Notes to Financial Statements
December 31, 2016
and 2015
The following description of the CONSOL Energy Inc. Investment Plan for Salaried Employees (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan
document for a more complete description of the Plan’s provisions.
General
– The Plan is a
tax-qualified, defined-contribution plan covering full-time salaried, operations and maintenance, production and maintenance, warehouse and maintenance, and certain part-time casual employees of CONSOL Energy Inc. and participating employers
(collectively, “CONSOL Energy” or the “Company”). Employees can participate in the Plan on the first day of the first full pay period following the date they first become eligible. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, and the Internal Revenue Code (the “Code”).
The Plan administrator is the Investment Plan Committee of CONSOL Energy, whose members are appointed by the Board of Directors (the “Board”) of CONSOL Energy Inc. The Investment Plan Committee
also has responsibility for selecting and overseeing the Plan’s investments. The Board has the authority to appoint trustees and has designated Bank of America, N.A. (“Bank of America”) as trustee for the Plan.
During 2016 and 2015, the Plan offered CONSOL Energy Inc. common stock (the “CONSOL Stock Fund”) as an
investment option to Plan participants. The CONSOL Stock Fund is an Employee Stock Ownership Plan (“ESOP”) where participants can elect to have dividends paid to them in cash instead of being reinvested in the CONSOL Stock Fund in their
Plan account. For the years ended December 31, 2016 and 2015, dividends from the CONSOL Stock Fund paid to participants in cash were not significant.
Contributions
– Participants may make before-tax and/or after-tax contributions of 1% to 75% of eligible compensation to the Plan via payroll deductions. Participants who have attained age 50
before the end of the Plan year are eligible to make catch-up contributions. Participants are automatically enrolled in the Plan at a 6% before-tax savings rate if no action is taken by the employee within forty-five days from the date they first
become eligible. Under the automatic enrollment provision, participant assets are invested in accordance with a managed account feature offered by Bank of America based on certain demographic characteristics of the participant. A participant may
elect not to participate in the Plan at any time.
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
1.
|
DESCRIPTION OF PLAN (Continued)
|
A participant may also separately designate from 1% to 75% (not to
exceed $10,000) of any incentive compensation payment as a before-tax and/or after-tax contribution. CONSOL Energy matches these contributions (excluding deferrals of incentive compensation payments), dollar for dollar, up to 6% of eligible
compensation.
Participants may also contribute amounts representing distributions from other qualified
defined-benefit or defined-contribution plans.
In 2015, the Plan provided a qualified non-elective
contribution (“QNEC”) equal to 3% of eligible compensation, regardless of the participant’s contribution election, for each payroll period for eligible participants, defined as active participants not classified as casual employees
and (1) were hired or rehired on or after October 1, 2014; or (2) did not become participants in the CONSOL Energy Inc. Employee Retirement Plan (“Retirement Plan”) (a Company sponsored defined-benefit plan) as of
October 1, 2014 as the result of a participation freeze of the Retirement Plan on September 30, 2014; or (3) whose accrued benefit under the Retirement Plan was frozen as of December 31, 2014. The Plan was amended effective
January 1, 2016 to eliminate the QNEC contribution.
The Company may also make discretionary
contributions to the Plan ranging from 1% to 6% (1% to 4% in 2015) of eligible compensation for eligible participants (as defined by the Plan). Discretionary contributions made by the Company for the years ended December 31, 2016 and 2015 were
$12,820,389 and $0, respectively. All participant and employer contributions are subject to regulatory and Plan limitations, and total contributions credited to a participant’s account are further subject to annual addition limitations under
the Code.
Participant Accounts
– Each participant’s account is (i) credited with the
participant’s contributions and allocations of the Company’s contributions and Plan investment earnings and (ii) charged with an allocation of administrative expenses and Plan investment losses. Allocations are based on participant
earnings, account balances, or specific participant transactions, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.
Investment Options
– Upon enrollment in the Plan, a participant may direct employee and Company contributions
into any of the investment options offered by the Plan, including registered investment companies, common stock, or a stable value fund.
