10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM 10-Q
__________________________________________________
(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended September 30, 2015
OR
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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
__________________________________________________
CNX Coal Resources LP
(Exact name of registrant as specified in its charter)
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| | |
Delaware | | 47-3445032 |
(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 o Accelerated filer o Non-accelerated filer x 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
CNX Coal Resources LP had 11,611,067 common units, 11,611,067 subordinated units and a 2% general partner interest outstanding at October 31, 2015.
TABLE OF CONTENTS
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| Part I. Financial Information | |
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Item I. | Financial Statements | |
| | |
| Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014 | |
| Consolidated Balance Sheets at September 30, 2015 and December 31, 2014 | |
| Consolidated Statement of Partners' Capital for the nine months ended September 30, 2015 | |
| Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 | |
| Notes to the Consolidated Financial Statements | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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| Part II. Other Information | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 4. | | |
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Item 6. | | |
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PART I : FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CNX COAL RESOURCES LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per unit data)
(unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Coal Revenue | $ | 64,635 |
| | $ | 75,928 |
| | $ | 205,321 |
| | $ | 245,333 |
|
Freight Revenue | 242 |
| | 156 |
| | 1,257 |
| | 2,986 |
|
Miscellaneous Other Income | 264 |
| | 58 |
| | 615 |
| | 7,269 |
|
Gain on Sale of Assets | 11 |
| | 3 |
| | 36 |
| | 120 |
|
Total Revenue and Other Income | 65,152 |
| | 76,145 |
| | 207,229 |
| | 255,708 |
|
| | | | | | | |
Operating and Other Costs 1 | 34,167 |
| | 45,628 |
| | 111,783 |
| | 130,544 |
|
Royalties and Production Taxes | 2,554 |
| | 3,227 |
| | 8,296 |
| | 10,955 |
|
Selling and Direct Administrative Expenses 2 | 1,236 |
| | 1,583 |
| | 3,848 |
| | 5,012 |
|
Depreciation, Depletion and Amortization | 8,431 |
| | 8,913 |
| | 26,696 |
| | 24,873 |
|
Freight Expense | 242 |
| | 156 |
| | 1,257 |
| | 2,986 |
|
General and Administrative Expenses 3 | 1,969 |
| | 2,623 |
| | 6,762 |
| | 9,595 |
|
Interest Expense 4 | 1,888 |
| | 2,190 |
| | 6,597 |
| | 4,709 |
|
Total Costs | 50,487 |
| | 64,320 |
| | 165,239 |
| | 188,674 |
|
Net Income | $ | 14,665 |
| | $ | 11,825 |
| | $ | 41,990 |
| | $ | 67,034 |
|
| | | | | | | |
Calculation of Limited Partner Interest in Net Income: | | | | | | | |
Net Income Attributable to General and Limited Partner Ownership Interest in CNX Coal Resources 5 | $ | 14,683 |
| | N/A | | $ | 14,683 |
| | N/A |
Less: General Partner Interest in Net Income | 294 |
| | N/A | | 294 |
| | N/A |
Limited Partner Interest in Net Income | $ | 14,389 |
| | N/A | | $ | 14,389 |
| | N/A |
| | | | | | | |
Net Income per Limited Partner Unit - Basic | $ | 0.62 |
| | N/A | | $ | 0.62 |
| | N/A |
Net Income per Limited Partner Unit - Diluted | $ | 0.62 |
| | N/A | | $ | 0.62 |
| | N/A |
| | | | | | | |
Limited Partner Units Outstanding - Basic | 23,222,134 |
| | N/A | | 23,222,134 |
| | N/A |
Limited Partner Units Outstanding - Diluted | 23,222,592 |
| | N/A | | 23,222,592 |
| | N/A |
| | | | | | | |
Cash Distributions Declared per Unit 6 | $ | 0.4791 |
| | N/A | | $ | 0.4791 |
| | N/A |
1 Related Party of $1,680 and $3,321 for the three months ended and $3,468 and $10,357 for the nine months ended September 30, 2015 and September 30, 2014, respectively.
2 Related Party of $1,034 and $1,411 for the three months ended and $3,297 and $4,530 for the nine months ended September 30, 2015 and September 30, 2014, respectively.
3 Related Party of $2,027 and $2,718 for the three months ended and $6,747 and $9,595 for the nine months ended September 30, 2015 and September 30, 2014, respectively.
4 Related Party of $2,424 for the three months ended September 30, 2014 and $4,840 and $7,111 for the nine months ended September 30, 2015 and September 30, 2014, respectively.
5 Reflective of general and limited partner interest in net income since closing of Initial Public Offering. See Note 2 - Initial Public Offering.
6 Represents the cash distributions declared related to the period presented. See Note 16 - Subsequent Events
The accompanying notes are an integral part of these consolidated financial statements.
CNX COAL RESOURCES LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Net Income | $ | 14,665 |
| | $ | 11,825 |
| | $ | 41,990 |
| | $ | 67,034 |
|
Other Comprehensive Income (Loss): | | | | | | | |
Actuarially Determined Long-Term Liability Adjustments | (12 | ) | | (358 | ) | | (1,401 | ) | | (1,072 | ) |
| | | | | | | |
Other Comprehensive Income (Loss) | (12 | ) | | (358 | ) | | (1,401 | ) | | (1,072 | ) |
| | | | | | | |
Comprehensive Income | $ | 14,653 |
| | $ | 11,467 |
| | $ | 40,589 |
| | $ | 65,962 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CNX COAL RESOURCES LP
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
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| | | | | | | |
| (Unaudited) | | |
| September 30, 2015 | | December 31, 2014 |
ASSETS | | | |
Current Assets: | | | |
Cash | $ | 3,004 |
| | $ | 3 |
|
Trade Receivables | 23,151 |
| | — |
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Other Receivables | 412 |
| | 384 |
|
Inventories | 12,656 |
| | 10,639 |
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Prepaid Expenses | 5,028 |
| | 3,922 |
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Total Current Assets | 44,251 |
| | 14,948 |
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Property, Plant and Equipment: | | | |
Property, Plant and Equipment | 687,775 |
| | 686,593 |
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Less—Accumulated Depreciation, Depletion and Amortization | 312,576 |
| | 287,707 |
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Total Property, Plant and Equipment—Net | 375,199 |
| | 398,886 |
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Other Assets: | | | |
Other | 11,394 |
| | 4,977 |
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Total Other Assets | 11,394 |
| | 4,977 |
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TOTAL ASSETS | $ | 430,844 |
| | $ | 418,811 |
|
CNX COAL RESOURCES LP
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
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| | | | | | | |
| (Unaudited) | | |
| September 30, 2015 | | December 31, 2014 |
LIABILITIES AND EQUITY | | | |
Current Liabilities: | | | |
Accounts Payable | $ | 15,302 |
| | $ | 15,782 |
|
Accounts Payable—Related Party | 1,188 |
| | — |
|
Current Portion of Long Term Notes—Related Party | — |
| | 17,931 |
|
Current Portion of Long Term Debt—Other | 344 |
| | 330 |
|
Other Accrued Liabilities | 39,981 |
| | 35,502 |
|
Total Current Liabilities | 56,815 |
| | 69,545 |
|
Long-Term Debt: | | | |
Revolver, net of debt issuance and financing fees (Note 9) | 175,873 |
| | — |
|
Long-Term Notes Payable—Related Party | — |
| | 160,831 |
|
Advanced Royalty Commitments | 278 |
| | 278 |
|
Capital Lease Obligations | 85 |
| | 51 |
|
Total Long-Term Debt | 176,236 |
| | 161,160 |
|
Deferred Credits and Other Liabilities: | | | |
Postretirement Benefits Other Than Pensions | — |
| | 5,279 |
|
Pneumoconiosis Benefits | 1,422 |
| | 1,250 |
|
Workers’ Compensation | 3,219 |
| | 2,381 |
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Asset Retirement Obligations | 7,450 |
| | 7,961 |
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Other | 605 |
| | 609 |
|
Total Deferred Credits and Other Liabilities | 12,696 |
| | 17,480 |
|
TOTAL LIABILITIES | 245,747 |
| | 248,185 |
|
Partners' Capital: | | | |
