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 December 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 January 31, 2001, there were 78,604,300 shares of Common Stock, $.01 par
value, outstanding.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Page
----
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Consolidated Statements of Income for the three months ended
December 31, 2000 and 1999 and the six months ended
December 31, 2000 and 1999..................................................................... 3
Consolidated Balance Sheets at December 31, 2000
and June 30, 2000.............................................................................. 4
Consolidated Statements of Stockholders' Equity for the six
months ended December 31, 2000................................................................. 6
Consolidated Statements of Cash Flows for the six months
ended December 31, 2000 and 1999............................................................... 7
Notes to Consolidated Financial Statements..................................................... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.................................................. 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.............................................................................. 26
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................................. 27
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..................................................... 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................................................... 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................... 28
ITEM 5. OTHER INFORMATION............................................................................. 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................. 29
2
PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOL ENERGY INC. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------- ------------------------------
2000 1999 2000 1999
------------- ------------ ------------ ------------
Sales - Outside $ 504,753 $ 536,728 $ 991,920 $ 1,081,648
Sales - Related Parties - - 2,056 43
Other Income 24,057 11,172 37,154 22,352
------------- ------------ ------------ ------------
Total Revenue 528,810 547,900 1,031,130 1,104,043
Cost of Goods Sold and Other
Operating Charges 363,910 375,006 732,104 790,844
Selling, General and Administrative
Expense 16,865 15,956 33,381 31,218
Depreciation, Depletion and
Amortization 59,596 64,244 119,723 125,334
Interest Expense 15,542 12,536 30,806 25,374
Taxes Other Than Income 40,103 46,082 77,771 86,672
Restructuring Costs (Note 4) - 1,667 - 1,667
------------- ------------ ------------ ------------
Total Costs 496,016 515,491 993,785 1,061,109
------------- ------------ ------------ ------------
Earnings Before Income Taxes 32,794 32,409 37,345 42,934
Income Taxes (Benefit) (Note 5) 3,387 (4,097) 3,842 (4,299)
------------- ------------ ------------ ------------
Net Income $ 29,407 $ 36,506 $ 33,503 $ 47,233
============= ============ ============ ============
Basic and Dilutive
Earnings Per Share (Note 2) $ 0.37 $ 0.46 $ 0.43 $ 0.59
============= ============ ============ ============
Weighted Average Number of
Common Shares Outstanding 78,590,854 79,901,818 78,584,204 80,076,268
============= ============ ============ ============
Dividends Per Share $ 0.28 $ 0.28 $ 0.56 $ 0.56
============= ============ ============ ============
The accompanying notes are an integral part of these financial statements.
3
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
DECEMBER 31, JUNE 30,
2000 2000
-------------------- --------------------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 10,570 $ 8,181
Accounts and Notes Receivable:
Trade 247,438 262,943
Related Parties 138 -
Other Receivables 19,286 24,849
Inventories (Note 6) 99,470 156,853
Recoverable Income Taxes 3,307 7,813
Deferred Income Taxes 93,698 93,464
Prepaid Expenses 21,783 23,625
-------------- --------------
Total Current Assets 495,690 577,728
Property, Plant and Equipment:
Property, Plant and Equipment 4,904,267 4,852,017
Less - Accumulated Depreciation,
Depletion and Amortization 2,345,052 2,277,573
-------------- --------------
Total Property, Plant and
Equipment - Net 2,559,215 2,574,444
Other Assets:
Deferred Income Taxes 295,721 291,178
Advance Mining Royalties 104,759 107,980
Investment in Affiliates 221,391 177,272
Other 135,288 137,709
-------------- --------------
Total Other Assets 757,159 714,139
-------------- --------------
Total Assets $ 3,812,064 $ 3,866,311
============== ==============
The accompanying notes are an integral part of these financial statements.
4
CONSOL ENERGY INC. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in thousands, except per share data)
(Unaudited)
DECEMBER 31, JUNE 30,
2000 2000
---------------- ----------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 127,210 $ 143,313
Accounts Payable - Related Parties - 502
Short-Term Notes Payable 462,689 464,310
Current Portion of Long-Term Debt 6,706 6,757
Other Accrued Liabilities 331,591 337,920
---------------- ----------------
Total Current Liabilities 928,196 952,802
Long-Term Debt:
Long-Term Debt 286,096 286,098
Capital Lease Obligations 12,595 14,507
---------------- ----------------
Total Long-Term Debt 298,691 300,605
Deferred Credits and Other Liabilities:
Postretirement Benefits Other Than Pensions 1,111,621 1,118,021
Pneumoconiosis Benefits 428,983 426,402
Mine Closing 269,195 280,370
Workers' Compensation 260,481 253,534
Reclamation 5,334 11,808
Other 265,534 268,590
---------------- ----------------
Total Deferred Credits and Other Liabilities 2,341,148 2,358,725
Stockholders' Equity:
Common Stock, $.01 par value;
500,000,000 Shares Authorized; 80,267,558 Issued
and 78,597,050 Outstanding at December 31, 2000,
80,267,558 Issued and 78,577,274 Outstanding
at June 30, 2000 803 803
Preferred Stock, 15,000,000 Shares Authorized;
None Issued and Outstanding - -
Capital in Excess of Par Value 643,077 642,947
Retained Earnings Deficit (380,656) (370,152)
Other Comprehensive Loss (322) (322)
Common Stock in Treasury, at Cost - 1,670,508
Shares at December 31, 2000, 1,690,284 Shares
at June 30, 2000 (18,873) (19,097)
---------------- ----------------
Total Stockholders' Equity 244,029 254,179
---------------- ----------------
Total Liabilities and Stockholders' Equity $ 3,812,064 $ 3,866,311
================ ================
The accompanying notes are an integral part of these financial statements.
5
CONSOL ENERGY INC. AND SUBSIDIARIES
-----------------------------------
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, 2000 $ 803 $ 642,947 $ (370,152) $ (322) $ (19,097) $ 254,179
------------- ------------- --------------- ------------- -------------- ------------
(Unaudited):
Net Income - - 33,503 - - 33,503
Dividends ($.56 per share) - - (44,007) - - (44,007)
Treasury Stock Issued
(19,776 shares) - 130 - - 224 354
------------- ------------- --------------- ------------- -------------- ------------
Balance -
December 31, 2000 $ 803 $ 643,077 $ (380,656) $ (322) $ (18,873) $ 244,029
============= ============= =============== ============= ============== ============
The accompanying notes are an integral part of these financial statements.
