Notes to Financial Statements
December 31, 2013 and 2012
The following description of the CONSOL Energy Inc. Investment Plan for
Salaried Employees (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
General
– The Plan is a tax-qualified, defined-contribution plan covering salaried, operations and
maintenance, production and maintenance, warehouse and maintenance, and certain casual employees of CONSOL Energy Inc. and other participating employers (“CONSOL Energy” or the “Company”). Employees can participate in the Plan on
the first day of the first full pay period following the date they first become eligible. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, and the Internal Revenue Code
(“Code”).
The Plan Administrator is the Investment Plan Committee of CONSOL Energy, whose members
are appointed by the Board of Directors (the “Board”) of the Company. The Investment Plan Committee also has responsibility for selecting and overseeing the Plan’s investments. The Board has the authority to appoint trustees and has
designated Bank of America, N.A. (“Bank of America”) as trustee for the Plan.
During 2013 and 2012,
the Plan offered CONSOL Energy common stock (“CONSOL Stock Fund”) as an investment option to Plan participants. The CONSOL Stock Fund is an Employee Stock Ownership Plan (“ESOP”) where participants can elect to have dividends
paid to them in cash instead of being reinvested in the CONSOL Stock Fund in their Plan account. For the years ended December 31, 2013 and 2012, $21,041 and $81,772 in dividends from the CONSOL Stock Fund were paid to participants in cash,
respectively.
Contributions
– Participants may make before-tax or after-tax contributions of 1%
to 75% of eligible compensation to the Plan via payroll deductions. Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions. Participants are automatically enrolled in the Plan at a 6%
before-tax savings rate (4% for employees of Fairmont Supply Company and its subsidiaries, participating employers that are a qualified separate line of business) if no action is taken by the employee within forty-five days of the date they first
become eligible. Under the automatic enrollment provision, participant assets are invested in accordance with a managed account feature offered by Bank of America based on certain demographic characteristics of the participant. A participant may
elect not to participate in the Plan at any time.
4
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
1.
|
DESCRIPTION OF PLAN (Continued)
|
A participant may also separately designate from 1% to 75% (not to
exceed $10,000) of any incentive compensation payment as a supplemental before-tax or after-tax contribution. Participants may also contribute amounts representing distributions from other qualified defined-benefit or defined-contribution plans.
CONSOL Energy matches these contributions (excluding deferrals of incentive compensation payments), dollar
for dollar, up to 6% of eligible compensation (fifty cents on every dollar up to 12% of eligible compensation for employees of Fairmont Supply Company and its subsidiaries).
Certain eligible employees of Fairmont Supply Company and its subsidiaries receive qualified non-elective
(“QNEC”) contributions equal to $1,500 per year, regardless of the employee’s contribution election. The Company may also make discretionary contributions to the Plan ranging from 1% to 4% of eligible compensation for eligible
employees (as defined by the Plan). There were no such discretionary contributions made by the Company for the years ending December 31, 2013 and 2012. All participant and matching contributions are subject to regulatory and Plan limitations,
and total contributions credited to a participant’s account are further subject to annual addition limitations under the Code.
Participant Accounts
– Each participant’s account is credited with the participant’s contributions and allocations of the Company’s contributions and Plan investment earnings
and is charged with an allocation of administrative expenses and Plan investment losses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be
provided from the participant’s account.
Investment Options
– Upon enrollment in the Plan, a
participant may direct employee and Company contributions into any of the funds included in the supplemental schedule of assets (held at end of year), except for E.I. DuPont de Nemours & Company (“DuPont”) common stock. This
investment option is no longer available to Plan participants.
Vesting
– Participants are
immediately vested in their contributions and any matching contributions, QNEC contributions, or discretionary contributions made by the Company plus actual earnings (losses) thereon.
5
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
1.
|
DESCRIPTION OF PLAN (Continued)
|
Notes Receivable from Participants
– Participants may borrow
the lesser of up to one-half of their vested account balances subject to a $1,000 minimum or required regulatory loan maximum limitations. Such loans are repayable over periods of 12 to 60 months (120 months maximum if for the purchase of a
principal residence) and are secured by the balance in the participant’s account. The rate of interest on loans is commensurate with the average rate charged by selected major banks for secured personal loans and remains fixed for the life of
the loan. Loans are repaid over the period in installments of principal and interest via payroll deductions or ACH account debit for participants that terminate employment subsequent to the loan’s execution. A participant also has the right to
repay the loan in full, at any time, without penalty. At December 31, 2013, loan interest rates ranged from 4.25% to 9.25%.
Payment of Benefits
– Participants who retire from active service may elect to defer withdrawals until April of the calendar year following the later of the year in which the participant
attains age 70
1
/
2
or terminates employment. They may also elect an option to have their account distributed over a period of not less than two years or more than a period which would pay the account balance during the
participant’s actuarial life in either a fixed or variable amount. Before-tax deposits may be withdrawn only in the event of a participant’s retirement, death, termination, attainment of age 59
1
/
2
or defined hardship.
