Company Quick10K Filing
Consol Coal Resources
Price1.00 EPS-36,577,000
Shares-0 P/E-0
MCap-0 P/FCF-0
Net Debt173 EBIT41
TEV173 TEV/EBIT4
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-10
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-02-14
10-Q 2019-09-30 Filed 2019-11-05
10-Q 2019-06-30 Filed 2019-08-06
10-Q 2019-03-31 Filed 2019-05-08
10-K 2018-12-31 Filed 2019-02-08
10-Q 2018-09-30 Filed 2018-11-01
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-03
10-K 2017-12-31 Filed 2018-02-16
10-Q 2017-09-30 Filed 2017-10-31
10-Q 2017-06-30 Filed 2017-08-01
10-Q 2017-03-31 Filed 2017-05-02
10-K 2016-12-31 Filed 2017-02-08
10-Q 2016-09-30 Filed 2016-11-01
10-Q 2016-06-30 Filed 2016-07-29
10-Q 2016-03-31 Filed 2016-04-28
10-K 2015-12-31 Filed 2016-02-05
10-Q 2015-09-30 Filed 2015-11-03
10-Q 2015-06-30 Filed 2015-07-31
8-K 2020-08-10 Earnings, Regulation FD, Exhibits
8-K 2020-07-14 Earnings, Regulation FD, Exhibits
8-K 2020-06-15
8-K 2020-06-05
8-K 2020-05-11
8-K 2020-02-11
8-K 2019-12-27
8-K 2019-11-05
8-K 2019-08-06
8-K 2019-05-08
8-K 2019-03-28
8-K 2019-02-07
8-K 2018-11-01
8-K 2018-08-02
8-K 2018-05-03
8-K 2018-02-06

CCR 10Q Quarterly Report

Part I: Financial Information
Item 1.    Financial Statements
Note 1—Basis of Presentation:
Note 2—Revenue:
Note 3—Net Income per Limited Partner and General Partner Interest:
Note 4—Credit Losses:
Note 5—Inventories:
Note 6—Property, Plant and Equipment:
Note 7—Other Accrued Liabilities:
Note 8—Long - Term Debt:
Note 9—Components of Coal Workers’ Pneumoconiosis (Cwp) and Workers’ Compensation Net Periodic Benefit Costs:
Note 10—Fair Value of Financial Instruments:
Note 11—Commitments and Contingent Liabilities:
Note 12—Receivables Financing Agreement
Note 13—Related Party:
Note 14—Long - Term Incentive Plan:
Part Ii: Other Information
EX-31.1 ex_187833.htm
EX-31.2 ex_187834.htm
EX-32.1 ex_187835.htm
EX-32.2 ex_187836.htm
EX-95 ex_187837.htm

Consol Coal Resources Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
51040830620410202013201520172020
Assets, Equity
1008060402002013201520172020
Rev, G Profit, Net Income
503112-7-26-452013201520172020
Ops, Inv, Fin

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


(Mark One)

  

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

For the quarterly period ended June 30, 2020

OR

  

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

 

For the transition period from                      to                     

Commission file number: 001-14901

 


CONSOL Coal Resources LP 

(Exact name of registrant as specified in its charter)

 

Delaware

 

47-3445032

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1000 CONSOL Energy Drive, Suite 100

Canonsburg, PA 15317-6506

(724) 416-8300

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

 


 

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

 

  Title of each class 

Trading Symbol(s)

   Name of each exchange on which registered

Common Units representing limited partner interests

CCR

New York Stock Exchange

 

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

Yes  ☒    No  ☐

 

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

 

Yes  ☒    No   ☐

 

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

 

Large accelerated filer  ☐  Accelerated filer  ☒  Non-accelerated filer  ☐  Smaller Reporting Company    Emerging Growth Company 

 

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

 

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

 

CONSOL Coal Resources LP had 27,690,251 common units and a 1.7% general partner interest outstanding at July 22, 2020.

 

 

 

 
 

 

 

TABLE OF CONTENTS

 

 

 

Page

 

Part I. Financial Information

 

 

 

 

Item 1.

Financial Statements

4

 

Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019

4

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019

5

 

Consolidated Balance Sheets at June 30, 2020 and December 31, 2019

6

 

Consolidated Statement of Partners’ Capital for the three and six months ended June 30, 2020 and 2019

7

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

8

 

Notes to the Consolidated Financial Statements

9

 

 

 

Item 2.

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

19

 

 

 

Item 4.

Controls and Procedures

33

 

 

 

 

Part II. Other Information

 

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

Item 1A.

Risk Factors

34

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

Item 6.

Exhibits

35

 

 

 

 

Signatures

36

 

 

 

 

Significant Relationships and Other Terms Referenced in this Quarterly Report

 

 

“CONSOL Coal Resources LP,” the “Partnership,” “we,” “our,” “us” and similar terms refer to CONSOL Coal Resources LP, a Delaware limited partnership, and its subsidiaries, with common units listed for trading on the New York Stock Exchange under the ticker “CCR”;

 

 

“Affiliated Company Credit Agreement” refers to an agreement entered into on November 28, 2017 among the Partnership and certain of its subsidiaries (collectively, the “Credit Parties”), CONSOL Energy, as lender and administrative agent, and PNC Bank, National Association, as collateral agent (“PNC”), as amended by Amendment No. 1 to Affiliated Company Credit Agreement, dated March 28, 2019 and Amendment No. 2 to Affiliated Company Credit Agreement, dated June 5, 2020. The Affiliated Company Credit Agreement provides for a revolving credit facility in an aggregate principal amount of up to $275 million to be provided by CONSOL Energy, as lender;

 

 

“common units” refer to the limited partner interests in CONSOL Coal Resources LP. The holders of common units are entitled to participate in partnership distributions and are entitled to exercise the rights or privileges of limited partners under the Partnership Agreement. The common units are listed on the New York Stock Exchange under the symbol “CCR”;

 

 

“CONSOL Coal Finance” refers to CONSOL Coal Finance Corporation, a Delaware corporation and a direct, wholly owned subsidiary of the Partnership;

 

 

“CONSOL Energy” and our “sponsor” refer to CONSOL Energy Inc., a Delaware corporation and the parent of our general partner, and its subsidiaries other than our general partner, us and our subsidiaries;

 

 

“CONSOL Operating” refers to CONSOL Operating LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of the Partnership;

 

 

“CONSOL Thermal Holdings” refers to CONSOL Thermal Holdings LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of CONSOL Operating; CONSOL Thermal Holdings owns a 25% undivided interest in the assets, liabilities, revenues and expenses comprising the Pennsylvania Mining Complex;

