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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[_] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended ____________; or
[X] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from July 1, 2001 to December 31, 2001
Commission file number: 333-68987
CONSOL ENERGY INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0337383
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
Consol Plaza
1800 Washington Road
Pittsburgh, Pennsylvania 15241
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: 412-831-4000
Securities registered pursuant to Section 12(b) of the Act
Name of each exchange on which registered
New York Stock Exchange
Title of each Class
Common Stock ($.01 par value)
No securities are registered pursuant to Section 12(g) of the Act:
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 18, 2002, the aggregate market value of voting stock held by
nonaffiliates of the registrant was $541,436,591.
The number of shares outstanding of the registrant's common stock as of March
18, 2002 is 78,710,310 shares.
Explanatory Note
This Amendment No. 1 to the Transition Report on Form 10-K (the "Form 10-
K") of CONSOL Energy Inc. (the Company") for the six months ended December 31,
2001 is being filed to amend Item 8 (Financial Statements and Supplementary
Data) and Item 14 (Exhibits, Financial Statement Schedules, and Reports on Form
8-K) of the Form 10-K. On March 7, 2002, CONSOL Energy issued, in a private
placement pursuant to Section 4(2) of the Securities Act of 1933, $250 million
of 7.875 percent Notes due in 2012. The payment obligations under the Notes are
fully and unconditionally guaranteed by several subsidiaries of CONSOL Energy.
In accordance with the terms of a registration rights agreement between the
Company and the initial purchasers of the 7.875 percent Notes due 2012, the
Company has filed a registration statement on Form S-4 to effect the exchange of
new notes for the notes issued in the private placement. The new notes are
substantially identical to the notes issued in the private placement. Item 8 of
Form 10-K is being amended to provide additional information in Note 31 to the
Consolidated Financial Statements, which includes condensed consolidating
financial statements in accordance with Regulation 3-10 of Regulation S-X. Item
14 is being amended to refer to the Financial Statements filed with this report
and to add as an exhibit the consent of Ernst & Young LLP.
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
--------
Report of Independent Auditors................................................................................. 3
Consolidated Statements of Income for the Six Months Ended December 31, 2001, Twelve Months Ended June 30,
2001 and June 30, 2000 and the Six Months Ended June 30, 1999................................................. 4
Consolidated Balance Sheets at December 31, 2001, June 30, 2001 and June 30, 2000.............................. 5
Consolidated Statements of Stockholders' Equity for the Six Months Ended December 31, 2001, Twelve Months
Ended June 30, 2001 and June 30, 2000 and the Six Months Ended June 30, 1999.................................. 6
Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2001, Twelve Months Ended
June 30, 2001 and June 30, 2000 and the Six Months Ended June 30, 1999......................................... 7
Notes to Consolidated Financial Statements..................................................................... 8
2
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CONSOL Energy Inc.
We have audited the consolidated balance sheets of CONSOL Energy Inc. and
subsidiaries (CONSOL Energy) as of December 31, 2001, June 30, 2001 and June 30,
2000, and the related consolidated statements of income, stockholders' equity
and cash flows for the six months ended December 31, 2001, for the years ended
June 30, 2001 and June 30, 2000 and for the six months ended June 30, 1999.
These financial statements are the responsibility of CONSOL Energy's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CONSOL Energy at December 31, 2001, June 30, 2001 and June 30, 2000, and the
consolidated results of their operations and their cash flows for the six months
ended December 31, 2001, for the years ended June 30, 2001 and June 30, 2000,
and for the six months ended June 30, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
January 16, 2002, except for Note 31
as to which the date is May 10, 2002
3
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
For the Six For the Six
Months Ended For the Year Ended June 30, Months Ended
December 31, --------------------------------- June 30,
2001 2001 2000 1999
-------------- -------------- ------------ ---------------
Sales Outside............................................. $ 979,661 $ 2,127,730 $ 2,091,596 $ 1,076,528
Sales--Related Parties (Note 3)........................... -- 9,288 3,254 5,394
Freight--Outside.......................................... 70,314 157,037 164,512 77,777
Freight--Related Parties (Note 3)......................... -- 3,903 1,422 2,710
Other Income (Note 4)..................................... 31,223 70,457 64,359 28,560
----------- ----------- ----------- -----------
Total Revenue........................................... 1,081,198 2,368,415 2,325,143 1,190,969
Costs of Goods Sold and Other Operating Charges........... 776,347 1,568,683 1,498,982 790,119
Freight Expense........................................... 70,314 160,940 165,934 80,487
Selling, General and Administrative Expenses.............. 31,493 63,043 62,164 30,218
Depreciation, Depletion and Amortization.................. 120,039 243,272 249,877 121,237
Interest Expense (Note 5)................................. 16,564 57,598 55,289 30,504
Taxes Other Than Income (Note 6).......................... 80,659 158,066 174,272 98,244
Export Sales Excise Tax Resolution (Note 7)............... 5,402 (123,522) -- --
Restructuring Costs (Note 8).............................. -- -- 12,078 --
----------- ----------- ----------- -----------
Total Costs............................................. 1,100,818 2,128,080 2,218,596 1,150,809
Earnings (Loss) Before Income Taxes....................... (19,620) 240,335 106,547 40,160
Income Taxes (Benefits) (Note 9).......................... (20,679) 56,685 (493) 121
----------- ----------- ----------- -----------
Net Income................................................ $ 1,059 $ 183,650 $ 107,040 $ 40,039
=========== =========== =========== ===========
Earnings per Share (Note 1):
Basic.................................................... $ 0.01 $ 2.34 $ 1.35 $ 0.62
=========== =========== =========== ===========
Dilutive................................................. $ 0.01 $ 2.33 $ 1.35 $ 0.62
=========== =========== =========== ===========
Weighted Average Number of Common Shares
Outstanding:
Basic.................................................... 78,699,732 78,613,580 79,499,576 64,784,685
=========== =========== =========== ===========
Dilutive................................................. 78,920,046 78,817,935 79,501,326 64,784,685
=========== =========== =========== ===========
Dividends per Share...................................... $ 0.56 $ 1.12 $ 1.12 $ 0.39
=========== =========== =========== ===========
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)
June 30,
December 31, ------------------------
2001 2001 2000
---------- ---------- ----------
ASSETS
------
Current Assets:
Cash and Cash Equivalents.......................................................... $ 15,582 $ 16,625 $ 8,181
Accounts and Notes Receivable:
Trade.......................................................................... 220,442 221,557 262,943
Other Receivables.............................................................. 123,354 158,421 24,849
Inventories (Note 10).............................................................. 113,894 95,046 156,853
Recoverable Income Taxes........................................................... -- -- 7,813
Deferred Income Taxes (Note 9)..................................................... 54,708 46,340 93,464
Prepaid Expenses................................................................... 42,274 27,872 23,625
---------- ---------- ----------
Total Current Assets........................................................... 570,254 565,861 577,728
Property, Plant and Equipment (Note 11):
Property, Plant and Equipment...................................................... 5,413,960 4,943,961 4,852,017
Less--Accumulated Depreciation, Depletion and Amortization......................... 2,498,650 2,412,669 2,277,573
---------- ---------- ----------
Total Property, Plant and Equipment--Net....................................... 2,915,310 2,531,292 2,574,444
Other Assets:
Deferred Income Taxes (Note 9)..................................................... 520,906 309,193 291,178
Advance Mining Royalties........................................................... 92,644 97,417 107,980
Investment in Affiliates........................................................... 77,667 223,511 177,272
Other.............................................................................. 120,813 167,697 137,709
---------- ---------- ----------
Total Other Assets............................................................. 812,030 797,818 714,139
---------- ---------- ----------
Total Assets................................................................... $4,297,594 $3,894,971 $3,866,311
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts Payable................................................................... $ 171,741 $ 144,100 $ 143,313
Accounts Payable--Related Parties (Note 3)......................................... -- 95 502
Short-Term Notes Payable (Note 12)................................................. 77,869 360,063 464,310
Current Portion of Long-Term Debt and Capital Lease Obligations.................... 72,771 72,533 6,757
Accrued Income Taxes............................................................... 4,799 2,322 --
Other Accrued Liabilities (Note 13)................................................ 313,568 354,860 337,920
---------- ---------- ----------
Total Current Liabilities...................................................... 640,748 933,973 952,802
Long-Term Debt:
Long-Term Debt (Note 14)........................................................... 464,187 220,394 286,098
Capital Lease Obligations (Note 15)................................................ 8,482 10,634 14,507
---------- ---------- ----------
Total Long-Term Debt........................................................... 472,669 231,028 300,605
Deferred Credits and Other Liabilities:
Postretirement Benefits Other Than Pensions (Note 16).............................. 1,417,567 1,140,501 1,118,021
Pneumoconiosis Benefits (Note 17).................................................. 459,776 448,317 426,402
Mine Closing....................................................................... 333,738 272,220 280,370
Workers' Compensation.............................................................. 269,075 260,609 253,534
Deferred Revenue................................................................... 227,595 40,024 56,148
Reclamation........................................................................ 13,744 19,806 11,808
Other.............................................................................. 191,123 196,846 212,442
---------- ---------- ----------
Total Deferred Credits and Other Liabilities................................... 2,912,618 2,378,323 2,358,725
Stockholders' Equity:
Common Stock, $.01 Par Value; 500,000,000 Shares Authorized, 80,267,558 Issued;
78,705,638 Outstanding at December 31, 2001, 78,696,255 Outstanding at June
30, 2001, and 78,577,274 Outstanding at June 30, 2000.......................... 803 803 803
Capital in Excess of Par Value..................................................... 643,627 643,486 642,947
Preferred Stock, 15,000,000 Shares Authorized; None Issued and Outstanding......... -- -- --
Retained Earnings (Deficit)........................................................ (317,566) (274,553) (370,152)
Other Comprehensive Loss (Note 20)................................................. (37,659) (337) (322)
Common Stock in Treasury, at Cost --1,561,920 Shares at December 31, 2001, ---------- ----------
1,571,303 Shares at June 30, 2001, 1,690,284 Shares at June 30, 2000........... (17,646) (17,752) (19,097)
---------- ---------- ----------
Total Stockholders' Equity..................................................... 271,559 351,647 254,179
---------- ---------- ----------
Total Liabilities and Stockholders' Equity........................................... $4,297,594 $3,894,971 $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)
Capital in Retained Other Total
Common Excess of Earnings Comprehensive Treasury Stockholders'
Stock Par Value (Deficit) Loss Stock Equity
--------- --------- --------- ------------- -------- -------------
Balance at December 31, 1998 ..................... $ 577 $ 302,427 $(405,602) $ (623) $ -- $ (103,221)
Net Income ....................................... -- -- 40,039 -- -- 40,039
Unrealized Loss on Securities
(Net of $228 tax) ............................ -- -- -- (354) -- (354)
Minimum Pension Liability
(Net of $10 tax) ............................. -- -- -- 15 15
--------- --------- --------- ------------- -------- ------------
Comprehensive Income (Loss) ...................... -- -- 40,039 (339) -- 39,700
Sale of Common Stock Under Public Offering,
Net of Expenses ................................. 226 340,520 -- -- -- 340,746
Dividends ($.39 per Share) ....................... -- -- (22,500) -- (22,500)
--------- --------- --------- ------------- -------- ------------
Balance at June 30, 1999 ......................... 803 642,947 (388,063) (962) -- 254,725
Net Income ....................................... -- -- 107,040 -- -- 107,040
Unrealized Loss on Securities (Net of $250 tax) .. -- -- -- (393) -- (393)
Minimum Pension Liability
(Net of $10 tax) ............................. -- -- -- 16 -- 16
Realized Loss on Securities
(Net of $649 tax) ............................ -- -- -- 1,017 -- 1,017
--------- --------- --------- ------------- -------- ------------
Comprehensive Income ............................. -- -- 107,040 640 -- 107,680
Dividends ($1.12 per Share) ...................... -- -- (89,067) -- -- (89,067)
Treasury Stock Purchase
(1,712,600 Shares) .......................... -- -- -- -- (19,396) (19,396)
Treasury Stock Issued
(22,316 Shares) ............................. -- -- (62) -- 299 237
--------- --------- --------- ------------- -------- ------------
Balance at June 30, 2000 ......................... 803 642,947 (370,152) (322) (19,097) 254,179
Net Income ....................................... -- -- 183,650 -- -- 183,650
Minimum Pension Liability
(Net of $10 tax) ............................ -- -- -- (15) -- (15)
--------- --------- --------- ------------- -------- ------------
Comprehensive Income (Loss) ...................... -- -- 183,650 (15) -- 183,635
Treasury Stock Issued
(118,981 Shares) ............................ -- 539 -- -- 1,345 1,884
Dividends ($1.12 per Share) ...................... -- -- (88,051) -- -- (88,051)
--------- --------- --------- ------------- -------- ------------
Balance at June 30, 2001 ......................... 803 643,486 (274,553) (337) (17,752) 351,647
Net Income ....................................... -- -- 1,059 -- -- 1,059
Minimum Pension Liability
(Net of $23,761 tax) ........................ -- -- -- (37,322) -- (37,322)
--------- --------- --------- ------------- -------- ------------
Comprehensive Income (Loss) ...................... -- -- 1,059 (37,322) -- (36,263)
Treasury Stock Issued (9,383 shares) ............. -- 141 -- -- 106 247
Dividends ($.56 per Share) ....................... -- -- (44,072) -- -- (44,072)
--------- --------- --------- ------------- -------- ------------
Balance at December 31, 2001 ..................... $ 803 $ 643,627 $(317,566) $ (37,659) $(17,646) $ 271,559
========= ========= ========= ============= ======== ============
The accompanying notes are an integral part of these financial statements.
6
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the For the
Six Months For the Year Ended Six Months
Ended June 30, Ended
December 31, ----------------------- June 30,
2001 2001 2000 1999
---------- --------- -------- --------
Cash Flows from Operating Activities:
Net Income..................................................... $ 1,059 $ 183,650 $ 107,040 $ 40,039
Adjustments to Reconcile Net Income to Net Cash Provided
By Operating Activities:
Depreciation, Depletion and Amortization................... 120,039 243,272 249,877 121,237
Gain on Sale of Assets..................................... (6,857) (15,280) (26,538) (6,171)
Amortization of Advance Mining Royalties................... 5,589 17,192 16,444 6,063
Deferred Income Taxes...................................... (20,943) 28,631 (23,172) (19,285)
Equity in Earnings of Affiliates........................... (796) (19,437) (1,969) --
Changes in Operating Assets:
Accounts and Notes Receivable............................ 58,666 (91,495) (25,825) 26,613
Inventories.............................................. (10,692) 61,807 50,142 (36,421)
Prepaid Expenses......................................... (14,138) (4,247) 5,747 (7,107)
Changes in Other Assets...................................... 64,520 (21,977) 50,725 (2,237)
Changes in Operating Liabilities:
Accounts Payable......................................... 5,006 787 (46,081) (17,057)
Other Operating Liabilities.............................. (139,702) 27,300 (533) (7,991)
Changes in Other Liabilities................................. 33,921 24,233 (66,266) (9,810)
Other........................................................ (2,693) 1,247 5,437 (2,878)
--------- --------- --------- ---------
91,920 252,033 187,988 44,956
--------- --------- --------- ---------
Net Cash Provided by Operating Activities............ 92,979 435,683 295,028 84,995
Cash Flows from Investing Activities:
Capital Expenditures........................................... (162,862) (213,999) (142,598) (105,099)
Additions to Advance Mining Royalties.......................... (3,156) (5,239) (6,048) (3,645)
Proceeds from Sale of Assets................................... 5,601 12,875 14,897 7,954
Acquisitions--Net of Cash Acquired (Note 2).................... 162,738 (39,072) (163,506) --
Investment in Affiliates....................................... (13,814) 12,270 (2,299) --
--------- --------- --------- ---------
Net Cash Used in Investing Activities................ (11,493) (233,165) (299,554) (100,790)
Cash Flows from Financing Activities:
(Payments on) Proceeds from Short-Term Borrowings.............. (36,564) (102,455) 117,331 (204,780)
Payments on Long-Term Notes.................................... -- -- -- (100,000)
Payments on Miscellaneous Borrowings........................... (1,915) (5,227) (19,732) (5,397)
Sale of Common Stock under Public Offering, Net of
Expenses.................................................. -- -- -- 340,746
Dividends Paid................................................. (44,050) (88,014) (89,055) (22,500)
Acquisition of Company Shares.................................. -- -- (19,396) --
Issuance of Company Shares..................................... -- 1,622 -- --
--------- --------- --------- ---------
Net Cash (Used in) Provided by Financing
Activities........................................ (82,529) (194,074) (10,852) 8,069
--------- --------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents............. (1,043) 8,444 (15,378) (7,726)
Cash and Cash Equivalents at Beginning of Period................. 16,625 8,181 23,559 31,285
--------- --------- --------- ---------
Cash and Cash Equivalents at End of Period....................... $ 15,582 $ 16,625 $ 8,181 $ 23,559
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
7
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Dollars in thousands, except per share data)
Note 1--Significant Accounting Policies:
A summary of the significant accounting policies of CONSOL Energy Inc. and
subsidiaries (CONSOL Energy) is presented below. These, together with the other
notes that follow, are an integral part of the consolidated financial
statements.
