CNX-9.30.14-10Q




 
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 September 30, 2014
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
  __________________________________________________
CONSOL Energy Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
51-0337383
(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  x    No  o
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  x    Accelerated filer  o    Non-accelerated filer  o    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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Shares outstanding as of October 17, 2014
Common stock, $0.01 par value
 
230,179,532
 






TABLE OF CONTENTS

 
 
Page
PART I FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
Condensed Financial Statements
 
 
Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013.
 
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013.
 
Consolidated Balance Sheets at September 30, 2014 and December 31, 2013.
 
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013.
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
PART II OTHER INFORMATION
 
 
 
 
ITEM 1.
 
 
 
ITEM 4.
 
 
 
ITEM 6.


GLOSSARY OF CERTAIN OIL AND GAS MEASUREMENT TERMS

The following are abbreviations of certain measurement terms commonly used in the oil and gas industry and included within this Form 10-Q:

Bbl - One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil or other liquid hydrocarbons.
Bcf - One billion cubic feet of natural gas.
Bcfe - One billion cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
Btu - One British thermal unit.
Mbbls - One thousand barrels of oil or other liquid hydrocarbons.
Mcf - One thousand cubic feet of natural gas.
Mcfe - One thousand cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
MMbtu - One million British Thermal units.
MMcfe - One million cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
NGL - Natural gas liquids.
Tcfe - One trillion cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
Dth/d- Decatherms per day, with one decatherm being equivalent to one million British Thermal units.






PART I : FINANCIAL INFORMATION
 
ITEM 1.
CONDENSED FINANCIAL STATEMENTS

CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended
 
Nine Months Ended
(Unaudited)
September 30,
 
September 30,
Revenues and Other Income:
2014
 
2013
 
2014
 
2013
Natural Gas, NGLs and Oil Sales
$
257,358

 
$
192,781

 
$
753,399

 
$
531,859

Coal Sales
483,960

 
479,311

 
1,554,939

 
1,532,280

Other Outside Sales
73,673

 
63,876

 
213,047

 
197,778

Gas Royalty Interests and Purchased Gas Sales
18,815

 
17,113

 
68,773

 
51,109

Freight-Outside Coal
2,497

 
9,579

 
22,551

 
31,492

Miscellaneous Other Income
40,784

 
20,822

 
165,815

 
77,729

Gain on Sale of Assets
7,529

 
19,863

 
12,615

 
52,208

Total Revenue and Other Income
884,616

 
803,345

 
2,791,139

 
2,474,455

Costs and Expenses:
 
 
 
 
 
 
 
Exploration and Production Costs
 
 
 
 
 
 
 
Lease Operating Expense
30,005

 
23,600

 
85,622

 
70,835

Transportation, Gathering and Compression
68,234

 
46,699

 
179,813

 
144,002

Production, Ad Valorem, and Other Fees
8,486

 
8,033

 
28,817

 
20,011

Direct Administrative and Selling
14,060

 
11,725

 
39,216

 
34,615

Depreciation, Depletion and Amortization
82,538

 
58,998

 
225,766

 
164,832

Exploration and Production Related Other Costs
8,042

 
22,771

 
15,765

 
43,666

Production Royalty Interests and Purchased Gas Costs
15,751

 
13,805

 
58,519

 
41,165

Other Corporate Expenses
13,700

 
26,289

 
60,876

 
74,239

General and Administrative
14,874

 
10,177

 
47,755

 
29,239

Total Exploration and Production Costs
255,690

 
222,097

 
742,149

 
622,604

Coal Costs
 
 
 
 
 
 
 
Operating and Other Costs
339,216

 
328,393

 
1,013,606

 
993,342

Royalties and Production Taxes
23,306

 
24,380

 
77,397

 
79,257

Direct Administrative and Selling
10,479

 
11,608

 
33,589

 
34,744

Depreciation, Depletion and Amortization
64,880

 
57,265

 
186,029

 
169,702

Freight Expense
2,497

 
9,579

 
22,551

 
31,492

General and Administrative Costs
10,434

 
8,607

 
33,397

 
27,946

Other Corporate Expenses
10,114

 
11,145

 
41,444

 
43,056

Total Coal Costs
460,926

 
450,977

 
1,408,013

 
1,379,539

Other Costs
 
 
 
 
 
 
 
Miscellaneous Operating Expense
92,974

 
75,439

 
266,601

 
272,346

General and Administrative Costs
425

 
376

 
1,259

 
1,269

Depreciation, Depletion and Amortization
1,247

 
1,467

 
3,885

 
4,303

Loss on Debt Extinguishment
20,990

 

 
95,267

 

Interest Expense
55,397

 
56,300

 
170,539

 
164,194

Total Other Costs
171,033

 
133,582

 
537,551

 
442,112

Total Costs And Expenses
887,649

 
806,656

 
2,687,713

 
2,444,255

(Loss) Earnings Before Income Tax
(3,033
)
 
(3,311
)
 
103,426

 
30,200

Income Taxes
(1,388
)
 
68,858

 
8,315

 
97,531

(Loss) Income From Continuing Operations
(1,645
)
 
(72,169
)
 
95,111

 
(67,331
)
Income (Loss) From Discontinued Operations, net

 
8,120

 
(5,687
)
 
(11,352
)
Net (Loss) Income
(1,645
)
 
(64,049
)
 
89,424

 
(78,683
)
Less: Net Loss Attributable to Noncontrolling Interests

 
(398
)
 

 
(942
)
Net (Loss) Income Attributable to CONSOL Energy Shareholders
$
(1,645
)
 
$
(63,651
)
 
$
89,424

 
$
(77,741
)
The accompanying notes are an integral part of these financial statements.


3






CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
 
Three Months Ended
 
Nine Months Ended
(Dollars in thousands, except per share data)
September 30,
 
September 30,
(Unaudited)
2014
 
2013
 
2014
 
2013
(Loss) Earnings Per Share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
(Loss) Income from Continuing Operations
$
(0.01
)
 
$
(0.31
)
 
$
0.41

 
$
(0.29
)
Income (Loss) from Discontinued Operations

 
0.03

 
(0.02
)
 
(0.05
)
Total Basic (Loss) Earnings Per Share
$
(0.01
)
 
$
(0.28
)
 
$
0.39

 
$
(0.34
)
Dilutive
 
 
 
 
 
 
 
(Loss) Income from Continuing Operations
$
(0.01
)
 
$
(0.31
)
 
$
0.41

 
$
(0.29
)
Income (Loss) from Discontinued Operations

 
0.03

 
(0.02
)
 
(0.05
)
Total Dilutive (Loss) Earnings Per Share
$
(0.01
)
 
$
(0.28
)
 
$
0.39

 
$
(0.34
)
 
 
 
 
 
 
 
 
Dividends Paid Per Share
$
0.0625

 
$
0.125

 
$
0.1875

 
$
0.25


CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended
 
Nine Months Ended
(Dollars in thousands)
September 30,
 
September 30,
(Unaudited)
2014
 
2013
 
2014
 
2013
Net (Loss) Income
$
(1,645
)
 
$
(64,049
)
 
$
89,424

 
$
(78,683
)
Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
  Actuarially Determined Long-Term Liability Adjustments (Net of tax: ($107,383), ($15,422), ($108,154), ($70,161))
184,154

 
24,980

 
185,475

 
113,641

  Net Increase (Decrease) in the Value of Cash Flow Hedges (Net of tax: ($25,722), ($8,536), $13,161, ($26,036))
39,151

 
13,246

 
(20,032
)
 
40,400

  Reclassification of Cash Flow Hedges from OCI to Earnings (Net of tax: $12,084, $14,025, ($5,509), $36,551)
(19,510
)
 
(24,354
)
 
3,754

 
(56,595
)


 

 
 
 
 
Other Comprehensive Income
203,795

 
13,872

 
169,197

 
97,446



 

 
 
 
 
Comprehensive Income (Loss)
202,150

 
(50,177
)
 
258,621

 
18,763



 

 
 
 
 
Less: Comprehensive Loss Attributable to Noncontrolling Interest

 
(398
)
 

 
(942
)

 
 
 
 
 
 
 
Comprehensive Income (Loss) Attributable to CONSOL Energy Inc. Shareholders
$
202,150

 
$
(49,779
)
 
$
258,621

 
$
19,705





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



4







CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
(Unaudited)
 
 
(Dollars in thousands)
September 30,
2014
 
December 31,
2013
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
225,563

 
$
327,420

Accounts and Notes Receivable:
 
 

Trade
299,939

 
332,574

Notes Receivable

 
25,861

Other Receivables
382,652

 
243,973

Inventories
145,372

 
157,914

Deferred Income Taxes
127,731

 
211,303

Recoverable Income Taxes
41,971

 
10,705

Prepaid Expenses
101,867

 
135,842

Total Current Assets
1,325,095

 
1,445,592

Property, Plant and Equipment:
 
 
 
Property, Plant and Equipment
14,463,328

 
13,578,509

Less—Accumulated Depreciation, Depletion and Amortization
4,499,344

 
4,136,247

Total Property, Plant and Equipment—Net
9,963,984

 
9,442,262

Other Assets:
 
 
 
Investment in Affiliates
185,509

 
291,675

Notes Receivable

 
125

Other
244,347

 
214,013

Total Other Assets
429,856

 
505,813

TOTAL ASSETS
$
11,718,935

 
$
11,393,667






















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


5





CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 
 
(Unaudited)
 