Plan Termination
– Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Accounting
– The accompanying financial statements of the Plan have been prepared under the accrual
basis of accounting in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
6
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Fully Benefit-Responsive Investment Contracts
– Investment
contracts held by a defined-contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan
attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. The statements of net assets available for
benefits presents the fair value of the fully benefit-responsive investment contracts held in the CONSOL Energy Inc. Stable Value Fund (“Stable Value Fund” or “SVF”) as well as the adjustment of the fully benefit-responsive
investment contracts from fair value to contract value. The statement of changes in net assets available for benefits is prepared on a contract value basis.
Investment Valuation and Income Recognition
– The Plan’s investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. See Note 4 for a discussion of fair value measurements.
Purchases and sales of investments are recorded on a trade-date basis. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Realized gains and losses
on the sale of DuPont and CONSOL Energy common stock are based on the average cost of the securities sold. Net appreciation includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
Notes Receivable from Participants
– Notes receivable from participants are measured at their unpaid
principal balance plus any accrued but unpaid interest. Interest on notes receivable from participants is recognized over the term of the notes and calculated using a simple-interest method on principal amounts. The Plan administrator considers
delinquent loans to be defaulted on the last day of the calendar quarter following the quarter in which the last payment was made and reclassified as a distribution based on the terms of the Plan document.
Payment of Benefits
– Benefits are recorded when paid.
7
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Administrative Expenses
– Expenses incurred in connection
with the operation of the Plan with regard to the purchase and sale of investments and certain trustee and professional fees are paid by the Plan. Asset-based fees are deducted prior to allocation of the Plan’s investment earnings activity and
thus are not separately identifiable as an expense. Other administrative expenses are paid by CONSOL Energy at no cost to the Plan.
Use of Estimates
– The preparation of financial statements in conformity with US GAAP requires Plan management to make estimates and assumptions that affect the reported amounts of
assets, liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
ESOP
– The Plan’s ESOP provision provides that participants may invest a portion or all of their account in Company stock. The ESOP provision also contains a put option in accordance with
the requirements of the Code, which is a right for any participant who is otherwise entitled to a distribution from the Plan to require the Company stock in their ESOP account be repurchased by the Company if it is not readily tradable on an
established market. Participants who elect to invest their account balance in Company stock have voting rights commensurate with their shares and participants are fully vested at all times in dividends paid on the acquired Company stock. A
participant also has the right to diversify stock in their accounts pursuant to the provisions of the Plan document. At December 31, 2013 and 2012, and from the period since inception of the ESOP, there were no Company contributions in the form
of stock.
Subsequent Events
– Plan management has evaluated subsequent events and has concluded
that there were no subsequent events requiring adjustments to the financial statements or related disclosures, as stated herein.
|
3.
|
CONTRACTS WITH INSURANCE COMPANIES
|
The Plan has direct holdings of fully benefit-responsive investment contracts in its SVF. The SVF is comprised of guaranteed investment contracts (“GIC”), separate account portfolios
(“SAP”), and synthetic GICs (“SYN”), all of which are held with multiple insurance companies and banks. GICs are comprised of assets held in the issuing company’s general account and are backed by the full faith and credit
of the issuer. SAPs and SYNs are backed by underlying fixed income assets.
8
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2011
|
3.
|
CONTRACTS WITH INSURANCE COMPANIES (Continued)
|
The aggregate crediting rates for all contracts as of December 31,
2013 and 2012 were 2.05% and 2.92%, respectively. Contract or crediting rates for GICs are negotiated with the issuer and are effective for the life of the contract. The contract or crediting rates for SAPs and SYNs are reset periodically throughout
the year and are based on the performance of the portfolio of assets underlying these contracts. Inputs used to determine the crediting rate include each contract’s portfolio market value of fixed income assets, current yield-to-maturity,
duration, and market value relative to contract value. All contracts have a guaranteed rate of at least 0% or higher with respect to determining interest rate resets. If future crediting rates increase or decrease, the adjustment from fair value to
contract value would change in the same direction. The average market value yield of the SVF based on the actual earnings of the underlying assets was approximately -0.93% and 3.14% in 2013 and 2012, respectively. The average yield of the SVF based
on the actual interest rate credited to participants’ accounts in 2013 and 2012 was approximately 2.37% and 2.89%, respectively.
