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CNX Resources Corp 10-Q 2016
Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________
FORM 10-Q
  __________________________________________________ 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2016
OR
o
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 Energy Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
51-0337383
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1000 CONSOL Energy Drive
Canonsburg, PA 15317-6506
(724) 485-4000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 __________________________________________________ 
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  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes  x    No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x    Accelerated filer  o    Non-accelerated filer  o    Smaller Reporting Company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Shares outstanding as of October 17, 2016
Common stock, $0.01 par value
 
229,440,368
 




TABLE OF CONTENTS

 
 
Page
PART I FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
Condensed Financial Statements
 
 
Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015
 
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015
 
Consolidated Balance Sheets at September 30, 2016 and December 31, 2015
 
Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2016
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
PART II OTHER INFORMATION
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
Risk Factors
 
 
 
ITEM 4.
 
 
 
ITEM 5.
Other Information
 
 
 
ITEM 6.

GLOSSARY OF CERTAIN OIL AND GAS MEASUREMENT TERMS

The following are abbreviations of certain measurement terms commonly used in the oil and gas industry and included within this Form 10-Q:

Bbl - One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil or other liquid hydrocarbons.
Bcf - One billion cubic feet of natural gas.
Bcfe - One billion cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
Btu - One British thermal unit.
Mbbls - One thousand barrels of oil or other liquid hydrocarbons.
Mcf - One thousand cubic feet of natural gas.
Mcfe - One thousand cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
MMbtu - One million British Thermal units.
MMcfe - One million cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
NGL - Natural gas liquids.
Tcfe - One trillion cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.




PART I : FINANCIAL INFORMATION
 
ITEM 1.
CONDENSED FINANCIAL STATEMENTS

CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended
 
Nine Months Ended
(Unaudited)
September 30,
 
September 30,
Revenues and Other Income:
2016
 
2015
 
2016
 
2015
Natural Gas, NGLs and Oil Sales
$
205,913

 
$
157,538

 
$
555,101

 
$
541,630

Gain on Commodity Derivative Instruments
198,192

 
143,606

 
53,872

 
251,073

Coal Sales
267,685

 
323,171

 
744,411

 
1,026,596

Other Outside Sales
4,714

 
5,129

 
20,687

 
24,596

Purchased Gas Sales
12,086

 
2,535

 
28,633

 
7,649

Freight-Outside Coal
9,392

 
2,436

 
33,949

 
10,204

Miscellaneous Other Income
32,393

 
38,475

 
114,159

 
111,279

Gain on Sale of Assets
15,203

 
48,043

 
13,541

 
54,329

Total Revenue and Other Income
745,578

 
720,933

 
1,564,353

 
2,027,356

Costs and Expenses:
 
 
 
 
 
 
 
Exploration and Production Costs
 
 
 
 
 
 
 
Lease Operating Expense
22,602

 
29,452

 
73,996

 
96,229

Transportation, Gathering and Compression
94,796

 
89,965

 
279,753

 
248,682

Production, Ad Valorem, and Other Fees
9,027

 
8,475

 
23,732

 
24,605

Depreciation, Depletion and Amortization
101,257

 
92,083

 
312,122

 
269,377

Exploration and Production Related Other Costs
384

 
3,332

 
5,036

 
7,695

Purchased Gas Costs
11,940

 
1,921

 
28,692

 
5,939

Other Corporate Expenses
21,760

 
20,953

 
65,980

 
47,088

Impairment of Exploration and Production Properties

 

 

 
828,905

Selling, General, and Administrative Costs
26,198

 
23,919

 
74,067

 
80,396

Total Exploration and Production Costs
287,964

 
270,100

 
863,378

 
1,608,916

PA Mining Operations Costs
 
 
 
 
 
 
 
Operating and Other Costs
182,717

 
137,759

 
521,277

 
564,604

Depreciation, Depletion and Amortization
42,370

 
43,459

 
125,334

 
136,536

Freight Expense
9,392

 
2,436

 
33,949

 
10,204

Selling, General, and Administrative Costs
7,653

 
9,044

 
20,207

 
34,231

Total PA Mining Operations Costs
242,132

 
192,698

 
700,767

 
745,575

Other Costs
 
 
 
 
 
 
 
Miscellaneous Operating Expense
40,085

 
(3,078
)
 
127,531

 
70,554

Selling, General, and Administrative Costs
4,569

 
6,173

 
10,173

 
9,946

Depreciation, Depletion and Amortization
8,085

 
11,302

 
4,463

 
21,219

Loss on Debt Extinguishment

 

 