 
(Dollars in thousands, except per share data)
September 30,
2014
 
December 31,
2013
LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts Payable
$
610,725

 
$
514,580

Current Portion of Long-Term Debt
12,225

 
11,455

Other Accrued Liabilities
610,704

 
565,697

Current Liabilities of Discontinued Operations
12,992

 
28,239

Total Current Liabilities
1,246,646

 
1,119,971

Long-Term Debt:
 
 
 
Long-Term Debt
3,236,172

 
3,115,963

Capital Lease Obligations
43,150

 
47,596

Total Long-Term Debt
3,279,322

 
3,163,559

Deferred Credits and Other Liabilities:
 
 
 
Deferred Income Taxes
395,025

 
242,643

Postretirement Benefits Other Than Pensions
652,050

 
961,127

Pneumoconiosis Benefits
111,514

 
111,971

Mine Closing
321,776

 
320,723

Gas Well Closing
180,520

 
175,603

Workers’ Compensation
73,398

 
71,468

Salary Retirement
48,231

 
48,252

Reclamation
34,499

 
40,706

Other
121,355

 
131,355

Total Deferred Credits and Other Liabilities
1,938,368

 
2,103,848

TOTAL LIABILITIES
6,464,336

 
6,387,378

Stockholders’ Equity:
 
 
 
Common Stock, $.01 Par Value; 500,000,000 Shares Authorized, 230,177,923 Issued and Outstanding at September 30, 2014; 229,145,736 Issued and Outstanding at December 31, 2013
2,305

 
2,294

Capital in Excess of Par Value
2,412,976

 
2,364,592

Preferred Stock, 15,000,000 shares authorized, None issued and outstanding

 

Retained Earnings
2,995,238

 
2,964,520

Accumulated Other Comprehensive Loss
(155,920
)
 
(325,117
)
Total CONSOL Energy Inc. Stockholders’ Equity
5,254,599

 
5,006,289

TOTAL LIABILITIES AND EQUITY
$
11,718,935

 
$
11,393,667












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


6





CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 
(Dollars in thousands, except per share data)
Common
Stock
 
Capital in
Excess
of Par
Value
 
Retained
Earnings
(Deficit)
 
Accumulated
Other
Comprehensive
(Loss) Income

 
Total CONSOL Energy Inc.
Stockholders’
Equity
December 31, 2013
$
2,294

 
$
2,364,592

 
$
2,964,520

 
$
(325,117
)
 
$
5,006,289

(Unaudited)
 
 
 
 
 
 
 
 
 
Net Income

 

 
89,424

 

 
89,424

Other Comprehensive Income

 

 

 
169,197

 
169,197

Comprehensive Income

 

 
89,424

 
169,197

 
258,621

Issuance of Common Stock
11

 
13,392

 

 

 
13,403

Treasury Stock Activity

 

 
(15,587
)
 

 
(15,587
)
Tax Benefit From Stock-Based Compensation

 
2,478

 

 

 
2,478

Amortization of Stock-Based Compensation Awards

 
32,514

 

 

 
32,514

Dividends ($0.1875 per share)

 

 
(43,119
)
 

 
(43,119
)
September 30, 2014
$
2,305

 
$
2,412,976

 
$
2,995,238

 
$
(155,920
)
 
$
5,254,599





























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


7





CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended
(Unaudited)
September 30,
Operating Activities:
2014
 
2013
Net Income (Loss)
$
89,424

 
$
(78,683
)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided By Continuing Operating Activities:

 

Net Loss from Discontinued Operations
5,687

 
11,352

Depreciation, Depletion and Amortization
415,680

 
338,837

Stock-Based Compensation
32,514

 
44,026

Gain on Sale of Assets
(12,615
)
 
(52,208
)
Loss on Debt Extinguishment
95,267

 

Deferred Income Taxes
6,540

 
(23,335
)
Equity in Earnings of Affiliates
(38,477
)
 
(20,276
)
Return on Equity Investments
47,424

 

Changes in Operating Assets:

 

Accounts and Notes Receivable
(64,241
)
 
11,145

Inventories
12,542

 
11,000

Prepaid Expenses
3,178

 
(8,688
)
Changes in Other Assets
(14,339
)
 
24,318

Changes in Operating Liabilities:

 

Accounts Payable
151,829

 
(18,487
)
Accrued Interest
32,698

 
50,184

Other Operating Liabilities
116,474

 
122,429

Other
(8,480
)
 
39,356

Net Cash Provided by Continuing Operations
871,105

 
450,970

Net Cash (Used in) Provided by Discontinued Operating Activities
(20,934
)
 
138,029

Net Cash Provided by Operating Activities
850,171

 
588,999

Cash Flows from Investing Activities:

 

Capital Expenditures
(1,174,607
)
 
(1,021,127
)
Change in Restricted Cash

 
56,410

Proceeds from Sales of Assets
141,136

 
464,638

Net Investments In Equity Affiliates
108,532

 
(18,112
)
Net Cash Used in Investing Activities in Continuing Operations
(924,939
)
 
(518,191
)
Net Cash Used in Investing Activities in Discontinued Operations

 
(41,246
)
Net Cash Used in Investing Activities
(924,939
)
 
(559,437
)
Cash Flows from Financing Activities:

 

(Payments on) Proceeds from Short-Term Borrowings
(11,736
)
 
47,000

Payments on Miscellaneous Borrowings
(4,169
)
 
(31,858
)
Proceeds from Long-Term Borrowings
1,859,920

 

Payments on Long-Term Borrowings
(1,843,866
)
 

Proceeds from Securitization Facility

 
6,518

Tax Benefit from Stock-Based Compensation
2,478

 
2,316

Dividends Paid
(43,119
)
 
(57,211
)
Issuance of Common Stock
13,403

 
2,698

Treasury Stock Activity

 
609

Net Cash Used in Financing Activities in Continuing Operations
(27,089
)
 
(29,928
)
Net Cash Used in Financing Activities in Discontinued Operations

 
(432
)
Net Cash Used in Financing Activities
(27,089
)
 
(30,360
)
Net Decrease in Cash and Cash Equivalents
(101,857
)
 
(798
)
Cash and Cash Equivalents at Beginning of Period
327,420

 
21,862

Cash and Cash Equivalents at End of Period
$
225,563

 
$
21,064

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


8





CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

NOTE 1—BASIS OF PRESENTATION:

The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for future periods.

The balance sheet at December 31, 2013 has been derived from the Audited Consolidated Financial Statements at that date but does not include all the notes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Consolidated Financial Statements and related notes for the year ended December 31, 2013 included in CONSOL Energy Inc.'s Form 10-K.

Certain amounts in prior periods have been reclassified to conform with the report classifications of the year ended December 31, 2013, with no effect on previously reported net income or stockholders' equity.

Basic earnings per share are computed by dividing net income (loss) attributable to shareholders by the weighted average shares outstanding during the reporting period. Dilutive earnings per share are computed similarly to basic earnings per share except that the weighted average shares outstanding are increased to include additional shares from stock options, performance stock options, CONSOL stock units, and restricted and performance share units, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and performance share options were exercised, that outstanding restricted stock units, performance share units, and CONSOL stock units were released, and that the proceeds from such activities were used to acquire shares of common stock at the average market price during the reporting period. CONSOL Energy Inc. (CONSOL Energy or the Company) includes the impact of pro forma deferred tax assets in determining potential windfalls and shortfalls for purposes of calculating assumed proceeds under the treasury stock method. The table below sets forth the share-based awards that have been excluded from the computation of the diluted earnings per share because their effect would be anti-dilutive:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Anti-Dilutive Options
4,116,136
 
 
4,833,174
 
 
359,488
 
 
4,833,174
 
Anti-Dilutive Restricted Stock Units
1,278,078
 
 
1,243,207
 
 
 
 
1,243,207
 
Anti-Dilutive Performance Share Units
287,226
 
 
97,142
 
 
 
 
97,142
 
Anti-Dilutive Performance Share Options
802,804
 
 
602,101
 
 
 
 
602,101
 
 
6,484,244
 
 
6,775,624
 
 
359,488
 
 
6,775,624
 

The table below sets forth the share-based awards that have been exercised or released:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Options
7,456
 
 
11,655
 
 
655,568
 
 
256,768
 
Restricted Stock Units
6,034
 
 
130,523
 
 
396,836
 
 
698,664
 
Performance Share Units
 
 
 
 
378,971
 
 
159,228
 
 
13,490
 

142,178
 
 
1,431,375
 
 
1,114,660
 

The weighted average exercise price per share of the options exercised during the three months ended September 30, 2014 and 2013 was $22.75 and $17.40, respectively. The weighted average exercise price per share of the options exercised during the nine months ended September 30, 2014 and 2013 was $20.44 and $10.49, respectively.