5
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
1.
|
DESCRIPTION OF PLAN (Continued)
|
Vesting
– Participants are immediately vested in their
contributions and any matching contributions, QNEC contributions, or discretionary contributions made by the Company plus actual earnings (losses) thereon.
Notes Receivable from Participants
– Participants may borrow up to the lesser of one-half of their account balances (subject to a $1,000 minimum) or required regulatory loan maximum
limitations. Such loans are repayable over periods of 12 to 60 months (120 months maximum if for the purchase of a principal residence) and are secured by the balance in the participant’s account. The rate of interest on loans is commensurate
with the average rate charged by selected major banks for secured personal loans and remains fixed for the life of the loan. Loans are repaid over the period in installments of principal and interest via payroll deductions or ACH account debit for
participants that terminate employment subsequent to the loan’s execution. A participant also has the right to repay the loan in full, at any time, without penalty. At December 31, 2016, loan interest rates ranged from 4.25% to 9.25%.
Payment of Benefits
– Participants who retire from active service may elect to defer withdrawals
until April of the calendar year following the later of the year in which the participant attains age 70
1
/
2
or terminates employment. They may also elect an option to have their account distributed over a period of not less than
two years or more than a period which would pay the account balance during the participant’s actuarial life in either a fixed or variable amount. Before-tax deposits may be withdrawn only in the event of a participant’s retirement, death,
termination, attainment of age
59
1
/
2
or defined hardship.
Plan Termination
– Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Accounting
– The accompanying financial statements of the Plan have been prepared under the accrual
basis of accounting in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
6
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Investments held by a defined-contribution plan are required to be
reported at fair value, except for fully benefit-responsive investment contracts. Contract value is the relevant measure for the portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive
investment contracts because contract value is the amount participants normally would receive if they were to initiate permitted transactions under the terms of the Plan.
Investment Valuation and Income Recognition
– The Plan’s investments are stated at fair value (except
for fully benefit-responsive investment contracts, which are reported at contract value). Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. See Note 3 for a discussion of fair value measurements.
Purchases and sales of investments
are recorded on a trade-date basis. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Realized gains and losses on the sale of common stock are based on the average cost of the securities sold.
Net appreciation includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
Notes Receivable from Participants
– Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Interest on notes receivable from
participants is recognized over the term of the notes and calculated using a simple-interest method on principal amounts. The Plan administrator considers delinquent loans to be defaulted on the last day of the calendar quarter following the quarter
in which the last payment was made and reclassified as a distribution based on the terms of the Plan document.
Payment of Benefits
– Benefits are recorded when paid.
Administrative Expenses
– Expenses incurred in connection with the operation of the Plan with regard to the
purchase and sale of investments and certain trustee and professional fees are paid by the Plan. Fees related to specific participant transactions are charged directly to the participant’s account and are included in administrative expenses.
Asset-based fees are deducted prior to allocation of the Plan’s investment earnings activity and thus are not separately identifiable as an expense. Other administrative expenses are paid by CONSOL Energy at no cost to the Plan.
7
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Use of Estimates
– The preparation of financial statements
in conformity with US GAAP requires Plan management to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
ESOP
– The Plan’s ESOP provision provides that participants may invest
a portion or all of their account in Company stock. The ESOP provision also contains a put option in accordance with the requirements of the Code, which is a right for any participant who is otherwise entitled to a distribution from the Plan to
require the Company stock in their ESOP account be repurchased by the Company if it is not readily tradable on an established market. Participants who elect to invest their account balance in Company stock have voting rights commensurate with their
shares and participants are fully vested at all times in dividends paid on the acquired Company stock. A participant also has the right to diversify stock in their accounts pursuant to the provisions of the Plan document. At December 31, 2016
and 2015, and from the period since inception of the ESOP, there were no Company contributions in the form of Company stock.
