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Note 14 - Leases

12 Months Ended

Dec. 31, 2021

NOTE 14—LEASES:

On January 1, 2019, the Company adopted ASC Topic 842 using the transition option, “Comparatives Under 840 Option,” established by ASU 2018-11, Leases (Topic 842), Targeted Improvements. As allowed under this guidance, the Company elected not to recast the comparative periods presented when transitioning to ASC 842. As most of the Company's leases do not provide an implicit rate, CONSOL Energy has taken a portfolio approach of applying its incremental borrowing rate based on the information available at the adoption date to calculate the present value of lease payments over the lease term. CONSOL Energy has elected the package of practical expedients permitted under the transition guidance within the standard, which allows the Company (1) to not reassess whether any expired or existing contracts are or contain leases, (2) to not reassess the lease classification for any expired or existing leases, and (3) to not reassess initial direct costs for any existing leases. CONSOL Energy has also elected the practical expedient to not evaluate land easements that existed or expired before the Company’s adoption of Topic 842 and the practical expedient to not separate lease and non-lease components; that is, to account for lease and non-lease components in a contract as a single lease component for all classes of underlying assets. Further, the Company made an accounting policy election to keep leases with an initial term of twelve months or less off the balance sheet. CONSOL Energy will recognize those lease payments in the Consolidated Statements of Income over the lease term. For the years ended December 31, 2021 and 2020, these short-term lease expenses were not material to the Company's financial statements.

The Company determines if an arrangement is an operating or finance lease at inception of the applicable lease. For leases where the Company is the lessee, Right of Use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available on the commencement date in determining the present value of lease payments. The ROU asset also consists of any prepaid lease payments, lease incentives received, and costs which will be incurred in exiting a lease. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense using the interest method of recognition.

The Company has operating leases for mining and other equipment used in operations and office space. Many leases include one or more options to renew, some of which include options to extend, the leases, and some leases include options to terminate or buy out the leases within a set period of time. In certain of the Company’s lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for inflation and/or changes in other indexes. Many of the Company's operating lease payments for mining equipment contain a variable component which is calculated based upon production metrics such as feet of advance or raw tonnage mined. While most of the Company's leases contain clauses regarding the general condition of the equipment upon lease termination, they do not contain residual value guarantees.

For the years ended December 31, 2021 and 2020, the components of operating lease expense were as follows:

	*December 31,*
	*2021*		*2020*
Fixed operating lease expense	$	17,695	$	24,359
Variable operating lease expense		6,884		3,835
Total operating lease expense	$	24,579	$	28,194

Supplemental cash flow information related to the Company's operating leases for the years ended December 31, 2021 and 2020 was as follows:

	*December 31,*
	*2021*		*2020*
Cash paid for amounts included in the measurement of operating lease liabilities	$	25,330	$	24,293
Cash paid for early buyout of existing operating lease for longwall shields		18,380		—
ROU assets obtained in exchange for operating lease obligations		—		—

The following table presents the lease balances within the Consolidated Balance Sheets, weighted average lease term, and the weighted average discount rate related to the Company's operating leases at December 31, 2021 and 2020:

		*December 31,*
Lease Assets and Liabilities	*Classification*	*2021*			*2020*
Assets:
Operating Lease ROU Assets	Other Assets	$	21,956		$	53,436

Liabilities:
Current:
Operating Lease Liabilities	Operating Lease Liabilities	$	6,682		$	20,241
Long-Term:
Operating Lease Liabilities	Operating Lease Liabilities	$	15,274		$	35,655
Total Operating Lease Liabilities		$	21,956		$	55,896

Weighted average remaining lease term (in years)			3.98			4.65
Weighted average discount rate			6.78	%		6.84	%

The Company also enters into finance leases for mining equipment and automobiles. Assets arising from finance leases are included in property, plant and equipment-net and the liabilities are included in current portion of long-term debt and long-term debt in the accompanying Consolidated Balance Sheets.

For the years ended December 31, 2021 and 2020, the components of finance lease expense were as follows:

	*December 31,*
	*2021*		*2020*
Amortization of right of use assets	$	27,846	$	24,066
Interest expense		3,501		2,375
Total finance lease expense	$	31,347	$	26,441

The following table presents the weighted average lease term and weighted average discount rate related to the Company's finance leases as of December 31, 2021 and 2020:

	*December 31,*			*December 31,*
	*2021*			*2021*
Weighted average remaining lease term (in years)		2.03			2.68
Weighted average discount rate		6.21	%		5.79	%

The following table presents the future maturities of the Company's operating and finance lease liabilities, together with the present value of the net minimum lease payments, at December 31, 2021:

	*Finance*		*Operating*
	*Leases*		*Leases*
2022	$	22,906	$	7,929
2023		22,167		5,585
2024		5,190		4,843
2025		366		3,322
2026		19		3,322
Thereafter		—		277
Total minimum lease payments		50,648		25,278
Less amount representing interest		3,307		3,322
Present value of minimum lease payments	$	47,341	$	21,956

During the year ended December 31, 2021, the Company entered into an agreement reducing the term for its building lease.