9





The computations for basic and dilutive earnings per share are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
(Loss) Income from Continuing Operations
$
(1,645
)
 
$
(72,169
)
 
$
95,111
 
 
$
(67,331
)
Income (Loss) from Discontinued Operations
 
 
8,120
 
 
(5,687
)
 
(11,352
)
 Less: Net Loss Attributable to Noncontrolling Interest
 
 
(398
)
 
 
 
(942
)
Net (Loss) Income Attributable to CONSOL Energy Inc. Shareholders
$
(1,645
)
 
$
(63,651
)
 
$
89,424
 
 
$
(77,741
)
Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
Basic
230,174,256
 
 
228,876,336
 
 
229,922,936
 
 
228,640,671
 
Effect of stock-based compensation awards
 
 
 
 
1,479,976
 
 
 
Dilutive
230,174,256
 
 
228,876,336
 
 
231,402,912
 
 
228,640,671
 
Earnings per share:
 
 
 
 
 
 
 
Basic (Continuing Operations)
$
(0.01
)
 
$
(0.31
)
 
$
0.41
 
 
$
(0.29
)
Basic (Discontinued Operations)
 
 
0.03
 
 
(0.02
)
 
(0.05
)
Total Basic
$
(0.01
)
 
$
(0.28
)
 
$
0.39
 
 
$
(0.34
)
 
 
 
 
 
 
 
 
Dilutive (Continuing Operations)
$
(0.01
)
 
$
(0.31
)
 
$
0.41
 
 
$
(0.29
)
Dilutive (Discontinued Operations)
 
 
0.03
 
 
(0.02
)
 
(0.05
)
Total Dilutive
$
(0.01
)
 
$
(0.28
)
 
$
0.39
 
 
$
(0.34
)
Changes in Accumulated Other Comprehensive Income / (Loss) by component, net of tax, were as follows:
 
Gains and Losses on Cash Flow Hedges
 
Postretirement Benefits
 
Total
Balance at December 31, 2013
$
42,493
 
 
$
(367,610
)
 
$
(325,117
)
Other comprehensive (loss) income before reclassifications
(20,032
)
 
176,385
 
 
156,353
 
Amounts reclassified from accumulated other comprehensive income
3,754
 
 
9,090
 
 
12,844
 
Current period other comprehensive (loss) income
(16,278
)
 
185,475
 
 
169,197
 
Balance at September 30, 2014
$
26,215
 
 
$
(182,135
)
 
$
(155,920
)

The following table shows the reclassification of adjustments out of Accumulated Other Comprehensive Loss:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Derivative Instruments (Note 13)
 
 
 
 
 
 
 
Natural gas price swaps and options
$
(31,594
)
 
$
(38,379
)
 
$
9,263
 
 
$
(93,146
)
Tax benefit (expense)
12,084
 
 
14,025
 
 
(5,509
)
 
36,551
 
Net of tax
$
(19,510
)
 
$
(24,354
)
 
$
3,754
 
 
$
(56,595
)
Actuarially Determined Long-Term Liability Adjustments*(Note 4 and Note 5)
 
 
 
 
 
 
 
Amortization of prior service costs
$
(2,542
)
 
$
(8,212
)
 
$
(7,625
)
 
$
(24,635
)
Recognized net actuarial loss
11,198
 
 
21,055
 
 
32,705
 
 
69,802
 
Curtailment gains
(36,182
)
 
 
 
(36,182
)
 
 
Settlement loss
4,785
 
 
6,296
 
 
25,492
 
 
38,498
 
Total
(22,741
)
 
19,139
 
 
14,390
 
 
83,665
 
Tax benefit (expense)
8,376
 
 
(7,306
)
 
(5,300
)
 
(31,936
)
Net of tax
$
(14,365
)
 
$
11,833
 
 
$
9,090
 
 
$
51,729
 


10





 


NOTE 2—ACQUISITIONS AND DISPOSITIONS:

In March 2014, CONSOL Energy completed a sale-leaseback of longwall shields for the Harvey Mine. Cash proceeds from the sale offset the basis of $75,357; therefore, no gain or loss was recognized on the sale. The lease has been accounted for as an operating lease. The lease term is five years. 

In December 2013, CONSOL Energy completed the sale of its Consolidation Coal Company (CCC) subsidiary, which includes all five of its longwall coal mines in West Virginia, to a subsidiary of Murray Energy Corporation (Murray Energy). CONSOL Energy retained overriding royalty interests in certain reserves sold in the transaction. Murray Energy also assumed $2,050,656 of CONSOL Energy's employee benefit obligations valued as of December 5, 2013 and its UMWA 1974 Pension Trust obligations. Murray Energy is primarily liable for all 1993 Coal Act liabilities. Cash proceeds of $825,285 were received related to this transaction, which were net of $24,715 in transaction fees. Proceeds are subject to adjustments related to working capital. A pre-tax gain of $1,035,346 was included in Income from Discontinued Operations on the Consolidated Statement of Income. In the first quarter of 2014, there was a pre-tax reduction in gain on sale of $7,044 related to the estimated working capital adjustment and various other miscellaneous items. Final settlement of working capital adjustments are currently being evaluated and are not expected to be material. For all periods presented in the accompanying Consolidated Statements of Income, the sale of CCC was classified as discontinued operations. There were no other active businesses classified as discontinued operations in the presented periods.

In December 2013, CONSOL Energy acquired the gas drilling rights to approximately 90,000 contiguous acres from Dominion Transmission, a unit of Dominion Resources. The acreage, which is associated with Dominion’s Fink-Kennedy, Lost Creek, and Racket Newberne gas storage fields in West Virginia, lies in the northern portion of Lewis County and the southern portion of Harrison County. CONSOL Energy anticipates that over one-half of the acres will have wet gas. CONSOL Energy has acquired the gas rights to both the Marcellus Shale and the Upper Devonian formations in the storage fields. Consideration of up to $190,000 will be paid by CONSOL Energy in two installments: 50% was paid at closing and the balance is due over time as the acres are drilled. In addition, CONSOL Energy will pay an overriding royalty to Dominion Resources based on a sliding scale. With respect to production from this area, CONSOL Energy has committed to be an anchor shipper on Dominion’s transmission system for 250,000 Dth/d with a primary term of 15 years. CONSOL Energy paid $91,243 in 2013 related to this transaction. In the nine months ended September 30, 2014, CONSOL Energy made an additional bonus payment of $16,000 to Dominion Transmission. Noble Energy, our joint venture partner, acquired 50% of the acres and reimbursed CONSOL Energy in 2014. Cash proceeds received from Noble Energy were $46,311 in the nine months ended September 30, 2014.

In August 2013, CONSOL Energy completed the sale of its 50% interest in the CONSOL Energy/Devon Energy joint venture in Alberta, Canada. The properties and coal leases included were those related to Grassy Mountain, Bellevue, Adanac, and Lynx Creek (Crowsnest Pass). Cash proceeds for the sale were $24,764. A gain of $15,260 was included in Other Income in the Consolidated Statement of Income.

In June 2013, CONSOL Energy completed the sale of Potomac coal reserves in Grant and Tucker Counties in West Virginia. Cash proceeds for the sale were $25,000. A gain of $24,663 was included in Other Income in the Consolidated Statement of Income.    

In April 2013, the Company and the Commonwealth of Pennsylvania (Commonwealth) entered into a Settlement Agreement and Release Settlement settling all of the Commonwealth's claims regarding the Ryerson Park Dam (Dam) and the Ryerson Park Lake (Lake). The Settlement provided in part for the payment to the Commonwealth of $36,000 for use to rebuild the Dam and restore the Lake with $13,728 of the settlement amount credited to lease bonus and royalty payments on the Commonwealth's Marcellus gas interests within the Park, subject to the Company's agreement to extract the gas from surface facilities located outside of the boundaries of the Park. The Settlement also provided in part for the conveyance by the Company to the Commonwealth of eight surface parcels (Parcels) containing approximately 506 acres of land adjoining the Park after the Parcels are no longer needed for the Company's operations and the conveyance by the Commonwealth to the Company of certain coal and mining rights in an area of the Bailey Mine where a mining permit application has been approved but with special conditions that will need further approval.

In March 2013, CNX Gas Company LLC (CNX Gas Company), a wholly owned subsidiary of CONSOL Energy, completed negotiations with the Allegheny County Airport Authority, which operates the Pittsburgh International Airport and the Allegheny County Airport, for the lease of the oil and gas rights on approximately 9.3 thousand acres. A majority of these


11





contiguous acres are in the liquids area of the Marcellus Shale play. CNX Gas Company paid $46,315 as an up-front bonus payment at closing. Approximately 7.6% of the bonus payment was placed into escrow while negotiations continue for a portion of the acres associated with the Allegheny County Airport and other acres that have potentially defective title. CNX Gas Company has an obligation to spud a well by February 21, 2015 and proceed with due diligence to complete the well or the lease terminates and CNX Gas Company foregoes the bonus. Our joint venture partner, Noble Energy, acquired a 50% undivided interest in the acreage and has reimbursed CNX Gas Company for 50% of the associated acquisition costs during the year ended December 31, 2013.
 
In January 2013, CONSOL Energy completed a sale-leaseback of longwall shields for the Bailey Mine. Cash proceeds for the sale were $71,166. A loss of $358 was recognized due to transaction fees and is included in Other Income in the Consolidated Statement of Income. The lease has been accounted for as an operating lease. The lease term is five years.

