ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, the following discussion of the financial condition and results of operations of our Partnership reflect a 25% undivided interest in the assets, liabilities and results of operations of the Pennsylvania Mining Complex. As used in the following discussion of the financial condition and results of operations of our Partnership, the terms “we,” “our,” “us,” or like terms refer to the Partnership with respect to its 25% undivided interest in the Pennsylvania Mining Complex’s combined assets, liabilities revenues and costs.
Overview
We are a growth-oriented master limited partnership formed by CONSOL Energy in 2015 to manage and further develop all of its thermal coal operations in Pennsylvania. Our assets include a 25% undivided interest in, and operational control over, CONSOL Energy's Pennsylvania Mining Complex, which consists of three underground mines and related infrastructure that produce high-Btu bituminous thermal coal that is sold primarily to electric utilities in the eastern United States, our core market. We believe that our ability to efficiently produce and deliver large volumes of high-quality coal at competitive prices, the strategic location of our mines, the industry experience of our management team and our relationship with CONSOL Energy position us as a leading producer of high-Btu thermal coal in the Northern Appalachian Basin and the eastern United States.
How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include: (i) coal production, sales volumes and average sales price; (ii) cost of coal sold, a non-GAAP financial measure; (iii) average cash margin per ton, an operating ratio derived from non-GAAP financial measures, (iv) adjusted EBITDA, a non-GAAP financial measure; and (v) distributable cash flow, a non-GAAP financial measure.
Cost of coal sold, average cash margin per ton, adjusted EBITDA and distributable cash flow normalize the volatility contained within GAAP measures, by adjusting certain non-operating or non-cash transactions. These metrics are used as supplemental financial measures by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:
• our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure;
• the ability of our assets to generate sufficient cash flow to make distributions to our partners;
• our ability to incur and service debt and fund capital expenditures;
• the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities; and
• the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.
The non-GAAP financial measures should not be considered an alternative to total costs, net income, operating cash flow, or any other measure of financial performance or liquidity presented in accordance with GAAP. These measures exclude some, but not all, items that affect net income or net cash, and these measures may vary from those of other companies. As a result, the items presented below may not be comparable to similarly titled measures of other companies.
Reconciliation of Non-GAAP Financial Measures
We evaluate our cost of coal sales on a cost per ton basis. Our cost of coal sold per ton represents our costs of coal sold divided by the tons of coal we sell. We define cost of coal sold as operating and other production costs related to produced tons sold, along with changes in coal inventory, both in volumes and carrying values. The cost of coal sold per ton includes items such as direct operating costs, royalty and production taxes, direct administration, and depreciation, depletion and amortization costs. Our costs exclude any indirect costs such as general and administrative costs and other costs not directly attributable to the production of coal. The GAAP measure most directly comparable to cost of coal sold is total costs.
We define average cash margin per ton as (i) average coal revenue per ton, net of average cost of coal sold per ton, less depreciation, depletion and amortization, as adjusted for (ii) non-production related costs.
We define adjusted EBITDA as (i) net income (loss) before net interest expense, depreciation, depletion and amortization, as adjusted for (ii) certain non-cash items, such as Unit Based Compensation. The GAAP measure most directly comparable to adjusted EBITDA is net income.
We define distributable cash flow as (i) net income (loss) before net interest expense, depreciation, depletion and amortization, as adjusted for (ii) certain non-cash items, such as unit based compensation, less net cash interest paid and estimated maintenance capital expenditures. Distributable cash flow will not reflect changes in working capital balances. The GAAP measures most directly comparable to distributable cash flow are net income and net cash provided by operating activities.
