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 March 31, 2000
--------------
or
[ ] 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 (IRS Employer Identification No.)
incorporation or organization)
300 Delaware Avenue, Suite 567, Wilmington, Delaware 19801-1622
---------------------------------------------------------------
(Address or principal executive offices)
(Zip Code)
(412) 831-4000
------------------------------------------------
(Registrant's telephone number, including area code)
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
---- _____
As of May 8, 2000, there were 78,599,285 shares of Common Stock, $.01 par value,
outstanding.
1
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Page
----
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income for the three months
ended March 31, 2000 and 1999 and the nine months ended
March 31, 2000 and 1999........................................... 3
Condensed Consolidated Balance Sheets at March 31, 2000
and June 30, 1999................................................. 4
Condensed Consolidated Statements of Stockholders' Equity for the
nine months ended March 31, 2000.................................. 6
Condensed Consolidated Statements of Cash Flows for the nine
months ended March 31, 2000 and 1999.............................. 7
Notes to Unaudited Condensed Consolidated Financial Statements.... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION..................... 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK................................................. 25
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................. 25
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................... 25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................... 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 25
ITEM 5. OTHER INFORMATION................................................. 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 26
2
PART 1
FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOL ENERGY INC. AND SUBSIDIARIES
-----------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Sales - Outside $ 507,752 $ 563,056 $ 1,590,030 $ 1,674,253
Sales - Related Parties 3,264 4,437 3,307 55,186
Other Income 26,454 10,949 48,806 39,023
----------- ---------- ---------- -----------
Total Revenue 537,470 578,442 1,642,143 1,768,462
Cost of Goods Sold and Other
Operating Charges 370,617 397,503 1,164,204 1,244,469
Selling, General and
Administrative Expense 13,696 13,582 42,801 40,971
Depreciation, Depletion and
Amortization 62,985 62,203 188,319 183,226
Interest Expense 14,583 16,481 39,957 41,838
Taxes Other Than Income 45,895 56,364 132,567 154,952
Restructuring Costs (Note 3) 9,609 - 11,276 -
----------- ----------- ----------- ------------
Total Costs 517,385 546,133 1,579,124 1,665,456
----------- ----------- ----------- ------------
Earnings Before Income
Taxes 20,085 32,309 63,019 103,006
Income Taxes(Benefit)
(Note 4) (2,885) 6,704 (7,184) 9,101
----------- ----------- ----------- ------------
Net Income $ 22,970 $ 25,605 $ 70,203 $ 93,905
=========== =========== =========== ===========
Earnings Per Share $ 0.29 $ 0.44 $ 0.88 $ 1.15
=========== =========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 79,217,730 57,667,558 79,792,170 81,370,743
=========== =========== =========== ===========
Dividends Per Share $ 0.28 $ - $ 0.84 $ 0.98
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
3
CONSOL ENERGY INC. AND SUBSIDIARIES
-----------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in thousands, except per share data)
(Unaudited)
MARCH 31, JUNE 30,
2000 1999
----------- ---------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 14,826 $ 23,559
Accounts and Notes Receivable:
Trade 240,708 241,054
Related Parties 247 743
Other 42,528 21,030
Inventories (Note 5) 164,572 206,995
Recoverable Income Taxes 3,513 -
Deferred Income Taxes 94,253 94,575
Prepaid Expenses 24,776 34,692
--------- ---------
Total Current Assets 585,423 622,648
Property, Plant and Equipment:
Property, Plant and Equipment 4,878,409 4,863,138
Less - Accumulated Depreciation,
Depletion and Amortization 2,294,984 2,188,872
----------- -----------
Total Property, Plant and
Equipment - Net 2,583,425 2,674,266
Other Assets:
Deferred Income Taxes 293,804 267,304
Advance Mining Royalties 110,840 117,808
Investments in Affiliates 163,683 1,942
Other 162,462 191,058
----------- -----------
Total Other Assets 730,789 578,112
----------- -----------
Total Assets $ 3,899,637 $ 3,875,026
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
CONSOL ENERGY INC. AND SUBSIDIARIES
-----------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in thousands, except per share data)
(Unaudited)
MARCH 31, JUNE 30,
2000 1999
----------------------- --------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 138,110 $ 194,592
Short-Term Notes Payable 451,305 345,525
Current Portion of Long-Term Debt 7,101 13,752
Accrued Income Taxes - 2,393
Other Accrued Liabilities 361,012 327,813
--------------------- ----------------------
Total Current Liabilities 957,528 884,075
Long-Term Debt:
Long-Term Debt 287,130 294,311
Capital Lease Obligations 15,347 18,432
--------------------- ----------------------
Total Long-Term Debt 302,477 312,743
Deferred Credits and Other Liabilities:
Postretirement Benefits Other Than Pensions 1,146,423 1,177,639
Pneumoconiosis Benefits 433,443 473,459
Mine Closing 278,391 278,452
Workers' Compensation 253,367 242,888
Reclamation 11,884 14,397
Other 275,593 236,648
--------------------- ----------------------
Total Deferred Credits and Other Liabilities 2,399,101 2,423,483
Stockholders' Equity:
Common Stock, $.01 par value;
500,000,000 Shares Authorized; 80,267,558 Issued
and 78,781,685 Outstanding at March 31, 2000,
80,267,558 Issued and Outstanding at June 30, 1999 803 803
Preferred Stock, 15,000,000 Shares Authorized;
None Issued and Outstanding - -
Capital in Excess of Par Value 642,947 642,947
Retained Earnings Deficit (384,982) (388,063)
Other Comprehensive Loss (1,346) (962)
Common Stock in Treasury, at Cost - 1,485,873 Shares (16,891) -
--------------------- ----------------------
Total Stockholders' Equity 240,531 254,725
--------------------- ----------------------
Total Liabilities and Stockholders' Equity $ 3,899,637 $ 3,875,026
===================== ======================
The accompanying notes are an integral part of these financial statements.