NOTE 3—OTHER INCOME:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Equity in Earnings of Affiliates
$
18,284

 
$
3,610

 
$
39,796

 
$
20,276

Rental Income
9,731

 
770

 
35,336

 
2,654

Coal Contract Settlement

 

 
30,000

 

Gathering Revenue
3,636

 
766

 
24,386

 
5,863

Royalty Income
5,003

 
4,113

 
14,758

 
12,870

Right of Way Issuance
2,485

 
2,102

 
4,898

 
3,810

Bailey Belt Settlement

 

 
4,275

 

Interest Income
527

 
4,300

 
1,827

 
15,701

Business Interruption Insurance

 
2,745

 

 
5,445

Other
1,118

 
2,416

 
10,539

 
11,110

Total Other Income
$
40,784

 
$
20,822

 
$
165,815

 
$
77,729


NOTE 4—COMPONENTS OF PENSION AND OTHER POST-EMPLOYMENT BENEFIT (OPEB) PLANS NET PERIODIC BENEFIT COSTS:

Components of net periodic costs (benefits) for the three and nine months ended September 30 are as follows:
 
Pension Benefits
 
Other Post-Employment Benefits
 
Three Months Ended
 
Nine Months Ended
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Service cost
$
4,834

 
$
4,897

 
$
13,625

 
$
16,184

 
$
2,331

 
$
4,849

 
$
6,994

 
$
14,547

Interest cost
8,667

 
9,497

 
26,812

 
27,249

 
12,096

 
29,619

 
36,290

 
88,856

Expected return on plan assets
(12,829
)
 
(13,336
)
 
(38,342
)
 
(38,191
)
 

 

 

 

Amortization of prior service credits
(346
)
 
(408
)
 
(1,038
)
 
(1,223
)
 
(2,196
)
 
(7,804
)
 
(6,588
)
 
(23,411
)
Recognized net actuarial loss
6,444

 
8,042

 
18,441

 
30,764

 
6,369

 
17,595

 
19,106

 
52,784

Settlement loss
4,785

 
6,296

 
25,492

 
38,498

 

 

 

 

Curtailment gain
(549
)
 

 
(549
)
 

 
(35,633
)
 

 
(35,633
)
 

Net periodic cost (benefit)
$
11,006

 
$
14,988

 
$
44,441

 
$
73,281

 
$
(17,033
)
 
$
44,259

 
$
20,169

 
$
132,776


Expenses attributable to discontinued operations included in net periodic cost above were $1,699 and $7,078 for the three and nine months ended September 30, 2013, respectively, for the Pension Plans; and were $25,775 and $76,673 for the three and nine months ended September 30, 2013, respectively, for the Other Post-Employment Benefit Plan.

For the nine months ended September 30, 2014, $25,948 was paid to the pension trust from operating cash flows. Additional contributions to the pension trust are not expected to be significant for the remainder of 2014. Net periodic benefit


12





costs are allocated to Exploration and Production Costs, Direct Administrative and Selling Expenses and Coal Costs, Operating and Other Costs in the Consolidated Statements of Income.

On September 30, 2014, the qualified pension plan was remeasured to reflect an announced plan amendment that will reduce future accruals of pension benefits as of January 1, 2015. The plan amendment calls for a hard freeze of the defined benefit pension plan on January 1, 2015 for employees who are under age 40 or have less than 10 years of service as of September 30, 2014. Beginning January 1, 2015, the Company will contribute an additional 3% of eligible compensation into the 401(k) plan accounts for these affected employees. Employees who are age 40 or over and have at least 10 years of service will continue in the defined benefit pension plan unchanged. The modifications to the pension plan resulted in a $21,624 reduction in the pension liability with a corresponding adjustment of $13,659 in Other Comprehensive Income, net of $7,965 in deferred taxes. Additionally, a curtailment gain of $549 was recognized with a corresponding adjustment of $347 in Other Comprehensive Income, net of $202 in deferred taxes. The change was made to align our compensation package more closely with our peer group.

According to the Defined Benefit Plans Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification, if the lump sum distributions made during a plan year, which for CONSOL Energy is January 1 to December 31, exceed the total of the projected service cost and interest cost for the plan year, settlement accounting is required. Lump sum payments exceeded this threshold during the three and nine months ended September 30, 2014. Accordingly, CONSOL Energy recognized settlement expense of $4,785 and $25,492 for the three and nine months ended September 30, 2014 in Other Costs - Miscellaneous Operating Expense in the Consolidated Statements of Income. The settlement charges represented a pro rata portion of the net unrecognized loss based on the percentage reduction in the projected benefit obligation due to the lump sum payments. The settlement accounting was initially triggered in May 2014, resulting in a remeasurement at May 31. Additional lump sum distributions during June and September 2014 resulted in remeasurements at June 30, 2014 and September 30, 2014. The September 30, 2014 remeasurement used a discount rate of 4.33%, an increase from 4.26% used at June 30, 2014. The September remeasurement increased the pension liability by $13,152. The September settlement and corresponding remeasurement of the pension plan resulted in a decrease of $5,285 in Other Comprehensive Income, net of $3,082 in deferred taxes. The May 31 and June 30, 2014 remeasurements used a discount rate of 4.26%, a decrease from 4.87% used at December 31, 2013. The May remeasurement increased the pension liability by $41,527. The May settlement and corresponding remeasurement of the pension plan resulted in a decrease of $14,193 in Other Comprehensive Income, net of $8,276 in deferred taxes. The June remeasurement decreased the pension liability by $6,490. The June settlement and corresponding remeasurement of the pension plan resulted in an increase of $5,141 in Other Comprehensive Income, net of $2,998 in deferred taxes. If CONSOL Energy incurs additional lump sum distributions from the plan in the fourth quarter of 2014, additional settlement charges will be recorded.

Lump sum payments also exceeded the settlement threshold during the three and nine months ended September 30, 2013. Accordingly, CONSOL Energy recognized settlement expense of $6,296 and $38,498 for the three and nine months ended September 30, 2013, respectively, in Other Costs - Miscellaneous Operating Expense in the Consolidated Statements of Income. The settlement charges represented a pro rata portion of the net unrecognized loss based on the percentage reduction in the projected benefit obligation due to the lump sum payments. The 2013 settlement charges also resulted in a remeasurement of the pension plan at September 30, June 30 and March 31, 2013. The September 30, 2013 remeasurement resulted in a change to the discount rate to 4.80% from 4.84% at June 30, 2013. The September remeasurement reduced the pension liability by $21,264. The September settlement and corresponding remeasurement of the pension plan resulted in an increase of $17,040 in Other Comprehensive Income, net of $10,520 in deferred taxes. The June 30, 2013 remeasurement resulted in a change to the discount rate to 4.84% from 4.12% at March 31, 2013. The June remeasurement reduced the pension liability by $48,957. The June settlement and corresponding remeasurement of the pension plan resulted in an increase of $33,414 in Other Comprehensive Income, net of $20,630 in deferred taxes. The March 31, 2013 remeasurement resulted in a change to the discount rate to 4.12% from 4.00% at December 31, 2012. The March remeasurement reduced the pension liability by $29,916. The March settlement and corresponding remeasurement of the pension plan resulted in an increase of $35,261 in Other Comprehensive Income, net of $21,770 in deferred taxes.

On September 30, 2014, the salaried OPEB plan and Production and Maintenance (P&M) OPEB plan were remeasured to reflect an announced plan amendment that will reduce retiree medical and life insurance benefits as of September 30, 2014. Effective September 30, 2014, no retiree medical or life benefits will be provided to active employees. Retirees as of September 30, 2014 will continue in the OPEB plans, which are currently anticipated to remain unchanged through December 31, 2019, and coverage thereafter will be eliminated. The Company elected to make cash transition payments totaling approximately $46,282 to the active employees whose retiree medical and life benefits were eliminated by the changes to the OPEB plan. These cash payments are not considered to be post-retirement benefits, and as such, they are not included in the actuarial calculations related to the OPEB plans. The amendment to the OPEB plan resulted in a $315,439 reduction in the OPEB liability with a corresponding adjustment of $199,252 in Other Comprehensive Income, net of $116,187 in deferred taxes. A


13





curtailment gain of $35,633 was recognized in September 2014 with a corresponding adjustment of $22,508 in Other Comprehensive Income, net of $13,125 in deferred taxes. The amendment resulted in a remeasurement of the OPEB plan at September 30, 2014. The remeasurement resulted in a change to the discount rate to 1.92% for the P&M OPEB plan and 1.84% for the Salaried OPEB plan from 4.88% used at December 31, 2013. The remeasurement increased the OPEB liability by $9,634 with a corresponding decrease of $6,086 in Other Comprehensive Income, net of $3,548 in deferred taxes. The change was made to align our compensation package more closely with our peer group.

CONSOL Energy does not expect to contribute to the other post-employment benefits plan in 2014. We intend to pay benefit claims as they become due. For the nine months ended September 30, 2014, $46,272 of other post-employment benefits have been paid.