Fiscal Year:
CONSOL Energy changed its fiscal year from a year ending June 30 to a year
ending December 31. The transitional fiscal period is the six months ended
December 31, 2001. CONSOL Energy's first full fiscal year ended December 31 will
be the year that starts January 1, 2002 and ends December 31, 2002. This change
was made in order to align its fiscal year with that of RWE A. G. which
beneficially owns directly or through subsidiaries approximately 74% of the
common stock of CONSOL Energy. RWE A. G. changed its fiscal year to one ending
December 31.
CONSOL also had a six-month transitional fiscal period ended June 30, 1999.
The transition was made from a calendar year ended December 31 to a fiscal year
ended June 30 in order to align its fiscal year with that of RWE A. G. which
purchased a majority share in 1999.
Basis of Consolidation:
The consolidated financial statements include the accounts of majority-
owned and controlled subsidiaries. Investments in business entities in which
CONSOL Energy does not have control, but has the ability to exercise significant
influence over the operating and financial policies, are accounted for under the
equity method. All significant intercompany transactions and accounts have been
eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and various disclosures. Actual results could differ from those
estimates. The most significant estimates included in the preparation of the
financial statements are related to other postretirement benefits, coal workers'
pneumoconiosis, workers' compensation, reclamation and mine closure liabilities,
contingencies and coal and gas reserve values.
Cash and Cash Equivalents:
Cash and cash equivalents include cash on hand and in banks as well as all
highly liquid short-term securities with original maturities of three months or
less. Overdrafts representing outstanding checks in excess of funds on deposit
are classified as accounts payable.
Investments in Debt and Equity Securities:
CONSOL Energy accounts for its investments in debt and equity securities in
accordance with the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
These investments are adjusted to market value at the end of each accounting
period.
This standard requires securities to be classified into one of three
categories: (1) trading, (2) available-for-sale or (3) held-to-maturity.
Management determines the proper classification at the time of purchase and
reevaluates such designations at the end of each accounting period. Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading with unrealized holding gains and losses included
in earnings. Securities not classified as trading are classified as available-
for-sale with unrealized gains or losses, net of income taxes, included in other
comprehensive income. All securities at December 31, 2001, June 30, 2001 and
June 30, 2000 are classified as available-for-sale.
Interest and dividends are included in interest income. The amortized cost
of debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is also included in interest income.
The cost of investments sold is determined on a specific identification basis.
8
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Inventories:
Inventories are stated at the lower of cost or market.
The cost of coal inventories is determined by the first-in, first-out
(FIFO) method. Coal inventory costs include labor, supplies, equipment costs,
operating overhead and other related costs. The cost of merchandise for resale
is determined by the last-in, first-out (LIFO) method. The cost of supplies
inventory is determined by the average cost method.
Property, Plant and Equipment:
Property, plant and equipment is carried at cost. Expenditures which extend
the useful lives of existing plant and equipment are capitalized. Interest costs
applicable to major asset additions are capitalized during the construction
period. Coal exploration costs are expensed as incurred. Development costs are
capitalized when the majority of production comes from development activities
versus normal operating activities. Costs of additional mine facilities required
to maintain production after a mine reaches the production stage, generally
referred to as "receding face costs," are expensed as incurred; however, the
costs of additional airshafts and new portals are capitalized.
Gas well activity is accounted for under the successful efforts method of
accounting. Costs of property acquisitions, successful exploratory wells,
development wells and related support equipment and facilities are capitalized.
The costs of producing properties are amortized using the units-of-production
method over estimated recoverable gas reserves.
Maintenance, repairs and minor renewals are expensed as incurred. When
properties are retired or otherwise disposed, the related cost and accumulated
depreciation are removed from the respective accounts and any profit or loss on
disposition is credited or charged to income.
Depreciation of plant and equipment, including assets leased under capital
leases, is provided on the straight-line method over their estimated useful
lives or lease terms as follows:
Years
-----
Building and improvements 10 to 20
Machinery and equipment 3 to 20
Leasehold improvements Life of Lease
Depletion of coal lands and amortization of mine development costs are
computed using the units-of-production method over the estimated recoverable
tons.
Costs for purchased and internally developed software are expensed until it
has been determined that the software will result in probable future economic
benefits and management has committed to funding the project. Thereafter, all
direct costs of materials and services incurred in developing or obtaining
software are capitalized and amortized using the straight-line method over the
estimated useful life.
Advance Mining Royalties:
Advance mining royalties are advance payments made to lessors under terms
of mineral lease agreements that are recoupable against future production. These
advance payments are deferred and charged against income as the coal and gas
reserves are extracted.
Impairment of Long-lived Assets:
Impairment of long-lived assets is recorded when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying value. The carrying value of the
assets is then reduced to their estimated fair value which is usually measured
based on an estimate of future discounted cash flows.
Income Taxes:
The asset and liability method is used to account for income taxes. Under
this approach, deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have been recognized in CONSOL
Energy's financial statements or tax returns. The provision for income taxes
represents income taxes paid or payable for the current year and the change in
deferred taxes excluding the effects of acquisitions during the year. Deferred
taxes result from differences between the financial and tax bases of the
company's assets and liabilities and are adjusted for changes in tax rates and
tax laws when changes are enacted. Valuation allowances are recorded to reduce
deferred tax assets where it is more likely than not that a deferred tax benefit
will not be realized.
9
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pneumoconiosis Benefits:
CONSOL Energy is required by federal and state statutes to provide benefits
to employees for awards related to coal workers' pneumoconiosis. CONSOL Energy
is self-insured for these benefits. Provisions are made for estimated benefits
based on annual evaluations prepared by outside actuaries.
Mine and Gas Well Closing Costs:
Estimated final mine closing and perpetual care costs are accrued over the
estimated recoverable tons on a units-of-production method. Accrued mine closing
and perpetual care costs are regularly reviewed by management and are revised
for changes in future estimated costs and regulatory requirements.
The estimated costs of dismantling and removing gas related facilities are
accrued over the properties' estimated recoverable reserves using the units-of-
production method. Accrued dismantlement and removal of gas related facility
costs are regularly reviewed by management and are revised for changes in future
estimated costs and regulatory requirements.
Workers' Compensation:
CONSOL Energy is primarily self-insured for workers' compensation. Annual
provisions are made for the estimated liability for awarded and pending claims.
Deferred Revenue:
Deferred revenues represent funding received upon the negotiation of long-
term contracts. The deferred revenues will be recognized as sales revenues in
future periods by amortization on a rate per ton shipped over the life of the
respective contract.
Reclamation:
During active mining operations, expenditures relating to reclamation and
regulatory requirements are expensed as incurred. Postclosure reclamation costs
are estimated and charged to expense using the units-of-production method over
the estimated recoverable tons. Accrued reclamation costs are regularly reviewed
by management and are revised for changes in future estimated costs and
regulatory requirements.
Revenue Recognition:
Sales are recognized when title passes to the customers. For domestic coal
sales, this generally occurs when coal is loaded at mine or offsite storage
locations. For export coal sales, this generally occurs when coal is loaded onto
marine vessels at terminal locations. For gas sales, this generally occurs at
the contractual point of delivery. For industrial supplies and equipment sales,
this generally occurs when the products are shipped.
Freight Revenue and Expenses:
Shipping and handling costs invoiced to coal customers and paid to third-
party carriers are recorded as Freight Revenue and Freight Expense,
respectively.
Stock-based Compensation:
CONSOL Energy has implemented the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." CONSOL Energy continues to measure compensation expense for its
stock-based compensation plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," as amended.
Earnings per Share:
Basic earnings per share are computed by dividing net earnings by the
weighted average shares outstanding during the reporting period. Diluted
earnings per share are computed similar to basic earnings per share except that
the weighted average shares outstanding are increased to include additional
shares from the assumed exercise of stock options, if dilutive. The number of
additional shares is calculated by assuming that outstanding stock options were
exercised and that the proceeds from such exercises were used to acquire shares
of common stock at the average market price during the reporting period.
10
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The computations for basic and diluted earnings per share from continuing
operations are as follows:
For the For the
Six Months For the Year Ended Six Months
Ended June 30, Ended
December 31, ------------------------------ June 30,
2001 2001 2000 1999
------------- ------------ ------------ ------------
Net Income $ 1,059 $ 183,650 $ 107,040 $ 40,039
Average shares of common stock
Outstanding:
Basic........................................... 78,699,732 78,613,580 79,499,576 64,784,685
Effect of stock options......................... 220,314 204,355 1,750 --
------------- ------------ ------------ ------------
Diluted......................................... 78,920,046 78,817,935 79,501,326 64,784,685
Earnings per share:
Basic........................................... $ 0.01 $ 2.34 $ 1.35 $ 0.62
Diluted......................................... $ 0.01 $ 2.33 $ 1.35 $ 0.62
Derivatives:
Derivatives are recognized as assets or liabilities in the statement of
financial position and measured at fair value. Gains or losses resulting from
changes in fair value are required to be recognized in current earnings unless
specific hedge criteria are met. CONSOL Energy has not engaged in the use of
derivatives for any period presented, as the arrangements for gas sales meet the
criteria for normal purchase and normal sale exception pursuant to Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" and subsequent interpretations. Management has elected
the application of this exception.
Recent Accounting Pronouncement:
In August 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" was issued and will be effective
for CONSOL Energy in the first quarter of the year ending December 31, 2003. The
new rule requires the fair value of a liability for an asset retirement
obligation to be recognized in the period in which it is incurred. When the
liability is initially recorded, a cost is capitalized by increasing the
carrying amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. To settle the liability,
the obligation for its recorded amount is paid and a gain or loss upon
settlement is incurred. Management will be analyzing this requirement to
determine the effect on CONSOL Energy's financial statements during 2002.
In July 2001, Statement of Financial Accounting Standards No. 144,
"Impairment or Disposal of Long-Lived Assets," was issued and will be effective
for CONSOL Energy in the first quarter of the year ending December 31, 2003. The
provisions of this statement provide a single accounting model for impairment of
long-lived assets. No material effect from this adoption is anticipated.
Reclassifications:
Certain reclassifications of prior years' data have been made to conform to
2001 classifications.
Note 2--Acquisitions:
On December 7, 2001, in order to expand international market share, CONSOL
Energy purchased a 50% interest in the Glennies Creek Mine, which is currently
under development in New South Wales, Australia, for $17,950. Glennies Creek
produces a high fluidity coking coal that will be sold primarily to steel makers
in the Asia-Pacific region. The acquisition has been accounted for as a purchase
and accordingly, the operating results of Glennies Creek Mine have been included
in CONSOL Energy's consolidated financial statements using the equity method of
accounting since the date of acquisition. Pro forma net income and earnings per
share of CONSOL Energy, after giving effect to certain purchase accounting
adjustments, would not materially change for the six months ended December 31,
2001 or the twelve months ended June 30, 2001.
On August 22, 2001, in order to expand existing gas operations, CONSOL
Energy purchased the remaining 50% interest in the coalbed methane reserves and
the remaining 25% interest in the production and pipeline gathering assets in
southwestern Virginia of Pocahontas Gas Partnership and Cardinal States
Gathering Company for $155,312. Prior to the acquisition, CONSOL Energy owned
50% and 75%, respectively, of these two entities. The acquisition has been
accounted for as a purchase and,
11
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
accordingly, the operating results for the portion of Pocahontas Gas Partnership
and Cardinal States Gathering Company previously reported on the equity method
and the newly acquired portions have been included in CONSOL Energy's operating
results using full consolidation since the date of acquisition.
The following table summarizes the estimated fair values of the assets
acquired and the liabilities assumed at the date of acquisition:
August 22,
2001
---------
Property, plant and equipment
(including estimated reserves).............................. $ 163,426
---------
Total assets acquired....................................... 163,426
Current liabilities............................................. (6,079)
Long-term liabilities........................................... (2,035)
---------
Total liabilities assumed................................... (8,114)
---------
Net assets acquired............................................. $ 155,312
=========
The unaudited pro forma results, assuming the acquisition of the interests
in these entities had occurred July 1, 2000, are estimated to be:
Pro Forma
Six Months Pro Forma
Ended Year Ended
December 31, June 30,
(Thousands, except per share data) 2001 2001
------------ -----------
Revenues..................................................... $ 1,089,066 $ 2,442,530
Net Income................................................... $ 1,492 $ 191,307
Net income per common share:
Basic...................................................... $ 0.02 $ 2.43
Diluted.................................................... $ 0.02 $ 2.43
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition of the interest in these entities had been
completed as of the beginning of each fiscal period presented, nor are they
necessarily indicative of future consolidated results.
On July 2, 2001, CONSOL Energy entered into agreements with American
Electric Power to supply coal to various American Electric Power coal-fired
power plants and purchased, for a nominal amount, the stock of Windsor Coal
Company, Southern Ohio Coal Company and Central Ohio Coal Company, subsidiaries
of American Electric Power which owns mines in Ohio and West Virginia. Under the
agreements, CONSOL Energy will supply approximately 34 million tons of coal
through 2008. These tons will be supplied by the former American Electric Power
affiliated mines and by other CONSOL Energy mines. The former American Electric
Power affiliated mines all have limited economically mineable reserves. The
Meigs #31 mine of Southern Ohio Coal Company was closed on October 24, 2001 and
the Muskingum surface mine of Central Ohio Coal Company closed on December 14,
2001. Subsequent to December 31, 2001, the Meigs #2 mine of Southern Ohio Coal
Company closed on March 6, 2002. CONSOL Energy will expand its McElroy and
Robinson Run mines to meet the new supply agreement requirements as the former
American Electric Power mines deplete.
12
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the estimated fair value of the assets
acquired and the liabilities assumed at the date of acquisition:
July 2,
2001
---------
Cash........................................................... $ 336,000
Current assets................................................. 12,000
Deferred tax assets............................................ 173,848
Other assets................................................... 17,483
---------
Total assets acquired...................................... 539,331
---------
Current liabilities............................................ 15,795
Accrued income taxes........................................... 80,668
Employee and mine-related liabilities.......................... 237,239
Other long-term liabilities.................................... 205,629
---------
Total liabilities assumed.................................. 539,331
---------
Net assets acquired............................................ $ --
=========
As part of this acquisition, the liabilities were assumed by CONSOL Energy.