Common Units (11,611,067 Units Outstanding at September 30, 2015) | 155,596 |
| | — |
|
Subordinated Units (11,611,067 Units Outstanding at September 30, 2015) | 7,502 |
| | — |
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General Partner Interest | 13,135 |
| | — |
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Parent Net Investment | — |
| | 139,259 |
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Accumulated Other Comprehensive Income | 8,864 |
| | 31,367 |
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Total Partners' Capital | 185,097 |
| | 170,626 |
|
TOTAL LIABILITIES AND PARTNERS' CAPITAL | $ | 430,844 |
| | $ | 418,811 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CNX COAL RESOURCES LP
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(Dollars in thousands)
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| | | | | | | | | | | | | | | | | | | | | | | |
| | | Limited Partners | | | | | | |
| Parent Net Investment | | Common | | Subordinated | | General Partner | | Accumulated Other Comprehensive Income | | Total |
Balance at December 31, 2014 | $ | 139,259 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 31,367 |
| | $ | 170,626 |
|
(unaudited) | | | | | | | | | | | |
Net Income Attributable from January 1, 2015 to July 6, 2015 | 27,307 |
| | — |
| | — |
| | — |
| | — |
| | 27,307 |
|
Net Working Capital Advances to Partnership | (21,585 | ) | | — |
| | — |
| | — |
| | — |
| | (21,585 | ) |
Assets and Liabilities Contributed/Distributed | 210,906 |
| | — |
| | — |
| | — |
| | (21,102 | ) | | 189,804 |
|
Deemed Distribution to Partnership | (355,887 | ) | | 28,449 |
| | 314,597 |
| | 12,841 |
| | — |
| | — |
|
Issuance of Common Units to Public, Net of Offering Costs | — |
| | 148,359 |
| | — |
| | — |
| | — |
| | 148,359 |
|
Distribution of Proceeds | — |
| | (28,421 | ) | | (314,290 | ) | | — |
| | — |
| | (342,711 | ) |
Net Income Attributable to the Partnership | — |
| | 7,194 |
| | 7,195 |
| | 294 |
| | — |
| | 14,683 |
|
Unit Based Compensation | — |
| | 15 |
| | — |
| | — |
| | — |
| | 15 |
|
Actuarially determined long-term liability adjustments | — |
| | — |
| | — |
| | — |
| | (1,401 | ) | | (1,401 | ) |
Balance at September 30, 2015 | $ | — |
| | $ | 155,596 |
| | $ | 7,502 |
| | $ | 13,135 |
| | $ | 8,864 |
| | $ | 185,097 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CNX COAL RESOURCES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2015 | | 2014 |
Cash Flows from Operating Activities: | | | |
Net Income | $ | 41,990 |
| | $ | 67,034 |
|
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities: | | | |
Depreciation, Depletion and Amortization | 26,696 |
| | 24,873 |
|
Gain on Sale of Assets | (36 | ) | | (120 | ) |
Unit Based Compensation | 15 |
| | — |
|
Amortization of Mineral Leases | 305 |
| | 229 |
|
Changes in Operating Assets: | | | |
Accounts and Notes Receivable | (23,179 | ) | | (85 | ) |
Inventories | (2,017 | ) | | (591 | ) |
Prepaid Expenses | (1,106 | ) | | (61 | ) |
Changes in Other Assets | 88 |
| | (1,075 | ) |
Changes in Operating Liabilities: | | | |
Accounts Payable | (951 | ) | | (4,704 | ) |
Accounts Payable—Related Party | 1,188 |
| | — |
|
Other Operating Liabilities | 4,479 |
| | 2,974 |
|
Changes in Other Liabilities | (631 | ) | | 238 |
|
Other | 193 |
| | 255 |
|
Net Cash Provided by Operating Activities | 47,034 |
| | 88,967 |
|
Cash Flows from Investing Activities: | | | |
Capital Expenditures | (20,588 | ) | | (57,300 | ) |
Proceeds from Sales of Assets | 56 |
| | 15,204 |
|
Net Cash Used in Investing Activities | (20,532 | ) | | (42,096 | ) |
Cash Flows from Financing Activities: | | | |
Proceeds from Miscellaneous Borrowings | 4,804 |
| | 4,686 |
|
Proceeds from Revolver, Net of Payments | 180,000 |
| | — |
|
Proceeds from Issuance of Common Units, Net of Offering Costs | 148,359 |
| | — |
|
Distribution of Proceeds | (342,711 | ) | | — |
|
Debt Issuance and Financing Fees | (4,329 | ) | | — |
|
Net Change in Parent Advances | (9,624 | ) | | (51,555 | ) |
Net Cash Used In Financing Activities | (23,501 | ) | | (46,869 | ) |
Net Increase in Cash | 3,001 |
| | 2 |
|
Cash at Beginning of Period | 3 |
| | 3 |
|
Cash at End of Period | $ | 3,004 |
| | $ | 5 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CNX COAL RESOURCES LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1—DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS:
Description of Business:
CNX Coal Resources LP (together with its subsidiaries, the “Partnership”) was formed by CONSOL Energy Inc. (“CONSOL Energy") in March 2015 as a Delaware limited partnership. Upon completion of the Partnership’s initial public offering on July 7, 2015 (“IPO”), CONSOL Energy contributed to the Partnership a 20% undivided interest in the combined assets, liabilities, revenues and expenses of CONSOL Pennsylvania Coal Company LLC ("CPCC") and Conrhein Coal Company ("Conrhein"). CPCC and Conrhein's assets and associated liabilities consist of the (i) Pennsylvania mining complex located in southwestern Pennsylvania, comprised of the Bailey mine, Enlow Fork mine and Harvey mine; (ii) coal reserves and properties associated with the Pennsylvania mining complex; and (iii) the preparation plant, facilities, equipment and other infrastructure associated with the Pennsylvania mining complex. The accompanying financial statements and related notes include a 20% undivided interest in the assets, liabilities and results of operations of CPCC and Conrhein, presented on a proportionate basis, as of September 30, 2015 and December 31, 2014, and for the three and nine months ended September 30, 2015 and 2014. As used in these financial statements, the terms "we," "our," "us," or like terms refer to the Partnership with respect to its 20% undivided interest in CPCC and Conrhein's combined assets, liabilities, revenues and expenses. References in these financial statements to "CONSOL Energy" refer collectively to CONSOL Energy Inc. and its consolidated subsidiaries, other than the Partnership.
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 accruals) considered necessary for a fair presentation have been included. For the nine months ended September 30, 2015 and for the three and nine months ended September 30, 2014, these Unaudited Consolidated Financial Statements were prepared from separate records maintained by CONSOL Energy, CPCC and Conrhein and may not necessarily be indicative of the conditions that would have existed, or the results of operations, if CPCC and Conrhein had been operated as unaffiliated entities.
The balance sheet at December 31, 2014 has been derived from the Audited Consolidated Financial Statements at that date but does not include all the notes required by U.S. GAAP for complete financial statements. For further information, refer to the Combined Financial Statements and related notes for the year ended December 31, 2014 included in the Partnership’s prospectus dated June 30, 2015 and filed with the Securities and Exchange Commission ("SEC") on July 1, 2015 pursuant to Rule 424(b)(4) of the Securities Act of 1933, as amended (the "Prospectus").
As these Unaudited Consolidated Financial Statements represent the combination of two separate legal entities wholly owned by CONSOL Energy, the net assets of the Partnership have been presented as a Parent Net Investment. Parent Net Investment is primarily comprised of the Partnership’s undivided interest in (i) CONSOL Energy’s initial investment in CPCC and Conrhein(and any subsequent adjustments thereto); (ii) the accumulated net earnings; (iii) net transfers to or from CONSOL Energy, including those related to cash management functions performed by CONSOL Energy; (iv) non-cash changes in financing arrangements, including the conversion of certain related party liabilities into Parent Net Investment; and (v) corporate cost allocations. Transactions between the Partnership and CONSOL Energy or CONSOL Energy’s other subsidiaries have been identified in the financial statements as transactions between related parties.
Reclassifications:
Certain amounts have been reclassified to conform with the current reporting classifications with no effect on previously reported net income or partners' capital.
