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, 2021 are not necessarily indicative of the results that may be expected for future periods.
The Consolidated Balance Sheet at December 31, 2020 has been derived from the Audited Consolidated Financial Statements at that date but does not include all the notes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Consolidated Financial Statements and related notes for the year ended December 31, 2020 included in CNX Resources Corporation's ("CNX," "CNX Resources," the "Company," "we," "us," or "our") Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC) on February 9, 2021.
On September 28, 2020, the Merger (as defined in Note 13 – Acquisitions and Dispositions) of CNX Midstream Partners LP (CNXM) was completed. Prior to the Merger, public unitholders held a 46.9% equity interest in CNXM and CNX owned the remaining 53.1% equity interest. The earnings of CNXM that were attributed to its common units held by the public prior to the Merger are reflected in net income attributable to noncontrolling interest in the Consolidated Statements of Income. There were no changes in our ownership interest in CNXM during either the three months ended March 31, 2021 or 2020.
Certain amounts in prior periods have been reclassified to conform to the current period presentation.
Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash to amounts shown in the statement of cash flows:
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|
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|
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
|
Cash and Cash Equivalents
|
$
|
29,610
|
|
|
$
|
31,833
|
|
|
Restricted Cash, Current Portion
|
733
|
|
|
853
|
|
|
Restricted Cash, Less Current Portion
|
5,019
|
|
|
5,340
|
|
|
Total Cash, Cash Equivalents, and Restricted Cash
|
$
|
35,362
|
|
|
$
|
38,026
|
|
Restricted Cash
Restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of the Cardinal States Gathering LLC and CSG Holdings II LLC Credit Agreement, each dated March 13, 2020 (See Note 9 - Long-Term Debt for more information).
Receivables
As of March 31, 2021 and December 31, 2020, Accounts Receivable - Trade were $147,714 and $145,929, respectively, and Other Receivables were $9,719 and $4,238, respectively.
The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Management records an allowance for credit losses related to the collectability of third-party customers' receivables using the historical aging of the customer receivable balance. The collectability is determined based on past events, including historical experience, customer credit rating, as well as current market conditions. CNX monitors customer ratings and collectability on an on-going basis. Account balances will be charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
The following represents the roll forward of the allowance for credit losses for the three months ended:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
|
Allowance for Credit Losses - Trade, Beginning of Year
|
$
|
84
|
|
|
$
|
—
|
|
|
Provision for Expected Credit Losses
|
—
|
|
|
131
|
|
|
Allowance for Credit Losses - Trade, End of Period
|
$
|
84
|
|
|
$
|
131
|
|
|
|
|
|
|
|
Allowance for Credit Losses - Other Receivables, Beginning of Year
|
$
|
3,248
|
|
|
$
|
2,463
|
|
|
Provision for Expected Credit Losses
|
(129)
|
|
|
2,566
|
|
|
Write-off of Uncollectible Accounts
|
(18)
|
|
|
—
|
|
|
Allowance for Credit Losses - Other Receivables, End of Period
|
$
|
3,101
|
|
|
$
|
5,029
|
|
NOTE 2—EARNINGS PER SHARE:
Basic earnings per share is computed by dividing net income attributable to CNX shareholders by the weighted average shares outstanding during the reporting period. Diluted earnings per share is computed similarly to basic earnings per share, except that the weighted average shares outstanding are increased to include, if dilutive, additional shares from stock options, performance stock options, restricted stock units, performance share units and shares issuable upon conversion of CNX's outstanding Convertible Notes (See Note 9 - Long-Term Debt). 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, that the shares that are issuable from the Convertible Notes are converted (subject to the considerations discussed further in the paragraph below), and that the proceeds from such activities were used to acquire shares of common stock at the average market price during the reporting period.
Pursuant to the Merger (See Note 13 - Acquisitions and Dispositions for more information), all outstanding phantom units previously granted under the CNXM long-term incentive plan were converted into the right to receive 0.88 shares of common stock of CNX. As such, all outstanding phantom units were converted, effective as of the closing of the Merger, into CNX restricted stock units. Each CNX restricted stock unit is subject to the same vesting, forfeiture and other terms and conditions applicable to the converted CNXM phantom units. Under Accounting Standards Codification Topic 718, Compensation - Stock Compensation, it was determined that there was no additional compensation cost to record as the conversion of awards did not result in incremental fair value. CNXM's dilutive units did not have a material impact on the Company's earnings per share calculations for the three months ended March 31, 2020.
The table below sets forth the share-based awards that have been excluded from the computation of diluted earnings per share because their effect would be antidilutive:
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For the Three Months Ended March 31,
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|
|
|
|
|
2021
|
|
2020
|
|
Anti-Dilutive Options
|
|
|
|
|
943,838
|
|
|
4,274,552
|
|
|
Anti-Dilutive Restricted Stock Units
|
|
|
|
|
66,705
|
|
|
2,007,960
|
|
|
Anti-Dilutive Performance Share Units
|
|
|
|
|
—
|
|
|
457,746
|
|
|
Anti-Dilutive Performance Stock Options
|
|
|
|
|
—
|
|
|
927,268
|
|
|
|
|
|
|
|
1,010,543
|
|
|
7,667,526
|
|
The Company expects to settle the principal amount of the Convertible Notes in cash. As a result, only the amount by which the conversion value exceeds the aggregated principal amount of the Convertible Notes is included in the diluted earnings per share computation under the treasury stock method. The conversion spread has a dilutive impact on diluted earnings per share when the average market price of the Company's common stock for a given period exceeds the initial conversion price of $12.84 per share for the Convertible Notes. As of March 31, 2021, the if-converted value of the Convertible Notes did exceed the outstanding principal amount. In connection with the Convertible Notes' issuance, the Company entered into privately negotiated capped call transactions with certain counterparties, (the "Capped Calls" and "Capped Call Transactions"), which were not included in calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.
The table below sets forth the share-based awards that have been exercised or released:
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|
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|
|
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|
|
For the Three Months Ended March 31,
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|
|
|
|
|
|
2021
|
|
2020
|
|
Options
|
|
|
|
|
656,368
|
|
|
—
|
|
|
Restricted Stock Units
|
|
|
|
|
701,757
|
|
|
340,883
|
|
|
Performance Share Units
|
|
|
|
|
291,653
|
|
|
274,716
|
|
|
|
|
|
|
|
1,649,778
|
|
|
615,599
|
|
The computations for basic and diluted earnings (loss) per share are as follows:
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|
|
For the Three Months Ended March 31,
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|
|
|
|
|
|
2021
|
|
2020
|
|
Net Income (Loss)
|
|
|
|
|
$
|
98,025
|
|
|
$
|
(305,222)
|
|
|
Less: Net Income Attributable to Noncontrolling Interest
|
|
|
|
|
—
|
|
|
23,864
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
Net Income (Loss) Attributable to CNX Resources Shareholders
|
|
|
|
|
$
|
98,025
|
|
|
$
|
(329,086)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Shares of Common Stock Outstanding
|
|
|
|
|
219,923,634
|
|
|
186,918,361
|
|
|
Effect of Diluted Shares*
|
|
|
|
|
8,746,814
|
|
|
—
|
|
|
Weighted-Average Diluted Shares of Common Stock Outstanding
|
|
|
|
|
228,670,448
|
|
|
186,918,361
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|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per Share:
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|
|
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|
|
|
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|
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|
|
|
|
|
Basic
|
|
|
|
|
$
|
0.45
|
|
|
$
|
(1.76)
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|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
$
|
0.43
|
|
|
$
|
(1.76)
|
|
*During periods in which the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all equity awards is antidilutive.
