CNXC 6.30.15 10-Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM 10-Q
__________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-14901
__________________________________________________
CNX Coal Resources LP
(Exact name of registrant as specified in its charter)

Delaware
 
47-3445032
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1000 CONSOL Energy Drive
Canonsburg, PA 15317-6506
(724) 485-4000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
__________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  o    No  x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  x    No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  o    Accelerated filer  o    Non-accelerated filer  x    Smaller Reporting Company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o    No  x
CNX Coal Resources LP had 11,611,067 common units, 11,611,067 subordinated units and a 2% general partner interest outstanding at July 31, 2015.

 



EXPLANATORY NOTE
CNX Coal Resources LP (the “Partnership”) was formed by CONSOL Energy Inc. (“CONSOL Energy") in March 2015 as a Delaware limited partnership. The Partnership has a 20% undivided interest in the combined assets, liabilities, revenues and expenses of CONSOL Pennsylvania Coal Company LLC ("CPCC") and Conrhein Coal Company ("Conrhein"). CPCC and Conrhein's assets and associated liabilities consist of the (i) Pennsylvania mining complex located in southwestern Pennsylvania, comprised of the Bailey mine, Enlow Fork mine and Harvey mine; (ii) coal reserves and properties associated with the Pennsylvania mining complex and (iii) the preparation plant, facilities, equipment and other infrastructure associated with the Pennsylvania mining complex. The 20% undivided interest in the historical combined assets, liabilities, revenues and expenses of CPCC and Conrhein represents the Partnership’s predecessor for accounting purposes (the “Predecessor”). The accompanying financial statements and related notes include a 20% undivided interest in the assets, liabilities and results of operations of CPCC and Conrhein, presented on a proportionate basis, as of June 30, 2015 and December 31, 2014, and for the three and six months ended June 30, 2015 and 2014.
On July 7, 2015, the Partnership completed its initial public offering (“IPO”). The financial statements of CNX Coal Resources LP Predecessor included in this report reflect the predecessor financial statements which are based on the 20% undivided interest in the assets, liabilities and results of operations of CPCC and Conrhein.  The effects of the IPO and related equity transfers occurring in July 2015 are not reflected in these financial statements.
 
The results of the Predecessor for the six months ended June 30, 2015 are not indicative of the results of the Partnership expected over the next twelve month period. General and administrative expenses are expected to increase due to an estimated $2.4 million of incremental expenses associated with being a publicly traded partnership and increased corporate and management service expenses associated with operating the business on a standalone basis.
 
The Partnership believes that it will achieve the forecasted Adjusted EBITDA of $101.1 million and estimated cash available for distribution of $63.2 million targets for the twelve month period ending June 30, 2016 set forth in its Prospectus dated June 30, 2015 and filed with the Securities and Exchange Commission (SEC) on July 1, 2015. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


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TABLE OF CONTENTS

 
 
Page
 
Part I. Financial Information
 
 
 
 
Item I.
 
 
 
 
 
 
 
Notes to the Combined Financial Statements
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Part II. Other Information
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 4.
 
 
 
Item 6.
 
 
 
 


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PART I : FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
CNX COAL RESOURCES LP PREDECESSOR
COMBINED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(unaudited)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Coal Revenue
$
63,799

 
$
86,989

 
$
140,686

 
$
169,405

Freight Revenue
541

 
1,344

 
1,015

 
2,830

Other Income
135

 
6,911

 
351

 
7,211

Gain on Sale of Assets
10

 
9

 
25

 
117

Total Revenue and Other Income
64,485

 
95,253

 
142,077

 
179,563

 
 
 
 
 
 
 
 
Operating and Other Costs 1 
35,341

 
46,699

 
77,616

 
84,916

Royalties and Production Taxes
2,911

 
4,086

 
5,742

 
7,728

Selling and Direct Administrative Expenses 2
1,319

 
1,787

 
2,612

 
3,429

Depreciation, Depletion and Amortization
9,295

 
8,928

 
18,265

 
15,960

Freight Expense
541

 
1,344

 
1,015

 
2,830

General and Administrative ExpensesRelated Party
975

 
1,298

 
2,022

 
2,549

Other Corporate Expenses 3
1,799

 
1,747

 
2,771

 
4,423

Interest Expense 4
2,328

 
2,048

 
4,709

 
2,519

Total Costs
54,509

 
67,937

 
114,752

 
124,354

Net Income
$
9,976

 
$
27,316

 
$
27,325

 
$
55,209


1 Related Party of $1,004 and $4,182 for the three months ended and $1,788 and $7,036 for the six months ended June 30, 2015 and June 30, 2014, respectively.

2 Related Party of $1,137 and $1,615 for the three months ended and $2,263 and $3,119 for the six months ended June 30, 2015 and June 30, 2014, respectively.

3 Related Party of $1,771 and $1,702 for the three months ended and $2,698 and $4,328 for the six months ended June 30, 2015 and June 30, 2014, respectively.

4 Related Party of $2,433 and $2,358 for the three months ended and $4,840 and $4,687 for the six months ended June 30, 2015 and June 30, 2014, respectively.




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

4



CNX COAL RESOURCES LP PREDECESSOR
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net Income
$
9,976

 
$
27,316

 
$
27,325

 
$
55,209

Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
Actuarially Determined Long-Term Liability Adjustments
(387
)
 
(357
)
 
(1,389
)
 
(714
)
 
 
 
 
 
 
 
 
Other Comprehensive Income (Loss)
(387
)
 
(357
)
 
(1,389
)
 
(714
)
 
 
 
 
 
 
 
 
Comprehensive Income
$
9,589

 
$
26,959

 
$
25,936

 
$
54,495


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


5



CNX COAL RESOURCES LP PREDECESSOR
COMBINED BALANCE SHEETS
(Dollars in thousands)

 
(Unaudited)
 
 
 
June 30,
2015
 
December 31,
2014
ASSETS
 
 
 
Current Assets:
 
 
 
Cash
$
3

 
$
3

Other Receivables
1,486

 
384

Inventories
11,873

 
10,639

Prepaid Expenses
3,434

 
3,922

Total Current Assets
16,796

 
14,948

Property, Plant and Equipment:
 
 
 
Property, Plant and Equipment
701,568

 
686,593

Less—Accumulated Depreciation, Depletion and Amortization
305,566

 
287,707

Total Property, Plant and Equipment—Net
396,002

 
398,886

Other Assets:
 
 
 
Other
5,337

 
4,977

Total Other Assets
5,337

 
4,977

TOTAL ASSETS
$
418,135

 
$
418,811

LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts Payable
$
10,434

 
$
15,782

Current Portion of Long Term NotesRelated Party
44,479

 
17,931

Current Portion of Long Term DebtOther
338

 
330

Other Accrued Liabilities
39,182

 
35,502

Total Current Liabilities
94,433

 
69,545

Long-Term Debt:
 
 
 
Long-Term Notes PayableRelated Party
139,115

 
160,831

Advanced Royalty Commitments
278

 
278

Capital Lease Obligations
63

 
51

Total Long-Term Debt
139,456

 
161,160

Deferred Credits and Other Liabilities:
 
 
 
Postretirement Benefits Other Than Pensions

 
5,279

Pneumoconiosis Benefits
1,291

 
1,250

Asset Retirement Obligations
7,418

 
7,961

Workers’ Compensation
2,917

 
2,381

Other
639

 
609

Total Deferred Credits and Other Liabilities
12,265

 
17,480

TOTAL LIABILITIES
246,154

 
248,185

Invested Equity:
 
 
 
Parent Net Investment
142,003

 
139,259

Accumulated Other Comprehensive Income
29,978

 
31,367

Total Invested Equity
171,981

 
170,626

TOTAL LIABILITIES AND INVESTED EQUITY
$
418,135

 
$
418,811


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

6



CNX COAL RESOURCES LP PREDECESSOR
COMBINED STATEMENT OF NET INVESTMENT
(Dollars in thousands)

 
Parent Net Investment
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Total Invested Equity
December 31, 2014
$
139,259

 
$
31,367

 
$
170,626

(unaudited)
 
 
 
 
 
Net Income
27,325

 

 
27,325

Actuarially Determined Long-Term Liability Adjustments

 
(1,389
)
 
(1,389
)
Comprehensive Income (Loss)
27,325

 
(1,389
)
 
25,936

Net Change in Parent Advances
(24,581
)
 

 
(24,581
)
June 30, 2015
$
142,003

 
$
29,978

 
$
171,981


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

7



CNX COAL RESOURCES LP PREDECESSOR
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 
Six Months Ended June 30,
 
2015
 
2014
Cash Flows from Operating Activities:
 
 
 
Net Income
$
27,325

 
$
55,209

Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
 
 
 
Depreciation, Depletion and Amortization
18,265

 
15,960

Gain on Sale of Assets
(25
)
 
(117
)
Amortization of Mineral Leases
300

 
579

Changes in Operating Assets:
 
 
 
Other Receivables
(1,102
)
 
(6,815
)
Inventories
(1,234
)
 
1,017

Prepaid Expenses
488

 
1,170

Changes in Other Assets
(360
)
 
