10-Q


 
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 March 31, 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 April 15, 2016
Common stock, $0.01 par value
 
229,366,118
 



TABLE OF CONTENTS

 
 
Page
PART I FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
Condensed Financial Statements
 
 
Consolidated Statements of Income for the three months ended March 31, 2016 and 2015
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015
 
Consolidated Balance Sheets at March 31, 2016 and December 31, 2015
 
Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2016
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
PART II OTHER INFORMATION
 
 
 
 
ITEM 1.
 
 
 
ITEM 4.
 
 
 
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
(Unaudited)
March 31,
Revenues and Other Income:
2016
 
2015
Natural Gas, NGLs and Oil Sales
$
181,255

 
$
224,438

Gain on Commodity Derivative Instruments
55,060

 
90,145

Coal Sales
251,895

 
416,151

Other Outside Sales
7,709

 
13,130

Purchased Gas Sales
8,618

 
3,597

Freight-Outside Coal
13,110

 
6,525

Miscellaneous Other Income
48,132

 
36,523

(Loss) Gain on Sale of Assets
(7,265
)
 
2,145

Total Revenue and Other Income
558,514

 
792,654

Costs and Expenses:
 
 
 
Exploration and Production Costs
 
 
 
Lease Operating Expense
27,739

 
37,256

Transportation, Gathering and Compression
93,974

 
75,521

Production, Ad Valorem, and Other Fees
8,303

 
9,192

Depreciation, Depletion and Amortization
105,715

 
87,444

Exploration and Production Related Other Costs
2,408

 
2,040

Purchased Gas Costs
7,868

 
2,957

Other Corporate Expenses
27,694

 
19,096

Selling, General, and Administrative Costs
17,563

 
21,824

Total Exploration and Production Costs
291,264

 
255,330

Coal Costs
 
 
 
Operating and Other Costs
215,074

 
291,407

Depreciation, Depletion and Amortization
54,352

 
62,258

Freight Expense
13,110

 
6,525

Selling, General, and Administrative Costs
5,650

 
7,202

Other Corporate Expenses
3,143

 
6,074

Total Coal Costs
291,329

 
373,466

Other Costs
 
 
 
Miscellaneous Operating Expense
3,188

 
10,384

Depreciation, Depletion and Amortization
—

 
7

Loss on Debt Extinguishment
—

 
67,734

Interest Expense
49,866

 
55,122

Total Other Costs
53,054

 
133,247

Total Costs And Expenses
635,647

 
762,043

(Loss) Earnings Before Income Tax
(77,133
)
 
30,611

Income Taxes
(26,847
)
 
195,898

Loss From Continuing Operations
(50,286
)
 
(165,287
)
(Loss) Income From Discontinued Operations, net
(46,172
)
 
244,317

Net (Loss) Income
(96,458
)
 
79,030

Less: Net Income Attributable to Noncontrolling Interest
1,114

 
—

Net (Loss) Income Attributable to CONSOL Energy Shareholders
$
(97,572
)
 
$
79,030







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
(Dollars in thousands, except per share data)
March 31,
(Unaudited)
2016
 
2015
Earnings Per Share
 
 
 
Basic
 
 
 
Loss from Continuing Operations
$
(0.22
)
 
$
(0.72
)
(Loss) Income from Discontinued Operations
(0.21
)
 
1.06

Total Basic (Loss) Earnings Per Share
$
(0.43
)
 
$
0.34

Dilutive
 
 
 
Loss from Continuing Operations
$
(0.22
)
 
$
(0.72
)
(Loss) Income from Discontinued Operations
(0.21
)
 
1.06

Total Dilutive (Loss) Earnings Per Share
$
(0.43
)
 
$
0.34

 
 
 
 
Dividends Paid Per Share
$
0.0100

 
$
0.0625


CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended
(Dollars in thousands)
March 31,
(Unaudited)
2016
 
2015
Net (Loss) Income
$
(96,458
)
 
$
79,030

Other Comprehensive Loss:
 
 
 
  Actuarially Determined Long-Term Liability Adjustments (Net of tax: $682, $90)
(2,484
)
 
(149
)
  Reclassification of Cash Flow Hedges from OCI to Earnings (Net of tax: $5,624, $11,213)
(9,814
)
 
(19,314
)


 

Other Comprehensive Loss
(12,298
)
 
(19,463
)


 

Comprehensive (Loss) Income
(108,756
)
 
59,567

 
 
 
 
Less: Net Income Attributable to Noncontrolling Interests
1,114

 
—

 
 
 
 
Comprehensive (Loss) Income Attributable to CONSOL Energy Inc. Shareholders
$
(109,870
)
 
$
59,567










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


4


CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
(Unaudited)
 
 
(Dollars in thousands)
March 31,
2016
 
December 31,
2015
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
426,650

 
$
72,578

Accounts and Notes Receivable:
 
 

Trade
165,941

 
157,162

Other Receivables
149,490

 
121,881

Inventories
77,230

 
83,674

Recoverable Income Taxes
1,871

 
13,887

Prepaid Expenses
282,214

 
297,421

Current Assets of Discontinued Operations
43,047

 
58,160

Total Current Assets
1,146,443

 
804,763

Property, Plant and Equipment:
 
 
 
Property, Plant and Equipment
14,639,990

 
14,595,952

Less—Accumulated Depreciation, Depletion and Amortization
5,549,599

 
5,396,295

Property, Plant and Equipment of Discontinued Operations, Net
—

 
469,720

Total Property, Plant and Equipment—Net
9,090,391

 
9,669,377

Other Assets:
 
 
 
Investment in Affiliates
251,628

 
237,330

Other
227,396

 
217,585

Other Assets of Discontinued Operations
12

 
847

Total Other Assets
479,036

 
455,762

TOTAL ASSETS
$
10,715,870

 
$
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)
March 31,
2016
 
December 31,
2015
LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts Payable
$
221,625

 
$
257,288

Current Portion of Long-Term Debt
5,316

 
5,855

Short-Term Notes Payable
851,500

 
952,000

Other Accrued Liabilities
486,906

 
440,523

Current Liabilities of Discontinued Operations
19,584

 
25,272

Total Current Liabilities
1,584,931

 
1,680,938

Long-Term Debt:
 
 
 
Long-Term Debt
2,725,471

 
2,709,444

Capital Lease Obligations
33,490

 
35,008

Long-Term Debt of Discontinued Operations
—

 
3,753

Total Long-Term Debt
2,758,961

 
2,748,205

Deferred Credits and Other Liabilities:
 
 
 
Deferred Income Taxes
52,844

 
74,629

Postretirement Benefits Other Than Pensions
623,525

 
630,892

Pneumoconiosis Benefits
118,178

 
111,903

Mine Closing
290,108

 
289,785

Gas Well Closing
164,124

 
163,842

Workers’ Compensation
68,846

 
69,812

Salary Retirement
86,369

 
91,596

Reclamation
34,490

 
34,150

Other
194,406

 
166,957

Deferred Credits and Other Liabilities of Discontinued Operations
—

 
11,417

Total Deferred Credits and Other Liabilities
1,632,890

 
1,644,983

TOTAL LIABILITIES
5,976,782

 
6,074,126

Stockholders’ Equity:
 
 
 
Common Stock, $.01 Par Value; 500,000,000 Shares Authorized, 229,363,247 Issued and Outstanding at March 31, 2016; 229,054,236 Issued and Outstanding at December 31, 2015
2,297

 
2,294

Capital in Excess of Par Value
2,436,436

 
2,435,497

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

 
—

Retained Earnings
2,478,493

 
2,579,834

Accumulated Other Comprehensive Loss
(327,896
)
 