American Electric Power also paid CONSOL Energy $336,000 in cash. Subsequent to
the acquisition, the cash was used by CONSOL Energy to pay down a portion of its
short-term debt. For income tax purposes, an election was made to treat the
stock acquisition as a purchase of assets. Therefore, an income tax liability
was recognized as part of the acquisition based upon the excess of the assets
received over the tax liabilities assumed. The acquisition has been accounted
for as a purchase and, accordingly, the operating results of Windsor Coal
Company, Southern Ohio Coal Company and Central Ohio Coal Company have been
included in CONSOL Energy's operating results since the date of acquisition.
Pro forma revenues, assuming the acquisition of these companies had occurred on
July 1, 2000, would be $2,837,478 for the twelve months ended June 30, 2001.
Pro forma net income would be $196,307 or $2.50 earnings per share - basic and
$2.49 earnings per share - dilutive for the twelve months ended June 30, 2001.
The pro forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been completed as of July 1, 2000 nor are they
necessarily indicative of future consolidated results.
On December 31, 2000, CONSOL Energy purchased a 50% interest in the Line
Creek Mine, which is located north of Sparwood, British Columbia, for $39,072.
Line Creek Mine produces bituminous metallurgical and steam coal for delivery to
customers in the Pacific Rim, South America, Europe, the northeastern United
States and Canada. The acquisition has been accounted for as a purchase and
accordingly, the operating results of Line Creek Mine have been included in
CONSOL Energy's consolidated financial statements using the equity method of
accounting since the day of acquisition. 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.
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 $163,506. These companies own gas production and
pipeline properties in southwestern Virginia and produce approximately 70
million cubic feet per day of pipeline quality methane gas. The acquisition was
accounted for under the purchase method. Accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed, based upon the fair
values at the date of the acquisition. The acquisition included a 50% interest
in CSGC, in which CONSOL Energy previously owned a 25% interest. CONSOL Energy
accounts for its 75% interest in CSGC under the equity method, as control is
shared equally with the minority owner. CONSOL Energy's financial statements
include the results of the other companies acquired on a consolidated basis from
the date of the acquisition. Pro forma revenues, assuming the acquisition of
these companies had occurred on January 1, 1999, would be $1,131,708 for the six
months ended June 30, 1999 and $2,197,632 for the year ended June 30, 2000. Pro
forma net income and earnings per share for these periods, after giving effect
to certain purchase accounting adjustments, would not materially change.
Note 3--Transactions with Related Parties:
Upon completion of its Initial Public Offering (IPO) on April 29, 1999,
CONSOL Energy was owned 68% directly or by subsidiaries of RWE A.G. of Germany
(collectively Rheinbraun). Since the IPO, Rheinbraun has increased its ownership
to 74%. Prior to completion of the IPO, CONSOL Energy was owned 94% by
Rheinbraun and 6% by E. I. du Pont de Nemours and Company (DuPont).
13
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONSOL Energy sells coal to Rheinbraun and DuPont on a basis reflecting the
market value of the coal. There were no related party transactions in the six-
month period ended December 31, 2001. Such Related Parties sales were as
follows:
For the Six
For the Year Ended Months
June 30, Ended
---------------------- June 30,
2001 2000 1999
------- ------ -----------
Coal sales.............................................................. $ 9,288 $3,254 $5,394
Freight................................................................. 3,903 1,422 2,710
------- ------ -----------
Total Sales and Freight Revenue--Related Parties........................ $13,191 $4,676 $8,104
======= ====== ===========
CONSOL Energy and Rheinbraun entered into an agreement to investigate
possible investments in which they may jointly participate. Under this
agreement, expenses are to be shared equally. CONSOL Energy expended $626 and
$821 for the twelve months ended June 30, 2001 and June 30, 2000, respectively,
related to this agreement. No investments were made pursuant to this agreement.
The agreement was terminated on March 9, 2001.
Also, a subsidiary of Rheinbraun periodically provides insurance brokerage
services to CONSOL Energy without fee. CONSOL Energy expended $222 for the six
months ended December 31, 2001, and $419 and $510 for the twelve months ended
June 30, 2001 and 2000, respectively. Prepaid expense of $104 and $240 was
recognized at June 30, 2001 and 2000 for insurance brokered through this
subsidiary of Rheinbraun. At December 31, 2001, there was no prepaid expense
related to the brokered insurance through Rheinbraun.
Note 4--Other Income:
For the For the
Six Months For the Year Ended Six Months
Ended June 30, Ended
December 31, ------------------ June 30,
2001 2001 2000 1999
------------ ------- ------- ----------
Gain on disposition of assets.................................... $ 6,857 $15,280 $26,538 $ 6,171
Royalty income................................................... 6,568 10,409 14,793 8,378
Interest income.................................................. 3,734 4,817 5,671 2,226
Service income................................................... 2,342 6,587 6,732 4,059
Rental income.................................................... 1,814 2,482 2,640 1,281
Equity in earnings of affiliates................................. 796 19,437 1,969 --
Loss on disposition of security.................................. -- -- (1,666) --
Other............................................................ 9,112 11,445 7,682 6,445
------------ ------- ------- ----------
Total Other Income............................................ $31,223 $70,457 $64,359 $28,560
============ ======= ======= ==========
14
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5--Interest Expense:
For the For the
Six Months For the Year Ended Six Months
Ended June 30, Ended
December 31, ------------------- June 30,
2001 2001 2000 1999
------------ -------- -------- ----------
Interest on debt................................................. $13,237 $ 48,719 $ 45,373 $26,094
Interest accretion on present valued perpetual care obligations.. 3,239 6,478 5,805 2,896
Interest on other payables....................................... 1,960 4,828 5,656 2,772
Interest capitalized............................................. (1,872) (2,427) (1,545) (1,258)
------------ -------- -------- ----------
Total Interest Expense.......................................... $16,564 $ 57,598 $ 55,289 $30,504
============ ======== ======== ==========
Note 6--Taxes Other Than Income:
For the For the
Six Months For the Year Ended Six Months
Ended June 30, Ended
December 31, ------------------- June 30,
2001 2001 2000 1999
------------ -------- -------- ----------
Production taxes................................................. $49,493 $ 93,185 $112,200 $61,271
Payroll taxes.................................................... 17,849 35,302 35,584 22,048
Property taxes................................................... 11,212 26,426 23,480 13,430
Other............................................................ 2,105 3,153 3,008 1,495
------------ -------- -------- ----------
Total Taxes Other Than Income................................... $80,659 $158,066 $174,272 $98,244
============ ======== ======== ==========
Note 7--Export Sales Excise Tax Resolution:
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 1991 through 1999. The IRS has completed an audit of CONSOL Energy's
refund claims and confirmed the validity of the claims filed by CONSOL Energy
for the period 1994 through 1999. The U. S. Supreme Court denied review of the
claim under the Tucker Act, which allows the refund of taxes for the periods
1991 through 1993. The portion of the refund for the period 1991 through 1993 is
currently scheduled to be audited by the IRS. Expected interest receivable
amounts, recorded in the twelve months ended June 30, 2001, were reduced by
$5,402 in the six month period ended December 31, 2001 due to a change in the
estimate of recoverable amounts. CONSOL Energy recognized $123,522 as Earnings
Before Income Taxes net of other charges in the year ended June 30, 2001. Other
Receivables includes $88,982 and $127,483 at December 31, 2001 and June 30,
2001, and Accounts Payable includes $1,788 and $3,961 at December 31, 2001 and
June 30, 2001 related to this claim and its associated income.
Note 8--Restructuring Costs:
In the year ended June 30, 2000, CONSOL Energy reviewed the administrative and
research staff functions and implemented a workforce reduction program. 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 long term. Costs
related to this restructuring primarily relate to severance and employee benefit
costs in conjunction with the workforce reduction of 214 employees and
consulting fees. 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.
CONSOL Energy recorded a pre-tax restructuring charge of $12,078 during the
twelve months ended June 30, 2000, based on estimates of the cost of the
workforce reduction programs, including special termination benefits related to
pension and other postretirement benefit plans.
All of the benefits under the programs have been paid or have been transferred
as obligations of CONSOL Energy's pension and postretirement other than pension
plans as of June 30, 2001.
15
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 9--Income Taxes:
Income taxes (benefits) provided on earnings consisted of:
For the For the
Six Months For the Year Ended Six Months
Ended June 30, Ended
December 31, ------------------ June 30,
2001 2001 2000 1999
------------ -------- -------- ----------
Current:
U.S. Federal...................................... $ (4,304) $19,527 $ 18,815 $ 15,013
U.S. State........................................ 692 7,368 2,466 2,664
Non-U.S........................................... 3,876 1,159 1,398 1,729
------------ -------- -------- ----------
264 28,054 22,679 19,406
Deferred:
U.S. Federal...................................... (21,433) 20,902 (21,311) (16,987)
U.S. State........................................ (1,465) 7,372 (437) (2,884)
Non-U.S........................................... 1,955 357 (1,424) 586
------------ -------- -------- ----------
(20,943) 28,631 (23,172) (19,285)
------------ -------- -------- ----------
Total Income Taxes (Benefits).................. $(20,679) $56,685 $ (493) $ 121
============ ======== ======== ==========
The components of the net deferred tax asset are as follows:
June 30,
December 31, -----------------------
2001 2001 2000
---------- ---------- ----------
Deferred Tax Assets:
Postretirement benefits other than pensions................................ $ 551,434 $ 479,332 $ 473,210
Pneumoconiosis benefits.................................................... 178,853 174,395 170,014
Workers' compensation...................................................... 121,936 115,567 113,802
Mine closing............................................................... 120,979 91,737 95,193
Alternative minimum tax.................................................... 64,735 102,546 78,382
Deferred revenue........................................................... 98,323 22,169 28,450
Reclamation................................................................ 16,577 11,094 10,299
Minimum pension liability.................................................. 23,975 214 204
Net operating loss......................................................... 7,544 7,544 7,544
Other...................................................................... 128,855 120,652 110,235
---------- ---------- ----------
Total Deferred Tax Assets............................................... 1,313,211 1,125,250 1,087,333
Deferred Tax Liabilities:
Other receivables.......................................................... -- (49,591) --
Property, plant and equipment.............................................. (618,076) (601,695) (604,827)
Advance mining royalties................................................... (35,440) (35,155) (35,289)
Other...................................................................... (84,081) (83,276) (62,575)
---------- ---------- ----------
Total Deferred Tax Liabilities.......................................... (737,597) (769,717) (702,691)
---------- ---------- ----------
Net Deferred Tax Assets................................................. $ 575,614 $ 355,533 $ 384,642
========== ========== ==========
Due to acquisitions during the transition period, the December 31, 2001
components of deferred tax assets and liabilities have been increased by
$178,666 and $3,289, respectively. Substantially, all of the increases were due
to the acquisition of Windsor Coal Company, Southern Ohio Coal Company and
Central Ohio Coal Company.
At December 31, 2001, due to the acquisition of Rochester and Pittsburgh Coal
Company, CONSOL Energy has net operating loss carry forwards for federal income
tax purposes of $19,290, which are available to offset future federal taxable
income through 2010. A portion of these carry forwards is also available for
state income tax purposes.
16
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following is a 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 For the Year For the
Six Months Ended Six Months
Ended June 30, Ended
December 31, ------------------- June 30,
2001 2001 2000 1999
------------ -------- -------- ----------
Statutory U.S. federal income tax rate........ 35.0% 35.0% 35.0% 35.0%
Excess tax depletion.......................... 71.7 (12.1) (25.2) (33.5)
Tax settlements............................... -- -- (7.4) --
Nonconventional fuel tax credit............... 19.8 (2.6) (1.4) (1.9)
Net effect of state tax....................... 2.6 4.0 1.2 (0.6)
Net effect of foreign tax..................... (24.9) 0.3 (0.8) 1.9
Other......................................... 1.2 (1.0) (1.9) (0.6)
------------ -------- -------- ----------
Effective Income Tax Rate..................... 105.4% 23.6% (0.5)% 0.3%
============ ======== ======== ==========
In the year ended June 30, 2000, CONSOL Energy received a $7,861 federal
income tax benefit from a final agreement resolving disputed federal income tax
items for the years 1992 to 1994.
Foreign income (loss) before taxes totaled $2,868 for the six months ended
December 31, 2001, $4,277 and $(3,123) for the twelve months ended June 30, 2001
and 2000, respectively, and $3,964 for the six months ended June 30, 1999.
Note 10--Inventories:
June 30,
December 31, ------------------------
2001 2001 2000
------------ ---------- ----------
Coal......................................................... $ 33,897 $ 26,896 $ 82,835
Merchandise for resale....................................... 21,816 23,264 33,488
Supplies..................................................... 58,181 44,886 40,530
------------ ---------- ----------
Total Inventories........................................... $ 113,894 $ 95,046 $ 156,853
============= ========== ==========
Merchandise for resale is valued using the LIFO cost method. The excess of
replacement cost of merchandise for resale inventories over carrying LIFO value
was $3,556, $4,069 and $5,632 at December 31, 2001, June 30, 2001 and June 30,
2000, respectively.
Note 11--Property, Plant and Equipment:
June 30,
December 31, ------------------------
2001 2001 2000
------------ ---------- ----------
Coal and surface lands....................................... $ 1,466,793 $1,446,471 $1,417,454
Plant and equipment.......................................... 3,130,188 2,855,722 2,836,400
Mine development and airshafts............................... 816,979 641,768 598,163
------------ ---------- ----------
5,413,960 4,943,961 4,852,017
Less--Accumulated depreciation, depletion and amortization... 2,498,650 2,412,669 2,277,573
------------ ---------- ----------
Net Property, Plant and Equipment........................... $ 2,915,310 $2,531,292 $2,574,444
============ =========== ==========
Plant and equipment includes gross assets under capital lease of $19,627 at
December 31, 2001, June 30, 2001 and 2000. Accumulated amortization for capital
leases was $10,180, $9,106 and $6,795 at December 31, 2001, June 30, 2001 and
June 30, 2000, respectively. Development costs capitalized during the six month
period ended December 31, 2001 at Mine 84 were $31,050.
Note 12--Short-Term Notes Payable:
CONSOL Energy has commercial paper notes outstanding of $323,683, $360,063 and
$464,310 (net of discount of $368, $42 and $2,589) at December 31, 2001, June
30, 2001 and 2000, respectively. On March 7, 2002, CONSOL Energy issued $250,000
of 7.875 percent per annum bonds due March 1, 2012 (Note 31). Because proceeds
from the transaction of $245,814 were used to repay short-term notes payable,
this amount of short-term notes payable has been reclassified to long-term debt
at December 31,
17
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2001. The weighted average interest rate of the commercial paper notes
outstanding was 3.04, 4.22 and 6.97 percent, with an average maturity of 13, 1
and 28 days at December 31, 2001, June 30, 2001 and 2000, respectively.
CONSOL Energy has a $400,000 revolving credit facility with several banks.
This facility is used to support the commercial paper program. The term of this
facility is 364 days renewable on a 364-day basis. In the aggregate, the total
amount of funds borrowed under this facility and outstanding commercial paper
cannot exceed $400,000. Borrowings under this revolving credit facility bear
interest based on the London Interbank Offer Rate (LIBOR) or the Prime Rate at
CONSOL Energy's option. Funds may be borrowed for periods of 1 to 270 days
depending on the interest rate method. There were no borrowings under this
facility at December 31, 2001, June 30, 2001 or 2000.