The following table presents a reconciliation of cost of coal sold to total costs, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Total Costs
|
$
|
63,413
|
|
|
$
|
62,514
|
|
|
$
|
182,706
|
|
|
$
|
205,953
|
|
Freight Expense
|
(2,407
|
)
|
|
(302
|
)
|
|
(8,473
|
)
|
|
(1,571
|
)
|
Selling, General and Administrative Expenses
|
(2,660
|
)
|
|
(2,616
|
)
|
|
(6,558
|
)
|
|
(8,913
|
)
|
Interest Expense
|
(2,223
|
)
|
|
(1,872
|
)
|
|
(6,277
|
)
|
|
(7,758
|
)
|
Other Costs (Non-Production)
|
(1,508
|
)
|
|
(102
|
)
|
|
(7,703
|
)
|
|
3,558
|
|
Depreciation, Depletion and Amortization (Non-Production)
|
(544
|
)
|
|
(547
|
)
|
|
(2,851
|
)
|
|
(1,920
|
)
|
Cost of Coal Sold
|
$
|
54,071
|
|
|
$
|
57,075
|
|
|
$
|
150,844
|
|
|
$
|
189,349
|
|
The following table presents a reconciliation of average cash margin per ton for each of the periods indicated (in thousands, except per ton information).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Total Coal Revenue
|
$
|
66,922
|
|
|
$
|
80,793
|
|
|
$
|
186,103
|
|
|
$
|
256,651
|
|
Operating and Other Costs
|
45,531
|
|
|
46,936
|
|
|
130,066
|
|
|
153,654
|
|
Depreciation, Depletion and Amortization
|
10,592
|
|
|
10,788
|
|
|
31,332
|
|
|
34,057
|
|
Less: Other Costs (Non-Production)
|
(1,508
|
)
|
|
(102
|
)
|
|
(7,703
|
)
|
|
3,558
|
|
Less: Depreciation, Depletion and Amortization (Non-Production)
|
(544
|
)
|
|
(547
|
)
|
|
(2,851
|
)
|
|
(1,920
|
)
|
Total Cost of Coal Sold
|
$
|
54,071
|
|
|
$
|
57,075
|
|
|
$
|
150,844
|
|
|
$
|
189,349
|
|
Total Tons Sold
|
1,511
|
|
|
1,418
|
|
|
4,368
|
|
|
4,470
|
|
Average Sales Price Per Ton Sold
|
$
|
44.30
|
|
|
$
|
56.99
|
|
|
$
|
42.60
|
|
|
$
|
57.41
|
|
Average Cost Per Ton Sold
|
35.79
|
|
|
40.26
|
|
|
34.53
|
|
|
42.35
|
|
Average Margin Per Ton Sold
|
8.51
|
|
|
16.73
|
|
|
8.07
|
|
|
15.06
|
|
Add: Total Depreciation, Depletion and Amortization Costs Per Ton Sold
|
6.50
|
|
|
7.05
|
|
|
6.48
|
|
|
7.07
|
|
Average Cash Margin Per Ton Sold
|
$
|
15.01
|
|
|
$
|
23.78
|
|
|
$
|
14.55
|
|
|
$
|
22.13
|
|
The following table presents a reconciliation of adjusted EBITDA to net income, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated. The table also presents a reconciliation of distributable cash flow to net income and operating cash flows, the most directly comparable GAAP financial measures, on a historical basis for each of the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net Income
|
$
|
6,401
|
|
|
$
|
18,924
|
|
|
$
|
14,124
|
|
|
$
|
53,082
|
|
Plus:
|
|
|
|
|
|
|
|
Interest Expense
|
2,223
|
|
|
1,872
|
|
|
6,277
|
|
|
7,758
|
|
Depreciation, Depletion and Amortization
|
10,592
|
|
|
10,788
|
|
|
31,332
|
|
|
34,057
|
|
OPEB Plan Change
|
—
|
|
|
(890
|
)
|
|
—
|
|
|
(5,339
|
)
|
Backstop Loan Fees
|
—
|
|
|
—
|
|
|
—
|
|
|
1,895
|
|
Stock/Unit Based Compensation
|
289
|
|
|
15
|
|
|
904
|
|
|
1,072
|
|
Adjusted EBITDA
|
$
|
19,505
|
|
|
$
|
30,709
|
|
|
$
|
52,637
|
|
|
$
|
92,525
|
|
Less:
|
|
|
|
|
|
|
|
Cash Interest
|
2,181
|
|
|
1,475
|
|
|
5,937
|
|
|
6,313
|
|
PA Mining Acquisition Adjusted EBITDA
1
|
3,539
|
|
|
6,422
|
|
|
10,272
|
|
|
19,136
|
|
Estimated Maintenance Capital Expenditures
|
6,929
|
|
|
7,438
|
|
|
20,381
|
|
|
22,388
|
|
Distributable Cash Flow
|
$
|
6,856
|
|
|
$
|
15,374
|
|
|
$
|
16,047
|
|
|
$
|
44,688
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
$
|
22,489
|
|
|
$
|
(709
|
)
|
|
$
|
47,324
|
|
|
$
|
47,465
|
|
Less:
|
|
|
|
|
|
|
|
Interest Expense, Net
|
2,223
|
|
|
1,872
|
|
|
6,277
|
|
|
7,758
|
|
Other, Including Working Capital
|
761
|
|
|
(33,290
|
)
|
|
(11,590
|
)
|
|
(52,818
|
)
|
Adjusted EBITDA
|
$
|
19,505
|
|
|
$
|
30,709
|
|
|
$
|
52,637
|
|
|
$
|
92,525
|
|
Less:
|
|
|
|
|
|
|
|
Cash Interest
|
2,181
|
|
|
1,475
|
|
|
5,937
|
|
|
6,313
|
|
PA Mining Acquisition Adjusted EBITDA
1
|
3,539
|
|
|
6,422
|
|
|
10,272
|
|
|
19,136
|
|
Estimated Maintenance Capital Expenditures
|
6,929
|
|
|
7,438
|
|
|
20,381
|
|
|
22,388
|
|
Distributable Cash Flow
|
$
|
6,856
|
|
|
$
|
15,374
|
|
|
$
|
16,047
|
|
|
$
|
44,688
|
|
1
PA Mining Acquisition Adjusted EBITDA relates to the amount of Adjusted EBITDA acquired with the PA Mining Acquisition recasted for all periods presented.