Other Comprehensive Income:
Changes in Accumulated Other Comprehensive Income by component were as follows:
|
| | | |
| Postretirement Benefits |
Balance at December 31, 2014 | $ | 31,367 |
|
Other comprehensive income before reclassifications | 4,553 |
|
Amounts reclassified from accumulated other comprehensive income | (5,954 | ) |
Other comprehensive income | (1,401 | ) |
OPEB accumulated other comprehensive income retained by CONSOL Energy (Note 10) | (21,102 | ) |
Balance at September 30, 2015 | $ | 8,864 |
|
The following table shows the reclassification of adjustments out of Accumulated Other Comprehensive Income:
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Actuarially Determined Long-Term Liability Adjustments | | | | | | | |
Amortization of prior service costs | $ | (796 | ) | | $ | (466 | ) | | $ | (6,962 | ) | | $ | (1,399 | ) |
Recognized net actuarial loss | 72 |
| | 109 |
| | 1,008 |
| | 328 |
|
Curtailment gain | — |
| | (2,042 | ) | | — |
| | (2,042 | ) |
Total | $ | (724 | ) | | $ | (2,399 | ) | | $ | (5,954 | ) | | $ | (3,113 | ) |
Recent Accounting Pronouncements:
In February 2015, the Financial Accounting Standards Board ("FASB") issued Update 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis. The objective of the amendments in this update is to change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this update affect the following areas: (1) limited partnerships and similar legal entities; (2) evaluating fees paid to a decision maker or a service provider as a variable interest; (3) the effect of fee arrangements on the primary beneficiary determination; (4) the effect of related parties on the primary beneficiary determination; and (5) certain investment funds. Current U.S. GAAP includes different requirements for performing a consolidation analysis if, among other factors, the entity under evaluation is any one of the following: (1) a legal entity that qualifies for the indefinite deferral of Statement 167; (2) a legal entity that is within the scope of Statement 167; and (3) a limited partnership or similar legal entity that is considered a voting interest entity. Under the amendments in this update, all reporting entities are within the scope of Subtopic 810-10, Consolidation-Overall, including limited partnerships and similar legal entities, unless a scope exception applies. The presumption that a general partner controls a limited partnership has been eliminated. Overall, the amendments in this update are an improvement to current U.S. GAAP because they simplify the Codification and reduce the number of consolidated models through the elimination of the indefinite deferral of Statement 167 and because they place more emphasis on risk of loss when determining a controlling financial interest. The amendments in this update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. Management is currently evaluating the impact this guidance may have on the Partnership's financial statements.
In April 2015, the FASB issued update 2015-03 - Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This update is part of the FASB's initiative to reduce complexity in accounting standards (the Simplification Initiative). The FASB received feedback that having different balance sheet presentation requirements for debt issuance costs and debt discounts and premiums creates unnecessary complexity. Recognizing debt issuance costs as a deferred
charge (that is, an asset) also is different from the guidance in International Financial Reporting Standards ("IFRS"), which requires that transaction costs be deducted from the carrying value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuance costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, Elements of Financial Statements, which states that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate. Concepts Statement 6 further states that debt issuance costs cannot be an asset because they provide no future economic benefit. To simplify the presentation of debt issuance costs, the amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued update 2015-15 Amendment to Interest-Imputation of Interest (Subtopic 835-30). This amendment clarifies that, in relation to line-of-credit arrangements, the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratable over the term of the line-of-credit arrangement. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments in this update is permitted for financial statements that have not been previously issued. The Partnership has elected to early adopt, which did not have a material impact on the Partnership's financial statements, see Note 9 - Debt.
In April 2015, the FASB issued update 2015-06 - Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions. When a general partner transfers (or “drops down”) net assets to a master limited partnership and that transaction is accounted for as a transaction between entities under common control, the statements of operations of the master limited partnership are adjusted retrospectively to reflect the dropdown transaction as if it occurred on the earliest date during which the entities were under common control. The objective of this update is to address the diversity in practice in relation to presentation of historical earnings per unit for periods before the date of a dropdown transaction that occurs after formation of a master limited partnership. Some reporting entities recalculate previously reported earnings per unit by allocating the earnings (losses) of the transferred business that occurred in periods before the date of the dropdown transaction to the general partner, limited partners, and incentive distribution rights holders on a hypothetical basis and treat their rights to those earnings (losses) in a manner that is consistent with their contractual rights immediately after the dropdown transaction has occurred. Other reporting entities allocate the earnings (losses) of the transferred business that occurred in periods before the date of the dropdown transaction entirely to the general partner and do not adjust previously reported earnings per unit of the limited partners. The amendments in this update specify that for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a dropdown transaction should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the dropdown transaction occurs for purposes of computing earnings per unit under the two-class method also are required. The amendments in this update should be applied retrospectively for all financial statements presented and are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Earlier adoption is permitted. Management believes adoption of this new guidance will not have a material impact on the Partnership's financial statements.
In May 2014, the FASB issued Update 2014-09 - Revenue from Contracts with Customers (Topic 606). The objective of the amendments in this update is to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and IFRS. The guidance in this update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. An entity should disclose sufficient information, both qualitative and quantitative, to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. Management is currently evaluating the impact this guidance may have on the Partnership's financial statements.
NOTE 2—INITIAL PUBLIC AND CONCURRENT PRIVATE PLACEMENT OFFERING:
The Transaction
On July 1, 2015, the Partnership’s common units began trading on the New York Stock Exchange under the ticker symbol “CNXC”. On July 7, 2015, the following transactions occurred in conjunction with the Partnership completing the IPO.
CONSOL Energy
In connection with the IPO, the Partnership issued 1,050,000 common units (including 188,933 common units issued upon the expiration of the underwriters' option to purchase additional common units), and 11,611,067 subordinated units to CONSOL Energy, representing a 53.4% limited partner interest in us, and issued a 2.0% general partner interest in us and all of our incentive distribution rights to our general partner. In connection with these issuances of common and subordinated units and other ownership interests, we relied upon the “private placement” exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(a)(2) thereof and, accordingly, the common and subordinated units and other ownership interests issued to CONSOL Energy were not registered under the Securities Act. The partnership also entered into an operating agreement, employee services agreement, contract agency agreement, terminal and throughput agreement, cooperation and safety agreement, water supply and services agreement, omnibus agreement and contribution agreement with CONSOL Energy.
Concurrent Private Placement
In connection with the IPO, Greenlight Capital and certain of its affiliates entered into a common unit purchase agreement with us to purchase 5,000,000 common units at a price per unit equal to $15.00 equating to $75,000 in gross proceeds. In connection with our issuance and sale of common units pursuant to the Concurrent Private Placement, we relied upon the “private placement” exemption from the Securities Act, provided by Section 4(a)(2) thereof and, accordingly, the common units issued to Greenlight Capital were not registered under the Securities Act. We distributed all of the proceeds from the Concurrent Private Placement to CONSOL Energy.
Initial Public Offering
As part of the IPO, we sold 5,000,000 common units to the public at a price per unit equal to $15.00 ($14.10 per unit net of underwriting discount) equating to gross proceeds of $75,000. After the deduction of the underwriting discount and structuring fees of $5,500 and offering expenses of approximately $4,052, the net proceeds contributed to the Partnership were approximately $65,448. We granted the underwriters a 30-day option to purchase up to 750,000 common units from us at the IPO price, less the underwriter discount, if the underwriters sold more than 5,000,000 common units. The underwriters partially exercised this option and sold an additional 561,067 common units to the public at $15.00 ($14.10 per unit net of underwriting discount) equating to additional net proceeds of $7,911. We distributed $70,711 of net proceeds from the IPO to CONSOL Energy. The remaining 188,933 common units that the underwriters did not exercise under their option, were issued to CONSOL Energy.
Revolving Credit Facility
In connection with the IPO, we entered into a $400,000 senior secured revolving credit facility with certain lenders and PNC Bank, National Association, as administrative agent (“PNC Bank N.A.”). Obligations under our revolving credit facility are guaranteed by certain of our subsidiaries (the“guarantor subsidiaries”) and are secured by substantially all of our and our subsidiaries’ assets pursuant to a security agreement and various mortgages. CONSOL Energy is not a guarantor of our revolving credit facility.
Borrowings under our revolving credit facility may be used by us to fund cash distributions, make capital expenditures, pay fees and expenses related to our revolving credit facility and for general partnership purposes. In connection with the completion of the IPO and our entry into our revolving credit facility, we made an initial draw of $200,000 and paid $3,000 in origination fees with net proceeds of $197,000 which were distributed to CONSOL Energy.
Use of Proceeds
In connection with the IPO, we used the net proceeds from the IPO, the proceeds from the Concurrent Private Placement and net borrowings under our revolving credit facility to make a distribution of $342,711, including $4,352 of offering and structure fees, to CONSOL Energy. The Partnership retained cash of $7,000. Based on the IPO price of $15.00 per common
unit, the aggregate value of the common units and subordinated units that were issued to CONSOL Energy in connection with the completion of the IPO was approximately $189,916.