NOTE 5—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:
Components of net periodic costs (benefits) for the three and nine months ended September 30 are as follows:
 
 
CWP
 
Workers' Compensation
 
Three Months Ended
 
Nine Months Ended
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Service cost
$
1,419

 
$
2,135

 
$
4,255

 
$
6,405

 
$
2,446

 
$
3,533

 
$
7,336

 
$
10,599

Interest cost
1,384

 
1,808

 
4,153

 
5,424

 
894

 
1,655

 
2,683

 
4,966

Amortization of actuarial gain
(1,549
)
 
(4,213
)
 
(4,647
)
 
(12,638
)
 
(96
)
 
(699
)
 
(287
)
 
(2,098
)
State administrative fees and insurance bond premiums

 

 

 

 
999

 
1,496

 
3,039

 
4,500

Legal and administrative costs

 

 

 

 

 
591

 

 
1,773

Net periodic cost (benefit)
$
1,254

 
$
(270
)
 
$
3,761

 
$
(809
)
 
$
4,243

 
$
6,576

 
$
12,771

 
$
19,740


Expenses (income) attributable to discontinued operations included in the net periodic cost (benefit) above were ($167) and ($497) for the three and nine months ended September 30, 2013, respectively, for CWP; and were $2,474 and $7,327 for the three and nine months ended September 30, 2013, respectively, for Workers' Compensation.
CONSOL Energy does not expect to contribute to the CWP plan in 2014. We intend to pay benefit claims as they become due. For the nine months ended September 30, 2014, $8,870 of CWP benefit claims have been paid.
CONSOL Energy does not expect to contribute to the workers’ compensation plan in 2014. We intend to pay benefit claims as they become due. For the nine months ended September 30, 2014, $11,327 of workers’ compensation benefits, state administrative fees and surety bond premiums have been paid.

NOTE 6—INCOME TAXES:

The effective tax rate on continuing operations for the nine months ended September 30, 2014 and 2013 was 8.3% and 323.0%, respectively.

The effective tax rate for the nine months ended September 30, 2014 differs from the U.S. federal statutory rate of 35% primarily due to a $20,640 income tax benefit for excess depletion, $8,820 discrete income tax benefit related to the completion of the Internal Revenue Service audit of tax years 2008 and 2009, and $7,013 discrete income tax benefit as a result of changes in estimates of excess percentage depletion and Domestic Production Activities Deduction related to the prior-year tax provision.

For the nine months ended September 30, 2014, CONSOL Energy recognized certain tax benefits as a result of changes in estimates related to a prior-year tax provision. The tax benefit of $7,970 related to increased percentage depletion deductions offset by $957 of tax expense related to changes in the Domestic Production Activities Deduction and changes in various other estimates.



14





The rate for the nine months ended September 30, 2013 differs from the U.S. federal statutory rate of 35% primarily due to a $111,104 income tax benefit for excess depletion, $4,701 discrete income tax charge related to the gain on sale of the Potomac coal reserves, $8,467 discrete income tax charge related to the gain on sale of the Crowsnest Pass coal reserves, a $1,585 income tax benefit due to a refund claim related to prior year Commonwealth of Pennsylvania taxes, and a $5,875 discrete income tax charge as a result of changes in estimates of excess percentage depletion and Domestic Production Activities Deduction related to the prior-year tax provision.

The total amounts of uncertain tax positions at September 30, 2014 and December 31, 2013 were $2,540 and $22,770, respectively. If these uncertain tax positions were recognized, approximately $1,651 and $2,071, respectively, would affect CONSOL Energy’s effective tax rate. There were no additions to the liability for unrecognized tax benefits during the nine months ended September 30, 2014. The reduction in uncertain tax positions was due to the completion of the Internal Revenue Service audit of the 2008 and 2009 tax years.
CONSOL Energy recognizes interest accrued related to uncertain tax positions in its interest expense. As of September 30, 2014 and December 31, 2013, the Company reported an accrued interest liability relating to uncertain tax positions of $1,334 and $6,200, respectively. The accrued interest liability includes $4,866 of interest income and $1,020 of interest expense that is reflected in the Company’s Consolidated Statements of Income for the nine months ended September 30, 2014 and 2013, respectively.
CONSOL Energy recognizes penalties accrued related to uncertain tax positions in its income tax expense. As of September 30, 2014 and December 31, 2013, CONSOL Energy had no accrued liability for tax penalties.
CONSOL Energy and its subsidiaries file federal income tax returns with the United States and returns within various states and Canadian jurisdictions. With few exceptions, the Company is no longer subject to United States federal, state, local, or non-U.S. income tax examinations by tax authorities for the years before 2010. The Internal Revenue Service has issued its audit report related to the examination of CONSOL Energy’s 2008 and 2009 U.S. income tax returns during the nine months ended September 30, 2014. As a result of these findings, CONSOL Energy paid federal income tax deficiencies of $4,464 and $1,001, respectively. The deficiencies were the result of changes in the timing of certain tax deductions. The changes in timing of these tax deductions increased the tax benefit of percentage depletion by $2,925 and $4,493 in tax years 2008 and 2009, respectively. The Company also recognized additional tax benefits of $1,402 primarily related to an increase in the Domestic Production Activities Deduction for the audited periods. Also, as a result of closing the IRS audit, CONSOL Energy was required to file amended state income tax returns for the changes. In the nine months ended September 30, 2014, the Company filed the required amended returns and realized a discrete state income tax charge of $5,496 which was offset by a federal income tax benefit of $1,924.

NOTE 7—INVENTORIES:

Inventory components consist of the following:
 
September 30,
2014
 
December 31,
2013
Coal
$
24,380

 
$
31,944

Merchandise for resale
35,836

 
38,263

Supplies
85,156

 
87,707

Total Inventories
$
145,372

 
$
157,914


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.

Merchandise for resale is valued using the last-in, first-out (LIFO) cost method. The excess of replacement cost of merchandise for resale inventories over carrying LIFO value was $19,835 and $18,836 at September 30, 2014 and December 31, 2013, respectively.



15





NOTE 8—ACCOUNTS RECEIVABLE SECURITIZATION:
CONSOL Energy and certain of our U.S. subsidiaries are party to a trade accounts receivable facility with financial institutions for the sale on a continuous basis of eligible trade accounts receivable. The facility allows CONSOL Energy to receive on a revolving basis up to $125,000. The facility also allows for the issuance of letters of credit against the $125,000 capacity. At September 30, 2014, there were letters of credit outstanding against the facility of $61,930. CONSOL Energy management believes that these letters of credit will expire without being funded, and therefore the commitments will not have a material adverse effect on the Company's financial condition. No amounts related to these financial guarantees and letters of credit are recorded as liabilities on the financial statements.
CNX Funding Corporation, a wholly owned, special purpose, bankruptcy-remote subsidiary, buys and sells eligible trade receivables generated by certain subsidiaries of CONSOL Energy. Under the receivables facility, CONSOL Energy and certain subsidiaries, irrevocably and without recourse, sell all of their eligible trade accounts receivable to CNX Funding Corporation, which in turn sells these receivables to financial institutions and their affiliates, while maintaining a subordinated interest in a portion of the pool of trade receivables. This retained interest, which is included in Accounts and Notes Receivable Trade in the Consolidated Balance Sheets, is recorded at fair value. Due to a short average collection cycle for such receivables, our collection experience history and the composition of the designated pool of trade accounts receivable that are part of this program, the fair value of our retained interest approximates the total amount of the designated pool of accounts receivable. CONSOL Energy will continue to service the sold trade receivables for the financial institutions for a fee based upon market rates for similar services.
In accordance with the Transfers and Servicing Topics of the Financial Accounting Standards Board (FASB) Accounting Standards Codification, CONSOL Energy records transactions under the securitization facility as secured borrowings on the Consolidated Balance Sheets. The pledge of collateral is reported as Accounts Receivable - Securitized and the borrowings are classified as debt in Borrowings under Securitization Facility.
The cost of funds under this facility is based upon commercial paper rates or LIBOR, plus a charge for administrative services paid to the financial institutions. Costs associated with the receivables facility totaled $692 and $1,328 for the nine months ended September 30, 2014 and 2013, respectively. These costs have been recorded as financing fees which are included in the Other Costs - Miscellaneous Operating Expense in the Consolidated Statements of Income. No servicing asset or liability has been recorded. The receivables facility expires in March 2015.
At September 30, 2014 and December 31, 2013, eligible accounts receivable totaled $82,500 and $115,000, respectively. There was $20,570 subordinated retained interest at September 30, 2014 and $48,945 subordinated retained interest at December 31, 2013. There were no borrowings under the Securitization Facility as of September 30, 2014 and December 31, 2013. The accounts receivable securitization program had no change in the nine months ended September 30, 2014. In accordance with the facility agreement, the Company is able to receive proceeds based upon the eligible accounts receivable at the previous month end.



16





NOTE 9—PROPERTY, PLANT AND EQUIPMENT:
 
September 30,
2014
 
December 31,
2013
Coal and Other Plant and Equipment
$
3,731,618

 
$
3,681,051

Intangible Drilling Cost
2,388,790

 
1,937,336

Proven Gas Properties
1,684,675

 
1,670,404

Unproven Gas Properties
1,510,307

 
1,463,406

Coal Properties and Surface Lands
1,411,574

 
1,409,408

Gas Gathering Equipment
1,082,355

 
1,058,008

Gas Wells and Related Equipment
850,771

 
688,548

Airshafts
453,689

 
397,466

Mine Development
416,733

 
354,607

Coal Advance Mining Royalties
397,015

 
381,348

Leased Coal Lands
388,033

 
388,020

Other Gas Assets
125,484

 
126,239

Gas Advance Royalties
22,284

 
22,668

Total Property Plant and Equipment
14,463,328

 
13,578,509

Less: Accumulated Depreciation, Depletion, and Amortization
4,499,344

 
4,136,247

Total Net Property, Plant, and Equipment
$
9,963,984

 
$
9,442,262

    
Industry Participation Agreements

CONSOL Energy has two significant industry participation agreements (referred to as "joint ventures" or "JVs") that provided drilling and completion carries for our retained interests.