Note 13--Other Accrued Liabilities:
June 30,
December 31, ----------------------------
2001 2001 2000
------------ ------------ ------------
Accrued payroll and benefits..................................... $ 50,672 $ 51,030 $ 42,507
Subsidence....................................................... 26,277 21,634 18,069
Accrued other taxes.............................................. 19,576 27,872 40,143
Accrued royalties................................................ 16,105 13,154 12,811
Accrued interest................................................. 2,791 2,754 2,765
Employee incentive compensation.................................. -- 18,595 3,079
Other............................................................ 40,723 37,565 38,073
Current portion of long-term liabilities:
Workers' compensation......................................... 53,128 45,150 47,200
Mine closing.................................................. 31,536 17,671 19,056
Salary retirement............................................. 28,337 20,500 500
Reclamation................................................... 17,360 5,348 7,131
Deferred revenue.............................................. 25,163 16,967 16,988
Postretirement benefits other than pensions................... -- 74,567 74,352
Pneumoconiosis benefits....................................... -- -- 10,652
Other......................................................... 1,900 2,053 4,594
------------ ------------ ------------
Total Other Accrued Liabilities............................ $ 313,568 $ 354,860 $ 337,920
============ ============ ============
Note 14--Long-Term Debt:
June 30,
December 31, ----------------------------
2001 2001 2000
------------ ------------ ------------
Unsecured Debt:
Notes due 2002 at average of 8.28%............................ $ 66,000 $ 66,000 $ 66,000
Notes due 2004 at 8.21%....................................... 45,000 45,000 45,000
Notes due 2007 at 8.25%....................................... 44,848 44,836 44,816
Baltimore Port Facility revenue bonds in series due 2010
and 2011 at 6.50%........................................... 102,865 102,865 102,865
Variable rate notes payable due at various dates through -- -- 1,132
2001........................................................
Advance royalty commitments................................... 28,064 30,104 28,714
Other long-term notes maturing at various dates through 2031.. 391 383 547
Amount reclassified from short-term notes payable ( Note 12).. 245,814 -- --
------------ ------------ ------------
532,982 289,188 289,074
Less amounts due in one year.................................. 68,795 68,794 2,976
------------ ------------ ------------
Total Long-Term Debt....................................... $ 464,187 $ 220,394 $ 286,098
============ ============ ============
The variable rate notes, advance royalty commitments and the other long-term
notes had an average interest rate of approximately 8.2%, 7.3% and 7.3% at
December 31, 2001, June 30, 2001 and 2000, respectively. The bonds and notes are
carried net of debt discount, which is being amortized by the interest method
over the life of the issue.
18
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Annual undiscounted maturities on long-term debt during the next five years
are as follows:
Year Ended December 31, Amount
----------------------- ------
2002....................................................... $ 68,795
2003....................................................... $ 2,574
2004....................................................... $ 47,232
2005....................................................... $ 2,059
2006....................................................... $ 1,677
Note 15--Leases:
CONSOL Energy uses various leased facilities and equipment in its operations.
Future minimum lease payments under capital and operating leases, together with
the present value of the net minimum capital lease payment, at December 31,
2001, are as follows:
Capital Operating
Leases Leases
-------- ---------
2002....................................................... $ 4,630 $ 3,733
2003....................................................... 5,843 2,959
2004....................................................... 2,131 2,482
2005....................................................... 1,167 1,774
2006....................................................... -- 1,760
Remainder.................................................. -- 9,350
-------- -------
Total minimum lease payments............................ 13,771 $22,058
=======
Less imputed interest (7.05%-7.50%)........................ 1,313
--------
Present value of minimum lease payment..................... 12,458
Less amount due in one year................................ 3,976
--------
Total Long-Term Capital Lease Obligation................ $ 8,482
========
Rental expense under operating leases was $6,670 for the six months ended
December 31, 2001, $14,235 and $19,144 for the twelve months ended June 30, 2001
and 2000, respectively, and $9,865 for the six months ended June 30, 1999.
Note 16--Pension and Other Postretirement Benefit Plans:
CONSOL Energy has non-contributory defined benefit plans covering
substantially all employees not covered by multi-employer retirement plans. The
benefits for these plans are based primarily on years of service and employees'
pay near retirement.
Certain subsidiaries of CONSOL Energy provide medical and life insurance
benefits to retired employees not covered by the Coal Industry Retiree Health
Benefit Act of 1992. Substantially all employees may become eligible for these
benefits if they have worked ten years and attained age 55. The Other
Postretirement Benefit plan is generally unfunded. The medical plan contains
certain cost sharing and containment features, such as deductibles, coinsurance,
health care networks and coordination with Medicare.
19
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The reconciliation of changes in benefit obligation, plan assets and funded
status of these plans at December 31, 2001, June 30, 2001 and June 30, 2000,
based on measurement dates of September 30, 2001, March 31, 2001 and 2000, is as
follows:
Pension Benefits Other Benefits
---------------------------------- ----------------------------------------
December 31, June 30, June 30, December 31, June 30, June 30,
2001 2001 2000 2001 2001 2000
------------ -------- -------- ------------ ----------- -----------
Reconciliation of Benefit Obligation:
Benefit obligation at beginning of year.......... $ 330,928 $265,145 $309,697 $ 1,557,854 $ 1,219,549 $ 1,258,332
Service cost..................................... 6,932 12,708 13,585 5,828 6,419 6,782
Interest cost.................................... 11,581 19,762 20,555 60,790 91,235 87,278
Actuarial (gain) loss............................ 6,175 56,135 (29,084) 111,859 325,285 (127,707)
Acquisitions -- -- -- 170,661 -- --
Contract renegotiation........................... -- -- 2,575 -- -- 74,344
Benefits paid.................................... (11,550) (22,822) (54,161) (51,579) (84,634) (81,414)
Effect of special termination benefits (VSIP).... -- -- 1,978 -- -- 1,934
------------ -------- -------- ------------ ----------- -----------
Benefit obligation at end of year.................. $ 344,066 $330,928 $265,145 $ 1,855,413 $ 1,557,854 $ 1,219,549
============ ======== ======== ============ =========== ===========
Reconciliation of Fair Value of Plan Assets:
Fair value of plan assets at beginning of year... $ 242,162 $272,463 $293,796 $ 129,646 $ 153,928 $ 7,502
Actual return (loss) on plan assets.............. (13,050) (8,690) 26,755 3,335 1,280 13,699
Contract renegotiation........................... -- -- -- -- -- 114,617
Company contributions............................ 26,975 1,211 6,120 35,759 59,072 99,524
Benefits and other payments...................... (11,550) (22,822) (54,208) (56,207) (84,634) (81,414)
------------ -------- -------- ------------ ----------- -----------
Fair value of plan assets at end of year........... $ 244,537 $242,162 $272,463 $ 112,533 $ 129,646 $ 153,928
============ ======== ======== ============ =========== ===========
Funded Status:
Status of plan (underfunded) overfunded.......... $ (99,529) $(88,766) $ 7,318 $ (1,742,880) $(1,428,208) $(1,065,621)
Unrecognized prior service cost (credit)......... 1,021 1,197 1,549 (5,536) (8,619) (17,450)
Unrecognized net actuarial loss (gain)........... 62,650 94,631 7,329 330,849 221,759 (109,302)
Contributions made after measurement date........ 33 26,625 32 -- -- --
------------ -------- -------- ------------ ----------- -----------
Prepaid (accrued) benefit cost..................... $ (35,825) $ 33,687 $ 16,228 $ (1,417,567) $(1,215,068) $(1,192,373)
============ ======== ======== ============ =========== ===========
Amounts Recognized in Balance Sheet consist of:
Prepaid benefit cost............................. $ 24,789 $ 34,353 $ 16,923 $ -- $ -- $ --
Accrued benefit liability........................ -- (114) (169) (1,417,567) (1,215,068) (1,192,373)
Accumulated other comprehensive loss............. (61,635) (552) (526) -- -- --
Intangible asset................................. 1,021 -- -- -- -- --
------------ -------- -------- ------------ ----------- -----------
Net amount recognized......................... $ (35,825) $ 33,687 $ 16,228 $ (1,417,567) $(1,215,068) $(1,192,373)
============ ======== ======== ============ =========== ===========
Weighted average assumptions:
Discount rate.................................... 7.25% 7.25% 7.75% 7.25% 7.25% 7.75%
Expected return on plan assets................... 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase.................... 4.32% 4.33% 4.48% -- -- --
20
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For measurement purposes, a 9% annual rate of increase in the per capita cost
of covered health care benefits was assumed for the year ended December 31,
2002, gradually decreasing to 4.75% in 2008, and remaining level thereafter.
Pension Benefits Other Benefits
-------------------------------------------- ---------------------------------------------
For the For the For the For the For the For the
Six Months Year Ended Six Months Six Months Year Ended Six Months
Ended June 30, Ended Ended June 30, Ended
December 31, ------------------ June 30, December 31, ------------------ June 30,
2001 2001 2000 1999 2001 2001 2000 1999
------------ -------- -------- ---------- ------------ -------- -------- ----------
Components of Net Periodic
Benefit Cost:
Service cost...................... $ 6,932 $ 12,708 $ 13,585 $ 7,468 $ 5,828 $ 6,419 $ 6,782 $ 4,429
Interest cost..................... 11,581 19,762 20,555 9,759 60,790 91,235 87,278 42,096
Expected return on plan assets (12,132) (23,254) (23,807) (10,832) (3,792) (13,660) (6,211) (306)
Amortization of prior
service cost (credit)............ 176 352 352 176 (3,082) (8,831) (8,831) (4,416)
Recognized net actuarial
loss (gain)...................... 2,256 750 3,132 1,345 3,224 (2,156) (641) 280
------------ -------- -------- ---------- ------------ -------- -------- ----------
Benefit cost........................ $ 8,813 $ 10,318 $ 13,817 $ 7,916 $ 62,968 $ 73,007 $ 78,377 $ 42,083
============ ======== ======== ========== ============ ======== ======== ==========
Net periodic pension cost is determined using the assumptions as of the
beginning of the year, and the funded status is determined using the assumptions
as of the end of the year.
The following table provides information related to underfunded pension plans:
As of
------------------------------
December 31, June 30,
2001 2001 2000
------------ ------ ------
Projected benefit obligation............. $ 343,499 $ 867 $ 867
Accumulated benefit obligation........... $ 280,791 $ 847 $ 847
Fair value of plan assets................ $ 243,788 $ 881 $ 881
In November 1999, a long-term coal sales contract was renegotiated from a
cost-plus agreement to a fixed-price agreement. This renegotiation included
CONSOL Energy assuming employee long-term liabilities and related funding which
were previously the liabilities of the customer. These actuarially calculated
liabilities and related assets were recorded at the renegotiation of the
contract.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the medical plan. A one-percentage-point change in assumed health
care cost trend rates would have the following effects:
1-Percentage 1-Percentage
Point Increase Point Decrease
-------------- --------------
Effect on total of service and interest costs components...... $ 8,621 $ (7,193)
Effect on accumulated postretirement benefit obligation....... $230,328 $(179,040)
Note 17--Coal Workers' Pneumoconiosis (CWP):
CONSOL Energy is responsible under the Federal Coal Mine Health and Safety Act
of 1969, as amended, for medical and disability benefits to employees and their
dependents resulting from occurrences of coal workers' pneumoconiosis disease.
CONSOL Energy is also responsible under various state statutes for
pneumoconiosis benefits. CONSOL Energy provides for these claims through a self-
insurance program.
The calculation of the actuarial present value of the estimated pneumoconiosis
obligation is based on an annual actuarial study by independent actuaries. The
calculation is based on assumptions regarding disability incidence, medical
costs, mortality, death benefits, dependents and interest rates. These
assumptions are derived from actual company experience and creditable outside
sources.
Pneumoconiosis expense is calculated using the service cost method. Actuarial
gains or losses are amortized over the remaining service period of active miners
(approximately 14 years). The discount rate used to calculate the estimated
present
21
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
value of the future obligations was 7.25%, 7.25% and 7.75% at December
31, 2001, June 30, 2001 and June 30, 2000, respectively.
The reconciliation of changes in benefit obligation, plan assets and funded
status of the CWP plan at December 31, 2001, June 30, 2001 and 2000 is as
follows:
June 30,
December 31, ------------------------
2001 2001 2000
---------- ---------- ----------
Reconciliation of Benefit Obligation:
Benefit obligation at beginning of year........................... $ 195,791 $ 180,832 $ 198,795
Service cost...................................................... 1,982 3,295 4,763
Interest cost..................................................... 7,179 13,492 13,760
Actuarial (gain) loss............................................. 12,947 6,573 (42,845)
Acquisition....................................................... 9,794 -- --
Contract renegotiation............................................ -- -- 14,669
Benefits paid..................................................... (5,023) (8,401) (8,310)
---------- ---------- ----------
Benefit obligation at end of year.................................... $ 222,670 $ 195,791 $ 180,832
========== ========== ==========
Reconciliation of Fair Value of Plan Assets:
Fair value of plan assets at beginning of year.................... $ 37,963 $ 60,161 $ 20,082
Actual gain (loss) return on plan assets.......................... 12,869 9,865 (1,974)
Acquisition....................................................... 31,000 -- --
Contract renegotiation............................................ -- -- 42,053
Company contributions............................................. -- -- 10,311
Benefit and other payments........................................ (40,958) (30,063) (8,310)
Legal and administrative costs.................................... (1,000) (2,000) (2,001)
---------- ---------- ----------
Fair value of plan assets at end of year............................. $ 39,874 $ 37,963 $ 60,161
========== ========== ==========
Funded Status:
Status of plan (underfunded)...................................... $ (182,796) $ (157,828) $ (120,671)
Unrecognized prior service credit................................. (7,857) (8,221) (8,949)
Unrecognized net actuarial gain................................... (269,123) (282,268) (307,434)
---------- ---------- ----------
Accrued benefit cost................................................. $ (459,776) $ (448,317) $ (437,054)
========== ========== ==========
For the For the
Six Months For the Year Ended Six Months
Ended June 30, Ended
December 31, ------------------- June 30,
2001 2001 2000 1999
----------- --------- --------- ---------
Components of Net Periodic Credit:
Service cost.............................................. $ 1,982 $ 3,295 $ 4,763 $ 2,388
Interest cost............................................. 7,179 13,492 13,760 6,439
Legal and administrative costs............................ 1,000 2,000 2,001 1,407
Expected return on plan assets............................ (2,764) (4,808) (4,066) (813)
Amortization of prior service cost........................ (364) (728) (728) (364)
Recognized net actuarial (gain)........................... (10,302) (21,650) (27,061) (10,402)
----------- --------- --------- ---------
Benefit credit............................................... $ (3,269) $ (8,399) $(11,331) $ (1,345)
=========== ========= ========= =========
Note 18--Other Employee Benefit Plans:
UMWA Pension and Benefit Trusts:
Certain subsidiaries of CONSOL Energy are required under the National
Bituminous Coal Wage Agreement (NBCWA) of 1998 with the United Mine Workers of
America (UMWA) to pay amounts to the UMWA Pension Trusts based principally on
hours worked by UMWA represented employees. These multi-employer pension trusts
provide benefits to eligible retirees through a defined benefit plan. These
pension trusts became fully funded as of September 2000, and therefore,
contributions after this date have not been required. There were no charges to
expense for the six months ended December 31, 2001. Amounts charged to expense
for these benefits were $64 and $436 for the twelve months ended June 30, 2001
and 2000, respectively, and
22
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
$273 for the six months ended June 30, 1999. The Employee Retirement Income
Security Act of 1974 (ERISA) as amended in 1980, imposes certain liabilities on
contributors to multi-employer pension plans in the event of a contributor's
withdrawal from the plan. The withdrawal liability would be calculated based on
the contributor's proportionate share of the plan's unfunded vested liabilities.
The Coal Industry Retiree Health Benefit Act of 1992 (the Act) created two
multi-employer benefit plans: (1) the United Mine Workers of America Combined
Benefit Fund (the Combined Fund) into which the former UMWA Benefit Trusts were
merged, and (2) the 1992 Benefit Fund. CONSOL Energy subsidiaries account for
required contributions to these multi-employer trusts as expense when incurred.