Subsequent Events
– Plan management has evaluated subsequent events and has concluded that there were no subsequent events requiring adjustments to the financial statements or related
disclosures, as stated herein.
Recent Accounting Pronouncements
– In May 2015, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-07 “Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent),” (“ASU
2015-07”). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy investments for which fair values are estimated using the net asset value practical expedient provided by Accounting Standards Codification 820, Fair
Value Measurement. Disclosures about investments in certain entities that calculate net asset value per share are limited under ASU 2015-07 to those investments for which the entity has elected to estimate the fair value using the net asset value
practical expedient. ASU 2015-07 requires retrospective application and is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. ASU 2015-07 is not applicable to the Plan, as the Plan currently holds no
investments measured at net asset value.
8
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
In July 2015, the FASB issued ASU 2015-12 “Plan Accounting: Defined
Benefit Pension Plans (Topic 960), Defined Contribution Plans (Topic 962), Health and Welfare Plans (Topic 965)” (“ASU 2015-12”). The amendments in Part I of ASU 2015-12 eliminated the requirements that employee benefit plans measure
the fair value of fully benefit-responsive investment contracts and provide the related fair value disclosures, rather these contracts will be measured and disclosed only at contract value. The amendments in Part II of ASU 2015-12 requires plans to
disaggregate their investments measured using fair value only by general type, either on the financial statements or in the notes. Part II also eliminated the requirement to disclose the net appreciation/depreciation in fair value of investments by
general type and the requirements to disclose individual investments that represent 5% or more of net assets available for benefits. The amendments in Part III of ASU 2015-12 provides a practical expedient to permit plans to measure their
investments and investment related accounts as of a month-end date closest to its fiscal year for a plan with a fiscal year end that does not coincide with the end of a calendar month. The amendments in Part III are not applicable to the Plan. The
amendments in ASU 2015-12 are effective for reporting periods beginning after December 15, 2015, with early adoption permitted. The amendments within Part I and II require retrospective application. Management elected to early adopt the
provisions of Parts I and II of this new standard in 2015. Accordingly, these provisions were retrospectively applied in 2015.
|
3.
|
FAIR VALUE MEASUREMENTS
|
US GAAP for fair value measurements provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are described as follows:
|
|
•
|
|
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has
the ability to access. An active market for the asset or liability is a market in which the transaction for the asset or liability occurs with sufficient frequency and volume to provide pricing information on an ongoing basis.
|
9
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
3.
|
FAIR VALUE MEASUREMENTS (Continued)
|
|
|
•
|
|
Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability, or other inputs that are derived principally from or corroborated by observable market data by correlation or other
means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
|
|
|
•
|
|
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest
level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no
changes in the methodologies used at December 31, 2016 and 2015.
Registered Investment Companies
– The shares of registered investment companies are public investment vehicles valued at quoted market prices, which represent the net asset values of the shares held in such funds. Each of these funds is considered an open ended interest
in a registered investment company and valued using a market approach. Fair value is based on a daily net asset value that can be validated with a sufficient level of observable activity in an active market (i.e. purchases and sales at net asset
value) and therefore these interests in registered investment companies have been classified within Level 1 of the fair value hierarchy.
Common Stock
– The CONSOL Stock Fund is stated at fair value as quoted on a recognized securities exchange and is valued at the last reported sales price on the last business day of the
respective Plan year. As a result, the fair value measurement of this investment has been classified within Level 1 of the fair value hierarchy.
10
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
3.
|
FAIR VALUE MEASUREMENTS (Continued)
|
The preceding methods described may produce a fair value calculation
that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies
or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following tables set forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2016
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Registered Investment Companies
|
|
$
|
352,004,554
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
352,004,554
|
|
|
Common Stock
|
|
|
44,875,351
|
|
|
|
0
|
|
|
|
0
|
|
|
|
44,875,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at Fair Value
|
|
$
|
396,879,905
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
396,879,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2015
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Registered Investment Companies
|
|
$
|
370,171,115
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
370,171,115
|
|
|
Common Stock
|
|
|
22,597,843
|
|
|
|
0
|
|
|
|
0
|
|
|
|
22,597,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at Fair Value
|
|
$
|
392,768,958
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
392,768,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The availability of observable market data is monitored to assess the appropriate
classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances,
the transfer is reported at the beginning of the reporting period. For the year ended December 31, 2016, there were no such transfers in or out of Levels 1, 2 or 3.