6
CONSOL ENERGY INC. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(Dollars in thousands)
Six Months Ended December 31,
-------------------------------------------
2000 1999
---------------- -----------------
Operating Activities:
Net Income $ 33,503 $ 47,233
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization 119,723 125,334
Gain on the Sale of Assets (9,989) (5,097)
Amortization of Advance Mining Royalties 5,728 6,795
Deferred Income Taxes (4,777) (10,767)
Equity in Earnings of Affiliates (8,984) -
Changes in Operating Assets:
Accounts and Notes Receivable 20,428 (9,842)
Inventories 57,383 45,144
Prepaid Expenses 1,842 5,729
Changes in Other Assets 2,421 26,078
Changes in Operating Liabilities:
Accounts Payable (16,663) (27,867)
Other Operating Liabilities (1,598) 7,319
Changes in Other Liabilities (17,577) (19,836)
Other 128 2,135
---------------- -----------------
148,065 145,125
---------------- -----------------
Net Cash Provided by Operating Activities 181,568 192,358
Investing Activities:
Capital Expenditures (109,163) (64,033)
Additions to Advance Mining Royalties (2,525) (2,681)
Acquisition of Line Creek Mine Joint Venture (Note 3) (37,464) -
Investment in Equity Affiliates 2,889 -
Proceeds from Sales of Assets 15,503 7,697
---------------- -----------------
Net Cash Used in Investing Activities (130,760) (59,017)
Financing Activities:
Payments on Commercial Paper (2,578) (74,651)
Payments on Miscellaneous Borrowings (1,963) (15,472)
Dividends Paid (43,990) (44,873)
Purchase of Treasury Stock - (8,302)
Issuance of Treasury Stock 112 -
---------------- -----------------
Net Cash Used in Financing Activities (48,419) (143,298)
---------------- -----------------
Net Increase (Decrease) in Cash and Cash Equivalents 2,389 (9,957)
Cash and Cash Equivalents at Beginning of Period 8,181 23,559
---------------- -----------------
Cash and Cash Equivalents at End of Period $ 10,570 $ 13,602
================ =================
The accompanying notes are an integral part of these financial statements.
7
CONSOL ENERGY INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
December 31, 2000
-----------------
(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-month and six-month periods ended
December 31, 2000 are not necessarily indicative of the results that may be
expected for the future periods.
The balance sheet at June 30, 2000 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 year ended June 30, 2000 included in CONSOL Energy Inc.'s
(CONSOL Energy) Form 10-K, as filed on September 27, 2000.
Certain reclassifications of prior years' data have been made to conform to the
six months ended December 31, 2000 classifications.
NOTE 2 - EARNINGS PER SHARE:
- ---------------------------
Basic earnings per share are computed using the weighted average number of
shares outstanding. Differences in the weighted average number of shares
outstanding for purposes of computing diluted earnings per share are due to the
inclusion of the dilutive effect of employee stock options and non-employee
director stock options granted, totaling 155,060 and 519 shares for the three-
month period ended December 31, 2000 and 1999, respectively. The dilutive effect
of the options added 120,640 and 1,390 shares for the six-month period ended
December 31, 2000 and 1999, respectively. The difference in the weighted average
number of shares outstanding for the three-month and six-month periods ended
December 31, 2000 and 1999 for the calculation of basic and diluted earnings per
share was immaterial and resulted in no difference between basic and diluted
earnings per share.
8
NOTE 3 - ACQUISITION:
- --------------------
On December 31, 2000, CONSOL Energy purchased a 50 percent interest in the Line
Creek Mine, which is located 17 miles north of Sparwood, British Columbia, for
$37,464. Line Creek Mine produces bituminous metallurgical and steam coal for
delivery to customers in the Pacific Rim, South America, Europe, northeastern
United States and Canada. The acquisition has been accounted for as a purchase
and, accordingly, the operating results of Line Creek Mine will be included in
CONSOL Energy's consolidated financial statements using the equity method of
accounting from the date of acquisition.
On February 25, 2000, CONSOL Energy purchased the stock of Buchanan Production
Company (BPC), MCNIC Oakwood Gathering Inc. (OGI) and a MCN subsidiary that owns
50% interest in Cardinal States Gathering Company (CSGC) from MCN Energy Group
for $163,506. The acquisition has been accounted for as a purchase and,
accordingly, the operating results of BPC and OGI have been included in CONSOL
Energy's consolidated financial statements since the date of acquisition. The
operating results of the 50% interest in CSGC have been included in CONSOL
Energy's consolidated financial statements using the equity method of accounting
from the date of acquisition. Pro forma revenues for CONSOL Energy, giving
effect to the acquisition of BPC, OGI and the 50% interest in CSGC as if it had
occurred on July 1, 1999, were $564,270 and $1,134,656 for the three months and
six months ended December 31, 1999. The pro forma net income and earnings per
share of CONSOL Energy, after giving effect to certain purchase accounting
adjustments, would not materially change for this period.
NOTE 4 - RESTRUCTURING COSTS:
- ----------------------------
Beginning in the second quarter of the year ended June 30, 2000, CONSOL Energy
commenced a restructuring of its administrative staff and research staff
functions. The purpose of the restructuring was to align these 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 long term. Costs related to this restructuring
primarily are the result of increased consulting fees and severance and employee
benefit costs in conjunction with the workforce reduction of 214 employees.
Workforce reductions were made through a Voluntary Separation Incentive Program
(VSIP), which provided enhanced medical, pension and severance benefits upon
separation from employment and an involuntary severance program. At June 30,
2000, approximately 94% of the benefits under the programs had been paid or had
been transferred as obligations of CONSOL Energy's pension and postretirement
other than pension plans. The remaining restructuring obligation is for employee
termination benefits and is recorded as Other Accrued Liabilities. Cash payments
for the three months and six months ended December 31, 2000 were $293 and $428,
respectively. There were no other adjustments made to the restructuring
liability in the six months ended December 31, 2000. The remaining restructuring
liability at December 31, 2000 is $253.
9
NOTE 5 - INCOME TAXES:
- ---------------------
The following is the reconciliation, stated as a percentage of pretax income of
the U. S. statutory federal income tax rate, to CONSOL Energy's effective tax
rate:
For the Three For the Six
Months Ended Months Ended
December 31, December 31,
--------------------- ----------------------
2000 1999 2000 1999
------ ------ ------ ------
Statutory U. S. federal income tax rate 35.0 % 35.0 % 35.0 % 35.0 %
Excess tax depletion (21.7) (20.0) (21.7) (20.0)
Tax settlements - (26.9) - (20.3)
Adjustment of prior years' taxes - (2.2) - (6.2)
Nonconventional fuel tax credit (4.7) - (4.7) -
Net effect of state tax 1.1 1.7 1.1 1.7
Net effect of foreign tax 0.9 0.7 0.9 0.7
Other (0.3) (0.9) (0.3) (0.9)
----- ----- ----- -----
Effective Income Tax Rate 10.3 % (12.6) % 10.3 % (10.0) %
===== ===== ===== =====
The provision for income taxes is adjusted at the time the returns are filed.