The Combined Fund provides medical and death benefits for all beneficiaries of
the former UMWA Benefit Trusts who were actually receiving benefits as of July
20, 1992. The 1992 Benefit Fund provides medical and death benefits to orphan
UMWA-represented members eligible for retirement on February 1, 1993, and who
actually retired between July 20, 1992 and September 30, 1994. The Act provides
for the assignment of beneficiaries to former employers and the allocation of
unassigned beneficiaries (referred to as orphans) to companies using a formula
set forth in the Act. The Act requires that responsibility for funding the
benefits to be paid to beneficiaries be assigned to their former signatory
employers or related companies. This cost is recognized as expense when
payments are assessed. Amounts charged to expense for the Act were $14,698 for
the six months ended December 31, 2001, $33,180 and $30,524 for the twelve
months ended June 30, 2001 and 2000, respectively, and $9,496 for the six months
ended June 30, 1999. Based on available information at December 31, 2001,
CONSOL Energy's obligation for the Act is estimated at approximately $548,000.
The UMWA 1993 Benefit Plan is a defined contribution plan that was created as
the result of negotiations for the NBCWA of 1993. This plan provides health
care benefits to orphan UMWA retirees who are not eligible to participate in the
Combined Fund, the 1992 Benefit Fund, or whose last employer signed the NBCWA of
1993 and subsequently goes out of business. Contributions to the trust are
fixed at thirteen cents per hour worked by UMWA represented employees. The
NBCWA of 1998 specifies that benefits provided under this plan are to be
incorporated into the current agreement and will be in effect for the duration
of the contract. The NBCWA of 2002 increases this rate to fifty cents per hour
worked effective January 1, 2003. Amounts charged to expense for the UMWA 1993
Benefit Plan were $441 for the six months ended December 31, 2001, $829 and $834
for the twelve months ended June 30, 2001 and 2000, respectively, and $520 for
the six months ended June 30, 1999.
At December 31, 2001, approximately 48% of CONSOL Energy's workforce was
represented by the UMWA. A new five-year labor agreement was reached in
December 2001 and will be effective from January 1, 2002 through December 31,
2006. This agreement replaces the National Bituminous Coal Wage Agreement of
1998.
Investment Plan:
CONSOL Energy has an investment plan available to all domestic, non-
represented employees. CONSOL matches employee contributions for an amount up
to 6 percent of the employee's base pay. Amounts charged to expense were $5,631
for the six months ended December 31, 2001, $14,502 and $10,998 for the twelve
months ended June 30, 2001 and 2000, respectively, and $5,841 for the six months
ended June 30, 1999. Prior to February 1, 2001, Rochester and Pittsburgh Coal
Company employees had a separate investment plan which CONSOL Energy matched up
to $750 per year. This plan has been terminated and all eligible employees can
now participate in the same CONSOL Energy investment plan program.
Long-Term Disability:
CONSOL Energy has a Long-Term Disability Plan available to all full-time
salaried employees. The benefits for this plan are based on a percentage of
monthly earnings, offset by all other income benefits available to the disabled.
Liabilities (net of Plan Assets) included in Deferred Credits and Other
Liabilities--Other amounted to $26,267, $28,466 and $25,477 at December 31, 2001
and June 30, 2001 and 2000, respectively. The expense was determined using a
discount rate of 7.25% for the six months ended December 31, 2001, 7.75% and
7.00% for the twelve months ended June 30, 2001 and 2000, respectively, and
6.75% for the six months ended June 30, 1999. Benefit costs for long-term
disability were $2,601 for the six months ended December 31, 2001, $5,389 and
$4,954 for the twelve months ended June 30, 2001 and 2000, respectively, and
$2,464 for the six months ended June 30, 1999.
Note 19--Stock-Based Compensation:
CONSOL Energy adopted the CONSOL Energy Inc. Equity Incentive Plan on April 7,
1999. The plan provides for grants of incentive stock options to key employees
and to non-employee directors. The initial number of shares of common stock
reserved for issuance under the plan is 3,250,000, of which 1,000,000 are
available for issuance of awards other than stock options. No award of incentive
stock options may be granted under the plan after the tenth anniversary of the
effective date.
23
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONSOL Energy accounts for its stock options granted to employees and non-
employee directors in accordance with APB Opinion 25, "Accounting for Stock
Issued to Employees," and related interpretations. If the compensation cost of
these plans had been determined using the fair-value method prescribed by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
June 30,
December 31, -----------------------------
2001 2001 2000 1999
------------ -------- -------- -------
Net Income:
As reported.......................................... $1,059 $183,650 $107,040 $40,039
Pro forma............................................ $ (435) $182,492 $106,937 $40,024
Basic earnings per share:
As reported.......................................... $ 0.01 $ 2.34 $ 1.35 $ 0.62
Pro forma............................................ $(0.01) $ 2.32 $ 1.35 $ 0.62
Diluted earnings per share:
As reported.......................................... $ 0.01 $ 2.33 $ 1.35 $ 0.62
Pro forma............................................ $(0.01) $ 2.32 $ 1.35 $ 0.62
The pro forma adjustments in the current period are not necessarily indicative
of future period pro forma adjustments as the assumptions used to determine the
fair value can vary significantly and the number of future shares to be issued
under these plans is unknown. Under Statement of Financial Accounting Standards
No. 123, the fair value of each option granted is estimated on the day of the
grant using the Black-Scholes option-pricing model. The weighted average
assumptions used were:
June 30,
December 31, -------------------------------------
2001 2001 2000 1999
------------ ----------- ---------- ----------
Expected dividend yield...................................... 4.6% 4.5% 7.0% 7.0%
Expected volatility.......................................... 59.4% 57.7% 38.0% 45.0%
Risk-free interest rate...................................... 4.5% 4.7% 6.0% 6.0%
Expected life................................................ 3.98 years 2.95 years 3.98 years 5.00 years
A summary of the status of stock options granted is presented below:
Weighted
Average
Weighted Exercise
Average Price Of
Exercise Exercisable Exercisable
Shares Price Options Options
--------- -------- ----------- -----------
Initial Grant............................................. 784,000 $16.00
--------- ------
Balance at June 30, 1999.................................. 784,000 $16.00
Granted................................................ 80,000 12.41
--------- ------
Balance at June 30, 2000.................................. 864,000 $15.67 196,000 $16.00
Granted................................................ 1,039,096 22.77
Exercised.............................................. (105,550) 15.37
Forfeited.............................................. (192,750) 16.31
--------- ------
Balance at June 30, 2001.................................. 1,604,796 $20.21 269,639 $15.97
Granted................................................ 754,693 26.51
Forfeited.............................................. (15,400) 30.18
--------- ------
Balance at December 31, 2001.............................. 2,344,089 $22.17 460,871 $16.75
========= ====== ======= ======
All stock options granted in 1999 through 2001 had exercise prices equal to
the market price of CONSOL Energy's common stock on the date of the grant. The
weighted average per share fair value of options as of the grant date was $9.74
at December 31, 2001, $7.17 at June 30, 2001, $2.56 at June 30, 2000 and $4.03
at June 30, 1999.
24
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Characteristics of outstanding stock options at December 31, 2001 are as
follows:
Outstanding Options Exercisable Options
------------------------------------------ ----------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Exercise Price Shares Life Price Shares Price
----------------------- --------- --------- -------- -------- --------
$10.88-11.56..................................... 49,000 8.3 $11.50 25,167 $11.49
16.00-18.81..................................... 1,193,396 8.1 17.54 435,704 17.06
25.69-30.79..................................... 1,101,693 9.6 27.66 -- --
--------- -------
$10.88-30.79..................................... 2,344,089 8.8 $22.17 460,871 $16.75
========= === ====== ======= ======
No compensation expense was recognized because the exercise price of the stock
options equals the market price of the underlying stock at the date of the grant
and the number of shares issued is fixed. These stock options will terminate ten
years after the date on which they were granted. The employee stock options,
covered by the Equity Incentive Plan adopted April 7, 1999, vest 25% per year,
beginning one year after the grant date. There are 1,962,450 stock options
outstanding under this plan. The 343,000 employee stock options granted on March
1, 2001 fully vest one year after the grant date. Non-employee director stock
options vest 33% per year, beginning one year after the grant date. There are
38,639 stock options outstanding under these grants. The vesting of the options
will accelerate in the event of death, disability or retirement and may
accelerate upon a change of control of CONSOL Energy.
The Chairman of the Board of CONSOL Energy is also entitled to receive annual
shares of common stock having a fair market value of $225 per grant per year.
Under this agreement, $113 of expense was recognized for stock issued in the six
months ended December 31, 2001, $225 in each of the twelve months ended June 30,
2001 and 2000 and $125 in the six months ended June 30, 1999.
Note 20--Other Comprehensive Loss:
Components of other comprehensive loss consist of the following:
Accumulated
Other
Unrealized Minimum Comprehen-
Loss Pension sive
on Securities Liability Loss
-------------- ------------ -----------
Balance at June 30, 1999............................................. $ (624) $ (338) $ (962)
Current period charge................................................ (393) 16 (377)
Realized loss on securities.......................................... 1,017 -- 1,017
------ -------- --------
Balance at June 30, 2000............................................. -- (322) (322)
Current period charge................................................ -- (15) (15)
------ -------- --------
Balance at June 30, 2001............................................. -- (337) (337)
Current period charge................................................ -- (37,322) (37,322)
------ -------- --------
Balance at December 31, 2001......................................... $ -- $(37,659) $(37,659)
====== ======== ========
Note 21--Research and Development Costs:
CONSOL Energy operates a research and development facility devoted to
providing technical support to coal, gas and other functions. Costs related to
research and development are expensed as incurred. These costs were $2,288 for
the six months ended December 31, 2001, $5,329 and $8,046 for the twelve months
ended June 30, 2001 and 2000, respectively, and $4,382 for the six months ended
June 30, 1999.
25
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 22--Supplemental Cash Flow Information:
For the For the
Six Months For the Year Ended Six Months
Ended June 30, Ended
December 31, ------------------------ June 30,
2001 2001 2000 1999
------------ -------- -------- ----------
Cash paid during the year for:
Interest (net of amounts capitalized)...................... $ 13,257 $ 48,630 $ 45,428 $ 30,291
Income taxes............................................... $ 78,770 $ 20,962 $ 34,430 $ 26,942
Non-cash investing and financing activities:
Businesses acquired (Note 2):
Fair value of assets acquired........................... $386,887 $ 39,072 $168,010 $ --
Liabilities assumed..................................... $549,625 $ -- $ 4,504 $ --
Note received from property sales............................ $ 4,225 $ 9,108 $ 20,207 $ --
Exercise option on property.................................. $ 1,529 $ -- $ -- $ --
Stock dividends issued....................................... $ 22 $ 37 $ 12 $ --
Note 23--Concentration of Credit Risk and Major Customers:
CONSOL Energy markets steam coal, principally to electric utilities in the
United States, Canada and Western Europe, and metallurgical coal to steel and
coke producers worldwide. As of December 31, 2001, June 30, 2001 and June 30,
2000, accounts receivable from utilities were $136,537, $129,898 and $130,168,
respectively, and from steel and coke producers were $32,072, $33,704 and
$47,729, respectively. Credit is extended based on an evaluation of the
customer's financial condition, and generally collateral is not required. Credit
losses consistently have been minimal.
Coal sales (including spot sales) and gas sales to CONSOL Energy's largest
customer, American Electric Power, were $152,715 for the six months ended
December 31, 2001, $109,225 and $118,692 for the twelve months ended June 30,
2001 and 2000, respectively, and $50,712 for the six months ended June 30, 1999.
Accounts receivable from American Electric Power were $27,491, $10,701 and
$10,633 as of December 31, 2001, June 30, 2001 and 2000, respectively.
Coal sales (including spot sales) to CONSOL Energy's second largest customer,
Allegheny Energy, were $149,119 for the six months ended December 31, 2001,
$320,601 and $293,178 for the twelve months ended June 30, 2001 and 2000,
respectively, and $155,991 for the six months ended June 30, 1999. Accounts
receivable from Allegheny Energy were $30,855, $28,894 and $24,202 as of
December 31, 2001, June 30, 2001 and 2000, respectively.
Note 24--Marketable Securities:
There were no marketable securities at December 31, 2001 or June 30, 2001. At
June 30, 2000, marketable securities, which were previously classified as
available-for-sale, were used to fund post-employment benefits. Accordingly, the
assets are shown as a reduction of Post-Employment Benefits Other than Pensions
on the balance sheet and unrealized losses were recognized in the year ended
June 30, 2000. There were no other marketable securities as of June 30, 2000.
Proceeds from the sales of securities were $2,500 for the twelve months ended
June 30, 2000 and $3,860 for the six months ended June 30, 1999. Gross realized
gains and losses on those sales were not significant.
Note 25--Fair Values of Financial Instruments:
The following methods and assumptions were used to estimate the fair values of
financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value due to the short
maturity of these instruments.
Short-term notes payable: The carrying amount reported in the balance sheet
for short-term notes payable approximates its fair value due to the short-term
maturity of these instruments.
Long-term debt: The fair values of long-term debt are estimated using
discounted cash flow analyses, based on CONSOL Energy's current incremental
borrowing rates for similar types of borrowing arrangements.
26
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The carrying amounts and fair values of financial instruments are as follows:
June 30,
December 31, ----------------------------------------------------
2001 2001 2000
----------------------- ----------------------- -----------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
--------- ---------- --------- ---------- --------- ----------
Cash and cash equivalents................ $ 15,582 $ 15,582 $ 16,625 $ 16,625 $ 8,181 $ 8,181
Short-term notes payable................. $(323,683) $(323,683) $(360,063) $(360,063) $(464,310) $(464,310)
Long-term debt........................... $(287,168) $(298,608) $(289,188) $(293,647) $(289,074) $(288,162)
Note 26--Commitments and Contingent Liabilities:
CONSOL Energy has various purchase commitments for materials, supplies and
items of permanent investment incidental to the ordinary conduct of business.
Such commitments are not at prices in excess of current market values.
One of our subsidiaries, Fairmont Supply Company, which distributes industrial
supplies, currently is named as a defendant in a number of asbestos cases in
state courts in Pennsylvania, Ohio, West Virginia and Mississippi. Because a
very small percentage of products manufactured by third parties and supplied by
Fairmont in the past may have contained asbestos and many of the pending claims
are part of mass complaints filed by hundreds of plaintiffs against a hundred or
more defendants, it has been difficult for Fairmont to determine how many of the
cases actually involve valid claims or plaintiffs who were actually exposed to
asbestos-containing products supplied by Fairmont. In addition, while Fairmont
may be entitled to indemnity or contribution in certain jurisdictions from
manufacturers of identified products, the availability of such indemnity or
contribution is unclear at this time and, in recent years, some of the
manufacturers named as defendants in these actions have sought protection from
these claims under bankruptcy laws. Fairmont has no insurance coverage with
respect to these asbestos cases. To date, payments by Fairmont with respect to
asbestos cases have not been material. However, there cannot be any assurance
that payments in the future with respect to pending or future asbestos cases
will not be material to financial position, operations or cash flow.
CONSOL Energy or its subsidiaries are subject to various lawsuits and claims
with respect to such matters as personal injury, wrongful death, damage to
property, exposure to hazardous substances, governmental regulations including
environmental remediation, employment and contract disputes, and other claims
and actions, arising out of the normal course of business. In addition, CONSOL
Energy has recognized a liability related to a waste disposal site and accrued
$3,275 in Other Liabilities. CONSOL Energy has paid $1,551 related to the
remediation of this waste disposal site and, accordingly, reduced the liability
to $1,724 at December 31, 2001. In the opinion of management, the ultimate
liabilities resulting from such pending lawsuits and claims will not materially
affect the financial position, results of operations or cash flows of CONSOL
Energy.
Note 27--Segment Information:
CONSOL Energy reports its operations through two reportable segments, Coal and
Gas. Management has determined these reportable segments based on how resources
are allocated and operational decisions are made. These reportable segments are
business units that offer different types of products and services. Three non-
core business activities, Industrial Supplies and Equipment, Transportation and
Farming, have been grouped with corporate headquarters activity and included in
the Other segment.