Results of Operations
Three Months Ended September 30, 2016
Compared with the
Three Months Ended September 30, 2015
Total net income was
$6,401
for the
three
months ended
September 30, 2016
compared to
$18,924
for the
three
months ended
September 30, 2015
. Our results of operations for each of these periods are presented in the table below. Variances are discussed following the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended,
|
|
September 30,
|
|
2016
|
|
2015
|
|
Variance
|
|
(in thousands)
|
Revenue:
|
|
|
|
|
|
Coal Revenue
|
$
|
66,922
|
|
|
$
|
80,793
|
|
|
$
|
(13,871
|
)
|
Freight Revenue
|
2,407
|
|
|
302
|
|
|
2,105
|
|
Other Income
|
485
|
|
|
343
|
|
|
142
|
|
Total Revenue and Other Income
|
69,814
|
|
|
81,438
|
|
|
(11,624
|
)
|
Cost of Coal Sold:
|
|
|
|
|
|
Operating Costs
|
44,023
|
|
|
46,834
|
|
|
(2,811
|
)
|
Depreciation, Depletion and Amortization
|
10,048
|
|
|
10,241
|
|
|
(193
|
)
|
Total Cost of Coal Sold
|
54,071
|
|
|
57,075
|
|
|
(3,004
|
)
|
Other Costs:
|
|
|
|
|
|
Other Costs
|
1,508
|
|
|
102
|
|
|
1,406
|
|
Depreciation, Depletion and Amortization
|
544
|
|
|
547
|
|
|
(3
|
)
|
Total Other Costs
|
2,052
|
|
|
649
|
|
|
1,403
|
|
Freight Expense
|
2,407
|
|
|
302
|
|
|
2,105
|
|
Selling, General and Administrative Expenses
|
2,660
|
|
|
2,616
|
|
|
44
|
|
Interest Expense
|
2,223
|
|
|
1,872
|
|
|
351
|
|
Total Costs
|
63,413
|
|
|
62,514
|
|
|
899
|
|
Net Income
|
$
|
6,401
|
|
|
$
|
18,924
|
|
|
$
|
(12,523
|
)
|
Adjusted EBITDA
|
$
|
19,505
|
|
|
$
|
30,709
|
|
|
$
|
(11,204
|
)
|
Distributable Cash Flow
|
$
|
6,856
|
|
|
$
|
15,374
|
|
|
$
|
(8,518
|
)
|
Coal Production Rates
The table below presents total tons produced from the Pennsylvania Mining Complex on our 25% undivided interest basis for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
Mine
|
|
2016
|
|
2015
|
|
Variance
|
Bailey
|
|
764
|
|
|
566
|
|
|
198
|
|
Enlow Fork
|
|
490
|
|
|
642
|
|
|
(152
|
)
|
Harvey
|
|
291
|
|
|
244
|
|
|
47
|
|
Total
|
|
1,545
|
|
|
1,452
|
|
|
93
|
|
Coal production was
1,545
tons for the
three
months ended
September 30, 2016
compared to
1,452
tons for the
three
months ended
September 30, 2015
. The Partnership's coal production
increase
d
93
tons to satisfy demand.
Coal Operations
Coal revenue and cost components on a per unit basis for the
three
months ended
September 30, 2016
and
2015
were as indicated in the table below. Our operations also include various costs such as selling, general and administrative, freight and other costs not included in our unit cost analysis because these costs are not directly associated with coal production.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
2016
|
|
2015
|
|
Variance
|
Total Tons Sold (in thousands)
|
1,511
|
|
|
1,418
|
|
|
93
|
|
Average Sales Price Per Ton Sold
|
$
|
44.30
|
|
|
$
|
56.99
|
|
|
$
|
(12.69
|
)
|
|
|
|
|
|
|
|
Operating Costs Per Ton Sold (Cash Cost)
|
$
|
29.29
|
|
|
$
|
33.21
|
|
|
$
|
(3.92
|
)
|
Depreciation, Depletion and Amortization Per Ton Sold (Non-Cash Cost)
|
6.50
|
|
|
7.05
|
|
|
(0.55
|
)
|
Total Costs Per Ton Sold
|
$
|
35.79
|
|
|
$
|
40.26
|
|
|
$
|
(4.47
|
)
|
Average Margin Per Ton Sold
|
$
|
8.51
|
|
|
$
|
16.73
|
|
|
$
|
(8.22
|
)
|
Add: Depreciation, Depletion and Amortization Costs Per Ton Sold
|
6.50
|
|
|
7.05
|
|
|
(0.55
|
)
|
Average Cash Margin Per Ton Sold (1)
|
$
|
15.01
|
|
|
$
|
23.78
|
|
|
$
|
(8.77
|
)
|
(1) Average cash margin per ton is an operating ratio derived from non-GAAP measures.
