sold is comprised of operating costs related to produced tons sold, along with changes in both the volumes and carrying values of coal inventory. The costs of coal sold include items such as direct operating costs, royalties and production taxes, direct administration costs and depreciation, depletion, and amortization costs on production assets. Total cost of coal sold was$981 million for the year endedDecember 31, 2018 , or$67 million higher than the$914 million for the year endedDecember 31, 2017 . Total costs per ton sold were$35.46 per ton in the year endedDecember 31, 2018 , compared to$35.03 per ton in the year endedDecember 31, 2017 . The increase in the total cost of coal sold was primarily driven by an increase in production-related costs as more coal was mined to meet market demand. The increase in the average cost per ton sold was the result of additional royalties and production taxes due to a$3.76 per ton higher average sales price. Since the fourth quarter of 2017, the Company has seen modest inflation in the cost of supplies that contain steel and other commodities for which prices are strengthening, as well as in the cost of contract labor. The Company has been able to successfully offset these inflationary pressures through productivity gains, initial benefits from automation investments and a reduction in lease/rental expense.
Other Costs
Other costs include items that are assigned to the PAMC division but are not included in unit costs, such as coal reserve holding costs and purchased coal costs. Total other costs increased$21 million in the year endedDecember 31, 2018 compared to the year endedDecember 31, 2017 . The increase was primarily attributable to an increase in costs related to externally purchased coal to blend and resell, discretionary employee benefit expenses and demurrage charges in the year endedDecember 31, 2018 . This increase was partially offset by prior year severance costs related to organizational restructuring. Selling, General and Administrative Costs AtDecember 31, 2018 ,CONSOL Energy was party to a service agreement with CCR that requiredCONSOL Energy to provide certain selling, general and administrative services to CCR. These services are paid monthly based on an agreed-upon fixed fee that is reset at least annually. See Note 24 - Related Party Transactions of the Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information. An additional portion ofCONSOL Energy's selling, general and administrative costs are allocated to the PAMC division, outside of the service agreement, based on a percentage of total revenue and a percentage of total projected capital expenditures. The amount of selling, general and administrative costs related to the PAMC division was$60 million for the year endedDecember 31, 2018 , compared to$72 million for the year endedDecember 31, 2017 . The$12 million decrease in the period-to-period comparison was primarily due to long-term incentive compensation recognized in the prior year in relation to an award modification due to organizational restructuring. This was offset, in part, by an increase in short-term incentive compensation paid to employees based on the results of operations achieved at the Company's mines and increases in purchased services related to the conversion to a different Enterprise Resource and Planning system.
Interest Expense, net
Interest expense, net of amounts capitalized, decreased$10 million in the period-to-period comparison. For the year endedDecember 31, 2017 , net interest expense was primarily comprised of interest on the Original CCR Credit Facility (see Note 24 - Related Party Transactions of the Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information). No such interest expense was incurred during the year endedDecember 31, 2018 , as the Original CCR Credit Facility was refinanced through theAffiliated Company Credit Agreement onNovember 28, 2017 . 62 -------------------------------------------------------------------------------- OTHER ANALYSIS: The other division includes revenue and expenses from various corporate and diversified business activities that are not allocated to the PAMC division. The diversified business activities include theCONSOL Marine Terminal , the Greenfield Reserves, closed and idle mine activities, selling, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities. Other business activities had a loss before income tax of$103 million for the year endedDecember 31, 2018 , compared to a loss before income tax of$19 million for the year endedDecember 31, 2017 . Variances are discussed below. For the Years Ended December 31, (in millions) 2018 2017 Variance Revenue: Terminal Revenue$ 65 $ 60 $ 5 Miscellaneous Other Income 38 50 (12 ) Gain on Sale of Assets 1 11 (10 ) Total Revenue and Other Income 104 121 (17 ) Other Costs and Expenses: Operating and Other Costs 92 108 (16 ) Depreciation, Depletion and Amortization 22 5
17
Selling, General and Administrative Costs 5 11 (6 ) Loss on Debt Extinguishment 4 - 4 Interest Expense, net 84 16 68 Total Other Costs and Expenses 207 140 67 Loss Before Income Tax$ (103 ) $ (19 ) $ (84 ) Terminal Revenue Terminal revenue consists of sales from theCONSOL Marine Terminal , which is located on 200 acres in thePort of Baltimore, Maryland and provides access to international coal markets.CONSOL Marine Terminal sales were$65 million for the year endedDecember 31, 2018 , compared to$60 million for the year endedDecember 31, 2017 . The$5 million increase in the period-to-period comparison resulted from additional revenue earned in the year endedDecember 31, 2018 from one of the Company's customers. This customer's contractual arrangement contains a take-or-pay element, which provides a certain level of monthly throughput tons for a fixed amount.
Miscellaneous Other Income
Miscellaneous other income was$38 million for the year endedDecember 31, 2018 , compared to$50 million for the year endedDecember 31, 2017 . The change is due to the following items: For the Years Ended December 31, (in millions) 2018 2017 Variance Royalty Income - Non-Operated Coal$ 25 $ 28 $ (3 ) Property Easements and Option Income 6 2 4 Rental Income 4 14 (10 ) Interest Income 2 3 (1 ) Other Income 1 3 (2 ) Total Miscellaneous Other Income$ 38 $
50
Rental Income decreased
63 --------------------------------------------------------------------------------
Gain on Sale of Assets
Gain on sale of assets decreased
Operating and Other Costs
Operating and other costs were$92 million for the year endedDecember 31, 2018 , compared to$108 million for the year endedDecember 31, 2017 . Operating and other costs decreased in the period-to-period comparison due to the following items: For the Years Ended December 31, (in millions) 2018 2017 Variance Terminal Operating Costs $ 24$ 21 $ 3 Employee-Related Legacy Liability Expense 42 55 (13 ) Lease Rental Expense 2 10 (8 ) Coal Reserve Holding Costs 2 5 (3 ) Closed and Idle Mines 4 7 (3 ) Bank Fees 3 - 3 Litigation Expense 4 - 4 Other 11 10 1 Total Operating and Other Costs $ 92 $
108
• Employee-Related Legacy Liability Expense decreased
period-to-period comparison primarily due to modifications made to the
actuarial calculation of net periodic benefit cost at the beginning of
each year. Additionally, pension settlement expense is required when lump
sum distributions made for a given plan year exceed the total of the
service and interest costs for that same plan year. Settlement accounting
was triggered in the year ended
and Other Postretirement Benefit Plans in the Notes to the Consolidated
Financial Statements in Item 8 of this Form 10-K for additional information.