(315,598
)
Total CONSOL Energy Inc. Stockholders’ Equity
4,589,330

 
4,702,027

Noncontrolling Interest
149,758

 
153,749

TOTAL EQUITY
4,739,088

 
4,855,776

TOTAL LIABILITIES AND EQUITY
$
10,715,870

 
$
10,929,902








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


6


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

 
(Dollars in thousands, except per share data)
Common
Stock
 
Capital in
Excess
of Par
Value
 
Retained
Earnings
(Deficit)
 
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
—

 
—

 
(97,572
)
 
—

 
(97,572
)
 
1,114

 
(96,458
)
Other Comprehensive Loss
—

 
—

 
—

 
(12,298
)
 
(12,298
)
 
—

 
(12,298
)
Comprehensive (Loss) Income
—

 
—

 
(97,572
)
 
(12,298
)
 
(109,870
)
 
1,114

 
(108,756
)
Issuance of Common Stock
3

 
—

 
—

 
—

 
3

 
—

 
3

Treasury Stock Activity
—

 
—

 
(1,475
)
 
—

 
(1,475
)
 
—

 
(1,475
)
Tax Cost From Stock-Based Compensation
—

 
(4,377
)
 
—

 
—

 
(4,377
)
 
—

 
(4,377
)
Amortization of Stock-Based Compensation Awards
—

 
5,316

 
—

 
—

 
5,316

 
308

 
5,624

Distributions to Noncontrolling Interest
—

 
—

 
—

 
—

 
—

 
(5,413
)
 
(5,413
)
Dividends ($0.01 per share)
—

 
—

 
(2,294
)
 
—

 
(2,294
)
 
—

 
(2,294
)
Balance at March 31, 2016
$
2,297

 
$
2,436,436

 
$
2,478,493

 
$
(327,896
)
 
$
4,589,330

 
$
149,758

 
$
4,739,088


























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)
Three Months Ended
(Unaudited)
March 31,
Operating Activities:
2016
 
2015
Net (Loss) Income
$
(96,458
)
 
$
79,030

Adjustments to Reconcile Net Loss to Net Cash Provided By Operating Activities:

 

Net Loss (Income) from Discontinued Operations
46,172

 
(244,317
)
Depreciation, Depletion and Amortization
160,067

 
149,709

Non-Cash Other Post-Employment Benefits
—

 
(10,366
)
Stock-Based Compensation
5,624

 
7,481

Loss (Gain) on Sale of Assets
7,265

 
(2,145
)
Loss on Debt Extinguishment
—

 
67,734

Gain on Commodity Derivative Instruments
(55,060
)
 
(90,145
)
Net Cash Received in Settlement of Commodity Derivative Instruments
84,331

 
30,141

Deferred Income Taxes
(27,127
)
 
200,300

Equity in Earnings of Affiliates
(16,665
)
 
(11,323
)
Return on Equity Investment
4,512

 
6,103

Changes in Operating Assets:

 

Accounts and Notes Receivable
(19,911
)
 
26,664

Inventories
(7,476
)
 
(2,002
)
Prepaid Expenses
19,104

 
38,356

Changes in Other Assets
(9,751
)
 
7,037

Changes in Operating Liabilities:

 

Accounts Payable
(11,487
)
 
(12,619
)
Accrued Interest
35,867

 
42,719

Other Operating Liabilities
849

 
(80,808
)
Changes in Other Liabilities
(4,147
)
 
(11,569
)
Other
4,099

 
7,909

Net Cash Provided by Continuing Operations
119,808

 
197,889

Net Cash Provided by Discontinued Operating Activities
8,634

 
30,481

Net Cash Provided by Operating Activities
128,442

 
228,370

Cash Flows from Investing Activities:

 

Capital Expenditures
(78,968
)
 
(287,804
)
Proceeds from Sales of Assets
8,453

 
2,108

Net Investments in Equity Affiliates
(5,578
)
 
(27,992
)
Net Cash Used in Continuing Operations
(76,093
)
 
(313,688
)
Net Cash Provided by (Used in) Discontinued Investing Activities
397,069

 
(6,215
)
Net Cash Provided by (Used in) Investing Activities
320,976

 
(319,903
)
Cash Flows from Financing Activities:

 

(Payments on) Proceeds from Short-Term Borrowings
(100,500
)
 
760,500

Payments on Miscellaneous Borrowings
(2,128
)
 
(2,464
)
Payments on Long-Term Notes, including Redemption Premium
—

 
(1,261,009
)
Net Proceeds from Revolver - CNX Coal Resources LP
15,000

 
—

Distributions to Noncontrolling Interest
(5,413
)
 
—

Proceeds from Securitization Facility
—

 
32,669

Proceeds from Issuance of Long-Term Notes
—

 
492,760

Tax Benefit from Stock-Based Compensation
—

 
15

Dividends Paid
(2,294
)
 
(14,400
)
Issuance of Common Stock
3

 
1,736

Purchases of Treasury Stock
—

 
(71,674
)
Debt Issuance and Financing Fees
—

 
(18,257
)
Net Cash Used in Continuing Operations
(95,332
)
 
(80,124
)
Net Cash Used in Discontinued Financing Activities
(14
)
 
(14
)
Net Cash Used in Financing Activities
(95,346
)
 
(80,138
)
Net Increase (Decrease) in Cash and Cash Equivalents
354,072

 
(171,671
)
Cash and Cash Equivalents at Beginning of Period
72,578

 
176,989

Cash and Cash Equivalents at End of Period
$
426,650

 
$
5,318


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 months ended March 31, 2016 are not necessarily indicative of the results that may be expected for future periods.

The Consolidated Balance Sheets at December 31, 2015 have been derived from the Audited Consolidated Financial Statements at that date but do 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.

In the three months ended March 31, 2016, CONSOL Energy Inc. ("CONSOL Energy" or "the Company") has made certain adjustments to the financial statements to reflect the sale of the Buchanan Mine, which is now reflected under "discontinued operations." Additionally, CONSOL Energy also made reclassifications within our financial statements to better align our financial reporting with our 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” line items on our Consolidated Statements of Income. These changes are reflected in our 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 March 31,
 
2016
 
2015
Anti-Dilutive Options
5,365,686
 
 
1,834,432
 
Anti-Dilutive Restricted Stock Units
868,842
 
 
85,018
 
Anti-Dilutive Performance Share Units
113,531
 
 
—
 
Anti-Dilutive Performance Stock Options
802,804
 
 
802,804
 
 
7,150,863
 
 
2,722,254
 

The table below sets forth the share-based awards that have been exercised or released:
 
For the Three Months Ended March 31,
 
2016
 
2015
Options
—
 
 
76,028
 
Restricted Stock Units
484,680
 
 
449,005
 
Performance Share Units
—
 
 
497,134
 
 
484,680
 

1,022,167
 



9


No options were exercised during the three months ended March 31, 2016. The weighted average exercise price per share of the options exercised during the three months ended March 31, 2015 was $22.75.
The computations for basic and dilutive earnings per share are as follows:
 
For the Three Months Ended March 31,
 
2016
 
2015
Loss from Continuing Operations
$
(50,286
)
 
$
(165,287
)
(Loss) Income from Discontinued Operations
(46,172
)
 
244,317
 
Net (Loss) Income
$
(96,458
)
 
$
79,030
 
Net Income Attributable to Noncontrolling Interest
1,114
 
 
—
 
Net (Loss) Income Attributable to CONSOL Energy Shareholders
$
(97,572
)
 
$
79,030
 
Weighted Average Shares of Common Stock Outstanding:
 
 
 