 

 

“CPCC” refers to CONSOL Pennsylvania Coal Company LLC, a Delaware limited liability company and a wholly owned subsidiary of CONSOL Energy;

 

 

“general partner” refers to CONSOL Coal Resources GP LLC, a Delaware limited liability company and our general partner;

 

 

“Omnibus Agreement” refers to the Omnibus Agreement dated July 7, 2015, as replaced by the First Amended and Restated Omnibus Agreement dated as of September 30, 2016, and as amended by the First Amendment to the First Amended and Restated Omnibus Agreement, dated November 28, 2017;

 

 

“Partnership Agreement” refers to the Third Amended and Restated Partnership Agreement dated as of November 28, 2017;

 

 

“Pennsylvania Mining Complex” refers to the Bailey, Enlow Fork, and Harvey coal mines, coal reserves and related assets and operations, located primarily in southwestern Pennsylvania. The Pennsylvania Mining Complex is owned 75% by our sponsor and its subsidiaries and 25% by CONSOL Thermal Holdings;

 

 

“SEC” refers to the United States Securities and Exchange Commission; and

 

 

“subordinated units” refer to limited partner interests in CONSOL Coal Resources LP having the rights and obligations specified with respect to subordinated units in the Partnership Agreement. On August 16, 2019, all 11,611,067 subordinated units, which were owned entirely by CONSOL Energy Inc., were converted into common units on a one-for-one basis. As of the date of this Quarterly Report on Form 10-Q, there are no outstanding subordinated units.

 

 

 

PART I: FINANCIAL INFORMATION

 

ITEM 1.    FINANCIAL STATEMENTS

 

CONSOL COAL RESOURCES LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except unit data)

(unaudited)

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2020

  

2019

  

2020

  

2019

 

Coal Revenue

 $25,507  $87,655  $89,370  $170,781 

Freight Revenue

  771   964   1,558   2,629 

Other Income

  7,549   1,028   10,267   2,344 

Total Revenue and Other Income

  33,827   89,647   101,195   175,754 
                 

Operating and Other Costs 1

  24,776   58,450   73,064   110,544 

Depreciation, Depletion and Amortization

  11,520   11,336   23,448   22,553 

Freight Expense

  771   964   1,558   2,629 

Selling, General and Administrative Expenses 2

  2,360   2,953   6,406   7,513 

Interest Expense, Net 3

  2,254   1,557   4,409   2,908 

Total Costs

  41,681   75,260   108,885   146,147 

Net (Loss) Income

 $(7,854) $14,387  $(7,690) $29,607 
                 

Less: General Partner Interest in Net (Loss) Income

  (132)  242   (129)  499 

Limited Partner Interest in Net (Loss) Income

 $(7,722) $14,145  $(7,561) $29,108 
                 

Net (Loss) Income per Limited Partner Unit - Basic

 $(0.28) $0.51  $(0.27) $1.05 

Net (Loss) Income per Limited Partner Unit - Diluted

 $(0.28) $0.51  $(0.27) $1.05 
                 

Limited Partner Units Outstanding - Basic

  27,690,251   27,632,766   27,677,630   27,611,089 

Limited Partner Units Outstanding - Diluted

  27,690,251   27,653,823   27,677,630   27,649,547 
                 

Cash Distributions Declared per Unit 4

 $  $0.5125  $  $1.0250 

 

1 Related Party of $856 and $767 for the three months ended and $1,709 and $1,530 for the six months ended June 30, 2020 and June 30, 2019, respectively.

2 Related Party of $1,864 and $1,974 for the three months ended and $4,657 and $5,030 for the six months ended June 30, 2020 and June 30, 2019, respectively.

3 Related Party of $2,065 and $1,557 for the three months ended and $4,061 and $2,908 for the six months ended June 30, 2020 and June 30, 2019, respectively.

4 Represents the cash distributions declared related to the period presented.

 

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

 

 

 

CONSOL COAL RESOURCES LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Net (Loss) Income

  $ (7,854 )   $ 14,387     $ (7,690 )   $ 29,607  
                                 

Recognized Net Actuarial Gain (Loss)

    38       (3 )     77       (6 )

Other Comprehensive Income (Loss)

    38       (3 )     77       (6 )
                                 

Comprehensive (Loss) Income

  $ (7,816 )   $ 14,384     $ (7,613 )   $ 29,601  

 

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

 

 

 

CONSOL COAL RESOURCES LP

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

  

(unaudited)

     
  

June 30,

  

December 31,

 
  

2020

  

2019

 

ASSETS

        

Current Assets:

        

Cash

 $102  $543 

Trade Receivables, net

  21,391   32,769 

Other Receivables, net

  747   1,572 

Inventories

  14,122   12,653 

Prepaid Expenses

  2,761   5,746 

Total Current Assets

  39,123   53,283 

Property, Plant and Equipment:

        

Property, Plant and Equipment

  1,001,044   984,898 

Less—Accumulated Depreciation, Depletion and Amortization

  594,233   571,238 

Total Property, Plant and Equipment—Net

  406,811   413,660 

Other Assets:

        

Right of Use Asset—Operating Leases

  13,335   15,695 

Other Assets

  13,246   13,456 

Total Other Assets

  26,581   29,151 

TOTAL ASSETS

 $472,515  $496,094 
         
         

LIABILITIES AND PARTNERS’ CAPITAL

        

Current Liabilities:

        

Accounts Payable

 $13,292  $22,805 

Accounts Payable—Related Party

  4,731   1,419 

Current Portion of Long-Term Debt

  8,763   5,252 

Other Accrued Liabilities

  39,617   39,455 

Total Current Liabilities

  66,403   68,931 

Long-Term Debt:

        

Affiliated Company Credit Agreement—Related Party

  179,560   180,925 

Finance Lease Obligations

  5,666   1,645 

Total Long-Term Debt

  185,226   182,570 

Other Liabilities:

        

Pneumoconiosis Benefits

  6,508   6,028 

Workers’ Compensation

  3,811   3,611 

Asset Retirement Obligations

  11,030   10,801 

Operating Lease Liability

  9,102   11,507 

Other

  856   785 

Total Other Liabilities

  31,307   32,732 

TOTAL LIABILITIES

  282,936   284,233 

Partners’ Capital:

        

Common Units (27,690,251 Units Outstanding at June 30, 2020; 27,632,824 Units Outstanding at December 31, 2019)