• Lease Rental Expense decreased
certain subleased equipment to a third party in the second quarter of 2017.
•
facility (see Note 10 - Accounts Receivable Securitization in the Notes to
the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information).
Depreciation, Depletion and Amortization
Depreciation, depletion, and amortization increased$17 million in the period-to-period comparison, mainly as a result of a credit adjustment related to changes in the Company's asset retirement obligations during the year endedDecember 31, 2017 .
Selling, General and Administrative Costs
Selling, general and administrative costs are allocated to the Company's Other division based on a percentage of total revenue and a percentage of total projected capital expenditures. The decrease of$6 million is primarily due to additional costs incurred in the year endedDecember 31, 2017 related to modifications of stock-based compensation awards as a result of the separation and distribution. Prior to the separation and distribution, additional selling, general and administrative costs were allocated from the Company's former parent to the Other division, which did not occur in the year endedDecember 31, 2018 .
Loss on Debt Extinguishment
Loss on debt extinguishment of$4 million was recognized in the year endedDecember 31, 2018 due to accelerated payments made on the Term Loan A Facility and the open market repurchases of the 11.00% Senior Secured Second Lien Notes due 2025. 64
--------------------------------------------------------------------------------
Interest Expense, net
Interest expense, net of amounts capitalized, of$84 million and$16 million for the years endedDecember 31, 2018 and 2017, respectively, is primarily comprised of interest on the 5.75% MEDCO Revenue Bonds, as well as interest and fees on the Company's Revolving Credit Facility, Term Loan A Facility, Term Loan B Facility and the 11.00% Senior Secured Second Lien Notes. These debt facilities were entered into as a result of the separation and distribution that occurred onNovember 28, 2017 .
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted inthe United States of America requires management to make judgments, estimates and assumptions that affect reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities in the Consolidated Financial Statements and at the date of the financial statements. See Note 1 - Significant Accounting Policies in the Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K for further discussion.CONSOL Energy bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates its estimates on an on-going basis. Actual results could differ from those estimates upon subsequent resolution of identified matters. Management believes that the estimates utilized are reasonable. The following critical accounting policies are materially impacted by judgments, assumptions and estimates used in the preparation of the Consolidated Financial Statements.
Asset Retirement Obligations
The Surface Mining Control and Reclamation Act established operational, reclamation and closure standards for all aspects of surface mining as well as most aspects of deep mining.CONSOL Energy accrues for the costs of current coal mine disturbance and final coal mine and gas well closure, including the cost of treating mine water discharge where necessary. Estimates of the Company's total asset retirement obligations, which are based upon permit requirements andCONSOL Energy engineering expertise related to these requirements, including the current portion, were approximately$272 million atDecember 31, 2019 . This liability is reviewed annually, or when events and circumstances indicate an adjustment is necessary, byCONSOL Energy management and engineers. The estimated liability can significantly change if actual costs vary from assumptions or if governmental regulations change significantly. Accounting for asset retirement obligations requires that the fair value of an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. For active locations, the present value of the estimated asset retirement obligations is capitalized as part of the carrying amount of the long-lived asset. For locations that have been fully depleted or closed, the present value of the change is recorded directly to the consolidated statements of income. Asset retirement obligations primarily relate to the reclamation of land upon mine closure, the treatment of mine water discharge where necessary, and the plugging of gas wells acquired for mining purposes. Changes in the assumptions used to calculate the liabilities can have a significant effect on the asset retirement obligations. The amounts of assets and liabilities recorded are dependent upon a number of variables, including the estimated future expenditures, estimated mine lives, assumptions involving profit margins, inflation rates and the assumed credit-adjusted risk-free interest rate. Accounting for asset retirement obligations also requires depreciation of the capitalized asset retirement obligation and accretion of the asset retirement obligation over time. The depreciation will generally be determined on a units-of-production basis, whereas the accretion to be recognized will escalate over the life of the producing assets. The Company believes that the accounting estimates related to asset retirement obligations are "critical accounting estimates" because the Company must assess the expected amount and timing of asset retirement obligations. In addition, the Company must determine the estimated present value of future liabilities. Future results of operations for any particular quarterly or annual period could be materially affected by changes in the Company's assumptions.