Revenue and Other Income
Coal revenue was
$66,922
for the
three
months ended
September 30, 2016
compared to
$80,793
for the
three
months ended
September 30, 2015
. The
$13,871
decrease
was attributable to a
$12.69
per ton
lower
average sales price offset by a
93
ton
increase
in tons sold. The lower average sales price per ton sold in the 2016 period was primarily the result of the overall decline in the domestic and global thermal coal markets. The average realized price per ton declined by 22% compared to the year ago period as some of the high priced coal contracts rolled off and were replaced by lower priced sales.
Freight revenue, which is completely offset in freight expense, is the amount billed to customers based on the weight of coal shipped and negotiated freight rates for rail transportation. Freight revenue
increased
$2,105
in the period-to-period comparison due to
increased
shipments to customers where we were contractually obligated to provide transportation services.
Other income is comprised of income generated by the Partnership not in the ordinary course of business. Other income was
$485
for the
three
months ended
September 30, 2016
compared to
$343
for the
three
months ended
September 30, 2015
. The
$142
increase
was primarily attributable to sales of externally purchased coal in 2016 for blending purposes only.
Cost of Coal Sold
Cost of coal sold is comprised of operating costs related to produced tons sold, along with changes in both volumes and carrying values of coal inventory. The costs of coal sold per ton include items such as direct operating costs, royalty and production taxes, direct administration expenses, and depreciation, depletion, and amortization costs. Total cost of coal sold was
$54,071
for the
three
months ended
September 30, 2016
, or
$3,004
lower
than the
$57,075
for the
three
months ended
September 30, 2015
. Total costs per ton sold were
$35.79
per ton for the
three
months ended
September 30, 2016
compared to
$40.26
per ton for the
three
months ended
September 30, 2015
. The
decrease
in the cost of coal sold was driven by a reduction in staffing levels, realignment of employee benefits, and vendor concessions. Productivity for the
three
months, as measured by tons per employee-hour, also improved by 2% compared to the year-ago period, despite the geological conditions encountered during the quarter.
Total Other Costs
Total other costs is comprised of various costs that are not allocated to each individual mine and therefore are not included in unit costs. Total other costs
increased
$1,403
for the
three
months ended
September 30, 2016
compared to the
three
months ended
September 30, 2015
. The
increase
is primarily attributable to a net periodic benefit credit of
$890
related to the 2015 OPEB plan remeasurement for the
three
months ended
September 30, 2015
compared to the
three
months ended
September 30, 2016
, where no benefit credits recorded as the Partnership had no further OPEB obligation in connection with the completion of the IPO. The increase is also attributed to additional discretionary 401(k) contributions.
Selling, General, and Administrative Expense
Selling, general, and administrative expenses
increased
$44
period-to-period, due to various transactions, none of which are material.
Interest Expense
Interest expense, which primarily relates to obligations under our revolving credit facility,
increased
$351
period-to-period primarily due to rising interest rates.
Adjusted EBITDA
Adjusted EBITDA was
$19,505
for the
three
months ended
September 30, 2016
compared to
$30,709
for the
three
months ended
September 30, 2015
. The
$11,204
decrease
was primarily a result of
$12.69
per ton
decrease
in the average sales price per ton, offset in part, by a
$3.92
improvement
in the cash cost of coal sales per ton which resulted in a net
$13,251
decrease
in Adjusted EBITDA which was offset by an increase of
93
tons of additional sales resulting in an increase in Adjusted EBITDA of
$2,212
. The remaining variance is due to various transactions, none of which are individually material.
Distributable Cash Flow
Distributable cash flow was
$6,856
for the
three
months ended
September 30, 2016
compared to
$15,374
for the
three
months ended
September 30, 2015
. The
$8,518
decrease
was attributed to a
$11,204
decrease
in Adjusted EBITDA as discussed above offset, in part, by a
$2,883
decrease
in the Pre-Acquisition Adjusted EBITDA. The remaining variance is due to various transactions, none of which are individually material.