  167,384   189,367 

General Partner Interest

  11,539   11,915 

Accumulated Other Comprehensive Income

  10,656   10,579 

Total Partners’ Capital

  189,579   211,861 

TOTAL LIABILITIES AND PARTNERS’ CAPITAL

 $472,515  $496,094 

 

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

 

 

 

CONSOL COAL RESOURCES LP

CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(Dollars in thousands)

 

  

Limited Partners

             
  

Common

  

Subordinated

  

General Partner

  

Accumulated Other Comprehensive Income

  

Total

 

Balance at December 31, 2019

 $189,367  $  $11,915  $10,579  $211,861 

(unaudited)

                    

Net Income

  161      3      164 

Unitholder Distributions

  (14,191)     (243)     (14,434)

Unit-Based Compensation

  159            159 

Units Withheld for Taxes

  (217)           (217)

Adoption of ASU 2016-013

  (247)     (4)     (251)

Actuarially Determined Long-Term Liability Adjustments

           39   39 

Balance at March 31, 2020

 $175,032  $  $11,671  $10,618  $197,321 

Net Loss

  (7,722)     (132)     (7,854)

Unit-Based Compensation

  74            74 

Actuarially Determined Long-Term Liability Adjustments

           38   38 

Balance at June 30, 2020

 $167,384  $  $11,539  $10,656  $189,579 

 

 

  

Limited Partners

             
              

Accumulated Other Comprehensive Income

     
  

Common

  

Subordinated

  

General Partner

  

(Loss)

  

Total

 

Balance at December 31, 2018

 $212,122  $(11,421) $12,119  $11,920  $224,740 

(unaudited)

                    

Net Income

  8,676   6,287   257      15,220 

Unitholder Distributions

  (8,211)  (5,951)  (243)     (14,405)

Unit-Based Compensation

  397            397 

Units Withheld for Taxes

  (880)           (880)

Actuarially Determined Long-Term Liability Adjustments

           (3)  (3)

Balance at March 31, 2019

 $212,104  $(11,085) $12,133  $11,917  $225,069 

Net Income

  8,201   5,944   242      14,387 

Unitholder Distributions

  (8,211)  (5,950)  (243)     (14,404)

Unit-Based Compensation

  341            341 

Actuarially Determined Long-Term Liability Adjustments

           (3)  (3)

Balance at June 30, 2019

 $212,435  $(11,091) $12,132  $11,914  $225,390 

 

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

 

 

 

CONSOL COAL RESOURCES LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

 

   

Six Months Ended

 
   

June 30,

 
   

2020

   

2019

 

Cash Flows from Operating Activities:

               

Net (Loss) Income

  $ (7,690 )   $ 29,607  

Adjustments to Reconcile Net (Loss) Income to Net Cash Provided by Operating Activities:

               

Depreciation, Depletion and Amortization

    23,448       22,553  

Loss on Sale of Assets

          5  

Unit-Based Compensation

    233       738  

Changes in Operating Assets:

               

Trade and Other Receivables

    11,952       (5,101 )

Inventories

    (1,469 )     (527 )

Prepaid Expenses

    2,985       (441 )

Changes in Other Assets

    210       1,377  

Changes in Operating Liabilities:

               

Accounts Payable

    (8,879 )     (1,160 )

Accounts Payable—Related Party

    3,312       (3,451 )

Other Operating Liabilities

    (1,521 )     2,902  

Changes in Other Liabilities

    735       576  

Net Cash Provided by Operating Activities

    23,316       47,078  

Cash Flows from Investing Activities:

               

Capital Expenditures

    (9,239 )     (18,046 )
Proceeds from Sales of Assets     5       4  

Net Cash Used in Investing Activities

    (9,234 )     (18,042 )

Cash Flows from Financing Activities:

               

Proceeds from Finance Lease Obligations

    4,073        

Payments on Finance Lease Obligations

    (2,580 )     (1,890 )

Net (Payments on) Proceeds From Related Party Long-Term Notes

    (1,365 )     2,000  

Payments for Unitholder Distributions

    (14,434 )     (28,809 )

Units Withheld for Taxes

    (217 )     (880 )

Net Cash Used in Financing Activities

    (14,523 )     (29,579 )

Net Decrease in Cash

    (441 )     (543 )

Cash at Beginning of Period

    543       1,003  

Cash at End of Period

  $ 102     $ 460  
                 

Non-Cash Investing and Financing Activities:

               

Finance Lease

  $ 3,251     $  

Longwall Shield Rebuild

  $ 2,788     $  

 

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

 

 

CONSOL COAL RESOURCES LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollars in thousands, except per unit amounts)

 

 

NOTE 1—BASIS OF PRESENTATION:

 

The accompanying unaudited Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

 

For the three and six months ended June 30, 2020 and 2019, the unaudited Consolidated Financial Statements include the accounts of CONSOL Operating and CONSOL Thermal Holdings, wholly owned and controlled subsidiaries.

 

The Partnership is a master limited partnership formed on March 16, 2015 to manage and further develop all of our sponsor's active coal operations in Pennsylvania. As of June 30, 2020, the Partnership's assets are comprised of a 25% undivided interest in, and operational control over, the Pennsylvania Mining Complex. The Partnership's common units trade on the New York Stock Exchange under the ticker symbol “CCR.”

 

Recent Accounting Pronouncements:

 

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04 Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this Update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The Update also provides optional expedients and exceptions for applying generally accepted accounting principles (“GAAP”) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments in this Update must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. Management has elected to apply this Update subsequent to March 12, 2020. Management does not expect this Update to have a material impact on the Partnership's financial statements.

 

In August 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 after December 15, 2020, including interim periods within those fiscal years. Management is currently evaluating the impact this guidance may have on the presentation of the Partnership's financial statements.

 

 

 

NOTE 2—REVENUE:

 

The following table disaggregates our revenue from contracts with customers for the three and six months ended June 30, 2020 and June 30, 2019:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2020

  

2019

  

2020

  

2019

 

Coal Revenue

 $25,507  $87,655  $89,370  $170,781 

Freight Revenue

  771   964   1,558   2,629 

Total Revenue from Contracts with Customers

 $26,278  $88,619  $90,928  $173,410 

 

Coal Revenue

 

Coal revenue is generally recognized when title passes to the customer and the price is fixed and determinable. Generally, title passes when coal is loaded at the central preparation facility and, on occasion, at terminal locations or other customer destinations. Our coal contract revenue per ton is fixed and determinable and adjusted for nominal quality adjustments. Some coal contracts also contain positive electric power price-related adjustments, which represent market-driven price adjustments, wherein there is no additional value exchanged, in addition to a fixed base price per ton. The Partnership's coal contracts generally do not allow for retroactive adjustments to pricing after title to the coal has passed.  Our coal supply contracts and other sales and operating revenue contracts vary in length from short-term to long-term contracts and do not typically have significant financing components.