 
67,751

Interest Expense
47,317

 
48,558

 
144,609

 
150,185

Total Other Costs
100,056

 
62,955

 
286,776

 
319,655

Total Costs And Expenses
630,152

 
525,753

 
1,850,921

 
2,674,146

Income (Loss) From Continuing Operations Before Income Tax
115,426

 
195,180

 
(286,568
)
 
(646,790
)
Income Taxes
52,858

 
65,868

 
(71,798
)
 
(251,181
)
Income (Loss) From Continuing Operations
62,568

 
129,312

 
(214,770
)
 
(395,609
)
Loss From Discontinued Operations, net
(34,975
)
 
(3,842
)
 
(322,747
)
 
(3,192
)
Net Income (Loss)
27,593

 
125,470

 
(537,517
)
 
(398,801
)
Less: Net Income Attributable to Noncontrolling Interest
2,248

 
6,490

 
4,541

 
6,490

Net Income (Loss) Attributable to CONSOL Energy Shareholders
$
25,345

 
$
118,980

 
$
(542,058
)
 
$
(405,291
)





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


3



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
 
Three Months Ended
 
Nine Months Ended
(Dollars in thousands, except per share data)
September 30,
 
September 30,
(Unaudited)
2016
 
2015
 
2016
 
2015
Earnings (Loss) Per Share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Income (Loss) from Continuing Operations
$
0.26

 
$
0.54

 
$
(0.96
)
 
$
(1.75
)
Loss from Discontinued Operations
(0.15
)
 
(0.02
)
 
(1.40
)
 
(0.02
)
Total Basic Earnings (Loss) Per Share
$
0.11

 
$
0.52

 
$
(2.36
)
 
$
(1.77
)
Dilutive
 
 
 
 
 
 
 
Income (Loss) from Continuing Operations
$
0.26

 
$
0.54

 
$
(0.96
)
 
$
(1.75
)
Loss from Discontinued Operations
(0.15
)
 
(0.02
)
 
(1.40
)
 
(0.02
)
Total Dilutive Earnings (Loss) Per Share
$
0.11

 
$
0.52

 
$
(2.36
)
 
$
(1.77
)
 
 
 
 
 
 
 
 
Dividends Declared Per Share
$

 
$
0.0100

 
$
0.0100

 
$
0.1350


CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended
 
Nine Months Ended
(Dollars in thousands)
September 30,
 
September 30,
(Unaudited)
2016
 
2015
 
2016
 
2015
Net Income (Loss)
$
27,593

 
$
125,470

 
$
(537,517
)
 
$
(398,801
)
Other Comprehensive Loss:
 
 
 
 
 
 
 
  Actuarially Determined Long-Term Liability Adjustments (Net of tax: ($1,043), $29,720, ($5,369), $24,935)
1,305

 
(49,353
)
 
6,866

 
(40,036
)
  Reclassification of Cash Flow Hedges from OCI to Earnings (Net of tax: $7,139, $11,807, $19,284, $35,123)
(12,458
)
 
(20,602
)
 
(33,475
)
 
(60,720
)


 

 
 
 
 
Other Comprehensive Loss
(11,153
)
 
(69,955
)
 
(26,609
)
 
(100,756
)


 

 
 
 
 
Comprehensive Income (Loss)
16,440

 
55,515

 
(564,126
)
 
(499,557
)
 
 
 
 
 
 
 
 
Less: Comprehensive Income Attributable to Noncontrolling Interests
2,248

 
6,490

 
4,541

 
6,490

 
 
 
 
 
 
 
 
Comprehensive Income (Loss) Attributable to CONSOL Energy Inc. Shareholders
$
14,192

 
$
49,025

 
$
(568,667
)
 
$
(506,047
)









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


4



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
(Unaudited)
 
 
(Dollars in thousands)
September 30,
2016
 
December 31,
2015
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
80,247

 
$
72,574

Accounts and Notes Receivable:
 
 

Trade
163,955

 
151,383

Other Receivables
80,490

 
121,735

Inventories
62,622

 
66,792

Recoverable Income Taxes

 
13,887

Prepaid Expenses
125,490

 
297,287

Current Assets of Discontinued Operations
2,111

 
81,106

Total Current Assets
514,915

 
804,764

Property, Plant and Equipment:
 
 
 
Property, Plant and Equipment
13,920,715

 
13,794,907

Less—Accumulated Depreciation, Depletion and Amortization
5,506,096

 
5,062,201

Property, Plant and Equipment of Discontinued Operations, Net

 
936,670

Total Property, Plant and Equipment—Net
8,414,619

 
9,669,376

Other Assets:
 
 
 
Deferred Income Taxes
149,680

 