Traditional GICs expose the Plan through the SVF to direct credit risk associated with each contract issuer. To mitigate this risk, investment guidelines prohibit the Plan from purchasing contracts from
issuers with a credit rating lower than Aa3/AA. In addition, the weighted average credit rating of all GIC contracts must be A3/A- or higher at all times and no single GIC issuer may represent more than 5% of the total SVF. Additionally, the Plan
administrator and the Plan’s third party investment advisors continually monitor the issuers of these investments through external credit rating agencies and monitor credit rating history, downgrade/upgrade notifications, and analyst reports
for all current and potential issuers. There are no reserves against contract value for credit risk of the contract issuers or otherwise.
9
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
3.
|
CONTRACTS WITH INSURANCE COMPANIES (Continued)
|
Participants may ordinarily direct the withdrawal or transfer of all or
a portion of their SVF investment at contract value for Plan permitted benefit payments. Certain events may limit the ability of the Plan to transact at contract value with the issuer. Such events include amendments to Plan documents (including
complete or partial Plan termination or merger with another plan or distribution of any participant communication designed to induce participants to withdraw or otherwise transfer amounts from the SVF), changes to the Plan’s prohibition on
competing investment options or deletion of equity wash provisions, bankruptcy of the Company or other Plan sponsor events (i.e. divestitures or spin-offs of a subsidiary) which cause a significant withdrawal from the Plan, or failure of the Plan to
qualify for exemption from federal income taxes or any required prohibited transaction exemption under ERISA. The Plan administrator does not believe that the occurrence of any such event, which would limit the Plan’s ability to transact at
contract value with participants, is probable of occurring.
Based on certain events specified in the fully
benefit-responsive investment contracts (i.e. GICs, SAPs and SYNs), both the Plan and issuers of such investment contracts are permitted to terminate the investment contracts. If applicable, such terminations can occur prior to the scheduled
maturity date.
Examples of termination events that permit issuers to terminate investment contracts include
the following:
|
|
•
|
|
The Plan sponsor’s receipt of a final determination notice from the Internal Revenue Service (“IRS”) that the Plan does not qualify
under Section 401(a) of the Code.
|
|
|
•
|
|
The Plan ceases to be exempt from federal income taxation under section 501(a) of the Code.
|
|
|
•
|
|
The Plan or its representative breaches material obligations under the investment contract such as failure to satisfy its fee payment obligations or
failure to follow the contract’s equity wash provisions.
|
|
|
•
|
|
The Plan or its representatives makes a material misrepresentation, including acts of fraud or deceit, which affects the intent, structure, or risk
profile of the contract.
|
|
|
•
|
|
The Plan makes a material amendment to the Plan (including complete or partial termination or merger with another plan) and/or the amendment
adversely impacts the issuer.
|
|
|
•
|
|
The Plan, without the issuer’s consent, attempts to assign its interest in the investment contract.
|
|
|
•
|
|
The balance of the contract value is zero or immaterial.
|
10
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
3.
|
CONTRACTS WITH INSURANCE COMPANIES (Continued)
|
|
|
•
|
|
The termination event is not cured within a reasonable time period, i.e., 30 days.
|
For SAPs and SYNs, additional termination events include but are not limited to the following:
|
|
•
|
|
The investment manager of the underlying securities is replaced without prior written consent of the issuer.
|
|
|
•
|
|
The underlying securities are managed in a way that does not comply with the investment guidelines.
|
For GICs, the contract value is adjusted to reflect a discounted value based on surrender charges or other penalties at
termination. For SAPs and SYNs, termination is at market value of the underlying securities less unpaid issuer fees or charges. If the termination event is not material based on industry standards, it may be possible for the Plan to exercise its
right to require the issuer that initiated the termination to extend the investment contract for a period no greater than what it takes to immunize the underlying securities and/or it may be possible to replace the issuer of a SAP or SYN that
terminates the contract with another SAP or SYN issuer. Both options help maintain stable contract value.
Participants investing in the SVF are assigned units at the time of investment based on the net asset value per unit.
|
4.
|
FAIR VALUE MEASUREMENTS
|
US GAAP for fair value measurements provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
The three levels of the fair value hierarchy are described as follows:
11
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
4.
|
FAIR VALUE MEASUREMENTS (Continued)
|
|
|
•
|
|
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has
the ability to access. An active market for the asset or liability is a market in which the transaction for the asset or liability occurs with sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
|
•
|
|
Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability, or other inputs that are derived principally from or corroborated by observable market data by correlation or other
means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
|
|
|
•
|
|
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest
level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value. There
have been no changes in the methodologies used at December 31, 2013 and 2012.
Stable Value Fund
– The SVF is comprised of a short-term investment fund in addition to GICs, SAPs and SYNs. These fully benefit-responsive contracts are valued at fair value on the statements of net assets available for benefits and are credited with actual
earnings on the underlying investments and charges for participant withdrawals and administrative expenses. The following disclosures provide information about the nature of the investments in the SVF and how fair value of these investments is
measured.