(898
)
Changes in Operating Liabilities:
 
 
 
Accounts Payable
(4,939
)
 
(1,110
)
Other Operating Liabilities
3,917

 
522

Changes in Other Liabilities
(4,075
)
 
(1,199
)
Other
(22
)
 
(225
)
Net Cash Provided by Operating Activities
38,538

 
64,093

Cash Flows from Investing Activities:
 
 
 
Capital Expenditures
(13,593
)
 
(45,809
)
Proceeds from Sales of Assets
45

 
15,200

Net Cash Used in Investing Activities
(13,548
)
 
(30,609
)
Cash Flows from Financing Activities:
 
 
 
Payments on Miscellaneous Borrowings
4,814

 
4,670

Net Change in Parent Advances
(29,804
)
 
(38,152
)
Net Cash Used In Financing Activities
(24,990
)
 
(33,482
)
Net Increase in Cash

 
2

Cash at Beginning of Period
3

 
3

Cash at End of Period
$
3

 
$
5


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

8



CNX COAL RESOURCES LP PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1—DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS:

Description of Business:

CNX Coal Resources LP (the “Partnership”) was formed by CONSOL Energy Inc. (“CONSOL Energy") in March 2015 as a Delaware limited partnership.  Upon completion of the Partnership’s initial public offering on July 7, 2015 (“IPO”), CONSOL Energy contributed to the Partnership a 20% undivided interest in the combined assets, liabilities, revenues and expenses of CONSOL Pennsylvania Coal Company LLC ("CPCC") and Conrhein Coal Company ("Conrhein"). CPCC and Conrhein's assets and associated liabilities consist of the (i) Pennsylvania mining complex located in southwestern Pennsylvania, comprised of the Bailey mine, Enlow Fork mine and Harvey mine; (ii) coal reserves and properties associated with the Pennsylvania mining complex and (iii) the preparation plant, facilities, equipment and other infrastructure associated with the Pennsylvania mining complex. The 20% undivided interest in the historical combined assets, liabilities, revenues and expenses of CPCC and Conrhein represents the Partnership’s predecessor for accounting purposes (the “Predecessor”). The accompanying financial statements and related notes include a 20% undivided interest in the assets, liabilities and results of operations of CPCC and Conrhein, presented on a proportionate basis, as of June 30, 2015 and December 31, 2014, and for the three and six months ended June 30, 2015 and 2014. As used in these financial statements, the terms "we," "our," "us," or like terms refer to the Predecessor with respect to its 20% undivided interest in CPCC and Conrhein's combined assets, liabilities, revenues and expenses. References in these financial statements to "CONSOL Energy" refer collectively to CONSOL Energy Inc. and its consolidated subsidiaries, other than the Predecessor.

Basis of Presentation:

The accompanying Unaudited Combined Financial Statements were prepared from separate records maintained by CONSOL Energy, CPCC and Conrhein and may not necessarily be indicative of the conditions that would have existed, or the results of operations, if CPCC and Conrhein had been operated as unaffiliated entities. These Unaudited Combined Financial Statements were prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP 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 of the Predecessor for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for future periods.

The balance sheet at December 31, 2014 has been derived from the Audited Combined Financial Statements at that date but does not include all the notes required by U.S. GAAP for complete financial statements. For further information, refer to the Combined Financial Statements and related notes for the year ended December 31, 2014 included in the Predecessor’s prospectus dated June 30, 2015 and filed with the SEC on July 1, 2015 pursuant to Rule 424(b)(4) of the Securities Act of 1933, as amended (the "Prospectus").

As these Unaudited Combined Financial Statements represent the combination of two separate legal entities wholly owned by CONSOL Energy, the net assets of the Predecessor have been presented as a Parent Net Investment. Parent Net Investment is primarily comprised of the Predecessor’s undivided interest in (i) CONSOL Energy’s initial investment in CPCC and Conrhein(and any subsequent adjustments thereto); (ii) the accumulated net earnings; (iii) net transfers to or from CONSOL Energy, including those related to cash management functions performed by CONSOL Energy; (iv) non-cash changes in financing arrangements, including the conversion of certain related party liabilities into Parent Net Investment; and (v) corporate cost allocations. Transactions between the Predecessor and CONSOL Energy or CONSOL Energy’s other subsidiaries have been identified in the financial statements as transactions between related parties.










9



Other Comprehensive Income:

Changes in Accumulated Other Comprehensive Income by component were as follows:
 
Postretirement Benefits
Balance at December 31, 2014
$
31,367

Other comprehensive income before reclassifications
3,842

Amounts reclassified from accumulated other comprehensive income
(5,231
)
Other comprehensive income
(1,389
)
Balance at June 30, 2015
$
29,978


The following table shows the reclassification of adjustments out of Accumulated Other Comprehensive Income:
 
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Actuarially Determined Long-Term Liability Adjustments
 
 
 
 
 
 
 
Amortization of prior service costs
$
(4,853
)
 
$
(466
)
 
$
(6,167
)
 
$
(933
)
Recognized net actuarial loss
623

 
109

 
936

 
219

Total
$
(4,230
)
 
$
(357
)
 
$
(5,231
)
 
$
(714
)

Recent Accounting Pronouncements:

In February 2015, the Financial Accounting Standards Board ("FASB") issued Update 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis. The objective of the amendments in this update is to change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this update affect the following areas: (1) limited partnerships and similar legal entities; (2) evaluating fees paid to a decision maker or a service provider as a variable interest; (3) the effect of fee arrangements on the primary beneficiary determination; (4) the effect of related parties on the primary beneficiary determination; and (5) certain investment funds. Current U.S. GAAP includes different requirements for performing a consolidation analysis if, among other factors, the entity under evaluation is any one of the following: (1) a legal entity that qualifies for the indefinite deferral of Statement 167; (2) a legal entity that is within the scope of Statement 167; and (3) a limited partnership or similar legal entity that is considered a voting interest entity. Under the amendments in this update, all reporting entities are within the scope of Subtopic 810-10, Consolidation-Overall, including limited partnerships and similar legal entities, unless a scope exception applies. The presumption that a general partner controls a limited partnership has been eliminated. Overall, the amendments in this update are an improvement to current U.S. GAAP because they simplify the Codification and reduce the number of consolidated models through the elimination of the indefinite deferral of Statement 167 and because they place more emphasis on risk of loss when determining a controlling financial interest. The amendments in this update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. Management is currently evaluating the impact this guidance may have on the Predecessor's financial statements.

In April 2015, the FASB issued update 2015-03 - Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This update is part of the FASB's initiative to reduce complexity in accounting standards (the Simplification Initiative). The FASB received feedback that having different balance sheet presentation requirements for debt issuance costs and debt discounts and premiums creates unnecessary complexity. Recognizing debt issuance costs as a deferred charge (that is, an asset) also is different from the guidance in International Financial Reporting Standards ("IFRS"), which requires that transaction costs be deducted from the carrying value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuance costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, Elements of Financial Statements, which states that debt issuance costs are similar to debt discounts and in effect reduce the

10



proceeds of borrowing, thereby increasing the effective interest rate. Concepts Statement 6 further states that debt issuance costs cannot be an asset because they provide no future economic benefit. To simplify the presentation of debt issuance costs, the amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments in this update is permitted for financial statements that have not been previously issued. Management believes adoption of this new guidance will not have a material impact on the Predecessor's financial statements.

In April 2015, the FASB issued update 2015-06 - Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions. When a general partner transfers (or “drops down”) net assets to a master limited partnership and that transaction is accounted for as a transaction between entities under common control, the statements of operations of the master limited partnership are adjusted retrospectively to reflect the dropdown transaction as if it occurred on the earliest date during which the entities were under common control. The objective of this update is to address the diversity in practice in relation to presentation of historical earnings per unit for periods before the date of a dropdown transaction that occurs after formation of a master limited partnership. Some reporting entities recalculate previously reported earnings per unit by allocating the earnings (losses) of the transferred business that occurred in periods before the date of the dropdown transaction to the general partner, limited partners, and incentive distribution rights holders on a hypothetical basis and treat their rights to those earnings (losses) in a manner that is consistent with their contractual rights immediately after the dropdown transaction has occurred. Other reporting entities allocate the earnings (losses) of the transferred business that occurred in periods before the date of the dropdown transaction entirely to the general partner and do not adjust previously reported earnings per unit of the limited partners. The amendments in this update specify that for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a dropdown transaction should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the dropdown transaction occurs for purposes of computing earnings per unit under the two-class method also are required. The amendments in this Update should be applied retrospectively for all financial statements presented and are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Earlier adoption is permitted. Management believes adoption of this new guidance will not have a material impact on the Predecessor's financial statements.
In May 2014, the FASB issued Update 2014-09 - Revenue from Contracts with Customers (Topic 606). The objective of the amendments in this update is to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and IFRS. The guidance in this update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should disclose sufficient information, both qualitative and quantitative, to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. Management is currently evaluating the impact this guidance may have on the Predecessor's financial statements.