NOTE 3—REVENUE FROM CONTRACTS WITH CUSTOMERS:
Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company has elected to exclude all taxes from the measurement of transaction price.
For natural gas, NGL and oil, and purchased gas revenue, the Company generally considers the delivery of each unit (MMBtu or Bbl) to be a separate performance obligation that is satisfied upon delivery. Payment terms for these contracts typically require payment within 25 days of the end of the calendar month in which the hydrocarbons are delivered. A significant number of these contracts contain variable consideration because the payment terms refer to market prices at future delivery dates. In these situations, the Company has not identified a standalone selling price because the terms of the variable payments relate specifically to the Company’s efforts to satisfy the performance obligations. A portion of the contracts contain fixed consideration (i.e. fixed price contracts or contracts with a fixed differential to NYMEX or index prices). The fixed consideration is allocated to each performance obligation on a relative standalone selling price basis, which requires judgment from management. For these contracts, the Company generally concludes that the fixed price or fixed differentials in the contracts are representative of the standalone selling price. Revenue associated with natural gas, NGL and oil as presented on the accompanying Consolidated Statements of Income represent the Company’s share of revenues net of royalties and excluding revenue interests owned by others. When selling natural gas, NGL and oil on behalf of royalty owners or working interest owners, the Company is acting as an agent and thus reports the revenue on a net basis.
Included in Other Revenue and Operating Income in the Consolidated Statements of Income and in the below table are revenues generated from natural gas gathering services provided to third-parties. The gas gathering services are interruptible in nature and include charges for the volume of gas actually gathered and do not guarantee access to the system. Volumetric based fees are based on actual volumes gathered. The Company generally considers the interruptible gathering of each unit (MMBtu) of natural gas as a separate performance obligation. Payment terms for these contracts typically require payment within 25 days of the end of the calendar month in which the hydrocarbons are gathered.
Disaggregation of Revenue
The following table is a disaggregation of revenue by major source:
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|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2021
|
|
2020
|
|
Revenue from Contracts with Customers:
|
|
|
|
|
Natural Gas Revenue
|
$
|
347,376
|
|
|
$
|
229,599
|
|
|
NGL Revenue
|
31,863
|
|
|
19,412
|
|
|
Oil/Condensate Revenue
|
1,986
|
|
|
2,483
|
|
|
Total Natural Gas, NGL and Oil Revenue
|
381,225
|
|
|
251,494
|
|
|
|
|
|
|
|
Purchased Gas Revenue
|
33,484
|
|
|
26,359
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Sources of Revenue and Other Operating Income:
|
|
|
|
|
Gain on Commodity Derivative Instruments
|
33,414
|
|
|
115,142
|
|
|
Other Revenue and Operating Income
|
24,950
|
|
|
23,364
|
|
|
Total Revenue and Other Operating Income
|
$
|
473,073
|
|
|
$
|
416,359
|
|
The disaggregated revenue information corresponds with the Company’s segment reporting found in Note 14 - Segment Information.
Contract Balances
CNX invoices its customers once a performance obligation has been satisfied, at which point payment is unconditional. Accordingly, CNX's contracts with customers do not give rise to contract assets or liabilities under ASC 606. The Company has no contract assets recognized from the costs to obtain or fulfill a contract with a customer. The opening balance as of January 1, 2021 and the closing balance as of March 31, 2021 of the Company’s receivables related to contracts with customers were $145,929 and $147,714, respectively.
Transaction Price Allocated to Remaining Performance Obligations
ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied. However, the guidance provides certain practical expedients that limit this requirement, including when variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a series.
A significant portion of CNX's natural gas, NGL and oil and purchased gas revenue is short-term in nature with a contract term of one year or less. For those contracts, CNX has utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
For revenue associated with contract terms greater than one year, a significant portion of the consideration in those contracts is variable in nature and the Company allocates the variable consideration in its contract entirely to each specific performance obligation to which it relates. Therefore, any remaining variable consideration in the transaction price is allocated entirely to wholly unsatisfied performance obligations. As such, the Company has not disclosed the value of unsatisfied performance obligations pursuant to the practical expedient.
For revenue associated with contract terms greater than one year with a fixed price component, the aggregate amount of the transaction price allocated to remaining performance obligations was $53,554 as of March 31, 2021. The Company expects to recognize net revenue of $15,496 in the next 12 months and $11,236 over the following 12 months, with the remainder recognized thereafter.
For revenue associated with CNX's midstream contracts, which also have terms greater than one year, the interruptible gathering of each unit of natural gas represents a separate performance obligation; therefore, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required.
Prior-Period Performance Obligations
CNX records revenue in the month production is delivered to the purchaser. However, settlement statements for certain natural gas, NGL and oil revenue may not be received for 30 to 90 days after the date production is delivered, and as a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. CNX records the differences between the estimate and the actual amounts received in the month that payment is received from the purchaser. The Company has existing internal controls for its revenue estimation process and the related accruals, and any identified differences between its revenue estimates and the actual revenue received historically have not been significant. For the three months ended March 31, 2021 and 2020, revenue recognized in the current reporting period related to performance obligations satisfied in a prior reporting period was not material.
NOTE 4—INCOME TAXES:
The effective tax rates for the three months ended March 31, 2021 and 2020 were 27.6% and 33.3%, respectively. The effective tax rate for the three months ended March 31, 2021 differs from the U.S. federal statutory rate of 21.0% primarily due to the impact of equity compensation and state taxes. The effective tax rate for the three months ended March 31, 2020 differs from the U.S. federal statutory rate of 21.0% primarily due to the impact of noncontrolling interest (See Note 13 - Acquisitions and Dispositions for more information), equity compensation, and state taxes.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the “Act”) which, among other things, removed the 80% taxable income limitation for utilization of net operating losses generated in tax years 2018 through 2020, allowing for 5-year net operating loss carrybacks, increased the adjusted taxable income limitation for the disallowance of interest expense from 30% to 50%, and provided for refunds of any remaining alternative minimum tax (AMT) credits. As a result of the Act, the Company recorded in the first quarter of 2020 AMT refunds of $102,482 in Recoverable Income Taxes in the Consolidated Balance Sheets for the AMT refund received in 2020. The impact of other tax implications of the Act on the financial statements and related disclosures are immaterial.
The total amount of uncertain tax positions at March 31, 2021 and December 31, 2020 was $31,891. If these uncertain tax positions were recognized, approximately $31,891 would affect CNX's effective tax rate at March 31, 2021 and December 31, 2020. There was no change to the unrecognized tax benefits during the three months ended March 31, 2021.
CNX recognizes accrued interest and penalties related to uncertain tax positions in interest expense and income tax expense, respectively. As of March 31, 2021 and December 31, 2020, CNX had no accrued liabilities for interest and penalties related to uncertain tax positions.
CNX and its subsidiaries file federal income tax returns with the United States and tax returns within various states. 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 2016. The Internal Revenue Service and the Joint Committee on Taxation concluded its review of tax years 2016 through 2017 during the third quarter of 2020.
West Virginia enacted legislation in April 2021 that, among other things, instituted a single sales factor apportionment formula. The Company is currently evaluating the impact to deferred taxes and related valuation allowances in the consolidated financial statements.