Income Taxes
Deferred tax assets and liabilities are recognized using enacted tax rates for the estimated future tax effects of temporary differences between the book and tax basis of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion of the deferred tax asset will not be realized. All available evidence, both positive and negative, must be considered in determining the need for a valuation allowance. AtDecember 31, 2019 ,CONSOL Energy has deferred tax assets in excess of deferred tax liabilities of approximately$104 million . AtDecember 31, 2019 ,CONSOL Energy had a valuation allowance of$1 million on deferred tax assets. 65
--------------------------------------------------------------------------------CONSOL Energy evaluates all tax positions taken on the state and federal tax filings to determine if the position is more likely than not to be sustained upon examination. For positions that meet the more likely than not to be sustained criteria, an evaluation to determine the largest amount of benefit, determined on a cumulative probability basis, that is more likely than not to be realized upon ultimate settlement is determined. A previously recognized tax position is reversed when it is subsequently determined that a tax position no longer meets the more likely than not threshold to be sustained. The evaluation of the sustainability of a tax position and the probable amount that is more likely than not is based on judgment, historical experience and on various other assumptions thatCONSOL Energy believes are reasonable under the circumstances. The results of these estimates, that are not readily apparent from other sources, form the basis for recognizing an uncertain tax liability. Actual results could differ from those estimates upon subsequent resolution of identified matters. The Company believes that accounting estimates related to income taxes are "critical accounting estimates" because the Company must assess the likelihood that deferred tax assets will be recovered from future taxable income and exercise judgment regarding the amount of financial statement benefit to record for uncertain tax positions. When evaluating whether or not a valuation allowance must be established on deferred tax assets, the Company exercises judgment in determining whether it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. The Company considers all available evidence, both positive and negative, to determine whether, based on the weight of the evidence, a valuation allowance is needed, including carrybacks, tax planning strategies, reversal of deferred tax assets and liabilities and forecasted future taxable income. In making the determination related to uncertain tax positions, the Company considers the amounts and probabilities of the outcomes that could be realized upon ultimate settlement of an uncertain tax position using the facts, circumstances and information available at the reporting date to establish the appropriate amount of financial statement benefit. To the extent that an uncertain tax position or valuation allowance is established or increased or decreased during a period, the Company must include an expense or benefit within tax expense in the income statement. Future results of operations for any particular quarterly or annual period could be materially affected by changes in the Company's assumptions. Recoverable Coal Reserves There are numerous uncertainties inherent in estimating quantities and values of economically recoverable coal reserves, including many factors beyond the Company's control. As a result, estimates of economically recoverable coal reserves are by their nature uncertain. Information aboutCONSOL Energy's reserves consists of estimates based on engineering, economic and geological data assembled and analyzed by the Company's staff.CONSOL Energy's coal reserves are periodically reviewed by an independent third party consultant. Some of the factors and assumptions which impact economically recoverable reserve estimates include: • geological conditions;
• historical production from the area compared with production from other
producing areas;
• the assumed effects of regulations and taxes by governmental agencies;
• assumptions governing future prices; and
• future operating costs. Each of these factors may in fact vary considerably from the assumptions used in estimating reserves. For these reasons, estimates of the economically recoverable quantities of coal attributable to a particular group of properties, and classifications of these reserves based on risk of recovery and estimates of future net cash flows, may vary substantially. Actual production, revenues and expenditures with respect to the Company's reserves will likely vary from estimates, and these variances may be material. See "Risk Factors" in Item 1A of this report for a discussion of the uncertainties in estimatingCONSOL Energy's reserves. 66
--------------------------------------------------------------------------------
Liquidity and Capital Resources
CONSOL Energy's sources of liquidity include cash generated from operations, cash on hand, borrowings under the revolving credit facility and securitization facility (which are discussed below), and, if necessary, the ability to issue additional equity or debt securities. The Company believes that cash generated from these sources 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. The Company expects to generate adequate cash flow from operations in 2020 due to its strong contracted position and consistent cost control measures. As further discussed below, the Company experienced delays in collections of accounts receivable in 2019. If these delays continue or increase, the Company may have less cash flow from operations and may have less borrowing capacity under its Securitization Facility (which borrowing capacity is based on certain current accounts receivable). As the Company moves into 2020, it will continue to monitor the creditworthiness of its customers. The Company started a capital construction project on the course refuse disposal area in 2017, which is expected to continue through 2021. The Company began construction of theItmann Mine in the second half of 2019. Full production from the mine is expected in 2021 upon completion of a new preparation plant. The Company's 2020 capital needs are expected to be between$125 million to$145 million , which is decreased from 2019 levels due to lower expected equipment-related expenditures and reduced spending on buildings and structures.CONSOL Energy believes its business will generate adequate cash flows and liquidity to meet reasonable increases in the cost of supplies that are passed on from suppliers.CONSOL Energy will also continue to seek alternative sources of supplies and replacement materials to offset any unexpected increase in the cost of supplies. Uncertainty in the financial markets brings additional potential risks toCONSOL Energy . These risks include declines in the Company's stock price, less availability and higher costs of additional credit, potential counterparty defaults, and commercial bank failures. Financial market disruptions may impact the Company's collection of trade receivables. As a result,CONSOL Energy regularly monitors the creditworthiness of its customers and counterparties and manages credit exposure through payment terms, credit limits, prepayments and security. Given the state of the current global coal market, as well as the impact of trade tariffs,CONSOL Energy has experienced a slowing of collections within its customer group.CONSOL Energy does not believe that this represents an abnormal business risk, and expects this trend to reverse in 2020 given the anticipated implementation of and adherence to the executed 'Phase I' trade agreement withChina . The Company owns an undivided interest in 75% of the PAMC and the Partnership owns the remaining undivided 25% interest of the PAMC. As ofDecember 31, 2019 , the Company had a 61.5% economic ownership interest in the Partnership through its various holdings of the general partner and limited partnership interests of the Partnership. 67
--------------------------------------------------------------------------------
Cash Flows (in millions) For the Years Ended December 31, 2019 2018 Change Cash Provided by Operating Activities$ 245 $ 414 $ (169 ) Cash Used in Investing Activities$ (173 ) $ (154 ) $ (19 ) Cash Used in Financing Activities$ (257 ) $ (149 ) $ (108 ) Cash provided by operating activities decreased$169 million in the period-to-period comparison, primarily due to an$85 million decrease in net income, a slowing of customer collections in 2019 compared to an acceleration of customer collections in 2018, and other working capital changes that occurred throughout both periods. Cash used in investing activities increased$19 million in the period-to-period comparison. Capital expenditures increased primarily due to an increase in airshaft construction projects, belt system related expenditures, purchases of land and equipment, and rebuilds of owned equipment, as well as expenditures related to the development of theItmann Mine . For the Years Ended December 31, 2019 2018 Change Building and Infrastructure$ 66 $ 46 $ 20 Equipment Purchases and Rebuilds 57 43 14 Refuse Storage Area 32 34 (2 ) IS&T Infrastructure 5 11 (6 ) Other 10 12 (2 ) Total Capital Expenditures$ 170 $ 146 $ 24 Cash used in financing activities increased$108 million in the period-to-period comparison. During the year endedDecember 31, 2019 , total payments of$188 million were made on the Company's Term Loan B Facility, 11.00% Senior Secured Second Lien Notes and the Term Loan A Facility, which included a required excess cash flow repayment of$110 million on the Term Loan B Facility (see Note 12 - Debt for additional information). The Company received additional proceeds on its Term Loan A Facility in the amount of$26 million as a result of the debt refinancing that occurred during the first quarter of 2019. In connection with the debt refinancing, approximately$18 million of financing-related fees and charges were paid. Also during the year endedDecember 31, 2019 ,CONSOL Energy shares were repurchased and CONSOL Coal Resources LP units were purchased, totaling$33 million . During the year endedDecember 31, 2018 , total payments of$56 million were made on the Company's Term Loan A Facility, Term Loan B Facility and 11.00% Senior Secured Second Lien Notes. The Company paid its former parent$18 million related to the final settlement of shared, spin-related fees. Additionally,CONSOL Energy shares were repurchased and CONSOL Coal Resources LP units were purchased, totaling$29 million .