NOTE 2—INITIAL PUBLIC AND CONCURRENT PRIVATE PLACEMENT OFFERING:

The Transaction

On July 1, 2015, the Partnership’s common units began trading on the New York Stock Exchange under the ticker symbol “CNXC”. On July 7, 2015, the Partnership completed the IPO. In connection with the IPO and the Concurrent Private Placement (described below), we:

issued 1,050,000 common units (including 188,933 common units issued upon the expiration of the underwriters' option to purchase additional common units), and 11,611,067 subordinated units to CONSOL Energy, representing a 53.4% limited partner interest in us, and issued a 2.0% general partner interest in us and all of our incentive distribution rights to our general partner;


11


issued 5,000,000 common units to Greenlight Capital, representing a 21.1% limited partner interest in us (the "Concurrent Private Placement"), and distributed the proceeds to CONSOL Energy;

issued 5,561,067 common units (including 561,067 common units issued upon the partial exercise by the underwriters' of their option to purchase additional common units) to the public, representing a 23.5% limited partner interest in us;

entered into a new $400,000 revolving credit facility and made an initial draw of $200,000, the net proceeds of which was distributed to CONSOL Energy at the completion of the IPO; and

entered into an operating agreement, employee services agreement, contract agency agreement, terminal and throughput agreement, cooperation and safety agreement, water supply and services agreement, omnibus agreement and contribution agreement with CONSOL Energy.

Concurrent Private Placement

In connection with the IPO, Greenlight Capital and certain of its affiliates entered into a common unit purchase agreement with us to purchase 5,000,000 common units at a price per unit equal to $15.00 equating to $75,000 in gross proceeds. In connection with our issuance and sale of common units pursuant to the Concurrent Private Placement, we relied upon the “private placement” exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(a)(2) thereof and, accordingly, the common units issued to Greenlight Capital were not registered under the Securities Act. We distributed all of the proceeds from the Concurrent Private Placement to CONSOL Energy.

Initial Public Offering

As part of the IPO, we sold 5,000,000 common units to the public at a price per unit equal to $15.00 ($14.10 per unit net of underwriting discount) equating to gross proceeds of $75,000. After the deduction of the underwriting discount and structuring fees of $5,500 and offering expenses of approximately $3,634, the net proceeds contributed to the Partnership were approximately $65,866. We granted the underwriters a 30-day option to purchase up to 750,000 common units from us at the IPO price, less the underwriter discount, if the underwriters sold more than 5,000,000 common units. The underwriters partially exercised this option and sold and additional 561,067 common units to the public at $15.00 ($14.10 per unit net of underwriting discount) equating to additional net proceeds of $7,911. We distributed $66,777 of net proceeds from the IPO to CONSOL Energy. We also issued the remaining 188,933 common units that the underwriters did not exercise their option on to CONSOL Energy.

Revolving Credit Facility

In connection with the IPO, we entered into a new $400,000 senior secured revolving credit facility with certain lenders and PNC Bank, National Association, as administrative agent (“PNC”). Obligations under our new revolving credit facility are guaranteed by certain of our subsidiaries (the“guarantor subsidiaries”) and are secured by substantially all of our and our subsidiaries’ assets pursuant to a security agreement and various mortgages.

Borrowings under our revolving credit facility may be used by us to fund cash distributions, pay fees and expenses related to our new revolving credit facility and for general partnership purposes. In connection with the completion of the IPO and our entry into our new revolving credit facility, we made an initial draw of $200,000 and paid $3,000 in origination fees with net proceeds of $197,000 to be distributed to CONSOL Energy.

Use of Proceeds

In connection with the IPO, we used the net proceeds from the IPO, the proceeds from the Concurrent Private Placement and net borrowings under our new revolving credit facility to make a distribution of approximately $338,777 to CONSOL Energy. Based on the initial public offering price of $15.00 per common unit, the aggregate value of the common units and subordinated units that were issued to CONSOL Energy in connection with the completion of the IPO was approximately $189,916.




12



NOTE 3—ACQUISITIONS AND DISPOSITIONS:

In March 2014, the Predecessor completed a sale-leaseback of longwall shields for the Harvey mine. Cash proceeds for the sale offset the basis of $15,071; therefore, no gain or loss was recognized on the sale. The five-year lease has been accounted for as an operating lease.
NOTE 4—OTHER INCOME:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Right of Way Sales
$
72

 
$
31

 
$
227

 
$
291

Rental Income
63

 
25

 
119

 
65

Source Water Sales

 

 
5

 

Coal Contract Buyout

 
6,000

 

 
6,000

Litigation

 
855

 

 
855

Total Other Income
$
135

 
$
6,911

 
$
351

 
$
7,211

NOTE 5—INVENTORIES:
 
June 30,
2015
 
December 31,
2014
Coal
$
2,896

 
$
1,718

Supplies
8,977

 
8,921

      Total Inventories
$
11,873

 
$
10,639


Inventories are stated at the lower of cost or market. The cost of coal inventories is determined by the first-in, first-out (FIFO) method. Coal inventory costs include labor, supplies, equipment costs, operating overhead, depreciation, depletion and amortization, and other related costs.
NOTE 6—PROPERTY, PLANT AND EQUIPMENT:

 
June 30,
2015
 
December 31,
2014
Coal and other plant and equipment
$
454,907

 
$
441,933

Coal properties and surface lands
108,343

 
107,158

Airshafts
69,164

 
68,855

Mine development
65,234

 
65,340

Coal advance mining royalties
3,920

 
3,307

Total property, plant and equipment
701,568

 
686,593

Less: Accumulated depreciation, depletion and amortization
305,566

 
287,707

Total Net Property, Plant and Equipment
$
396,002

 
$
398,886


Coal reserves are controlled either through fee ownership or by lease. The duration of the leases vary; however, the lease terms generally are extended automatically to the exhaustion of economically recoverable reserves, as long as active mining continues. Coal interests held by lease provide the same rights as fee ownership for mineral extraction and are legally considered real property interests.

As of June 30, 2015 and December 31, 2014, plant and equipment includes gross assets under capital lease of $382 and $333, respectively. Accumulated amortization for capital leases was $281 and $252 at June 30, 2015 and December 31, 2014, respectively. Amortization expense for assets under capital leases approximated $7 and $4 for the three months ended and $13 and $7 for the six months ended June 30, 2015 and June 30, 2014, respectively, and is included in Depreciation, Depletion and Amortization in the accompanying Combined Statements of Operations.

13



NOTE 7—OTHER ACCRUED LIABILITIES:

 
June 30,
2015
 
December 31, 2014
Subsidence liability
$
22,656

 
$
20,854

Accrued payroll and benefits
3,577

 
3,253

Deferred Revenue
2,241

 
286

Equipment Lease Rental
1,953

 
1,948

Litigation
1,710

 
2,346

Short-term incentive compensation
373

 
1,103

Other
1,834

 
1,955

Current portion of long-term liabilities:
 
 
 
Postretirement benefits other than pensions
2,507

 
1,540

Workers' Compensation
1,025

 
922

Asset retirement obligations
1,168

 
1,150

Long-term disability
116

 
121

Pneumoconiosis benefits
22

 
24

Total Other Accrued Liabilities
$
39,182

 
$
35,502

NOTE 8—DEBT:
 
June 30,
2015
 
December 31,
2014
CONSOL Financial Inc. Loan (5.27% weighted average interest rate at June 30, 2015 and 5.46% weighted average interest rate at December 31, 2014)
$
183,594

 
$
178,762

Advance royalty commitments (7.91% weighted average interest rate for June 30, 2015 and December 31, 2014)
578

 
578

 
184,172

 
179,340

Less amounts due in one year *
44,779

 
18,231

Long-Term Debt
$
139,393

 
$
161,109

___________
*Excludes current portion of Capital Lease Obligations of $38 and $30 at June 30, 2015 and December 31, 2014, respectively.

The CONSOL Financial Inc. Loan represents multiple 10-year term notes at the applicable federal rates upon execution, which are due at various future dates.

On March 9, 2015, CPCC and Conrhein entered into a $600,000 commitment for a senior secured term loan facility of which the Predecessor would be liable for 20%. If drawn, the maturity date of the term loan facility would have been March 9, 2018 and the facility would have been secured by the thermal coal assets related to CONSOL Energy’s existing Pennsylvania operations along with CONSOL Energy providing a guarantee to the lenders and a pledge of its equity interests in CPCC and Conrhein. The term loan commitment expired on the consummation of the IPO. We have recorded $900 within Other Receivables on the combined balance sheets as of June 30, 2015, to capture the financing charges expected to be reimbursed from the lenders.

14



NOTE 9—COMPONENTS OF OTHER POST-EMPLOYMENT BENEFIT (OPEB) PLANS NET PERIODIC BENEFIT COSTS:

Components of net periodic benefit costs for the three and six months ended June 30, 2015 and 2014 are as follows:
 
Other Post-Employment Benefits
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Service cost
$

 
$
185

 
$

 
$
371

Interest cost
18

 
352

 
47

 
704

Amortization of prior service credits
(4,853
)
 
(466
)
 
(6,167
)
 
(933
)
Recognized net actuarial loss
635

 
160

 
959

 
320

Net periodic benefit cost
$
(4,200
)
 
$
231

 
$
(5,161
)
 
$
462


On May 31, 2015, the Salaried OPEB and Production and Maintenance (P&M) OPEB plans were remeasured to reflect an announced plan amendment. Retirees will continue in the Salaried and P&M OPEB plans until December 31, 2015, and coverage thereafter will be eliminated. The amendment to the OPEB plan resulted in a reduction in the OPEB liability and an increase in Other Comprehensive Income of $3,771.