11
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
4.
|
FULLY BENEFIT-RESPONSIVE INVESTMENT CONTRACT
|
The Plan invests in a Stable Value Fund (“SVF”), which represents a fully benefit-responsive investment
contract. The SVF represents 52% and 55% of the Plan’s total investments at December 31, 2016 and 2015, respectively. The Plan owns the individual investments of the SVF which consists of a short-term investment fund along with guaranteed
investment contracts (“GIC”), separate account portfolios (“SAP”), and synthetic GICs (“SYN”), all of which are held with multiple insurance companies and banks. GICs are comprised of assets held in the issuing
company’s general account and backed by the full faith and credit of the issuer. SAPs and SYNs are backed by underlying fixed income assets. The investment contracts are entered into based on an evaluation of the credit risk of the contract
issuers and/or third party guarantors. Collateral is generally not provided.
The composition of assets of the
SVF at contract value as of December 31, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Synthetic Guaranteed Investment Contracts
|
|
$
|
275,356,540
|
|
|
$
|
273,074,302
|
|
|
Separate Account Portfolios
|
|
|
117,277,607
|
|
|
|
165,202,635
|
|
|
Guaranteed Investment Contracts
|
|
|
25,665,413
|
|
|
|
25,240,789
|
|
|
U.S. Government Security Fund
|
|
|
5,615,674
|
|
|
|
18,389,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
423,915,234
|
|
|
$
|
481,907,200
|
|
|
|
|
|
|
|
|
|
|
|
The following disclosures provide information about the nature of the investments in the
SVF.
U.S. Government Security Fund
– This security is a short-term investment fund (i.e., money
market fund) designed to provide daily liquidity to the SVF.
Guaranteed Investment Contracts
–
The insurer maintains the assets (underlying portfolio owned by insurer) of the GIC in a general account, backed by the full faith and credit of the insurer. Regardless of the performance of the general account assets, a GIC will provide a fixed
rate of return as negotiated when the contract is purchased.
12
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
4.
|
FULLY BENEFIT-RESPONSIVE INVESTMENT CONTRACT (Continued)
|
Separate Account Portfolios
– SAPs are investment contracts
invested in insurance company separate accounts established for the sole benefit of SVF participants. SAPs are comprised of two components, an underlying pool of assets and a “wrap” contract. The insurer owns the individual underlying
assets and the wrap contract (similar to a GIC); however, the assets in a SAP are maintained in a separate account, fully fenced-off from the general assets of the insurer. The Plan participates in the underlying experience of the SAP via future
periodic rate resets.
Synthetic GICs
– SYNs are comprised of an underlying pool of assets (owned
by the Plan) and a “wrap” contract designed to provide principal protection and accrued interest over a specified period of time assuming that the underlying assets meet the requirements of a GIC. This pool of assets includes short-term
investment funds, liquid government or corporate debt securities, fixed income collective trusts, options and swap contracts.
SYNs within the SVF are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
Credit
Rating
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
SYNs (at Contract Value):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prudential Retirement Ins. & Annuity Co.
|
|
|
AAA
|
|
|
$
|
95,490,640
|
|
|
$
|
93,332,160
|
|
|
Voya Retirement Ins. & Annuity Co.
|
|
|
AA
|
|
|
|
27,559,224
|
|
|
|
31,145,086
|
|
|
Transamerica Premier Life Insurance Co.
|
|
|
AA
|
|
|
|
27,556,455
|
|
|
|
31,145,086
|
|
|
Voya Retirement Ins. & Annuity Co.
