WebFilings | EDGAR view
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________
FORM 10-Q
  __________________________________________________ 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2011
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-14901
  __________________________________________________
CONSOL Energy Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
51-0337383
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1000 CONSOL Energy Drive
Canonsburg, PA 15317-6506
(724) 485-4000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 __________________________________________________ 
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  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  x    No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x    Accelerated filer  o    Non-accelerated filer  o    Smaller Reporting Company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Class
 
Shares outstanding as of April 14, 2011
Common stock, $0.01 par value
 
226,637,887
 

 

TABLE OF CONTENTS
 
 
 
Page
PART I FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
Condensed Financial Statements
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
PART II OTHER INFORMATION
 
 
 
 
ITEM 1.
 
 
 
ITEM 5.
 
 
 
ITEM 6.

 

PART I
FINANCIAL INFORMATION
 
ITEM 1.
CONDENSED FINANCIAL STATEMENTS
 
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
 
 
Three Months Ended
 
March 31,
 
2011
 
2010
Sales—Outside
$
1,385,478
 
 
$
1,169,514
 
Sales—Gas Royalty Interests
18,835
 
 
14,339
 
Sales—Purchased Gas
980
 
 
3,016
 
Freight—Outside
36,868
 
 
31,200
 
Other Income
23,216
 
 
21,991
 
Total Revenue and Other Income
1,465,377
 
 
1,240,060
 
Cost of Goods Sold and Other Operating Charges (exclusive of depreciation, depletion and amortization shown below)
813,709
 
 
766,862
 
Acquisition and Financing Fees
 
 
46,563
 
Gas Royalty Interests Costs
16,807
 
 
12,197
 
Purchased Gas Costs
676
 
 
2,308
 
Freight Expense
36,679
 
 
31,200
 
Selling, General and Administrative Expenses
40,196
 
 
30,130
 
Depreciation, Depletion and Amortization
149,062
 
 
119,186
 
Interest Expense
66,482
 
 
8,145
 
Taxes Other Than Income
90,689
 
 
81,301
 
Total Costs
1,214,300
 
 
1,097,892
 
Earnings Before Income Taxes
251,077
 
 
142,168
 
Income Taxes
58,928
 
 
34,286
 
Net Income
192,149
 
 
107,882
 
Less: Net Income Attributable to Noncontrolling Interest
 
 
(7,613
)
Net Income Attributable to CONSOL Energy Inc. Shareholders
$
192,149
 
 
$
100,269
 
Earnings Per Share:
 
 
 
Basic
$
0.85
 
 
$
0.55
 
Dilutive
$
0.84
 
 
$
0.54
 
Weighted Average Number of Common Shares Outstanding:
 
 
 
Basic
226,350,594
 
 
181,726,480
 
Dilutive
228,814,838
 
 
184,348,982
 
Dividends Paid Per Share
$
0.10
 
 
$
0.10
 
The accompanying notes are an integral part of these financial statements.

 
3

 

CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
 
 
(Unaudited)
 
 
 
March 31,
2011
 
December 31,
2010
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
127,695
 
 
$
32,794
 
Accounts and Notes Receivable:
 
 
 
Trade
481,229
 
 
252,530
 
Other Receivables
21,999
 
 
21,589
 
Accounts Receivable—Securitized
 
 
200,000
 
Inventories
287,809
 
 
258,538
 
Deferred Income Taxes
177,699
 
 
174,171
 
Recoverable Income Taxes
5,031
 
 
32,528
 
Prepaid Expenses
132,178
 
 
142,856
 
Total Current Assets
1,233,640
 
 
1,115,006
 
Property, Plant and Equipment:
 
 
 
Property, Plant and Equipment
15,072,016
 
 
14,951,358
 
Less—Accumulated Depreciation, Depletion and Amortization
4,872,718
 
 
4,822,107
 
Total Property, Plant and Equipment—Net
10,199,298
 
 
10,129,251
 
Other Assets:
 
 
 
Deferred Income Taxes
458,937
 
 
484,846
 
Restricted Cash
20,291
 
 
20,291
 
Investment in Affiliates
97,520
 
 
93,509
 
Other
214,055
 
 
227,707
 
Total Other Assets
790,803
 
 
826,353
 
TOTAL ASSETS
$
12,223,741
 
 
$
12,070,610
 
 
The accompanying notes are an integral part of these financial statements.