The Predecessor does not expect to contribute to the other post-employment benefit plan in 2015 as it intends to pay benefit claims as they become due. For the six months ended June 30, 2015, $241 of other post-employment benefits have been paid.
NOTE 10—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:

Components of net periodic benefit costs for the three and six months ended June 30, 2015 and 2014 are as follows:

 
CWP
 
Workers' Compensation
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost
$
51

 
$
175

 
$
102

 
$
350

 
$
331

 
$
360

 
$
662

 
$
720

Interest cost
13

 
43

 
26

 
86

 
29

 
37

 
58

 
74

Amortization of actuarial gain
(14
)
 
(48
)
 
(28
)
 
(96
)
 

 
(4
)
 

 
(8
)
State administrative fees and insurance bond premiums

 

 

 

 
120

 
123

 
240

 
246

Net periodic benefit cost
$
50

 
$
170

 
$
100

 
$
340

 
$
480

 
$
516

 
$
960

 
$
1,032


The Predecessor does not expect to contribute to the CWP plan in 2015 as it intends to pay benefit claims as they become due. For the six months ended June 30, 2015, $175 of CWP benefit claims have been paid.

The Predecessor does not expect to contribute to the workers’ compensation plan in 2015 as it intends to pay benefit claims as they become due. For the six months ended June 30, 2015, $658 of workers’ compensation benefits, state administrative fees and surety bond premiums have been paid.

15



NOTE 11—FAIR VALUE OF FINANCIAL INSTRUMENTS:

The Predecessor 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 LIBOR-based discount rates), while unobservable inputs reflect the Predecessor's own assumptions of what market participants would use.

The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below.

Level One - Quoted prices for identical instruments in active markets.

Level Two - The fair value of the assets and liabilities included in Level 2 are based on standard industry income approach models that use significant observable inputs, including LIBOR-based discount rates.

Level Three - Unobservable inputs significant to the fair value measurement supported by little or no market activity. The significant unobservable inputs used in the fair value measurement of the Predecessor's third party guarantees are the credit risk of the third party and the third party surety bond markets.

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

Long-term debt: The fair value of long-term debt is measured using unadjusted quoted market prices or estimated using discounted cash flow analyses. The discounted cash flow analyses are based on current market rates for instruments with similar cash flows.

The carrying amounts and fair values of financial instruments for which the fair value option was not elected are as follows:
 
June 30, 2015
 
December 31, 2014
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Long-term debt
$
183,594

 
$
160,805

 
$
178,762

 
$
159,109

The Predecessor’s debt obligations are valued through reference to the applicable underlying benchmark rate and, as a result, constitute Level 2 fair value measurements.
NOTE 12—COMMITMENTS AND CONTINGENT LIABILITIES:

The Predecessor is subject to various lawsuits and claims with respect to such matters as personal injury, wrongful death, damage to property, exposure to hazardous substances, governmental regulations (including environmental remediation), employment and contract disputes and other claims and actions arising out of the normal course of business. We accrue the estimated loss for these lawsuits and claims when the loss is probable and can be estimated. Our 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 the Predecessor, and there are no material pending claims that would require disclosure in the financial statements individually or in the aggregate. 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 the Predecessor; however, such amount cannot be reasonably estimated.

Clean Water Act - Bailey Mine. The Company received from the U.S. Environmental Protection Agency (the "EPA") on April 8, 2011, a request for information relating to NPDES Permit compliance at the Partnership’s Bailey and Enlow Fork Mines. In response, CPCC submitted water discharge monitoring and other data to the EPA. The investigation has focused primarily on exceedances at three discharge points: Pond 12, Pond 2 and Pond 13. In early 2013, the case was referred to the U.S. Department of Justice (the "DOJ"), and PA DEP also became involved. On December 18, 2014, the DOJ provided the

16



Predecessor a proposed Consent Decree to resolve certain Clean Water Act and Clean Streams Law claims against CONSOL Energy and CPCC with respect to the Bailey Mine. The parties continue to negotiate the terms of the proposed Consent Decree. The Predecessor has established an accrual to cover its estimated liability in this matter. This accrual is immaterial to the overall financial position of the Predecessor and was included in Other Accrued Liabilities on the Consolidated Balance Sheets.

At June 30, 2015, the Predecessor is contractually obligated to CONSOL Energy for the following financial guarantees, unconditional purchase obligations and letters of credit to certain third parties, as described by major category in the following table. Letters of credit to third parties, reflected below, were issued by CONSOL Energy on behalf of the Predecessor under the centralized treasury function. These amounts represent the maximum potential total of future payments that we could be required to make under these instruments. These amounts have not been reduced for potential recoveries under recourse or collateralization provisions. Generally, recoveries under reclamation bonds would be limited to the extent of the work performed at the time of the default. No amounts related to these financial guarantees and letters of credit are recorded as liabilities on the financial statements. The Predecessor’s management believes that these guarantees will expire without being funded, and therefore the commitments will not have a material adverse effect on the financial condition of the Predecessor.

 
Amount of Commitment
Expiration Per Period
 
Total
Amounts
Committed
 
Less Than
1  Year
 
1-3 Years
 
3-5 Years
 
Beyond
5  Years
Letters of Credit:
 
 
 
 
 
 
 
 
 
Employee-related
$
4,001

 
$

 
$
4,001

 
$

 
$

Environmental
852

 
752

 
100

 

 

Total Letters of Credit
4,853

 
752

 
4,101

 

 

Surety Bonds:
 
 
 
 
 
 
 
 
 
Employee-related
14,600

 
14,600

 

 

 

Environmental
46,733

 
46,733

 

 

 

Other
1,209

 
1,184

 
25

 

 

Total Surety Bonds
62,542

 
62,517

 
25

 

 

Total Commitments
$
67,395

 
$
63,269

 
$
4,126

 
$

 
$


Employee-related financial guarantees have primarily been provided to support various state workers’ compensation self-insurance programs. Environmental financial guarantees have primarily been provided to support various performance bonds related to reclamation and other environmental issues. Other guarantees have been extended to support insurance policies, legal matters, full and timely payments of mining equipment leases, and various other items necessary in the normal course of business.

The Predecessor enters into long-term unconditional purchase obligations. These purchase obligations are not recorded on the Combined Balance Sheet. As of June 30, 2015, the purchase obligations for each of the next five years and beyond were as follows:

Obligations Due
Amount
Less than 1 year
$
2,691

1 - 3 years

3 - 5 years

More than 5 years

Total Purchase Obligations
$
2,691


17



NOTE 13RELATED PARTY:

The Combined Statements of Operations include expense allocations for certain corporate functions historically performed by CONSOL Energy, including allocations of general corporate expenses related to stock based compensation, legal, treasury, human resources, information technology and other administrative services. Those allocations were based primarily on specific identification, head counts and coal tons produced. Also, centralized cash management activities for CONSOL Energy were utilized for collections and payments related to normal course of business accounts receivable and payments for goods and services. The balance of receivable/payable from CONSOL Energy and other affiliates are presented as contributions/distributions in these combined financial statements. Management believes the assumptions underlying the Combined Financial Statements, including the assumptions regarding allocating general corporate expenses from CONSOL Energy are reasonable. Nevertheless, these statements may not include all of the actual expenses that would have been incurred by the Predecessor and may not reflect our Combined Statement of Operations, Balance Sheets and Cash Flows had we been a stand-alone company during the periods presented. Actual costs that would have been incurred if the Predecessor had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

We believe that transactions with related parties, other than certain transactions with CONSOL Energy related to administrative services, were conducted on terms comparable to those with unrelated parties.

Purchases of supply inventory from Fairmont Supply Company, formerly a wholly owned subsidiary of CONSOL Energy, were approximately $2,297 and $4,589 for the three and six months ended June 30, 2014, and are included in Operating and Other Costs in the accompanying Combined Statements of Operations. On December 12, 2014, Fairmont Supply was no longer a related party.

Charges for services from CONSOL Energy include the following:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Operating and Other Costs
$
1,004

 
$
1,885

 
$
1,788

 
$
2,447

Selling and Direct Administrative Expenses
1,137

 
1,615

 
2,263

 
3,119

General and Administrative Expenses - Related Party
975

 
1,298

 
2,022

 
2,549

Other Corporate Expenses - Related Party
1,771

 
1,702

 
2,698

 
4,328

Total Service from CONSOL Energy
$
4,887

 
$
6,500

 
$
8,771

 
$
12,443


The Predecessor has several related party long-term notes with CONSOL Financial Inc., a wholly owned subsidiary of CONSOL Energy, that are disclosed within Note 8 - Debt. Payments for these notes were $13,592 and $4,680 for the three and six months ended June 30, 2015 and June 30, 2014, respectively. Proceeds from additional notes were $13,592 and $4,680 for the three and six months ended June 30, 2015 and June 30, 2014, respectively. Interest Expense related to these notes were $2,433 and $2,358 for the three months ended and $4,840 and $4,687 for the six months ended June 30, 2015 and June 30, 2014, respectively. These costs are included in Interest Expense in the accompanying Combined Statements of Operations.