Nine Months Ended September 30, 2016 Compared with the Nine Months Ended September 30, 2015
Total net income was
$14,124
for the
nine
months ended
September 30, 2016
compared to
$53,082
for the
nine
months ended
September 30, 2015
. Our results of operations for each of these periods are presented in the table below. Variances are discussed following the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended,
|
|
September 30,
|
|
2016
|
|
2015
|
|
Variance
|
|
(in thousands)
|
Revenue:
|
|
|
|
|
|
Coal Revenue
|
$
|
186,103
|
|
|
$
|
256,651
|
|
|
$
|
(70,548
|
)
|
Freight Revenue
|
8,473
|
|
|
1,571
|
|
|
6,902
|
|
Other Income
|
2,254
|
|
|
813
|
|
|
1,441
|
|
Total Revenue and Other Income
|
196,830
|
|
|
259,035
|
|
|
(62,205
|
)
|
Cost of Coal Sold:
|
|
|
|
|
|
Operating Costs
|
122,363
|
|
|
157,212
|
|
|
(34,849
|
)
|
Depreciation, Depletion and Amortization
|
28,481
|
|
|
32,137
|
|
|
(3,656
|
)
|
Total Cost of Coal Sold
|
150,844
|
|
|
189,349
|
|
|
(38,505
|
)
|
Other Costs:
|
|
|
|
|
|
Other Costs
|
7,703
|
|
|
(3,558
|
)
|
|
11,261
|
|
Depreciation, Depletion and Amortization
|
2,851
|
|
|
1,920
|
|
|
931
|
|
Total Other Costs
|
10,554
|
|
|
(1,638
|
)
|
|
12,192
|
|
Freight Expense
|
8,473
|
|
|
1,571
|
|
|
6,902
|
|
Selling, General and Administrative Expenses
|
6,558
|
|
|
8,913
|
|
|
(2,355
|
)
|
Interest Expense
|
6,277
|
|
|
7,758
|
|
|
(1,481
|
)
|
Total Costs
|
182,706
|
|
|
205,953
|
|
|
(23,247
|
)
|
Net Income
|
$
|
14,124
|
|
|
$
|
53,082
|
|
|
$
|
(38,958
|
)
|
Adjusted EBITDA
|
$
|
52,637
|
|
|
$
|
92,525
|
|
|
$
|
(39,888
|
)
|
Distributable Cash Flow
|
$
|
16,047
|
|
|
$
|
44,688
|
|
|
$
|
(28,641
|
)
|
Coal Production Rates
The table below presents total tons produced from the Pennsylvania Mining Complex on our 25% undivided interest basis for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
Mine
|
|
2016
|
|
2015
|
|
Variance
|
Bailey
|
|
2,145
|
|
|
2,019
|
|
|
126
|
|
Enlow Fork
|
|
1,730
|
|
|
1,826
|
|
|
(96
|
)
|
Harvey
|
|
517
|
|
|
698
|
|
|
(181
|
)
|
Total
|
|
4,392
|
|
|
4,543
|
|
|
(151
|
)
|
Coal production was
4,392
tons for the
nine
months ended
September 30, 2016
compared to
4,543
tons for the
nine
months ended
September 30, 2015
. The
151
decrease
in tons was attributable to weak market conditions which resulted in the temporary idling of one longwall.
Coal Operations
Coal revenue and cost components on a per unit basis for the
nine
months ended
September 30, 2016
and
2015
were as indicated in the table below. Our operations also include various costs such as selling, general and administrative, freight and other costs not included in our unit cost analysis because these costs are not directly associated with coal production.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
Variance
|
Total Tons Sold (in thousands)
|
4,368
|
|
|
4,470
|
|
|
(102
|
)
|
Average Sales Price Per Ton Sold
|
$
|
42.60
|
|
|
$
|
57.41
|
|
|
$
|
(14.81
|
)
|
|
|
|
|
|
|
Operating Costs Per Ton Sold (Cash Cost)
|
$
|
28.05
|
|
|
$
|
35.28
|
|
|
$
|
(7.23
|
)
|
Depreciation, Depletion and Amortization Per Ton Sold (Non-Cash Cost)
|
6.48
|
|
|
7.07
|
|
|
(0.59
|
)
|
Total Costs Per Ton Sold
|
$
|
34.53
|
|
|
$
|
42.35
|
|
|
$
|
(7.82
|
)
|
Average Margin Per Ton Sold
|
$
|
8.07
|
|
|
$
|
15.06
|
|
|
$
|
(6.99
|
)
|
Add: Depreciation, Depletion and Amortization Costs Per Ton Sold
|
6.48
|
|
|
7.07
|
|
|
(0.59
|
)
|
Average Cash Margin Per Ton Sold (1)
|
$
|
14.55
|
|
|
$
|
22.13
|
|
|
$
|
(7.58
|
)
|
(1) Average cash margin per ton is an operating ratio derived from non-GAAP measures.
Revenue and Other Income
Coal revenue was
$186,103
for the
nine
months ended
September 30, 2016
compared to
$256,651
for the
nine
months ended
September 30, 2015
. The
$70,548
decrease
was attributable to a
$14.81
per ton
lower
average sales price and a
102
ton
decrease
in tons sold. The
lower
sales volumes and lower average coal sales price per ton sold in the
2016
period were primarily the result of the overall decline in the domestic and global thermal coal markets. While the overall trend of customer deferrals peaked in May 2016, our marketing team continues to work with a few customers who have inventory challenges.
Freight revenue, which is completely offset in freight expense, is the amount billed to customers based on the weight of coal shipped and negotiated freight rates for rail transportation. Freight revenue
increased
$6,902
in the period-to-period comparison due to
increased
shipments to customers where we were contractually obligated to provide transportation services.