 

The estimated transaction price from each of our contracts is based on the total amount of consideration to which we expect to be entitled under the contract. Included in the transaction price for certain coal supply contracts is the impact of variable consideration, including quality price adjustments, handling services, per-ton price fluctuations based on certain coal sales price indices and anticipated payments in lieu of shipments. The estimated transaction price for each contract is allocated to our performance obligations based on relative standalone selling prices determined at contract inception. We have determined that each ton of coal represents a separate and distinct performance obligation. Some of our contracts span multiple years and have annual pricing modification provisions, based upon market-driven or inflationary adjustments, where no additional value is exchanged. Management believes that the invoice price is the most appropriate rate at which to recognize revenue.

 

While we do, from time to time, experience costs of obtaining coal customer contracts with amortization periods greater than one year, those costs are generally immaterial to our net income. As of and for the three and six months ended June 30, 2020 and June 30, 2019, we do not have any capitalized costs to obtain customer contracts on our balance sheet nor have we recognized any amortization of previously existing capitalized costs of obtaining customer contracts. Further, the Partnership has not recognized any coal revenue in the current period from performance obligations satisfied (or partially satisfied) in previous periods.

 

Freight Revenue

 

Some of our coal contracts require that we sell our coal at locations other than our central preparation plant. The cost to transport our coal to the ultimate sales point is passed through to our customers and we recognize the freight revenue equal to the transportation cost when title of the coal passes to the customer.

 

Contract Balances

 

Contract assets are recorded separately from trade receivables in the Partnership's unaudited Consolidated Balance Sheets and are reclassified to trade receivables as title passes to the customer and the Partnership's right to consideration becomes unconditional. Payments for coal shipments are typically due within two to four weeks of the invoice date. The Partnership typically does not have material contract assets that are stated separately from trade receivables as the Partnership's performance obligations are satisfied as control of the goods or services passes to the customer, thereby granting the Partnership an unconditional right to receive consideration. Contract liabilities relate to consideration received in advance of the satisfaction of the Partnership's performance obligations. Contract liabilities are recognized as revenue at the point in time when control of the good or service passes to the customer.

 

10

 

 

NOTE 3—NET INCOME PER LIMITED PARTNER AND GENERAL PARTNER INTEREST:

 

The Partnership allocates net income among our general partner and limited partners using the two-class method in accordance with applicable authoritative accounting guidance. Under the two-class method, we allocate our net income to our limited partners and our general partner in accordance with the terms of our Partnership Agreement. We also allocate any earnings in excess of distributions to our limited partners and our general partner in accordance with the terms of our Partnership Agreement. We allocate any distributions in excess of earnings for the period to our general partner and our limited partners based on their respective proportionate ownership interests in us, after taking into account distributions to be paid with respect to the incentive distribution rights, as set forth in the Partnership Agreement.

 

Diluted net income per limited partner unit reflects the potential dilution that could occur if securities or agreements to issue common units, such as awards under the long-term incentive plan, were exercised, settled or converted into common units. When it is determined that potential common units resulting from an award subject to performance or market conditions should be included in the diluted net income per limited partner unit calculation, the impact is reflected by applying the treasury stock method.

 

On August 16, 2019, all 11,611,067 subordinated units were converted into common units on a one-for-one basis. For purposes of calculating net income per common and subordinated unit, the conversion of the subordinated units is deemed to have occurred on July 1, 2019. The conversion did not impact the amount of the cash distribution paid or the total number of the Partnership’s outstanding units representing limited partner interests. Upon payment of the cash distribution for the second quarter of 2019, the financial requirements for the conversion of all subordinated units were satisfied.

 

The following table illustrates the Partnership’s calculation of net (loss) income per unit for common and subordinated partner units:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2020

  

2019

  

2020

  

2019

 

Net (Loss) Income

 $(7,854) $14,387  $(7,690) $29,607 

Less: General Partner Interest in Net (Loss) Income

  (132)  242   (129)  499 

Net (Loss) Income Allocable to Limited Partner Units

 $(7,722) $14,145  $(7,561) $29,108 
                 

Limited Partner Interest in Net (Loss) Income - Common Units

 $(7,722) $8,201  $(7,561) $16,877 

Limited Partner Interest in Net Income - Subordinated Units

     5,944      12,231 

Limited Partner Interest in Net (Loss) Income - Basic & Diluted

 $(7,722) $14,145  $(7,561) $29,108 
                 

Weighted Average Limited Partner Units Outstanding - Basic

  27,690,251   27,632,766   27,677,630   27,611,089 
                 

Weighted Average Limited Partner Units Outstanding - Diluted

  27,690,251   27,653,823   27,677,630   27,649,547 
                 

Net (Loss) Income Per Limited Partner Unit - Basic

                

Common Units

 $(0.28) $0.51  $(0.27) $1.05 

Subordinated Units

 $  $0.51  $  $1.05 

Net (Loss) Income Per Limited Partner Unit - Basic

 $(0.28) $0.51  $(0.27) $1.05 
                 

Net (Loss) Income Per Limited Partner Unit - Diluted

                

Common Units

 $(0.28) $0.51  $(0.27) $1.05 

Subordinated Units

 $  $0.51  $  $1.05 

Net (Loss) Income Per Limited Partner Unit - Diluted

 $(0.28) $0.51  $(0.27) $1.05 

 

There were 33,705 and 39,673 phantom units excluded from the computation of the diluted earnings per unit, because their effect would be anti-dilutive for the three and six months ended June 30, 2020, respectively.  There were no phantom units excluded from the computation of the diluted earnings per unit, because their effect would be anti-dilutive for the three and six months ended June 30, 2019.

 

 

 

NOTE 4—CREDIT LOSSES:

 

Effective January 1, 2020, the Partnership adopted ASU 2016-013, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments using a modified retrospective approach. This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including trade and other receivables. The amendment requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under previous accounting guidance. The Partnership recorded a cumulative-effect adjustment to decrease retained earnings in the amount of $251 for expected credit losses on financial assets at the adoption date.

 

The following table illustrates the impact of ASC 326.

 

  

January 1, 2020

 
  

As Reported Under ASC 326

  

Pre-ASC 326 Adoption

  

Impact of ASC 326 Adoption

 
             

Trade Receivables

 $763  $525  $238 

Other Receivables

  32   19   13 

Allowance for Credit Losses on Receivables

 $795  $544  $251 

 

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

 

Balances are written off when determined to be uncollectible. The Partnership considered the current and expected future economic and market conditions surrounding the novel coronavirus (“COVID-19”) pandemic and determined that the estimate of credit losses was not significantly impacted.