18



NOTE 14—SUBSEQUENT EVENTS:

Initial Public Offering and Concurrent Private Placement:

In connection with the completion of the IPO and the Concurrent private Placement, we:

issued 1,050,000 common units (including 188,933 common units issued upon the expiration of the underwriters’ option to purchase additional common units) and 11,611,067 subordinated units to CONSOL Energy, representing a 53.4% limited partner interest in us, and issued a 2.0% general partner interest in us and all of our incentive distribution rights to our general partner;

issued 5,000,000 common units to Greenlight Capital in the Concurrent Private Placement and distributed $75,000 to CONSOL Energy in July 2015;

issued 5,561,067 common units (including 561,067 common units issued upon the partial exercise by the underwriters' of their option to purchase additional common units) to the public and distributed $66,777 to CONSOL Energy in July 2015, net of cash retained by the Partnership;

entered into a new $400,000 revolving credit facility and distributed $197,000 in July 2015, net of the fees, to CONSOL Energy; and

entered into an operating agreement, employee services agreement, contract agency agreement, terminal and throughput agreement, cooperation and safety agreement, water supply and services agreement, omnibus agreement and contribution agreement with CONSOL Energy.

General:

Subsequent events have been evaluated for disclosure through the issuance date of these interim combined financial statements. There have been no other subsequent events to disclose as of this date.





19



ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of the financial condition and results of operations of our Predecessor in conjunction with the historical unaudited financial statements and notes of our Predecessor as of and for the three and six months ended June 30, 2015 and 2014. Among other things, those historical and unaudited financial statements include more detailed information regarding the basis of presentation for the following information. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those described in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth in the Partnership's prospectus dated June 30,2015 and filed with the SEC on July 1, 2015.

Unless otherwise indicated, the following discussion of the financial condition and results of operations of our Predecessor reflect a 20% undivided interest in the assets, liabilities and results of operations of the Pennsylvania mining complex. As used in the following discussion of the financial condition and results of operations of our Predecessor, the terms “we,” “our,” “us,” or like terms refer to the Predecessor with respect to its 20% undivided interest in the Pennsylvania mining complex’s combined assets, liabilities revenues and costs.

Overview

We are a growth-oriented master limited partnership recently formed by CONSOL Energy to manage and further develop all of its thermal coal operations in Pennsylvania. Our initial assets include a 20% undivided interest in, and operational control over, CONSOL Energy's Pennsylvania mining complex, which consists of three underground mines and related infrastructure that produce high-Btu bituminous thermal coal that is sold primarily to electric utilities in the eastern United States, our core market. We believe that our ability to efficiently produce and deliver large volumes of high-quality coal at competitive prices, the strategic location of our mines, the industry experience of our management team and our relationship with CONSOL Energy position us as a leading producer of high-Btu thermal coal in the Northern Appalachian Basin and the eastern United States.

How We Evaluate Our Operations

Our management intends to use a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include: (i) coal production, sales volumes and average sales price, which drive coal sales revenue; (ii) cost of coal sold, a non-GAAP financial measure; (iii) Adjusted EBITDA, a non-GAAP financial measure and (iv) distributable cash flow, a non-GAAP financial measure.

Coal Production, Sales Volumes and Sales Price

We evaluate our operations based on the volume of coal we can safely produce in compliance with regulatory standards, the volume of coal we sell and the prices we receive for our coal. Our coal production, sales volume and sales prices are largely dependent upon the terms of our multi-year coal sales contracts. The volume of coal we sell is also a function of the pricing environment in the domestic and international thermal and metallurgical coal markets.

We evaluate the price we receive for our coal on an average sales price per ton basis. Our average sales price per ton represents our coal sales revenue divided by total tons of coal sold. The following table provides operational data with respect to our coal sales volume and average prices per ton for the Pennsylvania mining complex in both a 100% basis and our 20% undivided interest for the periods indicated:



20


 
100% Basis for the Three Months Ended June 30,
 
20% Undivided Interest for the Three Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(tons in millions)
Tons of coal produced
5.9

 
6.9

 
1.2

 
1.4

Tons of coal sold
5.7

 
7.0

 
1.1

 
1.4

Tons sold under multi-year sales contracts (1)
4.6

 
3.9

 
0.9

 
0.8

Average sales price per ton
$
56.21

 
$
61.47

 
$
56.21

 
$
61.47

(1) Contracts over one year in duration
    
 
100% Basis for the Six Months Ended June 30,
 
20% Undivided Interest for the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(tons in millions)
Tons of coal produced
12.4

 
13.3

 
2.5

 
2.7

Tons of coal sold
12.2

 
13.4

 
2.4

 
2.7

Tons sold under multi-year sales contracts (1)
8.7

 
7.9

 
1.7

 
1.6

Average sales price per ton
$
57.61

 
$
62.98

 
$
57.61

 
$
62.98

(1) Contracts over one year in duration

We seek to minimize our direct commodity price exposure and maintain stable cash flows by generating a substantial portion of our revenues from multi-year, committed and priced sales contracts with well-established, creditworthy customers. We intend to further enhance our already strong contract portfolio by focusing on our existing high-quality customer base and extending the duration of our multi-year sales contracts. We believe our multi-year sales contracts provide significant revenue visibility and facilitate our ability to generate stable and consistent cash flows. The average term of our sales contracts is between one to three years, and we have several multi-year sales contracts with terms over four years.

Cost of Coal Sold

We evaluate our cost of coal sales on a cost per ton basis. Our cost of coal sold per ton represents our costs divided by the tons of coal we sell. Our costs include labor, supplies, utilities, operating lease expenses, repairs and maintenance, direct administrative expenses, selling expenses, royalties, production taxes and depreciation, depletion and amortization costs, as well as coal inventory fluctuations, both volume and price. Our costs exclude any indirect costs such as general and administrative costs and other costs not directly attributable to the production of coal. Please read “Results of Operations” for more information about the cost of coal sold per ton.

We define cost of coal sold as operating and other production costs related to produced tons sold, along with changes in coal inventory, both in volumes and carrying values. The cost of coal sold per ton includes items such as direct operating costs, royalty and production taxes, direct administration and selling expenses, and depreciation, depletion and amortization costs. Cost of coal sold is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:

• our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure;

• the ability of our assets to generate sufficient cash flow to make distributions to our partners;

• our ability to incur and service debt and fund capital expenditures; and

• the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that the presentation of cost of coal sold in this report provides information useful to investors in assessing our financial condition and results of operations. The GAAP measure most directly comparable to cost of coal sold is total costs. Cost of coal sold should not be considered an alternative to total costs or any other measure of financial performance or

21


liquidity presented in accordance with GAAP. Cost of coal sold excludes some, but not all, items that affect net income or net cash, and these measures may vary from those of other companies. As a result, cost of coal sold as presented below may not be comparable to similarly titled measures of other companies.

The following table presents a reconciliation of cost of coal sold to total costs, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated.

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Total Costs
$
54,509

 
$
67,937

 
$
114,752

 
$
124,354

Interest expense
(2,328
)
 
(2,048
)
 
(4,709
)
 
(2,519
)
Other corporate expense
(1,799
)
 
(1,747
)
 
(2,771
)
 
(4,423
)
General and administrative expenses
(975
)
 
(1,298
)
 
(2,022
)
 
(2,549
)
Freight Expense
(541
)
 
(1,344
)
 
(1,015
)
 
(2,830
)
Depreciation. depletion and amortization (non-production)
(574
)
 
(478
)
 
(1,099
)
 
(981
)
Other costs (non-production)
1,950

 
(1,941
)
 
2,963

 
(624
)
Cost of coal sold
$
50,242

 
$
59,081

 
$
106,099

 
$
110,428


Average Cash Margin Per Ton

We define average cash margin per ton as (i) average coal revenue per ton, net of average cost of coal sold per ton, depreciation, depletion and amortization, as adjusted for (ii) non-production related costs. Average cash margin per ton is an operating ratio derived from non-GAAP measures used by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:

our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure;
the ability of our assets to generate sufficient cash flow to make distributions to our partners;
our ability to incur and service debt and fund capital expenditures; and
the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that the presentation of average cash margin per ton in this report provides information useful to investors in assessing our financial condition and results of operations. Average cash margin per ton should not be considered an alternative to any other measure of financial performance or liquidity presented in accordance with GAAP. Average cash margin per ton excludes some, but not all, items that affect net income or net cash, and our presentation may vary from the presentations of other companies. As a result, average cash margin per ton as presented below may not be comparable to similarly titled measures of other companies.

The following table presents a reconciliation of average cash margin per ton for each of the periods indicated.