CNX Gas Company LLC (CNX Gas Company), a wholly owned subsidiary of CONSOL Energy, is party to a joint development agreement with Hess Ohio Developments, LLC (Hess) with respect to approximately 144 thousand net Utica Shale acres in Ohio in which each party has a 50% undivided interest. Under the agreement, as amended, Hess is obligated to pay a total of approximately $335,000 in the form of a 50% drilling carry of certain CONSOL Energy working interest obligations as the acreage is developed. As of September 30, 2014, Hess’ remaining carry obligation is $132,736.  

CNX Gas Company is party to a joint development agreement with Noble Energy, Inc. (Noble) with respect to approximately 703 thousand net Marcellus Shale oil and gas acres in West Virginia and Pennsylvania, in which each party owns a 50% undivided interest. Under the agreement, as amended, Noble Energy is obligated to pay a total of approximately $1,884,000 in the form of a one-third drilling carry of certain of CONSOL Energy’s working interest obligations as the property is developed, subject to certain limitations. These limitations include the suspension of the carry if average Henry Hub natural gas prices are below $4.00 per million British thermal units (MMbtu) for three consecutive months. The carry has been in effect since March 1, 2014, and will remain effective until average natural gas prices are below $4.00/MMbtu for three consecutive months. Restrictions also include a $400,000 annual maximum on Noble Energy's carried cost obligation. As of September 30, 2014, Noble Energy’s remaining carry obligation is $1,728,520.

NOTE 10—SHORT-TERM NOTES PAYABLE:
CONSOL Energy entered into a new Amended and Restated Credit Agreement dated June 18, 2014 for a $2,000,000 senior secured revolving credit facility which expires on June 18, 2019. The new senior secured revolving credit facility replaced CONSOL Energy's existing $1,000,000 senior secured revolving credit facility which had been entered into as of April 12, 2011 and was amended and restated on December 5, 2013, and the existing $1,000,000 senior secured revolving credit facility of CNX Gas Corporation (CNX Gas) and its subsidiaries that had been entered into as of April 12, 2011. The new senior secured revolving credit facility resulted in the acceleration of previously deferred financing charges of $2,989 during the nine months ended September 30, 2014. The facility is secured by substantially all of the assets of CONSOL Energy and certain of its subsidiaries. CONSOL Energy's credit facility allows for up to $2,000,000 of borrowings, which includes $750,000 in letters of credit aggregate sub-limit. CONSOL Energy can request an additional $500,000 increase in the aggregate borrowing limit amount. Fees and interest rate spreads are based on the percentage of facility utilization, measured quarterly. Availability under the facility is generally limited to a borrowing base, which is determined by the required number of lenders in good faith by calculating a loan value of CONSOL Energy's proved gas reserves. The facility includes a minimum interest coverage ratio covenant of no less than 2.50 to 1.00, measured quarterly. The interest coverage ratio was 5.26 to 1.00 at


17





September 30, 2014. The facility includes a minimum current ratio covenant of no less than 1.00 to 1.00, measured quarterly. The minimum current ratio was 2.33 to 1.00 at September 30, 2014. Affirmative and negative covenants in the facility limit our ability to dispose of assets, make investments, purchase or redeem CONSOL Energy common stock, pay dividends, merge with another corporation and amend, modify or restate the senior unsecured notes. The credit facility allows unlimited investments in joint ventures for the development and operation of gas gathering systems. The facility permits CONSOL Energy to separate its gas and coal businesses if the leverage ratio (which, is essentially, the ratio of debt to EBITDA) of the gas business immediately after the separation would not be greater than 2.75 to 1.00. At September 30, 2014, the $2,000,000 facility had no borrowings outstanding and $264,544 of letters of credit outstanding, leaving $1,735,456 of unused capacity. At December 31, 2013, the prior CONSOL Energy $1,000,000 facility had no borrowings outstanding and $206,988 of letters of credit outstanding, leaving $793,012 of unused capacity. At December 31, 2013, the prior CNX Gas Corporation $1,000,000 facility had no borrowings outstanding and $87,643 of letters of credit outstanding, leaving $912,357 of unused capacity.

NOTE 11—LONG-TERM DEBT:
 
September 30,
2014
 
December 31,
2013
Debt:
 
 
 
Senior notes due April 2017 at 8.00%, issued at par value
$

 
$
1,500,000

Senior notes due April 2020 at 8.25%, issued at par value
1,014,800

 
1,250,000

Senior notes due March 2021 at 6.375%, issued at par value
250,000

 
250,000

Senior notes due April 2022 at 5.875%
1,850,000

 

MEDCO revenue bonds in series due September 2025 at 5.75%
102,865

 
102,865

Senior notes due April 2022 at 5.875%, Premium
6,875

 

Senior notes due April 2022 at 5.875%, Amortization of Bond Premium
(148
)
 

Advance royalty commitments (7.93% weighted average interest rate for September 30, 2014 and December 31, 2013)
11,182

 
11,182

Other long-term notes maturing at various dates through 2031 (total value of $4,892 and $5,923 less unamortized discount of $736 and $1,050 at September 30, 2014 and December 31, 2013, respectively).
4,156

 
4,873

 
3,239,730

 
3,118,920

Less amounts due in one year *
3,558

 
2,957

Long-Term Debt
$
3,236,172

 
$
3,115,963

* Excludes current portion of Capital Lease Obligations of $8,667 and $8,498 at September 30, 2014 and December 31, 2013, respectively.

Accrued interest related to Long-Term Debt of $93,709 and $63,272 was included in Other Accrued Liabilities in the Consolidated Balance Sheets at September 30, 2014 and December 31, 2013, respectively.

On April 16, 2014, CONSOL Energy closed on the private placement of $1,600,000 of 5.875% senior notes due 2022 (the "Notes"). The Notes are guaranteed by substantially all of CONSOL Energy's wholly-owned domestic restricted subsidiaries. CONSOL Energy used substantially all of the net proceeds of the sale of the Notes to purchase the 8.00% senior notes due in 2017.

On August 12, 2014, CONSOL Energy closed on an additional $250,000 of its 5.875% senior notes due 2022 at a price equal to 102.75% of the principal amount of the Additional Notes. CONSOL Energy used $235,200 of the net proceeds of the sale of the Additional Notes to purchase a portion of the outstanding 8.25% senior notes due in 2020.

NOTE 12—COMMITMENTS AND CONTINGENT LIABILITIES:
CONSOL Energy and its subsidiaries are 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 CONSOL Energy. It is possible that the aggregate loss in the future with respect to these lawsuits and


18





claims could ultimately be material to the financial position, results of operations or cash flows of CONSOL Energy; however, such amounts cannot be reasonably estimated. The amount claimed against CONSOL Energy is disclosed below when an amount is expressly stated in the lawsuit or claim, which is not often the case. The maximum aggregate amount claimed in those lawsuits and claims, regardless of probability, where a claim is expressly stated or can be estimated, exceeds the aggregate amounts accrued for all lawsuits and claims by approximately $388,156.

The following lawsuits and claims include those for which a loss is probable and an accrual has been recognized.

Asbestos-Related Litigation: One of our subsidiaries, Fairmont Supply Company (Fairmont), which distributes industrial supplies, currently is named as a defendant in approximately 6,900 asbestos-related claims in state courts in Pennsylvania, Ohio, West Virginia, Maryland, Texas and Illinois. Because a very small percentage of products manufactured by third parties and supplied by Fairmont in the past may have contained asbestos, and since many of the pending claims are asserted against dozens of defendants in any given action, it has been difficult for Fairmont to determine how many of the pending cases actually involve valid claims or plaintiffs who were actually exposed to asbestos-containing products supplied by Fairmont. In addition, while Fairmont may be entitled to indemnity or contribution in certain jurisdictions from manufacturers of identified products, the availability of such indemnity or contribution is unclear at this time, and in recent years, some of the manufacturers named as defendants in these actions have sought protection from these claims under bankruptcy laws. Fairmont has no insurance coverage with respect to these asbestos cases. Based on nearly 20 years of experience with this litigation, we have established an accrual to cover our estimated liability for these cases. This accrual is immaterial to the overall financial position of CONSOL Energy and was included in Other Accrued Liabilities on the Consolidated Balance Sheets. Past payments by Fairmont with respect to asbestos cases have not been material.

Hale Litigation: A purported class action lawsuit was filed on September 23, 2010 in the U.S. District Court in Abingdon, Virginia styled Hale v. CNX Gas Company, et. al. The putative class consists of forced-pooled unleased gas owners whose ownership of the coalbed methane (CBM) gas was declared to be in conflict with rights of others. The lawsuit seeks a judicial declaration of ownership of the CBM, and Plaintiffs also allege CNX Gas Company failed to either pay royalties due to conflicting claimants, or deemed lessors or paid them less than required because of the alleged practice of improper below market sales and/or taking alleged improper post-production deductions. On September 30, 2013, the District Judge entered an Order certifying the class, and CNX Gas Company appealed the Order to the U.S. Fourth Circuit Court of Appeals. On August 19, 2014, the Fourth Circuit agreed with CNX Gas Company, reversed the Order certifying the class and remanded the case to the trial court for further proceedings consistent with the decision. CONSOL Energy continues to believe this action cannot properly proceed as a class action in any form, believes that the case has meritorious defenses, and intends to defend it vigorously. We have established an accrual to cover our estimated liability for this case. This accrual is immaterial to the overall financial position of CONSOL Energy and is included in Other Accrued Liabilities on the Consolidated Balance Sheets.