5
CONSOL ENERGY INC. AND SUBSIDIARIES
-----------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
---------------------------------------------------------
(Dollars in thousands, except per share data)
Other Total
Capital in Retained Compre- stock-
Common Excess of Earnings hensive Treasury holders'
Stock Par Value Deficit Loss Stock Equity
---------- ------------ ---------- --------- ---------- ----------
Balance - June 30, 1999 $ 803 $ 642,947 $ (388,063) $ (962) $ - $ 254,725
---------- ------------ ---------- --------- ---------- ----------
(Unaudited):
Net Income - - 70,203 - - 70,203
Unrealized Loss on Securities
(net of $243 tax) - - - (384) - (384)
---------- ------------ ---------- --------- ---------- ----------
Comprehensive Income - - 70,203 (384) - 69,819
Dividends ($.84 per share) - - (67,060) - - (67,060)
Treasury Stock Purchased
(1,507,700 shares) - - - - (17,184) (17,184)
Treasury Stock Issued
(21,827 shares) - - (62) - 293 231
---------- ------------ ---------- --------- ---------- ----------
Balance - March 31, 2000 $ 803 $ 642,947 $ (384,982) $ (1,346) $ (16,891) $ 240,531
=========== ============ ========== ========= ========== ==========
The accompanying notes are an integral part of these financial statements.
6
CONSOL ENERGY INC. AND SUBSIDIARIES
-----------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
(Dollars in thousands)
Nine Months Ended March 31,
-----------------------------------
2000 1999
------------ ------------
Operating Activities:
Net Income $ 70,203 $ 93,905
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization 188,319 183,226
Gain on the Sale of Assets (21,236) (6,340)
Amortization of Advance Mining Royalties 12,730 12,498
Deferred Income Taxes (25,935) (28,072)
Equity in Earnings of Affiliates (245) -
Changes in Operating Assets:
Accounts and Notes Receivable (18,427) 36,511
Inventories 42,423 (32,322)
Prepaid Expenses 4,596 (7,037)
Changes in Other Assets 10,352 25,786
Changes in Operating Liabilities:
Accounts Payable (51,233) (17,399)
Other Operating Liabilities 26,941 15,135
Changes in Other Liabilities (25,916) (20,732)
Other 4,186 11,209
------------ ------------
146,555 172,463
------------ ------------
Net Cash Provided by Operating Activities 216,758 266,368
Investing Activities:
Capital Expenditures (92,703) (158,445)
Additions to Advance Mining Royalties (5,114) (4,556)
Acquisition of R & P Coal Co. - Net of Cash Acquired - (100,408)
Acquisition of Gas Properties - MCN Energy Group Inc. (160,049) -
Investment in Affiliates (104) -
Proceeds from Sales of Assets 28,424 6,171
Change in Marketable Securities - Net - 147,960
------------ ------------
Net Cash Used in Investing Activities (229,546) (109,278)
Financing Activities:
Proceeds from Commercial Paper 105,880 592,812
Payments on Miscellaneous Borrowings (17,587) (64,078)
Payments on Long Term Notes - (100,000)
Dividends Paid (67,054) (80,000)
Acquisition of Company Shares (17,184) (500,000)
------------ ------------
Net Cash Provided by (Used in) Financing Activities 4,055 (151,266)
------------ ------------
Net (Decrease) Increase in Cash and Cash Equivalents (8,733) 5,824
Cash and Cash Equivalents at Beginning of Period 23,559 20,646
------------ ------------
Cash and Cash Equivalents at End of Period $ 14,826 $ 26,470
============ ============
The accompanying notes are an integral part of these financial statements.
7
CONSOL ENERGY INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
MARCH 31, 2000
--------------
(Dollars in thousands, except per share data)
NOTE 1 - BASIS OF PRESENTATION:
- ------------------------------
The accompanying unaudited condensed 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-month and nine-month periods
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the future periods.
The balance sheet at June 30, 1999 has been derived from the audited financial
statements at that date but does not include all the footnotes required by
generally accepted accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes for the transitional period ended June 30, 1999 included in CONSOL
Energy Inc.'s (CONSOL Energy) Form 10-K, as filed on September 28, 1999.
CONSOL Energy changed its fiscal year from a year ending December 31 to a year
ending June 30. CONSOL Energy had a transitional period ending June 30, 1999.
CONSOL Energy's first full fiscal year ending June 30 started July 1, 1999 and
ends June 30, 2000. CONSOL Energy has made this change in order to align its
fiscal year with that of RWE AG, which beneficially owns through subsidiaries
approximately 74% of the outstanding common stock of CONSOL Energy.
NOTE 2 - ACQUISITION:
- --------------------
On February 25, 2000, CONSOL Energy acquired the stock of Buchanan Production
Company (BPC), MCNIC Oakwood Gathering Inc. (OGI), and a MCN subsidiary that
owns a 50% interest in Cardinal States Gathering Company (CSGC) from MCN Energy
Group Inc. for approximately $160,000. These companies own gas production and
pipeline properties in southwestern Virginia and currently produce 70 million
cubic feet per day of pipeline quality methane gas. BPC is estimated to hold
approximately 275 billion cubic feet of proven coalbed methane gas reserves.
The acquisition has been accounted for under the purchase method. Accordingly,
the preliminary purchase price has been allocated to the assets acquired and
liabilities assumed, based upon the fair values at the date of the acquisition.
The acquisition included
8
a 50% interest in CSGC, in which CONSOL Energy previously owned a 25% interest.
CONSOL Energy does not exercise majority control over CSGC, and therefore is
using the equity method to account for this investment. CONSOL Energy's
financial statements include the results of the companies acquired on a
consolidated basis from the date of acquisition.
Pro forma revenues, assuming the acquisition of these companies had occurred on
July 1, 1998, would be $545,280 and $588,590 for the three months ended March
31, 2000 and 1999, respectively. Pro forma revenues would be $1,680,566 and
$1,801,766 for the nine months ended March 31, 2000 and 1999, respectively. Pro
forma net income and earnings per share, after giving effect to certain purchase
accounting adjustments, would not materially change. These pro forma results are
not necessarily indicative of what would have occurred if the acquisition had
been made on July 1, 1998. In addition, they are not intended to be a projection
of future results and do not reflect any synergies that might be achieved from
combined operations.