22


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Total coal revenue
$
63,799

 
$
86,989

 
$
140,686

 
$
169,405

 
 
 
 
 
 
 
 
Operating and other costs
35,341

 
46,699

 
77,616

 
84,916

Royalties and production taxes
2,911

 
4,086

 
5,742

 
7,728

Selling and direct administrative expense
1,319

 
1,787

 
2,612

 
3,429

Depreciation, depletion and amortization
9,295

 
8,928

 
18,265

 
15,960

Less: Depreciation, depletion and amortization (non-production)
(574
)
 
(478
)
 
(1,099
)
 
(981
)
Less: Other costs (non-production)
1,950

 
(1,941
)
 
2,963

 
(624
)
Total cost of coal sold
$
50,242

 
$
59,081

 
$
106,099

 
$
110,428

Total coal sold
1,135

 
1,415

 
2,442

 
2,690

Average sales price per ton sold
$
56.21

 
$
61.47

 
$
57.61

 
$
62.98

Average cost per ton sold
44.30

 
43.35

 
43.46

 
41.00

Average margin per ton sold
11.91

 
18.12

 
14.15

 
21.98

Add: Total depreciation, depletion and amortization costs per ton sold
7.45

 
6.17

 
6.94

 
5.64

Average cash margin per ton sold
$
19.36

 
$
24.29

 
$
21.09

 
$
27.62


Adjusted EBITDA

We define adjusted EBITDA as (i) net income (loss) before net interest expense, depreciation, depletion and amortization, as adjusted for (ii) material nonrecurring and other items which may not reflect the trend of our future results. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:

our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure;
the ability of our assets to generate sufficient cash flow to make distributions to our partners;
our ability to incur and service debt and fund capital expenditures; and
the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that the presentation of adjusted EBITDA in this report provides information useful to investors in assessing our financial condition and results of operations. The GAAP measure most directly comparable to adjusted EBITDA is net income. Adjusted EBITDA should not be considered an alternative to net income or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and our presentation of adjusted EBITDA may vary from that presented by other companies. As a result, adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies.


The following table presents a reconciliation of adjusted EBITDA to net income, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated.


23


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income attributable to unitholders
$
9,976

 
$
27,316

 
$
27,325

 
$
55,209

Interest expense
2,328

 
2,048

 
4,709

 
2,519

Depreciation, depletion and amortization
9,295

 
8,928

 
18,265

 
15,960

OPEB plan change
(3,559
)
 

 
(3,559
)
 

Backstop loan fees
1,467

 

 
1,516

 

Coal contract buyout

 
(6,000
)
 

 
(6,000
)
Litigation Settlement

 
(855
)
 

 
(855
)
Stock based compensation
391

 
764

 
846

 
2,021

Adjusted EBITDA
$
19,898

 
$
32,201

 
$
49,102

 
$
68,854


Distributable Cash Flow     

Although we have not quantified distributable cash flow on a historical basis, we intend to use distributable cash flow, which we define as adjusted EBITDA less net cash interest paid and estimated maintenance capital expenditures, to analyze our performance. Distributable cash flow will not reflect changes in working capital balances.

Distributable cash flow is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:

the ability of our assets to generate cash sufficient to support our indebtedness and make future cash distributions to our unitholders; and

the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.

We believe that the presentation of distributable cash flow in this report provides information useful to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to distributable cash flow are net income and net cash provided by operating activities. Distributable cash flow should not be considered an alternative to net income, net cash provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Distributable cash flow excludes some, but not all, items that affect net income or net cash, and our presentation may vary from the presentations of other companies. As a result, our distributable cash flow may not be comparable to similarly titled measures of other companies.



24



Results of Operations

Three Months Ended June 30, 2015 Compared with the Three Months Ended June 30, 2014

Total net income was $10 million for the three months ended June 30, 2015 compared to $27 million for the three months ended June 30, 2014. Our results of operations for each of these years are presented in the table below. Variances are discussed following the table.
 
For the Three Months Ended,
 
June 30,
 
2015
 
2014
 
Variance
 
(in millions)
Total coal revenues
$
64

 
$
86

 
$
(22
)
Freight revenue

 
2

 
(2
)
Miscellaneous other income

 
8

 
(8
)
Total revenue and other income
64

 
96

 
(32
)
Cost of coal sold:
 
 
 
 
 
Operating costs
36

 
45

 
(9
)
Direct administrative and selling
2

 
1

 
1

Total royalty/production taxes
3

 
4

 
(1
)
Depreciation, depletion and amortization
9

 
9

 

Total cost of coal sold
50

 
59

 
(9
)
Other costs and expenses:
 
 
 
 
 
Other costs
(2
)
 
2

 
(4
)
Total other costs and expenses
(2
)
 
2

 
(4
)
General and administrative expense
1

 
2

 
(1
)
Other corporate expenses
2

 
1

 
1

Freight expense

 
2

 
(2
)
Interest expense
3

 
3

 

Total costs
54

 
69

 
(15
)
Net income
$
10

 
$
27

 
$
(17
)
Adjusted EBITDA
$
20

 
$
32

 
$
(12
)


25



Coal Production Rates

The table below presents total tons produced from the Pennsylvania mining complex on both a 100% basis and our 20% undivided interest for the periods indicated:
 
 
100% Basis for the Three Months Ended June 30,
 
20% Undivided Interest for the Three Months Ended June 30,
Mine
 
2015
 
2014
 
2015
 
2014
Bailey
 
2.9

 
3.3

 
0.6

 
0.6

Enlow Fork
 
2.2

 
2.7

 
0.4

 
0.6

Harvey
 
0.8

 
0.8

 
0.2

 
0.2

Total
 
5.9

 
6.8

 
1.2

 
1.4


Coal production was 1.2 million for the three months ended June 30, 2015 compared to 1.4 million for the three months ended June 30, 2014. The 0.2 million decrease was attributable to reducing the production to match committed tons during 2015.
Coal Operations

Coal revenue and cost components on a per unit basis for the three months ended June 30, 2015 and 2014 were as indicated in the table below. Our operations also include various costs such as general and administrative, corporate, freight and other costs not included in our unit cost analysis because these costs are not associated with coal production.
 
For the Three Months Ended June 30,
 
2015
 
2014
 
Variance
 
Percent
Variance
Total Tons Sold (in millions)
1.1

 
1.4

 
(0.3
)
 
(19.8
)%
Average Sales Price Per Ton Sold
$
56.21

 
$
61.47

 
$
(5.26
)
 
(8.6
)%
 
 
 
 
 
 
 
 
Total Operating Costs Per Ton Sold
$
33.25

 
$
32.90

 
$
0.35

 
1.1
 %
Total Direct Administration and Selling Costs Per Ton Sold
1.11

 
1.29

 
(0.18
)
 
(14.0
)%
Total Royalty/Production Taxes Per Ton Sold
2.49

 
2.99

 
(0.50
)
 
(16.7
)%
Total Depreciation, Depletion and Amortization Costs Per Ton Sold
7.45

 
6.17

 
1.28

 
20.7
 %
Total Costs Per Ton Sold
$
44.30

 
$
43.35

 
$
0.95

 
2.2
 %
Average Margin Per Ton Sold
$
11.91

 
$
18.12

 
$
(6.21
)
 
(34.3
)%
Add: Total Depreciation, Depletion and Amortization Costs Per Ton Sold
7.45

 
6.17

 
1.28

 
20.7
 %
Average Cash Margin Per Ton Sold (1)
$
19.36

 
$
24.29

 
$
(4.93
)
 
(20.3
)%
(1) Average cash margin per ton is an operating ratio derived from non-GAAP measures.

Coal Revenue

Coal revenue was $64 million for the three months ended June 30, 2015 compared to $86 million for the three months ended June 30, 2014. The $22 million decrease was attributable to a $5.26 per ton lower average sales price and a 0.3 million decrease in tons sold. The lower sales volumes and average coal sales price per ton sold in the 2015 period was primarily the result of the overall decline in the domestic and global thermal coal markets.

Freight Revenue

Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on weight of coal shipped and negotiated freight rates for rail transportation to customers for which we contractually provide transportation services. Freight revenue is completely offset in freight expense. The $2 million decrease in freight revenue was due to decreased shipments where we were contractually obligated to provide transportation services.





26



Cost of Coal Sales

Total cost of coal sales is comprised of operating and other production costs related to produced tons sold, along with changes in coal inventory, both in volumes and carrying values. The costs of coal sold per ton include items such as direct operating costs, royalty and production taxes, direct administration and selling expenses, and depreciation, depletion, and amortization costs. Total cost of coal sold was $50 million for the three months ended June 30, 2015, or $9 million lower than the $59 million for the three months ended June 30, 2014. Total costs per ton sold were $44.30 per ton for the three months ended June 30, 2015 compared to $43.35 per ton for the three months ended June 30, 2014. The decrease in total dollars was primarily due to the 0.3 million decrease in tons sold, offset in part with a unit costs increase due to adverse geological conditions.

Other Costs

Other costs is comprised of various costs and expenses that are not allocated to each individual mine and therefore not included in unit costs and decreased $4 million for the three months ended June 30, 2015 compared to the three months ended June 30, 2014. The decrease was attributable to the remeasurement of the OPEB plans that occurred in May 2015.