Senior Secured Credit Facilities
InNovember 2017 , the Company entered into a revolving credit facility with commitments up to$300 million (the "Revolving Credit Facility"), a Term Loan A Facility of up to$100 million (the "TLA Facility") and a Term Loan B Facility of up to$400 million (the "TLB Facility", and together with the Revolving Credit Facility and the TLA Facility, the "Senior Secured Credit Facilities"). OnMarch 28, 2019 , the Company amended the Senior Secured Credit Facilities (the "amendment") to increase the borrowing commitment of the Revolving Credit Facility to$400 million and reallocate the principal amounts outstanding under the TLA Facility and TLB Facility. As a result, the principal amount outstanding under the TLA Facility was$100 million and the principal amount outstanding under the TLB Facility was$275 million . Borrowings under the Company's Senior Secured Credit Facilities bear interest at a floating rate which can be, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an alternate base rate plus an applicable margin. The applicable margin for the Revolving Credit Facility and TLA Facility depends on the total net leverage ratio, whereas the applicable margin for the TLB Facility is fixed. The amendment reduced the applicable margin by 50 basis points on both the Revolving Credit Facility and the TLA Facility, and by 150 basis points on the TLB Facility. The amendment also extended the maturity dates of the Senior Secured Credit Facilities. The maturity date of the Revolving Credit and TLA Facilities was extended fromNovember 28, 2021 toMarch 28, 2023 . The TLB Facility's maturity date was extended fromNovember 28, 2022 toSeptember 28, 2024 . Beginning inJune 2019 , the TLA Facility is being amortized in equal quarterly installments of (i) 3.75% of the original principal amount thereof, for the first four quarterly installments, (ii) 6.25% of the original principal amount thereof for the subsequent eight quarterly installments and (iii) 8.75% of the original principal amount thereof 68 -------------------------------------------------------------------------------- for the quarterly installments thereafter, with the remaining balance due at final maturity. Beginning inJune 2019 , the TLB Facility is being amortized in equal quarterly installments in an amount equal to 0.25% per annum of the amended principal amount thereof, with the remaining balance due at final maturity. Obligations under the Senior Secured Credit Facilities are guaranteed by (i) all owners of the 75% undivided economic interest in the PAMC held by the Company, (ii) any other members of the Company's group that own any portion of the collateral securing the Revolving Credit Facility, and (iii) subject to certain customary exceptions and agreed materiality thresholds, all other existing or future direct or indirect wholly owned restricted subsidiaries of the Company (excluding the Partnership and its wholly-owned subsidiaries). The obligations are secured by, subject to certain exceptions (including a limitation of pledges of equity interests in certain subsidiaries and certain thresholds with respect to real property), a first-priority lien on (i) the Company's 75% undivided economic interest in thePennsylvania Mining Complex , (ii) the limited partner units of the Partnership held by the Company, (iii) the equity interests inCONSOL Coal Resources GP LLC held by the Company (iv) theCONSOL Marine Terminal and (v) the 1.5 billion tons of Greenfield Reserves. The Senior Secured Credit Facilities contain a number of customary affirmative covenants. In addition, the Senior Secured Credit Facilities contain a number of negative covenants, including (subject to certain exceptions) limitations on (among other things): indebtedness, liens, investments, acquisitions, dispositions, restricted payments, and prepayments of junior indebtedness. The amendment expanded the covenants relating to finance leases, general investments, joint venture investments and annual share repurchase baskets. The amendment also amended the restricted payments covenant to permit up to a$50 million annual dividend. The Revolving Credit Facility and TLA Facility also include financial covenants, including (i) a maximum first lien gross leverage ratio, (ii) a maximum total net leverage ratio, and (iii) a minimum fixed charge coverage ratio.CONSOL Energy must maintain a maximum first lien gross leverage ratio covenant of no more than 2.00 to 1.00, measured quarterly, stepping down to 1.75 to 1.00 inMarch 2020 . The maximum first lien gross leverage ratio is calculated as the ratio of Consolidated First Lien Debt to Consolidated EBITDA, excluding the Partnership. The maximum first lien gross leverage ratio was 1.19 to 1.00 atDecember 31, 2019 .CONSOL Energy must maintain a maximum total net leverage ratio covenant of no more than 3.00 to 1.00, measured quarterly, stepping down to 2.75 to 1.00 inMarch 2020 . The maximum total net leverage ratio is calculated as the ratio of Consolidated Indebtedness, minus Cash on Hand, to Consolidated EBITDA, excluding the Partnership. The maximum total net leverage ratio was 1.93 to 1.00 atDecember 31, 2019 . Consolidated EBITDA, as used in the covenant calculation, excludes non-cash compensation expenses, non-recurring transaction expenses, extraordinary gains and losses, gains and losses on discontinued operations, non-cash charges related to legacy employee liabilities and gains and losses on debt extinguishment, and includes cash distributions received from the Partnership and subtracts cash payments related to legacy employee liabilities. The facilities also include a minimum fixed charge coverage covenant of no less than 1.10 to 1.00, measured quarterly. The minimum fixed charge coverage ratio is calculated as the ratio of Consolidated EBITDA to Consolidated Fixed Charges, excluding the Partnership. Consolidated Fixed Charges, as used in the covenant calculation, include cash interest payments, cash payments for income taxes, scheduled debt repayments, dividends paid, and Maintenance Capital Expenditures. The minimum fixed charge coverage ratio was 1.36 to 1.00 atDecember 31, 2019 . The TLB Facility also includes a financial covenant that requires the Company to repay a certain amount of its borrowings under the TLB Facility within ten business days after the date it files its Form 10-K with theSecurities and Exchange Commission if the Company has excess cash flow (as defined in the credit agreement for the Senior Secured Credit Facilities) during the year covered by the applicable Form 10-K. During the year endedDecember 31, 2019 ,CONSOL Energy made the required repayment of approximately$110 million based on the amount of the Company's excess cash flow as ofDecember 31, 2018 . For fiscal year 2018, such repayment was equal to 75% of the Company's excess cash flow less any voluntary prepayments of its borrowings under the TLB Facility made by the Company during 2018. For all subsequent fiscal years, the required repayment is equal to a certain percentage of the Company's excess cash flow for such year, ranging from 0% to 75% depending on the Company's total net leverage ratio, less the amount of certain voluntary prepayments made by the Company, if any, under the TLB Facility during such fiscal year. The amendment reduced the maximum amount of the mandatory annual excess cash flow sweep under the TLB Facility by 25%. Based on the Company's excess cash flow calculation, no repayment is required with respect to the year endedDecember 31, 2019 . As such, as ofDecember 31, 2019 , no amount related to the prepayment of the TLB Facility in connection with the excess cash flow requirement has been classified as Current Portion of Long-Term Debt in the Consolidated Balance Sheets. During the year endedDecember 31, 2019 , the Company entered into interest rate swaps, which effectively converted$150 million of the TLB Facility's floating interest rate to a fixed interest rate for the twelve months endingDecember 31, 2020 and 2021, and$50 million of the TLB Facility's floating interest rate to a fixed interest rate for the twelve months endingDecember 31, 2022 .