NOTE 5—PROPERTY, PLANT AND EQUIPMENT:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Intangible Drilling Cost
|
$
|
5,056,060
|
|
|
$
|
4,965,252
|
|
|
Gas Gathering Equipment
|
2,519,293
|
|
|
2,510,917
|
|
|
Proved Gas Properties
|
1,270,178
|
|
|
1,253,094
|
|
|
Gas Wells and Related Equipment
|
1,138,212
|
|
|
1,120,061
|
|
|
Unproved Gas Properties
|
711,881
|
|
|
725,705
|
|
|
Surface Land and Other Equipment
|
199,147
|
|
|
199,322
|
|
|
Other
|
189,587
|
|
|
189,645
|
|
|
Total Property, Plant and Equipment
|
11,084,358
|
|
|
10,963,996
|
|
|
Less: Accumulated Depreciation, Depletion and Amortization
|
4,064,594
|
|
|
3,938,451
|
|
|
|
|
|
|
|
Total Property, Plant and Equipment - Net
|
$
|
7,019,764
|
|
|
$
|
7,025,545
|
|
|
|
|
|
|
Impairment of Proved Property
CNX performs a quantitative impairment test whenever events or changes in circumstances indicate that an asset group's carrying amount may not be recoverable, over proved properties using forward commodity prices, timing, methods and other assumptions consistent with historical periods. When indicators of impairment are present, tests require that the Company first compare expected future undiscounted cash flows by asset group to their respective carrying values. If the carrying amount exceeds the estimated undiscounted future cash flows, a reduction of the carrying amount of the natural gas properties to their estimated fair values is required, which is generally determined based on an estimation of discounted cash flows using significant assumptions including projected revenues, future commodity prices, and a market-specific weighted average cost of capital which are affected by expectations about future market and economic conditions.
During the three months ended March 31, 2020, CNX recognized certain indicators of impairment specific to our Southwest Pennsylvania Coalbed Methane asset group and determined that the carrying value of that asset group was not recoverable. The fair value of the asset group was estimated by using level 3 inputs which consisted of discounting the estimated future cash flows using discount rates and other assumptions that market participants would use in their estimates of fair value. As a result, an impairment of $61,849 was recognized and is included in Impairment of Exploration and Production Properties in the Consolidated Statements of Income. The impairment was related to an economic decision to temporarily idle certain wells and the related processing facility during the first quarter of 2020.
NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS:
In December 2017, CNX Gas entered into a purchase agreement with Noble Energy, pursuant to which CNX Gas acquired Noble’s 50% membership interest in CNX Gathering (then named CONE Gathering LLC), for a cash purchase price of $305,000 (the "Midstream Acquisition").
Prior to the Midstream Acquisition, the Company accounted for its 50% interest in CNX Gathering as an equity method investment as the Company had the ability to exercise significant influence, but not control, over the operating and financial policies of the midstream operations. In conjunction with the Midstream Acquisition, the Company obtained a controlling interest in CNX Gathering and control over the Partnership. Accordingly, the Midstream Acquisition was accounted for as a business combination using the acquisition method of accounting pursuant to ASC Topic 805, Business Combinations, or ASC 805. ASC 805 requires that, in circumstances where a business combination is achieved in stages (or step acquisition), previously held equity interests are remeasured at fair value. The fair value assigned to the previously held equity interest in CNX Gathering and CNXM was $799,033 and was determined using the income approach, based on a discounted cash flow methodology.
As part of the allocation of purchase price and in connection with the fair value of consideration transferred at closing on January 3, 2018, CNX recorded $796,359 of goodwill and $128,781 of other intangible assets which are comprised of customer relationships.
Impairment of Goodwill
All goodwill is attributed to the Midstream reporting unit within the Shale segment. Goodwill is evaluated for impairment at least annually and whenever events or changes in circumstance indicate that the fair value of a reporting unit is less than its carrying amount. In connection with the evaluation of goodwill for impairment, CNX may first consider qualitative factors to assess whether there are indicators that it is more likely than not that the fair value of a reporting unit may not exceed its carrying amount. If after assessing such factors or circumstances, CNX determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then a quantitative assessment is not required. If CNX chooses to bypass the qualitative assessment, or if it chooses to perform a qualitative assessment but is unable to qualitatively conclude that no impairment has occurred, then CNX will perform a quantitative assessment. If the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is recognized for the excess of the reporting unit's carrying value over its fair value. The Company uses a combination of the income approach (generally a discounted cash flow method) and market approach (which may include the guideline public company method and/or the guideline transaction method) to estimate the fair value of a reporting unit.
During the first quarter of 2020, the Company identified indicators of impairment in the form of deteriorating macroeconomic conditions, and the decline in the observable market value of CNXM securities both in relation to the COVID-19 pandemic and the overall decline in the master limited partnership (MLP) market space. Management concluded that these factors presented indications that the fair value of the Midstream reporting unit was more likely than not below the reporting unit’s carrying value. CNX bypassed the qualitative assessment and performed a quantitative test that utilized a
combination of the income and market approaches as described above to estimate the fair value of the Midstream reporting unit. As a result of this assessment, CNX concluded that the carrying value exceeded its estimated fair value, and a corresponding impairment of $473,045 was included in Impairment of Goodwill in the accompanying Consolidated Statements of Income. Any additional adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could trigger future impairment charges.
In estimating the fair value of the Midstream reporting unit, the Company used the income approach’s discounted cash flow method, which applies significant inputs not observable in the public market (Level 3), including estimates and assumptions related to the use of an appropriate discount rate, future throughput volumes, operating costs and capital spending, discounted to present value using an industry rate adjusted for company-specific risk, which management feels reflects the overall level of inherent risk of the reporting unit. These assumptions are affected by expectations about future market, industry and economic conditions. Cash flow projections were derived from board approved budgeted amounts, a seven-year operating forecast and an estimate of future cash flows. Subsequent cash flows were developed using growth or contraction rates that management believes are reasonably likely to occur. The Company used the market approach’s comparable company method. The comparable company method evaluates the value of a company using metrics of other businesses of similar size and industry.
The estimates of future cash flows utilized in the impairment analysis described above were subjective in nature and are subject to impacts from business risks as described in “Item 1A. Risk Factors” in CNX's 2020 Annual Report on Form 10-K as filed with the SEC on February 9, 2021 ("2020 Form 10-K"). The fair value estimation process requires considerable judgment and determining the fair value is sensitive to changes in assumptions impacting management’s estimates of future financial results. Although CNX believes the estimates and assumptions used in estimating the fair value are reasonable and appropriate, different assumptions and estimates could materially impact the estimated fair value. Future results could differ from our current estimates and assumptions.
Changes in the carrying amount of goodwill consist of the following activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
Carrying Amount, Beginning of Period
|
$
|
323,314
|
|
|
$
|
796,359
|
|
|
Impairment
|
—
|
|
|
473,045
|
|
|
Carrying Amount, End of Period
|
$
|
323,314
|
|
|
$
|
323,314
|
|
Other Intangible Assets
The carrying amount and accumulated amortization of other intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Other Intangible Assets:
|
|
|
|
|
Gross Amortizable Asset - Customer Relationships
|
$
|
109,752
|
|
|
$
|
109,752
|
|
|
Less: Accumulated Amortization - Customer Relationships
|
21,295
|
|
|
19,657
|
|
|
Total Other Intangible Assets, net
|
$
|
88,457
|
|
|
$
|
90,095
|
|
The customer relationship intangible asset is being amortized on a straight-line basis over approximately 17 years. Amortization expense related to other intangible assets was $1,638 for the three months ended March 31, 2021 and 2020. The estimated annual amortization expense is expected to approximate $6,552 per year for each of the next five years.
NOTE 7—REVOLVING CREDIT FACILITIES:
CNX
CNX's senior secured revolving credit facility ("Credit Facility") matures in April 2024. Borrowings under the Credit Facility are subject to borrowing base limitations based on the collateral value of CNX’s assets and are subject to regular semi-annual redeterminations. In November 2020, as part of the issuance of the $500,000 6.00% Senior Notes due January 2029 (See Note 9 - Long-Term Debt), both the lenders' commitments and borrowing base under the Credit Facility decreased to $1,775,000 from $1,900,000. In April 2021, as part of the semi-annual borrowing base redetermination, the lenders reaffirmed CNX's $1,775,000 borrowing base.