Addison Litigation: A putative class action lawsuit was filed on April 28, 2010 in the United States District Court in Abingdon, Virginia styled Addison v. CNX Gas Company, et al.  The plaintiff class consists of gas lessors whose gas ownership is in conflict. The lawsuit seeks a judicial declaration of ownership of the CBM and damages based on the allegations that CNX Gas Company failed to either pay royalties due these conflicting claimant lessors or paid them less than required because of the alleged practice of improper below market sales and/or taking alleged improper post-production deductions. On September 30, 2013, the District Judge entered an Order certifying the class, and CNX Gas Company appealed the Order to the U.S. Court of Appeals for the Fourth Circuit. On August 19, 2014, the Fourth Circuit agreed with CNX Gas Company, reversed the Order certifying the class and remanded the case to the trial court for further proceedings consistent with the decision. CONSOL Energy continues to believe this action cannot properly proceed as a class action in any form, believes that the case has meritorious defenses, and intends to defend it vigorously. We have established an accrual to cover our estimated liability for this case. This accrual is immaterial to the overall financial position of CONSOL Energy and was included in Other Accrued Liabilities on the Consolidated Balance Sheets.

The following royalty and land right lawsuits and claims include those for which a loss is reasonably possible, but not probable, and accordingly, no accrual has been recognized. These claims are influenced by many factors which prevent the estimation of a range of potential loss. These factors include, but are not limited to, generalized allegations of unspecified damages (such as improper deductions), discovery having not commenced or not having been completed, unavailability of expert reports on damages and non-monetary issues are being tried. For example, in instances where a gas lease termination is sought, damages would depend on speculation as to if and when the gas production would otherwise have occurred, how many wells would have been drilled on the lease premises, what their production would be, what the cost of production would be, and what the price of gas would be during the production period. An estimate is calculated, if applicable, when sufficient information becomes available.



19





Ratliff Litigation: On January 30, 2013, the Company was served with a complaint filed on behalf of four individuals against Consolidation Coal Company (CCC), Island Creek Coal Company (ICCC), CNX Gas Company, as well as CONSOL Energy itself in the United States District Court for the Western District of Virginia. The complaint seeks damages and injunctive relief in connection with the deposit of water from mining activities at the Buchanan Mine into nearby void spaces at some of the mines of ICCC, voids ostensibly underlying their property. The suit alleges damage to coal and coalbed methane and seeks recovery in tort, contract and assumpsit (quasi-contract). The suit seeks damages of approximately $50,000 plus punitive damages. The defendants have asserted Virginia's Mine Void Statute as a defense to plaintiffs’ claims and the plaintiffs have challenged the constitutionality of that statute. On March 18, 2014, the District Court concluded, in ruling on Defendants’ Motion to Dismiss, it could not resolve either the constitutionality or the applicability of the Mine Void Statute on the current record. Discovery is ongoing. CONSOL Energy intends to vigorously defend the suit.
 
    Kennedy Litigation: The Company is a party to a case filed on March 26, 2008 captioned Earl Kennedy (and others) v. CNX Gas Company and CONSOL Energy in the Court of Common Pleas of Greene County, Pennsylvania. The lawsuit alleges that CNX Gas Company and CONSOL Energy trespassed and converted gas and other minerals allegedly belonging to the plaintiffs in connection with wells drilled by CNX Gas Company. The complaint, as amended, seeks injunctive relief, including removing CNX Gas Company from the property, and compensatory damages of $20,000. The suit also sought to overturn existing law as to the ownership of coalbed methane in Pennsylvania, but that claim was dismissed by the court. The suit further sought a determination that the Pittsburgh 8 coal seam does not include the “roof/rider” coal. The court held a bench trial on the “roof/rider” coal issue in November 2011 and ruled in favor of CNX Gas Company and CONSOL Energy. On March 3, 2014, the Company won summary judgment on Counts 1 through 10 of the Amended Complaint, each relating to the alleged trespass of horizontal CBM wells into strata other than the Pittsburgh 8 Seam. The Court rejected each of those claims, essentially holding that if CNX Gas Company went out of the coal seam, it had no intention to do so and, in any event, the plaintiff could not prove any damages as a result. The last remaining Count, seeking to quiet title to approximately 40 acres of Pittsburgh Seam coal, was nonsuited by Plaintiffs, without prejudice, on March 26, 2014. On March 28, 2014, Plaintiffs filed Notices of Appeal with the Pennsylvania Superior Court on all issues decided in CONSOL Energy’s favor.
Rowland Litigation: Rowland Land Company filed a complaint in May 2011 against CONSOL Energy, CNX Gas Company, Dominion Resources Inc., and EQT Production Company (EQT) in Raleigh County Circuit Court, West Virginia. Rowland is the lessor on a 33,000 acre oil and gas lease in southern West Virginia. EQT was the original lessee, but farmed out the development of the lease to Dominion Resources in exchange for an overriding royalty. Dominion Resources sold the indirect subsidiary that held the lease to a subsidiary of CONSOL Energy on April 30, 2010. Subsequent to that acquisition, the subsidiary that held the lease was merged into CNX Gas Company as part of an internal reorganization. Rowland alleges that (i) Dominion Resources' sale of the subsidiary to CONSOL Energy was a change in control that required its consent under the terms of the farmout agreement and lease, and/or (ii) the subsequent merger of the subsidiary into CNX Gas Company was an assignment that required its consent under the lease. Rowland has recently been permitted to file its Third Amended Complaint to include additional allegations that CONSOL Energy has slandered Rowland's title. A hearing on the CNX Gas Company motion to dismiss will be held in the next few weeks. Mediation efforts have been unsuccessful. CONSOL Energy believes that the case is without merit and intends to defend it vigorously. Consequently, we have not recognized any liability related to these actions.
At September 30, 2014, CONSOL Energy has provided the following financial guarantees, unconditional purchase obligations and letters of credit to certain third parties, as described by major category in the following table. 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. CONSOL Energy management believes that these guarantees will expire without being funded, and therefore the commitments will not have a material adverse effect on financial condition.


20





 
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
$
151,302

 
$
71,915

 
$
79,387

 
$

 
$

Environmental
39,363

 
37,635

 
1,728

 

 

Other
135,809

 
56,209

 
79,600

 

 

Total Letters of Credit
326,474

 
165,759

 
160,715

 

 

Surety Bonds:
 
 
 
 
 
 
 
 
 
Employee-Related
204,884

 
204,884

 

 

 

Environmental
661,191

 
619,041

 
42,150

 

 

Other
25,685

 
25,625

 
59

 

 
1

Total Surety Bonds
891,760

 
849,550

 
42,209

 

 
1

Guarantees:
 
 
 
 
 
 
 
 
 
Coal
183,700

 
125,250

 
58,450

 

 

Other
63,131

 
34,974

 
9,010

 
8,446

 
10,701

Total Guarantees
246,831

 
160,224

 
67,460

 
8,446

 
10,701

Total Commitments
$
1,465,065

 
$
1,175,533

 
$
270,384

 
$
8,446

 
$
10,702


Included in the above table are commitments and guarantees entered into in conjunction with the sale of CCC and certain of its subsidiaries, which contain all five of its longwall coal mines in West Virginia, and its river operations to a subsidiary of Murray Energy. As part of the sales agreement, CONSOL Energy has guaranteed certain equipment lease obligations and coal sales agreements that were assumed by Murray Energy. In the event that Murray Energy would default on the obligations defined in the agreements, CONSOL Energy would be required to perform under the guarantees. If CONSOL Energy would be required to perform, the stock purchase agreement provides various recourse actions. At September 30, 2014, the fair value of these guarantees was $3,000 and was included in Accounts Payable on the Consolidated Balance Sheets. The fair value of certain guarantees was determined using CONSOL Energy’s risk adjusted interest rate. Significant increases or decreases in the risk-adjusted interest rates may result in a significantly higher or lower fair value measurement. Coal sales agreement guarantees were valued based on an evaluation of coal market pricing compared to contracted sales price and includes an adjustment for nonperformance risk. No other amounts related to financial guarantees and letters of credit are recorded as liabilities in the financial statements. Significant judgment is required in determining the fair value of these guarantees. The guarantees of the leases and sales agreements are classified within Level 3 of the fair value hierarchy.