12
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
4.
|
FAIR VALUE MEASUREMENTS (Continued)
|
|
|
•
|
|
U.S. Government Security Fund
– This security is a short-term investment fund (i.e. money market fund) designed to provide daily
liquidity to the SVF and is stated at cost plus accrued interest, which approximates fair value. The fund seeks to preserve a net asset value of $1 per share and can be validated with a sufficient level of market activity and therefore, is
classified within Level 1 of the fair value hierarchy.
|
|
|
•
|
|
Guaranteed Investment Contracts
– The insurer maintains the assets (underlying portfolio owned by insurer) of the GIC in a general
account, backed by the full faith and credit of the insurer. Regardless of the performance of the general account assets, a GIC will provide a fixed rate of return as negotiated when the contract is purchased. GICs are stated at cost plus accrued
interest, which approximates fair value, and are classified within Level 2 of the fair value hierarchy.
|
|
|
•
|
|
Separate Account Portfolios –
SAPs are investment contracts invested in insurance company separate accounts established for the sole
benefit of SVF participants. SAPs are comprised of two components, an underlying pool of assets and a “wrap” contract. The insurer owns the individual underlying assets and the wrap contract (similar to a GIC); however, the assets in a SAP
are maintained in a separate account, fully fenced-off from the general assets of the insurer. The Plan participates in the underlying experience of the SAP via future periodic rate resets. Fair value of SAPs is determined by the market values of
the underlying securities and the value of the wrap using observable market data by the insurer as of the valuation date. SAPs held by the Plan provide for daily redemptions by the Plan at reported net asset value with no advance notice requirement.
There are no unfunded commitments associated with SAPs as of December 31, 2013 or 2012. The Plan is permitted to redeem investment units at net asset value on the measurement date. SAPs are classified within Level 2 of the fair value hierarchy.
|
13
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
4.
|
FAIR VALUE MEASUREMENTS (Continued)
|
|
|
•
|
|
Synthetic GICs –
SYNs are comprised of an underlying pool of assets (owned by the Plan) and a “wrap” contract designed to
provide principal protection and accrued interest over a specified period of time assuming that the underlying assets meet the requirements of a GIC. Short-term investment funds include cash and short-term securities that mature within three months
or less at date of purchase and are valued at amortized cost, which approximates fair value (Level 1), and liquid government debt securities valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with
reasonable levels of price transparency traded in markets that are not considered active (Level 2). Fixed income collective trusts invest in high quality fixed income securities across the short, intermediate, and core sectors, and are valued at the
net asset value per share on the valuation date (Level 2). These collective trusts provide for daily redemptions by the Plan with no advance notice requirement and have no unfunded commitments as of December 31, 2013 or 2012. Other fixed income
funds include government debt securities and corporate bonds valued using the observable quoted price reported in markets that are not considered active or pricing services based on market transactions for comparable securities of issuers with
similar credit ratings (Level 2). Swap contracts are valued at fair value utilizing pricing models and taking into consideration exchange quotations on underlying instruments, dealer quotations and other information (Level 2). Any accrued interest
on the underlying assets is also included as a component of the fair value of those assets. Fair value of the wrap contracts is determined by taking the difference between the actual wrap fee of the contract and the price at which the wrapper would
issue an identical contract under current market conditions. That change in fees is then applied to the year-end book value of the contract to determine the wrap contract’s fair value. Wrap contracts generally change the investment
characteristics of underlying securities (such as corporate debt or U.S. government securities) to those of GICs. The wrap contract provides that benefit-responsive transactions may be processed at contract or face value. Benefit-responsive
distributions are generally defined as a withdrawal due to a participant’s retirement, termination, or death, or participant-directed transfers, in accordance with the terms of the Plan (see Note 3).
|
14
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
4.
|
FAIR VALUE MEASUREMENTS (Continued)
|
Interests in Registered Investment Companies
– The shares of
registered investment companies are public investment vehicles valued at quoted market prices, which represent the net asset values of the shares held in such funds. Each of these funds is considered an open ended interest in a registered investment
company and valued using a market approach. Fair value is based on a daily net asset value that can be validated with a sufficient level of observable activity in an active market (i.e. purchases and sales at net asset value) and therefore these
interests in registered investment companies have been classified within Level 1 of the fair value hierarchy.
Common Stock and Common Stock Fund
– DuPont Common Stock and the CONSOL Stock Fund are stated at fair value
as quoted on a recognized securities exchange and are valued at the last reported sales price on the last business day of the respective Plan year. As a result, the fair value measurements of these investments have been classified within Level 1 of
the fair value hierarchy.