Under the terms of the agreement, borrowings under the revolving credit facility will bear interest at CNX's option at either:
•the base rate, which is the highest of (i) the federal funds open rate plus 0.50%, (ii) PNC Bank, N.A.’s prime rate, or (iii) the one-month LIBOR rate plus 1.0%, in each case, plus a margin ranging from 0.75% to 1.75%; or
•the LIBOR rate, which is the LIBOR rate plus a margin ranging from 1.75% to 2.75%.
The CNX Credit Facility contains a number of affirmative and negative covenants including those that, except in certain circumstances, limit the Company and the subsidiary guarantors' ability to create, incur, assume or suffer to exist indebtedness, create or permit to exist liens on properties, dispose of assets, make investments, purchase or redeem CNX common stock, pay dividends, merge with another corporation or amend the senior unsecured notes. The Company must also mortgage 85% of the value of its proved reserves and 85% of the value of its proved developed producing reserves, in each case, which are included in the borrowing base, maintain applicable deposit, securities and commodities accounts with the lenders or affiliates thereof, and enter into control agreements with respect to such applicable accounts.
The CNX Credit Facility contains customary events of default, including, but not limited to, a cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants.
The CNX Credit Facility also requires that CNX maintain a maximum net leverage ratio of no greater than 4.00 to 1.00, which is calculated as the ratio of debt less cash on hand to consolidated EBITDA, measured quarterly. CNX must also maintain a minimum current ratio of no less than 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. The calculation of all of the ratios exclude CNXM. CNX was in compliance with all financial covenants as of March 31, 2021.
At March 31, 2021, the CNX Credit Facility had $160,000 of borrowings outstanding and $188,567 of letters of credit outstanding, leaving $1,426,433 of unused capacity. At December 31, 2020, the CNX Credit Facility had $160,800 of borrowings outstanding and $185,272 of letters of credit outstanding, leaving $1,428,928 of unused capacity.
CNX Midstream Partners LP (CNXM)
CNXM's senior secured revolving credit facility (the "CNXM Credit Facility") matures in April 2024. The lenders’ commitments under the CNXM Credit Facility are $600,000, with an accordion feature that allows CNXM to increase the available borrowings by up to an additional $250,000 under certain terms and conditions. The CNXM Credit Facility includes the ability to issue letters of credit up to $100,000 in the aggregate.
Under the terms of the amended agreement, borrowings under the CNXM Credit Facility will bear interest at CNXM's option at either:
•the base rate, which is the highest of (i) the federal funds open rate plus 0.50%, (ii) PNC Bank, N.A.’s prime rate, or (iii) the one-month LIBOR rate plus 1.0%, in each case, plus a margin ranging from 0.50% to 1.50%; or
•the LIBOR rate, plus a margin ranging from 1.50% to 2.50%.
Fees and interest rate spreads under the CNXM Credit Facility are based on the total leverage ratio, measured quarterly.
The CNXM Credit Facility requires CNXM to comply with a number of affirmative and negative covenants. In addition, CNXM is obligated to maintain at the end of each fiscal quarter (w) for so long as at least $150,000 of the CNXM 6.50% Senior Notes due March 2026 (CNXM Senior Notes) are outstanding, a maximum total leverage ratio of no greater than 5.25 to 1.00 (which increases to no greater than 5.50 to 1.00 during qualifying acquisition periods); (x) if less than $150,000 of the CNXM Senior Notes are outstanding, a maximum total leverage ratio of no greater than 4.75 to 1.00 (which increases to no greater than 5.25 to 1.00 during qualifying acquisition periods); (y) a maximum secured leverage ratio of no greater than 3.50 to 1.00 and (z) a minimum interest coverage ratio of no less than 2.50 to 1.00. CNXM was in compliance with all financial covenants as of March 31, 2021.
The CNXM Credit Facility also contains customary events of default, including, but not limited to, a cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants. The obligations under the revolving credit facility are secured by substantially all of the assets of CNXM and its wholly-owned subsidiaries. CNX is not a guarantor under the CNXM Credit Facility.
At March 31, 2021, the CNXM Credit Facility had $237,000 of borrowings outstanding and $30 of letters of credit outstanding, leaving $362,970 of unused capacity. At December 31, 2020, the CNXM Credit Facility had $291,000 of borrowings outstanding and $30 of letters of credit outstanding, leaving $308,970 of unused capacity.
NOTE 8—OTHER ACCRUED LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Royalties
|
$
|
83,682
|
|
|
$
|
72,401
|
|
|
Transportation Charges
|
17,228
|
|
|
15,969
|
|
|
Accrued Interest
|
16,677
|
|
|
26,549
|
|
|
Deferred Revenue
|
10,889
|
|
|
10,986
|
|
|
Accrued Other Taxes
|
9,980
|
|
|
10,580
|
|
|
Accrued Payroll & Benefits
|
6,026
|
|
|
5,009
|
|
|
Litigation Contingency
|
5,884
|
|
|
2,025
|
|
|
Purchased Gas Payable
|
3,280
|
|
|
1,528
|
|
|
Short-Term Incentive Compensation
|
2,608
|
|
|
20,340
|
|
|
Other
|
13,405
|
|
|
23,144
|
|
|
Current Portion of Long-Term Liabilities:
|
|
|
|
|
Asset Retirement Obligations
|
8,455
|
|
|
8,455
|
|
|
Salary Retirement
|
1,802
|
|
|
1,787
|
|
|
Total Other Accrued Liabilities
|
$
|
179,916
|
|
|
$
|
198,773
|
|
NOTE 9—LONG-TERM DEBT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Senior Notes due March 2027 at 7.25% (Principal of $700,000 plus Unamortized Premium of $6,417 and $6,686, respectively)
|
$
|
706,417
|
|
|
$
|
706,686
|
|
|
Senior Notes due January 2029 at 6.00%, Issued at Par Value
|
500,000
|
|
|
500,000
|
|
|
CNX Midstream Partners LP Senior Notes due March 2026 at 6.50% (Principal of $400,000 less Unamortized Discount of $3,688 and $3,875, respectively)*
|
396,312
|
|
|
396,125
|
|
|
Convertible Senior Notes due May 2026 at 2.25% (Principal of $345,000 less Unamortized Discount and Issuance Costs of $103,760 and $107,735, respectively)
|
241,240
|
|
|
237,265
|
|
|
CNX Midstream Partners LP Revolving Credit Facility*
|
237,000
|
|
|
291,000
|
|
|
CNX Revolving Credit Facility
|
160,000
|
|
|
160,800
|
|
|
Cardinal States Gathering Company Credit Facility maturing in March 2028 (Principal of $111,389 and $114,985, respectively, less Unamortized Discount of $1,087 and $1,126, respectively)
|
110,302
|
|
|
113,859
|
|
|
CSG Holdings II LLC Credit Facility maturing in March 2027 (Principal of $43,331 and $45,559, respectively, less Unamortized Discount of $425 and $441, respectively)
|
42,906
|
|
|
45,118
|
|
|
Less: Unamortized Debt Issuance Costs
|
25,917
|
|
|
26,852
|
|
|
|
2,368,260
|
|
|
2,424,001
|
|
|
Less: Amounts Due in One Year
|
22,055
|
|
|
22,574
|
|
|
Long-Term Debt
|
$
|
2,346,205
|
|
|
$
|
2,401,427
|
|
*CNX is not a guarantor of CNXM's 6.50% Senior Notes due March 2026 or CNXM's Credit Facility.