 
4

 

CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
 
 
(Unaudited)
 
 
 
March 31,
2011
 
December 31,
2010
LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts Payable
$
335,878
 
 
$
354,011
 
Short-Term Notes Payable
170,500
 
 
284,000
 
Current Portion of Long-Term Debt
275,001
 
 
24,783
 
Borrowings Under Securitization Facility
 
 
200,000
 
Other Accrued Liabilities
854,661
 
 
801,991
 
Total Current Liabilities
1,636,040
 
 
1,664,785
 
Long-Term Debt:
 
 
 
Long-Term Debt
3,127,165
 
 
3,128,736
 
Capital Lease Obligations
56,738
 
 
57,402
 
Total Long-Term Debt
3,183,903
 
 
3,186,138
 
Deferred Credits and Other Liabilities:
 
 
 
Postretirement Benefits Other Than Pensions
3,080,227
 
 
3,077,390
 
Pneumoconiosis Benefits
174,227
 
 
173,616
 
Mine Closing
397,389
 
 
393,754
 
Gas Well Closing
133,007
 
 
130,978
 
Workers’ Compensation
148,445
 
 
148,314
 
Salary Retirement
148,165
 
 
161,173
 
Reclamation
46,241
 
 
53,839
 
Other
154,748
 
 
144,610
 
Total Deferred Credits and Other Liabilities
4,282,449
 
 
4,283,674
 
TOTAL LIABILITIES
9,102,392
 
 
9,134,597
 
Stockholders’ Equity:
 
 
 
Common Stock, $.01 Par Value; 500,000,000 Shares Authorized, 227,289,426 Issued and 226,590,610 Outstanding at March 31, 2011; 227,289,426 Issued and 226,162,133 Outstanding at December 31, 2010
2,273
 
 
2,273
 
Capital in Excess of Par Value
2,194,429
 
 
2,178,604
 
Preferred Stock, 15,000,000 shares authorized, None issued and outstanding
 
 
 
Retained Earnings
1,832,384
 
 
1,680,597
 
Accumulated Other Comprehensive Loss
(875,704
)
 
(874,338
)
Common Stock in Treasury, at Cost—698,816 Shares at March 31, 2011 and 1,127,293 Shares at December 31, 2010
(27,520
)
 
(42,659
)
Total CONSOL Energy Inc. Stockholders’ Equity
3,125,862
 
 
2,944,477
 
Noncontrolling Interest
(4,513
)
 
(8,464
)
TOTAL EQUITY
3,121,349
 
 
2,936,013
 
TOTAL LIABILITIES AND EQUITY
$
12,223,741
 
 
$
12,070,610
 
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)
 
 
Common
Stock
 
Capital in
Excess
of Par
Value
 
Retained
Earnings
(Deficit)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Common
Stock in
Treasury
 
Total
CONSOL
Energy Inc.
Stockholders’
Equity
 
Non-
Controlling
Interest
 
Total
Equity
Balance at December 31, 2010
$
2,273
 
 
$
2,178,604
 
 
$
1,680,597
 
 
$
(874,338
)
 
$
(42,659
)
 
$
2,944,477
 
 
$
(8,464
)
 
$
2,936,013
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
 
 
 
 
192,149
 
 
 
 
 
 
192,149
 
 
 
 
192,149
 
Treasury Rate Lock (Net of $12 Tax)
 
 
 
 
 
 
(20
)
 
 
 
(20
)
 
 
 
(20
)
Gas Cash Flow Hedge (Net of $9,801 Tax)
 