On September 22, 1998, CONSOL Energy purchased 100% of the outstanding stock of
the Rochester and Pittsburgh Coal Company (R&P) for $100,408 (net of $49,275
cash acquired). The acquisition has been accounted for as a purchase and,
accordingly, the operating results of R&P have been included in CONSOL Energy's
consolidated financial statements since the date of acquisition. Pro forma
revenues for CONSOL Energy, giving effect to the acquisition of R&P as if it had
occurred on July 1, 1998, were $1,849,667 for the nine months ended March 31,
1999. The pro forma effect on net income of CONSOL Energy was not material.
NOTE 3 - RESTUCTURING COSTS
- ---------------------------
CONSOL Energy commenced a restructuring of its administrative staff and research
staff functions and recorded a restructuring charge of $9,609 and $11,276 for
the three and nine months ended March 31, 2000. The restructuring charge
primarily relates to severance and employee benefit costs as a result of a
Voluntary Separation Incentive Program and consulting fees.
9
NOTE 4 - INCOME TAXES:
- ----------------------
The following is a reconcilation, stated as a percentage of pretex income of the
U.S. statutory federal income tax rate; to CONSOL Energy's effective tax rate:
For the Three For the Nine
Months Ended Months Ended
March 31, March 31,
----------------------- ----------------------
2000 1999 2000 1999
---------- ---------- --------- ---------
Statutory U. S. federal income tax rate 35.0 % 35.0 % 35.0 % 35.0 %
Excess tax depletion (41.0) (15.5) (26.7) (20.0)
Tax settlements - - (13.8) -
Adjustment of prior years' taxes (0.4) - (4.4) (2.4)
Nonconventional fuel tax credit (7.9) (0.8) (2.5) (0.8)
Net effect of state tax (1.9) 2.0 0.5 2.8
Net effect of foreign tax 0.6 0.4 0.7 0.3
Charitable contributions of property
at fair value - - - (4.8)
Other 1.2 (0.4) (0.2) (1.3)
---------- ---------- --------- ---------
Effective Income Tax Rate (14.4) % 20.7 % (11.4) % 8.8 %
========== ========== ========= =========
The provision for income taxes is adjusted at the time the returns are filed.
These adjustments increased income tax expense $67 for the three months ended
March 31, 2000, and decreased income tax expense $3,587 for the nine months
ended March 31, 2000. These adjustments decreased income tax expense by $3,927
for the nine months ended March 31, 1999.
In the nine months ended March 31, 2000, CONSOL Energy recorded a $7,861 federal
income tax benefit from a final agreement resolving disputed federal income tax
items for the years 1992-1994.
NOTE 5 - INVENTORIES:
- --------------------
The components of inventories consist of the following:
March 31, June 30,
2000 1999
-------------- -------------
Coal $ 90,974 $ 127,019
Merchandise for resale 33,910 36,614
Supplies 39,688 43,362
-------------- -------------
Total Inventories $ 164,572 $ 206,995
============== =============
10
NOTE 6 - CONTINGENT LIABILITIES:
- -------------------------------
CONSOL Energy is subject to various lawsuits and claims with respect to such
matters as personal injury, damage to property, governmental regulations
including environmental remediation, and other actions arising out of the normal
course of business. The costs of mine closing and reclamation are accrued over
the productive life of the mine. In addition, CONSOL Energy has accrued $3,275
in other liabilities for remediation of a waste disposal site. In the opinion of
management, the ultimate liabilities resulting from such lawsuits and claims
will not materially affect CONSOL Energy.
On June 22, 1999, an underground fire was discovered in the old workings of the
idled Loveridge Mine and CONSOL Energy sealed the mine to extinguish the fire.
Mine reserves and equipment are not believed to be impaired.
A public utility filed suit against CONSOL Energy alleging breach of a long-term
coal supply contract based upon CONSOL Energy's refusal to agree to reductions
in the price for coal under the contract's "gross inequities" clause. Damages
claimed, including interest, are approximately $190,000. On August 31, 1998,
CONSOL Energy was awarded a summary judgment dismissing the claims against it.
The public utility appealed the court's order dismissing the suit. On August 27,
1999, the United States Court of Appeals for the Eighth Circuit affirmed the
judgment of the district court. The appeal period has expired and the ruling of
the Eighth Circuit is final. CONSOL Energy had not accrued any liability
associated with this action.
CONSOL Energy received, from a group of public utilities, two notices of intent
to submit certain price disputes to arbitration pursuant to a 1987 coal sales
contract. The notices claim that the utilities have been overcharged by
approximately $50,000 for coal under the price adjustment clause of the
contract. In accordance with contract procedure, CONSOL Energy submitted its
response asserting that the price adjustments were made in conformity with the
contract. The parties have not yet submitted their positions to an arbitrator.
Management believes that the claims are without merit, and, accordingly, CONSOL
Energy has not accrued any liability associated with this proceeding.
11
NOTE 7 - SEGMENT INFORMATION:
- ----------------------------
Industry segment results for the three months ended March 31, 2000:
Industrial
Supplies & Consoli-
Coal Equipment Elimination dated
------------ ------------ ------------ ------------
Sales - outside $ 471,440 $ 36,312 $ - $ 507,752
Sales - related companies 3,264 - - 3,264
Intersegment transfers - 18,672 (18,672) -
------------ ------------ ------------ ------------
Total Sales $ 474,704 $ 54,984 $ (18,672) $ 511,016
============ ============ ============ ============
Earnings (Loss) before
income taxes $ 20,912 $ (827) $ 20,085
Income taxes (benefit) (2,535) (350) (2,885)
------------ ------------ ------------
Net Income (Loss) $ 23,447 $ (477) $ 22,970
============ ============ ============
Segment assets $ 3,842,044 $ 57,593 $ 3,899,637
============ ============ ============
Depreciation, depletion
and amortization $ 62,719 $ 266 $ 62,985
============ ============ ============
Additions to property, plant
and equipment $ 139,598(A) $ 85 $ 139,683
============ ============ ============
(A) Includes $110,519 acquired from MCN.