 

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

 

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

 

  

Trade Receivables

  

Other Receivables

 
         

Beginning Balance, January 1, 2020

 $525  $19 

Adoption of ASU 2016-13, cumulative-effect adjustment to retained earnings

  238   13 

Provision for expected credit losses

  232   (24)

Ending Balance, June 30, 2020

 $995  $8 

 

 

 

NOTE 5—INVENTORIES:

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 

Coal

 $1,689  $621 

Supplies

  12,433   12,032 

Total Inventories

 $14,122  $12,653 

 

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

 

 

NOTE 6—PROPERTY, PLANT AND EQUIPMENT:

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 

Coal and Other Plant and Equipment

 $679,864  $666,560 

Coal Properties and Surface Lands

  126,511   126,294 

Airshafts

  109,354   106,750 

Mine Development

  81,538   81,538 

Advance Mining Royalties

  3,777   3,756 

Total Property, Plant and Equipment

  1,001,044   984,898 

Less: Accumulated Depreciation, Depletion and Amortization

  594,233   571,238 

Total Property, Plant and Equipment, Net

 $406,811  $413,660 

 

Coal reserves are controlled either through fee ownership or by lease. The duration of the leases varies; however, the lease terms generally are extended automatically to the exhaustion of economically recoverable coal reserves, as long as active mining continues. Coal interests held by lease provide the same rights as fee ownership for mineral extraction and are legally considered real property interests.

 

As of June 30, 2020 and December 31, 2019, property, plant and equipment includes gross assets under finance lease of $19,794 and $12,596, respectively. Accumulated amortization for finance leases was $10,350 and $7,351 at  June 30, 2020 and December 31, 2019, respectively. Amortization expense for assets under finance leases approximated $1,376 and $966 for the three months ended and $2,606 and $1,933 for the six months ended June 30, 2020 and June 30, 2019, respectively, and is included in Depreciation, Depletion and Amortization in the accompanying unaudited Consolidated Statements of Operations.

 

 

 

NOTE 7—OTHER ACCRUED LIABILITIES:

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 

Subsidence Liability

 $22,712  $22,661 

Accrued Payroll and Benefits

  3,735   4,460 

Accrued Interest (Related Party)

  2,840   2,541 

Other

  2,868   2,304 

Current Portion of Long-Term Liabilities:

        

Operating Lease Liability

  4,823   4,753 

Workers’ Compensation

  1,445   1,423 

Asset Retirement Obligations

  830   954 

Pneumoconiosis Benefits

  213   201 

Long-Term Disability

  151   158 

Total Other Accrued Liabilities

 $39,617  $39,455 

 

 

NOTE 8—LONG-TERM DEBT:

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 

Affiliated Company Credit Agreement (4.75% interest rate at June 30, 2020 and 4.00% interest rate at December 31, 2019)

 $179,560  $180,925 

Other Asset-Backed Financing Maturing in December 2020, 4.42% and 5.96% Weighted Average Interest Rate at June 30, 2020 and December 31, 2019, respectively

  4,231   1,443 
   183,791   182,368 

Less: Amounts Due in One Year*

  4,231   1,443 

Long-Term Debt

 $179,560  $180,925 

 

* Excludes current portion of Finance Lease Obligations of $4,532 and at $3,809 at June 30, 2020 and December 31, 2019, respectively.

    

Affiliated Company Credit Agreement

 

On November 28, 2017, the Partnership and the other Credit Parties entered into the Affiliated Company Credit Agreement by and among the Credit Parties, CONSOL Energy, as lender and administrative agent, and PNC. On June 5, 2020, the Partnership amended the Affiliated Company Credit Agreement to provide eight quarters of financial covenant relaxation, effected a 50 basis points increase in the rate at which borrowings under the Affiliated Company Credit Agreement bear interest, and added additional conditions to be met for the covenants relating to general investments, investments in unrestricted subsidiaries, and distributions to equity holders of the Partnership. The Affiliated Company Credit Agreement has a maturity date of  December 28, 2024. The Affiliated Company Credit Agreement provides for a revolving credit facility in an aggregate principal amount of up to $275,000 to be provided by CONSOL Energy, as lender. In connection with the Partnership’s entry into the Affiliated Company Credit Agreement, the Partnership made an initial draw of $200,583, the net proceeds of which were used to repay the amounts outstanding under the Partnership's prior credit facility. Additional drawings under the Affiliated Company Credit Agreement are available for general partnership purposes. The obligations under the Affiliated Company Credit Agreement are guaranteed by the Partnership’s subsidiaries and secured by substantially all of the assets of the Partnership and its subsidiaries pursuant to the security agreement and various mortgages.

 

Interest on outstanding obligations under our Affiliated Company Credit Agreement accrues at a fixed rate ranging from 4.25% to 5.25%, depending on the total net leverage ratio. The unused portion of our Affiliated Company Credit Agreement is subject to a commitment fee of 0.50% per annum. The Partnership had available capacity under the Affiliated Company Credit Agreement of $95,440 and $94,075 as of June 30, 2020 and December 31, 2019, respectively.

 