In April 2020, CNX issued $345,000 in aggregate principal amount of 2.25% convertible senior notes due May 2026 (the "Convertible Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, including $45,000 aggregate principal amount of Convertible Notes issued pursuant to the exercise in full of the initial purchasers’ option to purchase additional Convertible Notes. The Convertible Notes are senior, unsecured obligations of the Company. The Convertible Notes bear interest at a fixed rate of 2.25% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2020. Proceeds from the issuance of the Convertible Notes totaled $334,650, net of initial purchaser discounts and issuance costs. The notes are guaranteed by most of CNX's subsidiaries but does not include CNXM (or its subsidiaries or general partner) or CSG Holdings III LLC.
The initial conversion rate is 77.8816 shares of CNX's common stock per $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $12.84 per share, subject to adjustment upon the occurrence of specified events. The Convertible Notes will mature on May 1, 2026, unless earlier repurchased, redeemed or converted. Before February 1, 2026, note holders will have the right to convert their Convertible Notes only upon the occurrence of the following
events:
•during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on June 30, 2020, if the Last Reported Sale Price per share of Common Stock exceeds one hundred and thirty percent (130%) of the Conversion Price for each of at least twenty (20) Trading Days (whether or not consecutive) during the thirty (30) consecutive Trading Days ending on, and including, the last Trading Day of the immediately preceding calendar quarter.
•during the five (5) consecutive Business Days immediately after any ten (10) consecutive trading day period (such ten (10) consecutive Trading Day period, the “Measurement Period”) if the trading Price per $1,000 principal amount of Notes, as determined following a request by a Holder in accordance with the procedures set forth below, for each trading day of the Measurement Period was less than ninety eight percent (98%) of the product of the last reported sale price per share of common stock on such trading day and the conversion rate on such trading day.
•if CNX calls any or all of the Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
•upon the occurrence of certain specified corporate events as set forth in the indenture governing the Convertible Notes.
From and after February 1, 2026, note holders may convert their Convertible Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date.
Upon conversion, the Company may satisfy its conversion obligation by paying and/or delivering, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the indenture governing the Convertible Notes. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the indenture governing the Convertible Notes. In addition, following certain corporate events, as described in the indenture governing the Convertible Notes, that occur prior to the maturity date, the Company will increase the conversion rate, in certain circumstances, for a holder who elects to convert its Convertible Notes in connection with such a corporate event.
The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The Company’s current intent is to settle the principal amount of the Convertible Notes in cash upon conversion.
If certain corporate events that constitute a “Fundamental Change” (as defined in the indenture governing the Convertible Notes) occur, then noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock. During the three months ended March 31, 2021, the conditions allowing holders of the Convertible Notes to exercise their conversion right were not met and as of March 31, 2021, the notes were not convertible. The Convertible Notes are therefore classified as long-term debt at March 31, 2021.
In accounting for the transaction, the Convertible Notes were separated into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated conversion feature. The fair value was based on market data available for publicly traded, senior, unsecured corporate bonds with similar maturity, which represent Level 2 observable inputs. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the principal value of the Convertible Notes and was recorded in Capital in Excess of Par Value in the Consolidated Statement of Stockholders Equity and is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the Convertible Notes over the liability component and the debt issuance costs are amortized to interest expense over the contractual term of the Convertible Notes using the effective interest method.
In accounting for the debt issuance costs of $10,350 related to the Convertible Notes, the Company allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds of the Convertible Notes. Issuance costs attributable to the liability component were $7,024 and will be amortized to interest expense using the effective interest method over the contractual term of the Convertible Notes. Issuance costs attributable to the equity component were $3,326 and were netted with the equity component in Capital in Excess of Par Value in the Consolidated Statement of Stockholders Equity and are not subject to amortization.
The net carrying amount of the liability and equity components of the Convertible Notes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Liability Component:
|
|
|
|
|
Principal
|
$
|
345,000
|
|
|
$
|
345,000
|
|
|
Unamortized Discount
|
(97,644)
|
|
|
(101,367)
|
|
|
Unamortized Issuance Costs
|
(6,116)
|
|
|
(6,368)
|
|
|
Net Carrying Amount
|
$
|
241,240
|
|
|
$
|
237,265
|
|
|
|
|
|
|
|
Equity Component, net of Purchase Discounts and Issuance Costs
|
$
|
78,284
|
|
|
$
|
78,317
|
|
Interest expense related to the Convertible Notes is as follows:
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31, 2021
|
|
Contractual Interest Expense
|
$
|
1,941
|
|
|
Amortization of Debt Discount
|
3,722
|
|
|
Amortization of Issuance Costs
|
252
|
|
|
Total Interest Expense
|
$
|
5,915
|
|
In connection with the offering of the Convertible Notes, the Company entered into privately negotiated capped call transactions with certain counterparties, (the “Capped Calls”). The Capped Calls each have an initial strike price of $12.84 per share, subject to certain adjustments, which correspond to the initial conversion price of the Convertible Notes. The Capped Calls have an initial cap price of $18.19 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that initially underlie the Convertible Notes, and are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the Capped Call Transactions. The conditions that cause adjustments to the initial strike price of the Capped Calls mirror the conditions that result in corresponding adjustments for the Convertible Notes. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Convertible Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $35,673 incurred in connection with the Capped Calls was recorded as a reduction to Capital in Excess of Par Value.
During the three months ended March 31, 2020, CNX's wholly-owned subsidiary Cardinal States Gathering Company LLC (Cardinal States) entered into a $125,000 non-revolving credit facility agreement (the "Cardinal States Facility"). The Cardinal States Facility matures in 2028, has an interest rate of 3-month LIBOR + 450 basis points and includes an excess cash flow sweep in an amount required to achieve a quarterly targeted debt balance. The facility is secured by substantially all of the Cardinal States assets, requires a minimum level of hedging of the variable interest rate exposure and is non-recourse to CNX.
Additionally, during the three months ended March 31, 2020, CNX's wholly-owned subsidiary CSG Holdings II LLC (CSG Holdings) entered into a $50,000 non-revolving credit facility agreement (the "CSG Holdings Facility"). The CSG Holdings Facility matures in 2027, has interest rate of 3-month LIBOR + 675 basis points and includes a full excess cash sweep. The facility is secured by substantially all of the CSG Holding assets, requires a minimum level of hedging of the variable interest rate exposure and is non-recourse to CNX.
During the three months ended March 31, 2020, CNX purchased and retired $71,334, of its outstanding 5.875% Senior Notes due April 2022. As part of this transaction, a gain of $11,263 was included in Gain on Debt Extinguishment in the Consolidated Statements of Income.
NOTE 10—COMMITMENTS AND CONTINGENT LIABILITIES:
CNX and its subsidiaries are subject to various lawsuits and claims with respect to such matters as personal injury, royalty accounting, damage to property, climate change, governmental regulations including environmental violations and remediation, employment and contract disputes and other claims and actions arising out of the normal course of business. CNX 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 CNX. 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 CNX; however, such amounts cannot be reasonably estimated.