These adjustments decreased income tax expense by $1,712 for the three months
ended December 31, 1999 and $3,654 for the six months ended December 31, 1999.
In the three months and six months ended December 31, 1999, CONSOL Energy
received a $7,861 federal income tax benefit from a final agreement resolving
disputed federal income tax items for the years 1992-1994.
NOTE 6 - INVENTORIES:
- --------------------
The components of inventories consist of the following:
Decmber 31, June 30,
2000 2000
-------------- ---------------
Coal $ 30,053 $ 82,835
Merchandise for resale 29,462 33,488
Supplies 39,955 40,530
-------------- ---------------
Total Inventories $ 99,470 $ 156,853
============== ===============
10
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
- --------------------------------------
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 the financial position, results of operations or cash
flows of CONSOL Energy.
Certain excise taxes paid on export sales of coal have been determined to be
unconstitutional. CONSOL Energy has filed claims with the Internal Revenue
Service (IRS) seeking refunds for these excise taxes that were paid during the
period 1994 through 1999. The government has filed a petition in the United
States Supreme Court seeking a determination of the appropriate statute of
limitations. The IRS has initiated an audit of CONSOL Energy's refund claims.
However, because of the inherent uncertainties in the litigation and audit
resolution processes, no assurance can be made as to the final outcome and
timing of this situation. Accordingly, CONSOL Energy has not recognized any
amount for the possible collection of these claims.
On June 22, 1999, an underground fire was discovered at the idled Loveridge
Mine. The mine was sealed and inert gases were injected to reduce oxygen levels
and put out the fire. Monitoring of the mine atmosphere indicated that the fire
was extinguished, and on July 24, 2000, safety crews reentered to ventilate and
secure the mine. If conditions are favorable the longwall will be restarted to
mine the remainder of the current panel. It is likely that the longwall will
then be moved to the surface, refurbished and redeployed to another mine.
Loveridge mine will then be idled unless the market is able to accommodate its
production.
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 submitted their positions to an arbitrator. On November
22, 2000 the final and binding arbitration decision was rendered. CONSOL Energy
paid $745. This amount was expensed and paid during the three months ended
December 31, 2000.
11
NOTE 8 - SEGMENT INFORMATION:
- ----------------------------
Industry segment results for the three months ended December 31, 2000:
Industrial
Supplies &
Coal Equipment Gas All Other Elimination Consolidated
------------- ------------ --------- ---------- ----------- ------------
Sales - outside $ 440,050 $ 31,287 $ 29,668 $ 3,748 $ - $ 504,753
Intersegment transfers - 17,198 1,087 4,348 (22,633) -
----------- -------- -------- --------- --------- ----------
Total Sales $ 440,050 $ 48,485 $ 30,755 $ 8,096 $ (22,633) $ 504,753
=========== ======== ======== ========= ========= ==========
Pretax Operating
Income (Loss) $ 13,430 $ (483) $ 27,259 $ 7,929 $ 48,135 (A)
=========== ======== ======== ========= ==========
Segment assets $ 2,915,831 $ 34,632 $323,849 $ 134,553 $3,408,865 (B)
=========== ======== ======== ========= ==========
Depreciation, depletion and
amortization $ 55,275 $ 323 $ 1,931 $ 2,067 $ 59,596
=========== ======== ======== ========= ==========
Additions to property, plant
and equipment $ 41,536 $ 247 $ 5,186 $ 5,161 $ 52,130
=========== ======== ======== ========= ==========
(A)Includes equity in net income (loss) of unconsolidated equity affiliates
of ($76), $5,480 and $1 for Industrial Supplies & Equipment, Gas and All
Other, respectively.
(B)Includes investments in unconsolidated equity affiliates of $39,111,
$420, $181,364 and $814 for Coal, Industrial Supplies & Equipment, Gas
and All Other, respectively.
Industry segment results for the three months ended December 31, 1999:
Industrial
Supplies &
Coal Equipment Gas All Other Elimination Consolidated
---------- ---------- ---------- ----------- ------------- ------------
Sales - outside $ 490,703 $ 34,537 $ 8,027 $ 3,461 $ - $ 536,728
Intersegment transfers - 17,313 - 4,130 (21,443) -
----------- ---------- ---------- --------- --------- ----------
Total Sales $ 490,703 $ 51,850 $ 8,027 $ 7,591 $ (21,443) $ 536,728
=========== ========== ========== ========= ========= ==========
Pretax Operating
Income (Loss) $ 42,822 $ (1,237) $ 2,245 $ 990 $ 44,820
=========== ========== ========== ========= ==========
Segment assets $ 3,043,209 $ 42,250 $ 123,948 $ 119,807 $3,329,214 (C)
=========== ========== ========== ========= ==========
Depreciation, depletion and
amortization $ 60,546 $ 264 $ 1,188 $ 2,246 $ 64,244
=========== ========== ========== ========= ==========
Additions to property, plant
and equipment $ 33,872 $ 128 $ 3,796 $ 2,794 $ 40,590
=========== ========== ========== ========= ==========
(C) Includes investments in unconsolidated equity affiliates of $769, $461
and $800 for Coal, Industrial Supplies & Equipment and All Other,
respectively.
12
Industry segment results for the six months ended December 31, 2000:
Industrial
Supplies &
Coal Equipment Gas All Other Elimination Consolidated
----------- ---------- --------- ------------ ------------ ------------
Sales - outside $ 870,785 $ 63,925 $ 50,068 $ 7,142 $ - $ 991,920
Sales - related companies 2,056 - - - - 2,056
Intersegment transfers - 35,638 1,700 8,021 (45,359) -
---------- --------- -------- ----------- ----------- ----------
Total Sales $ 872,841 $ 99,563 $ 51,768 $ 15,163 $ (45,359) $ 993,976
========== ========= ======== =========== =========== ==========
Pretax Operating
Income (Loss) $ 18,582 $ (292) $ 43,625 $ 6,108 $ 68,023 (D)
========== ========= ======== =========== ==========
Segment assets $ 2,915,831 $ 34,632 $ 323,849 $ 134,553 $ 3,408,865 (E)
========== ========= ======== =========== ==========
Depreciation, depletion and
amortization $ 110,973 $ 587 $ 3,945 $ 4,218 $ 119,723
========== ========= ======== =========== ==========
Additions to property, plant
and equipment $ 91,284 $ 247 $ 10,604 $ 8,748 $ 110,883
========== ========= ========= =========== ==========
(D) Includes equity in net income (loss) of unconsolidated equity
affiliates of ($62), $9,032 and $14 for Industrial Supplies &
Equipment, Gas and All Other, respectively.