        The Affiliated Company Credit Agreement contains certain covenants and conditions that, among other things, limit the Partnership’s ability to: (i) incur or guarantee additional debt; (ii) make cash distributions; provided that we will be able to make cash distributions of available cash to partners so long as the Partnership's first lien gross leverage ratio shall not be greater than 2.00 to 1.00, the fixed charge coverage ratio shall be not less than 1.00 to 1.00, and no event of default is continuing or would result therefrom; (iii) incur certain liens or permit them to exist; (iv) make particular investments and loans; provided that we will be able to increase our ownership percentage of our undivided interest in the Pennsylvania Mining Complex and make investments in the Pennsylvania Mining Complex in accordance with our ratable ownership; (v) enter into certain types of transactions with affiliates; (vi) merge or consolidate with another company; and (vii) transfer, sell or otherwise dispose of assets. The Partnership is also subject to covenants that require the Partnership to maintain certain financial ratios, each of which will be calculated on a consolidated basis for the Partnership and its restricted subsidiaries at the end of each fiscal quarter.  The amendment revised the financial covenants in the Affiliated Company Credit Agreement, so that for the fiscal quarters ending June 30, 2020 through March 31, 2021, the maximum first lien gross leverage ratio shall be 3.75 to 1.00 and the maximum total net leverage ratio shall be 4.00 to 1.00; for the fiscal quarters ending June 30, 2021 through September 30, 2021, the maximum first lien gross leverage ratio shall be 3.50 to 1.00 and the maximum total net leverage ratio shall be 3.75 to 1.00; for the fiscal quarters ending December 31, 2021 through March 31, 2022, the maximum first lien gross leverage ratio shall be 3.00 to 1.00 and the maximum total net leverage ratio shall be 3.50 to 1.00; and for the fiscal quarters ending on or after June 30, 2022, the maximum first lien gross leverage ratio shall be 2.75 to 1.00 and the maximum total net leverage ratio shall be 3.25 to 1.00. At June 30, 2020, the Partnership was in compliance with its financial covenants with a first lien gross leverage ratio of 2.93 to 1.00 and a total net leverage ratio of 2.93 to 1.00. The Partnership is continuing to actively monitor the effects of the ongoing COVID-19 pandemic on its liquidity and capital resources. We took several steps in the first half of 2020 to reinforce our liquidity. From a coal shipment perspective, we seemed to have hit the bottom in May 2020. However, if the demand for our coal continues to decrease, this could adversely affect our liquidity in future quarters and, as a result, our ability to comply with these covenants over the next twelve months.

 

14

 

Other Asset-Backed Financing

 

As of June 30, 2020 and December 31, 2019, the Partnership was a borrower under an asset-backed financing arrangement related to certain equipment. The equipment, which had an approximate value of $4,231 and $1,443, respectively, fully collateralizes the loan.

 

 

NOTE 9—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:

 

The Partnership is obligated to CONSOL Energy for medical and disability benefits to certain CPCC employees and their dependents resulting from occurrences of coal workers’ pneumoconiosis disease and is also obligated to CONSOL Energy to compensate certain individuals who are entitled benefits under workers’ compensation laws.

 

  

CWP

  

Workers’ Compensation

 
  

Three Months Ended

  

Six Months Ended

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

  

June 30,

  

June 30,

 
  

2020

  

2019

  

2020

  

2019

  

2020

  

2019

  

2020

  

2019

 

Service Cost

 $254  $200  $508  $400  $385  $349  $771  $698 

Interest Cost

  45   48   90   97   32   41   64   82 

Amortization of Actuarial Loss (Gain)

  40   7   81   13   (8)  (12)  (17)  (24)

State Administrative Fees and Insurance Bond Premiums

              44   45   92   96 

Net Periodic Benefit Cost

 $339  $255  $679  $510  $453  $423  $910  $852 

 

 

NOTE 10—FAIR VALUE OF FINANCIAL INSTRUMENTS:

 

The Partnership determines the fair value of assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources (including LIBOR-based discount rates), while unobservable inputs reflect the Partnership’s own assumptions of what market participants would use.

 

The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below.

 

Level One - Quoted prices for identical instruments in active markets.

 

Level Two - The fair value of the assets and liabilities included in Level 2 are based on standard industry income approach models that use significant observable inputs, including LIBOR-based discount rates.

 

15

 

Level Three - Unobservable inputs significant to the fair value measurement supported by little or no market activity. The significant unobservable inputs used in the fair value measurement of the Partnership’s third party guarantees are the credit risk of the third party and the third party surety bond markets.

 

In those cases when the inputs used to measure fair value meet the definition of more than one level of the fair value hierarchy, the lowest level input that is significant to the fair value measurement in its totality determines the applicable level in the fair value hierarchy.

 

The following methods and assumptions were used to estimate the fair value for which the fair value option was not elected:

 

Long-term debt: The fair value of long-term debt is measured using unadjusted quoted market prices or estimated using discounted cash flow analyses. The discounted cash flow analyses are based on current market rates for instruments with similar cash flows.

 

The carrying amounts and fair values of financial instruments for which the fair value option was not elected are as follows:

 

  

June 30, 2020

  

December 31, 2019

 
  

Carrying

  

Fair

  

Carrying

  

Fair

 
  

Amount

  

Value

  

Amount

  

Value

 

Affiliated Company Credit Agreement—Related Party

 $179,560  $172,378  $180,925  $180,925 

 

The Partnership’s debt obligations are valued through reference to the applicable underlying benchmark rate and, as a result, constitute Level 2 fair value measurements.

 

 

NOTE 11—COMMITMENTS AND CONTINGENT LIABILITIES:

 

The Partnership is subject to various lawsuits and claims with respect to such matters as personal injury, wrongful death, damage to property, exposure to hazardous substances, governmental regulations (including environmental remediation), employment and contract disputes and other claims and actions arising out of the normal course of its business. We accrue the estimated loss for these lawsuits and claims when the loss is probable and can be estimated. Our current estimated accruals related to these pending claims, individually and in the aggregate, are immaterial to the financial position, results of operations or cash flows of the Partnership. It is possible that the aggregate loss in the future with respect to these lawsuits and claims could ultimately be material to the financial position, results of operations or cash flows of the Partnership; however, such amounts cannot be reasonably estimated.

 

At June 30, 2020, the Partnership was contractually obligated to CONSOL Energy for financial guarantees and letters of credit to certain third parties which were issued by CONSOL Energy on behalf of the Partnership. The maximum potential total of future payments that we could be required to make under these instruments is $99,594. The instruments are comprised of $676 of letters of credit expiring within the next three years, $90,220 of environmental surety bonds expiring within the next three years, and $8,698 of employee-related and other surety bonds expiring within the next three years. Employee-related financial guarantees have primarily been provided to support various state workers’ compensation and federal black lung self-insurance programs. Environmental financial guarantees have primarily been provided to support various performance bonds related to reclamation and other environmental issues. Other guarantees have been extended to support insurance policies, legal matters, full and timely payments of mining equipment leases, and various other items necessary in the normal course of business. These amounts have not been reduced for potential recoveries under recourse or collateralization provisions. Generally, recoveries under reclamation bonds would be limited to the extent of the work performed at the time of the default. No amounts related to these financial guarantees and letters of credit are recorded as liabilities on the financial statements. The Partnership’s management believes that these guarantees will expire without being funded, and therefore the commitments will not have a material adverse effect on the financial condition of the Partnership.