The principal business of the Coal segment is mining, preparation and
marketing of steam coal, sold primarily to electric utilities, and metallurgical
coal, sold to steel and coke producers. The principal business of the Gas
segment is to produce pipeline quality methane gas for sale primarily to gas
wholesalers. Intersegment sales were made at prices approximating current market
value.
CONSOL Energy evaluates performance and allocates resources based on pretax
operating income or loss. In computing pretax operating income or loss, none of
the following have been added or deducted: unallocated corporate expenses,
interest expense, interest income, other non-operating activity and income
taxes.
27
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Industry segment results for the six months ended December 31, 2001 are:
Coal Gas All Other Elimination Consolidated
------------- ----------- --------- ----------- -------------
Sales--outside................................. $ 891,739(A) $ 47,918(A) $ 40,004 $ -- $ 979,661
Freight--outside............................... 70,314 -- -- -- 70,314
Intersegment transfers......................... -- 809 43,878 (44,687) --
------------- ----------- --------- ----------- -------------
Total Sales and Freight...................... $ 962,053 $ 48,727 $ 83,882 $(44,687) $1,049,975
============= =========== ========= =========== =============
Pretax Operating Income (Loss)................. $ (6,986) $ 8,823 $ (1,521) $ 316(B)
============= =========== ========= =============
Segment assets................................. $2,926,266 $594,955 $163,372 $3,684,593(C)
============= =========== ========= =============
Depreciation, depletion and amortization....... $ 102,686 $ 12,581 $ 4,772 $ 120,039
============= =========== ========= =============
Additions to property, plant and equipment..... $ 133,992 $375,392(D) $ 6,635 $ 516,019
============= =========== ========= =============
(A) Included in the Coal segment are sales of $122,335 to American Electric
Power and sales of $149,119 to Allegheny Energy. Included in the Gas segment
are sales of $30,380 to American Electric Power.
(B) Includes equity in earnings (losses) of unconsolidated affiliates of $86,
$1,079 and $(369) for Coal, Gas and All Other, respectively.
(C) Includes investments in unconsolidated equity affiliates of $69,415, $7,589
and $663 for Coal, Gas and All Other, respectively. Also, included in the
Coal segment is $74,474 of receivables related to the Export Sales Excise
Tax resolution.
(D) Included in the Gas segment additions is $342,497 attributable to the
purchase from Conoco Inc. of the remaining 50% interest in the assets of
Pocahontas Gas Partnership and the remaining 25% interest in the assets of
Cardinal States Gathering Company. The assets owned by these two entities
are fully consolidated at and from the acquisition date, and previously were
accounted for on the equity method.
Industry segment results for the twelve months ended June 30, 2001 are:
Coal Gas All Other Elimination Consolidated
---------- -------- --------- ----------- ------------
Sales--outside.................................. $1,866,600(E) $129,768 $131,362 $ -- $2,127,730
Sales--related parties.......................... 9,288 -- -- -- 9,288
Freight--outside................................ 157,037 -- -- -- 157,037
Freight--related parties........................ 3,903 -- -- -- 3,903
Intersegment transfers.......................... -- 3,535 95,540 (99,075) --
---------- -------- -------- ----------- ----------
Total Sales and Freight....................... $2,036,828 $133,303 $226,902 $ (99,075) $2,297,958
========== ======== ======== =========== ==========
Pretax Operating Income (Loss).................. $ 188,648 $ 95,293 $(17,209) $ 266,732(F)
========== ======== ======== ==========
Segment assets.................................. $3,001,455 $329,834 $158,694 $3,489,983(G)
========== ======== ======== ==========
Depreciation, depletion and amortization........ $ 220,849 $ 10,818 $ 11,605 $ 243,272
========== ======== ======== ==========
Additions to property, plant and equipment...... $ 176,372 $ 29,826 $ 13,635 $ 219,833
========== ======== ======== ==========
(E) Included in the Coal segment are sales of $320,601 to Allegheny Energy.
(F) Includes equity in earnings (losses) of unconsolidated affiliates of $(256),
$21,254 and $(1,561) for Coal, Gas and All Other, respectively. Also,
included in Coal is $92,458 of income related to the Export Sales Excise Tax
resolution.
(G) Includes investments in unconsolidated equity affiliates of $40,559,
$182,269 and $683 for Coal, Gas and All Other, respectively. Also, included
in Coal is $102,241 of receivables related to the Export Sales Excise Tax
resolution.
28
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Industry segment results for the twelve months ended June 30, 2000 are:
Coal Gas All Other Elimination Consolidated
-------------- ------------ ----------- ------------ --------------
Sales--outside................................. $ 1,886,358(H) $ 48,198 $ 157,040 $ -- $ 2,091,596
Sales--related parties......................... 3,254 -- -- -- 3,254
Freight--outside............................... 164,512 -- -- -- 164,512
Freight--related parties....................... 1,422 -- -- -- 1,422
Intersegment transfers......................... -- 831 88,159 (88,990) --
-------------- ------------ ----------- ------------ --------------
Total Sales and Freight..................... $ 2,055,546 $ 49,029 $ 245,199 $ (88,990) $ 2,260,784
============== ============ =========== ============ ==============
Pretax Operating Income (Loss)................. $ 143,576 $ 23,321(I) $ (4,536) $ 162,361
============== ============ =========== ==============
Segment assets................................. $ 2,969,779 $ 320,840 $ 175,056 $ 3,465,675(J)
============== ============ =========== ==============
Depreciation, depletion and amortization....... $ 232,505 $ 5,299 $ 12,073 $ 249,877
============== ============ =========== ==============
Additions to property, plant and equipment..... $ 126,417 $ 128,287(K) $ 4,046 $ 258,750
============== ============ =========== ==============
(H) Included in the Coal segment are sales of $293,178 to Allegheny Energy.
(I) Includes equity in earnings of unconsolidated affiliates of $1,969.
(J) Includes investments in unconsolidated equity affiliates of $769, $175,220
and $1,283 for Coal, Gas and All Other, respectively.
(K) Includes $114,248 acquired from MCN Energy Group Inc. CONSOL Energy's
proportionate share of net additions to property, plant and equipment
relating to gas producing activities of unconsolidated equity affiliates is
$5,773.
Industry segment results for the six months ended June 30, 1999 are:
Coal Gas All Other Elimination Consolidated
------------- --------- ---------- ------------ --------------
Sales--outside.................................. $ 980,387(L) $ 11,091 $ 85,050 $ -- $ 1,076,528
Sales--related parties.......................... 5,394 -- -- -- 5,394
Freight--outside................................ 77,777 -- -- -- 77,777
Freight--related parties........................ 2,710 -- -- -- 2,710
Intersegment transfers.......................... -- -- 48,234 (48,234) --
------------- --------- ---------- ------------ --------------
Total Sales and Freight....................... $ 1,066,268 $ 11,091 $ 133,284 $ (48,234) $ 1,162,409
============= ========== ========== ============ ==============
Pretax Operating Income (Loss).................. $ 79,148 $ 1,026 $ (10,018) $ 70,156
============= ========= ========== ===============
Segment assets.................................. $ 3,185,544 $ 111,711 $ 168,669 $ 3,465,924(M)
============= ========= ========== ==============
Depreciation, depletion and amortization........ $ 112,231 $ 2,223 $ 6,783 $ 121,237
============= ========= ========== ==============
Additions to property, plant and equipment...... $ 102,326 $ 8,002 $ 1,275 $ 111,603
============= ========= ========== ==============
(L) Included in the Coal segment are sales of $155,991 to Allegheny Energy.
(M) Includes investments in unconsolidated equity affiliates of $769 and $1,210
for Coal and All Other, respectively.
Reconciliation of Segment Information to Consolidated Amounts:
Revenue:
For the For the
Six Months For the Year Ended Six Months
Ended June 30 Ended
December 31, --------------------------- June 30,
2001 2001 2000 1999
------------ ----------- ----------- -----------
Total segment sales and freight from external customers... $ 1,049,975 $ 2,297,958 $ 2,260,784 $ 1,162,409
Other income not allocated to segments (Note 4)........... 31,223 70,457 64,359 28,560
------------ ----------- ----------- -----------
Total Consolidated Revenue.............................. $ 1,081,198 $ 2,368,415 $ 2,325,143 $ 1,190,969
============ =========== =========== ===========
29
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the For the For the
Operating Profit: Six Months Year Ended Six Months
Ended June 30, Ended
December 31, ------------------------ June 30,
2001 2001 2000 1999
------------ ---------- ---------- ----------
Total segment pretax operating income............................ $ 316 $ 266,732 $ 162,361 $ 70,156
Interest expense -- net and other non-operating activity......... (19,936) (26,397) (55,814) (29,996)
------------ ---------- ---------- ----------
Earnings (Loss) Before Income Taxes.............................. $ (19,620) $ 240,335 $ 106,547 $ 40,160
============ ========== ========== ==========
Total Assets:
June 30,
December 31, --------------------------------------
2001 2001 2000 1999
------------ ---------- ---------- ----------
Total assets for reportable segments............................. $ 3,684,593 $3,489,983 $3,465,675 $3,465,924
Cash and other investments....................................... 15,968 17,104 8,181 47,223
Deferred tax assets.............................................. 575,614 355,533 384,642 361,879
Black Lung excise tax resolution interest receivable............. 21,419 32,351 -- --
Recoverable income taxes......................................... -- -- 7,813 --
------------ ---------- ---------- ----------
Total Consolidated Assets...................................... $ 4,297,594 $3,894,971 $3,866,311 $3,875,026
============ ========== ========== ==========
Enterprise-Wide Disclosures:
CONSOL Energy's Revenues by geographical location:
For the For the For the
Six Months Year Ended Six Months
Ended June 30, Ended
December 31, ------------------------ June 30,
2001 2001 2000 1999
------------ ---------- ---------- ----------
United States.................................................... $ 859,492 $1,881,045 $1,848,308 $ 928,746
Europe........................................................... 97,739 230,074 193,581 117,599
Asia............................................................. 14,886 26,311 72,878 40,704
Canada ......................................................... 33,922 86,828 59,054 43,833
South America.................................................... 36,050 52,366 45,416 12,752
Middle East...................................................... -- -- 21,096 9,492
Africa........................................................... 7,886 21,334 20,451 9,283
------------ ---------- ---------- ----------
Total Revenues and Freight from External Customers (N)......... $ 1,049,975 $2,297,958 $2,260,784 $1,162,409
============ ========== ========== ==========
(N) CONSOL Energy attributes revenue to individual countries based on the
location of the customer.
CONSOL Energy's Property, Plant and Equipment by geographical location are:
June 30,
December 31, --------------------------------------
2001 2001 2000 1999
------------ ---------- ---------- ----------
United States.................................................... $ 2,904,969 $2,520,288 $2,562,856 $2,659,429
Canada ......................................................... 10,226 10,882 11,478 14,717
Belgium.......................................................... 115 122 110 120
------------ ---------- ---------- ----------
Total Property, Plant and Equipment............................. $ 2,915,310 $2,531,292 $2,574,444 $2,674,266
============ ========== ========== ==========
30
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 28--Supplemental Coal Data (unaudited):
(Millions of Tons)
------------------------------------------------------------------
For The
For the Six Year Ended For the Six For the Year
Months Ended June 30, Months Ended Ended
December 31, ------------------ June 30, December 31,
2001 2001 2000 1999 1998
------------ -------- -------- ------------- ------------
Proved and probable reserves at beginning of
period....................................... 4,378 4,461 4,705 4,755 4,776
Purchased reserves............................ 4 3 3 4 148
Reserves sold in place........................ (8) (5) (66) (11) (29)
Production.................................... (34) (71) (73) (38) (76)
Revisions and other changes................... (18) (10) (108) (5) (64)
------------ -------- -------- ------------- ------------
Consolidated Proved and Probable Reserves at
end of period*............................... 4,322 4,378 4,461 4,705 4,755
============ ======== ======== ============= ============
Proportionate share of proved and probable
Reserves of unconsolidated equity
affiliates *................................. 43 33 -- -- --
------------ -------- -------- ------------- ------------
* Proved and probable coal reserves are the equivalent of "demonstrated
reserves" under the coal resource classification system of the U.S. Geological
Survey. Generally, these reserves would be commercially mineable at year-end
prices and cost levels, using current technology and mining practices.
The vast majority of coal reserves are located in nearly every major coal-
producing region in North America. At December 31, 2001, 937 million tons were
assigned to mines either in production or under development. The proved and
probable reserves at December 31, 2001 include 3,681 million tons of steam coal,
of which approximately 15 percent has a sulfur content equivalent to less than
1.2 pounds sulfur dioxide per million British thermal unit (Btu), and an
additional 16 percent has a sulfur content equivalent to between 1.2 and 2.5
pounds sulfur dioxide per million Btu. The reserves also include 684 million
tons of metallurgical coal, of which approximately 69 percent has a sulfur
content equivalent to less than 1.2 pounds sulfur dioxide per million Btu, and
the remaining 31 percent has a sulfur content equivalent to between 1.2 and 2.5
pounds sulfur dioxide per million Btu. A significant portion of this
metallurgical coal can also serve the steam coal market.
Note 29--Supplemental Gas Data (unaudited):
The following information was prepared in accordance with Statement of
Financial Accounting Standards No. 69, "Disclosures About Oil and Gas Producing
Activities" and related accounting rules:
Capitalized Costs:
June 30,
December 31, -----------------------------
2001 2001 2000
------------ ------------ ------------
Proved properties........................................... $ 569,575 $ 148,012 $ 118,143
Accumulated depreciation, depletion and amortization........ 75,931 17,151 2,155
------------ ------------ ------------
Net Capitalized Costs ...................................... $ 493,644 $ 130,861 $ 115,988
============ ============ ============
Proportionate Share of Gas Producing Net Property, Plant
And Equipment of Unconsolidated Equity Affiliates......... $ 496 $ 109,422 $ 97,818
============ ============ ============
31
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Results of Operations:
For the Six For the
Months For the Year Ended Six Months
Ended June 30, Ended
December 31, ----------------------- June 30,
2001 2001 2000 1999
------------ ---------- ---------- ----------
Total Revenue.............................................. $ 51,060 $ 157,832 $ 52,456 $ 11,769
Lifting Costs.............................................. 8,111 8,893 6,615 1,072
Royalty Expense............................................ 3,530 12,983 2,725 394
Other Production Costs..................................... 18,015 29,845 14,496 7,054
Depreciation, Depletion & Amortization..................... 12,581 10,818 5,299 2,223
------------ ---------- ---------- ----------
Total Cost................................................. 42,237 62,539 29,135 10,743
Pretax Operating Income.................................... 8,823 95,293 23,321 1,026
Income Taxes............................................... (798) 33,236 8,222 (367)
------------ ---------- ---------- ----------
Results of Operations, excluding Corporate and
Interest Costs........................................... $ 9,621 $ 62,057 $ 15,099 $ 1,393
============ ========== ========== ==========
Gross Reserve Quantity:
(Millions of cubic feet (MMcf))
---------------------------------------------------
For the For the
For the Six Year Ended Six Months
Months Ended June 30, Ended
December 31, ----------------------- June 30,
2001 2001 2000 1999
------------ ---------- ---------- ----------
Proved developed and undeveloped gas reserves at beginning
of period*....................................................... 780,507 746,813 467,009 470,087
Purchased reserves................................................ 414,806 -- 284,591 --
Production........................................................ (19,737) (34,706) (16,299) (3,078)
Revisions and other changes....................................... 656 68,400 11,512 --
------------ ---------- ---------- ----------
Proved developed and undeveloped gas reserves at end of
Period*.......................................................... 1,176,232 780,507 746,813 467,009
============ ========== ========== ==========
Proportional interest in reserves of investees accounted for by
the equity method (included in proved developed and
undeveloped gas reserves)........................................ 6,802 416,183 424,848 --
============ ========== ========== ==========
Proved developed reserves:
At beginning of period.......................................... 261,426 178,690 72,749 75,826
============ ========== ========== ==========
At end of period................................................ 413,234 261,426 178,690 72,749
============ ========== ========== ==========
Proved developed reserves in equity affiliates included in
proved developed reserves:
At beginning of period.......................................... 117,620 103,313 -- --
============ ========== ========== ==========
At end of period................................................ 5,022 117,620 103,313 --
============ ========== ========== ==========
* Proved developed and undeveloped gas reserves are defined by the Society of
Petroleum Engineers and the World Petroleum Congress. Generally, these
reserves would be commercially recovered under current economic conditions,
operating methods and government regulations.