Investment in Affiliates
257,423

 
237,330

Other
228,857

 
214,388

Other Assets of Discontinued Operations

 
4,044

Total Other Assets
635,960

 
455,762

TOTAL ASSETS
$
9,565,494

 
$
10,929,902

























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


5



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 
 
(Unaudited)
 
 
(Dollars in thousands, except per share data)
September 30,
2016
 
December 31,
2015
LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts Payable
$
197,479

 
$
250,609

Current Portion of Long-Term Debt
4,470

 
4,988

Short-Term Notes Payable
354,000

 
952,000

Accrued Income Taxes
5,485

 

Other Accrued Liabilities
508,144

 
421,827

Current Liabilities of Discontinued Operations
664

 
51,514

Total Current Liabilities
1,070,242

 
1,680,938

Long-Term Debt:
 
 
 
Long-Term Debt
2,734,004

 
2,708,320

Capital Lease Obligations
29,805

 
34,884

Long-Term Debt of Discontinued Operations

 
5,001

Total Long-Term Debt
2,763,809

 
2,748,205

Deferred Credits and Other Liabilities:
 
 
 
Deferred Income Taxes

 
74,629

Postretirement Benefits Other Than Pensions
613,233

 
630,892

Pneumoconiosis Benefits
117,586

 
111,903

Mine Closing
216,232

 
227,339

Gas Well Closing
164,115

 
163,842

Workers’ Compensation
68,587

 
69,812

Salary Retirement
89,305

 
91,596

Reclamation

 
25

Other
172,218

 
166,957

Deferred Credits and Other Liabilities of Discontinued Operations

 
107,988

Total Deferred Credits and Other Liabilities
1,441,276

 
1,644,983

TOTAL LIABILITIES
5,275,327

 
6,074,126

Stockholders’ Equity:
 
 
 
Common Stock, $.01 Par Value; 500,000,000 Shares Authorized, 229,438,910 Issued and Outstanding at September 30, 2016; 229,054,236 Issued and Outstanding at December 31, 2015
2,298

 
2,294

Capital in Excess of Par Value
2,453,275

 
2,435,497

Preferred Stock, 15,000,000 shares authorized, None issued and outstanding

 

Retained Earnings
2,033,849

 
2,579,834

Accumulated Other Comprehensive Loss
(342,207
)
 
(315,598
)
Total CONSOL Energy Inc. Stockholders’ Equity
4,147,215

 
4,702,027

Noncontrolling Interest
142,952

 
153,749

TOTAL EQUITY
4,290,167

 
4,855,776

TOTAL LIABILITIES AND EQUITY
$
9,565,494

 
$
10,929,902






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


6



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

 
(Dollars in thousands, except per share data)
Common
Stock
 
Capital in
Excess
of Par
Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total CONSOL Energy Inc.
Stockholders’
Equity
 
Non-
Controlling
Interest
 
Total
Equity
Balance at December 31, 2015
$
2,294

 
$
2,435,497

 
$
2,579,834

 
$
(315,598
)
 
$
4,702,027

 
$
153,749

 
$
4,855,776

(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (Loss) Income

 

 
(542,058
)
 

 
(542,058
)
 
4,541

 
(537,517
)
Other Comprehensive Loss

 

 

 
(26,609
)
 
(26,609
)
 

 
(26,609
)
Comprehensive (Loss) Income

 

 
(542,058
)
 
(26,609
)
 
(568,667
)
 
4,541

 
(564,126
)
Issuance of Common Stock
4

 

 

 

 
4

 

 
4

Treasury Stock Activity

 

 
(1,633
)
 

 
(1,633
)
 

 
(1,633
)
Tax Cost From Stock-Based Compensation

 
(5,144
)
 

 

 
(5,144
)
 

 
(5,144
)
Amortization of Stock-Based Compensation Awards

 
22,922

 

 

 
22,922

 
903

 
23,825

Distributions to Noncontrolling Interest

 

 

 

 

 
(16,241
)
 
(16,241
)
Dividends ($0.01 per share)

 

 
(2,294
)
 

 
(2,294
)
 

 
(2,294
)
Balance at September 30, 2016
$
2,298

 
$
2,453,275

 
$
2,033,849

 
$
(342,207
)
 
$
4,147,215

 
$
142,952

 
$
4,290,167


























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


7



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended
(Unaudited)
September 30,
Operating Activities:
2016
 
2015
Net Loss
$
(537,517
)
 
$
(398,801
)
Adjustments to Reconcile Net Loss to Net Cash Provided By Operating Activities:

 

Net Loss from Discontinued Operations
322,747

 
3,192

Depreciation, Depletion and Amortization
441,919

 
427,132

Impairment of Exploration and Production Properties

 
828,905

Non-Cash Other Post-Employment Benefits

 
(151,871
)
Stock-Based Compensation
23,825

 
19,849

Gain on Sale of Assets
(13,541
)
 