(E) Includes investments in unconsolidated equity affiliates of
$39,111, $420, $181,364 and $814 for Coal, Industrial Supplies &
Equipment, Gas and All Other, respectively.
Industry segment results for the six months ended December 31, 1999:
Industrial
Supplies &
Coal Equipment Gas All Other Elimination Consolidated
----------- ---------- --------- ------------ ------------ ------------
Sales - outside $ 988,168 $ 70,433 $ 15,076 $ 7,971 $ - $ 1,081,648
Sales - related companies 43 - - - - 43
Intersegment transfers - 34,259 - 7,811 (42,070) -
--------- -------- ------- ---------- ---------- ----------
Total Sales $ 988,211 $ 104,692 $ 15,076 $ 15,782 $ (42,070) $ 1,081,691
========= ======== ======= ========== ========== ==========
Pretax Operating
Income (Loss) $ 68,671 $ (1,881) $ 3,969 $ (1,491) $ 69,268
========= ======== ======= ========== ==========
Segment assets $ 3,043,209 $ 42,250 $ 123,948 $ 119,807 $ 3,329,214 (F)
========= ======== ======= ========== ==========
Depreciation, depletion and
amortization $ 117,993 $ 521 $ 2,316 $ 4,504 $ 125,334
========= ======== ======= ========== ==========
Additions to property, plant
and equipment $ 54,421 $ 254 $ 6,995 $ 3,144 $ 64,814
========= ======== ======= ========== ==========
(F) Includes investments in unconsolidated equity affiliates of $769,
$461 and $800 for Coal, Industrial Supplies & Equipment and All
Other, respectively.
13
Reconciliation of Segment Information to Consolidated Amounts:
Operating Profit
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- ------------------------
2000 1999 2000 1999
---------- ----------- ---------- ----------
Total segment pretax operating income $ 48,135 $ 44,820 $ 68,023 $ 69,268
Interest (expense) income, net (15,341) (12,411) (30,678) (26,334)
---------- ----------- ---------- ----------
Earnings Before Income Taxes $ 32,794 $ 32,409 $ 37,345 $ 42,934
========== =========== ========== ==========
Total Assets
December 31,
-------------------------
2000 1999
----------- -----------
Total assets for reportable segments $ 3,408,865 $ 3,329,214
Cash and investments 10,473 37,510
Deferred tax asset 389,419 372,773
Recoverable income taxes 3,307 5,656
----------- -----------
Total Consolidated Assets $ 3,812,064 $ 3,745,153
=========== ===========
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
General
Total coal sales for three months ended December 31, 2000 (the 2000 period) were
18.3 million tons, of which 17.3 million tons were produced by CONSOL Energy
operations or sold from inventory of company produced coal. This compares with
total coal sales of 19.9 million tons, of which 18.9 million tons were produced
from CONSOL Energy operations or sold from inventory of company produced coal in
the same quarter a year ago (the 1999 period). Demand for coal was strong in
CONSOL Energy's principal market areas, but we were unable to meet demand
because of production shortfalls and low inventory levels at our mines. Company
produced inventory levels at the end of the 2000 period were 1.4 million tons
compared with 3.8 million tons at the end of the 1999 period.
Our production shortfalls were due to the closing of the Keystone and Helvetia
complexes in Pennsylvania at the end of the 1999 period and adverse geological
conditions at Mine 84 in Pennsylvania. Production at Mine 84 was 0.6 million
tons in the 2000 period, 0.8 million tons lower than for the 1999 period. We
have made alterations to our mining plans at Mine 84 that we expect will improve
mining productivity by avoiding the areas of adverse geological conditions. We
expect that these changes will improve production from Mine 84 over the last
half of this fiscal year.
Average sales prices for company-produced coal declined 3.8 percent in the 2000
period from the 1999 period. The decline was primarily due to the renegotiation
of several higher-priced coal sales contracts. However, average sale prices for
our coal have improved in each of the last two quarters.
Production and sales of coalbed methane gas increased more than 350 percent
compared with the 1999 period because of an acquisition of additional coalbed
methane production wells we made in the third quarter of the fiscal year ended
June 30, 2000. Our gas sales for the 2000 period, including equity production of
unconsolidated affiliates, were 7.2 billion cubic feet. We currently plan to
drill about 200 additional wells during the current fiscal year. We anticipate
that this will raise our daily production of coalbed methane 10 to 15 percent,
including equity production of unconsolidated affiliates, by the end of our
fiscal year ending June 30, 2001.
Nationwide prices for gas rose in the 2000 period compared with a year ago. The
price increase is attributable to higher demand for gas, including use of gas to
generate electricity, and lower inventories. Our average sale prices improved 78
percent in the 2000 period compared with the 1999 period. Our averaged realized
price for gas sold was $5.67/MMBtu. During the 2000 period, most of our gas was
sold under short-term contracts with terms, typically, of 30 days with excess
production being sold on a daily basis. Our pricing strategy reflects our
expectation that gas prices in the next several quarters should remain at
higher levels than we have seen in the last several years. CONSOL Energy had one
longer-term contract to
15
sell 38 million cubic feet of gas per day during the month of October, 2000 at a
price of $3.20/MMBtu, which was less than the prevailing market price at the
time.
CONSOL Energy continues to review its business processes and the information
technology supporting these processes. The purposes of the reviews are to assess
the need to supplement or replace core business systems and to provide
cost-effective strategic software alternatives to meet future core business
needs.
Results of Operations
Three Months Ended December 31, 2000 Compared with Three Months
Ended December 31, 1999
Net Income
CONSOL Energy's net income for the three months ended December 31, 2000 (the
2000 period) was $29 million compared with $37 million for the three months
ended December 31, 1999 (the 1999 period). The decrease of $8 million, or 19.5%,
primarily was due to a decrease in coal sales volumes and average sales prices,
and increased tax expense, partially offset by a decrease in cost of goods sold
and other charges related to decreased sales volumes and increased gas sales
volumes and average sales prices.
Revenue
Sales decreased $32 million, or 6.0% to $505 million for the 2000 period from
$537 million for the 1999 period.