Basic
229,259,228
 
 
229,734,412
 
Effect of Stock-Based Compensation Awards
—
 
 
712,287
 
Dilutive
229,259,228
 
 
230,446,699
 
(Loss) Earnings per Share:
 
 
 
Basic (Continuing Operations)
$
(0.22
)
 
$
(0.72
)
Basic (Discontinued Operations)
(0.21
)
 
1.06
 
Total Basic
$
(0.43
)

$
0.34
 
 
 
 
 
Dilutive (Continuing Operations)
$
(0.22
)
 
$
(0.72
)
Dilutive (Discontinued Operations)
(0.21
)
 
1.06
 
Total Dilutive
$
(0.43
)
 
$
0.34
 

Changes in Accumulated Other Comprehensive Loss by component, net of tax, were as follows:
 
Gains and Losses on Cash Flow Hedges
 
Postretirement Benefits
 
Total
Balance at December 31, 2015
$
43,470
 
 
$
(359,068
)
 
$
(315,598
)
Other Comprehensive Loss before reclassifications
—
 
 
(5,014
)
 
(5,014
)
Amounts reclassified from Accumulated Other Comprehensive Loss
(9,814
)
 
2,530
 
 
(7,284
)
Current period Other Comprehensive Loss
(9,814
)
 
(2,484
)
 
(12,298
)
Balance at March 31, 2016
$
33,656
 
 
$
(361,552
)
 
$
(327,896
)

The following table shows the reclassification of adjustments out of Accumulated Other Comprehensive Loss:
 
For the Three Months Ended March 31,
 
2016
 
2015
Derivative Instruments (Note 14)
 
 
 
Natural Gas Price Swaps and Options
$
(15,438
)
 
$
(30,527
)
Tax Expense
5,624
 
 
11,213
 
Net of Tax
$
(9,814
)
 
$
(19,314
)
Actuarially Determined Long-Term Liability Adjustments * (Note 5 and Note 6)
 
 
 
Amortization of Prior Service Costs
$
(148
)
 
$
(14,812
)
Recognized Net Actuarial Loss
5,511
 
 
14,573
 
Total
5,363
 
 
(239
)
Tax (Benefit) Expense
(2,018
)
 
90
 
Net of Tax
$
3,345
 
 
$
(149
)

*Excludes amounts related to the remeasurement of the Actuarially Determined Long-Term Liabilities for the three months ended March 31, 2016. Excludes $815, net of tax, of reclassifications of adjustments out of Accumulated Other Comprehensive Income related to discontinued operations for the period ended March 31, 2016.



10


NOTE 2—DISCONTINUED OPERATIONS:

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. 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. This provision provides CONSOL Energy the opportunity to capture future upside if metallurgical coal prices recover. 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 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 on the Consolidated Statements of Income.
For all periods presented in the accompanying Consolidated Statements of Income, the sale of BMC along with the various other assets are classified as discontinued operations. There were no other active businesses classified as discontinued operations in the three months ended March 31, 2016 or 2015.
The following table details selected financial information for the divested business included within discontinued operations:
 
For the Three Months Ended March 31,
  
2016
 
2015
Coal Sales
$
50,787

 
$
80,515

Miscellaneous Other Income
1,042

 
30

Loss on Sale of Assets
(38,364
)
 
$
—

Total Revenue
$
13,465

 
$
80,545

Total Costs
52,279

 
57,728

(Loss) Income From Operations Before Income Taxes
$
(38,814
)
 
$
22,817

Income Tax Expense (Benefit)
7,358

 
(221,500
)
(Loss) Income From Discontinued Operations
$
(46,172
)
 
$
244,317

The major classes of assets and liabilities of discontinued operations are as follows:
 
March 31,
2016
 
December 31,
2015
Assets:
 
 
 
Accounts Receivable - Trade
$
43,047

 
$
43,346

Inventories
—

 
13,765

Prepaid Expense
—

 
836

Other Current Assets
—

 
213

Total Current Assets
$
43,047

 
$
58,160

Property, Plant and Equipment, Net
—

 
469,720

Other Assets
12

 
847

Total Assets of Discontinued Operations
$
43,059

 
$
528,727

Liabilities:
 
 
 
Accounts Payable
$
18,594

 
$
14,106

Current Liabilities
990

 
11,166

Long Term Debt
—

 
3,753

Pneumoconiosis Benefits
—

 
1,129

Mine Closing
—

 
9,496

Other liabilities
—

 
792

Total Liabilities of Discontinued Operations
$
19,584

 
$
40,442



11


NOTE 3—ACQUISITIONS AND DISPOSITIONS:

In December 2014, CNX Gas Company LLC (CNX Gas Company), a 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 will be paid by CONSOL Energy over the next five years as drilling occurs in addition to royalties, of which $49,533 was recorded in Other Current Liabilities and $40,286 was recorded on a discounted basis in Other Long-term Liabilities. CONSOL Energy did not make a payment to CEVCO in the three months ended March 31, 2016 while $15,216 of payments were made for the three months ended March 31, 2015. At March 31, 2016, the amounts recorded in Other Current Liabilities and Other Long-term Liabilities remained unchanged from December 31, 2015 at $8,349 and $29,333, respectively.

NOTE 4—MISCELLANEOUS OTHER INCOME:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Right of Way Issuance
$
15,733

 
$
2,528

Equity in Earnings of Affiliates - CONE
14,351

 
7,656

Rental Income
9,198

 
9,593

Gathering Revenue
2,748

 
4,560

Equity in Earnings of Affiliates - Other
2,314

 
3,667

Royalty Income - Coal
2,230

 
4,540

Interest Income
214

 
1,143

Other
1,344

 
2,836

Total Other Income
$
48,132

 
$
36,523


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 March 31,
 
For the Three Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
Service cost
$
482

 
$
2,350

 
$
—

 
$
—

Interest cost
6,841

 
8,580

 
6,060

 
6,995

Expected return on plan assets
(11,869
)
 
(12,689
)
 
—

 
—

Amortization of prior service credits
(147
)
 
(176
)
 
—

 
(14,636
)
Recognized net actuarial loss
2,116

 
6,939

 
4,792

 
8,926

Net periodic benefit (credit) cost
$
(2,577
)
 
$
5,004

 
$
10,852

 
$
1,285


For the three months ended March 31, 2016 and 2015, $641 and $2,215 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.

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 three months ended March 31, 2016 and 2015, $13,188 and $14,333 of other post-employment benefits have been paid, respectively.



12


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 March 31,
 
For the Three Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
Service cost
$
1,204

 
$
1,623

 
$
1,904

 
$
2,347

Interest cost
1,123

 
1,279

 
638

 
799

Amortization of actuarial gain
(1,383
)
 
(1,394
)
 
(101
)
 
(8
)
State administrative fees and insurance bond premiums
—

 
—

 
731

 
903

Curtailment gain
(1,307
)
 
—

 
—

 
—

Net periodic benefit (credit) cost
$
(363
)
 
$
1,508

 
$
3,172

 
$
4,041


(Income) expense attributable to discontinued operations included in the CWP net periodic (credit) cost above was $(1,290) and $75 for the three months ended March 31, 2016 and 2015, respectively.
On March 31, 2016, CONSOL Energy completed the sale of its membership interests in Buchanan Mining Company, LLC (See Note 2 - Discontinued Operations). As a result of the sale, certain obligations of the CWP plan were transferred to Coronado. This in turn triggered a curtailment gain of $1,307 for the three months ended March 31, 2016. The curtailment resulted in a plan remeasurement increasing plan liabilities by $5,014, net of $2,700 deferred tax at March 31, 2016.
CONSOL Energy does not expect to contribute to the CWP plan in 2016. The Company intends to pay benefit claims as they become due. For the three months ended March 31, 2016 and 2015, $2,884 and $2,653 of CWP benefit claims have been paid, respectively.
CONSOL Energy does not expect to contribute to the workers’ compensation plan in 2016. The Company intends to pay benefit claims as they become due. For the three months ended March 31, 2016 and 2015, $4,361 and $5,306 of workers’ compensation benefits, state administrative fees and surety bond premiums have been paid, respectively.