 
 
 
 
 
(14,469
)
 
 
 
(14,469
)
 
 
 
(14,469
)
Actuarially Determined Long-Term Liability Adjustments (Net of $8,168 Tax)
 
 
 
 
 
 
13,123
 
 
 
 
13,123
 
 
 
 
13,123
 
Comprehensive Income (Loss)
 
 
 
 
192,149
 
 
(1,366
)
 
 
 
190,783
 
 
 
 
190,783
 
Issuance of Treasury Stock
 
 
 
 
(17,737
)
 
 
 
15,139
 
 
(2,598
)
 
 
 
(2,598
)
Tax Benefit From Stock-Based Compensation
 
 
2,379
 
 
 
 
 
 
 
 
2,379
 
 
 
 
2,379
 
Amortization of Stock-Based Compensation Awards
 
 
13,446
 
 
 
 
 
 
 
 
13,446
 
 
 
 
13,446
 
Net Change in Crown Drilling Noncontrolling Interest
 
 
 
 
 
 
 
 
 
 
 
 
3,951
 
 
3,951
 
Dividends ($0.10 per share)
 
 
 
 
(22,625
)
 
 
 
 
 
(22,625
)
 
 
 
(22,625
)
Balance at March 31, 2011
$
2,273
 
 
$
2,194,429
 
 
$
1,832,384
 
 
$
(875,704
)
 
$
(27,520
)
 
$
3,125,862
 
 
$
(4,513
)
 
$
3,121,349
 
 
The accompanying notes are an integral part of these financial statements.

 
6

 

CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 
Three Months Ended
 
March 31,
 
2011
 
2010
Operating Activities:
 
 
 
Net Income
$
192,149
 
 
$
107,882
 
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
 
 
 
Depreciation, Depletion and Amortization
149,062
 
 
119,186
 
Stock-Based Compensation
13,446
 
 
9,949
 
(Gain) Loss on Sale of Assets
(323
)
 
1,439
 
Amortization of Mineral Leases
2,468
 
 
2,190
 
Deferred Income Taxes
23,099
 
 
3,225
 
Equity in Earnings of Affiliates
(5,481
)
 
(3,873
)
Changes in Operating Assets:
 
 
 
Accounts and Notes Receivable
(26,901
)
 
(152,796
)
Inventories
(29,435
)
 
(22,501
)
Prepaid Expenses
7,585
 
 
782
 
Changes in Other Assets
9,449
 
 
8,788
 
Changes in Operating Liabilities:
 
 
 
Accounts Payable
7,279
 
 
45,225
 
Other Operating Liabilities
75,863
 
 
24,092
 
Changes in Other Liabilities
13,521
 
 
14,527
 
Other
3,463
 
 
15,995
 
Net Cash Provided by Operating Activities
435,244
 
 
174,110
 
Investing Activities:
 
 
 
Capital Expenditures
(254,778
)
 
(265,344
)
Proceeds from Sales of Assets
300
 
 
152
 
Net Investment in Equity Affiliates
1,470
 
 
(450
)
Net Cash Used in Investing Activities
(253,008
)
 
(265,642
)
Financing Activities:
 
 
 
(Payments on) Proceeds from Short-Term Borrowings
(113,500
)
 
93,300
 
Payments on Miscellaneous Borrowings
(3,698
)
 
(3,487
)
Payments on Securitization Facility
(200,000
)
 
 
Proceeds from Issuance of Long-Term Notes
250,000
 
 
 
Tax Benefit from Stock-Based Compensation
3,306
 
 
3,138
 
Dividends Paid
(22,625
)
 
(18,116
)
Proceeds from Issuance of Common Stock
 
 
1,828,862
 
Issuance of Treasury Stock
3,699
 
 
1,235
 
Debt Issuance and Financing Fees
(4,517
)
 
 
Net Cash (Used In) Provided By Financing Activities
(87,335
)
 
1,904,932
 
Net Increase in Cash and Cash Equivalents
94,901
 
 
1,813,400
 
Cash and Cash Equivalents at Beginning of Period
32,794
 
 
65,607
 
Cash and Cash Equivalents at End of Period
$
127,695
 
 
$
1,879,007
 
The accompanying notes are an integral part of these financial statements.