Industry segment results for the three months ended March 31, 1999:
Industrial
Supplies & Consoli-
Coal Equipment Elimination dated
------------ ------------ ------------ ------------
Sales - outside $ 523,830 $ 39,226 $ - $ 563,056
Sales - related companies 4,437 - - 4,437
Intersegment transfers - 22,526 (22,526) -
------------ ------------ ------------ ------------
Total Sales $ 528,267 $ 61,752 $ (22,526) $ 567,493
============ ============ ============ ============
Earnings before income taxes $ 31,047 $ 1,262 $ 32,309
Income taxes 6,209 495 6,704
------------ ------------ ------------
Net Income $ 24,838 $ 767 $ 25,605
============ ============ ============
Segment assets $ 3,803,308 $ 61,229 $ 3,864,537
============ ============ ============
Depreciation, depletion
and amortization $ 62,014 $ 189 $ 62,203
============ ============ ============
Additions to property, plant
and equipment $ 26,878 $ 508 $ 27,386
============ ============ ============
12
Industry segment results for the nine months ended March 31, 2000:
Industrial
Supplies & Consoli-
Coal Equipment Elimination dated
-------------- ------------- ------------- ------------
Sales - outside $ 1,483,285 $ 106,745 $ - $ 1,590,030
Sales - related companies 3,307 - - 3,307
Intersegment transfers - 52,931 (52,931) -
-------------- ------------- ------------- ------------
Total Sales $ 1,486,592 $ 159,676 $ (52,931) $ 1,593,337
============== ============= ============= ============
Earnings (Loss) before
income taxes $ 66,326 $ (3,307) $ 63,019
Income taxes (benefit) (5,770) (1,414) (7,184)
-------------- ------------- ------------- ------------
Net Income (Loss) $ 72,096 $ (1,893) $ 70,203
============== ============= ============
Segment assets $ 3,842,044 $ 57,593 $ 3,899,637
============== ============= ============
Depreciation, depletion
and amortization $ 187,535 $ 784 $ 188,319
============== ============== ============
Additions to property, plant
and equipment $ 204,158 (A) $ 339 $ 204,497
============== ============== ============
(A) Includes $110,519 acquired from MCN.
Industry segment results for the nine months ended March 31, 1999:
Industrial
Supplies & Consoli-
Coal Equipment Elimination dated
-------------- ------------- ------------- ------------
Sales - outside $ 1,590,626 $ 83,627 $ - $ 1,674,253
Sales - related companies 16,403 38,783 - 55,186
Intersegment transfers - 64,008 (64,008) -
------------- ------------ ------------ -----------
Total Sales $ 1,607,029 $ 186,418 $ (64,008) $ 1,729,439
============= ============ ============ ===========
Earnings before income taxes $ 99,944 $ 3,062 $ 103,006
Income taxes 7,953 1,148 9,101
------------- ------------ -----------
Net Income $ 91,991 $ 1,914 $ 93,905
============= ============ ===========
Segment assets $ 3,803,308 $ 61,229 $ 3,864,537
============= ============ ===========
Depreciation, depletion
and amortization $ 182,537 $ 689 $ 183,226
============= ============ ===========
Additions to property, plant
and equipment $ 412,387 (B) $ 1,134 $ 413,521
============= ============ ===========
(B) Includes $248,879 acquired from Rochester and Pittsburgh Coal
Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
General
Productivity, as defined by tons per manday, improved 17.3% compared with the
same quarter a year ago. Also, the cost of producing a ton of coal was reduced
11.0% in the same quarter comparison. Our improvement in productivity and
production cost per ton is due, in part, to the closing of the Keystone and
Helvetia complexes in the second quarter of the fiscal year. These complexes had
high mining costs per ton and low productivity compared with most of our other
mines. In addition, two of our mines, Bailey Mine and McElroy Mine, set
production records during the quarter.
Compared with the same quarter a year ago, CONSOL Energy's coal production was
down 2.0 million tons because we have idled or closed several mines. This
reduced production has allowed us to lower our coal inventories by 2.4 million
tons compared with the levels a year ago. We have been able to maintain our per
ton profit for the coal we produced despite an 11.5% decline in coal prices in
the quarter to quarter comparison. CONSOL Energy's coal sales volumes for the
quarter ended March 31, 2000 were essentially unchanged from the same quarter a
year ago.
Gas production increased during the period because of the February 25, 2000
acquisition of gas reserves and production assets in southwestern Virginia from
MCN Energy Inc. Our gas production increased from an average of 16.6 million
cubic feet per day (MMcfd) to an average of 49.8 MMcfd in the quarter to quarter
comparison. The production rate at the end of the quarter was approximately 90
MMcfd.
During the quarter, we began to implement changes in our organizational
structure based on our review of administrative and research services.
Approximately 130 employees elected to participate in the Voluntary Separation
Incentive Program, which provided enhanced medical, pension and severance
benefits upon separation from employment. We took charges against income of $9.6
million for these reductions and for other costs associated with the
restructuring. We expect to reduce additional employment and take further
charges before the end of our fiscal year ending June 30, 2000. It is not
currently possible to estimate the potential outcome of these reductions related
to the restructuring.
CONSOL Energy continues to review its business processes and the information
technology supporting those processes. The purpose of the study is to assess the
need to supplement or replace core business systems and to provide
cost-effective strategic software direction to meet future core business needs.
It is anticipated that this study will be completed before June 30, 2000.
Decisions to be made by management as the result of this study could affect
future earnings. It is not currently possible to estimate the potential outcome
of these assessments or their impact on our financial position and results of
operations in any given quarter or year.
14
Results of Operations
Three Months Ended March 31, 2000 Compared with Three Months Ended March 31,
1999
Net Income
CONSOL Energy's net income for the three months ended March 31, 2000 (the 2000
period) was $23 million compared with $26 million for the three months ended
March 31, 1999 (the 1999 period). The decrease of $3 million, or 10.3% primarily
was due to lower coal prices and the addition of restructuring costs offset in
part by lower production costs. This decrease in net income was also partially
offset by an increase in gain on dispositions of assets and a decrease in income
tax provisions.
Revenue
Sales decreased $56 million, or 10.0% to $511 million for the 2000 period from
$567 million for the 1999 period.
Revenues from the sale of Produced Coal decreased $56 million, or 11.5% to $432
million in the 2000 period from $488 million in the 1999 period. Sales volumes
of Produced Coal for the 2000 period were 18.6 million tons, approximately the
same as in the 1999 period. Average sales price per ton of Produced Coal sold
decreased 11.5% to $23.24 per ton for the 2000 period from $26.25 per ton for
the 1999 period. The decline in average sales price was primarily due to
expirations of higher-priced contracts during the 2000 period and weaker spot
prices compared to the same period last year.