(54,329
)
Loss on Debt Extinguishment

 
67,751

Gain on Commodity Derivative Instruments
(53,872
)
 
(251,073
)
Net Cash Received in Settlement of Commodity Derivative Instruments
203,303

 
116,868

Deferred Income Taxes
(72,866
)
 
(273,497
)
Equity in Earnings of Affiliates
(41,239
)
 
(38,838
)
Return on Equity Investment
22,268

 
31,111

Changes in Operating Assets:

 

Accounts and Notes Receivable
4,555

 
119,064

Inventories
4,169

 
(9,922
)
Prepaid Expenses
71,423

 
103,466

Changes in Other Assets
(14,241
)
 
22,483

Changes in Operating Liabilities:

 

Accounts Payable
(12,654
)
 
(123,171
)
Accrued Interest
35,985

 
63,879

Other Operating Liabilities
(21,370
)
 
(105,692
)
Changes in Other Liabilities
(2,620
)
 
(12,360
)
Other
11,937

 
9,369

Net Cash Provided by Continuing Operating Activities
372,211

 
393,515

Net Cash Provided by Discontinued Operating Activities
14,427

 
10,768

Net Cash Provided by Operating Activities
386,638

 
404,283

Investing Activities:

 

Capital Expenditures
(179,389
)
 
(864,262
)
Proceeds from Sales of Assets
38,977

 
83,044

Net Investments in Equity Affiliates
(4,555
)
 
(70,224
)
Net Cash Used in Continuing Investing Activities
(144,967
)
 
(851,442
)
Net Cash Provided by (Used in) Discontinued Investing Activities
366,251

 
(30,894
)
Net Cash Provided by (Used in) Investing Activities
221,284

 
(882,336
)
Financing Activities:

 

(Payments on) Proceeds from Short-Term Borrowings
(598,000
)
 
945,000

Payments on Miscellaneous Borrowings
(6,222
)
 
(1,523
)
Payments on Long-Term Notes, including Redemption Premium

 
(1,263,719
)
Net Proceeds from Revolver - CNX Coal Resources LP
23,000

 
180,000

Proceeds from Sale of MLP Interest

 
148,359

Distributions to Noncontrolling Interest
(16,241
)
 

Proceeds from Issuance of Long-Term Notes

 
492,760

Tax Benefit from Stock-Based Compensation

 
208

Dividends Paid
(2,294
)
 
(30,991
)
Issuance of Common Stock
4

 
8,288

Purchases of Treasury Stock

 
(71,674
)
Debt Issuance and Financing Fees
(482
)
 
(22,586
)
Net Cash (Used in) Provided by Continuing Financing Activities
(600,235
)
 
384,122

Net Cash Used in Discontinued Financing Activities
(14
)
 
(39
)
Net Cash (Used in) Provided by Financing Activities
(600,249
)
 
384,083

Net Increase (Decrease) in Cash and Cash Equivalents
7,673

 
(93,970
)
Cash and Cash Equivalents at Beginning of Period
72,574

 
176,985

Cash and Cash Equivalents at End of Period
$
80,247

 
$
83,015

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


8



CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

NOTE 1—BASIS OF PRESENTATION:

The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for future periods.

The Consolidated Balance Sheet at December 31, 2015 has been derived from the Audited Consolidated Financial Statements at that date but does not include all the notes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Consolidated Financial Statements and related notes for the year ended December 31, 2015 included in CONSOL Energy Inc.'s Annual Report on Form 10-K.

During the nine months ended September 30, 2016, CONSOL Energy Inc. ("CONSOL Energy" or "the Company") made certain adjustments to the financial statements to reflect the sale of the Buchanan Mine and the Fola and Miller Creek Mining Complexes, which are now reflected under discontinued operations. Additionally, CONSOL Energy made reclassifications within its financial statements to better align the Company's financial reporting with its peer group. These reclassifications impacted the Lease Operating Expense, Transportation, Gathering and Compression, Direct Administrative and Selling, Production Royalty Interests and Purchased Gas Sales, Production Royalty Interests and Purchased Gas Costs, Operating and Other Costs and Selling, General and Administrative Costs line items on the Company's Consolidated Statements of Income. These changes are reflected in CONSOL Energy's current and historic Consolidated Statements of Income, with no effect on previously reported net income or stockholders’ equity.