Other income is comprised of income generated by the Partnership not in the ordinary course of business. Other income was
$2,254
for the
nine
months ended
September 30, 2016
compared to
$813
for the
nine
months ended
September 30, 2015
. The
$1,441
increase
was primarily attributable to a customer's partial coal contract buyout in the amount of $1,572 in 2016.
Cost of Coal Sold
Cost of coal sold is comprised of operating costs related to produced tons sold, along with changes in coal inventory, both volumes and carrying values. The costs of coal sold per ton include items such as direct operating costs, royalty and production taxes, direct administration expenses, and depreciation, depletion, and amortization costs. Total cost of coal sold was
$150,844
for the
nine
months ended
September 30, 2016
, or
$38,505
lower
than the
$189,349
for the
nine
months ended
September 30, 2015
. Total costs per ton sold were
$34.53
per ton for the
nine
months ended
September 30, 2016
compared to
$42.35
per ton for the
nine
months ended
September 30, 2015
. The
decrease
in the cost of coal sold was driven by the idling of one longwall for approximately 90 days, reduction of staffing levels, vendor concessions and the realignment of employee benefits. Productivity for the
nine
months, as measured by tons per employee-hour, also improved by 12% compared to the year-ago period, despite the reduced average number of longwalls in operation over the 2016 period.
Total Other Costs
Total other costs is comprised of various costs that are not allocated to each individual mine and therefore are not included in unit costs. Total other costs
increased
$12,192
for the
nine
months ended
September 30, 2016
compared to the
nine
months ended
September 30, 2015
. The
increase
in other costs is primarily attributable to a net periodic benefit credit of $7,341 related to the 2015 OPEB plan remeasurement for the
nine
months ended
September 30, 2015
compared to the
nine
months ended
September 30, 2016
, where no benefit credits were recorded as the Partnership had no further OPEB obligation in connection with the completion of the IPO. The
increase
is also attributable to
$4,517
of costs related to temporarily idling one of the longwalls at the Pennsylvania Mining Complex for approximately 90 days in the first quarter to optimize the operating schedule. The remaining variance is related to cost incurred during the
nine
months ended
September 30, 2016
for litigation expenses related to the proposed consent decree with respect to the Bailey mine complex, See Note 11 - Commitments and Contingent Liabilities of the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information, purchased coal costs for blending purposes on certain coal contracts, and other discretionary 401(k) contributions, all of which had no such costs incurred during the
nine
months ended
September 30, 2015
. These were offset by cost incurred during the
nine
months ended
September 30, 2015
, related to accelerated amortization of financing charges related to a backstop loan where no amortization was recorded during the
nine
months ended
September 30, 2016
as the Partnership had no further backstop loan obligation in connection with the completion of the IPO.
Selling, General, and Administrative Expense
Selling, general, and administrative expenses
decreased
$2,355
period-to-period primarily due to reduced staffing levels and the realignment of employee benefits in
2016
compared to
2015
. Upon the closing of the IPO, the Partnership entered into a service arrangement with CONSOL Energy to receive certain selling, general and administrative services which are paid monthly based on a fixed fee. In addition, the Partnership incurred costs related to being a publicly traded entity including stand-alone audit fees, board of director fees and phantom unit expenses. For the period preceding the closing of the IPO in 2015, CONSOL Energy allocated selling, general and administrative expenses based upon the level of operating activity of its underlying business units.
Interest Expense
Interest expense for the
nine
months ended
September 30, 2016
was
$6,277
, which primarily relates to obligations under our revolving credit facility. For the
nine
months ended
September 30, 2015
,
$7,758
of interest expense was incurred primarily on the CFI loan, which was excluded from the Partnership's assets and liabilities at the time of the IPO. Also, interest expense related to the revolving credit facility was $
1,950
for the nine months ended September 30, 2015.
Adjusted EBITDA
Adjusted EBITDA was
$52,637
for the
nine
months ended
September 30, 2016
compared to
$92,525
for the
nine
months ended
September 30, 2015
. The
$39,888
decrease
was a result of
$14.81
per ton
decrease
in the average sales price per ton, offset in part, by a
$7.23
per ton
improvement
in the cash cost of coal sales per ton resulting in a
$33,109
decrease
in Adjusted EBITDA. Additional decreases to Adjusted EBITDA were
$2,257
related to a
decrease
of
102
sales tons and cash costs of
$3,299
related to idling one of the longwalls at the Pennsylvania Mining Complex for approximately 90 days. The remaining variance is due to various other transactions none of which are individually material.
Distributable Cash Flow
Distributable cash flow was
$16,047
for the
nine
months ended
September 30, 2016
compared to
$44,688
for the
nine
months ended
September 30, 2015
. The
$28,641
decrease was attributed to a
$39,888
decrease
in Adjusted EBITDA as discussed above, offset, in part, by a
$8,864
decrease
in the Pre-Acquisition Adjusted EBITDA and a
$2,007
decrease
in estimated maintenance capital expenditures. The remaining variance is due to various other transactions none of which are individually material.