Revenues from the sale of Produced Coal decreased $55 million, or 12.0% to $408
million in the 2000 period from $463 million in the 1999 period. Sales volumes
of Produced Coal were 17.3 million tons in the 2000 period, a decrease of 1.6
million tons or 8.5% from the 1999 period. This was primarily due to lower
production at Mine 84 resulting from adverse geological conditions in the 2000
period. Mine 84 encountered a sandstone intrusion in the coal seam that ran
across several longwall coal panels. Because the sandstone is harder than coal,
mining advance rates have been slowed for both the longwall and continuous
mining machines. Production for Mine 84 was 0.6 million tons in the 2000 period
compared to 1.4 million tons in the 1999 period. Because of these unanticipated
adverse geological mining conditions, force majeure notices were issued on
January 5, 2001 to the customers of Mine 84. Several steps have been taken to
alter the mine plan to avoid the worst of the sandstone area. These required
shortening the normal length of the next three longwall panels of coal to be
mined. Lower production is also attributed to the closing of the Keystone and
Helvetia complexes in the 1999 period. Average sales price per ton of Produced
Coal sold decreased 3.8% to $23.52 per ton for the 2000 period from $24.46 per
ton for the 1999 period. The decline in average sales price was primarily due to
the renegotiation of several higher-priced coal sales contracts.
16
Industrial supply sales decreased $4 million, or 9.4% to $31 million in the 2000
period from $35 million in the 1999 period primarily due to reduced sales
volumes. An agreement has been signed with a group of companies to sell the
physical assets, inventory and operations associated with 18 industrial
locations and stores management sites which were originally established to serve
the industrial supply needs of various chemical plants. This sale is subject to
final due diligence and receipt of various business approvals, and is expected
to close in March 2001. This sale is not expected to have a material impact on
net income. CONSOL Energy will continue to operate 18 industrial supply
locations nationwide.
The decreases in sales of Produced Coal and Industrial Supplies were partially
offset by the increase in sales of gas and related gathering fees. Revenues from
gas sales increased $22 million to $30 million in the 2000 period from $8
million in the 1999 period. Sales volumes were 5.4 BCF in the 2000 period, an
increase of 3.8 BCF from the 1999 period. The increase was due to higher sales
volumes as a result of the acquisition of BPC and OGI on February 25, 2000. The
increase was also due to an increase in the average sales price per MMBTU sold.
The average sales price was $5.65 for the 2000 period compared to $3.18 for the
1999 period. CONSOL Energy had one longer-term contract to sell 38 million cubic
feet of gas per day during the month of October, 2000 at a price of $3.20/MMBtu,
which was less than the prevailing market price at the time.
Revenues from the sale of Purchased Coal increased by $4 million, or 17.3% to
$32 million in the 2000 period from $28 million in the 1999 period. Sales
volumes remained stable at 1.0 million tons in the 2000 period. Average sales
price per ton of Purchased Coal increased 8.0% to $31.27 per ton for the 2000
period from $28.96 per ton for the 1999 period. The increase in price was
primarily due to price improvements related to seaborn coal trade.
Other income, which consists of interest income, gain on the disposition of
assets, equity in earnings of affiliates, service income, royalty income, rental
income and miscellaneous income, increased $13 million to $24 million in the
2000 period from $11 million in the 1999 period. The increase was primarily due
to a $6 million increase in gain on sale of assets and a $5 million increase in
equity in earnings of affiliates related to gas operations. The gain on sale of
assets in the 2000 period principally relates to the sale of certain in place
coal reserves. CONSOL Energy manages its coal reserves and sells non-strategic
reserves for reserves.
Costs
Cost of Goods Sold and Other Operating Charges decreased 3.0% to $364 million in
the 2000 period compared to $375 million in the 1999 period.
Cost of goods sold for Produced Coal was $290 million in the 2000 period, a
decrease of $3 million, or 0.9% from the 1999 period. This is due primarily to
the 8.5% decrease in the volume of Produced Coal sold, offset in part by an 8.3%
increase in
17
the cost per ton of Produced Coal. The increased cost per ton produced is
primarily due to adverse geological conditions at Mine 84. Overall, the cost per
ton produced has also increased due to declines in productivity as measured in
tons produced per man-day. Tons produced per man-day, excluding Mine 84,
Keystone and Helvetia, were 44.55 in the 2000 period compared to 45.79 in the
1999 period. Keystone and Helvetia, which had higher mining costs per ton and
lower productivity than other CONSOL Energy mines, were closed in the 1999
period.
Closed and idle mine costs were $1 million of income in the 2000 period compared
to $12 million of expense in the 1999 period. The decrease of $13 million was
primarily due to $10.0 million of adjustments in mine closing and perpetual care
liabilities as a result of updated engineering studies and cost projections for
closed and idled locations. Closed and idle mine costs were also reduced due to
reduced workers' compensation expenses related to improved experience at closed
and idled West Virginia locations in the 2000 period and reduced costs at the
Powhatan Mine which was initially idled in the 1999 period. These decreased
costs were partially offset by increased costs related to the re-entry into
Loveridge Mine in order to ventilate and secure the mine.
Industrial supplies cost of goods sold decreased 11.2% to $32 million in the
2000 period from $36 million in the 1999 period. The $4 million decrease was due
to reduced sales.
These decreases in Cost of Goods Sold and Other Charges were offset, in part, by
increased Purchased Coal costs of 13.6% to $30 million in the 2000 period from
$27 million in the 1999 period. The $3 million increase was due to increased
prices paid for Purchased Coal in the 2000 period compared to the 1999 period.
Gas operations cost of goods sold increased 43.9% to $7 million in the 2000
period from $5 million in the 1999 period. The increase of $2 million was due
mainly to increased sales volumes as a result of the acquisition of BPC and OGI
on February 25, 2000.
Selling, general and administrative expenses increased 5.7% to $17 million in
the 2000 period compared to $16 million in the 1999 period. The increase of $1
million was primarily due to increased professional consulting fees associated
with the review of business processes and information technology systems
supporting those processes, offset in part by salary cost savings from the
Voluntary Separation Incentive Program implemented in the last half of fiscal
year ended June 30, 2000.
Depreciation, depletion and amortization expense decreased 7.2% to $60 million
in the 2000 period compared to $64 million in the 1999 period. The decrease of
$4 million was primarily due to reduced depreciation and depletion expense from
the scheduled closing of the Powhatan Mine due to economically depleted
reserves. Depletion and amortization expense was also reduced due to lower
production tons in the 2000 period. These decreases were offset, in part, by
increased depreciation
18
expense related to assets placed in service after the 1999 period and the
depreciation expense on assets received in the acquisition of BPC and OGI.