Revenues from the sale of Purchased Coal decreased by $5 million, or 13.8% to
$25 million in the 2000 period from $30 million in the 1999 period. Sales
volumes of Purchased Coal were 0.8 million tons in the 2000 period, a decrease
of 14.5% from the 1999 period. The decrease in volume was primarily due to lower
sales at a Belgium subsidiary and the expiration of purchased coal contracts
acquired with the Rochester & Pittsburgh Coal Company Acquisition in September
1998. Average sales prices of Purchased Coal were $31.86 per ton for the 2000
period, approximately the same as the 1999 period.
Sales of Industrial Supplies decreased $3 million, or 7.4% to $36 million in the
2000 period from $39 million in the 1999 period due to reduced volumes.
Revenues from the sale of coalbed methane gas and gathering fees increased $6
million to $12 million in the 2000 period from $6 million in the 1999 period.
The increase was primarily due to higher volumes related to the acquisition of
Buchanan Production Company (BPC), MCNIC Oakwood Gathering Inc. (OGI), and a MCN
subsidiary that owns a 50% interest in Cardinal States Gathering Company (CSGC)
on February 25, 2000 and higher volumes related to gas properties previously
owned by CONSOL Energy.
15
Other income, which consists of interest income, gain on the disposition of
assets, service income, royalty income, rental income, equity in earnings of
affiliates and miscellaneous income, increased $15 million to $26 million in the
2000 period from $11 million in the 1999 period. The increase was primarily due
to an increase in the gain on dispositions of assets.
Costs
Cost of goods sold and other operating charges decreased $27 million, or 6.8% to
$371 million in the 2000 period compared to $398 million in the 1999 period.
Cost of goods sold for Produced Coal was $259 million for the 2000 period, a
decrease of $37 million, or 12.5% from the 1999 period. This primarily reflects
a decrease due to a reduction in cost per produced ton. The reduction in
production costs is primarily due to reduced labor, supplies and maintenance
costs. Tons per manday have increased 17.3% to 46.3 in the 2000 period compared
to 39.5 in the 1999 period reflecting improved efficiencies at the operating
locations, the closing of the Keystone and Helvetia complexes, and transferring
production to more efficient mines.
Purchased Coal costs decreased 16.3% to $24 million in the 2000 period compared
to $29 million in the 1999 period. The $5 million decrease was due mainly to a
decrease of $4 million due to reduced volumes, and a decrease of $1 million due
to decreased cost per ton purchased.
Industrial Supplies cost of goods sold decreased 3.8% to $37 million in the 2000
period from $38 million in the 1999 period. The $1 million decrease was due to
reduced sales.
Coal property holding costs increased $7 million to $8 million in the 2000
period from $1 million in the 1999 period. The increase was primarily due to
leasehold surrenders.
Royalty expense on certain land sale proceeds increased $4 million to $5 million
in the 2000 period from $1 million in the 1999 period. The increase was
primarily due to royalties owed on proceeds from certain land sales which
occurred in the 2000 period.
Gas costs increased 61.0% to $6 million in the 2000 period from $4 million in
the 1999 period. The increase was primarily due to higher volumes related to the
acquisition of BPC, OGI, and a MCN subsidiary that owns a 50% interest in CSGC,
offset in part by reduced costs of goods sold and other charges related to gas
properties previously owned by CONSOL Energy.
Selling, general and administrative expenses remained stable at $14 million for
the 2000 and 1999 periods.
16
Depreciation, depletion and amortization expense increased 1.3% to $63 million
in the 2000 period compared to $62 million in the 1999 period. The increase of
$1 million was primarily due to the depreciation expense related to assets
placed in service after the 1999 period and the depreciation expense on assets
received in the acquisition of BPC, OGI, and a MCN subsidiary that owns a 50%
interest in CSGC. The increased depreciation expense was partially offset by
reduced depreciation and depletion expense from the scheduled closing of the
Powhatan Mine due to economically depleted reserves.
Interest expense decreased 11.5% to $15 million for the 2000 period compared to
$16 million for the 1999 period. The decrease of $1 million was due primarily to
lower average debt levels outstanding during the 2000 period compared to the
1999 period, partially offset by a higher average interest rate in the 2000
period. Higher debt levels in the 1999 period resulted from the issuance of
commercial paper to finance the purchase of CONSOL Energy's common stock from
DuPont Energy Company in November 1998. Lower debt levels in the 2000 period
resulted from the use of the Initial Public Offering proceeds to reduce debt and
the repayment of $100 million of long-term debt as scheduled in January 1999.
Taxes other than income decreased 18.6% to $46 million for the 2000 period
compared to $56 million for the 1999 period. The decrease of $10 million was due
primarily to decreased black lung excise taxes due to overall lower production
tons, decreased West Virginia severance taxes due to lower production in that
state, and reduced payroll taxes primarily due to decreased labor costs.
Restructuring charges were $10 million in the 2000 period. These charges
represent costs related to the review of administrative and research staff
functions and the implementation of reductions. The purpose of the review was to
assess the need for and to assist in a restructuring of those functions to
enable CONSOL Energy to respond to the cost challenges of the current
environment without losing the ability to take advantage of opportunities to
grow the business over the longer term. In the third quarter, a Voluntary
Separation Incentive Program (VSIP) was offered to eligible employees.
Incentives included extended medical benefits, pension plan enhancements, and
severance pay. Approximately 130 employees elected and were approved for the
VSIP. The costs related to the VSIP were approximately $8 million. The remaining
restructuring costs of $2 million in the 2000 period relate to the engagement of
outside consultants to assist in the review of these functions.
Income Taxes
Income taxes reflected a $3 million benefit in the 2000 period compared to a $7
million expense in the 1999 period. The tax benefit in the 2000 period was the
result of a revised estimate of the effective tax rate expected to be applicable
for the full fiscal year. This new rate was used in providing for income taxes
on a year to date basis with the income tax expense for the current quarter
being the difference between the revised year to date estimate and the amounts
reported in previous interim periods of the fiscal year. The current rate (prior
to tax settlements and actualization of prior period tax accruals) of 6.8% was
reduced from the original effective rate of 16.5% due mainly to lower pre-tax
income,
17
with minimal effect on percentage depletion benefits, and additional Section 29
gas tax benefits related to the recent acquisition of BPC, OGI, and a MCN
subsidiary that owns a 50% interest in CSGC. The effective tax rate for the 1999
period was 20.7%. The higher effective rate for the 1999 period was due to
higher pre-tax income.