Capital Resources and Liquidity
Liquidity and Financing Arrangements
Historically, our principal sources of liquidity have been cash from operations and, prior to our IPO, funding from CONSOL Energy. We do not currently have any commitment from CONSOL Energy, our general partner or any of their respective affiliates to fund our cash flow deficits or provide other direct or indirect financial assistance to us. We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our revolving credit facility and, if necessary, the issuance of additional equity or debt securities. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and our long-term capital expenditure requirements and to make quarterly cash distributions as declared by the board of directors of our general partner.
Our partnership agreement requires that we distribute all of our available cash to our unitholders. As a result, we expect to rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund our acquisitions and expansion capital expenditures, if any.
On October 31, 2016, the Board of Directors of CNX Coal Resources GP LLC, the general partner of CNX Coal Resources LP, declared a cash distribution to the Partnership's unitholders for the third quarter of 2016 of
$0.5125
per common and subordinated units. The cash distribution will be paid on November 15, 2016 to the unitholders of record at the close of business on November 10, 2016.
Revolving Credit Facility
Obligations under our
$400,000
senior revolving credit facility, with certain lenders and PNC Bank N.A., as administrative agent, are guaranteed by our subsidiaries (the “guarantor subsidiaries”) and are secured by substantially all of our and our subsidiaries’ assets pursuant to a security agreement and various mortgages. CONSOL Energy is not a guarantor of our obligations under our revolving credit facility.
The unused portion of our revolving credit facility is subject to a commitment fee of 0.50% per annum. Interest on outstanding indebtedness under our revolving credit facility accrues, at our option, at a rate based on either:
|
|
•
|
The highest of (i) PNC Bank N.A.’s prime rate, (ii) the federal funds open rate plus 0.50%, and (iii) the one-month LIBOR rate plus 1.0%, in each case, plus a margin ranging from 1.50% to 2.50% depending on the total leverage ratio; or
|
|
|
•
|
the LIBOR rate plus a margin ranging from 2.50% to 3.50% depending on the total leverage ratio.
|
As of
September 30, 2016
, the revolving credit facility had
$208,000
of borrowings outstanding, leaving
$192,000
unused capacity. Interest on outstanding borrowings under the revolving credit facility at
September 30, 2016
was accrued at
3.78%
based on a LIBOR rate of
0.53%
, plus a margin of
3.25%
.
Our revolving credit facility matures on July 7, 2020 and requires compliance with conditions precedent that must be satisfied prior to any borrowing as well as ongoing compliance with certain affirmative and negative covenants.
Affirmative covenants include, among others, requirements relating to: (i) the preservation of existence; (ii) the payment of obligations, including taxes; (iii) the maintenance of properties and equipment, insurance and books and records; (iv) compliance with laws and material contracts; (v) use of proceeds; (vi) the subordination of intercompany loans; (vii) compliance with anti-terrorism, anti-money laundering, anti-corruption and sanctions laws; and (viii) collateral.
Negative covenants include, among others, restrictions on our and our guarantor subsidiaries’ ability to: (i) create, incur, assume or suffer to exist indebtedness; (ii) create or permit to exist liens on their properties; (iii) make or pay any dividends or
distributions;
provided
that we will be able to make cash distributions of available cash to partners so long as no event of default is continuing or would result therefrom; (iv) merge with or into another person, liquidate or dissolve, acquire all or substantially all of the assets of any going concern or going line of business or acquire all or a substantial portion of another person’s assets; (v) make particular investments and loans;
provided
that we will be able to increase our ownership percentage of our undivided interest in the Pennsylvania Mining Complex and make investments in the Pennsylvania Mining Complex in accordance with our ratable ownership; (vi) sell, transfer, convey, assign or dispose of our assets or properties other than in the ordinary course of business and other select instances; (vii) deal with any affiliate except in the ordinary course of business on terms no less favorable to us than we would otherwise receive in an arm’s length transaction; (viii) amend organizational documents or any documentation governing certain material debt; and (ix) amend, waive or grant a consent under any material contract. In addition, we are obligated to maintain at the end of each fiscal quarter (x) a minimum interest coverage ratio of at least 3.00 to 1.00 and (y) a maximum total leverage ratio of no greater than 3.50 to 1.00 (or 4.00 to 1.00 for two fiscal quarters after consummation of a material acquisition). At
September 30, 2016
, the interest coverage ratio was
9.93
to
1.00
and the total leverage ratio was
2.67
to
1.00
.