|
|
|
AA
|
|
|
|
62,378,914
|
|
|
|
58,725,985
|
|
|
Transamerica Premier Life Insurance Co.
|
|
|
AA
|
|
|
|
62,371,307
|
|
|
|
58,725,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SYNs (at Contract Value)
|
|
|
|
|
|
$
|
275,356,540
|
|
|
$
|
273,074,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract or crediting rates for GICs are negotiated with the issuer and are effective for
the life of the contract. The contract or crediting rates for SAPs and SYNs are reset periodically throughout the year and are based on the performance of the assets underlying the contracts. Inputs used to determine the crediting rate include each
contract’s portfolio market value of fixed income assets, current yield-to-maturity, duration, and market value relative to contract value. All contracts have a guaranteed rate of at least 0% or higher with respect to determining interest rate
resets.
13
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
4.
|
FULLY BENEFIT-RESPONSIVE INVESTMENT CONTRACT (Continued)
|
Traditional GICs expose the Plan through the SVF to direct credit risk
associated with each contract issuer. To mitigate this risk, investment guidelines prohibit the Plan from purchasing contracts from issuers with a credit rating lower than Aa3/AA. In addition, the weighted average credit rating of all GIC contracts
must be A3/A- or higher at all times and no single GIC issuer may represent more than 5% of the total SVF. Additionally, the Plan administrator and the Plan’s third party investment advisors continually monitor the issuers of these investments
through external credit rating agencies and monitor credit rating history, downgrade/upgrade notifications, and analyst reports for all current and potential issuers. There were no reserves against contract value for credit risk of the contract
issuers or otherwise.
Participants may ordinarily direct the withdrawal or transfer of all or a portion of
their SVF investment at contract value for Plan permitted benefit payments. Certain events may limit the ability of the Plan to transact at contract value with the issuer. Such events include amendments to Plan documents (including complete or
partial Plan termination or merger with another plan or distribution of any participant communication designed to induce participants to withdraw or otherwise transfer amounts from the SVF), changes to the Plan’s prohibition on competing
investment options or deletion of equity wash provisions, bankruptcy of the Company or other Plan sponsor events (i.e. divestitures or spin-offs of a subsidiary) which cause a significant withdrawal from the Plan, or failure of the Plan to qualify
for exemption from federal income taxes or any required prohibited transaction exemption under ERISA. The Plan administrator does not believe that the occurrence of any such event, which would limit the Plan’s ability to transact at contract
value with participants, is probable of occurring.
Based on certain events specified in the fully
benefit-responsive investment contracts (i.e. GICs, SAPs and SYNs), both the Plan and issuers of such investment contracts are permitted to terminate the investment contracts. If applicable, such terminations can occur prior to the scheduled
maturity date.
Examples of termination events that permit issuers to terminate investment contracts include
the following:
|
|
•
|
|
The Plan sponsor’s receipt of a final determination notice from the Internal Revenue Service (“IRS”) that the Plan does not qualify
under Section 401(a) of the Code.
|
|
|
•
|
|
The Plan ceases to be exempt from federal income taxation under section 501(a) of the Code.
|
14
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
4.
|
FULLY BENEFIT-RESPONSIVE INVESTMENT CONTRACT (Continued)
|
|
|
•
|
|
The Plan or its representative breaches material obligations under the investment contract such as failure to satisfy its fee payment obligations or
failure to follow the contract’s equity wash provisions.
|
|
|
•
|
|
The Plan or its representatives make a material misrepresentation, including acts of fraud or deceit, which affects the intent, structure, or risk
profile of the contract.
|
|
|
•
|
|
A material amendment is made to the Plan (including complete or partial termination or merger with another plan) and/or an amendment that adversely
impacts the issuer.
|
|
|
•
|
|
The Plan, without the issuer’s consent, attempts to assign its interest in the investment contract.
|
|
|
•
|
|
The balance of the contract value is zero or immaterial.
|
|
|
•
|
|
The termination event is not cured within a reasonable time period, i.e., 30 days.