General and Administrative Expense

CONSOL Energy allocates general and administrative costs based upon the level of operating activity of its underlying business units. The amount of general and administrative costs allocated to us from CONSOL Energy was $1 million for the three months ended June 30, 2015 compared to $2 million the three months ended June 30, 2014. The $1 million decrease was due to various transactions, none of which were individually material.

Other Corporate Expenses

Other corporate expense is comprised of expenses for CONSOL Energy's stock based compensation and the short-term incentive compensation program. These expenses include costs that are directly related to our operations along with a portion of costs that are allocated to us based on a percent of total labor costs. For the three months ended June 30, 2015 compared to the three months ended June 30, 2014, other corporate expenses increased by $1 million due to various transactions, none of which were individually material.

Freight Expense

Freight expense is based on weight of coal shipped and negotiated freight rates for rail transportation for customers to which we contractually provide transportation services. Freight revenue is the amount billed to customers for transportation costs incurred. Freight expense is offset by freight revenue. The $2 million decrease in freight expense was due to decreased shipments where we were contractually obligated to provide transportation services.

Interest Expense

Interest expense remained consistent for the three months ended June 30, 2015 compared to the three months ended June 30, 2014.

Adjusted EBITDA

Adjusted EBITDA was $20 million for the three months ended June 30, 2015 compared to $32 million for the three months ended June 30, 2014. The $12 million decrease was attributed to a $4.93 per ton decrease in the average cash margin sold. The $4.93 per ton decrease in the average cash margin was primarily a result of the $5.26 per ton decrease in coal sales price and the $0.95 per ton increase in cost of coal sales.



27



Six Months Ended June 30, 2015 Compared with the Six Months Ended June 30, 2014

Total net income was $27 million for the six months ended June 30, 2015 compared to $55 million for the six months ended June 30, 2014. Our results of operations for each of these periods are presented in the table below. Variances are discussed following the table.
 
For the Six Months Ended,
 
June 30,
 
2015
 
2014
 
Variance
 
(in millions)
Total coal revenues
$
141

 
$
169

 
$
(28
)
Freight revenue
1

 
3

 
(2
)
Miscellaneous other income

 
8

 
(8
)
Total revenue and other income
142

 
180

 
(38
)
Cost of coal sold:
 
 
 
 
 
Operating costs
80

 
84

 
(4
)
Direct administrative and selling
3

 
3

 

Total royalty/production taxes
6

 
8

 
(2
)
Depreciation, depletion and amortization
17

 
15

 
2

Total cost of coal sold
106

 
110

 
(4
)
Other costs and expenses:
 
 
 
 
 
Other costs
(3
)
 
1

 
(4
)
Depreciation, depletion and amortization
1

 
1

 

Total other costs and expenses
(2
)
 
2

 
(4
)
General and administrative expense
2

 
3

 
(1
)
Other corporate expenses
3

 
4

 
(1
)
Freight expense
1

 
3

 
(2
)
Interest expense
5

 
3

 
2

Total costs
115

 
125

 
(10
)
Net income
$
27

 
$
55

 
$
(28
)
Adjusted EBITDA
$
49

 
$
69

 
$
(20
)


28



Coal Production Rates

The table below presents total tons produced from the Pennsylvania mining complex on both a 100% basis and our 20% undivided interest for the periods indicated:
 
 
100% Basis for the Six Months Ended June 30,
 
20% Undivided Interest for the Six Months Ended June 30,
Mine
 
2015
 
2014
 
2015
 
2014
Bailey
 
5.8

 
6.5

 
1.2

 
1.3

Enlow Fork
 
4.7

 
5.8

 
0.9

 
1.2

Harvey
 
1.9

 
1.0

 
0.4

 
0.2

Total
 
12.4

 
13.3

 
2.5

 
2.7


Coal production was 2.5 million for the six months ended June 30, 2015 compared to 2.7 million for the six months ended June 30, 2014. The 0.2 million decrease was attributable to reducing the production to match committed tons during 2015. The production at the Harvey mine increased as a result of the commencement of longwall mining operations in March 2014.

Coal Operations

Coal revenue and cost components on a per unit basis for the six months ended June 30, 2015 and June 30, 2014 were as indicated in the table below. Our operations also include various costs such as general and administrative, corporate, freight and other costs not included in our unit cost analysis because these costs are not associated with coal production.
 
For the Six Months Ended June 30,
 
2015
 
2014
 
Variance
 
Percent
Variance
Total Tons Sold (in millions)
2.4

 
2.7

 
(0.3
)
 
(9.2
)%
Average Sales Price Per Ton Sold
$
57.61

 
$
62.98

 
$
(5.37
)
 
(8.5
)%
 
 
 
 
 
 
 
 
Total Operating Costs Per Ton Sold
$
33.16

 
$
31.23

 
$
1.93

 
6.2
 %
Total Direct Administration and Selling Costs Per Ton Sold
1.04

 
1.22

 
(0.18
)
 
(14.8
)%
Total Royalty/Production Taxes Per Ton Sold
2.32

 
2.91

 
(0.59
)
 
(20.3
)%
Total Depreciation, Depletion and Amortization Costs Per Ton Sold
6.94

 
5.64

 
1.30

 
23.0
 %
Total Costs Per Ton Sold
$
43.46

 
$
41.00

 
$
2.46

 
6.0
 %
Average Margin Per Ton Sold
$
14.15

 
$
21.98

 
$
(7.83
)
 
(35.6
)%
Add: Total Depreciation, Depletion and Amortization Costs Per Ton Sold
6.94

 
5.64

 
1.30

 
23.0
 %
Average Cash Margin Per Ton Sold (1)
$
21.09

 
$
27.62

 
$
(6.53
)
 
(23.6
)%
(1) Average cash margin per ton is an operating ratio derived from non-GAAP measures.

Coal Revenue

Coal revenue was $141 million for the six months ended June 30, 2015 compared to $169 million for the six months ended June 30, 2014. The $28 million decrease was attributable to a $5.37 per ton lower average sales price and a 0.3 million decrease in tons sold. The lower average coal sales price per ton sold in the 2015 period was primarily the result of the overall decline in the domestic thermal and global coal markets.

Freight Revenue

Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on weight of coal shipped and negotiated freight rates for rail transportation to customers for which we contractually provide transportation services. Freight revenue is completely offset in freight expense. Freight revenue was $1 million for the six months ended June 30, 2015 compared to $3 million for the six months ended June 30, 2014. The $2 million decrease in freight revenue was due to decreased shipments where we were contractually obligated to provide transportation services.




29



Miscellaneous Other Income

Miscellaneous other income decreased by $8 million in the period to period comparison due to a $6 million coal customer contract buyout and $2 million of various transactions, none of which were individually material.

Cost of Coal Sales

Total cost of coal sales is comprised of operating and other production costs related to produced tons sold, along with changes in coal inventory, both in volumes and carrying values. The costs of coal sold per ton include items such as direct operating costs, royalty and production taxes, direct administration and selling expenses, and depreciation, depletion, and amortization costs. Total cost of coal sold was $106 million for the six months ended June 30, 2015, or $4 million lower than the $110 million for the six months ended June 30, 2014. Total costs per ton sold were $43.46 per ton for the six months ended June 30, 2015 compared to $41.00 per ton for the six months ended June 30, 2014. The decrease in total dollars was primarily due to the 9.2% decrease in tons sold, while the increase in unit costs was a result of adverse geological conditions at Enlow Fork mine and Harvey mine, primarily due to sandstone intrusions. Also adversely impacting unit cost was additional depreciation expense per unit as a result of Harvey Mine beginning production in March 2014.

Other Costs

Other costs is comprised of various costs and expenses that are not allocated to each individual mine and therefore not included in unit costs. Other costs decreased $4 million for the six months ended June 30, 2015 compared to the six months ended June 30, 2014. The decrease was attributable to the remeasurement of the OPEB plans that occurred in May 2015.

Other Costs and Expenses - Depreciation, Depletion and Amortization

Depreciation, depletion, and amortization remained consistent for the six months ended June 30, 2015 compared to the six months ended June 30, 2014.

General and Administrative Expense

CONSOL Energy allocates general and administrative costs based upon the level of operating activity of its underlying business units. The amount of general and administrative costs allocated to us from CONSOL Energy was $2 million for the six months ended June 30, 2015 compared to $3 million for the six months ended June 30, 2014. The $1 million decrease was due to various transactions, none of which were individually material.

Other Corporate Expenses

Other corporate expense is comprised of expenses for CONSOL Energy's stock based compensation and short-term incentive compensation program. These expenses include costs that are directly related to our operations along with a portion of costs that are allocated to us based on a percent of total labor costs. For the six months ended June 30, 2015, other corporate expenses were $3 million compared to $4 million for the six months ended June 30, 2014. The decrease of $1 million was due to various transactions, none of which were individually material.

Freight Expense

Freight expense is based on weight of coal shipped and the negotiated freight rates for rail transportation for customers to which we contractually provide transportation services. Freight revenue is the amount billed to customers for transportation costs incurred. Freight expense is offset by freight revenue. Freight expense was $1 million for the six months ended June 30, 2015 compared to $3 million for the six months ended June 30, 2014. The $2 million decrease in freight expense was due to decreased shipments where we were contractually obligated to provide transportation services.