Our revolving credit facility also contains events of default, including, but not limited to, cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
Variance
|
|
(in thousands)
|
Cash flows provided by operating activities
|
$
|
47,324
|
|
|
$
|
47,465
|
|
|
$
|
(141
|
)
|
Cash used in investing activities
|
$
|
(31,048
|
)
|
|
$
|
(25,642
|
)
|
|
$
|
(5,406
|
)
|
Cash used in financing activities
|
$
|
(16,496
|
)
|
|
$
|
(18,820
|
)
|
|
$
|
2,324
|
|
Nine Months Ended
September 30, 2016
Compared with the
Nine Months Ended
September 30, 2015
:
Cash flows provided by operating activities
decreased
$141
in the
nine
months ended
September 30, 2016
compared to the
nine
months ended
September 30, 2015
primarily due to net income decreasing
$38,958
in the period-to-period comparison, offset by a
$40,121
increase in working capital. The increase in working capital was related to the increase of accounts receivable of
$28,974
during the nine months ended September 30, 2015. Prior to the IPO, accounts receivable were sold to CONSOL Financial Inc, which resulted in no trade receivables as of July 7, 2015. The remaining variance relates to various transactions, none of which are individually material.
Net cash used in investing activities
increased
$5,406
in the
nine
months ended
September 30, 2016
compared to the
nine
months ended
September 30, 2015
as a result of
increased
capital expenditures of
$5,357
due to the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
Variance
|
|
(in thousands)
|
Pennsylvania Mining Complex acquisition
|
$
|
21,500
|
|
|
$
|
—
|
|
|
$
|
21,500
|
|
Building and Infrastructure
|
6,201
|
|
|
9,912
|
|
|
(3,711
|
)
|
Equipment Purchases and Rebuilds
|
2,042
|
|
|
9,697
|
|
|
(7,655
|
)
|
Refuse Storage Area
|
397
|
|
|
2,200
|
|
|
(1,803
|
)
|
Water Treatment Systems
|
208
|
|
|
3,122
|
|
|
(2,914
|
)
|
Other
|
721
|
|
|
781
|
|
|
(60
|
)
|
Total Capital Expenditures
|
$
|
31,069
|
|
|
$
|
25,712
|
|
|
$
|
5,357
|
|
Net cash used in financing activities
decreased
$2,324
in the
nine
months ended
September 30, 2016
compared to the
nine
months ended
September 30, 2015
primarily due to the following items:
|
|
•
|
For the
nine
months ended
September 30, 2015
there were:
|
|
|
◦
|
Proceeds of
$180,000
from the revolver;
|
|
|
◦
|
Net proceeds of
$148,359
from issuance of common units; and
|
|
|
◦
|
IPO proceeds distributed to CONSOL Energy of
$342,711
.
|
|
|
•
|
For the
nine
months ended
September 30, 2016
there were:
|
|
|
◦
|
Proceeds of
$23,000
from the revolver; and
|
|
|
◦
|
Cash distributions of
$30,486
to limited partners and the general partner.
|
Off-Balance Sheet Arrangements
We do not maintain off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources which are not disclosed in the Notes to the Unaudited Consolidated Financial Statements of this Form 10-Q.
Contractual Obligations
Our contractual obligations include the revolving credit facility, operating leases, capital leases, asset retirement obligations and other long-term liability commitments. Since December 31, 2015, there have been no material changes to our contractual obligations within the ordinary course of business.
FORWARD-LOOKING STATEMENTS
We are including the following cautionary statement in this Quarterly Report on Form 10-Q to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of us. With the exception of historical matters, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements (as defined in Section 21E of the Exchange Act) that involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. When we use the words "believe," "intend," "expect," "may," "should," "anticipate," "could," "estimate," "plan," "predict," "project," or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q; we disclaim any obligation to update these statements. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following: generation of sufficient distributable cash flow to support the payment of minimum quarterly distributions; changes in coal prices or the costs of mining or transporting coal; uncertainty in estimating economically recoverable coal reserves and replacement of reserves; our ability to develop our existing coal reserves and successfully execute our mining plans; changes in general economic conditions, both domestically and globally; competitive conditions within the coal industry; changes in the consumption patterns of coal-fired power plants and steelmakers and other factors affecting the demand for coal by coal-fired power plants and steelmakers; the availability and price of coal to the consumer compared to the price of alternative and competing fuels; competition from the same and alternative energy sources; energy efficiency and technology trends; our ability to successfully implement our business plan; the price and availability of debt and equity financing; operating hazards and other risks incidental to coal mining; major equipment failures and difficulties in obtaining equipment, parts and raw materials; availability, reliability and costs of transporting coal; adverse or abnormal geologic conditions, which may be unforeseen; natural disasters, weather-related delays, casualty losses and other matters beyond our control; interest rates; labor availability, relations and other workforce factors; defaults by our sponsor under our operating agreement and employee services agreement; changes in availability and cost of capital; changes in our tax status; delays in the receipt of, failure to receive or revocation of necessary governmental permits; defects in title or loss of any leasehold interests with respect to our properties; the effect of existing and future laws and government regulations, including the enforcement and interpretation of environmental laws thereof; the effect of new or expanded greenhouse gas regulations; the effects of litigation; and other factors discussed in our 2015 Form 10-K
under “Risk Factors,” as updated by any subsequent Form 10-Qs, which are on file at the Securities and Exchange Commission.