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.
The following table illustrates the Partnership's calculation of net income per unit for common and subordinated partner units (in thousands, except for per unit information):
|
| | | | | | | | |
| | September 30, 2015 |
| | Three Months Ended | | Nine Months Ended |
Net Income | | $ | 14,665 |
| | $ | 41,990 |
|
Less: Net (Loss) Income Attributable to CONSOL Energy, Pre-IPO | | (18 | ) | | 27,307 |
|
Net Income Attributable to General and Limited Partner Ownership Interest in CNX Coal Resources | | $ | 14,683 |
| | $ | 14,683 |
|
Less: General Partner Interest in Net Income | | 294 |
| | 294 |
|
Limited Partner Interest in Net Income | | $ | 14,389 |
| | $ | 14,389 |
|
| | | | |
Net Income Allocable to Common Units | | $ | 7,194 |
| | $ | 7,194 |
|
Net Income Allocable to Subordinated Units | | 7,195 |
| | 7,195 |
|
Limited Partner Interest in Net Income | | $ | 14,389 |
| | $ | 14,389 |
|
| | | | |
Weighted Average Limited Partner Units Outstanding - Basic | | | | |
Common Units | | 11,611,067 |
| | 11,611,067 |
|
Subordinated Units | | 11,611,067 |
| | 11,611,067 |
|
Total | | 23,222,134 |
| | 23,222,134 |
|
Weighted Average Limited Partner Units Outstanding - Diluted | | | | |
Common Units | | 11,611,525 |
| | 11,611,525 |
|
Subordinated Units | | 11,611,067 |
| | 11,611,067 |
|
Total | | 23,222,592 |
| | 23,222,592 |
|
| | | | |
Net Income Per Limited Partner Unit - Basic and Diluted | | | | |
Common Units | | $ | 0.62 |
| | $ | 0.62 |
|
Subordinated Units | | $ | 0.62 |
| | $ | 0.62 |
|
NOTE 4—ACQUISITIONS AND DISPOSITIONS:
In March 2014, CPCC completed a sale-leaseback of longwall shields for the Harvey mine. Cash proceeds for the sale offset the basis of $15,071; therefore, no gain or loss was recognized on the sale. The five-year lease has been accounted for as an operating lease.
NOTE 5—MISCELLANEOUS OTHER INCOME:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Right of way sales | $ | 260 |
| | $ | — |
| | $ | 487 |
| | $ | 291 |
|
Coal contract buyout | — |
| | — |
| | — |
| | 6,000 |
|
Litigation | — |
| | — |
| | — |
| | 855 |
|
Other | 4 |
| | 58 |
| | 128 |
| | 123 |
|
Total Miscellaneous Other Income | $ | 264 |
| | $ | 58 |
| | $ | 615 |
| | $ | 7,269 |
|
NOTE 6—INVENTORIES:
|
| | | | | | | |
| September 30, 2015 | | December 31, 2014 |
Coal | $ | 3,637 |
| | $ | 1,718 |
|
Supplies | 9,019 |
| | 8,921 |
|
Total Inventories | $ | 12,656 |
| | $ | 10,639 |
|
Inventories are stated at the lower of cost or market. 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.
NOTE 7—PROPERTY, PLANT AND EQUIPMENT:
|
| | | | | | | |
| September 30, 2015 | | December 31, 2014 |
Coal and other plant and equipment | $ | 453,213 |
| | $ | 441,933 |
|
Coal properties and surface lands | 95,725 |
| | 107,158 |
|
Airshafts | 69,683 |
| | 68,855 |
|
Mine development | 65,231 |
| | 65,340 |
|
Coal advance mining royalties | 3,923 |
| | 3,307 |
|
Total property, plant and equipment | 687,775 |
| | 686,593 |
|
Less: Accumulated depreciation, depletion and amortization | 312,576 |
| | 287,707 |
|
Total Net Property, Plant and Equipment | $ | 375,199 |
| | $ | 398,886 |
|
Coal reserves are controlled either through fee ownership or by lease. The duration of the leases vary; however, the lease terms generally are extended automatically to the exhaustion of economically recoverable reserves, as long as active mining continues. Coal interests held by lease provide the same rights as fee ownership for mineral extraction and are legally considered real property interests.
As of September 30, 2015 and December 31, 2014, property, plant and equipment includes gross assets under capital lease of $383 and $333, respectively. Accumulated amortization for capital leases was $254 and $252 at September 30, 2015 and December 31, 2014, respectively. Amortization expense for assets under capital leases approximated $12 and $6 for the three months ended and $30 and $16 for the nine months ended September 30, 2015 and September 30, 2014, respectively, and is included in Depreciation, Depletion and Amortization in the accompanying Consolidated Statements of Operations.
NOTE 8—OTHER ACCRUED LIABILITIES:
|
| | | | | | | |
| September 30, 2015 | | December 31, 2014 |
Subsidence liability | $ | 23,604 |
| | $ | 20,854 |
|
Accrued payroll and benefits | 5,093 |
| | 3,253 |
|
Deferred revenue | 2,932 |
| | 286 |
|
Equipment Lease Rental | 1,996 |
| | 1,948 |
|
Other | 4,095 |
| | 5,404 |
|
Current portion of long-term liabilities: | | | |
Postretirement benefits other than pensions | — |
| | 1,540 |
|
Workers' compensation | 959 |
| | 922 |
|
Asset retirement obligations | 1,168 |
| | 1,150 |
|
Long-term disability | 113 |
| | 121 |
|
Pneumoconiosis benefits | 21 |
| | 24 |
|
Total Other Accrued Liabilities | $ | 39,981 |
| | $ | 35,502 |
|
NOTE 9—DEBT:
Debt at September 30, 2015 and December 31, 2014 consisted of the following:
|
| | | | | | | |
| September 30, 2015 | | December 31, 2014 |
Revolver, carrying amount (3.20% interest rate at September 30, 2015) | $ | 180,000 |
| | $ | — |
|
Less: Debt issuance and financing fees | (4,127 | ) | | — |
|
Revolver, net | 175,873 |
| | — |
|
| | | |
Advance royalty commitments (7.91% weighted average interest rate for September 30, 2015 and December 31, 2014) | 578 |
| | 578 |
|
CONSOL Financial Inc. Loan (5.46% weighted average interest rate at December 31, 2014) | — |
| | 178,762 |
|
| 176,451 |
| | 179,340 |
|
Less amounts due in one year * | 300 |
| | 18,231 |
|
Long-Term Debt | $ | 176,151 |
| | $ | 161,109 |
|
___________*Excludes current portion of Capital Lease Obligations of $44 and $30 at September 30, 2015 and December 31, 2014, respectively.
Revolving Credit Facility
In connection with the completion of the IPO, we entered into a $400,000 senior secured revolving credit facility with certain lenders and PNC Bank N.A.. Obligations under our revolving credit facility are guaranteed by our subsidiaries and are secured by substantially all of our and our subsidiaries’ assets pursuant to a security agreement and various mortgages. CONSOL Energy is not a guarantor of our revolving credit facility.
Borrowings under our revolving credit facility were used by us to fund a cash distribution, make capital expenditures, pay fees and expenses related to our revolving credit facility and for general partnership purposes. In connection with the completion of the IPO and our entry into our revolving credit facility, we made an initial draw of $200,000 that was distributed to CONSOL Energy, net of origination fees.
The unused portion of our revolving credit facility will be subject to a commitment fee of 0.50% per annum. Interest on outstanding indebtedness under our revolving credit facility is expected to accrue, at our option, at a rate based on either:
| |
• | The highest of (i) PNC Bank N.A.’s prime rate, (ii) the federal funds open rate plus 0.50%, and (iii) the one-month LIBOR rate plus 1.0%, in each case, plus a margin ranging from 1.50% to 2.50%; or |
| |
• | the LIBOR rate plus a margin ranging from 2.50% to 3.50%. |
As of September 30, 2015, the $400,000 facility had $180,000 of borrowings outstanding, leaving $220,000 unused capacity. Interest on outstanding borrowings under the revolving credit facility was accrued at 3.20% based on a LIBOR rate of 0.20%, plus a margin of 3.00%.