Basic earnings per share are computed by dividing net income attributable to CONSOL Energy Shareholders by the weighted average shares outstanding during the reporting period. Dilutive earnings per share are computed similarly to basic earnings per share, except that the weighted average shares outstanding are increased to include additional shares from stock options, performance stock options, restricted stock units and performance share units, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and performance share options were exercised, that outstanding restricted stock units and performance share units were released, and that the proceeds from such activities were used to acquire shares of common stock at the average market price during the reporting period. CONSOL Energy includes the impact of pro forma deferred tax assets in determining potential windfalls and shortfalls for purposes of calculating assumed proceeds under the treasury stock method.

The table below sets forth the share-based awards that have been excluded from the computation of the diluted earnings per share because their effect would be anti-dilutive:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Anti-Dilutive Options
2,989,610
 
 
3,650,864
 
 
6,230,099
 
 
3,650,864
 
Anti-Dilutive Restricted Stock Units
3,455
 
 
785,585
 
 
645,302
 
 
1,394,115
 
Anti-Dilutive Performance Share Units
1,659,014
 
 
 
 
2,326,120
 
 
 
Anti-Dilutive Performance Stock Options
802,804
 
 
802,804
 
 
802,804
 
 
802,804
 
 
5,454,883
 
 
5,239,253
 
 
10,004,325
 
 
5,847,783
 

The table below sets forth the share-based awards that have been exercised or released:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Options
 
 
 
 
 
 
363,620
 
Restricted Stock Units
5,920
 
 
90,055
 
 
574,310
 
 
576,562
 
Performance Share Units
 
 
 
 
 
 
497,134
 
 
5,920
 

90,055
 
 
574,310
 
 
1,437,316
 


9



No options were exercised during the three and nine months ended September 30, 2016 or during the three months ended September 30, 2015. The weighted average exercise price per share of the options exercised during the nine months ended September 30, 2015 was $22.78.
The computations for basic and dilutive earnings per share are as follows:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Income (Loss) from Continuing Operations
$
62,568
 
 
$
129,312
 
 
$
(214,770
)
 
$
(395,609
)
Loss from Discontinued Operations
(34,975
)
 
(3,842
)
 
(322,747
)
 
(3,192
)
Net Income (Loss)
$
27,593
 
 
$
125,470
 
 
$
(537,517
)
 
$
(398,801
)
Net Income Attributable to Noncontrolling Interest
2,248
 
 
6,490
 
 
4,541
 
 
6,490
 
Net Income (Loss) Attributable to CONSOL Energy Shareholders
$
25,345
 
 
$
118,980
 
 
$
(542,058
)
 
$
(405,291
)
Weighted Average Shares of Common Stock Outstanding:
 
 
 
 
 
 
 
Basic
229,438,612
 
 
229,036,172
 
 
229,369,309
 
 
229,230,571
 
Effect of Stock-Based Compensation Awards
2,079,973
 
 
315,955
 
 
 
 
 
Dilutive
231,518,585
 
 
229,352,127
 
 
229,369,309
 
 
229,230,571
 
Income (Loss) per Share:
 
 
 
 
 
 
 
Basic (Continuing Operations)
$
0.26
 
 
$
0.54
 
 
$
(0.96
)
 
$
(1.75
)
Basic (Discontinued Operations)
(0.15
)
 
(0.02
)
 
(1.40
)
 
(0.02
)
Total Basic
$
0.11
 

$
0.52
 
 
$
(2.36
)
 
$
(1.77
)
 
 
 
 
 
 
 
 
Dilutive (Continuing Operations)
$
0.26
 
 
$
0.54
 
 
$
(0.96
)
 
$
(1.75
)
Dilutive (Discontinued Operations)
(0.15
)
 
(0.02
)
 
(1.40
)
 
(0.02
)
Total Dilutive
$
0.11
 
 
$
0.52
 
 
$
(2.36
)
 
$
(1.77
)

Changes in Accumulated Other Comprehensive Loss by component, net of tax, were as follows:
 
Gains on Cash Flow Hedges
 
Postretirement Benefits
 
Total
Balance at December 31, 2015
$
43,470
 
 
$
(359,068
)
 
$
(315,598
)
Other Comprehensive Loss before Reclassifications
 
 
(13,912
)
 
(13,912
)
Amounts reclassified from Accumulated Other Comprehensive Loss
(33,475
)
 
20,778
 
 
(12,697
)
Current period Other Comprehensive (Loss) Income
(33,475
)
 
6,866
 
 
(26,609
)
Balance at September 30, 2016
$
9,995
 
 
$
(352,202
)
 
$
(342,207
)

The following table shows the reclassification of adjustments out of Accumulated Other Comprehensive Loss:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Derivative Instruments (Note 14)
 
 
 
 
 
 
 
Natural Gas Price Swaps and Options
$
(19,597
)
 