The 1992 Coal Industry Retiree Health Benefit Act (“Coal Act”), in Section 9711, requires coal companies that were providing health benefits to United Mine Workers of America (“UMWA”) retirees as of February 1993 to continue providing health benefits to such individuals, in substantially the same coverages, for as long as the last signatory operator remains in business. Section 9711 also requires any “related person” to be joint and severally liable for the provision of these health benefits. On May 1, 2020, the court in the Murray Energy Corporation (“Murray”) bankruptcy proceedings approved a settlement agreement between Murray and the UMWA that transferred to the UMWA 1992 Benefit Plan the Coal Act liabilities for retirees in Murray’s Section 9711 plan. The retirees transferred by Murray to the 1992 Benefit Plan include approximately 2,159 retirees allegedly traced to the December 2013 sale by CONSOL Energy Inc. to Murray Energy of the following possible last signatory operators: Consolidation Coal Company, McElroy Coal Company, Southern Ohio Coal Company, Central Ohio Coal Company, Keystone Coal Mining Corp., and Eight-Four Coal Mining Company (the “Sold Subsidiaries”). On May 2, 2020, the Trustees of the UMWA 1992 Benefit Plan sued CNX and CONSOL Energy Inc. (“CONSOL”) in federal court contending that the Sold Subsidiaries were last signatory operators and that CNX and CONSOL are related persons to the Sold Subsidiaries and, as such, CNX and CONSOL are jointly and severally liable for the Coal Act health benefits allegedly owed to the eligible retirees traced to the Sold Subsidiaries. The 1992 Plan seeks, among other relief, a declaration that CNX and CONSOL are obligated to enroll the eligible retirees attributed to the Sold Subsidiaries in a Section 9711 Plan; that CNX and CONSOL are liable to post the security required by Section 9712; and, that CNX and CONSOL are liable to pay per beneficiary premiums until the eligible retirees are enrolled in a Section 9711 plan, and other fees, costs and disbursements under the Coal Act. We disagree with the suit filed by the UMWA 1992 Plan, have filed a Motion to Dismiss and intend to defend this action. Further, under the Separation and Distribution Agreement that was entered into at the time we spun-out our coal business in 2017, CONSOL agreed to indemnify CNX for all coal-related liabilities, including this lawsuit. With respect to this matter although a loss is possible, it is not probable, and accordingly no accrual has been recognized.
At March 31, 2021, CNX 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 tables. These amounts represent the maximum potential of total future payments that the Company 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 unconditional purchase obligations and letters of credit are recorded as liabilities in the financial statements. CNX management believes that the commitments in the following table will expire without being funded, and therefore will not have a material adverse effect on financial condition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
Firm Transportation
|
$
|
181,576
|
|
|
$
|
181,576
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
7,021
|
|
|
7,021
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total Letters of Credit
|
188,597
|
|
|
188,597
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Surety Bonds:
|
|
|
|
|
|
|
|
|
|
|
Employee-Related
|
2,600
|
|
|
2,600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Environmental
|
12,007
|
|
|
10,352
|
|
|
1,655
|
|
|
—
|
|
|
—
|
|
|
Financial Guarantees
|
81,670
|
|
|
81,670
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
9,224
|
|
|
6,703
|
|
|
2,521
|
|
|
—
|
|
|
—
|
|
|
Total Surety Bonds
|
105,501
|
|
|
101,325
|
|
|
4,176
|
|
|
—
|
|
|
—
|
|
|
Total Commitments
|
$
|
294,098
|
|
|
$
|
289,922
|
|
|
$
|
4,176
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Excluded from the above table are commitments and guarantees entered into in conjunction with the spin-off of the Company's coal business in November 2017. Although CONSOL has agreed to indemnify CNX to the extent that CNX would be called upon to pay any of these liabilities, there is no assurance that CONSOL will satisfy its obligations to indemnify CNX in the event that CNX is so called upon (See “Item 1A. Risk Factors” in CNX's 2020 Annual Report on Form 10-K as filed with the SEC on February 9, 2021 ("2020 Form 10-K") for additional information).
CNX enters 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 in the Consolidated Balance Sheets. As of March 31, 2021, the purchase obligations for each of the next five years and beyond are as follows:
|
|
|
|
|
|
|
|
Obligations Due
|
Amount
|
|
Less than 1 year
|
$
|
265,403
|
|
|
1 - 3 years
|
434,959
|
|
|
3 - 5 years
|
404,364
|
|
|
More than 5 years
|
1,064,814
|
|
|
Total Purchase Obligations
|
$
|
2,169,540
|
|
NOTE 11—DERIVATIVE INSTRUMENTS:
CNX enters into interest rate swap agreements to manage its exposure to interest rate volatility. These swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows. The change in fair value of the interest rate swap agreements are accounted for on a mark-to-market basis with the changes in fair value recorded in current period earnings.
In March 2020, CNX entered into interest rate swaps related to $175,000 of borrowings under the Cardinal States Facility and CSG Holdings Facility (See Note 9 - Long-Term Debt). In order to manage exposure to interest rate volatility, each respective entity entered into an interest rate swap for the full outstanding principal amounts inclusive of a put option at 25 basis points. The underlying notional for each swap and put option reduces over time based upon an expected amortization profile for each respective credit facility. In addition, CSG Holdings entered into a call option commencing March 31, 2023.
In June 2019, CNX entered into an interest rate swap agreement related to $160,000 of borrowings under CNX’s Credit Facility (See Note 7 - Revolving Credit Facilities) which has the economic effect of modifying the variable-interest obligation into a fixed-interest obligation over a three-year period. In March 2020, this swap was terminated and replaced via a new interest rate swap, effective April 3, 2020, into a new four-year interest rate swap inclusive of a put option at zero basis points. Also executed in March 2020 was a new four-year $250,000 interest rate swap inclusive of a put option at zero basis points, effective April 3, 2020. Consistent with the previous interest rate swap agreement, the $250,000 interest rate swap was entered into to manage CNX's exposure to interest rate volatility.
CNX enters into financial derivative instruments (over-the-counter swaps) to manage its exposure to natural gas price fluctuations. Typically, CNX “sells” swaps under which it receives a fixed price from counterparties and pays a floating market price. In order to enhance production flexibility, during the first quarter of 2021, CNX purchased, rather than sold, financial swaps for the period April through October 2021 under which CNX will pay a fixed price to and receive a floating price from its hedge counterparties. Swaps purchased have the effect of reducing total hedged volumes for the period of the swap. Natural gas commodity hedges are accounted for on a mark-to-market basis with changes in fair value recorded in current period earnings.
CNX 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 CNX to post collateral for any of its positions. However, as stated in the counterparty master agreements, if CNX'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, CNX 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. CNX recognizes all financial derivative instruments as either assets or liabilities at fair value in the Consolidated Balance Sheets on a gross basis.
Each of the Company's counterparty master agreements allows, in the event of default, the ability to elect early termination of outstanding contracts. If early termination is elected, CNX and the applicable counterparty would net settle all open hedge positions.
The total notional amounts of CNX's derivative instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
Forecasted to
|
|
|
2021
|
|
2020
|
|
Settle Through
|
|
Natural Gas Commodity Swaps (Bcf)
|
1,293.7
|
|
|
1,256.9
|
|
|
2026
|
|
Natural Gas Basis Swaps (Bcf)
|
1,220.8
|
|
*
|
1,294.1
|
|
|
2026
|
|
Interest Rate Swaps
|
$
|
564,514
|
|
|
$
|
569,972
|
|
|
2028
|
*Net of purchased natural gas basis swaps of 23.5 Bcf.