|
For SAPs and SYNs, additional termination events include but are not limited to the following:
|
|
•
|
|
The investment manager of the underlying securities is replaced without prior written consent of the issuer.
|
|
|
•
|
|
The underlying securities are managed in a way that does not comply with the investment guidelines.
|
For GICs, the contract value is adjusted to reflect a discounted value based on surrender charges or other penalties at
termination. For SAPs and SYNs, termination is at market value of the underlying securities, less unpaid issuer fees or charges. If the termination event is not material based on industry standards, it may be possible for the Plan to exercise its
right to require the issuer that initiated the termination to extend the investment contract for a period no greater than what it takes to immunize the underlying securities and/or it may be possible to replace the issuer of a SAP or SYN that
terminates the contract with another SAP or SYN issuer. Both options help maintain stable contract value.
Participants investing in the SVF are assigned units at the time of investment based on the net asset value per unit.
15
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
The Plan obtained its latest determination letter from the IRS dated September 25, 2014, stating that the Plan was qualified under the Code and, therefore, the related trust is exempt from taxation.
Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. Although the Plan has been amended since receiving the determination letter, the Plan administrator believes that the Plan is designed, and is
currently being operated, in compliance with the applicable requirements of the Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
US GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the
Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2016 and 2015,
there are no uncertain positions taken, or expected to be taken, that would require recognition of a tax liability and related interest and penalties or disclosure in the financial statements. The Plan is subject to routine audits by taxing
jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for years prior to 2013.
|
6.
|
RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
|
The following is a reconciliation of net assets available for benefits per the financial statements at December 31,
2016 and 2015 to Form 5500:
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Net Assets Available for Benefits per the Financial Statements
|
|
$
|
849,383,122
|
|
|
$
|
896,137,088
|
|
|
Amounts Allocated to Withdrawing Participants
|
|
|
(183,641
|
)
|
|
|
(398,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets Available for Benefits per Form 5500
|
|
$
|
849,199,481
|
|
|
$
|
895,738,669
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of benefits paid to participants per the financial
statements for the year ended December 31, 2016 to Form 5500:
|
|
|
|
|
|
|
Benefits Paid to Participants per the Financial Statements
|
|
$
|
183,278,051
|
|
|
Amounts Allocated to Withdrawing Participants at December 31, 2016
|
|
|
183,641
|
|
|
Less
: Amounts Allocated to Withdrawing Participants at December 31, 2015
|
|
|
(398,419
|
)
|
|
|
|
|
|
|
|
Benefits Paid to Participants per Form 5500
|
|
$
|
183,063,273
|
|
|
|
|
|
|
|
16
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
6.
|
RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 (Continued)
|
Amounts allocated to withdrawing participants are recorded on the Form
5500 for benefit claims that have been processed and approved for payment prior to December 31, 2016 or 2015, but not yet paid as of that date.
|
7.
|
TRANSACTIONS WITH PARTIES-IN-INTEREST
|
Certain Plan investments, including several underlying SYN assets within the SVF, are managed by Bank of America. Bank of America is the trustee as defined by the Plan and, therefore, these transactions
qualify as those conducted with a party-in-interest to the Plan. In addition, other underlying SYN assets include funds managed by State Street Bank & Trust, one of the custodians of the Plan. The Plan also issues loans to participants,
which are secured by the participants’ account balances. Therefore, these transactions qualify as those conducted with a party-in-interest to the Plan.
Merrill Lynch, Pierce, Fenner, and Smith (“MLPF&S”), a subsidiary of Bank of America, provides certain administrative services to the Plan pursuant to a service agreement between the Company
and MLPF&S. MLPF&S receives revenue from mutual fund and SVF service providers for services MLPF&S provides to the funds. This revenue is used to offset certain amounts owed to MLPF&S for its administrative services to the Plan. If
the revenue received by MLPF&S from such fund service providers exceeds the amount owed under the service agreement, MLPF&S remits the excess to the Plan’s trust on a quarterly basis. Such amounts may be applied to pay Plan
administrative expenses or allocated to the accounts of Plan participants. Alternatively, the Plan or Company may make a payment to MLPF&S for administrative expenses not covered by revenue sharing. During 2016, $136,681 of excess revenue was
returned to the Plan’s trust. These fees qualify as party-in-interest transactions, which are exempt from the prohibited transaction rules of ERISA.