The preceding methods described may produce a fair value calculation that may not
be indicative of net realizable value or reflective of future fair values. Furthermore, although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions
to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
15
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
4.
|
FAIR VALUE MEASUREMENTS (Continued)
|
The following tables set forth by level, within the fair value
hierarchy, the Plan’s assets and liabilities at fair value as of December 31, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2013
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Stable Value Fund:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed Investment Contracts
|
|
$
|
0
|
|
|
$
|
3,822,920
|
|
|
$
|
0
|
|
|
$
|
3,822,920
|
|
|
Separate Account Portfolios
|
|
|
0
|
|
|
|
215,862,488
|
|
|
|
0
|
|
|
|
215,862,488
|
|
|
U.S. Government Security Fund
|
|
|
30,873,932
|
|
|
|
0
|
|
|
|
0
|
|
|
|
30,873,932
|
|
|
Fixed Income Collective Trusts
|
|
|
0
|
|
|
|
246,511,850
|
|
|
|
0
|
|
|
|
246,511,850
|
|
|
Other Fixed Income Funds
|
|
|
0
|
|
|
|
77,693,832
|
|
|
|
0
|
|
|
|
77,693,832
|
|
|
Short-Term Investment Funds
|
|
|
262,630
|
|
|
|
17,800,818
|
|
|
|
0
|
|
|
|
18,063,448
|
|
|
Wrap Contracts
|
|
|
0
|
|
|
|
50,129
|
|
|
|
0
|
|
|
|
50,129
|
|
|
Other Financial Instruments - Swaps
|
|
|
0
|
|
|
|
60,586
|
|
|
|
0
|
|
|
|
60,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stable Value Fund
|
|
|
31,136,562
|
|
|
|
561,802,623
|
|
|
|
0
|
|
|
|
592,939,185
|
|
|
|
|
|
|
|
|
Registered Investment Companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified Emerging Markets Fund
|
|
|
4,412,215
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4,412,215
|
|
|
Foreign Large-Cap Blend Funds
|
|
|
76,775,701
|
|
|
|
0
|
|
|
|
0
|
|
|
|
76,775,701
|
|
|
Small-Cap Blend Fund
|
|
|
35,144,553
|
|
|
|
0
|
|
|
|
0
|
|
|
|
35,144,553
|
|
|
Mid-Cap Blend Fund
|
|
|
25,827,220
|
|
|
|
0
|
|
|
|
0
|
|
|
|
25,827,220
|
|
|
Mid-Cap Growth Fund
|
|
|
43,928,144
|
|
|
|
0
|
|
|
|
0
|
|
|
|
43,928,144
|
|
|
Inflation-Protected Fixed Income Fund
|
|
|
4,830,829
|
|
|
|
|
|
|
|
|
|
|
|
4,830,829
|
|
|
Intermediate-Term Fixed Income Funds
|
|
|
57,609,436
|
|
|
|
0
|
|
|
|
0
|
|
|
|
57,609,436
|
|
|
Large-Cap Blend Funds
|
|
|
96,975,899
|
|
|
|
0
|
|
|
|
0
|
|
|
|
96,975,899
|
|
|
Large-Cap Value Fund
|
|
|
51,515,641
|
|
|
|
0
|
|
|
|
0
|
|
|
|
51,515,641
|
|
|
Large-Cap Growth Fund
|
|
|
28,439,208
|
|
|
|
0
|
|
|
|
0
|
|
|
|
28,439,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Registered Investment Companies
|
|
|
425,458,846
|
|
|
|
0
|
|
|
|
0
|
|
|
|
425,458,846
|
|
|
|
|
|
|
|
|
Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E.I. DuPont de Nemours & Company
|
|
|
35,885,953
|
|
|
|
0
|
|
|
|
0
|
|
|
|
35,885,953
|
|
|
CONSOL Stock Fund
|
|
|
128,294,536
|
|
|
|
0
|
|
|
|
0
|
|
|
|
128,294,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets at Fair Value
|
|
$
|
620,775,897
|
|
|
$
|
561,802,623
|
|
|
$
|
0
|
|
|
$
|
1,182,578,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
4.