CONSOL Energy regularly evaluates the likelihood of default for all guarantees based on an expected loss analysis and records the fair value, if any, of its guarantees as an obligation in the consolidated financial statements. 
CONSOL Energy and CNX Gas enter into long-term unconditional purchase obligations to procure major equipment purchases, natural gas firm transportation, gas drilling services and other operating goods and services. These purchase obligations are not recorded on the Consolidated Balance Sheets. As of September 30, 2014, the purchase obligations for each of the next five years and beyond were as follows:
 
Obligations Due
Amount
Less than 1 year
$
240,865

1 - 3 years
371,127

3 - 5 years
224,394

More than 5 years
492,825

Total Purchase Obligations
$
1,329,211


Costs related to these purchase obligations include:


21





 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
Major Equipment Purchases
 
$
9,255

 
$
6,682

 
$
99,416

 
$
15,481

Firm Transportation and Processing Expense
 
27,476

 
24,449

 
76,839

 
67,269

Gas Drilling Obligations
 
32,901

 
26,296

 
85,364

 
81,419

Total Costs Related to Purchase Obligations
 
$
69,632

 
$
57,427

 
$
261,619

 
$
164,169

    
    
NOTE 13—DERIVATIVE INSTRUMENTS:

CONSOL Energy enters into financial derivative instruments to manage our exposure to commodity price volatility. The fair value of CONSOL Energy's derivatives (natural gas price swaps and options) are based on pricing models which utilize inputs that are either readily available in the public market, such as natural gas forward curves, or can be corroborated from active markets or broker quotes. These values are then compared to the values given by our counterparties for reasonableness. Changes in the fair value of the derivatives are recorded currently in earnings unless special hedge accounting criteria are met. For derivatives designated as fair value hedges, the changes in fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of changes in the fair value of the derivatives are reported in Other Comprehensive Income or Loss (OCI) on the Consolidated Balance Sheets and reclassified into Natural Gas, NGL's and Oil Sales on the Consolidated Statements of Income in the same period or periods which the forecasted transaction affects earnings. The ineffective portions of hedges are recognized in earnings in the current period. CONSOL Energy currently utilizes only cash flow hedges that are considered highly effective.

CONSOL Energy formally assesses both at inception of the hedge and on an ongoing basis whether each derivative is highly effective in offsetting changes in the fair values or the cash flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a highly effective hedge, CONSOL Energy will discontinue hedge accounting prospectively.

CONSOL Energy is exposed to credit risk in the event of nonperformance by counterparties. The creditworthiness of counterparties is subject to continuing review. The Company has not experienced any issues of non-performance by derivative counterparties.

None of our counterparty master agreements currently require CONSOL Energy to post collateral for any of its hedges. However, as stated in the counterparty master agreements, if CONSOL Energy's obligations with one of its counterparties cease to be secured on the same basis as similar obligations with the other lenders under the credit facility, CONSOL Energy would have to post collateral for hedges in a liability position in excess of defined thresholds. All of our derivative instruments are subject to master netting arrangements with our counterparties.  CONSOL Energy recognizes all financial derivative instruments as either assets or liabilities at fair value on the Consolidated Balance Sheets on a gross basis.
 
                Each of CONSOL Energy's counterparty master agreements allows, in the event of default, the ability to elect early termination of outstanding contracts. If early termination is elected, CONSOL Energy and the applicable counterparty would net settle all open hedge positions.

CONSOL Energy has entered into swap and option contracts for natural gas to manage the price risk associated with the forecasted natural gas sales. The objective of these hedges is to reduce the variability of the cash flows associated with the forecasted sales from the underlying commodity. As of September 30, 2014, the total notional amount of the Company’s outstanding derivative instruments was 199.6 billion cubic feet. These derivative instruments are forecasted to settle through December 31, 2016 and meet the criteria for cash flow hedge accounting. As these contracts settle, the cash received and/or paid will be shown on the Consolidated Statements of Cash Flows as Changes in Prepaid Expenses, Changes in Other Assets, Changes in Other Operating Liabilities and/or Changes in Other Liabilities. Assuming no changes in price during the next twelve months, $14,853 of unrealized gain is expected to be reclassified from Other Comprehensive Income on the Consolidated Balance Sheets and into Natural Gas, NGL's and Oil Sales on the Consolidated Statements of Income, as a result of the gross settlements of cash flow hedges. No gains or losses have been reclassified into earnings as a result of the discontinuance of cash flow hedges.

The gross fair value at September 30, 2014 of CONSOL Energy's derivative instruments, which all qualify as cash flow hedges, was an asset of $51,710 and a liability of $8,554. The total asset is comprised of $31,520 and $20,190 which were included in Prepaid Expense and Other Assets, respectively, on the Consolidated Balance Sheets. The total liability is


22





comprised of $7,204 and $1,350 which was included in Other Accrued Liabilities and Other Liabilities, respectively, on the Consolidated Balance Sheets.

The gross fair value at December 31, 2013 of CONSOL Energy's derivative instruments, which all qualify as cash flow hedges, was an asset of $83,661 and a liability of $18,212. The total asset is comprised of $59,605 and $24,056 which was included in Prepaid Expense and Other Assets, respectively, on the Consolidated Balance Sheets. The total liability is comprised of $12,327 and $5,885 which were included in Other Accrued Liabilities and Other Liabilities, respectively, on the Consolidated Balance Sheets.

The effect of derivative instruments in cash flow hedging relationships on the Consolidated Statements of Income and the Consolidated Statements of Stockholders' Equity net of tax was as follows:

 
 
 
For the Three Months Ended September 30,
 
2014
 
2013
Natural Gas Price Swaps and Options
 
 
 
Beginning Balance – Accumulated OCI

$
6,574

 
$
71,674

Gain recognized in Accumulated OCI
39,151

 
13,246

Less: Gain reclassified from Accumulated OCI into Natural Gas, NGL's and Oil Sales
19,510

 
24,354

Ending Balance – Accumulated OCI

$
26,215

 
$
60,566

Gain recognized in Natural Gas, NGL's and Oil Sales for ineffectiveness 
$
1,850

 
$
2,592


 
 
 
For the Nine Months Ended September 30,
 
2014
 
2013
Natural Gas Price Swaps and Options
 
 
 
Beginning Balance – Accumulated OCI

$
42,493

 
$
76,761

(Loss)/Gain recognized in Accumulated OCI
(20,032
)
 
40,400

Less: (Loss)/Gain reclassified from Accumulated OCI into Natural Gas, NGL's and Oil Sales
(3,754
)
 
56,595

Ending Balance – Accumulated OCI

$
26,215

 
$
60,566

Gain/(Loss) recognized in Natural Gas, NGL's and Oil Sales for ineffectiveness 
$
2,713

 
$
(120
)

There were no amounts excluded from the assessment of hedge effectiveness in the nine months ended September 30, 2014 or 2013.

NOTE 14—FAIR VALUE OF FINANCIAL INSTRUMENTS:

The financial instruments measured at fair value on a recurring basis are summarized below:
 
Fair Value Measurements at September 30, 2014
 
Fair Value Measurements at December 31, 2013
Description
Quoted Prices in
Active Markets
for Identical
Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)*
 
Significant
Unobservable
Inputs
(Level 3)**
 
Quoted Prices in
Active Markets
for Identical
Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)*
 
Significant
Unobservable
Inputs
(Level 3)**
Gas Cash Flow Hedges
$

 
$
43,156

 
$

 
$

 
$
65,449

 
$

Murray Energy Guarantees
$

 
$

 
$
3,000

 
$

 
$

 
$
3,000

*- The fair value of the assets and liabilities included in Level 2 are based on standard industry income approach models that use significant observable inputs, including NYMEX forward curves, LIBOR-based discount rates and basis forward curves.
**- The fair value of the assets and liabilities included in Level 3 are based on unobservable inputs for the asset or liability, including situations where there is little, if any, market activity. The significant unobservable inputs used in the fair value measurement of our third party guarantees are the credit risk of the third party and the third party surety bond markets. A significant increase or decrease in the these values, in isolation, would have a directionally similar effect resulting in higher or lower fair value measurement of our Level 3 guarantees.



23






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

Cash and cash equivalents: The carrying amount reported in the balance sheets for cash and cash equivalents approximates its fair value due to the short-term maturity of these instruments.

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:
 
September 30, 2014
 
December 31, 2013
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Cash and Cash Equivalents
$
225,563

 
$
225,563

 
$
327,420

 
$
327,420

Long-Term Debt
$
(3,239,730
)
 
$
(3,269,768
)
 
$
(3,118,920
)
 
$
(3,299,875
)

NOTE 15—SEGMENT INFORMATION:
CONSOL Energy has two principal business divisions: Exploration and Production (E&P) and Coal. The principal activity of the E&P division is to produce pipeline quality natural gas for sale primarily to gas wholesalers. The E&P division includes four reportable segments. These reportable segments are Marcellus, Coalbed Methane, Shallow Oil and Gas and Other Gas. The Other Gas segment includes our purchased gas activities, general and administrative activities as well as various other activities assigned to the E&P division but not allocated to each individual well type. The principal activities of the Coal division are mining, preparation and marketing of thermal coal, sold primarily to power generators, and metallurgical coal, sold to metal and coke producers. The Coal division includes four reportable segments. These reportable segments are Thermal, Low Volatile Metallurgical, High Volatile Metallurgical and Other Coal. Each of these reportable segments includes a number of operating segments (mines or type of coal sold). For the three and nine months ended September 30, 2014, the Thermal aggregated segment includes the following mines: Bailey Complex, Buchanan Mine, Enlow Fork Mine, Harvey Mine and Miller Creek Complex. For the three and nine months ended September 30, 2014, the Low Volatile Metallurgical aggregated segment includes the Buchanan Mine. For the three and nine months ended September 30, 2014, the High Volatile Metallurgical aggregated segment includes: Bailey Complex, Enlow Fork Mine, and Harvey Mine coal sales. The Other Coal segment includes our purchased coal activities, idled mine activities, general and administrative activities as well as various other activities assigned to the Coal division but not allocated to each individual mine. CONSOL Energy’s All Other segment includes industrial supplies, coal terminal operations and various other corporate activities that are not allocated to the E&P or Coal division. Intersegment sales have been recorde