CONSOL Energy's proved gas reserves are located in the states of Virginia and
Pennsylvania.
Standardized Measure of Discounted Future Net Cash Flows:
The following information has been prepared in accordance with the provisions
of Statement of Financial Accounting Standards No. 69, "Disclosures about Oil
and Gas Producing Activities." This statement requires the standardized measure
of
32
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
discounted future net cash flows to be based on year-end sales prices, costs
and statutory income tax rates and a 10 percent annual discount rate. Because
prices used in the calculation are as of the end of the period, the standardized
measure could vary significantly from year to year based on the market
conditions at that specific date.
The projections should not be viewed as realistic estimates of future cash
flows, nor should the "standardized measure" be interpreted as representing
current value to CONSOL Energy. Material revisions to estimates of proved
reserves may occur in the future; development and production of the reserves may
not occur in the periods assumed; actual prices realized are expected to vary
significantly from those used; and actual costs may vary. CONSOL Energy's
investment and operating decisions are not based on the information presented,
but on a wide range of reserve estimates that include probable as well as proved
reserves, and on different price and cost assumptions.
The standardized measure is intended to provide a better means for
comparing the value of CONSOL Energy's proved reserves at a given time with
those of other gas producing companies than is provided by a comparison of raw
proved reserve quantities.
At June 30,
At December 31, ----------------------------------------
2001 2001 2000 1999
--------------- ------------ ------------ -----------
Future Cash Flows:
Revenues............................................... $ 3,258,890 $ 2,647,689 $ 3,238,988 $ 1,004,900
Production costs....................................... (1,847,658) (1,520,955) (1,365,925) (612,237)
Development costs...................................... (853,137) (286,680) (242,733) (101,050)
Income tax expense..................................... (124,871) (288,447) (479,504) (96,595)
--------------- ------------ ------------ -----------
Future Net Cash Flows..................................... 433,224 551,607 1,150,826 195,018
Discounted to present value at a 10% annual rate.......... (214,859) (362,451) (656,245) (131,678)
--------------- ------------ ------------ -----------
Total standardized measure of discounted net cash flows... $ 218,365 $ 189,156 $ 494,581 $ 63,340
=============== ============ ============ ===========
Standardized measure of discounted net cash flows
for equity affiliates included above.................... $ -- $ 32,451 $ 177,068 $ --
=============== ============ ============ ===========
The following are the principal sources of change in the standardized measure
of discounted future net cash flows during:
At June 30,
At December 31, --------------------------------
2001 2001 2000 1999
--------------- --------- --------- --------
Balance at Beginning of Period............................ $ 189,156 $ 494,581 $ 63,340 $ 71,500
Net changes in sales prices and production costs.......... (1,387,961) (857,403) 857,939 (35,760)
Sales--net of production costs ........................... 284,498 (106,111) (28,620) (3,249)
Net change due to acquisition............................. 1,155,060 -- 744,637 --
Net change due to revisions in quantity estimates......... 232,901 217,185 (18,299) 2,216
Development costs incurred, previously
estimated............................................... (18,141) (13,398) (4,545) (6,064)
Changes in estimated future development costs............. (566,457) (43,947) (141,683) 38
Net change in future income taxes......................... 163,576 191,057 (382,909) 8,862
Accretion of discount and other........................... 165,733 307,192 (595,279) 25,797
--------------- --------- --------- --------
Total Discounted Cash Flow at End of
Period............................................... $ 218,365 $ 189,156 $ 494,581 $ 63,340
=============== ========= ========= ========
33
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 30--Quarterly Information (unaudited):
Three Months Ended
----------------------------
December 31, September 30,
2001 2001
------------ -------------
Sales...................................................................................... $ 486,805 $ 492,856
============ =============
Freight Revenue............................................................................ $ 34,104 $ 36,210
============ =============
Costs of Goods Sold and Other Operating Charges............................................ $ 379,827 $ 396,520
============ =============
Freight Expense............................................................................ $ 34,104 $ 36,210
============ =============
Net (Loss) Income....................................................................... $ 12,568 $ (11,509)
============ =============
Earnings Per Share:
Basic................................................................................... $ 0.16 $ (0.15)
============ =============
Dilutive................................................................................ $ 0.16 $ (0.15)
============ =============
Weighted Average Shares Outstanding:
Basic................................................................................... 78,703,099 78,696,365
============ =============
Dilutive................................................................................ 78,926,711 78,913,117
============ =============
Three Months Ended
-----------------------------------------------------------
June 30, March 31, December 31, September 30,
2001 2001 2000 2000
----------- ----------- ------------ -------------
Sales....................................................... $ 560,643 $ 576,930 $ 508,185 $ 491,260
=========== =========== ============ =============
Freight Revenue............................................. $ 56,080 $ 32,635 $ 35,154 $ 37,071
=========== =========== ============ =============
Costs of Goods Sold and Other Operating Charges............. $ 409,695 $ 421,415 $ 367,342 $ 370,231
=========== =========== ============ =============
Freight Expense............................................. $ 56,080 $ 32,635 $ 35,154 $ 37,071
=========== =========== ============ =============
Net Income............................................. $ 49,347 $ 100,800 $ 29,407 $ 4,096
=========== =========== ============ =============
Earnings Per Share:
Basic..................................................... $ 0.63 $ 1.28(A) $ 0.37 $ 0.05
=========== =========== ============ =============
Dilutive.................................................. $ 0.62 $ 1.27(A) $ 0.37 $ 0.05
=========== =========== ============ =============
Weighted Average Shares Outstanding:
Basic..................................................... 78,670,017 78,616,575 78,590,854 78,577,553
=========== =========== ============ =============
Dilutive.................................................. 79,071,471 79,201,793 78,745,914 78,681,451
=========== =========== ============ =============
(A) The increase in Earnings Per Share was due mainly to the recognition of
pre-tax income of $95,292 for the Black Lung Excise Tax Resolution.
Three Months Ended
-----------------------------------------------------------
June 30, March 31, December 31, September 30,
2000 2000 1999 1999
----------- ----------- ------------ -------------
Sales....................................................... $ 501,513 $ 511,016 $ 537,109 $ 545,212
=========== =========== ============ =============
Freight Revenue............................................. $ 44,387 $ 35,862 $ 40,734 $ 44,951
=========== =========== ============ =============
Costs of Goods Sold and Other Operating Charges............. $ 337,984 $ 369,524 $ 375,387 $ 416,087
=========== =========== ============ =============
Freight Expense............................................. $ 44,387 $ 35,862 $ 40,734 $ 44,951
=========== =========== ============ =============
Net Income............................................. $ 36,837 $ 22,970 $ 36,506 $ 10,727
=========== =========== ============ =============
Earnings Per Share:
Basic..................................................... $ 0.47 $ 0.29 $ 0.46 $ 0.13
=========== =========== ============ =============
Dilutive.................................................. $ 0.47 $ 0.29 $ 0.46 $ 0.13
=========== =========== ============ =============
Weighted Average Shares Outstanding:
Basic..................................................... 78,615,363 79,217,730 79,901,818 80,250,718
=========== =========== ============ =============
Dilutive.................................................. 78,619,097 79,218,134 79,902,337 80,250,870
=========== =========== ============ =============
34
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Three Months Ended
-----------------------------
June 30, March 31,
1999 1999
----------- -----------
Sales.......................................................................................... $ 514,429 $ 567,493
=========== ===========
Freight Revenue................................................................................ $ 32,469 $ 48,018
=========== ===========
Costs of Goods Sold and Other Operating Charges................................................ $ 393,539 $ 396,580
=========== ===========
Freight Expense................................................................................ $ 32,469 $ 48,018
=========== ===========
Net Income............................................................................... $ 14,434 $ 25,605
=========== ===========
Earnings Per Share:
Basic....................................................................................... $ 0.20 $ 0.44
=========== ===========
Dilutive.................................................................................... $ 0.20 $ 0.44
=========== ===========
Weighted Average Shares Outstanding:
Basic....................................................................................... 71,823,602 57,667,558
=========== ===========
Dilutive.................................................................................... 71,823,602 57,667,558
=========== ===========
Note 31--Subsequent Events:
On March 7, 2002, CONSOL Energy issued $250,000 of 7.875 percent Notes due in
2012. Interest on the notes is payable March 1 and September 1 of each year
commencing September 1, 2002. Payment of the principal and premium, if any, and
interest on the notes is guaranteed by several CONSOL Energy subsidiaries that
incur or guarantee certain indebtedness. The notes are senior unsecured
obligations and rank equally with all other unsecured and unsubordinated
indebtedness of the guarantors. CONSOL Energy may redeem the notes, in whole or
in part, at CONSOL Energy's option, at any time at a redemption rate equal to
the greater of the principal balance plus accrued interest to the redemption
date or the sum of the present values of the remaining scheduled payments of
principal and interest on the notes being redeemed, discounted to the redemption
date on a semi-annual basis at the Treasury Rate plus 45 basis points plus
accrued interest to the redemption date. The notes have not been registered
under the Securities Act of 1933 or any state securities laws but were offered
and sold only to qualified institutional buyers and outside the United States to
non-United-States persons in reliance upon Regulation S under the Securities Act
of 1933. CONSOL Energy has agreed to file an exchange offer registration
statement with the SEC to allow the exchange of the notes for a new issue of
substantially identical notes registered under the Securities Act of 1933 within
90 days after the original issuance of the notes. CONSOL Energy paid
approximately $4,186 for debt issue costs related to these notes. The debt
issuance costs will be amortized using the interest method. The payment
obligations of the notes due 2012 are fully and unconditionally guaranteed by
several subsidiaries of CONSOL Energy but may be released in certain
circumstances as to any subsidiary at such time as it does not have any debt for
borrowed money or is not a guarantor of debt.
The payment obligations under the $250,000 7.875 percent Notes due 2012
issued by CONSOL Energy are fully and unconditionally guaranteed by several
subsidiaries of CONSOL Energy. In accordance with positions established by the
Securities and Exchange Commission, the following financial information sets
forth separate financial information with respect to the parent, the guarantor
subsidiaries and the non-guarantor subsidiaries. The principal elimination
entries eliminate investments in subsidiaries and certain intercompany balances
and transactions. CONSOL Energy's parent and a guarantor company manage several
assets and liabilities of their subsidiaries. For example, these include
deferred tax assets, cash and other post-employment liabilities. These assets
and liabilities are reflected as parent company or guarantor company amounts for
purposes of this presentation.
35
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Statement for the six months ended December 31, 2001;
Parent Guarantor Non-Guarantor Elimination Consolidated
------- --------- ------------- ----------- ------------
Sales - Outside $ - $ 646,897 $ 332,764 $ - $ 979,661
Freight - Outside - 42,017 28,297 - 70,314
Other Income (including equity earnings) 4,820 76,938 (26,340) (24,195) 31,223
------- --------- ------------- ----------- ------------
Total Revenue 4,820 765,852 334,721 (24,195) 1,081,198
Cost of Goods Sold and Operating Charges 7,326 635,242 200,085 (66,306) 776,347
Intercompany Activity (7,827) (54,209) (2,073) 64,109 -
Freight Expense - 42,018 28,296 - 70,314
Selling, General and Administrative Expense - 22,384 9,109 - 31,493
Depreciation, Depletion and Amortization 1,129 90,458 28,452 - 120,039
Interest Expense 3,358 11,808 1,398 - 16,564
Taxes Other Than Income 1,820 58,782 20,057 - 80,659
Export Sales Excise Tax
Resolution - 5,083 319 - 5,402
------- --------- ------------- ----------- ------------
Total Costs 5,806 811,566 285,643 (2,197) 1,100,818
------- --------- ------------- ----------- ------------
Earnings(Loss) Before Income Taxes (986) (45,714) 49,078 (21,998) (19,620)
Income Taxes (Benefit) (2,045) (30,919) 12,285 - (20,679)
------- --------- ------------- ----------- ------------
Net Income(Loss) $ 1,059 $ (14,795) $ 36,793 $ (21,998) $ 1,059
======= ========= ============= =========== ============
36
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Balance Sheet for December 31, 2001;
Parent Guarantor Non-Guarantor Elimination Consolidated
---------- ----------- ------------- ----------- ------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 3,723 $ 158 $ 11,701 $ - $ 15,582
Accounts and Notes Receivable:
Trade - 204,520 59,331 (43,409) 220,442
Other 1,577 108,791 12,986 - 123,354
Inventories 240 83,668 29,986 - 113,894
Deferred Income Taxes 54,708 - - - 54,708
Prepaid Expenses 3,142 30,667 8,465 - 42,274
---------- ----------- ------------- ----------- ------------
Total Current Assets 63,390 427,804 122,469 (43,409) 570,254
Property, Plant and Equipment:
Property, Plant and Equipment 51,581 4,055,229 1,307,150 - 5,413,960
Less-Accumulated Depreciation,
Depletion and Amortization 20,737 2,074,162 403,751 - 2,498,650
---------- ----------- ------------- ----------- ------------
Property, Plant and Equipment - Net 30,844 1,981,067 903,399 - 2,915,310
Other Assets:
Deferred Income Taxes 520,906 - - - 520,906
Advanced Mining Royalties 9 52,966 39,669 - 92,644
Investment in Affiliates 1,113,721 951,651 51,236 (2,038,941) 77,667
Other 754 74,451 45,608 - 120,813
---------- ----------- ------------- ----------- ------------
Total Other Assets 1,635,390 1,079,068 136,513 (2,038,941) 812,030
---------- ----------- ------------- ----------- ------------