Our revolving credit facility matures on July 7, 2020 and requires compliance with conditions precedent that must be satisfied prior to any borrowing as well as ongoing compliance with certain affirmative and negative covenants. The facility also requires that the Partnership maintains a minimum interest coverage ratio of at least 3.00 to 1.00, which is calculated as the ratio of trailing 12 months Adjusted EBITDA to cash interest expense of the Partnership, measured quarterly. The Partnership must also maintain a maximum total leverage ratio not greater than 3.50 to 1.00, which is calculated as the ratio of total consolidated indebtedness to trailing 12 months consolidated Adjusted EBITDA, measured quarterly. At September 30, 2015, the interest coverage ratio was 11.84 to 1.00 and the maximum total leverage ratio was 1.71 to 1.00.
CONSOL Financial Inc. Loan
The loan represents multiple 10-year term notes between CPCC and CONSOL Financial Inc. ("CFI") a wholly owned subsidiary of CONSOL Energy, at the applicable federal rates upon execution, which were due at various future dates throughout the year. In conjunction with the IPO, these notes were excluded from the Partnership.
NOTE 10—COMPONENTS OF OTHER POST-EMPLOYMENT BENEFIT (OPEB) PLANS NET PERIODIC BENEFIT COSTS:
Prior to the IPO, the Partnership was contractually obligated for a portion of the medical and life insurance benefits to retired employees of CPCC (the "OPEB" plans). In conjunction with the IPO, on July 7, 2015 the OPEB liability and related accumulated other comprehensive income was retained by CONSOL Energy, and the Partnership has no further OPEB obligation as of such date.
Components of net periodic benefit costs for the three and nine months ended September 30, 2015 and 2014 are as follows:
|
| | | | | | | | | | | | | | | |
| Other Post-Employment Benefits |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Service cost | $ | — |
| | $ | 185 |
| | $ | — |
| | $ | 556 |
|
Interest cost | — |
| | 352 |
| | 47 |
| | 1,056 |
|
Amortization of prior service credits | (796 | ) | | (466 | ) | | (6,962 | ) | | (1,399 | ) |
Recognized net actuarial loss | 84 |
| | 160 |
| | 1,043 |
| | 480 |
|
Curtailment gain | — |
| | (2,042 | ) | | — |
| | (2,042 | ) |
Net periodic benefit cost | $ | (712 | ) | | $ | (1,811 | ) | | $ | (5,872 | ) | | $ | (1,349 | ) |
On May 31, 2015, the Salaried OPEB and Production and Maintenance (P&M) OPEB plans were remeasured to reflect an announced plan amendment. Retirees will continue in the Salaried and P&M OPEB plans until December 31, 2015, and coverage thereafter will be eliminated.
Prior to the IPO, the Partnership did not contribute to the other post-employment benefit plans in 2015. For the nine months ended September 30, 2015, $1,034 of other post-employment benefits have been paid.
NOTE 11—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:
The Partnership is contractually obligated for medical and disability benefits to CPCC employees and their dependents resulting from occurrences of coal workers' pneumoconiosis disease ("CWP") and is also contractually obligated to compensate individuals who are entitled benefits under workers' compensation laws.
Components of net periodic benefit costs for the three and nine months ended September 30, 2015 and 2014 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CWP | | Workers' Compensation |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 |
Service cost | $ | 51 |
| | $ | 175 |
| | $ | 153 |
| | $ | 524 |
| | $ | 331 |
| | $ | 360 |
| | $ | 994 |
| | $ | 1,079 |
|
Interest cost | 13 |
| | 43 |
| | 39 |
| | 128 |
| | 29 |
| | 37 |
| | 88 |
| | 111 |
|
Amortization of actuarial gain | (14 | ) | | (48 | ) | | (42 | ) | | (144 | ) | | — |
| | (4 | ) | | (1 | ) | | (11 | ) |
State administrative fees and insurance bond premiums | — |
| | — |
| | — |
| | — |
| | 3 |
| | 123 |
| | 147 |
| | 370 |
|
Net periodic benefit cost | $ | 50 |
| | $ | 170 |
| | $ | 150 |
| | $ | 508 |
| | $ | 363 |
| | $ | 516 |
| | $ | 1,228 |
| | $ | 1,549 |
|
The Partnership does not expect to contribute to CONSOL Energy's CWP plan in 2015 as it intends to pay benefit claims as they become due. For the nine months ended September 30, 2015, $22 of CWP benefit claims have been paid.
The Partnership does not expect to contribute to CONSOL Energy's workers’ compensation plan in 2015 as it intends to pay benefit claims as they become due. For the nine months ended September 30, 2015, $399 of workers’ compensation benefits, state administrative fees and surety bond premiums have been paid.
NOTE 12—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.
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:
|
| | | | | | | | | | | | | | | |
| September 30, 2015 | | December 31, 2014 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Revolver | $ | 180,000 |
| | $ | 180,000 |
| | $ | — |
| | $ | — |
|
Long-term debt | $ | — |
| | $ | — |
| | $ | 178,762 |
| | $ | 159,109 |
|
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 13—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 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, and there are no material pending claims that would require disclosure in the financial statements individually or in the aggregate. 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.
Clean Water Act - Bailey Mine. CONSOL Energy received from the U.S. Environmental Protection Agency (the "EPA") on April 8, 2011, a request for information relating to the National Pollutant Discharge Elimination System
("NPDES") permit compliance at the Partnership’s Bailey and Enlow Fork Mines. In response, CPCC submitted water discharge monitoring and other data to the EPA. The investigation has focused primarily on exceedances at three discharge points. In early 2013, the case was referred to the U.S. Department of Justice (the "DOJ"), and PA DEP also became involved. On December 18, 2014, the DOJ provided the Partnership a proposed Consent Decree to resolve certain Clean Water Act and Clean Streams Law claims against CONSOL Energy and CPCC with respect to the Bailey mine. The parties continue to negotiate the terms of the proposed Consent Decree. The Partnership has established an accrual to cover its estimated liability in this matter. This accrual is immaterial to the overall financial position of the Partnership and was included in Other Accrued Liabilities on the Consolidated Balance Sheets.
At September 30, 2015, the Partnership is 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 $67,160. The instruments are comprised of $4,465 employee-related and other letters of credit expiring in the next three years, $46,887 of environmental surety bonds expiring within the next year, and $15,808 of employee-related and other surety bonds expiring within the next year. 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.
The Partnership enters into long-term unconditional purchase obligations. These purchase obligations are not recorded on the Consolidated Balance Sheets. As of September 30, 2015, the Partnership had $771 of purchase obligations, all of which are due in less than one year.
NOTE 14—RELATED PARTY:
The Consolidated Statements of Operations include expense allocations for certain corporate functions historically performed by CONSOL Energy, including allocations of general corporate expenses related to stock based compensation, legal, treasury, human resources, information technology and other administrative services. Those allocations were based primarily on specific identification, head counts and coal tons produced. Also, centralized cash management activities for CONSOL Energy were utilized for collections and payments related to normal course of business accounts receivable and payments for goods and services. The balance of receivable/payable from CONSOL Energy and other affiliates are presented as contributions/distributions in these consolidated financial statements. Management believes the assumptions underlying the Consolidated Financial Statements, including the assumptions regarding allocating general corporate expenses from CONSOL Energy are reasonable. Nevertheless, these statements may not include all of the actual expenses that would have been incurred by the Partnership and may not reflect our Consolidated Statements of Operations, Balance Sheets and Cash Flows had we been a stand-alone company during the periods presented. Actual costs that would have been incurred if the Partnership had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
In conjunction with the IPO, the Partnership entered into several agreements, including an omnibus agreement, with CONSOL Energy. The omnibus agreement provided that CONSOL Energy will perform certain shared services for a fee, including general, selling and direct administrative expenses related to stock based compensation, legal, treasury, human resources, information technology and other administrative services agreement. This agreement also provides that CONSOL Energy extend insurance and other employee benefit coverages for a fee.
We believe that transactions with related parties, other than certain transactions with CONSOL Energy related to administrative services, were conducted on terms comparable to those with unrelated parties.
Purchases of supply inventory from Fairmont Supply Company, formerly a wholly owned subsidiary of CONSOL Energy, were approximately $1,984 and $6,573 for the three and nine months ended September 30, 2014, and are included in Operating and Other Costs in the accompanying Consolidated Statements of Operations. On December 12, 2014, Fairmont Supply was sold by CONSOL Energy and is no longer a related party of CONSOL Energy or the Partnership.