17
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
7.
|
TRANSACTIONS WITH PARTIES-IN-INTEREST (Continued)
|
One of the investment vehicles available to participants, the CONSOL
Stock Fund, contains stock of CONSOL Energy Inc. The Plan held 2,461,621 shares and 2,860,486 shares of CONSOL Energy Inc. common stock at December 31, 2016 and 2015, respectively, which represents approximately 5% and 3% of investments held by
the Plan. In addition, during 2016, the Plan purchased 986,587 shares of CONSOL Energy Inc. stock at an aggregate cost of $13,632,626 and sold 1,211,336 shares of CONSOL Energy Inc. stock for total proceeds of $16,948,068. The Plan received $28,946
in dividends on CONSOL Energy Inc. stock during 2016. Transactions in this investment qualify as party-in-interest transactions which are exempt from the prohibited transaction rules of ERISA.
Additionally, certain administrative functions of the Plan are performed by officers or employees of the Company. No such
officer or employee receives compensation from the Plan.
|
8.
|
RISKS AND UNCERTAINTIES
|
The Plan invests in various investment securities. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain
investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in
the financial statements.
18
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
Notes to Financial Statements
December 31, 2016 and
2015
|
8.
|
RISKS AND UNCERTAINTIES (Continued)
|
In accordance with the investment strategy of the Plan’s investment
contracts, the Plan’s investment manager may execute transactions in various financial instruments, including futures, interest rate swap contracts, and option contracts, that may give rise to varying degrees of off-balance-sheet market and
credit risk. These instruments can be executed on an exchange or negotiated in the over-the-counter market. Interest rate swap contracts involve an agreement to exchange periodic interest payment streams (fixed vs. variable) calculated on an agreed
upon periodic interest rate multiplied by a predetermined notional principal amount. Investments in financial futures contracts are solely for the purpose of hedging the Plan’s existing portfolios securities, or securities that the Plan intends
to purchase, against fluctuations in fair value caused by changes in prevailing market interest rates. Upon entering into a financial futures contract, the Plan is required to pledge to the broker an amount of cash, U.S. government securities, or
other assets equal to a certain percentage of the contract amount (initial margin deposit). Subsequent payments, known as margin variation, are made or received by the Plan each day, depending on the daily fluctuations in the fair value of the
underlying security. The Plan recognizes a gain or loss equal to the daily variation margin. If market conditions move unexpectedly, the Plan may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use
of future transactions involves the risk of imperfect correlation in movements in the price of futures contracts, interest rates, and the underlying hedged assets. As a writer of option contracts, the Plan receives a premium to become obligated to
buy or sell financial instruments for a period of time at the holder’s option. During this period, the Plan bears the risk of an unfavorable change in the market value underlying the option, but has no credit risk, as the counterparty has no
performance obligation to the Plan once it has paid its cash premium. The Plan’s investments in futures, interest rate swap contracts, and option contracts are insignificant to the financial statements for the years ended December 31, 2016
and 2015, respectively.
Market risk arises from the potential for changes in value of financial instruments
resulting from fluctuations in interest rates and in prices of debt and equity securities. The gross notional (or contractual) amounts used to express the volume of these transactions do not necessarily represent the amounts potentially subject to
market risk. In many cases, these financial instruments serve to reduce, rather than increase, the Plan’s exposure to losses from market and other risks. In addition, the measurement of market risk is meaningful only when all related and
offsetting transactions are identified. The Plan’s investment managers generally limit the Plan’s market risk by holding or purchasing offsetting positions.
19
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
SUPPLEMENTAL SCHEDULE