NOTE 7—INCOME TAXES:

The effective tax rate for the three months ended March 31, 2016 and 2015 was 34% and 640%, respectively. The effective tax rate for the three months ended March 31, 2016 differed from the U.S. federal statutory rate primarily due to the income tax benefit for excess percentage depletion, partially offset by a charge to record a state valuation allowance resulting from the Buchanan sale. The effective rate for the three months ended March 31, 2015 differs from the U.S. federal statutory rate primarily due to the income tax benefit for excess percentage depletion.

The total amount of uncertain tax positions at March 31, 2016 and December 31, 2015 was $12,702. If these uncertain tax positions were recognized, there would be no effect on CONSOL Energy's effective tax rate. There were no additions to the liability for unrecognized tax benefits during the three months ended March 31, 2016.
CONSOL Energy recognizes interest accrued related to uncertain tax positions in interest expense. As of March 31, 2016 and December 31, 2015, the Company reported an accrued interest liability relating to uncertain tax positions of $53 in Other Current Liabilities on the Consolidated Balance Sheet. There was no interest expense reflected in the Company's Consolidated Statements of Income for the three months ended March 31, 2016 relating to uncertain tax positions.
CONSOL Energy recognizes penalties accrued related to uncertain tax positions in its income tax expense. As of March 31, 2016 and December 31, 2015, the Company had no accrued liabilities for tax penalties related to uncertain tax positions.
CONSOL Energy and its subsidiaries file federal income tax returns with the United States and returns within various states and Canadian jurisdictions. With few exceptions, the Company is no longer subject to United States federal, state, local, or non-U.S. income tax examinations by tax authorities for the years before 2010. The Company expects the Internal Revenue Service to conclude its audit of tax years 2010 through 2013 in the third quarter of 2016.



13


NOTE 8—INVENTORIES:

Inventory components consist of the following:
 
March 31,
2016
 
December 31,
2015
Coal
$
14,743

 
$
18,843

Supplies
62,487

 
64,831

Total Inventories
$
77,230

 
$
83,674


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 9—ACCOUNTS RECEIVABLE SECURITIZATION:
CONSOL Energy and certain of its U.S. subsidiaries were party to a trade accounts receivable facility with financial institutions for the sale on a continuous basis of eligible trade accounts receivable. This facility was terminated on July 7, 2015.
CNX Funding Corporation, a wholly owned, special purpose, bankruptcy-remote subsidiary, bought and sold eligible trade receivables generated by certain subsidiaries of CONSOL Energy. Under the receivables facility, CONSOL Energy and certain subsidiaries, irrevocably and without recourse, sold all of their eligible trade accounts receivable to CNX Funding Corporation, who in turn sold these receivables to financial institutions and their affiliates, while maintaining a subordinated interest in a portion of the pool of trade receivables. This retained interest, which was included in Accounts and Notes Receivable-Trade in the Consolidated Balance Sheets, was recorded at fair value. Due to a short average collection cycle for such receivables, CONSOL Energy's collection experience history and the composition of the designated pool of trade accounts receivable that were part of this program, the fair value of its retained interest approximated the total amount of the designated pool of accounts receivable. CONSOL Energy serviced the sold trade receivables for the financial institutions for a fee based upon market rates for similar services.
In accordance with the Transfers and Servicing Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification, CONSOL Energy recorded transactions under the securitization facility as secured borrowings on the Consolidated Balance Sheets. The pledge of collateral was reported as Accounts Receivable - Securitized and the borrowings were classified as debt in Borrowings under Securitization Facility.
The cost of funds under this facility was based upon LIBOR and commercial paper rates, plus a charge for administrative services paid to the financial institution. Costs associated with the receivables facility totaled $196 for the three months ended March 31, 2015. These costs were recorded as financing fees which are included in Other Costs - Miscellaneous Operating Expense in the Consolidated Statements of Income.


14


NOTE 10—PROPERTY, PLANT AND EQUIPMENT:
 
March 31,
2016
 
December 31,
2015
E&P Property, Plant and Equipment
 
 
 
Intangible drilling cost
$
3,481,390

 
$
3,452,989

Proven gas properties
1,925,328

 
1,922,602

Unproven gas properties
1,421,157

 
1,421,083

Gas gathering equipment
1,121,253

 
1,147,173

Gas wells and related equipment
814,993

 
785,744

Other gas assets
128,042

 
125,691

Gas advance royalties
19,386

 
19,745

Total E&P Property, Plant and Equipment
$
8,911,549

 
$
8,875,027

Less: Accumulated Depreciation, Depletion and Amortization
2,799,666

 
2,695,674

Total E&P Property, Plant and Equipment - Net
$
6,111,883

 
$
6,179,353

 
 
 
 
Coal and Other Property, Plant and Equipment - Continuing Operations:
 
 
 
Coal and other plant and equipment
$
3,217,988

 
$
3,217,530

Coal properties and surface lands
1,188,342

 
1,190,712

Mine development
373,394

 
371,585

Airshafts
366,125

 
361,872

Coal advance mining royalties
354,951

 
351,642

Leased coal lands
227,641

 
227,584

Total Coal and Other Property, Plant and Equipment
$
5,728,441

 
$
5,720,925

Less: Accumulated Depreciation, Depletion and Amortization
2,749,933

 
2,700,621

Total Coal and Other Property, Plant and Equipment - Net
$
2,978,508

 
$
3,020,304

 
 
 
 
Total Company Property, Plant and Equipment
$
14,639,990

 
$
14,595,952

Less - Total Company Accumulated Depreciation, Depletion and Amortization
5,549,599

 
5,396,295

Total Property, Plant and Equipment of Continuing Operations - Net
$
9,090,391

 
$
9,199,657


Industry Participation Agreements

CONSOL Energy has two significant industry participation agreements (referred to as "joint ventures" or "JVs") that provided drilling and completion carries for the Company's retained interests.

CNX Gas Company is party to a joint development agreement with Hess Ohio Developments, LLC (Hess) with respect to approximately 155 thousand net Utica Shale acres in Ohio in which each party has a 50% undivided interest. Under the agreement, as amended, Hess is obligated to pay a total of approximately $335,000 in the form of a 50% drilling carry of certain CONSOL Energy working interest obligations as the acreage is developed. As of March 31, 2016, Hess’ remaining carry obligation is $7,532.

CNX Gas Company is party to a joint development agreement with Noble Energy, Inc. (Noble) with respect to approximately 700 thousand net Marcellus Shale natural gas and oil acres in West Virginia and Pennsylvania, in which each party owns a 50% undivided interest. Under the agreement, as amended, Noble Energy is obligated to pay a total of approximately $1,846,000 in the form of a one-third drilling carry of certain of CONSOL Energy’s working interest obligations as the property is developed, subject to certain limitations. These limitations include the suspension of the carry if average Henry Hub natural gas prices are below $4.00 per million British thermal units (MMbtu) for three consecutive months. The carry was in effect from March 1, 2014, until November 1, 2014 at which time natural gas prices had fallen below $4.00/MMbtu for three consecutive months. The carry remains suspended. Limitations also include a $400,000 annual maximum on Noble Energy's carried cost obligation. As of March 31, 2016, Noble Energy’s remaining carry obligation is $1,624,448.
  