$
(32,409
)
 
$
(52,759
)
 
$
(95,843
)
Tax Expense
7,139
 
 
11,807
 
 
19,284
 
 
35,123
 
Net of Tax
$
(12,458
)
 
$
(20,602
)
 
$
(33,475
)
 
$
(60,720
)
Actuarially Determined Long-Term Liability Adjustments* (Note 5 and Note 6)
 
 
 
 
 
 
 
Amortization of Prior Service Costs
$
(148
)
 
$
(133,851
)
 
$
(443
)
 
$
(203,159
)
Recognized Net Actuarial Loss
6,332
 
 
41,755
 
 
17,549
 
 
80,497
 
Curtailment Loss
 
 
5
 
 
 
 
5
 
Settlement Loss
3,651
 
 
3,132
 
 
17,347
 
 
3,132
 
Total
9,835
 
 
(88,959
)
 
34,453
 
 
(119,525
)
Tax (Benefit) Expense
(3,664
)
 
33,436
 
 
(12,861
)
 
44,923
 
Net of Tax
$
6,171
 
 
$
(55,523
)
 
$
21,592
 
 
$
(74,602
)



10



*Excludes amounts related to the remeasurement of the Actuarially Determined Long-Term Liabilities. Also excludes $815, net of tax, of reclassifications out of Accumulated Other Comprehensive Income related to discontinued operations for the nine months ended September 30, 2016.

NOTE 2—DISCONTINUED OPERATIONS:

In August, 2016, CONSOL Energy completed the sale of its Miller Creek Mining Complex and Fola Mining Complex subsidiaries. In the transaction, the buyer acquired the Miller Creek and Fola assets and assumed the Miller Creek and Fola mine closing and reclamation liabilities; in order to equalize the value exchange, CONSOL Energy paid $28,271 cash at closing, which included property taxes associated with the properties sold and other closing costs (a portion of which will be held in escrow for purposes of obtaining the surety bonds required for the the permits to transfer). These amounts were included in Net Cash Provided by Discontinued Investing Activities on the Consolidated Statements of Cash Flow. In addition, CONSOL Energy will pay a total of $17,200 in installments over the next four years. The net loss on sale of $53,130, excluding the related impairment charge discussed below, was included in Loss from Discontinued Operations, net on the Consolidated Statements of Income. Prior to the closing, the Miller Creek and Fola Mining Complexes were classified as held for sale in discontinued operations and in accordance with the accounting guidance for Property, Plant and Equipment, assets held for sale are measured at the lower of the carrying value or fair value less costs to sell. Upon meeting the assets held for sale criteria, the Company determined the carrying value of the Fola and Miller Creek mining complexes exceeded the fair value less costs to sell. As a result, an impairment charge of $355,681 was recorded during the nine months ended September 30, 2016. This impairment is included in the Loss from Discontinued Operations, net on the Consolidated Statements of Income.

On March 31, 2016, CONSOL Energy completed the sale of its membership interests in CONSOL Buchanan Mining Company, LLC (BMC), which owned and operated the Buchanan Mine located in Mavisdale, Virginia; various assets relating to the Amonate Mining Complex located in Amonate, Virginia; Russell County, Virginia coal reserves and Pangburn Shaner Fallowfield coal reserves located in Southwestern, Pennsylvania to Coronado IV LLC ("Coronado"). Various CONSOL Energy assets were excluded from the sale including coalbed methane, natural gas and minerals other than coal, current assets of BMC, certain coal seams, certain surface rights, and the Amonate Preparation Plant. Coronado assumed only specified liabilities and various CONSOL Energy liabilities were excluded and not assumed. The excluded liabilities included BMC’s indebtedness, trade payables and liabilities arising prior to closing, as well as the liabilities of the subsidiaries other than BMC which are parties to the sale. In addition, the buyer agreed to pay CONSOL Energy for Buchanan Mine coal sold outside the U.S. and Canada during the five years following closing a royalty of 20% of any excess of the gross sales price per ton over the following amounts: (1) year one, $75.00 per ton; (2) year two, $78.75 per ton; (3) year three, $82.69 per ton; (4) year four, $86.82 per ton; (5) year five, $91.16 per ton. At closing, the parties entered into several agreements including, among others, agreements relating to the coordination and conduct of gas operations at the mines, an option to purchase the Amonate Preparation Plant and transition services. Cash proceeds of $402,799 were received at closing and are included in Net Cash Provided by Discontinued Investing Activities on the Consolidated Statements of Cash Flow. The net loss on the sale was $38,364 and was included in Loss from Discontinued Operations, net on the Consolidated Statements of Income.
For all periods presented in the accompanying Consolidated Statements of Income, BMC along with the various other assets and the Fola and Miller Creek Mining Complexes are classified as discontinued operations.
The following table details selected financial information for the divested business included within discontinued operations:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
  