|
FAIR VALUE MEASUREMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2012
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Stable Value Fund:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed Investment Contracts
|
|
$
|
0
|
|
|
$
|
29,370,556
|
|
|
$
|
0
|
|
|
$
|
29,370,556
|
|
|
Separate Account Portfolios
|
|
|
0
|
|
|
|
113,099,166
|
|
|
|
0
|
|
|
|
113,099,166
|
|
|
U.S. Government Security Fund
|
|
|
20,017,873
|
|
|
|
0
|
|
|
|
0
|
|
|
|
20,017,873
|
|
|
Fixed Income Collective Trusts
|
|
|
0
|
|
|
|
331,789,581
|
|
|
|
0
|
|
|
|
331,789,581
|
|
|
Other Fixed Income Funds
|
|
|
0
|
|
|
|
98,978,240
|
|
|
|
0
|
|
|
|
98,978,240
|
|
|
Short-Term Investment Funds
|
|
|
545,167
|
|
|
|
19,865,775
|
|
|
|
0
|
|
|
|
20,410,942
|
|
|
Wrap Contracts
|
|
|
0
|
|
|
|
48,785
|
|
|
|
0
|
|
|
|
48,785
|
|
|
Other Financial Instruments - Swaps
|
|
|
0
|
|
|
|
(2,333)
|
|
|
|
0
|
|
|
|
(2,333)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stable Value Fund
|
|
|
20,563,040
|
|
|
|
593,149,770
|
|
|
|
0
|
|
|
|
613,712,810
|
|
|
|
|
|
|
|
|
Registered Investment Companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Large-Cap Blend Funds
|
|
|
74,678,897
|
|
|
|
0
|
|
|
|
0
|
|
|
|
74,678,897
|
|
|
Small-Cap Blend Fund
|
|
|
23,994,766
|
|
|
|
0
|
|
|
|
0
|
|
|
|
23,994,766
|
|
|
Mid-Cap Blend Fund
|
|
|
20,026,645
|
|
|
|
0
|
|
|
|
0
|
|
|
|
20,026,645
|
|
|
Mid-Cap Growth Fund
|
|
|
40,752,295
|
|
|
|
0
|
|
|
|
0
|
|
|
|
40,752,295
|
|
|
Intermediate-Term Fixed Income Funds
|
|
|
62,467,062
|
|
|
|
0
|
|
|
|
0
|
|
|
|
62,467,062
|
|
|
Large-Cap Blend Funds
|
|
|
92,763,038
|
|
|
|
0
|
|
|
|
0
|
|
|
|
92,763,038
|
|
|
Large-Cap Value Fund
|
|
|
26,743,224
|
|
|
|
0
|
|
|
|
0
|
|
|
|
26,743,224
|
|
|
Large-Cap Growth Fund
|
|
|
18,427,538
|
|
|
|
0
|
|
|
|
0
|
|
|
|
18,427,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Registered Investment Companies
|
|
|
359,853,465
|
|
|
|
0
|
|
|
|
0
|
|
|
|
359,853,465
|
|
|
|
|
|
|
|
|
Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E.I. DuPont de Nemours & Company
|
|
|
29,387,230
|
|
|
|
0
|
|
|
|
0
|
|
|
|
29,387,230
|
|
|
CONSOL Stock Fund
|
|
|
119,987,131
|
|
|
|
0
|
|
|
|
0
|
|
|
|
119,987,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets at Fair Value
|
|
$
|
529,790,866
|
|
|
$
|
593,149,770
|
|
|
$
|
0
|
|
|
$
|
1,122,940,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The availability of observable market data is monitored to assess the appropriate
classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances,
the transfer is reported at the end of the reporting period. For the year ended December 31, 2013, there were no such transfers in or out of Levels 1, 2 or 3.
17
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
The following presents individual investments that represent 5% or more of the Plan’s net assets available for benefits at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
CONSOL Stock Fund
|
|
$
|
128,294,536
|
|
|
$
|
119,987,131
|
|
|
Vanguard Institutional Index Fund
|
|
|
64,539,539
|
|
|
|
65,692,145
|
|
|
*Massachusetts Mutual Life Insurance Co. (SAP)
|
|
|
59,897,945
|
|
|
|
0 *
|
*
|
|
*Metropolitan Life Insurance Co. (SAP)
|
|
|
69,439,935
|
|
|
|
67,866,937
|
|
|
*Jennison Intermediate Core Bond Fund
|
|
|
67,766,148
|
|
|
|
69,150,351
|
|
|
*Prudential Core Cons. Inter. Bond Fund
|
|
|
66,447,340
|
|
|
|
67,387,162
|
|
|
*GEM Trust Short Duration
|
|
|
48,986,089 *
|
*
|
|
|
72,802,900
|
|
* These investments are included in the
Stable Value Fund.
** For comparative purposes only. Amount does not
exceed 5% of net assets available for benefits.
During 2013, the Plan’s investments (including gains and
losses on investments bought and sold, as well as held during the year) appreciated in value by $111,973,231 as follows:
|
|
|
|
|
|
|
|
|
Net Appreciation
in Fair Value
of
Investments
|
|
|
|
|
|
Stable Value Fund
|
|
$
|
13,666,601
|
|
|
Registered Investment Companies
|
|
|
64,670,686
|
|
|
Common Stock:
|
|
|
|
|
|
E.I. DuPont de Nemours & Company
|
|
|
11,063,537
|
|
|
CONSOL Stock Fund
|
|
|
22,572,407
|
|
|
|
|
|
|
|
|
|
|
$
|
111,973,231
|
|
|
|
|
|
|
|
18
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
5.
|
INVESTMENTS (Continued)
|
The SVF is a separate account held by the Plan. The investment contracts
are entered into based on an evaluation of the credit risk of the contract issuers and/or third party guarantors. Collateral is generally not provided. The SVF includes traditional GICs as well as SAPs and SYNs.