Interest expense increased 24.0% to $16 million for the 2000 period compared to
$13 million for the 1999 period. The increase of $3 million was due primarily to
higher average debt levels outstanding during the 2000 period compared to the
1999 period, along with an increase of 0.9% in average interest rates. Higher
debt levels resulted from the issuance of commercial paper to finance the
purchase of BPC, OGI and a MCN subsidiary that owns a 50% interest in Cardinal
States Gathering Company (CSGC) on February 25, 2000, and the purchase of a 50%
joint venture interest in Line Creek Mine on December 31, 2000.
Taxes other than income decreased 13.0% to $40 million for the 2000 period
compared to $46 million for the 1999 period. The decrease of $6 million was due
primarily to reduced excise taxes in the 2000 period. As discussed in Note 7,
CONSOL Energy is no longer required to pay certain excise taxes on export coal
sales and, therefore, is no longer accruing for this expense. The decrease also
is due to lower black lung excise taxes related to reduced overall production
tons and sales prices and lower West Virginia severance taxes due to reduced
production tons and sales prices in that state.
Restructuring charges were $2 million in the 1999 period and represent charges
for employee severance costs and outside professional consultant costs. These
costs related to the review of administrative and research staff functions that
began in the 1999 period. 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.
Income Taxes
Income taxes were $3 million in the 2000 period compared to a $4 million benefit
in the 1999 period. The increase of $7 million was due to the recording of an $8
million benefit from a final agreement resolving disputed federal income tax
items for the years 1992 through 1994 and the recording of a $2 million benefit
resulting from filing various state tax returns for the period January 1, 1998
through December 31, 1998 in the 1999 period. No adjustments have been recorded
in the 2000 period. The effective rate for the 2000 period was 10.3%. The
effective rate for the 1999 period, before prior year tax adjustments and
settlements, was 16.5%. The lower effective rate, before prior year tax
adjustments and settlements, is due mainly to additional Section 29 gas tax
benefits related to the acquisition of BPC, OGI and the CSGC interest.
19
Six Months Ended December 31, 2000 Compared with Six Months
Ended December 31, 1999
Net Income
CONSOL Energy's net income for the six months ended December 31, 2000 (the YTD
2000 period) was $34 million compared with $47 million for the six months ended
December 31, 1999 (the YTD 1999 period). The decrease of $13 million was
primarily due to a decrease in coal sales volumes and average sales prices, and
increased tax expense, partially offset by a decrease in cost of goods sold and
other charges related to decreased coal sales volumes and increased gas sales
volumes and average sales prices.
Revenue
Sales decreased $88 million, or 8.1% to $994 million for the YTD 2000 period
from $1,082 million for the YTD 1999 period.
Revenues from the sale of Produced Coal decreased $111 million, or 11.9% to $822
million in the YTD 2000 period from $933 million in the YTD 1999 period. Sales
volumes of Produced Coal were 35.1 million tons in the YTD 2000 period, a
decrease of 3.5 million tons or 9.0% from the YTD 1999 period. This was
primarily due to lower production at Mine 84 resulting from adverse geological
conditions in the YTD 2000 period. Mine 84 encountered a sandstone intrusion in
the coal seam that ran across several longwall coal panels. Because the
sandstone is harder than coal, mining advance rates have been slowed for both
the longwall and continuous mining machines. Production for Mine 84 was 1.3
million tons in the YTD 2000 period compared to 2.9 million tons in the YTD 1999
period. Several steps have been taken to alter the mine plan to avoid the worst
of the sandstone area. These required shortening the normal length of the next
three longwall panels of coal to be mined. Lower production is also attributed
to the closing of the Keystone and Helvetia complexes in the YTD 1999 period.
Average sales price per ton of Produced Coal sold decreased 3.2% to $23.45 per
ton for the YTD 2000 period from $24.22 per ton for the YTD 1999 period. The
decline in average sales price was primarily due to the renegotiation of several
long-term higher-priced contracts.
Industrial supply sales decreased $6 million, or 9.2% to $64 million in the YTD
2000 period from $70 million in the YTD 1999 period primarily due to reduced
sales volumes.
Revenues from the sale of Purchased Coal decreased by $4 million, or 7.9% to $51
million in the YTD 2000 period from $55 million in the YTD 1999 period. The
decrease is due primarily to decreased sales volumes. Purchased Coal sales
volumes decreased by 0.2 million tons to 1.7 million tons in the YTD 2000 period
from 1.9 million tons in the YTD 1999 period. The volume variances were
primarily due to a renegotiated contract that allows company-produced coal to be
shipped in the YTD 2000 period instead of coal purchased from third parties
which was required to be
20
shipped under the contract in the YTD 1999 period. It also reflects the
expiration of Purchased Coal contracts acquired with the Rochester & Pittsburgh
Coal Company acquisition.
These decreases in sales were partially offset by the increase in sales of
coalbed methane gas and related gathering fees. Revenues from gas sales
increased $35 million to $50 million in the YTD 2000 period from $15 million in
the YTD 1999 period. Sales volumes were 10.9 BCF in the YTD 2000 period, a 7.7
BCF increase over the YTD 1999 period. The increase was due to higher sales
volumes as a result of the acquisition of BPC and OGI on February 25, 2000. The
increase was also due to an increase in the average price per MMBTU sold. The
average price per MMBTU, was $4.21 for the YTD 2000 period
compared to $2.64 for the YTD 1999 period. CONSOL Energy had one longer-term
contract to sell 38 million cubic feet of gas per day during the month of
October, 2000 at a price of $3.20/MMBtu, which was less than the prevailing
market price at the time.
Other income, which consists of interest income, gain on the disposition of
assets, equity in earnings of affiliates, service income, royalty income, rental
income and miscellaneous income, increased $15 million to $37 million in the YTD
2000 period from $22 million in the YTD 1999 period. The increase was primarily
due to a $9 million increase in equity in earnings of affiliates related to gas
and a $5 million increase in gain on sale of assets. The gain on sale of assets
in the 2000 YTD period principally relates to the sale of certain in place coal
reserves. CONSOL Energy manages its coal reserves and sells non-strategic
reserves.
Costs
Cost of Goods Sold and Other Operating Charges decreased $59 million, or 7.4% to
$732 million in the YTD 2000 period compared to $791 million in the YTD 1999
period.
Cost of goods sold for Produced Coal was $593 million in the YTD 2000 period, a
decrease of $21 million, or 3.5% from the YTD 1999 period. This is due primarily
to the 9.0% decrease in the volume of Produced Coal sold, offset by a 6.1%
increase in the cost per ton of Produced Coal. The increased cost per ton
produced is primarily due to adverse geological conditions at Mine 84. Overall,
the cost per ton produced has also increased due to declines in productivity as
measured in tons produced per man-day. Tons produced per man-day, excluding Mine
84, Keystone and Helvetia, were 44.01 in the YTD 2000 period compared to 44.59
in the YTD 1999 period. Keystone and Helvetia, which had higher mining costs per
ton and lower productivity than other CONSOL Energy mines, were closed in the
YTD 1999 period.