Interest Expense

Interest expense increased $2 million for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 primarily due to less capitalized interest reclassified out of interest expense as a result of the completion of the Harvey mine in March 2014.




30



Adjusted EBITDA

Adjusted EBITDA was $49 million for the six months ended June 30, 2015 compared to $69 million for the six months ended June 30, 2014. The $20 million decrease was attributed to a $6.53 per ton decrease in the average cash margin per ton sold. The $6.53 per ton decrease in the average cash margin was primarily a result of the $5.37 per ton decrease in coal sales price in addition to the $2.46 per ton increase in cost of coal sales.

31



Capital Resources and Liquidity

Liquidity and Financing Arrangements

Historically, our principal sources of liquidity have been cash from operations and funding from CONSOL Energy. While we have historically received funding from CONSOL Energy, we do not have any commitment from CONSOL Energy, our general partner or any of their respective affiliates to fund our cash flow deficits or provide other direct or indirect financial assistance to us. We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our new revolving credit facility and, if necessary, the issuance of additional equity or debt securities. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and our long-term capital expenditure requirements and to make quarterly cash distributions at our minimum quarterly distribution level.

Our partnership agreement requires that we distribute all of our available cash to our unitholders. As a result, we expect to rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund our acquisitions and expansion capital expenditures, if any.

We intend to pay a minimum quarterly distribution of $0.5125 per unit per quarter, which equates to an aggregate distribution of approximately $12.1 million per quarter, or approximately $48.6 million per year, based on the number of common units, subordinated units and the general partner interest that are outstanding. We do not have a legal or contractual obligation to pay distributions quarterly (or on any other basis) at our minimum quarterly distribution rate (or at any other rate). Please read “Cash Distribution Policy and Restrictions on Distributions” in our filed Prospectus for further information.

Revolving Credit Facility

In connection with the completion of the IPO, we entered into a new $400 million senior secured revolving credit facility with certain lenders and PNC Bank, National Association, as administrative agent (“PNC”). Obligations under our new revolving credit facility are guaranteed by certain of our subsidiaries (the “guarantor subsidiaries”) and are secured by substantially all of our and our subsidiaries’ assets pursuant to a security agreement and various mortgages.

Borrowings under our new revolving credit facility was used by us to fund a cash distribution, pay fees and expenses related to our new revolving credit facility and for general partnership purposes. In connection with the completion of the IPO and our entry into our new revolving credit facility, we made an initial draw of $200 million that was distributed to CONSOL Energy, net of origination fees.

The unused portion of our new revolving credit facility will be subject to a commitment fee of 0.50% per annum. Interest on outstanding indebtedness under our new revolving credit facility is expected to accrue, at our option, at a rate based on either:

The highest of (i) PNC’s prime rate, (ii) the federal funds open rate plus 0.50%, and (iii) the one-month LIBOR rate plus 1.0%, in each case, plus a margin ranging from 1.50% to 2.50%; or

the LIBOR rate plus a margin ranging from 2.50% to 3.50%.

As of June 30, 2015, interest on outstanding borrowings under the new revolving credit facility would have accrued interest at a rate of 3.19% based on a LIBOR rate of 0.19%, plus a margin of 3.00%.

Our new revolving credit facility matures on the fifth anniversary of its closing and will require compliance with conditions precedent that must be satisfied prior to any borrowing as well as ongoing compliance with certain affirmative and negative covenants.

Affirmative covenants include, among others, requirements relating to: (i) the preservation of existence; (ii) the payment of obligations, including taxes; (iii) the maintenance of properties and equipment, insurance and books and records; (iv) the compliance with laws and material contracts; (v) use of proceeds; (vi) the subordination of intercompany loans; (vii) anti-terrorism, anti-money laundering, anti-corruption and sanctions laws; and (viii) collateral.

Negative covenants include, among others, restrictions on our and our guarantor subsidiaries’ ability to: (i) create, incur, assume or suffer to exist indebtedness; (ii) create or permit to exist liens on their properties; (iii) make or pay any dividends or distributions; provided that we will be able to make cash distributions of available cash to partners so long as no event of default is continuing or would result therefrom; (iv) merge with or into another person, liquidate or dissolve, acquire all or

32



substantially all of the assets of any going concern or going line of business or acquire all or a substantial portion of another person’s assets; (v) make particular investments and loans; provided that we will be able to increase our ownership percentage of our undivided interest in the Pennsylvania mining complex and make investments in the Pennsylvania mining complex in accordance with our ratable ownership; (vi) sell, transfer, convey, assign or dispose of our assets or properties other than in the ordinary course of business and other select instances; (vii) deal with any affiliate except in the ordinary course of business on terms no less favorable to us than we would otherwise receive in an arm’s length transaction; (viii) amend organizational documents or any documentation governing certain material debt; and (ix) amend, waive or grant a consent under any material contract. In addition, we are obligated to maintain at the end of each fiscal quarter (x) a minimum interest coverage ratio of at least 3.0 to 1.0 and (y) a maximum leverage ratio of at least 3.50 to 1.0 (or 4.0 to 1.0 for two fiscal quarters after consummation of a material acquisition). The new revolving credit facility also contains various reporting requirements.

Our new revolving credit facility also contains events of default, including, but not limited to, cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants.

In connection with the completion of the IPO on July 7, 2015, and our entry into our new revolving credit facility, we made an initial draw of $200,000 and paid $3,000 in origination fees with net proceeds of $197,000 distributed to CONSOL Energy. Refer to Part 1, Item 1. Financial Statements, "Note 2. Initial Public and Concurrent Private Placement Offering ," which is incorporated herin by reference for further information.

Cash Flows
 
For the Six Months Ended June 30,
 
 
 
2015
 
2014
 
Variance
 
(in millions)
Cash flows from operating activities
$
39

 
$
64

 
$
(25
)
Cash used in investing activities
$
(14
)
 
$
(31
)
 
$
17

Cash used in financing activities
$
(25
)
 
$
(33
)
 
$
8


Six Months Ended June 30, 2015 Compared with the Six Months Ended June 30, 2014 Explanation:

Cash flows provided by operating activities decreased $25 million in the six months ended June 30, 2015 compared to the six months ended June 30, 2014 primarily due to the following items:

Net income decreased $28 million in the period-to-period comparison;
Other adjustments to reconcile net income to cash flow provided by operating activities increased due to $2 million of additional depreciation, depletion, and amortization in the six months ended June 30, 2015;
The remaining change of $1 is due to various transactions that occurred throughout both periods, none of which were individually material.

Net cash used in investing activities decreased $17 million in the six months ended June 30, 2015 compared to the six months ended June 30, 2014 primarily due to the following items:

Capital expenditures decreased $32 million due to a $30 million decrease resulting from the completion of the Harvey mine in the first quarter 2014. The remaining decrease was due to various capital expenditures, none of which were individually material; and
Proceeds from sale of assets decreased $15 million from the sale-leaseback agreements for longwall shields at Harvey mine in the six months ended June 30, 2014.

Net cash used in financing activities decreased $8 million in the six months ended June 30, 2015 compared to the six months ended June 30, 2014 primarily due to an $8 million increase from net parent advances for the six months ended June 30, 2015.







33




Capital Expenditures

For the six months ended June 30, 2015, the total capital expenditures of our Predecessor were $14 million compared to capital expenditures of $46 million for the six months ended June 30, 2014. The decrease in the capital expenditures is primarily due to the completion of the Harvey Mine development in March 2014. Capital expenditures for the six months ended June 30, 2015 and 2014 are included in the following table.
 
For the Six Months Ended June 30,
 
 
 
2015
 
2014
 
Variance
 
(in millions)
Harvey Mine Development
$

 
$
32

 
$
(32
)
Equipment Purchases and Rebuilds
6

 
4

 
2

Building and Infrastructure
3

 
4

 
(1
)
Water Treatment Systems
2

 
1

 
1

Refuse Storage Area
1

 
1

 

Other
2

 
4

 
(2
)
Total capital expenditures
$
14

 
$
46

 
$
(32
)
Off-Balance Sheet Arrangements

We do not maintain off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources which are not disclosed in the Notes to the Unaudited Combined Financial Statements of this Form 10-Q.
Significant Contractual Obligations

The following is a summary of our significant contractual obligations at June 30, 2015 (in thousands).

 
Payments due by Year
 
Less Than
1 Year
 
1-3 Years
 
3-5 Years
 
More Than
5 Years
 
Total
Purchase order firm commitments
$
2,691

 
$

 
$

 
$

 
$
2,691

Long-term debt (a)
44,779

 
47,418

 
25,859

 
66,116

 
184,172

Interest on long-term debt (a)
2

 

 

 

 
2

Capital (finance) lease obligations
38

 
50

 
13

 

 
101

Interest on capital (finance) lease obligations
1

 
2

 
2

 

 
5

Operating lease obligations
11,191

 
19,016

 
9,205

 
1,830

 
41,242

Long-term liabilities—employee related (b)
3,574

 
2,070

 
2,028