The Senior Secured Credit Facilities contain customary events of default, including with respect to a failure to make payments when due, cross-default and cross-judgment default and certain bankruptcy and insolvency events.
69 -------------------------------------------------------------------------------- AtDecember 31, 2019 , the Revolving Credit Facility had no borrowings outstanding and$70 million of letters of credit outstanding, leaving$330 million of unused capacity. From time to time,CONSOL Energy is required to post financial assurances to satisfy contractual and other requirements generated in the normal course of business. Some of these assurances are posted to comply with federal, state or other government agencies' statutes and regulations.CONSOL Energy sometimes uses letters of credit to satisfy these requirements and these letters of credit reduce the Company's borrowing facility capacity.
Securitization Facility
OnNovember 30, 2017 , (1)(i)CONSOL Marine Terminals LLC , as an originator of receivables, (ii)CONSOL Pennsylvania Coal Company LLC ("CONSOL Pennsylvania"), as an originator of receivables and as initial servicer of the receivables for itself and the other originators (collectively, the "Originators"), each a wholly-owned subsidiary ofCONSOL Energy , and (iii)CONSOL Funding LLC (the "SPV"), aDelaware special purpose entity and wholly-owned subsidiary ofCONSOL Energy , as buyer, entered into a Purchase and Sale Agreement (the "Purchase and Sale Agreement") and (2)(i)CONSOL Thermal Holdings LLC , an indirect, wholly-owned subsidiary of the Partnership, as sub-originator (the "Sub-Originator"), and (ii) CONSOL Pennsylvania, as buyer and as initial servicer of the receivables for itself and the Sub-Originator, entered into a Sub-Originator Sale Agreement (the "Sub-Originator PSA"). In addition, on that date, the SPV entered into a Receivables Financing Agreement (the "Receivables Financing Agreement") by and among (i) the SPV, as borrower, (ii) CONSOLPennsylvania , as initial servicer, (iii)PNC Bank , as administrative agent,LC Bank and lender, and (iv) the additional persons from time to time party thereto as lenders. Together, the Purchase and Sale Agreement, the Sub-Originator PSA and the Receivables Financing Agreement establish the primary terms and conditions of an accounts receivable securitization program (the "Securitization"). InAugust 2018 , the securitization facility was amended to, among other things, extend the term of the securitization facility for three years endingAugust 30, 2021 . Pursuant to the Securitization, (i) the Sub-Originator sells current and future trade receivables to CONSOL Pennsylvania and (ii) the Originators sell and/or contribute current and future trade receivables (including receivables sold to CONSOL Pennsylvania by the Sub-Originator) to the SPV and the SPV, in turn, pledges its interests in the receivables toPNC Bank , which either makes loans or issues letters of credit on behalf of the SPV. The maximum amount of advances and letters of credit outstanding under the Securitization may not exceed$100 million . Loans under the Securitization accrue interest at a reserve-adjusted LIBOR market index rate equal to the one-month Eurodollar rate. Loans and letters of credit under the Securitization also accrue a program fee and a letter of credit participation fee, respectively, ranging from 2.00% to 2.50% per annum depending on the total net leverage ratio ofCONSOL Energy . In addition, the SPV paid certain structuring fees toPNC Capital Markets LLC and will pay other customary fees to the lenders, including a fee on unused commitments equal to 0.60% per annum. The SPV's assets and credit are not available to satisfy the debts and obligations owed to the creditors ofCONSOL Energy , the Sub-Originator or any of the Originators. The Sub-Originator, the Originators and CONSOL Pennsylvania as servicer are independently liable for their own customary representations, warranties, covenants and indemnities. In addition,CONSOL Energy has guaranteed the performance of the obligations of the Sub-Originator, the Originators and CONSOL Pennsylvania as servicer, and will guarantee the obligations of any additional originators or successor servicer that may become party to the Securitization. However, neitherCONSOL Energy nor its affiliates will guarantee collectability of receivables or the creditworthiness of obligors thereunder. The agreements comprising the Securitization contain various customary representations and warranties, covenants and default provisions which provide for the termination and acceleration of the commitments and loans under the Securitization in certain circumstances including, but not limited to, failure to make payments when due, breach of representation, warranty or covenant, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other material indebtedness. AtDecember 31, 2019 , eligible accounts receivable totaled approximately$41 million . AtDecember 31, 2019 , the facility had no outstanding borrowings and$41 million of letters of credit outstanding, leaving available borrowing capacity of$71 thousand . Costs associated with the receivables facility totaled$1,441 thousand for the year endedDecember 31, 2019 . These costs have been recorded as financing fees which are included in Operating and Other Costs in the Consolidated Statements of Income. The Company has not derecognized any receivables due to its continued involvement in the collections efforts.