 
7

 

CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
 
NOTE 1—BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for future periods.
The balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date but does not include all the notes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and related notes for the year ended December 31, 2010 included in CONSOL Energy's Form 10-K.
Basic earnings per share are computed by dividing net income by the weighted average shares outstanding during the reporting period. Dilutive earnings per share are computed similarly 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 and performance stock options and the assumed vesting of restricted and performance stock units, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and performance share options were exercised, and outstanding restricted and performance share units were released, and that the proceeds from such activities were used to acquire shares of common stock at the average market price during the reporting period. CONSOL Energy includes the impact of proforma deferred tax assets in determining potential windfalls and shortfalls for purposes of calculating assumed proceeds under the treasury stock method. The table below sets forth the share based awards that have been excluded from the computation of the diluted earnings per share because their effect would be anti-dilutive:
 
 
For the Three Months Ended March 31,
 
2011
 
2010
Anti-Dilutive Options
1,157,937
 
 
821,212
 
Anti-Dilutive Performance Share Units
 
 
6,225
 
 
1,157,937
 
 
827,437
 
 
Options exercised during the three months ended March 31, 2011 and 2010 were 180,396 shares and 59,980 shares, respectively. No performance stock options were exercised for the three months ended March 31, 2011 and 2010. The weighted average exercise price per share of the options exercised during the three months ended March 31, 2011 and 2010 was $20.51 and $20.60, respectively. There were 341,141 and 273,768 fully vested restricted stock awards released during the three months ended March 31, 2011 and 2010, respectively. Additionally, there were 40,752 and 109,955 fully vested performance share units released during the three months ended March 31, 2011 and 2010, respectively.
The computations for basic and dilutive earnings per share from continuing operations are as follows:
 
 
Three Month Ended
 
March 31,
 
2011
 
2010
Net income attributable to CONSOL Energy Inc. shareholders
$
192,149
 
 
$
100,269
 
Weighted average shares of common stock outstanding:
 
 
 
Basic
226,350,594
 
 
181,726,480
 
Effect of stock-based compensation awards
2,464,244
 
 
2,622,502
 
Dilutive
228,814,838
 
 
184,348,982
 
Earnings per share:
 
 
 
Basic
$
0.85
 
 
$
0.55
 
Dilutive
$
0.84
 
 
$
0.54
 

 
8

 

NOTE 2—ACQUISITIONS AND DISPOSITIONS:
On April 30, 2010, CONSOL Energy completed the acquisition of the Appalachian oil and gas exploration and production business of Dominion Resources, Inc. (Dominion Acquisition) for a cash payment of $3,470,212, which was principally allocated to oil and gas properties, wells and well-related equipment. The acquisition, which was accounted for under the acquisition method of accounting, includes approximately 1 trillion cubic feet equivalents (Tcfe) of net proved reserves and 1.46 million net acres of oil and gas rights within the Appalachian Basin. Included in the acreage holdings are approximately 500 thousand prospective net Marcellus Shale acres located predominantly in southwestern Pennsylvania and northern West Virginia. Dominion is a producer and transporter of natural gas as well as a provider of electricity and related services. The acquisition enhanced CONSOL Energy’s position in the strategic Marcellus Shale fairway by increasing its development assets.
The unaudited pro forma results for the three months ended March 31, 2010, assuming the acquisition had occurred at January 1, 2010, are presented below. Pro forma adjustments include estimated operating results, acquisition and financing fees incurred, additional interest related to the 2.75 billion of senior unsecured notes and 44,275,000 shares of common stock issued in connection with the transaction.
 