15


NOTE 11—SHORT-TERM NOTES PAYABLE:
CONSOL Energy's current senior secured credit agreement expires on June 18, 2019. The credit facility allows for up to $2,000,000 of borrowings, which includes a $750,000 letters of credit sub-limit. CONSOL Energy can request an additional $500,000 increase in the aggregate borrowing limit amount.

The current facility is secured by substantially all of the assets of CONSOL Energy and certain of its subsidiaries. Fees and interest rate spreads are based on the percentage of facility utilization, measured quarterly. Availability under the facility is limited to a borrowing base, which is determined by the lenders syndication agent and approved by the required number of lenders in good faith by calculating a value of CONSOL Energy's proved natural gas reserves.

The current facility contains a number of affirmative and negative covenants that limit the Company's ability to dispose of assets, make investments, purchase or redeem CONSOL Energy common stock, pay dividends, merge with another corporation and amend, modify or restate the senior unsecured notes. In May 2015, the facility was amended to allow, among other things, spinoffs, or other public equity offering transactions, in regard to subsidiaries that own metallurgical coal assets and thermal coal assets, and all arrangements, actions and transactions in connection therewith, including releases of associated entities or assets from the Credit Agreement and any liens granted under the loan documents. The Amendment also permits the incurrence of a term loan facility up to the aggregate principal amount of $600,000 at subsidiaries of the Company that own the thermal coal assets and the incurrence of a revolving credit facility up to an aggregate principal amount of $300,000 at subsidiaries of the Company that own the metallurgical coal assets.

The facility also requires that CONSOL Energy maintains a minimum interest coverage ratio of 2.50 to 1.00, which is calculated as the ratio of Adjusted EBITDA to cash interest expense of CONSOL Energy and certain of its subsidiaries, measured quarterly. CONSOL Energy must also maintain a minimum current ratio of 1.00 to 1.00, which is calculated as the ratio of current assets, plus revolver availability, to current liabilities, excluding borrowings under the revolver, measured quarterly. At March 31, 2016, the interest coverage ratio was 4.78 to 1.00 and the current ratio was 2.85 to 1.00. Further, the credit facility allows unlimited investments in joint ventures for the development and operation of natural gas gathering systems and permits CONSOL Energy to separate its E&P and coal businesses if the leverage ratio (which is, essentially, the ratio of debt to EBITDA) of the E&P business immediately after the separation would not be greater than 2.75 to 1.00. The calculation of all of the ratios above exclude CNX Coal Resources LP ("CNXC").

At March 31, 2016, the $2,000,000 facility had $851,500 of borrowings outstanding and $286,358 of letters of credit outstanding, leaving $862,142 of unused capacity. At December 31, 2015, the $2,000,000 facility had $952,000 of borrowings outstanding and $258,177 of letters of credit outstanding, leaving $789,823 of unused capacity.

NOTE 12—LONG-TERM DEBT:
 
March 31,
2016
 
December 31,
2015
Debt:
 
 
 
Senior Notes due April 2022 at 5.875% (Principal of $1,850,000 plus Unamortized Premium of $5,397 and $5,617, respectively)
$
1,855,397

 
$
1,855,617

Senior Notes due April 2023 at 8.00% (Principal of $500,000 less Unamortized Discount of $6,335 and $6,561, respectively)
493,665

 
493,439

Revolving Credit Facility - CNX Coal Resources LP
200,000

 
185,000

MEDCO Revenue Bonds in Series due September 2025 at 5.75%
102,865

 
102,865

Senior Notes due April 2020 at 8.25%, Issued at Par Value
74,470

 
74,470

Senior Notes due March 2021 at 6.375%, Issued at Par Value
20,611

 
20,611

Advance Royalty Commitments (16.35% Weighted Average Interest Rate)
5,862

 
5,863

Other Long-Term Note Maturing in 2018 (Principal of $2,752 and $3,096 less Unamortized Discount of $264 and $327, respectively)
2,488

 
2,769

Less: Unamortized Debt Issuance Costs
31,688

 
33,017

 
2,723,670

 
2,707,617

Net Amounts Due in One Year and Current Unamortized Debt Issuance Costs*
(1,801
)
 
(1,827
)
Long-Term Debt
$
2,725,471

 
$
2,709,444




16


* Represents $2,621 and $2,595 due in one year, less $4,422 of unamortized debt issuance costs at March 31, 2016 and December 31, 2015, respectively. Excludes current portion of Capital Lease Obligations of $7,117 and $7,682 at March 31, 2016 and December 31, 2015, respectively.

In March 2015, CONSOL Energy closed on the private placement of $500,000 of 8.00% senior notes due in 2023 (the "Notes") less $7,240 of unamortized bond discount. The Notes are guaranteed by substantially all of CONSOL Energy's wholly-owned domestic restricted subsidiaries. CONSOL Energy used the net proceeds of the sale of the Notes, together with borrowings under its revolving credit facility, to purchase $937,822 of its outstanding 8.25% senior notes due in 2020 and $229,176 of its outstanding 6.375% senior notes due in 2021. As part of this transaction, $67,734 was included in Loss on Debt Extinguishment on the Consolidated Statements of Income.
           
In April 2015, FASB issued Update 2015-03 - Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. 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. This guidance is effective for fiscal years beginning after December 15, 2015 and is required to be applied retrospectively to all prior periods presented. As permitted by the Update, CONSOL Energy elected to early adopt this guidance beginning in the fourth quarter of fiscal year 2015. The resulting reclassification of unamortized debt issuance costs from Other Assets to Long-Term Debt, net of the current portion, in the Consolidated Balance Sheets was $27,266 and $28,595 as of March 31, 2016 and December 31, 2015, respectively.

In July 2015, CNX Coal Resources LP (CNXC), a consolidated subsidiary of CONSOL Energy, entered into a Credit Agreement for a $400,000 revolving credit facility. As of March 31, 2016 and December 31, 2015, CNXC had $200,000 and $185,000 of outstanding borrowings on the facility, respectively. CONSOL Energy is not a guarantor of CNXC's revolving credit facility. See Note 18 - Related Party Transactions for more information.

NOTE 13—COMMITMENTS AND CONTINGENT LIABILITIES:
CONSOL Energy and its subsidiaries are 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. CONSOL Energy accrues the estimated loss for these lawsuits and claims when the loss is probable and can be estimated. The Company's 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 CONSOL Energy. 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 CONSOL Energy; however, such amounts cannot be reasonably estimated. The amount claimed against CONSOL Energy is disclosed below when an amount is expressly stated in the lawsuit or claim, which is not often the case. The maximum aggregate amount claimed in those lawsuits and claims, regardless of probability, where a claim is expressly stated or can be estimated, exceeds the aggregate amounts accrued for all lawsuits and claims by approximately $664,874.