Nine Months Ended March 31, 2000 Compared with Nine Months Ended March 31, 1999
Net Income
CONSOL Energy's net income for the nine months ended March 31, 2000 (the YTD
2000 period) was $70 million compared with $94 million for the nine months ended
March 31, 1999 (the YTD 1999 period). The decrease of $24 million primarily was
due to reduced coal prices and the addition of restructuring costs offset in
part by lower production costs. This decrease in net income was also partially
offset by an increase in gain on dispositions of assets and a decrease in income
tax provisions.
Revenue
Sales decreased 7.9% to $1,593 million for the YTD 2000 period from $1,729
million for the YTD 1999 period.
Revenues from the sale of Produced Coal decreased by $121 million, or 8.2% to
$1,365 million in the YTD 2000 period from $1,486 million in the YTD 1999
period. Produced Coal sales volumes were 57.1 million tons in both the YTD 2000
period and the YTD 1999 period. Average sales prices decreased 8.2% to $23.90
per ton for the YTD 2000 period from $26.04 per ton for the YTD 1999 period. The
decrease in average sales price was due primarily to expirations of
higher-priced contracts during the YTD 2000 period and weaker spot prices
compared to the same period last year.
Revenues from the sale of Purchased Coal decreased by $9 million, or 10.4% to
$81 million in the YTD 2000 period from $90 million in the YTD 1999 period.
Sales volumes of Purchased Coal were 2.7 million tons in the YTD 2000 period,
approximately the same as in the YTD 1999 period. Average sales prices decreased
10.2% to $30.01 per ton for the YTD 2000 period from $33.41 for the YTD 1999
period due to an overall decline in average sales prices in the export market.
Industrial Supply sales decreased $17 million, or 14.0% to $107 million in the
YTD 2000 period from $124 million in the YTD 1999 period due to reduced sales
volumes.
Revenues from the sale of coalbed methane gas and gathering fees increased $13
million to $28 million in the YTD 2000 period from $15 million in the YTD 1999
period. The increase was primarily due to higher volumes as a result of the
acquisition of BPC, OGI, and a MCN subsidiary that owns a 50% interest in CSGC
on February 25, 2000 and higher volumes related to gas properties previously
owned by CONSOL Energy.
18
The reduction in related party sales reflects the recategorization of sales to
E. I. Du Pont de Nemours and Company (DuPont) from related party sales to
outside sales due to the purchase of CONSOL Energy's shares from DuPont Energy
Company (DuPont Energy) in November 1998.
Other income, which consists of interest income, gain on the disposition of
assets, service income, royalty income, rental income, equity in earnings of
affiliates and miscellaneous income, increased 25.1% to $49 million in the YTD
2000 period from $39 million in the YTD 1999 period. The increase of $10 million
was primarily due to an increase in the gain on disposition of assets, offset,
in part, by a decrease in interest income resulting from a lower level of
investment in marketable securities.
Costs
Cost of goods sold and other operating charges decreased 6.4% to $1,164 million
in the YTD 2000 period compared to $1,244 million in the YTD 1999 period.
Cost of goods sold for Produced Coal was $867 million for the YTD 2000 period, a
decrease of $44 million, or 4.8% from the YTD 1999 period. This primarily
reflects a decrease due to a reduction in cost per produced ton. The reduction
in production costs is primarily due to reduced labor, supplies and maintenance
costs. Tons per manday have increased 9.9% to 43.4 in the YTD 2000 period
compared to 39.5 in the YTD 1999 period reflecting improved efficiencies at the
operating locations, the closing of the Keystone and Helvetia complexes, and
transferring production to more efficient mines.
Other cost of goods sold and other charges were $10 million in the YTD 2000
period compared to $43 million in the YTD 1999 period, a decrease of $33
million. Retiree medical charges declined $9 million, medical costs declined $1
million, and claim accruals declined $6 million. In the YTD 1999 period these
charges also included a $14 million property donation.
Industrial Supplies cost of goods sold decreased 8.2% to $109 million in the YTD
2000 period from $119 million in the YTD 1999 period. The $10 million decrease
was due to reduced sales.
Purchased Coal costs decreased 11.8% to $78 million in the YTD 2000 period from
$89 million in the YTD 1999 period. The $11 million decrease was due to an 11.8%
decrease in the cost per ton of purchased coal.
Closed and idle mine costs increased 54.6% to $37 million in the YTD 2000 period
from $24 million in the YTD 1999 period. The increase was primarily due to the
Loveridge and Ohio #11 mines being idle, Powhatan being closed in the YTD 2000
period, and a reversal of mine-closing liabilities related to a property
disposition in the YTD 1999 period.
19
Gas costs increased 46.3% to $16 million in the YTD 2000 period from $11 million
in the YTD 1999 period. The increase was primarily due to higher volumes as a
result of the acquisition of BPC, OGI, and a MCN subsidiary that owns a 50%
interest in CSGC and higher volumes related to the gas properties previously
owned by CONSOL Energy.
Selling, general and administrative expenses increased 4.5% to $43 million in
the YTD 2000 period compared to $41 million in the 1999 period. The increase of
$2 million was primarily due to professional service fees.
Depreciation, depletion and amortization expense increased 2.8% to $188 million
in the YTD 2000 period compared to $183 million in the YTD 1999 period. The
increase of $5 million was primarily due to additional depreciation expense
related to assets placed in service after the YTD 1999 period and the
depreciation on assets received in the acquisition of BPC, OGI, and a MCN
subsidiary that owns a 50% interest in CSGC. The increased depreciation expense
was partially offset by reduced depreciation expense from the closing of the
Powhatan mine due to economically depleted reserves.
Interest expense decreased 4.5% to $40 million for the YTD 2000 period compared
to $42 million for the YTD 1999 period. The decrease of $2 million was due
primarily to lower average debt levels outstanding during the YTD 2000 period
compared to the YTD 1999 period, partially offset by a higher average interest
rate in the 2000 period. Higher debt levels in the YTD 1999 period resulted from
the issuance of commercial paper to finance the purchase of CONSOL Energy's
Common Stock from DuPont Energy in November 1998. Lower debt levels in the YTD
2000 period resulted from the use of the Initial Public Offering proceeds to
reduce debt and the repayment of $100 million of long-term debt as scheduled in
January 1999.