11.00% Senior Secured Second Lien Notes due 2025
OnNovember 13, 2017 , the Company issued$300 million in aggregate principal amount of 11.00% Senior Secured Second Lien Notes due 2025 (the "Second Lien Notes") pursuant to an indenture (the "Indenture") dated as ofNovember 13, 2017 , by and between the Company andUMB Bank, N.A. , a national banking association, as trustee and collateral trustee (the "Trustee"). 70 -------------------------------------------------------------------------------- OnNovember 28, 2017 , certain subsidiaries of the Company executed a supplement to the Indenture and became party to the Indenture as a guarantor (the "Guarantors"). The Second Lien Notes are secured by second priority liens on substantially all of the assets of the Company and the Guarantors that are pledged and on a first-priority basis as collateral securing the Company's obligations under the Senior Secured Credit Facilities (described above), subject to certain exceptions under the Indenture. On or afterNovember 15, 2021 , the Company may redeem all or part of the Second Lien Notes at the redemption prices set forth below, plus accrued and unpaid interest, if any, to, but not including, the redemption date (subject to the rights of holders of the Second Lien Notes on the relevant record date to receive interest due on the relevant interest payment date), beginning onNovember 15 of the years indicated: Year Percentage 2021 105.50% 2022 102.75% 2023 and thereafter 100.00% Prior toNovember 15, 2020 , the Company may on one or more occasions redeem up to 35% of the principal amount of the Second Lien Notes with an amount of cash not greater than the amount of the net cash proceeds from one or more equity offerings at a redemption price equal to 111.00% of the principal amount of the Second Lien Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the date of redemption, as long as at least 65% of the aggregate principal amount of the Second Lien Notes originally issued on the issue date (excluding Second Lien Notes held by the Company and its subsidiaries) remains outstanding after each such redemption and the redemption occurs within less than 180 days after the date of the closing of the equity offering. At any time or from time to time prior toNovember 15, 2021 , the Company may also redeem all or a part of the Second Lien Notes, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium, as defined in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the redemption date (subject to the rights of holders of the Second Lien Notes on the relevant record date to receive interest due on the relevant interest payment date). The Indenture contains covenants that will limit the ability of the Company and the Guarantors, to (i) incur, assume or guarantee additional indebtedness or issue preferred stock; (ii) create liens to secure indebtedness; (iii) declare or pay dividends on the Company's common stock, redeem stock or make other distributions to the Company's stockholders; (iv) make investments; (v) restrict dividends, loans or other asset transfers from the Company's restricted subsidiaries; (vi) merge or consolidate, or sell, transfer, lease or dispose of substantially all of the Company's assets; (vii) sell or otherwise dispose of certain assets, including equity interests in subsidiaries; (viii) enter into transactions with affiliates; and (ix) create unrestricted subsidiaries. These covenants are subject to important exceptions and qualifications. If the Second Lien Notes achieve an investment grade rating from bothStandard & Poor's Ratings Services andMoody's Investors Service, Inc. and no default under the Indenture exists, many of the foregoing covenants will terminate and cease to apply. The Indenture also contains customary events of default, including (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due of principal or premium, if any, on the Notes at maturity, upon redemption or otherwise; (iii) covenant defaults, (iv) cross-defaults to certain indebtedness and (v) certain events of bankruptcy or insolvency with respect to the Company or any of the Guarantors. If an event of default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Second Lien Notes may declare all the Notes to be due and payable immediately. If an event of default arises from certain events of bankruptcy or insolvency, with respect to the Company, any restricted subsidiary of the Company that is a significant subsidiary or any group of restricted subsidiaries of the Company that, taken together, would constitute a significant subsidiary, all outstanding Second Lien Notes will become due and payable immediately without further action or notice. If the Company experiences certain kinds of changes of control, holders of the Second Lien Notes will be entitled to require the Company to repurchase all or any part of that holder's Second Lien Notes pursuant to an offer on the terms set forth in the Indenture. The Company will offer to make a cash payment equal to 101% of the aggregate principal amount of the Second Lien Notes repurchased plus accrued and unpaid interest on the Second Lien Notes repurchased to, but not including, the date of purchase, subject to the rights of holders of the Notes on the relevant record date to receive interest due on the relevant interest payment date. The Second Lien Notes were issued in a private offering that is exempt from the registration requirements of the Securities Act, to qualified institutional buyers in accordance with Rule 144A and to persons outside ofthe United States pursuant to Regulation S under the Securities Act. 71 --------------------------------------------------------------------------------
Affiliated Company Credit Agreement with Partnership
OnNovember 28, 2017 , the Company also entered into an Affiliated Company Credit Agreement with the Partnership and certain of its subsidiaries (the "Partnership Credit Parties") under which the Company provides as lender a revolving credit facility in an aggregate principal amount of up to$275 million to the Partnership Credit Parties. In connection with the completion of the separation, the Partnership drew an initial$201 million , the net proceeds of which were used to repay the Original CCR Credit Facility and to provide working capital for the Partnership following the separation and for other general corporate purposes. OnMarch 28, 2019 , the Affiliated Company Credit Agreement was amended to extend the maturity date fromFebruary 27, 2023 toDecember 28, 2024 . The collateral obligations under the Affiliated Company Credit Agreement generally mirror the Original CCR Credit Facility, as does the list of entities that will act as guarantors thereunder. The Affiliated Company Credit Agreement is subject to financial covenants relating to a maximum first lien gross leverage ratio and a maximum total net leverage ratio, which will be calculated on a consolidated basis for the Partnership and its restricted subsidiaries at the end of each fiscal quarter. The Partnership was in compliance with each of these financial covenants atDecember 31, 2019 . The Affiliated Company Credit Agreement also contains a number of customary affirmative covenants and negative covenants, including limitations on the ability of the Partnership to incur additional indebtedness, grant liens, and make investments, acquisitions, dispositions, restricted payments, and prepayments of junior indebtedness (subject to certain limited exceptions). Contractual ObligationsCONSOL Energy is required to make future payments under various contracts.CONSOL Energy also has commitments to fund its pension plans, provide payments for other postretirement benefit plans, and fund capital projects. The following is a summary of the Company's significant contractual obligations atDecember 31, 2019 (in thousands): Payments due by Year Less Than More Than 1 Year 1-3 Years 3-5 Years 5 Years Total Purchase Order Firm Commitments$ 1,237 $ 425 $ - $ -$ 1,662 Long-Term Debt 32,053 65,084 275,139 325,089 697,365 Interest on Long-Term Debt 52,865 100,676 94,430 31,050 279,021 Finance Lease Obligations 18,219 7,722 1,314 - 27,255 Interest on Finance Lease Obligations 901 257 64 - 1,222
Operating Lease Obligations 24,065 36,473 12,619
15,958 89,115 Long-Term Liabilities-Employee Related (a) 56,821 108,118 104,213 493,879 763,031 Other Long-Term Liabilities (b) 149,574 39,082 27,822 184,301 400,779 Total Contractual Obligations (c)$ 335,735 $ 357,837 $ 515,601
_________________________
(a) Employee related long-term liabilities include other post-employment benefits and work-related injuries and illnesses. Estimated salaried retirement contributions required to meet minimum funding standards under
ERISA are excluded from the pay-out table due to the uncertainty regarding
amounts to be contributed.
the pension plan in 2020.