The gross fair value of CNX's derivative instruments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2021
|
|
2020
|
|
Current Assets:
|
|
|
|
|
Commodity Derivative Instruments:
|
|
|
|
|
Commodity Swaps
|
$
|
19,968
|
|
|
$
|
53,668
|
|
|
Basis Only Swaps
|
50,145
|
|
|
30,848
|
|
|
Interest Rate Swaps
|
138
|
|
|
141
|
|
|
Total Current Assets
|
$
|
70,251
|
|
|
$
|
84,657
|
|
|
|
|
|
|
|
Other Non-Current Assets:
|
|
|
|
|
Commodity Derivative Instruments:
|
|
|
|
|
Commodity Swaps
|
$
|
109,122
|
|
|
$
|
134,661
|
|
|
Basis Only Swaps
|
126,035
|
|
|
52,903
|
|
|
Interest Rate Swaps
|
538
|
|
|
673
|
|
|
Total Other Non-Current Assets
|
$
|
235,695
|
|
|
$
|
188,237
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
Commodity Derivative Instruments:
|
|
|
|
|
Commodity Swaps
|
$
|
64,215
|
|
|
$
|
23,506
|
|
|
Basis Only Swaps
|
15,897
|
|
|
14,491
|
|
|
Interest Rate Swaps
|
3,650
|
|
|
4,332
|
|
|
Total Current Liabilities
|
$
|
83,762
|
|
|
$
|
42,329
|
|
|
|
|
|
|
|
Non-Current Liabilities:
|
|
|
|
|
Commodity Derivative Instruments:
|
|
|
|
|
Commodity Swaps
|
$
|
56,898
|
|
|
$
|
59,388
|
|
|
Basis Only Swaps
|
19,704
|
|
|
57,150
|
|
|
Interest Rate Swaps
|
7,103
|
|
|
10,752
|
|
|
Total Non-Current Liabilities
|
$
|
83,705
|
|
|
$
|
127,290
|
|
The effect of commodity derivative instruments on the Company's Consolidated Statements of Income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Cash Received (Paid) in Settlement of Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
|
Commodity Swaps
|
|
|
|
|
|
$
|
6,550
|
|
|
$
|
157,579
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Swaps
|
|
|
|
|
|
(4,145)
|
|
|
(6,418)
|
|
|
Total Cash Received in Settlement of Commodity Derivative Instruments
|
|
|
|
|
|
2,405
|
|
|
151,161
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (Loss) Gain on Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
|
Commodity Swaps
|
|
|
|
|
|
(97,459)
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Swaps
|
|
|
|
|
|
128,468
|
|
|
(36,564)
|
|
|
Total Unrealized Gain (Loss) on Commodity Derivative Instruments
|
|
|
|
|
|
31,009
|
|
|
(36,019)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Gain on Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
|
Commodity Swaps
|
|
|
|
|
|
(90,909)
|
|
|
158,124
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Swaps
|
|
|
|
|
|
124,323
|
|
|
(42,982)
|
|
|
Total Gain on Commodity Derivative Instruments
|
|
|
|
|
|
$
|
33,414
|
|
|
$
|
115,142
|
|
The effect of interest rate swaps on Interest Expense in the Company's Consolidated Statements of Income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Cash Paid in Settlement of Interest Rate Swaps
|
|
|
|
|
|
$
|
(1,227)
|
|
|
$
|
(57)
|
|
|
Unrealized Gain (Loss) on Interest Rate Swaps
|
|
|
|
|
|
4,194
|
|
|
(10,639)
|
|
|
Gain (Loss) on Interest Rate Swaps
|
|
|
|
|
|
$
|
2,967
|
|
|
$
|
(10,696)
|
|
Cash Received in Settlement of Commodity Derivative Instruments for the three months ended March 31, 2020 includes $54,982 related to the monetization of certain NYMEX commodity swaps. The monetization resulted from reducing the contract swap prices of certain 2022, 2023 and 2024 NYMEX natural gas swap contracts. The notional quantities of the contracts were not changed by this monetization. Net proceeds received from the monetizations are classified as operating cash flows in the Consolidated Statements of Cash Flows.
The Company also enters into fixed price natural gas sales agreements that are satisfied by physical delivery. These physical commodity contracts qualify for the normal purchases and normal sales exception and are not subject to derivative instrument accounting.
NOTE 12—FAIR VALUE OF FINANCIAL INSTRUMENTS:
CNX 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 1 - Quoted prices for identical instruments in active markets.
Level 2 - 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 3 - Unobservable inputs significant to the fair value measurement supported by little or no market activity.
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 instrument measured at fair value on a recurring basis is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2021
|
|
Fair Value Measurements at December 31, 2020
|
|
Description
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Gas Derivatives
|
$
|
—
|
|
|
$
|
148,556
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
117,545
|
|
|
$
|
—
|
|
|
Interest Rate Swaps
|
$
|
—
|
|
|
$
|
(10,077)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(14,270)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying amounts and fair values of financial instruments for which the fair value option was not elected are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Cash and Cash Equivalents
|
$
|
29,610
|
|
|
$
|
29,610
|
|
|
$
|
15,617
|
|
|
$
|
15,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt (Excluding Debt Issuance Costs)
|
$
|
2,394,177
|
|
|
$
|
2,671,992
|
|
|
$
|
2,450,853
|
|
|
$
|
2,638,251
|
|
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, constitute Level 1 fair value measurements. The portion of the Company’s debt obligations that is not actively traded is valued through reference to the applicable underlying benchmark rate and, as a result, constitute Level 2 fair value measurements.
NOTE 13—ACQUISITIONS AND DISPOSITIONS:
On July 26, 2020, CNX entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CNXM, CNX Midstream GP LLC (the “General Partner”) and CNX Resources Holding LLC., a wholly owned subsidiary of CNX (“Merger Sub”), pursuant to which Merger Sub merged with and into CNXM with CNXM surviving as an indirect wholly owned subsidiary of CNX (the “Merger”). As a result of the Merger, CNXM’s common units are no longer publicly traded.
Except for the Class B units of CNXM, which were automatically canceled immediately prior to the effective time of the Merger for no consideration in accordance with CNXM’s partnership agreement, the interests in CNXM owned by CNX and its subsidiaries remain outstanding as limited partner interests in the surviving entity. The General Partner will continue to own the non-economic general partner interest in the surviving entity.
Because CNX controlled CNXM prior to the Merger and continues to control CNXM after the Merger, CNX accounted for the change in its ownership interest in CNXM as an equity transaction which was reflected as a reduction of noncontrolling interest with corresponding increases to common stock and capital in excess of par value. No gain or loss was recognized in its condensed consolidated statements of operations as a result of the Merger.
The tax effects of the Merger were reported as adjustments to deferred income taxes and capital in excess of par value.
Prior to the effective time of the Merger on September 28, 2020, public unitholders held a 46.9% equity interest in CNXM and CNX owned the remaining 53.1% equity interest. The earnings of CNXM that were attributed to its common units held by the public prior to the Merger are reflected in Net Income Attributable to Noncontrolling Interest in the Consolidated Statements of Income. There were no changes in CNX's ownership interest in CNXM during the three months ended March 31, 2021 or 2020.
CNXM’s revolving credit facility (See Note 7 - Revolving Credit Facilities) and the CNXM Senior Notes (See Note 9 - Long-Term Debt) were not impacted by the Merger.
NOTE 14—SEGMENT INFORMATION:
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
The Company evaluates the performance of its reportable segments based on total revenue and other operating income, and operating expenses directly attributable to that segment. Certain expenses are managed outside the reportable segments and therefore are not allocated. These expenses include, but are not limited to, interest expense, impairment of exploration and production properties, impairment of goodwill and other corporate expenses such as selling, general and administrative costs.
CNX's principal activity is to produce pipeline quality natural gas for sale primarily to gas wholesalers and the Company has two reportable segments that conducts those operations: Shale and Coalbed Methane. The Other Segment includes nominal shallow oil and gas production which is not significant to the Company. It also includes the Company's purchased gas activities, unrealized gain or loss on commodity derivative instruments, realized gain on commodity derivative instruments that were monetized prior to their settlement dates, exploration and production related other costs, impairments of exploration and production properties, as well as various other expenses that are managed outside the reportable segments as discussed above. Operating profit for each segment is based on sales less identifiable operating and non-operating expenses.