The following reflects the adjustment between the underlying securities and the insurance contract values in the SVF:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
Investments at Fair Value
|
|
$
|
592,889,056
|
|
|
$
|
613,664,025
|
|
|
Wrap Contracts (at Fair Value)
|
|
|
50,129
|
|
|
|
48,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
592,939,185
|
|
|
|
613,712,810
|
|
|
Adjustment from Fair Value to Contract Value
|
|
|
(12,379,061)
|
|
|
|
(31,562,233)
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at Contract Value
|
|
$
|
580,560,124
|
|
|
$
|
582,150,577
|
|
|
|
|
|
|
|
|
|
|
|
The composition of assets of the SVF at contract value as of December 31, 2013 and
2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
Synthetic Guaranteed Investment Contracts
|
|
$
|
336,004,147
|
|
|
$
|
425,034,985
|
|
|
Separate Account Portfolios
|
|
|
210,111,109
|
|
|
|
107,661,657
|
|
|
Guaranteed Investment Contracts
|
|
|
3,822,920
|
|
|
|
29,370,556
|
|
|
Short-term Investment Fund
|
|
|
30,621,948
|
|
|
|
20,083,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
580,560,124
|
|
|
$
|
582,150,577
|
|
|
|
|
|
|
|
|
|
|
|
19
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
5.
|
INVESTMENTS (Continued)
|
SYNs within the SVF are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
Credit
Rating
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
SYNs (at Contract Value):
|
|
|
|
|
|
|
|
|
|
|
|
Prudential Retirement Ins. & Annuity Co.
|
|
AAA
|
|
$
|
135,487,569
|
|
|
$
|
132,323,170
|
|
|
ING Life Insurance & Annuity Co.
|
|
AA
|
|
|
44,733,155
|
|
|
|
44,188,107
|
|
|
Transamerica Life Insurance Co.
|
|
AA
|
|
|
44,733,155
|
|
|
|
44,188,107
|
|
|
State Street Bank & Trust
|
|
AA
|
|
|
0
|
|
|
|
44,188,107
|
|
|
ING Life Insurance & Annuity Co.
|
|
AA
|
|
|
55,525,134
|
|
|
|
53,382,498
|
|
|
Transamerica Life Insurance Co.
|
|
AA
|
|
|
55,525,134
|
|
|
|
53,382,498
|
|
|
State Street Bank & Trust
|
|
AA
|
|
|
0
|
|
|
|
53,382,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SYNs (at Contract Value)
|
|
|
|
$
|
336,004,147
|
|
|
$
|
425,034,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The composition of changes in net assets of the SVF at contract value for the year ended
December 31, 2013 is as follows:
|
|
|
|
|
|
|
Employer Contributions
|
|
$
|
6,842,612
|
|
|
Participant Contributions and Rollovers
|
|
|
52,043,988
|
|
|
|
|
|
|
|
|
Total Contributions
|
|
|
58,886,600
|
|
|
Interest and Dividend Income
|
|
|
323,751
|
|
|
Net Realized/Unrealized Appreciation in Investment Value
|
|
|
13,666,601
|
|
|
Benefits Paid to Participants
|
|
|
(108,737,533)
|
|
|
Administrative Expense
|
|
|
(30,290)
|
|
|
Net Loan Activity
|
|
|
136,423
|
|
|
Net Interfund Transfers
|
|
|
34,163,995
|
|
|
|
|
|
|
|
|
Decrease in Net Assets Available for Benefits
|
|
|
(1,590,453)
|
|
|
Net Assets Available for Benefits
|
|
|
|
|
|
|
|
|
Beginning of Year
|
|
|
582,150,577
|
|
|
|
|
|
|
|
|
|
|
|
End of Year
|
|
$
|
580,560,124
|
|
|
|
|
|
|
|
20
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
The Plan obtained its latest determination letter from the IRS dated June 3, 2011, stating that the Plan was qualified under the Code and therefore, the related trust is exempt from taxation. Once
qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan has been amended since receiving the determination letter, and in January 2014 the Plan submitted a request to renew the tax determination
letter and is awaiting a reply from the IRS. However, the Plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the Code. Therefore, no provision for income taxes has
been included in the Plan’s financial statements.
Accounting principles generally accepted in the United
States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS.