(b) Other long-term liabilities include asset retirement obligations and other
long-term liability costs.
(c) The significant obligations table does not include obligations to taxing
authorities due to the uncertainty surrounding the ultimate settlement of
amounts and timing of these obligations. 72
--------------------------------------------------------------------------------
Debt
At
Loan B (TLB) Facility, due in
unamortized bond discount. Borrowings under the TLB Facility bear interest
at a floating rate.
• An aggregate principal amount of
Second Lien Notes due in
• An aggregate principal amount of
Loan A (TLA) Facility, due inMarch 2023 . Borrowings under the TLA Facility bear interest at a floating rate.
• An aggregate principal amount of
which were issued to finance the
5.75% per annum and mature in
revenue bonds is payable
the principal and interest on the notes is guaranteed by
• An aggregate principal amount of$10 million in connection with asset-backed financing. Approximately$6 million is due inDecember 2020
at a weighted average interest rate of 5.96%, and approximately
is due in
• Advance royalty commitments of
rate of 10.78% per annum.
• An aggregate principal amount of
weighted average interest rate of 5.20% per annum.
AtDecember 31, 2019 ,CONSOL Energy had no borrowings outstanding and approximately$70 million of letters of credit outstanding under the$400 million senior secured Revolving Credit Facility. AtDecember 31, 2019 ,CONSOL Energy had no borrowings outstanding and approximately$41 million of letters of credit outstanding under the$100 million Securitization Facility. Stock, Unit and Debt Repurchases InDecember 2017 ,CONSOL Energy's Board of Directors approved a program to repurchase, from time to time, the Company's outstanding shares of common stock or its 11.00% Senior Secured Second Lien Notes due 2025, in an aggregate amount of up to$50 million through the period endingJune 30, 2019 . The program was subsequently amended byCONSOL Energy's Board of Directors inJuly 2018 to allow up to$100 million of repurchases of the Company's common stock or its 11.00% Senior Secured Second Lien Notes due 2025, subject to certain limitations in the Company's current credit agreement and that certain tax matters agreement entered into by and between the Company and its former parent onNovember 28, 2017 (the "TMA"). The Company's Board of Directors also authorized the Company to use up to$25 million of the program to purchase CONSOL Coal Resources LP's outstanding common units in the open market. InMay 2019 ,CONSOL Energy's Board of Directors approved an expansion of the program in the amount of$75 million , bringing the aggregate limit of the program to$175 million . TheMay 2019 expansion also increased the aggregate limit of the amount of CONSOL Coal Resources LP's common units that can be purchased under the program to$50 million , which is consistent with the Company's credit facility covenants that prohibit the Company from using more than$50 million for the purchase of CONSOL Coal Resources LP's outstanding common units. The Company's Board of Directors also approved extending the termination date of the program fromJune 30, 2019 toJune 30, 2020 . InJuly 2019 ,CONSOL Energy's Board of Directors approved an expansion of the program in the amount of$25 million , bringing the aggregate limit of the program to$200 million . Under the terms of the program,CONSOL Energy is permitted to make repurchases in the open market, in privately negotiated transactions, accelerated repurchase programs or in structured share repurchase programs.CONSOL Energy is also authorized to enter into one or more 10b5-1 plans with respect to any of the repurchases. Any repurchases of common stock, notes or units are to be funded from available cash on hand or short-term borrowings. The program does not obligateCONSOL Energy to acquire any particular amount of its common stock, notes or units, and can be modified or suspended at any time at the Company's discretion. The program is conducted in compliance with applicable legal requirements and within the limits imposed by any credit agreement, receivables purchase agreement, indenture or the TMA and is subject to market conditions and other factors. During the year endedDecember 31, 2019 , the Company repurchased approximately$53 million of its 11.00% Senior Secured Second Lien Notes due 2025. Also during the year endedDecember 31, 2019 , 1,717,497 shares of the Company's common stock were repurchased and retired at an average price of$19.06 per share, and 26,297 of the Partnership's common units were purchased at an average price of$14.05 per unit. 73
-------------------------------------------------------------------------------- Total Equity and Dividends Total equity attributable toCONSOL Energy was$572 million atDecember 31, 2019 and$552 million atDecember 31, 2018 . See the Consolidated Statements of Stockholders' Equity in Item 8 of this Form 10-K for additional details. The declaration and payment of dividends byCONSOL Energy is subject to the discretion ofCONSOL Energy's Board of Directors, and no assurance can be given thatCONSOL Energy will pay dividends in the future. The determination to pay dividends in the future will depend upon, among other things, general business conditions,CONSOL Energy's financial results, contractual and legal restrictions regarding the payment of dividends byCONSOL Energy , planned investments byCONSOL Energy and such other factors as the Board of Directors deems relevant. The Company's senior secured credit facilities limitCONSOL Energy's ability to pay dividends up to$25 million annually, which increases to$50 million annually when the Company's total net leverage ratio is less than 1.50 to 1.00 and subject to an aggregate amount up to a cumulative credit calculation set forth in the facilities. The total net leverage ratio was 1.93 to 1.00 and the cumulative credit was approximately$35 million atDecember 31, 2019 . The cumulative credit starts with$50 million and builds with excess cash flow commencing in 2018. The calculation of the total net leverage ratio excludes the Partnership. The credit facilities do not permit dividend payments in the event of default. The Indenture to the 11.00% Senior Secured Second Lien Notes limits dividends when the Company's total net leverage ratio exceeds 2.00 to 1.00 and subject to an amount not to exceed an annual rate of 4.0% of the quoted public market value per share of such common stock at the time of the declaration. The Indenture does not permit dividend payments in the event of default. In connection with the separation and distribution, the Partnership entered into an intercompany loan arrangement with the Company with an initial outstanding balance of$201 million . The Partnership used the initial loan to repay outstanding borrowings under the prior revolving credit facility, which was then terminated. The new intercompany loan arrangement similarly limits the Partnership's ability to pay distributions to its unitholders (including the Company) when the Partnership's net leverage ratio exceeds 3.25 to 1.00 or the Partnership's first lien gross leverage ratio exceeds 2.75 to 1.00. OnJanuary 24, 2020 , the Board of Directors of CCR's general partner declared a cash distribution of$0.5125 per unit to CCR's limited partner unitholders and the holder of the general partner interest. The cash distribution will be paid onFebruary 14, 2020 to the unitholders