Prior to the Merger of CNXM that occurred in September 2020 (See Note 13 - Acquisitions and Dispositions), CNX consisted of two principal business divisions: Exploration and Production (E&P) and Midstream. The E&P Division included four reportable segments, Marcellus Shale, Utica Shale, Coalbed Methane and Other Gas. Certain reclassifications of 2020 segment information have been made to conform to the new presentation.
Industry segment results for the three months ended March 31, 2021 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shale
|
|
Coalbed Methane
|
|
Other
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
Natural Gas, NGL and Oil Revenue
|
|
|
$
|
342,169
|
|
|
$
|
38,904
|
|
|
$
|
152
|
|
|
$
|
381,225
|
|
|
|
|
|
|
|
|
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Gas Revenue
|
|
|
—
|
|
|
—
|
|
|
33,484
|
|
|
33,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Commodity Derivative Instruments
|
|
|
2,182
|
|
|
222
|
|
|
31,010
|
|
|
33,414
|
|
|
|
|
|
|
|
|
|
|
|
Other Revenue and Operating Income
|
|
|
19,066
|
|
|
—
|
|
|
5,884
|
|
|
24,950
|
|
|
|
|
|
|
|
|
|
(B)
|
|
Total Revenue and Other Operating Income
|
|
|
$
|
363,417
|
|
|
$
|
39,126
|
|
|
$
|
70,530
|
|
|
$
|
473,073
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expense
|
|
|
$
|
188,711
|
|
|
$
|
28,555
|
|
|
$
|
82,538
|
|
|
$
|
299,804
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Before Income Tax
|
|
|
$
|
174,706
|
|
|
$
|
10,571
|
|
|
$
|
(49,873)
|
|
|
$
|
135,404
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets
|
|
|
$
|
6,074,252
|
|
|
$
|
1,082,232
|
|
|
$
|
912,753
|
|
|
$
|
8,069,237
|
|
|
|
|
|
|
|
|
|
(C)
|
|
Depreciation, Depletion and Amortization
|
|
|
$
|
109,506
|
|
|
$
|
15,483
|
|
|
$
|
3,955
|
|
|
$
|
128,944
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
$
|
121,118
|
|
|
$
|
2,142
|
|
|
$
|
169
|
|
|
$
|
123,429
|
|
|
|
|
|
|
|
|
|
|
(A) Included in Total Natural Gas, NGL and Oil Revenue are sales of $45,000 to Direct Energy Business Marketing LLC, which comprises over 10% of revenue from contracts with external customers for the period.
(B) Includes midstream revenue of $19,066 and equity in earnings of unconsolidated affiliates of $950 for Shale and Other, respectively.
(C) Includes investments in unconsolidated equity affiliates of $16,172.
Industry segment results for the three months ended March 31, 2020 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shale
|
|
Coalbed Methane
|
|
Other
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
Natural Gas, NGL and Oil Revenue
|
|
|
$
|
220,494
|
|
|
$
|
30,723
|
|
|
$
|
277
|
|
|
$
|
251,494
|
|
|
|
|
|
|
|
|
|
(D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Gas Revenue
|
|
|
—
|
|
|
—
|
|
|
26,359
|
|
|
26,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Commodity Derivative Instruments
|
|
|
86,452
|
|
|
9,687
|
|
|
19,003
|
|
|
115,142
|
|
|
|
|
|
|
|
|
|
(E)
|
|
Other Revenue and Operating Income
|
|
|
18,406
|
|
|
—
|
|
|
4,958
|
|
|
23,364
|
|
|
|
|
|
|
|
|
|
(F)
|
|
Total Revenue and Other Operating Income
|
|
|
$
|
325,352
|
|
|
$
|
40,410
|
|
|
$
|
50,597
|
|
|
$
|
416,359
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expense
|
|
|
$
|
191,948
|
|
|
$
|
34,160
|
|
|
$
|
617,192
|
|
|
$
|
843,300
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Before Income Tax
|
|
|
$
|
133,404
|
|
|
$
|
6,250
|
|
|
$
|
(597,458)
|
|
|
$
|
(457,804)
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets
|
|
|
$
|
6,059,158
|
|
|
$
|
1,145,942
|
|
|
$
|
1,323,850
|
|
|
$
|
8,528,950
|
|
|
|
|
|
|
|
|
|
(G)
|
|
Depreciation, Depletion and Amortization
|
|
|
$
|
107,046
|
|
|
$
|
18,438
|
|
|
$
|
3,680
|
|
|
$
|
129,164
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
$
|
147,840
|
|
|
$
|
2,452
|
|
|
$
|
1,757
|
|
|
$
|
152,049
|
|
|
|
|
|
|
|
|
|
|
(D) Included in Total Natural Gas, NGL and Oil Revenue are sales of $45,656 to Direct Energy Business Marketing LLC and $32,176 to NJR Energy Services Company, each of which comprises over 10% of revenue from contracts with external customers for the period.
(E) Included in Other is a realized gain on commodity derivative instruments of $54,982 related to the monetization of hedges (see Note 11 - Derivative Instruments for more information).
(F) Includes midstream revenue of $18,406 and equity in loss of unconsolidated affiliates of $161 for Shale and Other, respectively.
(G) Includes investments in unconsolidated equity affiliates of $16,549.
Reconciliation of Segment Information to Consolidated Amounts:
Revenue and Other Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
Total Segment Revenue from Contracts with External Customers
|
|
|
|
|
$
|
433,775
|
|
|
$
|
296,259
|
|
|
Gain on Commodity Derivative Instruments
|
|
|
|
|
33,414
|
|
|
115,142
|
|
|
Other Operating Income
|
|
|
|
|
5,884
|
|
|
4,958
|
|
|
Total Consolidated Revenue and Other Operating Income
|
|
|
|
|
$
|
473,073
|
|
|
$
|
416,359
|
|
NOTE 15—STOCK REPURCHASE:
On January 26, 2021, the Company’s Board of Directors approved an increase in the aggregate amount of the previous $750,000 stock repurchase program plan to $900,000. As of March 31, 2021, the amount available under the stock repurchase program is $237,343, and is not subject to an expiration date. The repurchases may be affected from time-to-time through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, accelerated stock repurchases, block trades, derivative contracts or otherwise in compliance with Rule 10b-18. The timing of any repurchases will be based on a number of factors, including available liquidity, the Company's stock price, the Company's financial outlook, and alternative investment options. The stock repurchase program does not obligate the Company to repurchase any dollar amount or number of shares and the Board may modify, suspend, or discontinue its authorization of the program at any time. The Board of Directors will continue to evaluate the size of the stock repurchase program based on CNX's free cash flow position, leverage ratio, and capital plans. During the three months ended March 31, 2021, 1,464,454 shares were repurchased and retired at an average price of $12.26 per share for a total cost of $17,987. There were no shares repurchased and retired during the three months ended March 31, 2020.
NOTE 16—RECENT ACCOUNTING PRONOUNCEMENTS:
In August 2020, the FASB issued Accounting Standards Update (ASU) 2020-06 - Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. This ASU simplifies an entity's accounting for convertible instruments by eliminating two of the three models in ASC 470-20 that require separate accounting for embedded conversion features, simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification, requires entities to use the if-converted method for all convertible instruments in the diluted EPS calculation and include the effect of potential share settlement (if the effect is more dilutive) for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards, requires new disclosures about events that occur during the reporting period and cause conversion contingencies to be met and about the fair value of an entity's convertible debt at the instrument level, among other things. The amendments in this ASU are effective for public entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, and can be adopted through either a modified
retrospective method of transition or a fully retrospective method of transition. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is still evaluating the effect of adopting this guidance.
In March 2020, the FASB issued ASU 2020-04 - Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This ASU provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (IBORs) and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, which clarifies that certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments in these ASUs are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is still evaluating the effect of adopting this guidance.