2016
 
2015
 
2016
 
2015
Coal Sales
$
6,974

 
$
80,432

 
$
102,904

 
$
286,557

Freight-Outside Coal
305

 
783

 
1,322

 
3,791

Miscellaneous Other Income
2,204

 
3

 
2,237

 
33

Gain (Loss) on Sale of Assets
(53,119
)
 
80

 
(91,372
)
 
274

Total Revenue and Other Income
$
(43,636
)
 
$
81,298

 
$
15,091

 
$
290,655

Total Costs
11,789

 
92,865

 
124,865

 
302,055

Loss From Operations Before Income Taxes
$
(55,425
)
 
$
(11,567
)
 
$
(109,774
)
 
$
(11,400
)
Impairment on Assets Held for Sale

 

 
355,681

 

Income Tax Benefit
(20,450
)
 
(7,725
)
 
(142,708
)
 
(8,208
)
Loss From Discontinued Operations, net
$
(34,975
)
 
$
(3,842
)
 
$
(322,747
)
 
$
(3,192
)

    


11



The major classes of assets and liabilities of discontinued operations:
 
September 30,
2016
 
December 31,
2015
Assets:
 
 
 
Accounts Receivable - Trade
$
2,107

 
$
49,125

Inventories

 
30,646

Prepaid Expense

 
970

Other Current Assets
4

 
365

Total Current Assets
$
2,111

 
$
81,106

Property, Plant and Equipment, Net

 
936,670

Other Assets

 
4,044

Total Assets of Discontinued Operations
$
2,111

 
$
1,021,820

Liabilities:
 
 
 
Accounts Payable
$
303

 
$
20,786

Other Current Liabilities
361

 
30,728

Total Current Liabilities
$
664

 
$
51,514

Long Term Debt

 
5,001

Pneumoconiosis Benefits

 
1,129

Mine Closing

 
71,941

Reclamation

 
34,126

Other liabilities

 
792

Total Liabilities of Discontinued Operations
$
664

 
$
164,503


NOTE 3—ACQUISITIONS AND DISPOSITIONS:

In September 2015, CONSOL Energy sold its 49% interest in Western Allegheny Energy (WAE), a joint venture with Rosebud Mining Company engaged in coal mining activities in Pennsylvania. At closing, CONSOL Energy received $76,297 in cash and a $2,136 reduction in certain liabilities. During the quarter, CONSOL Energy also received a cash distribution of $10,780 from WAE. The net gain on the sale was $48,468 and was included in the Gain on Sale of Assets in the Consolidated Statements of Income.

In December 2014, CNX Gas Company LLC (CNX Gas Company), wholly-owned subsidiary of CONSOL Energy, finalized an agreement with Columbia Energy Ventures (CEVCO) to sublease from CEVCO approximately 20,000 acres of Utica Shale and Upper Devonian gas rights in Greene and Washington Counties in Pennsylvania and Marshall and Ohio Counties in West Virginia. Up-front bonus consideration of up to $96,106 was to be paid by CONSOL Energy over a five year period, as drilling occurs, in addition to royalties. CONSOL Energy made payments of $9,000 to CEVCO in the nine months ended September 30, 2016 while $50,970 of payments were made for the nine months ended September 30, 2015. At September 30, 2016, the amounts recorded in Other Current Liabilities and Other Long-Term Liabilities were $3,947 and $26,461, respectively. At December 31, 2015, the amounts recorded in Other Current Liabilities and Other Long-Term Liabilities were $8,349 and $29,333, respectively.



12



NOTE 4—MISCELLANEOUS OTHER INCOME:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Equity in Earnings of Affiliates - CONE
$
14,153

 
$
12,733

 
$
36,709

 
$
29,770

Rental Income
8,983

 
9,439

 
27,258

 
28,437

Gathering Revenue
2,602

 
1,426

 
7,998

 
7,379

Royalty Income - Non-Operated Coal
2,011

 
4,847

 
6,664

 
12,989

Purchased Coal Sales
1,908

 

 
2,512

 
1,596

Equity in Earnings of Affiliates - Other
1,202

 
2,855

 
4,530

 
9,068

Interest Income
214

 
361

 
975

 
1,868

Right of Way Issuance
149

 
5,252

 
17,952

 
13,202

Coal Contract Buyout

 

 
6,288

 