of record at the close of business onFebruary 10, 2020 . Upon payment of the cash distribution with respect to the quarter endedJune 30, 2019 , the financial requirements for the conversion of all CCR subordinated units were satisfied. As a result, onAugust 16, 2019 , all 11,611,067 of CCR's subordinated units, owned entirely byCONSOL Energy Inc. , were converted into common units on a one-for-one basis. The conversion did not impact the amount of the cash distribution paid or the total number of CCR's outstanding units representing limited partner interests. Off-Balance Sheet TransactionsCONSOL Energy does not maintain off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect onCONSOL Energy's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources which are not disclosed in the Notes to the Consolidated Financial Statements of this Form 10-K.CONSOL Energy participates in theUnited Mine Workers of America (the "UMWA")Combined Benefit Fund and the UMWA 1992 Benefit Plan which generally accepted accounting principles recognize on a pay-as-you-go basis. These benefit arrangements may result in additional liabilities that are not recognized on the Consolidated Balance Sheet atDecember 31, 2019 . The various multi-employer benefit plans are discussed in Note 16-Other Employee Benefit Plans in the Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K.CONSOL Energy's total contributions under the Coal Industry Retiree Health Benefit Act of 1992 were$6,042 ,$6,829 and$7,647 for the years endedDecember 31, 2019 , 2018 and 2017, respectively. Based on available information atDecember 31, 2019 ,CONSOL Energy's obligation for theUMWA Combined Benefit Fund and 1992 Benefit Plan is estimated to be approximately$62,295 .CONSOL Energy also uses a combination of surety bonds, corporate guarantees and letters of credit to secure its financial obligations for employee-related, environmental, performance and various other items which are not reflected on the Consolidated Balance Sheet atDecember 31, 2019 . Management believes these items will expire without being funded. See Note 21-Commitments and Contingent Liabilities in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details of the various financial guarantees that have been issued byCONSOL Energy . 74 --------------------------------------------------------------------------------
Recent Accounting Pronouncements
InJanuary 2020 , the FASB issued Accounting Standards Update ("ASU") 2020-01 - Investments -Equity Securities (Topic 321), Investments -Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) to clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. These amendments improve current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. These changes will be effective for fiscal years beginning afterDecember 15, 2020 , including interim periods within those fiscal years. Early adoption is permitted. Management does not expect this update to have a material impact on the Company's financial statements. InDecember 2019 , the FASB issued ASU 2019-12 - Income Taxes (Topic 740) to reduce the complexity of accounting for income taxes while maintaining or improving the usefulness of the information provided to users of financial statements. The amendments in Update 2019-12 will remove the following exceptions: (1) the exception to the incremental approach for intra-period tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in Update 2019-12 will also simplify the accounting for income taxes in the areas of franchise tax, step up in the tax basis of goodwill associated with a business combination, allocation of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements, and presentation of the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The update adds minor codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. These changes will be effective for fiscal years beginning afterDecember 15, 2020 , and interim periods within those fiscal years. Early adoption is permitted. Management does not expect this update to have a material impact on the Company's financial statements. InAugust 2018 , the FASB issued ASU 2018-15 - Intangibles -Goodwill and Other -Internal Use Software (Subtopic 350-40) to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments in Update 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements of capitalizing implementation costs incurred to develop or obtain internal-use software. These changes will be effective for fiscal years beginning afterDecember 15, 2019 , including interim periods within those fiscal years. Management does not expect this update to have a material impact on the Company's financial statements. InAugust 2018 , the FASB issued ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by GAAP. The amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. These changes will be effective for fiscal years ending afterDecember 15, 2020 , including interim periods within those fiscal years. Management is currently evaluating the impact this guidance may have on the Company's financial statements. InAugust 2018 , the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820) to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by GAAP. The amendments modify the disclosure requirements on fair value measurements including the consideration of costs and benefits. These changes will be effective for fiscal years beginning afterDecember 15, 2019 , including interim periods within those fiscal years. Management does not expect this update to have a material impact on the Company's financial statements. InJune 2016 , the FASB issued ASU 2016-13 - Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The measurement of expected credit losses will be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. InMay 2019 , the FASB updated Topic 326 by issuing ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, which provides entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments-Credit Losses - Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments-Overall, applied on an instrument-by-instrument basis for eligible instruments, upon 75
--------------------------------------------------------------------------------
adoption of Topic 326. The amendments in these Updates will be applied using a modified-retrospective approach and, for public entities, are effective for fiscal years beginning afterDecember 15, 2019 and interim periods within those fiscal years.CONSOL Energy's exposure to credit losses is concentrated on trade and other receivables arising from contractual agreements. Additional disclosures will be required to describe the nature and amount of the Company's credit losses, including the significant assumptions and judgments required to value the losses, and the accounting policy elections taken. The Company is implementing processes and controls to review the credit losses for appropriate accounting treatment in the context of the standards and to generate disclosures required under the standards, which the Company expects to disclose in its Quarterly Report on Form 10-Q for the first quarter of 2020. As of the filing date of this Form 10-K, based on the Company's historical collection efforts, current industry trends in the markets the Company serves and the financial health of the Company's counterparties, the expected credit losses recognized upon adoption of this guidance are not expected to have a material impact on the Company's financial statements.
© Edgar Online, source