 

 

NOTE 12RECEIVABLES FINANCING AGREEMENT

 

On November 30, 2017, (i) CONSOL Marine Terminals LLC, as an originator of receivables, (ii) CPCC, 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 of CONSOL Energy, and (iii) CONSOL Funding LLC (the “SPV”), as buyer, entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”). Concurrently, (i) CONSOL Thermal Holdings, as sub-originator, and (ii) CPCC, as buyer and as initial servicer of the receivables for itself and CONSOL Thermal Holdings, entered into a Sub-Originator 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) CPCC, as initial servicer, (iii) PNC, 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”). In March 2020, the Securitization was amended, among other things, to extend the scheduled termination date to March 27, 2023.

 

16

 

Pursuant to the Securitization, (i) CONSOL Thermal Holdings will sell current and future trade receivables to CPCC and (ii) the Originators will sell and/or contribute current and future trade receivables (including receivables sold to CPCC by CONSOL Thermal Holdings) to the SPV and the SPV will, in turn, pledge its interests in the receivables to PNC, which will either make loans or issue letters of credit on behalf of the SPV. The maximum amount of advances and letters of credit outstanding under the Securitization may not exceed $100,000. Loans under the Securitization will 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 will accrue a program fee and participation fee, respectively, ranging from 2.00% to 2.50% per annum, depending on the total net leverage ratio of CONSOL Energy. In addition, the SPV paid certain structuring fees to PNC Capital Markets LLC and will pay other customary fees to the lenders, including a fee on unused commitments. The SPV’s assets and credit are not available to satisfy the debts and obligations owed to the creditors of CONSOL Energy, CONSOL Thermal Holdings or any of the Originators. CONSOL Thermal Holdings, the Originators and CPCC 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 CONSOL Thermal Holdings, the Originators and CPCC as servicer, and will guarantee the obligations of any additional originators or successor servicer that may become party to the Securitization. However, neither CONSOL Energy nor its affiliates will guarantee collectability of receivables or the creditworthiness of obligors thereunder.

 

The Securitization contains 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 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.

 

As of June 30, 2020 and December 31, 2019, respectively, the Partnership, through CONSOL Thermal Holdings, had sold $22,386 and $33,294 of trade receivables to CPCC. The Partnership has not derecognized the receivables due to its continued involvement in the collections efforts.

 

 

NOTE 13RELATED PARTY:

 

Omnibus Agreement

 

The Partnership is a party to the Omnibus Agreement, dated September 30, 2016, as amended on November 28, 2017, with our sponsor and certain of its subsidiaries. Under the Omnibus Agreement, we are obligated to make certain payments to, and reimburse, CONSOL Energy for the provision of certain services in connection with our operations.

 

Charges for services from CONSOL Energy under the Omnibus Agreement include the following:

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2020

  

2019

  

2020

  

2019

 

Operating and Other Costs

 $856  $767  $1,709  $1,530 

Selling, General and Administrative Expenses

  1,864   1,974   4,657   5,030 

Total Services from CONSOL Energy

 $2,720  $2,741  $6,366  $6,560 

 

At June 30, 2020 and December 31, 2019, the Partnership had a net payable to CONSOL Energy in the amount of $4,731 and $1,419, respectively. This payable includes reimbursements for business expenses, executive fees, stock-based compensation and other items under the Omnibus Agreement.

 

Affiliated Company Credit Agreement

 

As described in Note 8, the Partnership is also a party to the Affiliated Company Credit Agreement with CONSOL Energy.

 

17

 

For the three and six months ended June 30, 2020, $2,163 and $4,277 of interest was incurred under the Affiliated Company Credit Agreement, respectively, of which $98 and $216 was capitalized and included in Property, Plant and Equipment in the unaudited Consolidated Balance Sheets, respectively.  For the three and six months ended June 30, 2019, $1,971 and $3,766 of interest was incurred under the Affiliated Company Credit Agreement, respectively, of which $414 and $858 was capitalized and included in Property, Plant and Equipment in the unaudited Consolidated Balance Sheets, respectively. Interest is calculated based upon a fixed rate, determined quarterly, depending on the total net leverage ratio. For the three and six months ended June 30, 2020, the average interest rate was 4.27% and 4.14%, respectively, and for the three and six months ended June 30, 2019 the average interest rate was 3.75%. See Note 8 - Long-Term Debt for more information.

 

Repurchase Program

 

In May 2019, CONSOL Energy's Board of Directors approved an expansion of the stock, unit and debt repurchase program. The program previously allowed CONSOL Energy to use up to $25 million of the program to purchase the Partnership's outstanding common units in the open market.  CONSOL Energy's Board of Directors approved changing the termination date of the program from June 30, 2019 to June 30, 2020. Also, in accordance with CONSOL Energy’s credit facility covenants, the total amount that can be used for repurchases of the Partnership's outstanding common units was raised to $50 million. No common units were repurchased during the three and six months ended June 30, 2020. During the three and six months ended June 30, 20196,884 common units were repurchased at an average price of $17.35 per unit.

 

Conversion of Subordinated Units

 

In August 2019, upon payment of the cash distribution with respect to the quarter ended June 30, 2019, the financial requirements for the conversion of all the Partnership's subordinated units were satisfied. As a result, all 11,611,067 subordinated units, owned entirely by CONSOL 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 the Partnership’s outstanding units representing limited partner interests.

 

 

NOTE 14—LONG-TERM INCENTIVE PLAN:

 

Under the CONSOL Coal Resources LP 2015 Long-Term Incentive Plan (the “LTIP”), our general partner may issue long-term equity-based awards to directors, officers and employees of our general partner or its affiliates, or to any consultants, affiliates of our general partner or other individuals who perform services for us. These awards are intended to compensate the recipients thereof based on the performance of our common units and their continued service during the vesting period, as well as to align their long-term interests with those of our unitholders. We are responsible for the cost of awards granted under the LTIP and all determinations with respect to awards to be made under the LTIP will be made by the board of directors of our general partner or any committee thereof that may be established for such purpose or by any delegate of the board of directors or such committee, subject to applicable law, which we refer to as the plan administrator.

 

The LTIP limits the number of units that may be delivered pursuant to vested awards to 2,300,000 common units, subject to proportionate adjustment in the event of unit splits and similar events. Common units subject to awards that are canceled, forfeited, withheld to satisfy exercise prices or tax withholding obligations or otherwise terminated without delivery of the common units will be available for delivery pursuant to other awards. The Partnership recognizes forfeitures as they occur.