Other
1,171

 
1,562

 
3,273

 
6,970

Total Miscellaneous Other Income
$
32,393

 
$
38,475

 
$
114,159

 
$
111,279


NOTE 5—COMPONENTS OF PENSION AND OTHER POST-EMPLOYMENT BENEFIT (OPEB) PLANS NET PERIODIC BENEFIT COSTS:

Components of net periodic benefit costs are as follows:
 
Pension Benefits
 
Other Post-Employment Benefits
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service Cost
$
482

 
$
2,162

 
$
1,445

 
$
6,862

 
$

 
$

 
$

 
$

Interest Cost
5,895

 
8,042

 
19,578

 
25,202

 
6,060

 
6,677

 
18,181

 
20,561

Expected Return on Plan Assets
(11,195
)
 
(12,903
)
 
(34,933
)
 
(38,282
)
 

 

 

 

Amortization of Prior Service Credits
(148
)
 
(166
)
 
(443
)
 
(518
)
 

 
(133,685
)
 

 
(202,641
)
Recognized net Actuarial Loss
2,743

 
5,335

 
6,975

 
19,215

 
4,792

 
37,713

 
14,376

 
65,161

Settlement Loss
3,651

 
3,132

 
17,347

 
3,132

 

 

 

 

Curtailment Loss

 
5

 

 
5

 

 

 

 

Net Periodic Benefit Cost (Credit)
$
1,428

 
$
5,607

 
$
9,969

 
$
15,616

 
$
10,852

 
$
(89,295
)
 
$
32,557

 
$
(116,919
)

For the nine months ended September 30, 2016 and 2015, $1,964 and $8,366 was paid to the pension trust from operating cash flows, respectively. Additional contributions to the pension trust are not expected to be material for the remainder of 2016.

According to the Defined Benefit Plans Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification, if the lump sum distributions made during a plan year, which for CONSOL Energy is January 1 to December 31, exceed the total of the projected service cost and interest cost for the plan year, settlement accounting is required. Lump sum payments exceeded this threshold during the three and nine months ended September 30, 2016. Accordingly, CONSOL Energy recognized settlement expense of $3,651 and $17,347 for the three and nine months ended September 30, 2016, respectively, in Other Costs - Miscellaneous Operating Expense in the Consolidated Statements of Income. The settlement charges resulted in remeasurements of the pension plan at September 30, 2016 and June 30, 2016, which increased the pension liability by $7,486 and $6,203, respectively.

Lump sum payments also exceeded the settlement threshold during the three and nine months ended September 30, 2015. Accordingly, settlement expense of $3,132 was recognized for the three and nine months ended September 30, 2015 in Other Costs - Miscellaneous Operating Expense in the Consolidated Statements of Income. Settlement accounting was triggered in July 2015, resulting in a remeasurement of the pension plan at July 31. This remeasurement reduced the pension liability by $1,328.

On August 31, 2015, the qualified pension plan was remeasured to reflect an announced plan amendment that reduced accruals of pension benefits as of January 1, 2016. The plan amendment called for a hard freeze of the qualified defined benefit


13



pension plan on January 1, 2016 for all remaining participants in the plan. The modifications to the pension plan resulted in a $26,352 reduction in the pension liability. The amendment resulted in a remeasurement of the qualified pension plan at August 31, 2015. The remeasurement increased the pension liability by $17,793.
In the third quarter of 2015, CONSOL Energy remeasured its pension plan as a result of the previously discussed plan amendment. In conjunction with this remeasurement, the method used to estimate the service and interest components of net periodic benefit cost for pension was changed. This change was also made to other postretirement benefits during the fourth quarter during the annual remeasurement of that plan. This change compared to the previous method resulted in a decrease in the service and interest components for pension cost in the third quarter. Historically, CONSOL Energy estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. CONSOL Energy has elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. This change was made to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of the total benefit obligations or the annual net periodic benefit cost as the change in the service and interest costs is completely offset in the actuarial (gain) loss reported. CONSOL Energy has accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and accordingly has accounted for it prospectively.
On May 31, 2015, the Salaried OPEB and Production and Maintenance (P&M) OPEB plans were remeasured to reflect a plan amendment which eliminated Salaried and P&M OPEB benefits at December 31, 2015. The amendment to the OPEB plan resulted in a $43,598 reduction in the OPEB liability.The amendment resulted in a remeasurement of the OPEB plan at May 31, 2015 which decreased the liability by $1,070.
CONSOL Energy does not expect to contribute to the other post-employment benefit plan in 2016. The Company intends to pay benefit claims as they become due. For the nine months ended September 30, 2016 and 2015, $35,120 and $40,547 of other post-employment benefits have been paid, respectively.

NOTE 6—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:
Components of net periodic benefit costs are as follows:
 
CWP
 
Workers' Compensation
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
2016