CPCC had several related party long-term notes with CFI that are disclosed within Note 9 - Debt. Payments for these notes were $1,064 for the three months ended September 30, 2014 and $13,592 and $5,744 for the nine months ended September 30, 2015 and September 30, 2014, respectively. Proceeds from additional notes were $1,064 for the three months ended September 30, 2014 and $13,592 and $5,744 for the nine months ended September 30, 2015 and September 30, 2014, respectively. Interest Expense related to these notes were $4,840 for the nine months ended September 30, 2015 and $2,424 and $7,111 for the three and nine months ended September 30, 2014. There was no interest expense and payments or proceeds for the three months ended September 30, 2015 as these notes were excluded from the Partnership in conjunction with the IPO. These costs are included in Interest Expense in the accompanying Consolidated Statements of Operations.
Charges for services from CONSOL Energy include the following: |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Operating and Other Costs | $ | 1,680 |
| | $ | 1,337 |
| | $ | 3,468 |
| | $ | 3,784 |
|
Selling and Direct Administrative Expenses | 1,034 |
| | 1,411 |
| | 3,297 |
| | 4,530 |
|
General and Administrative Expenses | 2,027 |
| | 2,718 |
| | 6,747 |
| | 9,595 |
|
Total Service from CONSOL Energy | $ | 4,741 |
| | $ | 5,466 |
| | $ | 13,512 |
| | $ | 17,909 |
|
At September 30, 2015, the Partnership had a net payable to CONSOL Energy in the amount of $1,188. This payable includes reimbursements for business expenses, executive fees, debt issuance and financing fees, stock-based compensation and other items.
NOTE 15—LONG-TERM INCENTIVE PLAN:
Under the CNX 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 will be 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 will be 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's general partner has granted equity-based phantom units that vest over a period of continued service with the Partnership. The value of 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 grant date. The Partnership accounted for these awards as equity awards and recorded compensation expense based on the fair value of the awards at the grant date fair value. Based on the vesting requirements, the Partnership amortized $15 for the three and nine months ended September 30, 2015, which is included in general and administrative expense.
As of September 30, 2015, 6,204 units have been issued under our LTIP. The weighted average fair value of these grants, based on the Partnership's common unit price on the grant date, was $14.50 per unit.
NOTE 16—SUBSEQUENT EVENTS:
On October 26, the Board of Directors of CNX Coal Resources GP LLC, the general partner of CNX Coal Resources LP, declared a cash distribution to the Partnership's unitholders for the third quarter of 2015 of $0.4791 per common and subordinated unit. The cash distribution will be paid on November 13, 2015 to the unitholders of record at the close of business on November 6, 2015. The quarterly distribution for the quarter ended September 30, 2015 was prorated from the closing date of the IPO based upon a minimum quarterly distribution of $0.5125 per unit per quarter.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, the following discussion of the financial condition and results of operations of our Partnership reflect a 20% undivided interest in the assets, liabilities and results of operations of the Pennsylvania mining complex. As used in the following discussion 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 20% undivided interest in the Pennsylvania mining complex’s combined assets, liabilities revenues and costs.
Overview
We are a growth-oriented master limited partnership recently formed by CONSOL Energy to manage and further develop all of its thermal coal operations in Pennsylvania. Our initial assets include a 20% 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 bituminous thermal coal that is sold primarily to electric utilities in the eastern United States, our core market. 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, the industry experience of our management team and our relationship with CONSOL Energy 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 uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include: (i) coal production, sales volumes and average sales price, which drive coal sales revenue; (ii) cost of coal sold, a non-GAAP financial measure; (iii) adjusted EBITDA, a non-GAAP financial measure and (iv) distributable cash flow, a non-GAAP financial measure.
Reconciliation of Non-GAAP Financial Measures
We evaluate our cost of coal sales on a cost per ton basis. Our cost of coal sold per ton represents our costs divided by the tons of coal we sell. 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 per ton includes items such as direct operating costs, royalty and production taxes, direct administration and selling expenses, and depreciation, depletion and amortization costs. Our costs exclude any indirect costs such as general and administrative costs and other costs not directly attributable to the production of coal. The GAAP measure most directly comparable to cost of coal sold is total costs.
We define average cash margin per ton, which is an operating ratio derived from non-GAAP measures, as (i) average coal revenue per ton, net of average cost of coal sold per ton, depreciation, depletion and amortization, as adjusted for (ii) non-production related costs.
We define adjusted EBITDA as (i) net income (loss) before net interest expense, depreciation, depletion and amortization, as adjusted for (ii) material nonrecurring and other items which may not reflect the trend of our future results. The GAAP measure most directly comparable to adjusted EBITDA is net income.
We define distributable cash flow as adjusted EBITDA less net cash interest paid and estimated maintenance capital expenditures, to analyze our performance. Distributable cash flow will not reflect changes in working capital balances. The GAAP measures most directly comparable to distributable cash flow are net income and net cash provided by operating activities.
Cost of coal sold, average cash margin per ton, adjusted EBITDA and distributable cash flow 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.
The non-GAAP financial measures should not be considered an alternative to total costs, net income, operating cash flow, or any other measure of financial performance or liquidity presented in accordance with GAAP. These measures exclude some, but not all, items that affect net income or net cash, and these measures 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.
The following table presents a reconciliation of 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 September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Total Costs | $ | 50,487 |
| | $ | 64,320 |
| | $ | 165,239 |
| | $ | 188,674 |
|
Freight expense | (242 | ) | | (156 | ) | | (1,257 | ) | | (2,986 | ) |
General and administrative expenses | (1,969 | ) | | (2,623 | ) | | (6,762 | ) | | (9,595 | ) |
Interest expense | (1,888 | ) | | (2,190 | ) | | (6,597 | ) | | (4,709 | ) |
Other costs (non-production) | (149 | ) | | (281 | ) | | 2,881 |
| | (874 | ) |
Selling and direct administrative expenses (non-production) | — |
| | (17 | ) | | (29 | ) | | (197 | ) |
Depreciation. depletion and amortization (non-production) | (437 | ) | | (490 | ) | | (1,536 | ) | | (1,471 | ) |
Cost of coal sold | $ | 45,802 |
| | $ | 58,563 |
| | $ | 151,939 |
| | $ | 168,842 |
|
The following table presents a reconciliation of average cash margin per ton for each of the periods indicated.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Total coal revenue | $ | 64,635 |
| | $ | 75,928 |
| | $ | 205,321 |
| | $ | 245,333 |
|
| | | | | | | |
Operating and other costs | 34,167 |
| | 45,628 |
| | 111,783 |
| | 130,544 |
|
Royalties and production taxes | 2,554 |
| | 3,227 |
| | 8,296 |
| | 10,955 |
|
Selling and direct administrative expenses | 1,236 |
| | 1,583 |
| | 3,848 |
| | 5,012 |
|