The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2013, there are no uncertain positions taken, or expected to be taken, that would require recognition of a tax liability (or
asset) and related interest and penalties or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator
believes it is no longer subject to income tax examinations for years prior to 2011.
|
7.
|
RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
|
The following is a reconciliation of net assets available for benefits per the financial statements at December 31,
2013 and 2012 to Form 5500:
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
Net Assets Available for Benefits per the
Financial Statements
|
|
$
|
1,196,180,095
|
|
|
$
|
1,116,114,698
|
|
Amounts Allocated to Withdrawing
Participants
|
|
|
(1,937,493)
|
|
|
|
(972,158)
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets Available for Benefits per
the Form 5500
|
|
$
|
1,194,242,602
|
|
|
$
|
1,115,142,540
|
|
|
|
|
|
|
|
|
|
|
|
21
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
|
7.
|
RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 (Continued)
|
The following is a reconciliation of benefits paid to participants per
the financial statements for the year ended December 31, 2013 to Form 5500:
|
|
|
|
|
|
|
Benefits Paid to Participants per the Financial Statements
|
|
$
|
171,427,049
|
|
|
Amounts Allocated to Withdrawing Participants at December 31, 2013
|
|
|
1,937,493
|
|
|
Less
: Amounts Allocated to Withdrawing Participants at December 31, 2012
|
|
|
(972,158)
|
|
|
|
|
|
|
|
|
Benefits Paid to Participants per Form 5500
|
|
$
|
172,392,384
|
|
|
|
|
|
|
|
Amounts allocated to withdrawing participants are recorded on the Form 5500 for benefit
claims that have been processed and approved for payment prior to December 31, 2013, but not yet paid as of that date.
|
8.
|
TRANSACTIONS WITH PARTIES-IN-INTEREST
|
Certain Plan investments, including several underlying SYN assets within the SVF, were managed by Bank of America. Bank of America is the trustee as defined by the Plan and, therefore, these transactions
qualify as those conducted with a party-in-interest to the Plan. In addition, other underlying SYN assets include funds managed by State Street Bank & Trust, one of the custodians of the Plan. The Plan also issues loans to participants,
which are secured by the participants’ account balances. Therefore, these transactions qualify as those conducted with a party-in-interest to the Plan.
One of the investment vehicles available to participants, the CONSOL Stock Fund, contains stock of CONSOL Energy. The Plan held 3,372,622 shares and 3,737,917 shares of CONSOL Energy common stock at
December 31, 2013 and 2012, respectively. In addition, during 2013, the Plan purchased 1,121,289 shares of CONSOL Energy stock at an aggregate cost of $36,648,933 and sold 1,308,208 shares of CONSOL Energy stock for total proceeds of
$44,400,509. The Plan received $1,321,481 in dividends on Company stock during 2013. Transactions in this investment qualify as party-in-interest transactions which are exempt from the prohibited transaction rules of ERISA.
22
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
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9.
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RISKS AND UNCERTAINTIES
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The Plan invests in various investment securities. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain
investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in
the financial statements.
In accordance with the investment strategy of the Plan’s investment contracts,
the Plan’s investment manager may execute transactions in various financial instruments, including futures and interest rate swap contracts, that may give rise to varying degrees of off-balance-sheet market and credit risk. These instruments
can be executed on an exchange or negotiated in the over-the-counter market. Interest rate swap contracts involve an agreement to exchange periodic interest payment streams (fixed vs. variable) calculated on an agreed upon periodic interest rate
multiplied by a predetermined notional principal amount. Investments in financial futures contracts are solely for the purpose of hedging the Plan’s existing portfolios securities, or securities that the Plan intends to purchase, against
fluctuations in fair value caused by changes in prevailing market interest rates. Upon entering into a financial futures contract, the Plan is required to pledge to the broker an amount of cash, U.S. government securities, or other assets equal to a
certain percentage of the contract amount (initial margin deposit). Subsequent payments, known as margin variation, are made or received by the Plan each day, depending on the daily fluctuations in the fair value of the underlying security. The Plan
recognizes a gain or loss equal to the daily variation margin. If market conditions move unexpectedly, the Plan may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use of future transactions
involves the risk of imperfect correlation in movements in the price of futures contracts, interest rates, and the underlying hedged assets. The Plan’s investments in futures and interest rate swap contracts are insignificant to the financial
statements for the years ending December 31, 2013 and 2012, respectively.
23
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2013 and 2012
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9.
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RISKS AND UNCERTAINTIES (Continued)
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Market risk arises from the potential for changes in value of financial
instruments resulting from fluctuations in interest rates and in prices of debt and equity securities. The gross notional (or contractual) amounts used to express the volume of these transactions do not necessarily represent the amounts potentially
subject to market risk. In many cases, these financial instruments serve to reduce, rather than increase, the Plan’s exposure to losses from market and other risks. In addition, the measurement of market risk is meaningful only when all related
and offsetting transactions are identified. The Plan’s investment managers generally limit the Plan’s market risk by holding or purchasing offsetting positions.
24
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
SUPPLEMENTAL SCHEDULE