The following lawsuits and claims include those for which a loss is probable and an accrual has been recognized:

Hale Litigation: This class action lawsuit was filed on September 23, 2010 in the U.S. District Court in Abingdon, Virginia. The putative class consists of forced-pooled unleased gas owners whose ownership of the coalbed methane (CBM) gas was declared to be in conflict with rights of others. The lawsuit seeks a judicial declaration of ownership of the CBM and damages based on allegations CNX Gas Company failed to either pay royalties due to conflicting claimants or deemed lessors or paid them less than required because of the alleged practice of improper below market sales and/or taking alleged improper post-production deductions. On September 30, 2013, the District Judge entered an Order certifying the class, and CNX Gas Company appealed the Order to the U.S. Fourth Circuit Court of Appeals. On August 19, 2014, the Fourth Circuit agreed with CNX Gas Company, reversed the Order certifying the class and remanded the case to the trial court for further proceedings consistent with the decision. On April 23, 2015, Plaintiffs filed a Renewed Motion for Class Certification, and on June 23, 2015 CNX Gas Company filed its Opposition to same. The Court held a hearing on the Motion on September 18, 2015 and has not yet ruled. CONSOL Energy continues to believe this action cannot properly proceed as a class action in any form, believes the case has meritorious defenses, and intends to defend it vigorously. The Company has established an accrual to cover its estimated liability for this case. This accrual is immaterial to the overall financial position of CONSOL Energy and is included in Other Accrued Liabilities on the Consolidated Balance Sheets.

Addison Litigation: This class action lawsuit was filed on April 28, 2010 in the United States District Court in Abingdon, Virginia. The putative class consists of gas lessors whose gas ownership is in conflict. The lawsuit seeks a judicial declaration of ownership of the CBM and damages based on the allegations that CNX Gas Company failed to either pay royalties due to these conflicting claimant lessors or paid them less than required because of the alleged practice of improper below market sales and/or


17


taking alleged improper post-production deductions. On September 30, 2013, the District Judge entered an Order certifying the class, and CNX Gas Company appealed the Order to the U.S. Court of Appeals for the Fourth Circuit. On August 19, 2014, the Fourth Circuit agreed with CNX Gas Company, reversed the Order certifying the class and remanded the case to the trial court for further proceedings consistent with the decision. On April 23, 2015, Plaintiffs filed a Renewed Motion for Class Certification, and on June 23, 2015 CNX Gas Company filed its Opposition to same. The Court held a hearing on the Motion on September 18, 2015 and has not yet ruled. CONSOL Energy continues to believe this action cannot properly proceed as a class action in any form, believes the case has meritorious defenses, and intends to defend it vigorously. The Company has established an accrual to cover its estimated liability for this case. This accrual is immaterial to the overall financial position of CONSOL Energy and is included in Other Accrued Liabilities on the Consolidated Balance Sheets.

Clean Water Act - Bailey Mine: The Company received from the U.S. EPA on April 8, 2011, a request for information relating to National Pollutant Discharge Elimination System (NPDES) Permit compliance at the Company’s Bailey and Enlow Fork Mines. In response, CONSOL Pennsylvania Coal Company submitted water discharge monitoring and other data to the EPA. In early 2013, the case was referred to the U.S. Department of Justice (DOJ), and Pennsylvania Department of Environmental Protection (PA DEP) also became involved. On December 18, 2014, the DOJ provided the Company a proposed Consent Decree to resolve certain Clean Water Act and Clean Streams Law claims against CONSOL Energy, Inc. and CONSOL Pennsylvania Coal Company with respect to the Bailey Mine Complex. The parties continue to negotiate the terms of the proposed Consent Decree. The Company anticipates resolving this matter in 2016. The Company has established an accrual to cover its estimated liability in this matter. This accrual is immaterial to the overall financial position of CONSOL Energy and is included in Other Accrued Liabilities on the Consolidated Balance Sheets.
The following royalty and land rights lawsuits and claims include those for which a loss is reasonably possible, but not probable, and accordingly, an accrual may not have been recognized. These claims are influenced by many factors which prevent the estimation of a range of potential loss. These factors include, but are not limited to, generalized allegations of unspecified damages (such as improper deductions), discovery having not commenced or not having been completed, unavailability of expert reports on damages and non-monetary issues being tried. For example, in instances where a gas lease termination is sought, damages would depend on speculation as to if and when the gas production would otherwise have occurred, how many wells would have been drilled on the lease premises, what their production would be, what the cost of production would be, and what the price of gas would be during the production period. An estimate is calculated, if applicable, when sufficient information becomes available.

Virginia Mine Void Litigation: The Company is currently defending three lawsuits naming Consolidation Coal Company (CCC), Island Creek Coal Company (ICCC), CNX Gas Company, and/or CONSOL Energy. The lawsuits were filed in the U.S. District Court for the Western District of Virginia. On October 26, 2015, the trial court granted summary judgment in favor of the defendants in two of the actions upon its finding that plaintiffs' claims are barred by the applicable statutes of limitation. Plaintiffs have appealed both cases to the U.S. Court of Appeals for the Fourth Circuit. The third case remains pending in the trial court. On January 26, 2016, six mine void lawsuits that have twice before been filed and voluntarily dismissed, were refiled for a third time in state court but have not been served. The Complaints seek damages and injunctive relief in connection with the transfer of water from mining activities at Buchanan Mine into void spaces in inactive ICCC mines adjacent to the Buchanan operations, voids ostensibly underlying plaintiffs’ properties. While some of the plaintiffs have an ownership interest in the coal, others have some interest in one or more of the fee, surface, oil/gas or other mineral estates. The suits allege the water storage precludes access to and has damaged coal, impeded coalbed methane gas production and was made without compensation to the property owners. Plaintiffs seek recovery in tort, contract and trespass assumpsit (quasi-contract). The suits each seek damages between $50,000 and in excess of $100,000 plus punitive damages. The Company intends to vigorously defend these suits.

At March 31, 2016, CONSOL Energy has provided the following financial guarantees, unconditional purchase obligations and letters of credit to certain third parties, as described by major category in the following table. These amounts represent the maximum potential total of future payments that the we could be required to make under these instruments. 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 in the financial statements. CONSOL Energy management believes that these guarantees will expire without being funded, and therefore the commitments will not have a material adverse effect on financial condition.


18


 
Amount of Commitment Expiration Per Period
 
Total
Amounts
Committed
 
Less Than
1  Year
 
1-3 Years
 
3-5 Years
 
Beyond
5  Years
Letters of Credit:
 
 
 
 
 
 
 
 
 
Employee-Related
$
61,434

 
$
42,131

 
$
19,303

 
$
—

 
$
—

Environmental
998

 
398

 
600

 
—

 
—

Other
223,926

 
222,954

 
972

 
—

 
—

Total Letters of Credit
286,358

 
265,483

 
20,875

 
—

 
—

Surety Bonds:
 
 
 
 
 
 
 
 
 
Employee-Related
115,353

 
88,853

 
26,500

 
—

 
—

Environmental
532,900

 
475,234

 
57,666

 
—

 
—

Other
28,468

 
27,422

 
1,046

 
—

 
—

Total Surety Bonds
676,721

 
591,509

 
85,212

 
—

 
—

Guarantees:
 
 
 
 
 
 
 
 
 
Coal
25,050

 
25,050

 
—

 
—

 
—

Other
72,305

 
39,325

 
14,024

 
12,327

 
6,629

Total Guarantees
97,355

 
64,375

 
14,024

 
12,327

 
6,629

Total Commitments
$
1,060,434

 
$
921,367

 
$
120,111

 
$
12,327

 
$
6,629


Included in the above table are commitments and guarantees entered into in conjunction with the sale of Consolidation Coal Company and certain of its subsidiaries, which contain all five of its longwall coal mines in West Virginia, and its river operations to a subsidiary of Murray Energy Corporation (Murray Energy). As part of the sales agreement, CONSOL Energy has guaranteed certain equipment lease obligations and coal sales agreements that were assumed by Murray Energy. In the event that Murray Energy would default on the obligations defined in the agreements, CONSOL Energy would be required to perform under the guarantees. If CONSOL Energy would be required to perform, the stock purchase agreement provides various recourse actions. At March 31, 2016, and December 31, 2015, the fair value of these guarantees was $1,228 and are included in Other Accrued Liabilities on the Consolidated Balance Sheets. The fair value of certain of the guarantees was determined using CONSOL Energy’s risk-adjusted interest rate. Significant increases or decreases in the risk-adjusted interest rates may result in a significantly higher or lower fair value measurement. Coal sales agreement guarantees were valued based on an evaluation of coal market pricing compared to contracted sales price and includes an adjustment for nonperformance risk. No other amounts related to financial guarantees and letters of credit are recorded as liabilities in the financial statements. Significant judgment is required in determining the fair value of these guarantees. The guarantees of the leases and sales agreements are classified within Level 3 of the fair value hierarchy.