Depreciation, depletion and amortization | 8,431 |
| | 8,913 |
| | 26,696 |
| | 24,873 |
|
Less: Other costs (non-production) | (149 | ) | | (281 | ) | | 2,881 |
| | (874 | ) |
Less: Selling and direct administrative expenses (non-production) | — |
| | (17 | ) | | (29 | ) | | (197 | ) |
Less: Depreciation, depletion and amortization (non-production) | (437 | ) | | (490 | ) | | (1,536 | ) | | (1,471 | ) |
Total cost of coal sold | $ | 45,802 |
| | $ | 58,563 |
| | $ | 151,939 |
| | $ | 168,842 |
|
Total coal sold | 1,134 |
| | 1,238 |
| | 3,576 |
| | 3,928 |
|
Average sales price per ton sold | $ | 56.99 |
| | $ | 61.35 |
| | $ | 57.41 |
| | $ | 62.47 |
|
Average cost per ton sold | 40.38 |
| | 47.32 |
| | 42.48 |
| | 42.99 |
|
Average margin per ton sold | 16.61 |
| | 14.03 |
| | 14.93 |
| | 19.48 |
|
Add: Total depreciation, depletion and amortization costs per ton sold | 6.88 |
| | 6.61 |
| | 6.92 |
| | 5.96 |
|
Average cash margin per ton sold | $ | 23.49 |
| | $ | 20.64 |
| | $ | 21.85 |
| | $ | 25.44 |
|
The following table presents a reconciliation of adjusted EBITDA to net income, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated. The table also presents a reconciliation of distributable cash flow to net income and operating cash flows, the most directly comparable GAAP financial measures, on a historical basis for each of the periods indicated.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Net income | $ | 14,665 |
| | $ | 11,825 |
| | $ | 41,990 |
| | $ | 67,034 |
|
Interest expense | 1,888 |
| | 2,190 |
| | 6,597 |
| | 4,709 |
|
Depreciation, depletion and amortization | 8,431 |
| | 8,913 |
| | 26,696 |
| | 24,873 |
|
OPEB plan change | (712 | ) | | — |
| | (4,271 | ) | | — |
|
OPEB transition payment | — |
| | (2,042 | ) | | — |
| | (2,042 | ) |
Backstop loan fees | — |
| | — |
| | 1,516 |
| | — |
|
Coal contract buyout | — |
| | — |
| | — |
| | (6,000 | ) |
Litigation settlement | — |
| | — |
| | — |
| | (855 | ) |
Stock/Unit based compensation | 15 |
| | 530 |
| | 861 |
| | 2,551 |
|
Adjusted EBITDA | $ | 24,287 |
| | $ | 21,416 |
| | $ | 73,389 |
| | $ | 90,270 |
|
Less: | | | | | | | |
Cash Interest | 1,475 |
| | 6 |
| | 6,313 |
| | 4,696 |
|
Estimated Maintenance Capital Expenditures | 7,438 |
| | 7,442 |
| | 29,246 |
| | 29,393 |
|
Distributable Cash Flow | $ | 15,374 |
| | $ | 13,968 |
| | $ | 37,830 |
| | $ | 56,181 |
|
| | | | | | | |
Net Cash Provided by Operating Activities | $ | 8,496 |
| | $ | 24,874 |
| | $ | 47,034 |
| | $ | 88,967 |
|
Less: Interest Expense, Net | 1,888 |
| | 2,190 |
| | 6,597 |
| | 4,709 |
|
Less: Other, Including Working Capital | (17,679 | ) | | 1,268 |
| | (32,952 | ) | | (6,012 | ) |
Adjusted EBITDA | $ | 24,287 |
| | $ | 21,416 |
| | $ | 73,389 |
| | $ | 90,270 |
|
Less: | | | | | | | |
Cash Interest | 1,475 |
| | $ | 6 |
| | 6,313 |
| | 4,696 |
|
Estimated Maintenance Capital Expenditures | 7,438 |
| | 7,442 |
| | 29,246 |
| | 29,393 |
|
Distributable Cash Flow | $ | 15,374 |
| | $ | 13,968 |
| | $ | 37,830 |
| | $ | 56,181 |
|
Results of Operations
Three Months Ended September 30, 2015 Compared with the Three Months Ended September 30, 2014
Total net income was $14,665 for the three months ended September 30, 2015 compared to $11,825 for the three months ended September 30, 2014. Our results of operations for each of these periods are presented in the table below. Variances are discussed following the table.
|
| | | | | | | | | | | |
| For the Three Months Ended, |
| September 30, |
| 2015 | | 2014 | | Variance |
| (in thousands) |
Coal revenue | $ | 64,635 |
| | $ | 75,928 |
| | $ | (11,293 | ) |
Freight revenue | 242 |
| | 156 |
| | 86 |
|
Miscellaneous other income | 264 |
| | 58 |
| | 206 |
|
Gain on sale of assets | 11 |
| | 3 |
| | 8 |
|
Total revenue and other income | 65,152 |
| | 76,145 |
| | (10,993 | ) |
Cost of coal sold: | | | | | |
Operating costs | 34,018 |
| | 45,347 |
| | (11,329 | ) |
Royalties and production taxes | 2,554 |
| | 3,227 |
| | (673 | ) |
Selling and direct administrative expenses | 1,236 |
| | 1,566 |
| | (330 | ) |
Depreciation, depletion and amortization | 7,994 |
| | 8,423 |
| | (429 | ) |
Total cost of coal sold | 45,802 |
| | 58,563 |
| | (12,761 | ) |
Other costs: | | | | | |
Other costs | 149 |
| | 281 |
| | (132 | ) |
Selling and direct administrative expenses | — |
| | 17 |
| | (17 | ) |
Depreciation, depletion and amortization | 437 |
| | 490 |
| | (53 | ) |
Total other costs | 586 |
| | 788 |
| | (202 | ) |
Freight expense | 242 |
| | 156 |
| | 86 |
|
General and administrative expenses | 1,969 |
| | 2,623 |
| | (654 | ) |
Interest expense | 1,888 |
| | 2,190 |
| | (302 | ) |
Total costs | 50,487 |
| | 64,320 |
| | (13,833 | ) |
Net income | $ | 14,665 |
| | $ | 11,825 |
| | $ | 2,840 |
|
Adjusted EBITDA | $ | 24,287 |
| | $ | 21,416 |
| | $ | 2,871 |
|
Distributable Cash Flow | $ | 15,374 |
| | $ | 13,968 |
| | $ | 1,406 |
|
Coal Production Rates
The table below presents total tons produced from the Pennsylvania mining complex on our 20% undivided interest for the periods indicated: |
| | | | | | | | | |
| | Three Months Ended September 30, |
Mine | | 2015 | | 2014 | | Variance |
Bailey | | 453 |
| | 620 |
| | (167 | ) |
Enlow Fork | | 514 |
| | 432 |
| | 82 |
|
Harvey | | 195 |
| | 221 |
| | (26 | ) |
Total | | 1,162 |
| | 1,273 |
| | (111 | ) |
Coal production was 1,162 for the three months ended September 30, 2015 compared to 1,273 for the three months ended September 30, 2014. The 111 decrease was attributable to reducing the production to adjust to the contracted sales commitments.
Coal Operations
Coal revenue and cost components on a per unit basis for the three months ended September 30, 2015 and 2014 were as indicated in the table below. Our operations also include various costs such as general and administrative, corporate, freight and other costs not included in our unit cost analysis because these costs are not directly associated with coal production.
|
| | | | | | | | | | | | | | |
| For the Three Months Ended September 30, |
| 2015 | | 2014 | | Variance | | Percent Variance |
Total Tons Sold (in thousands) | 1,134 |
| | 1,238 |
| | (104 | ) | | (8.4 | )% |
Average Sales Price Per Ton Sold | $ | 56.99 |
| | $ | 61.35 |
| | $ | (4.36 | ) | | (7.1 | )% |
| | | | | | | |
Operating Costs Per Ton Sold | $ | 30.24 |
| | $ | 36.95 |
| | $ | (6.71 | ) | | (18.2 | )% |
Royalties and Production Taxes Per Ton Sold | 2.20 |
| | 2.53 |
| | (0.33 | ) | | (13.0 | )% |
Selling and Direct Administrative Expenses Per Ton Sold | 1.06 |
| | 1.23 |
| | (0.17 | ) | | (13.8 | )% |
Depreciation, Depletion and Amortization Per Ton Sold | 6.88 |
| | 6.61 |
| | 0.27 |
| | 4.1 | % |
Total Costs Per Ton Sold | $ | 40.38 |
| | $ | 47.32 |
| | $ | (6.94 | ) | | (14.7 | )% |
Average Margin Per Ton Sold | $ | 16.61 |
| | $ | 14.03 |
| | $ | 2.58 |
| | 18.4 | % |
Add: Depreciation, Depletion and Amortization Costs Per Ton Sold | 6.88 |
| | 6.61 |
| | 0.27 |
| | 4.1 | % |
Average Cash Margin Per Ton Sold (1) | $ | 23.49 |
| | $ | 20.64 |
| | $ | 2.85 |
| | 13.8 | % |
(1) Average cash margin per ton is an operating ratio derived from non-GAAP measures.
Revenue and Other Income
Coal revenue was $64,635 for the three months ended September 30, 2015 compared to $75,928 for the three months ended September 30, 2014. The $11,293 decrease was attributable to a $4.36 per ton lower average sales price and a 104 decrease in tons sold. The lower sales volumes and average coal sales price per ton sold in the 2015 period were primarily the result of the overall decline in the domestic and global thermal coal markets.
Freight revenue, which is completely offset in freight expense, is the amount billed to customers based on the weight of coal shipped and negotiated freight rates for rail transportation. Freight revenue increased $86 in the period-to-period comparison due to various immaterial transactions.
Miscellaneous other income was $264 for the three months ended September 30, 2015 compared to $58 for the three months ended September 30, 2014. The $206 increase was due to the sale of various right-of-ways that occurred in September 2015.