Total Assets $1,729,624 $ 3,487,939 $ 1,162,381 $(2,082,350) $ 4,297,594
========== =========== ============= =========== ============
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 117,281 $ 5,957 $ 91,912 $ (43,409) $ 171,741
Accounts Payable (Receivable)-
Related Parties 811,479 (374,435) (517,919) 80,875 -
Short-Term Notes Payable 77,869 - - - 77,869
Current Portion of Long-Term Debt
and Capital Lease Obligations 100 72,036 635 - 72,771
Accrued Income Taxes 4,799 - - - 4,799
Other Accrued Liabilities 31,753 208,826 72,989 - 313,568
---------- ----------- ------------- ----------- ------------
Total Current Liabilities 1,043,281 (87,616) (352,383) 37,466 640,748
Long-Term Debt:
Long-Term Debt 245,892 211,688 6,607 - 464,187
Capital Lease Obligations - 8,482 - 8,482
---------- ----------- ------------- ----------- ------------
Total Long-Term Debt 245,892 220,170 6,607 - 472,669
Deferred Credits and Other Liabilities:
Postretirement Benefits Other Than
Pensions - 1,417,567 - - 1,417,567
Pneumoconiosis - 459,776 - - 459,776
Mine Closing - 198,700 135,038 - 333,738
Workers' Compensation 1,738 234,814 32,523 - 269,075
Deferred Revenue - 195,370 32,225 - 227,595
Reclamation - 7,715 6,029 - 13,744
Other 167,154 21,649 2,320 - 191,123
---------- ----------- ------------- ----------- ------------
Total Deferred Credits and
Other Liabilities 168,892 2,535,591 208,135 - 2,912,618
Stockholders' Equity 271,559 819,794 1,300,022 (2,119,816) 271,559
---------- ----------- ------------- ----------- ------------
Total Liabilities and Stockholders' Equity $1,729,624 $ 3,487,939 $ 1,162,381 $(2,082,350) $ 4,297,594
========== =========== ============= =========== ============
37
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Statement of Cash Flows
For the Six Months Ended December 31,
2001;
Parent Guarantor Non-Guarantor Elimination Consolidated
-------- ----------- ------------- ----------- ------------
Net Cash Provided by
(Used in) Operating Activities $105,153 $ 112,440 $ (124,614) $ - $ 92,979
-------- ----------- ------------- ----------- ------------
Cash Flows from Investing Activities:
Capital Expenditures $ (3,637) $ (112,777) $ (46,448) $ - $ (162,862)
Acquisitions - Net of Cash Acquired (20,694) - 183,432 - 162,738
Investment in Equity Affiliates (1,493) (275) (12,046) - (13,814)
Other Investing Activities 15 2,538 (108) - 2,445
-------- ----------- ------------- ----------- ------------
Net Cash (Used in) Provided by
Investing Activities $(25,809) $ (110,514) $ 124,830 $ - $ (11,493)
-------- ----------- ------------- ----------- ------------
Cash Flows from Financial Activities:
Payments on Short-Term Borrowings $(36,564) $ - $ - $ - $ (36,564)
Dividends Paid (44,050) - - - (44,050)
Other Financing Activities - (1,915) - - (1,915)
-------- ----------- ------------- ----------- ------------
Net Cash Used in Financing Activities $(80,614) $ (1,915) $ - $ - $ (82,529)
-------- ----------- ------------- ----------- ------------
Income Statement for the Twelve Months
Ended June 30, 2001;
Parent Guarantor Non-Guarantor Elimination Consolidated
-------- ----------- ------------- ----------- ------------
Sales - Outside $ - $ 1,575,195 $ 552,535 $ - $ 2,127,730
Sales - Related Parties - 4,029 5,259 - 9,288
Freight - Outside - 98,552 58,485 - 157,037
Freight - Related Parties - 3,903 647 (647) 3,903
Other Income (including equity earnings) 197,473 192,216 (90,397) (228,835) 70,457
-------- ----------- ------------- ----------- ------------
Total Revenue 197,473 1,873,895 526,529 (229,482) 2,368,415
Cost of Good Sold and Operating Charges 31,927 1,403,980 261,188 (128,412) 1,568,683
Intercompany Activity (33,862) (112,934) 17,163 129,633 -
Freight Expense - 102,455 59,132 (647) 160,940
Selling, General and Administrative Expense - 43,379 19,664 - 63,043
Depreciation, Depletion and Amortization 2,010 193,868 49,251 (1,857) 243,272
Interest Expense 17,111 36,340 4,147 - 57,598
Taxes Other Than Income 4,204 156,369 (2,507) - 158,066
Export Sales Excise Tax
Resolution - (115,886) (7,636) - (123,522)
-------- ----------- ------------- ----------- ------------
Total Costs 21,390 1,707,571 400,402 (1,283) 2,128,080
-------- ----------- ------------- ----------- ------------
Earnings (Loss) Before Income Taxes 176,083 166,324 126,127 (228,199) 240,335
Income Taxes (Benefit) (7,567) 34,486 29,766 - 56,685
-------- ----------- ------------- ----------- ------------
Net Income(Loss) $183,650 $ 131,838 $ 96,361 $ (228,199) $ 183,650
======== =========== ============= =========== ============
38
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Balance Sheet for June 30, 2001;
Parent Guarantor Non-Guarantor Elimination Consolidated
---------- ---------- ------------ ----------- ------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 4,993 $ 147 $ 11,485 $ - $ 16,625
Accounts and Notes Receivable:
Trade - 190,151 58,834 (27,428) 221,557
Related Parties (11) 4 7 - -
Other 973 124,460 32,988 - 158,421
Inventories 240 81,385 13,421 - 95,046
Deferred Income Taxes 46,340 - - - 46,340
Prepaid Expenses 2,127 23,060 2,685 - 27,872
---------- ---------- ------------ ----------- ------------
Total Current Assets 54,662 419,207 119,420 (27,428) 565,861
Property, Plant and Equipment:
Property, Plant and Equipment 39,195 3,942,384 962,382 - 4,943,961
Less-Accumulated Depreciation, Depletion
and Amortization 20,636 1,981,411 410,622 - 2,412,669
---------- ---------- ------------ ----------- ------------
Property, Plant and Equipment - Net 18,559 1,960,973 551,760 - 2,531,292
Other Assets:
Deferred Income Taxes 309,193 - - - 309,193
Advanced Mining Royalties 6 56,922 40,489 - 97,417
Investment in Affiliates 1,075,990 699,994 101,492 (1,653,965) 223,511
Other 55,079 77,350 35,268 - 167,697
---------- ---------- ------------ ----------- ------------
Total Other Assets 1,440,268 834,266 177,249 (1,653,965) 797,818
---------- ---------- ------------ ----------- ------------
Total Assets $1,513,489 $3,214,446 $ 848,429 $(1,681,393) $ 3,894,971
========== ========== ============ =========== ============
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 104,839 $ 17,571 $ 49,118 $ (27,428) $ 144,100
Accounts Payable (Receivable) Related
Parties 554,795 (274,834) (373,952) 94,086 95
Short-Term Notes Payable 360,063 - - - 360,063
Current Portion of Long-Term Debt and
Capital Lease Obligations 100 71,798 635 - 72,533
Accrued Income Taxes 2,322 - - - 2,322
Other Accrued Liabilities 63,028 254,041 37,791 - 354,860
---------- ---------- ------------ ----------- ------------
Total Current Liabilities 1,085,147 68,576 (286,408) 66,658 933,973
Long-Term Debt:
Long-Term Debt 69 213,224 7,101 - 220,394
Capital Lease Obligations - 10,634 - - 10,634
---------- ---------- ------------ ----------- ------------
Total Long-Term Debt 69 223,858 7,101 - 231,028
Deferred Credits and Other Liabilities:
Postretirement Benfits Other Than Pensions - 1,140,501 - - 1,140,501
Pneumoconiosis - 446,790 1,527 - 448,317
Mine Closing - 176,516 95,704 - 272,220
Workers' Compensation 2,052 213,495 45,062 - 260,609
Deferred Revenue - - 40,024 - 40,024
Reclamation - 15,748 4,058 - 19,806
Other 74,574 116,049 6,223 - 196,846
---------- ---------- ------------ ----------- ------------
Total Deferred Credits and Other
Liabilities 76,626 2,109,099 192,598 - 2,378,323
Stockholders' Equity 351,647 812,913 935,138 (1,748,051) 351,647
---------- ---------- ------------ ----------- ------------
Total Liabilities and Stockholders' Equity $1,513,489 $3,214,446 $ 848,429 $(1,681,393) $ 3,894,971
========== ========== ============ =========== ============
39
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Statement of Cash Flows
For the Twelve Months Ended June 30, 2001;
Parent Guarantor Non-Guarantor Elimination Consolidated
---------- ---------- -------------- ------------ ------------
Net Cash (Used in) Provided by Operating
Activities $ (270,123) $ 611,839 $ 93,967 $ - $ 435,683
---------- ---------- -------------- ------------ ------------
Cash Flows from Investing Activities:
Capital Expenditures $ (3,163) $ (162,074) $ (48,762) $ - $ (213,999)
Acquisitions - Net of Cash Acquired - - (39,072) - (39,072)
Investment in Equity Affiliates - 14,075 (1,805) - 12,270
Other Investing Activities 1,428 5,288 920 - 7,636
---------- ---------- ------------- ------------ ------------
Net Cash Used in Investing Activities $ (1,735) $ (142,711) $ (88,719) $ - $ (233,165)
---------- ---------- ------------- ------------ ------------
Cash Flows from Financing Activities:
Proceeds from (Payments on) Short-Term
Borrowings $ 361,855 $ (464,310) $ - $ - $ (102,455)
Dividends Paid (88,014) - - - (88,014)
Other Financing Activities 1,521 (4,769) (357) - (3,605)
---------- ---------- ------------- ------------ ------------
Net Cash Provided by (Used in) Financing
Activities $ 275,362 $ (469,079) $ (357) $ - $ (194,074)
---------- ---------- ------------- ------------ ------------
Income Statement for the Twelve Months Ended
June 30, 2000;
Parent Guarantor Non-Guarantor Elimination Consolidated
---------- ----------- ------------- ----------- ------------
Sales - Outside $ - $ 1,574,291 $ 517,305 $ - $ 2,091,596
Sales - Related Parties - 1,891 11,642 (10,279) 3,254
Freight - Outside - 148,693 15,819 - 164,512
Freight -Related Parties - 1,422 - - 1,422
Other Income (including equity earnings) 87,147 92,003 (26,970) (87,821) 64,359
---------- ----------- ------------- ----------- ------------
Total Revenue 87,147 1,818,300 517,796 (98,100) 2,325,143
Cost of Goods Sold and Operating Charges 17,135 1,333,687 300,826 (152,666) 1,498,982
Intercompany Activity (73,355) (114,559) 34,738 153,176 -
Freight Expense - 150,115 15,819 - 165,934
Selling, General and Administrative Expense - 34,156 28,008 - 62,164
Depreciation, Depletion and Amortization 2,519 197,074 52,142 (1,858) 249,877
Interest Expense 4,024 47,531 3,734 - 55,289
Taxes Other Than Income 4,559 141,371 28,342 - 174,272
Restructuring Costs 11,109 969 - - 12,078
---------- ----------- ------------- ----------- ------------
Total Costs (34,009) 1,790,344 463,609 (1,348) 2,218,596
---------- ----------- ------------- ----------- ------------
Earnings(Loss) Before Income Taxes 121,156 27,956 54,187 (96,752) 106,547
Income Taxes (Benefit) 14,116 (14,338) (271) - (493)
---------- ----------- ------------- ----------- ------------
Net Income(Loss) $ 107,040 $ 42,294 $ 54,458 $ (96,752) $ 107,040
========== =========== ============= =========== ============
40
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Statement of Cash Flows
For the Twelve Months Ended June 30, 2000;
Parent Guarantor Non-Guarantor Elimination Consolidated
--------- --------- ------------- ----------- ------------
Net Cash Provided by (Used in) Operating
Activities $ 104,993 $ (8,688) $ 198,723 $ - $ 295,028
--------- --------- ------------- ----------- ------------
Cash Flows from Investing Activities:
Capital Expenditures $ - $(115,744) $ (26,854) $ - $ (142,598)
Acquisitions - Net of Cash Acquired - - (163,506) - (163,506)
Investment in Equity Affiliates - (2,299) - - (2,299)
Other Investing Activities 40 9,331 (552) - 8,849
--------- --------- ------------- ----------- ------------
Net Cash Provided by (Used in) Investing
Activities $ 40 $(108,712) $ (190,882) $ - $ (299,554)
--------- --------- ------------- ----------- ------------
Cash Flows from Financing Activities:
Proceeds from Short-Term Borrowings $ - $ 117,331 $ - $ - $ 117,331
Dividends Paid (89,055) - - (89,055)
Other Financing Activities (19,496) (6,947) (12,685) - (39,128)
--------- --------- ------------- ----------- ------------
Net Cash (Used in) Provided by Financing
Activities $(108,551) $ 110,384 $ (12,685) $ - $ (10,852)
--------- --------- ------------- ----------- ------------
41
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Statement for the Six Months Ended
June 30, 1999;
Parent Guarantor Non-Guarantor Elimination Consolidated
----------- ---------- ------------- ----------- ------------
Sales - Outside $ - $ 781,953 $ 294,575 $ - $ 1,076,528
Sales - Related Parties - 2,143 3,251 - 5,394
Freight - Outside - 67,829 9,948 - 77,777
Freight -Related Parties - 2,710 - - 2,710
Other Income (including equity earnings) 31,393 31,177 (2,732) (31,278) 28,560
----------- ---------- ------------- ----------- ------------
Total Revenue 31,393 885,812 305,042 (31,278) 1,190,969
Cost of Goods Sold and Operating Charges 9,768 678,807 185,356 (83,812) 790,119
Intercompany Activity (30,510) (71,863) 15,288 87,085 -
Freight Expense - 70,539 9,948 - 80,487
Selling, General and Administrative Expense - 15,299 14,919 - 30,218
Depreciation, Depletion and Amortization 1,264 94,520 27,309 (1,856) 121,237
Interest Expense 117 28,363 2,024 - 30,504
Taxes Other Than Income 2,907 76,589 18,748 - 98,244
----------- ---------- ------------- ----------- ------------
Total Costs (16,454) 892,254 273,592 1,417 1,150,809
----------- ---------- ------------- ----------- ------------
Earnings(Loss) Before Income Taxes 47,847 (6,442) 31,450 (32,695) 40,160
Income Taxes (Benefit) 7,808 (15,351) 7,664 - 121
----------- ---------- ------------- ----------- ------------
Net Income(Loss) $ 40,039 $ 8,909 $ 23,786 $ (32,695) $ 40,039
=========== ========== ============= =========== ============
Condensed Statement of Cash Flows
For the six months ended June 30, 1999;
Parent Guarantor Non-Guarantor Elimination Consolidated
----------- ---------- ------------- ----------- ------------
Net Cash (Used in) Provided by Operating
Activities (315,513) 370,598 29,910 - 84,995
----------- ---------- ------------- ----------- ------------
Cash Flows from Investing Activities:
Capital Expenditures (2,588) (60,188) (42,323) - (105,099)
Other Investing Activities 39 (523) 4,793 - 4,309
----------- ---------- ------------- ----------- ------------
Net Cash Used in Investing Activities (2,549) (60,711) (37,530) - (100,790)
----------- ---------- ------------- ----------- ------------
Cash Flows from Financing Activities:
Payments on Short-Term Borrowings - (204,780) - - (204,780)
Dividends Paid (22,500) - - - (22,500)
Payments on Long-Term Notes - (100,000) - - (100,000)
Sale of Common Stock under Public Offering,
Net of Expenses 340,746 - - - 340,746
Other Financing Activities (100) (5,295) (2) - (5,397)
----------- ---------- ------------- ----------- ------------
Net Cash Provided by (Used in) Financing
Activities $ 318,146 $(310,075) $ (2) $ - $ 8,069
----------- ---------- ------------- ----------- ------------
42
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
EXHIBIT INDEX
Page
----
(a)(1) Financial Statement:
The following consolidated financial statements of CONSOL Energy Inc. and subsidiaries are
included in this filing on the pages indicated:
Report of Independent Auditors................................................................. 3
Consolidated Statements of Income for the Six Months Ended December 31, 2001, Twelve Months
Ended June 30, 2001 and 2000 and the Six Months Ended June 30, 1999............................ 4
Consolidated Balance Sheets at December 31, 2001, June 30, 2001 and June 30, 2000.............. 5
Consolidated Statements of Stockholders' Equity for the Six Months Ended December 31, 2001,
Twelve Months Ended June 30, 2001 and 2000 and the Six Months Ended June 30, 1999.............. 6
Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2001, Twelve
Months Ended June 30, 2001 and 2000 and the Six Months Ended June 30, 1999..................... 7
Notes to Consolidated Financial Statements..................................................... 8
(a)(2) Financial Statement Schedules:
No schedules are required to be presented by CONSOL Energy.
(a)(3) Exhibits filed as part of this Report:
The response to this portion of Item 14 is submitted as a separate part of this Report.
(b)(1) Reports on Form 8-K:
None.
(c) Exhibits
23.1 Consent of Ernst & Young LLP
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 and in the capacities
indicated, as of the 23rd day of May, 2002.
CONSOL ENERGY INC.
Date: May 23, 2002
By: /s/ William J. Lyons
--------------------------
William J. Lyons,
Senior Vice President,
Chief Financial Officer
and Controller