Taxes other than income decreased 14.4% to $133 million for the YTD 2000 period
compared to $155 million for the YTD 1999 period. The decrease of $22 million
was due primarily to decreased black lung excise taxes due to overall lower
production tons, decreased West Virginia severance taxes due to lower production
in that state, and lower property taxes due to reduced assessments on closed
operations, and reduced payroll taxes due primarily to decreased labor costs.
Restructuring charges were $11 million in the YTD 2000 period. These charges
represent costs related to the review of administrative and research staff
functions and the implementation of reductions. The purpose of the review was to
assess the need for and to assist in a restructuring of those functions to
enable CONSOL Energy to respond to the cost challenges of the current
environment without losing the ability to take advantage of opportunities to
grow the business over the longer term. In the third quarter, a VSIP was offered
to selected employees. Incentives included extended medical benefits, pension
plan enhancements, and severance pay. Approximately 130 employees elected and
were approved for the VSIP. The costs related to the VSIP were approximately $8
million. The remaining restructuring costs of $3 million in the YTD 2000 period
primarily relate to the engagement of outside consultants to assist in the
review of these functions and additional severance costs.
20
Income Taxes
Income taxes reflected a $7 million benefit in the YTD 2000 period compared to a
$9 million expense in the YTD 1999 period. The benefit was due primarily to the
recording of a $7.9 million benefit from a final agreement resolving disputed
federal income tax items for the years 1992-1994 and the recording of a $3.6
million benefit resulting from filing the federal and various state tax returns
for the period January 1, 1998 through December 31, 1998 in the YTD 2000 period.
Also, the reduced tax expense is due to a lower effective tax rate in the YTD
2000 period due mainly to lower pre-tax income, with minimal effect on
percentage depletion benefits, and additional Section 29 gas tax benefits
related to the recent acquisition of BPC, OGI, and a MCN subsidiary that owns a
50% interest in CSGC.
Liquidity and Capital Resources
CONSOL Energy generally has satisfied its working capital requirements and
funded its capital expenditures and debt-service obligations from cash generated
from operations. CONSOL Energy believes that cash generated from operations and
its borrowing capacity will be sufficient to meet its working capital
requirements, anticipated capital expenditures (other than major acquisitions),
scheduled debt payments and anticipated dividend payments. Nevertheless, the
ability of CONSOL Energy to satisfy its debt service obligations, to fund
planned capital expenditures or pay dividends will depend upon its future
operating performance, which will be affected by prevailing economic conditions
in the coal industry and financial, business and other factors, some of which
are beyond CONSOL Energy's control.
CONSOL Energy frequently evaluates potential acquisitions. CONSOL Energy has
funded acquisitions primarily with cash generated from operations and a variety
of other sources, depending on the size of the transaction, including debt or
equity financing. There can be no assurance that such additional capital
resources will be available to CONSOL Energy on terms which CONSOL Energy finds
acceptable, or at all.
21
Stockholders' Equity and Dividends
CONSOL Energy had stockholders' equity of $241 million at March 31, 2000 and
$255 million at June 30, 1999. The Board of Directors currently intends to pay
quarterly dividends on the common stock. Dividend information for the last four
fiscal quarters is as follows:
Declaration Amount Shareholders' of
Date Per Share Record on: Payment Date
---- --------- --------- ------------
04/26/00 $0.28 05/11/00 05/30/00
01/25/00 $0.28 02/10/00 02/28/00
10/27/99 $0.28 11/08/99 11/22/99
07/20/99 $0.28 08/04/99 09/02/99
Current outstanding indebtedness of CONSOL Energy does not restrict CONSOL
Energy's ability to pay cash dividends.
CONSOL Energy Share Repurchases
In August 1999, CONSOL Energy announced that it would begin a share repurchase
program of up to 1,000,000 shares of CONSOL Energy's Common Stock. In March
2000, CONSOL Energy completed the repurchase of 1,000,000 shares of CONSOL
Energy's Common Stock at an average price of $11.90.
In March 2000, CONSOL Energy announced that it would begin another share
repurchase program of up to 1,000,000 shares of CONSOL Energy's Common Stock.
The stock repurchase will be used in connection with benefit plan
administration. The timing of the purchases and the number of shares to be
purchased are dependent upon market conditions. As of March 31, 2000, CONSOL
Energy had repurchased 207,700 shares at an average price of $11.08 in this new
share repurchase program.
On November 30, 1999, CONSOL Energy purchased 300,000 shares of its common stock
for $2.9 million, or $9.75 per share, as part of a larger private transaction.
The shares had been beneficially owned by E. I. du Pont de Nemours and Company
(DuPont). As of November 30, 1999, DuPont had sold all of its 3,264,201 shares
of common stock of CONSOL Energy.
Cash Flows
Net cash provided by operating activities was $217 million in the nine months
ended March 31, 2000 (the YTD 2000 period) compared to $266 million in the nine
months ended March 31, 1999 (the YTD 1999 period). The change in net cash
provided by operating activities reflects decreases in net income, liquidation
of inventories, and an increase of accounts receivables and changes in operating
liabilities.
22
Net cash used in investing activities was $230 million in the YTD 2000 period
compared to $109 million in the YTD 1999 period. The change in net cash used in
investing activities reflects the purchase of BPC, OGI, and a MCN subsidiary
that owns a 50% interest in CSGC from MCN Energy Group Inc. in the YTD 2000
period compared to the purchase of R&P and the sale of marketable securities in
the YTD 1999 period. In addition, capital expenditures in the YTD 2000 period
were $93 million compared with $158 million in the YTD 1999 period. The
reduction in capital expenditures was primarily due to deferring expansion
projects and curtailing capital expenditures as part of the cost reduction
efforts which have been implemented by CONSOL Energy.
Net cash provided by financing activities was $4 million in the YTD 2000 period
compared with $151 million used in financing activities in the YTD 1999 period.
The change in net cash used in financing activities reflects the reduced
proceeds from commercial paper in the YTD 2000 period compared to the YTD 1999
period. This decrease was offset in part by the expenditure to purchase shares
of CONSOL's Common Stock from DuPont Energy in the YTD 1999 period, as well as
the scheduled retirement of a long-term note in the YTD 1999 period. Also,
dividends aggregating $67 million were paid in the YTD 2000 period compared to
an $80 million dividend paid in the YTD 1999 period. The YTD 2000 period
dividends reflect CONSOL Energy's current policy of paying quarterly dividends.