The change in gain on sale of assets in the period-to-period comparison was due to various immaterial transactions in both periods.
Cost of Coal Sold
Cost of coal sold is comprised of operating and other production costs related to produced tons sold, along with changes in coal inventory, both in volumes and carrying values. The costs of coal sold per ton include items such as direct operating costs, royalty and production taxes, direct administration and selling expenses, and depreciation, depletion, and amortization costs. Total cost of coal sold was $45,802 for the three months ended September 30, 2015, or $12,761 lower than the $58,563 for the three months ended September 30, 2014. Total costs per ton sold were $40.38 per ton for the three months ended September 30, 2015 compared to $47.32 per ton for the three months ended September 30, 2014. The decrease in the cost of coal sold was driven by improved longwall operations, a reduced workforce, and other ongoing cost reduction efforts as a result of reducing production for 2015 to match the contracted sales commitments of the Partnership. There was also a decrease in the unit costs due to OPEB liabilities being retained by CONSOL Energy, in conjunction with the IPO.
Total Other Costs
Total other costs is comprised of various costs that are not allocated to each individual mine and therefore are not included in unit costs. Total other costs decreased $202 for the three months ended September 30, 2015 compared to the three months ended September 30, 2014 due to various immaterial transactions in both periods.
General and Administrative Expense
Upon closing of the IPO, the Partnership entered into a service arrangement with CONSOL Energy to provide certain general and administrative services. These services are paid monthly based on agreed upon rates. In addition, the Partnership incurred various costs as a result of being a publicly traded entity for the three months ended September 30, 2015. For the three months ended September 30, 2014, CONSOL Energy allocated general and administrative expenses based upon the level of operating activity of its underlying business units. These expenses include CONSOL Energy's stock based compensation and short-term incentive compensation program as well as costs that are directly related to our operations along with a portion of costs that are allocated to us based on a percent of total labor costs. The amount of general and administrative expenses incurred was $1,969 for the three months ended September 30, 2015 compared to general and administrative expenses allocated to us from CONSOL Energy of $2,623 for the three months ended September 30, 2014. The change in the period-to-period comparison was due to various transactions, none of which were individually material.
Interest Expense
Interest expense for the three months ended September 30, 2015 was $1,888, which relates to the revolving credit facility that we entered into in connection with the completion of the IPO. For the three months ended September 30, 2014, $2,190 of interest expense was incurred on the CFI loan, which was excluded from the Partnership at the time of the IPO.
Adjusted EBITDA
Adjusted EBITDA was $24,287 for the three months ended September 30, 2015 compared to $21,416 for the three months ended September 30, 2014. The $2,871 increase was attributed to a $2.85 per ton increase in the average cash margin sold. The $2.85 per ton increase in the average cash margin was primarily a result of cost cutting efforts, which resulted in a $6.94 per ton decrease in total costs per ton sold, offset in part, by the $4.36 impairment in average sales price per ton as discussed above.
Distributable Cash Flow
Distributable cash flow was $15,374 for the three months ended September 30, 2015 compared to $13,968 for the three months ended September 30, 2014. The $1,406 increase was attributed to a $2,871 increase in adjusted EBITDA as discussed above. This was offset in part by an increase in the cash interest paid for the three months ended September 30, 2015 of $1,475 compared to $6 for the three months ended September 30, 2014.
Nine Months Ended September 30, 2015 Compared with the Nine Months Ended September 30, 2014
Total net income was $41,990 for the nine months ended September 30, 2015 compared to $67,034 for the nine months ended September 30, 2014. Our results of operations for each of these periods are presented in the table below. Variances are discussed following the table.
|
| | | | | | | | | | | |
| For the Nine Months Ended, |
| September 30, |
| 2015 | | 2014 | | Variance |
| (in thousands) |
Coal revenue | $ | 205,321 |
| | $ | 245,333 |
| | $ | (40,012 | ) |
Freight revenue | 1,257 |
| | 2,986 |
| | (1,729 | ) |
Miscellaneous other income | 615 |
| | 7,269 |
| | (6,654 | ) |
Gain on sale of assets | 36 |
| | 120 |
| | (84 | ) |
Total revenue and other income | 207,229 |
| | 255,708 |
| | (48,479 | ) |
Cost of coal sold: | | | | | |
Operating costs | 114,664 |
| | 129,670 |
| | (15,006 | ) |
Royalties and production taxes | 8,296 |
| | 10,955 |
| | (2,659 | ) |
Selling and direct administrative expenses | 3,819 |
| | 4,815 |
| | (996 | ) |
Depreciation, depletion and amortization | 25,160 |
| | 23,402 |
| | 1,758 |
|
Total cost of coal sold | 151,939 |
| | 168,842 |
| | (16,903 | ) |
Other costs: | | | | | |
Other costs | (2,881 | ) |
| 874 |
| | (3,755 | ) |
Selling and direct administrative expenses | 29 |
|
| 197 |
| | (168 | ) |
Depreciation, depletion and amortization | 1,536 |
|
| 1,471 |
| | 65 |
|
Total other costs | (1,316 | ) | | 2,542 |
| | (3,858 | ) |
Freight expense | 1,257 |
| | 2,986 |
| | (1,729 | ) |
General and administrative expenses | 6,762 |
| | 9,595 |
| | (2,833 | ) |
Interest expense | 6,597 |
| | 4,709 |
| | 1,888 |
|
Total costs | 165,239 |
| | 188,674 |
| | (23,435 | ) |
Net income | $ | 41,990 |
| | $ | 67,034 |
| | $ | (25,044 | ) |
Adjusted EBITDA | $ | 73,389 |
| | $ | 90,270 |
| | $ | (16,881 | ) |
Distributable Cash Flow | $ | 37,830 |
| | $ | 56,181 |
| | $ | (18,351 | ) |
Coal Production Rates
The table below presents total tons produced from the Pennsylvania mining complex on our 20% undivided interest for the periods indicated: |
| | | | | | | | | |
| | Nine Months Ended September 30, |
Mine | | 2015 | | 2014 | | Variance |
Bailey | | 1,615 |
| | 1,916 |
| | (301 | ) |
Enlow Fork | | 1,461 |
| | 1,588 |
| | (127 | ) |
Harvey | | 558 |
| | 424 |
| | 134 |
|
Total | | 3,634 |
| | 3,928 |
| | (294 | ) |
Coal production was 3,634 for the nine months ended September 30, 2015 compared to 3,928 for the nine months ended September 30, 2014. The 294 decrease was attributable to reducing the production to adjust to contracted sales commitments. The production at the Harvey mine increased as a result of the commencement of longwall mining operations in March 2014.
Coal Operations
Coal revenue and cost components on a per unit basis for the nine months ended September 30, 2015 and September 30, 2014 were as indicated in the table below. Our operations also include various costs such as general and administrative, corporate, freight and other costs not included in our unit cost analysis because these costs are not directly associated with coal production.
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| For the Nine Months Ended September 30, |
| 2015 | | 2014 | | Variance | | Percent Variance |
Total Tons Sold (in thousands) | 3,576 |
| | 3,928 |
| | (352 | ) | | (9.0 | )% |
Average Sales Price Per Ton Sold | $ | 57.41 |
| | $ | 62.47 |
| | $ | (5.06 | ) | | (8.1 | )% |
| | | | | | | |
Operating Costs Per Ton Sold | $ | 32.23 |
| | $ | 33.01 |
| | $ | (0.78 | ) | | (2.4 | )% |
Royalties and Production Taxes Per Ton Sold | 2.28 |
| | 2.79 |
| | (0.51 | ) | | (18.3 | )% |
Selling and Direct Administrative Expenses Per Ton Sold | 1.05 |
| | 1.23 |
| | (0.18 | ) | | (14.6 | )% |
Depreciation, Depletion and Amortization Per Ton Sold | 6.92 |
| | 5.96 |
| | 0.96 |
| | 16.1 | % |
Total Costs Per Ton Sold | $ | 42.48 |
| | $ | 42.99 |
| | $ | (0.51 | ) | | (1.2 | )% |
Average Margin Per Ton Sold | $ | 14.93 |
| | $ | 19.48 |
| | $ | (4.55 | ) | | (23.4 | )% |
Add: Total Depreciation, Depletion and Amortization Costs Per Ton Sold | 6.92 |
| | 5.96 |
| | 0.96 |
| | 16.1 | % |
Average Cash Margin Per Ton Sold (1) | $ | 21.85 |
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