CONSOL Energy regularly evaluates the likelihood of default for all guarantees based on an expected loss analysis and records the fair value, if any, of its guarantees as an obligation in the consolidated financial statements. 
CONSOL Energy and CNX Gas Company enter into long-term unconditional purchase obligations to procure major equipment purchases, natural gas firm transportation, gas drilling services and other operating goods and services. These purchase obligations are not recorded on the Consolidated Balance Sheets. As of March 31, 2016, the purchase obligations for each of the next five years and beyond were as follows:
 
Obligations Due
Amount
Less than 1 year
$
194,668

1 - 3 years
302,316

3 - 5 years
244,396

More than 5 years
641,615

Total Purchase Obligations
$
1,382,995




19


NOTE 14—DERIVATIVE INSTRUMENTS:

CONSOL Energy enters into financial derivative instruments to manage its exposure to commodity price volatility. CONSOL Energy de-designated all of its cash flow hedges on December 31, 2014 and accounts for all existing and future gas and NGL commodity hedges on a mark-to-market basis with changes in fair value recorded in current period earnings. In connection with this change, CONSOL Energy froze the balances recorded in Accumulated Other Comprehensive Income at December 31, 2014 and will reclassify balances to earnings as the underlying physical transactions occur, unless it is no longer probable that the physical transaction will occur at which time the related gains deferred in Other Comprehensive Income (OCI) will be immediately recorded in earnings.

CONSOL Energy is exposed to credit risk in the event of non-performance by counterparties. The creditworthiness of counterparties is subject to continuing review. The Company has not experienced any issues of non-performance by derivative counterparties.

None of the Company's counterparty master agreements currently require CONSOL Energy to post collateral for any of its positions. However, as stated in the counterparty master agreements, if CONSOL Energy's obligations with one of its counterparties cease to be secured on the same basis as similar obligations with the other lenders under the credit facility, CONSOL Energy would have to post collateral for instruments in a liability position in excess of defined thresholds. All of the Company's derivative instruments are subject to master netting arrangements with our counterparties. CONSOL Energy recognizes all financial derivative instruments as either assets or liabilities at fair value on the Consolidated Balance Sheets on a gross basis.
 
Each of CONSOL Energy's counterparty master agreements allows, in the event of default, the ability to elect early termination of outstanding contracts. If early termination is elected, CONSOL Energy and the applicable counterparty would net settle all open hedge positions.

CONSOL Energy’s commodity derivative instruments accounted for a total notional amount of production of 569.1 Bcf at March 31, 2016 and are forecasted to settle through 2020. At December 31, 2015, the commodity derivative instruments accounted for a total notional amount of production of 456.1 Bcf. At March 31, 2016, the basis only swaps were for notional amounts of 177.2 Bcf and are forecasted to settle through 2018. At December 31, 2015, the basis only swaps were for notional amounts of 124.4 Bcf.

The gross fair value of CONSOL Energy's derivative instruments at March 31, 2016 and December 31, 2015 were as follows:
Asset Derivative Instruments
 
Liability Derivative Instruments
 
March 31,
 
December 31,
 
 
March 31,
 
December 31,
 
2016
 
2015
 
 
2016
 
2015
Commodity Derivative Instruments:
 
 
 
 
 
 
 
Prepaid Expense
$
228,708

 
$
234,409

 
Other Accrued Liabilities
$
7,206

 
$
—

Other Assets
42,333

 
44,539

 
Other Liabilities
28,315

 
5,137

Total Asset
$
271,041

 
$
278,948

 
Total Liability
$
35,521

 
$
5,137

 
 
 
 
 
 
 
 
 
Basis Only Swaps:
 
 
 
 
 
 
 
 
Prepaid Expense
$
6,782

 
$
5,429

 
Other Accrued Liabilities
$
19,358

 
$
12,206

Other Assets
4,460

 
1,093

 
Other Liabilities
5,557

 
1,569

Total Asset
$
11,242

 
$
6,522

 
Total Liability
$
24,915

 
$
13,775















20


The effect of derivative instruments on CONSOL Energy's Consolidated Statements of Income was as follows:
 
For the Three Months Ended
 
March 31,
 
2016
 
2015
Cash Received (Paid) in Settlement of Commodity Derivative Instruments:
 
 
 
  Natural Gas Swaps
$
82,146

 
$
30,260

  Natural Gas Basis Swaps
2,185

 
(119
)
Total Cash Received in Settlement of Commodity Derivative Instruments
84,331

 
30,141

 
 
 
 
Non-Cash Portion of (Loss) Gain on Commodity Derivative Instruments:
 
 
 
  Natural Gas Swaps
(38,023
)
 
31,103

  NGL Swaps
(265
)
 
—

  Natural Gas Basis Swaps
(6,421
)
 
(1,626
)
  Reclassified from Accumulated OCI
15,438

 
30,527

Total Non-Cash Portion of (Loss) Gain on Commodity Derivative Instruments
(29,271
)
 
60,004

 
 
 
 
Gain (Loss) on Commodity Derivative Instruments:
 
 
 
  Natural Gas Swaps
44,123

 
61,363

  NGL Swaps
(265
)
 
—

  Natural Gas Basis Swaps
(4,236
)
 
(1,745
)
  Reclassified from Accumulated OCI
15,438

 
30,527

Total Gain on Commodity Derivative Instruments
$
55,060

 
$
90,145

    
Changes in Accumulated OCI, net of tax, attributable to cash flow hedges that were de-designated December 31, 2014 were as follows:
 
For the Three Months Ended
 
March 31,
 
2016
 
2015
Beginning Balance – Accumulated OCI
$
43,470

 
$
121,521

Gain Reclassified from Accumulated OCI (Net of tax: $5,624, $11,213)
(9,814
)
 
(19,314
)
Ending Balance – Accumulated OCI
$
33,656

 
$
102,207


CONSOL Energy expects to reclassify an additional $33,656, net of tax of $19,387, out of Accumulated Other Comprehensive Income over the remaining period ended December 31, 2016.



21


NOTE 15—FAIR VALUE OF FINANCIAL INSTRUMENTS:

CONSOL Energy determines the fair value of assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources (including NYMEX forward curves, LIBOR-based discount rates and basis forward curves), while unobservable inputs reflect the Company's own assumptions of what market participants would use.
The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below:
Level One - Quoted prices for identical instruments in active markets.
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 NYMEX forward curves, LIBOR-based discount rates and basis forward curves.
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 Company's third party guarantees are the credit risk of the third party and the third party surety bond markets. A significant increase or decrease in these values, in isolation, would have a directionally similar effect resulting in higher or lower fair value measurement of the Company's Level 3 guarantees.
In those cases when the inputs used to measure fair value meet the definition of more than one level of the fair value hierarchy, the lowest level input that is significant to the fair value measurement in its totality determines the applicable level in the fair value hierarchy.
The financial instruments measured at fair value on a recurring basis are summarized below:
 
Fair Value Measurements at March 31, 2016
 
Fair Value Measurements at December 31, 2015
Description

(Level 1)
 

(Level 2)
 

(Level 3)
 

(Level 1)
 

(Level 2)
 

(Level 3)
Gas Derivatives
$
—

 
$
221,847

 
$
—

 
$
—

 
$
266,558

 
$
—

Murray Energy Guarantees
$
—

 
$
—

 
$
1,228

 
$
—

 
$
—

 
$
1,228


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

Cash and cash equivalents: The carrying amount reported in the Consolidated Balance Sheets for cash and cash equivalents approximates its fair value due to the short-term maturity of these instruments.