 

18

 

The general partner has granted equity-based phantom units that vest over a period of a recipient’s continued service with the Partnership. The phantom units will be paid in common units or an amount of cash equal to the fair market value of a unit based on the vesting date. The awards may accelerate upon a change in control of the Partnership. Compensation expense is recognized on a straight-line basis over the requisite service period, which is generally the vesting term. The Partnership recognized compensation expense of $74 and $341 for the three months ended and $233 and $738 for the six months ended  June 30, 2020 and June 30, 2019, respectively, which is included in Selling, General and Administrative Expense in the unaudited Consolidated Statements of Operations. As of  June 30, 2020, there is $185 of unearned compensation that will vest over a weighted average period of 0.62 years. There were no phantom units that vested during the three months ended June 30, 2020 and  June 30, 2019. The total fair value of phantom units vested during the six months ended June 30, 2020 and  June 30, 2019 was $820 and $2,905, respectively. The following represents the nonvested phantom units and their corresponding weighted average grant date fair value:

 

  

Number of Units

  

Weighted Average Grant Date Fair Value per Unit

 

Nonvested at December 31, 2019

  78,345  $18.62 

Granted

  33,705  $8.90 

Vested

  (78,173) $18.62 

Forfeited

  (172) $18.95 

Nonvested at June 30, 2020

  33,705  $8.90 

 

 

 

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Unless otherwise indicated, the following discussion and analysis of the financial condition and results of operations of our Partnership reflect a 25% undivided interest in the assets, liabilities and results of operations of the Pennsylvania Mining Complex. As used in the following discussion and analysis of the financial condition and results of operations of our Partnership, the terms “we,” “our,” “us,” or like terms refer to the Partnership with respect to its 25% undivided interest in the Pennsylvania Mining Complex’s combined assets, liabilities, revenues and costs. All amounts discussed in this section are in thousands, except for per unit or per ton amounts, unless otherwise indicated.

 

COVID-19 Update

 

The Partnership is monitoring the impact of the COVID-19 pandemic and has taken, and will continue to take, steps to mitigate the potential risks and impact on the Partnership. The health and safety of our sponsor's employees is paramount. In response to two of our sponsor's employees testing positive for COVID-19, our sponsor temporarily curtailed production at the Bailey Mine for two weeks at the end of March. Second quarter production at the Bailey Mine began on April 13th. Our sponsor continues to monitor the health and safety of its employees closely in order to limit potential risks to its employees, contractors, family members, and the community.

 

We are considered a critical infrastructure company by the U.S. Department of Homeland Security. As a result, we were exempt from Pennsylvania Governor Tom Wolf's executive order, issued in March 2020, closing all businesses that are not life sustaining. The coal demand decline that began in the first quarter continued through the second quarter and into the third quarter of 2020, driven by the widespread lockdowns caused by COVID-19. In response to the decline in demand for our coal, our sponsor announced on April 14, 2020 that it temporarily idled production at the Enlow Fork mine, and temporarily idled production at the Bailey mine on May 2, 2020. Limited production began again at the Bailey Mine on June 8, 2020. This decline in coal demand has negatively impacted our operational, sales, and financial performance year-to-date, and we expect that this negative impact will continue as the pandemic continues.

 

While some of the government-imposed shutdowns of nonessential business in the United States and abroad have been phased out, there is a possibility that such shutdowns may be reimposed if COVID-19 experiences a resurgence. We expect that depressed domestic and international demand for our coal will continue for so long as there are widespread, government-imposed shutdowns of business activity. Depressed demand for our coal may also result from a general recession or reduction in overall business activity caused by COVID-19. Additionally, some of our customers have already attempted, and may in the future attempt, to invoke force majeure or similar provisions in the contracts they have in place with us in order to avoid taking possession of, and paying us for, our coal that they are contractually obligated to purchase. Sustained decrease in demand for our coal and the failure of our customers to purchase coal from us that they are obligated to purchase pursuant to existing contracts would have a material adverse effect on our results of operations and financial condition. The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the outbreak and the effectiveness of actions globally to contain or mitigate its effects. We expect this matter to negatively impact our results of operations, cash flows and financial condition. Due to the current level of uncertainty over the economic and operational impacts of COVID-19, the Partnership withdrew its previously announced operational and financial guidance for 2020 in the first quarter. The Partnership will continue to take the appropriate steps to mitigate the impacts of COVID-19 on the Partnership's operations, liquidity and financial condition.

 

 

Overview

 

We are a master limited partnership formed in 2015 to manage and further develop all of our sponsor's active coal operations in Pennsylvania. Our primary strategy for growing our business is to increase operating efficiencies to maximize realizations and make acquisitions that increase our distributable cash flow. At June 30, 2020, the Partnership’s assets include a 25% undivided interest in, and operational control over, CONSOL Energy’s Pennsylvania Mining Complex, which consists of three underground mines and related infrastructure that produce high-Btu coal that is sold primarily to electric utilities in the eastern United States. We believe that our ability to efficiently produce and deliver large volumes of high-quality coal at competitive prices, the strategic location of our mines, and the industry experience of our management team position us as a leading producer of high-Btu thermal coal in the Northern Appalachian Basin and the eastern United States.

 

 

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; (iv) average cash margin per ton, an operating ratio derived from non-GAAP financial measures; (v) adjusted EBITDA, a non-GAAP financial measure; and (vi) distributable cash flow, a non-GAAP financial measure.

 

Cost of coal sold, cash cost of coal sold, average cash margin per ton, adjusted EBITDA and distributable cash flow 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 to make distributions to our partners;

 

 

our ability to incur and service debt and fund capital expenditures;

 

 

the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities; and

 

 

the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.

   

These non-GAAP financial measures should not be considered an alternative to total costs, total coal revenue, 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.

 

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, 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 and cash cost of coal sold is total costs. The cash cost of coal sold includes cost of coal sold less depreciation, depletion and amortization cost on production assets.

    

 

The following table presents a reconciliation of cost of coal sold and cash cost of coal sold to total costs, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated.

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Total Costs

  $ 41,681     $ 75,260     $ 108,885     $ 146,147  

Freight Expense

    (771 )     (964 )     (1,558 )     (2,629 )

Selling, General and Administrative Expenses

    (2,360 )     (2,953 )     (6,406 )     (7,513 )

Interest Expense, Net

    (2,254 )     (1,557 )     (4,409 )     (2,908 )

Other Costs (Non-Production)

    (9,881 )     (907 )     (10,321 )     (3,171 )

Depreciation, Depletion and Amortization (Non-Production)

    (4,112 )     (509 )     (4,645 )     (1,086 )

Cost of Coal Sold

  $ 22,303     $ 68,370     $ 81,546     $ 128,840  

Depreciation, Depletion and Amortization (Production)

    (7,408 )     (10,827 )     (18,803 )     (21,467 )

Cash Cost of Coal Sold

  $ 14,895     $ 57,543     $ 62,743     $ 107,373