The YTD 1999 period represents an annual dividend payment for the twelve months
ended December 1998.
Debt
At March 31, 2000, CONSOL Energy had total long-term debt of $310 million,
including the current portion of long-term debt of $7 million. Such total
long-term debt consisted of:
. an aggregate principal amount of $156 million of unsecured notes which bear
interest at rates ranging from 8.21% to 8.28% per annum and are due at
various dates between 2002 and 2007,
. an aggregate principal amount of $103 million of two series of industrial
revenue bonds which were issued in order to finance CONSOL Energy's
Baltimore port facility and bear interest at the rate of 6.50% per annum
and mature in 2010 and 2011,
. an aggregate principal amount of $2 million of variable rate notes due at
various dates through 2001,
. $29 million in advance royalty commitments,
. an aggregate principal amount of $1 million of notes maturing at various
dates through 2031 and
. an aggregate principal amount of $19 million of capital leases.
At March 31, 2000, CONSOL Energy had an aggregate principal amount of $451
million of commercial paper outstanding which had maturities ranging up to 49
days with interest at varying rates ranging from 6.10% to 6.48% per annum.
23
Impact of Year 2000 Issue
CONSOL Energy experienced no significant system problems, internal or external,
related to year 2000 issues. Utility customers continued to purchase coal,
CONSOL Energy was able to access its bank accounts and receive payments, and
transportation providers made timely coal shipments to customers. CONSOL
Energy's mines and processing plants continued to operate and no significant
coal mining or processing disruptions occurred related to the year 2000 issue.
Costs related to year 2000 readiness in the quarter ended March 31, 2000 were
immaterial. Based on experience to date, no significant problems are anticipated
to occur in the future related to this issue.
Forward-Looking Statements
CONSOL Energy is including the following cautionary statement in this Report on
Form 10-Q to make applicable and take advantage of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of CONSOL Energy. With the exception of
historical matters, the matters discussed in this Report on Form 10-Q are
forward-looking statements (as defined in Section 21E of the Exchange Act) that
involve risks and uncertainties that could cause actual results to differ
materially from projected results. In addition to other factors and matters
discussed elsewhere in this Report on Form 10-Q, these risks, uncertainties and
contingencies include, but are not limited to, the following: the success or
failure of CONSOL Energy's efforts to implement its business strategy; reliance
on major customers and long-term contracts; the effects of market demand and
price on performance; the ability to renew coal sales agreements upon
expiration; the price of coal and gas sold under any new sales agreements;
fluctuating sales prices; contract penalties; actions of CONSOL Energy's
competitors and CONSOL Energy's ability to respond to such actions; risks
inherent in mining including geological conditions and mine accidents;
weather-related factors; results of litigation; the effects of government
regulation; the risk of work stoppages; the risk of transportation disruptions
that could impair CONSOL Energy's ability to sell coal and gas; management's
ability to correctly estimate and accrue for contingent liabilities; and CONSOL
Energy's ability to identify suitable acquisition candidates and to successfully
finance, consummate the acquisition of, and integrate these candidates as part
of its acquisition strategy.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CONSOL Energy's interest expense is sensitive to changes in the general level of
interest rates in the United States. At March 31, 2000, CONSOL Energy had
outstanding $288 million aggregate principal amount of debt under fixed-rate
instruments and $453 million aggregate principal amount of debt under
variable-rate instruments. CONSOL Energy's primary exposure to market risk for
changes in interest rates relates to its commercial paper program. At March 31,
2000, CONSOL Energy had an aggregate of $451 million in commercial paper
outstanding. CONSOL Energy's commercial paper bore interest at an average rate
of 6.12% per annum during the nine months ended March 31, 2000. A 100
basis-point increase in the average rate for CONSOL Energy's commercial paper
would have decreased CONSOL Energy's net income for the nine months ended March
31, 2000 by approximately $2 million.
Almost all of CONSOL Energy's transactions are denominated in U.S. dollars, and,
as a result, it does not have material exposure to currency exchange-rate risks.
CONSOL Energy did not engage in any interest rate, foreign currency exchange
rate or commodity price hedging transactions.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material litigation has been filed against CONSOL Energy during the three
months ended March 31, 2000, and other than noted, there have been no material
changes in legal proceedings previously disclosed by CONSOL Energy. See Part I,
Item 1. Financial Statements-Note 6.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
25
ITEM 5. OTHER INFORMATION
Election of New Director
Effective April 1, 2000, Ulrich Weber was elected a Director of CONSOL Energy
and is to hold such position until the next annual election of Directors and
until his successor is duly elected and qualified.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
The following condensed consolidated financial statements of CONSOL Energy Inc.
and subsidiaries are included in this filing on the pages indicated:
Page
----
Condensed Consolidated Statements of Income for the three months and nine
months ended March 31, 2000 and March 31, 1999................................. 3
Condensed Consolidated Balance Sheets at March 31, 2000 and June 30, 1999...... 4
Condensed Consolidated Statements of Stockholders' Equity for the nine
months ended March 31, 2000.................................................... 6
Condensed Consolidated Statements of Cash Flows for the nine months ended March
31, 2000 and March 31, 1999.................................................... 7
Notes to Unaudited Condensed Consolidated Financial Statements................. 8
a (2) Financial Statement Schedules:
No financial statement schedules required to be presented by CONSOL Energy.
a (3) Exhibits filed as part of this Report:
The response to this portion of Item 6 is submitted as a separate part of this
report.
(b) (1) Reports on Form 8-K:
None.
27 Financial Data Schedule, Exhibit 27.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSOL ENERGY INC.
Date: May 9, 2000
By: /s/ R. Zimmermann
--------------------------------
R. Zimmermann,
Executive Vice President
Date: May 9, 2000
By: /s/ M. F. Nemser
--------------------------------
M. F. Nemser
Vice President and Treasurer
(Chief Financial Officer)
Date: May 9, 2000
By: /s/ W. J. Lyons
--------------------------------
William J. Lyons,
Vice President and Controller
(Principal Financial and Accounting Officer)
27