Short-term notes payable: The carrying amount reported in the Consolidated Balance Sheets for short-term notes payable approximates its fair value due to the short-term maturity of these instruments.

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:
 
March 31, 2016
 
December 31, 2015
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Cash and Cash Equivalents
$
426,650

 
$
426,650

 
$
72,578

 
$
72,578

Short-Term Notes Payable
$
(851,500
)
 
$
(851,500
)
 
$
(952,000
)
 
$
(952,000
)
Long-Term Debt
$
(2,755,358
)
 
$
(2,082,975
)
 
$
(2,740,634
)
 
$
(1,810,925
)
Cash and cash equivalents represent highly liquid instruments and constitute Level 1 fair value measurements. Certain of the Company’s debt is actively traded on a public market and, as a result, constitutes Level 1 fair value measurement. The portion of the Company’s debt obligations that are not actively traded are valued through reference to the applicable underlying benchmark rate and, as a result, constitutes Level 2 fair value measurement.


22



NOTE 16—SEGMENT INFORMATION:
CONSOL Energy consists of two principal business divisions: Exploration and Production (E&P) and Coal. The principal activity of the E&P division, which includes four reportable segments, is to produce pipeline quality natural gas for sale primarily to gas wholesalers. The E&P division's reportable segments are Marcellus, Utica, Coalbed Methane, and Other Gas. The Other Gas segment is primarily related to shallow oil and gas production, and includes the Company's purchased gas activities and selling, general and administrative activities, as well as various other activities assigned to the E&P division but not allocated to each individual well type.
The principal activities of the Coal division are mining, preparation and marketing of thermal coal, sold primarily to power generators. The Coal division's reportable segments are Pennsylvania (PA) Operations and Other Coal. Each of these reportable segments includes a number of operating segments (individual mines). For the three months ended March 31, 2016, the PA Operations aggregated segment includes the following mines: Bailey Mine, Enlow Fork Mine, and Harvey Mine and the corresponding preparation plant facilities. For the three months ended March 31, 2016, the Other Coal segment includes the Miller Creek Complex, coal terminal operations, the Company's purchased coal activities, idled mine activities and selling, general and administrative activities, as well as various other activities assigned to the Coal division but not allocated to each individual mine.
CONSOL Energy’s All Other division includes expenses from various other corporate activities that are not allocated to the E&P or Coal divisions.
Prior to the sale of the Buchanan Mine on March 31, 2016, CONSOL Energy had a third reportable segment in the Coal division, Virginia (VA) Operations. See Note 2 - Discontinued Operations for more information relating to the sale.
In the preparation of the following information, intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on sales less identifiable operating and non-operating expenses. Assets are reflected at the division level for E&P and are not allocated between each individual E&P segment. These assets are not allocated to each individual segment due to the diverse asset base controlled by CONSOL Energy, whereby each individual asset may service more than one segment within the division. An allocation of such asset base would not be meaningful or representative on a segment by segment basis.



23


Industry segment results for the three months ended March 31, 2016 are:
 
 
Marcellus
Shale
 
Utica Shale
 
Coalbed Methane
 
Other
Gas
 
Total
E&P
 
PA Operations
 
Other
Coal
 
Total Coal
 
Other
 

Eliminations
 
Consolidated
 
Sales—Outside
$
96,138

 
$
34,261

 
$
41,920

 
$
8,936

 
$
181,255

 
$
226,164

 
$
25,731

 
$
251,895

 
$
—

 
$
—

 
$
433,150

(A)
Gain on Commodity Derivative Instruments
48,564

 
10,009

 
19,121

 
(22,634
)
 
55,060

 
—

 
—

 
—

 
—

 
—

 
55,060

 
Other Outside Sales
—

 
—

 
—

 
—

 
—

 
—

 
7,709

 
7,709

 
—

 
—

 
7,709

 
Sales—Purchased Gas
—

 
—

 
—

 
8,618

 
8,618

 
—

 
—

 
—

 
—

 
—

 
8,618

  
Freight—Outside
—

 
—

 
—

 
—

 
—

 
13,076

 
34

 
13,110

 
—

 
—

 
13,110

  
Intersegment Transfers
—

 
—

 
424

 
—

 
424

 
—

 
—

 
—

 
—

 
(424
)
 
—

  
Total Sales and Freight
$
144,702

 
$
44,270

 
$
61,465

 
$
(5,080
)
 
$
245,357

 
$
239,240

 
$
33,474

 
$
272,714

 
$
—

 
$
(424
)
 
$
517,647

  
Earnings (Loss) Before Income Taxes
$
19,482

 
$
3,256

 
$
12,606

 
$
(58,885
)
 
$
(23,541
)
 
$
23,410

 
$
(26,253
)
 
$
(2,843
)
 
$
(50,325
)
 
$
(424
)
 
$
(77,133
)
(B)
Segment Assets
 
 
 
 
 
 
 
 
$
6,814,818

 
$
2,078,559

 
$
1,194,327

 
$
3,272,886

 
$
628,166

 
$
—

 
$
10,715,870

(C)
Depreciation, Depletion and Amortization
 
 
 
 
 
 
 
 
$
105,715

 
$
41,266

 
$
13,086

 
$
54,352

 
$
—

 
$
—

 
$
160,067

  
Capital Expenditures
 
 
 
 
 
 
 
 
$
62,862

 
$
12,904

 
$
1,921

 
$
14,825

 
$
1,281

 
$
—

 
$
78,968

  
 
(A)    Included in the Coal segment are sales of $60,357 to Duke Energy, which comprises over 10% of sales.
(B)     Includes equity in earnings of unconsolidated affiliates of $15,598 and $1,067 for E&P and Coal, respectively.
(C)    Includes investments in unconsolidated equity affiliates of $248,034 and $3,594 for E&P and Coal, respectively.


24


Industry segment results for the three months ended March 31, 2015 are:
 
 
Marcellus
Shale
 
Utica
Shale
 
Coalbed Methane
 
Other
Gas
 
Total
E&P
 
PA Operations
 
Other
Coal
 
Total
Coal
 
Other
 

Eliminations
 
Consolidated
 
Sales—Outside
$
126,302

 
$
18,603

 
$
61,327

 
$
18,206

 
$
224,438

 
$
384,437

 
$
31,714

 
$
416,151

 
$
—

 
$
—

 
$
640,589

(D)
Gain on Commodity Derivative Instruments
12,792

 
—

 
13,657

 
63,696

 
90,145

 
—

 
—

 
—

 
—

 
—

 
90,145

 
Other Outside Sales
—

 
—

 
—

 
—

 
—

 
—

 
13,130

 
13,130

 
—

 
—

 
13,130

 
Sales—Purchased Gas
—

 
—

 
—

 
3,597

 
3,597

 
—

 
—

 
—

 
—

 
—

 
3,597

  
Freight—Outside
—

 
—

 
—

 
—

 
—

 
2,369

 
4,156

 
6,525

 
—

 
—

 
6,525

  
Intersegment Transfers
—

 
—

 
547

 
—

 
547

 
—