Purchased Coal costs decreased 11.9% to $47 million in the YTD 2000 period from
$54 million in the YTD 1999 period. The $7 million decrease was due mainly to an
11.5% decrease in the volume of Purchased Coal sold. The decrease in volume was
due primarily to a renegotiated contract that allows produced coal to be shipped
in the YTD 2000 period instead of coal purchased from third parties which was
required by
21
the contract to be shipped in the YTD 1999 period. It also reflects the
expiration of purchased coal contracts acquired with the Rochester & Pittsburgh
Coal Company acquisition.
Closed and idle mine costs decreased 63.1% to $10 million in the YTD 2000 period
from $28 million in the YTD 1999 period. The decrease of $18 million was
primarily due to $10.0 million of adjustments in mine closing and perpetual care
liabilities as a result of updated engineering studies and cost projections for
closed locations. Closed and idle mine costs were also improved due to higher
costs in the YTD 1999 period due to the initial idling costs of the Powhatan and
Ohio No. 11 mines. The V.P. No. 8 and Humphrey No.138 mines were also idle in
the YTD 1999 period, but have been in operation during the YTD 2000 period.
These decreased costs were partially offset by increased costs related to the
re-entry into Loveridge Mine in order to ventilate and secure the mine.
Industrial supplies cost of goods sold decreased 11.3% to $64 million in the YTD
2000 period from $72 million in the YTD 1999 period. The $8 million decrease was
due to reduced sales.
These decreases in Cost of Goods Sold and Other Charges were offset, in part, by
increased costs related to the gas operations. Gas costs of goods sold and other
charges increased 37.2% to $13 million in the YTD 2000 period from $9 million in
the YTD 1999 period. The $4 million increase was primarily due to higher volumes
of sales due to the acquisition of BPC and OGI on February 25, 2000.
Selling, general and administrative expenses increased 6.9% to $33 million in
the YTD 2000 period compared to $31 million in the YTD 1999 period. The increase
of $2 million was primarily due to increased professional consulting fees
associated with the review of business processes and information technology
systems supporting those processes, offset in part by salary cost savings from
the Voluntary Separation Incentive Program implemented in the last half of
the fiscal year ended June 30, 2000.
Depreciation, depletion and amortization expense decreased 4.5% to $120 million
in the YTD 2000 period compared to $125 million in the YTD 1999 period. The
decrease of $5 million was primarily due to reduced depreciation and depletion
expense from the scheduled closing of the Powhatan Mine due to economically
depleted reserves. Depletion and amortization expense was also reduced due to
lower production tons in the YTD 2000 period. These decreases were offset, in
part, by increased depreciation expense related to assets placed in service
after the YTD 1999 period and the additional depreciation expense on assets
received in the acquisition of BPC and OGI.
Interest expense increased 21.4% to $31 million for the YTD 2000 period compared
to $25 million for the YTD 1999 period. The increase of $6 million was due
primarily to higher average debt levels outstanding during the YTD 2000 period
compared to the YTD 1999 period, along with an increase of 1.2% in average
interest rates. Higher debt levels resulted from the issuance of commercial
paper to finance the purchase of BPC, OGI and a MCN subsidiary that owns a 50%
interest in Cardinal States
22
Gathering Company on February 25, 2000, and the purchase of a 50% joint venture
interest in Line Creek Mine on December 31, 2000.
Taxes other than income decreased 10.3% to $78 million for the YTD 2000 period
compared to $87 million for the YTD 1999 period. The decrease of $9 million was
due primarily to reduced excise taxes in the YTD 2000 period. As discussed in
Note 7, CONSOL Energy is no longer required to pay certain excise taxes on
export coal sales and, therefore, is no longer accruing for this expense. The
decrease also is due to lower black lung excise taxes related to overall reduced
production tons and sales prices and lower West Virginia severance taxes related
to reduced production tons and sales prices in that state. These decreases are
partially offset by increased property tax expense due to adjustments made in
the YTD 1999 period to reduce accruals to reflect lower assessments on
closed operations.
Income Taxes
Income taxes were $4 million in the YTD 2000 period compared to a $4 million
benefit in the YTD 1999 period. The increase in tax expense was due to the
recording of a $8 million benefit from a final agreement resolving disputed
federal income tax items for the years 1992 through 1994 and the recording of a
$4 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 1999
period. No adjustments have been recorded in the YTD 2000 period. The effective
rate for the YTD 2000 period was 10.3%. The effective rate for the YTD 1999
period, before prior year tax adjustments and settlements, was 16.5%. The lower
effective rate, before prior year tax adjustments and settlements, is due mainly
to additional Section 29 gas tax benefits related to the acquisition of BPC, OGI
and a MCN subsidiary that owns a 50% interest in Cardinal States Gathering
Company.
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 and gas industries and financial, business and other factors, some
of which are beyond CONSOL Energy's control.
23
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
financing. There can be no assurance that additional capital resources,
including debt financing, will be available to CONSOL Energy on terms which
CONSOL Energy finds acceptable, or at all.
Stockholders' Equity and Dividends
CONSOL Energy had stockholders' equity of $244 million at December 31, 2000 and
$249 million at December 31, 1999. The Board of Directors currently intends to
pay quarterly dividends on the common stock. Dividend information for the
current fiscal year, to date, is as follows:
Declaration Date Amount Per Share Record Date Payment Date
---------------- ---------------- ----------- ------------
01/25/01 $0.28 02/09/01 02/28/01
10/26/00 $0.28 11/10/00 11/29/00
07/27/00 $0.28 08/11/00 09/01/00
In March 2000, CONSOL Energy announced that it would institute a share
repurchase program of up to 1,000,000 shares of CONSOL Energy's common stock.
The shares repurchased will be held in Treasury for future company needs such
as benefit plan administration. The timing of the purchases and the number of
shares to be purchased are dependent upon market conditions. As of January 31,
2001, CONSOL Energy had repurchased 412,600 shares at an average price of $10.92
in this share repurchase program.
Cash Flows
Net cash provided by operating activities was $182 million for the six months
ended December 31, 2000 (the YTD 2000 period) compared to $192 million for the
six months ended December 31, 1999 (the YTD 1999 period). The change in net cash
provided by operating activities reflects decreases in net income and changes in
other assets. The decrease in net income was primarily due to a decrease in coal
sales volumes and average sales prices, and increased tax expense, partially
offset by a related decrease in cost of goods sold and other charges and
increased gas sales volumes and average prices. The changes in other assets were
primarily due to the renegotiation of a long-term contract in the YTD 1999
period. The decrease in operating cash flow was offset in part by increased cash
received from coal sales and other miscellaneous accounts and notes receivable,
and increases in accounts payable.
