LEASES

3 Months Ended

Mar. 31, 2019

LEASES:

On January 1, 2019, the Company adopted Accounting Standards Codification (“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 Unaudited Consolidated Statements of Income over the lease term. For the three months ended March 31, 2019, these short-term lease expenses were not material to the Company's financial statements.

Based on the Company's lease portfolio, the standard had a material impact on the Company’s Unaudited Consolidated Balance Sheet but did not have a significant impact on the Company’s consolidated net earnings and cash flows. The most significant impact was the recognition of Right of Use (“ROU”) assets and lease liabilities for operating leases, while the accounting for finance leases remained substantially unchanged. The Company's bank covenants were not affected by this update. The Company recorded operating lease ROU assets and operating lease liabilities of $92 million as of January 1, 2019, primarily related to mining equipment, based on the present value of the future lease payments on the date of adoption.

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, 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 or 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 three months ended March 31, 2019, the components of operating lease expense were as follows:



Fixed operating lease expense	$	6,857
Variable operating lease expense	3,052
Total operating lease expense	$	9,909

Supplemental cash flow information related to the Company's operating leases for the three months ended March 31, 2019 was as follows:



Cash paid for amounts included in the measurement of operating lease liabilities	$	3,881
ROU assets obtained in exchange for operating lease obligations	—

The following table presents the lease balances within the Unaudited Consolidated Balance Sheet, weighted average lease term, and the weighted average discount rates related to the Company's operating leases at March 31, 2019:



Lease Assets and Liabilities	Classification
Assets:
Operating Lease ROU Assets	Other Assets	$	87,026

Liabilities:
Current:
Operating Lease Liabilities	Other Accrued Liabilities	$	19,600
Long-Term:
Operating Lease Liabilities	Operating Lease Liabilities	$	70,600
Total Operating Lease Liabilities		$	90,200

Weighted average remaining lease term (in years)		5.42
Weighted average discount rate		6.75		%

CONSOL Energy leases certain owned mining equipment to a third-party under operating leases. At March 31, 2019, the amount of owned equipment included in gross property, plant and equipment was $10,097 and the associated amount of accumulated depreciation was $10,097. At March 31, 2019, scheduled minimum rental payments for operating leases related to this equipment were as follows:



Remainder of 2019		2020		2021		2022		2033		Thereafter		Total
$	1,237	$	627	$	—	$	—	$	—	$	—	$	1,864

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 Unaudited Consolidated Balance Sheet.

For the three months ended March 31, 2019, the components of finance lease expense were as follows:



Amortization of right of use assets	$	3,914
Interest expense	555
Total finance lease expense	$	4,469

The following table presents the weighted average lease term and weighted average discount rate related to the Company's finance leases as of March 31, 2019:



Weighted average remaining lease term (in years)	2.06
Weighted average discount rate	5.38	%

At March 31, 2019, certain finance leases for mining equipment are subleased to a third-party. The following table represents the minimum payments, including interest, for those finance subleases:



Remainder of 2019		2020		2021		2022		2033		Thereafter		Total
$	2,774	$	3,699	$	2,157	$	—	$	—	$	—	$	8,630

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 March 31, 2019:



	Finance		Operating
	Leases		Leases
Remainder of 2019	$	13,566	$	19,751
2020	20,209		23,921
2021	6,541		23,134
2022	129		13,341
2023	108		6,504
Thereafter	5		22,113
Total minimum lease payments	40,558		108,764
Less amount representing interest	2,260		18,564
Present value of minimum lease payments	$	38,298	$	90,200

As of March 31, 2019, the Company had no additional significant operating or finance leases that had not yet commenced.

LEASES