Net cash used in investing activities was $131 million in the YTD 2000 period
compared to $59 million in the YTD 1999 period. The change in net cash used in
investing activities reflects the acquisition of a 50% joint venture interest in
Line Creek Mine for $37 million and an increase in capital expenditures in the
YTD 2000 period. Capital expenditures were $109 million in the YTD 2000 period
compared with $64 million in the YTD 1999 period. The increase in capital
expenditures in the YTD 2000
24
period was primarily related to the acquisition of a longwall mining system for
use at the Bailey Mine and the construction of a batch weigh system at Bailey
Prep Plant. These increases in expenditures were offset, in part, by proceeds of
$16 million from sales of assets in the YTD 2000 period compared to $8 million
in the YTD 1999 period.
Net cash used in financing activities was $48 million in the YTD 2000 period
compared with $143 million in the YTD 1999 period. The change in net cash used
in financing activities primarily reflects the additional borrowings of
commercial paper made in the YTD 2000 period for the acquisition of a 50% joint
venture interest in Line Creek Mine. The change also reflects payments made on
commercial paper, the purchase of Treasury Stock, and scheduled payments on
miscellaneous borrowing in the YTD 1999 period.
Debt
At December 31, 2000, CONSOL Energy had total long-term debt of $305 million,
including the current portion of long-term debt of $7 million. Such long-term
debt consisted of:
. an aggregate principal amount of $156 million of unsecured notes which bear
interest at fixed 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 $1 million of variable rate notes with an
average interest rate of 6.9% due at various dates through 2001,
. $28 million in advance royalty commitments with an average interest rate of
7.3%,
. an aggregate principal amount of $1 million of notes with an average
interest rate of 7.5% maturing at various dates through 2031 and
. an aggregate principal amount of $16 million of capital leases with an
average interest rate of 7.4%.
At December 31, 2000, CONSOL Energy had an aggregate principal amount of $463
million of commercial paper outstanding that had maturities ranging up to 86
days with interest at varying rates ranging from 7.05% to 8.09%.
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
25
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 and gas 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 and gas production including
geological conditions and mine and gas operations 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 other companies as part of its acquisition
strategy.
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 December 31, 2000, CONSOL Energy had
outstanding $288 million aggregate principal amount of debt under fixed-rate
instruments and $464 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 December 31, 2000,
CONSOL Energy had an aggregate of $463 million in commercial paper outstanding.
CONSOL Energy's commercial paper bore interest at an average rate of 6.93% per
annum during the six months ended December 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 six months ended December 31, 2000 by
approximately $1 million.
Almost all of CONSOL Energy's transactions are denominated in U.S. dollars and,
as a result, CONSOL Energy 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.
26
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material litigation has been filed against CONSOL Energy during the six
months ended December 31, 2000, other than noted.
On November 22, 2000, an arbitration decision was rendered in the dispute
between CONSOL Energy and a group of public utilities that had claimed that
CONSOL Energy made improper adjustments to the coal price under the terms of a
1987 coal sales contract. The utilities asserted that as a result of these price
adjustments by CONSOL Energy, they were improperly assessed $50 million. The
final and binding arbitration decision resolved the entire dispute. CONSOL
Energy paid $745 thousand.
There have been no other material changes in legal proceedings disclosed by
CONSOL Energy. See Part I, Item 1. Financial Statements-Note 7.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 25, 2000, CONSOL Energy held its annual shareholder meeting for the
purpose of (1) electing directors and (2) ratifying the appointment of Ernst and
Young LLP as CONSOL Energy's independent public accountants for 2000.
(1) Shareholders elected the following directors and the vote tabulation for
each individual director was as follows:
Nominee For Withheld
- ------- --- --------
Philip W. Baxter 77,430,588 221,037
Berthold Bonekamp 77,430,888 220,737
Bernd Breloer 77,430,688 220,937
J. Brett Harvey 77,431,888 219,737
Ulrich Weber 77,427,938 223,687
John. L. Whitmire 77,430,388 221,237
Rolf Zimmermann 77,428,227 223,348
(2) The second proposal to ratify the appointment of Ernst & Young LLP as the
independent accountants for the year July 1, 2000 through June 30, 2001 also
was approved by a vote of the shareholders of CONSOL Energy. The number of votes
cast for this proposal was 77,628,448, and the number of votes against the
proposal was 8,332. There were 14,845 abstentions for this proposal.
ITEM 5. OTHER INFORMATION
On October 24, 2000, CONSOL of Canada Inc. and its joint venture partner, Luscar
Ltd.of Edmonton, Canada, announced that the development of Cheviot mine near
Hinton, Canada would be further postponed. The prolonged environmental approval
process delayed the project beyond the expiration date of the letters of intent
from various Japanese steel mills to purchase coal from the Cheviot mine. Those
letters of intent expired and were not extended. As a result of the decision to
postpone the development of Cheviot mine, the partners determined that it is no
longer practical to continue to extend the life of the Luscar mine. Therefore,
the mine will be closed after all of its contracts expire on March 31, 2002.
Effective December 15, 2000, Ulrich Weber resigned as a director of CONSOL
Energy.
On December 19, 2000, William J. Lyons was elected as CONSOL Energy's Senior
Vice President and Chief Financial Officer, effective December 1, 2000. Mr.
Lyons has previously served as CONSOL Energy's Vice President and Controller.
On December 31, 2000, CONSOL Energy of Canada LTD and Luscar Ltd. entered into
an agreement which expands their joint venture. CONSOL of Canada acquired a 50%
interest in Luscar's Line Creek Mine, located in southeastern British Columbia
for $37 million in cash and a production royalty of 5 percent that will take
effect after 46 million clean tonnes have been produced.
28
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
----
Consolidated Statements of Income for the three months and six months ended
December 31, 2000 and December 31, 1999........................................ 3
Consolidated Balance Sheets at December 31, 2000 and June 30, 2000............. 4
Consolidated Statements of Stockholders' Equity for the six months ended
December 31, 2000.............................................................. 6
Consolidated Statements of Cash Flows for the six months ended
December 31, 2000 and December 31, 1999........................................ 7
Notes to 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.
29
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: February 5, 2001
By: /s/ R. Zimmermann
_________________________________
R. Zimmermann,
Executive Vice President
Date: February 5, 2001
By: /s/ W. J. Lyons
_________________________________
William J. Lyons,
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
30