 
For the Three Months Ended March 31,
 
2010
Total Revenue and Other Income
$
1,293,544
 
Earnings Before Income Taxes
$
78,696
 
Net Income Attributable to CONSOL Energy Inc. Shareholders
$
62,414
 
Basic Earnings Per Share
$
0.28
 
Dilutive Earnings Per Share
$
0.27
 
 
The pro forma results are not necessarily indicative of what actually would have occurred if the Dominion Acquisition had been completed as of January 1, 2010, nor are they necessarily indicative of future consolidated results.
In March 2010, CONSOL Energy completed the sale of the Jones Fork Mining Complex as part of a litigation settlement with Kentucky Fuel Corporation. No cash proceeds were received and $10,482 of litigation settlement expense was recorded in Cost of Goods Sold and Other Operating Charges. The loss recorded was net of $8,700 related to the fair value of estimated amounts to be collected related to an overriding royalty on future mineable and merchantable coal extracted and sold from the property.
 
NOTE 3—COMPONENTS OF PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS NET PERIODIC BENEFIT COSTS:
Components of net periodic costs for the three months ended March 31 are as follows:
 
 
Pension Benefits
 
Other Postretirement Benefits
 
Three Months Ended
 
Three Months Ended
 
March 31,
 
March 31,
 
2011
 
2010
 
2011
 
2010
Service cost
$
4,289
 
 
$
3,477
 
 
$
3,977
 
 
$
3,732
 
Interest cost
9,078
 
 
9,228
 
 
42,204
 
 
40,492
 
Expected return on plan assets
(9,630
)
 
(9,318
)
 
 
 
 
Amortization of prior service cost (credits)
(167
)
 
(184
)
 
(11,599
)
 
(11,603
)
Recognized net actuarial loss
9,146
 
 
7,865
 
 
22,364
 
 
17,398
 
Net periodic benefit cost
$
12,716
 
 
$
11,068
 
 
$
56,946
 
 
$
50,019
 
 
For the three months ended March 31, 2011, $15,940 in contributions were paid to the pension trust and to pension benefits from operating cash flows. CONSOL Energy expects to contribute to the pension trust using prudent funding methods. Currently, depending on asset values and asset returns held in the trust, we expect to contribute $63,600 to the pension trust in 2011.

 
9

 

CONSOL Energy does not expect to contribute to the other postemployment benefit plan in 2011. We intend to pay benefit claims as they become due. For the three months ended March 31, 2011, $41,643 of other postemployment benefits have been paid.
For the three months ended March 31, 2011, $7,781 of proceeds were received under the Patient Protection and Affordable Care Act related to reimbursements from the Federal government for retiree health spending. The proceeds were recorded in Accumulated Other Comprehensive Income in the Consolidated Balance Sheets. There is no guarantee that additional proceeds will be received under this program.
 
NOTE 4—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:
Components of net periodic costs (benefits) for the three months ended March 31 are as follows:
 
 
CWP
 
Workers’ Compensation
 
Three Months Ended
 
Three Months Ended
 
March 31,
 
March 31,
 
2011
 
2010
 
2011
 
2010
Service cost
$
1,155
 
 
$
1,946
 
 
$
4,468
 
 
$
6,754
 
Interest cost
2,333
 
 
2,747
 
 
2,060
 
 
2,289
 
Amortization of actuarial gain
(5,478
)
 
(4,981
)
 
(977
)
 
(768
)
State administrative fees and insurance bond premiums
 
 
 
 
1,222
 
 
2,419
 
Legal and administrative costs
750
 
 
750
 
 
718
 
 
784
 
Net periodic (benefit) cost
$
(1,240
)
 
$
462
 
 
$
7,491
 
 
$
11,478
 
 
CONSOL Energy does not expect to contribute to the CWP plan in 2011. We intend to pay benefit claims as they become due. For the three months ended March 31, 2011, $3,516 of CWP benefit claims have been paid.
CONSOL Energy does not expect to contribute to the workers’ compensation plan in 2011. We intend to pay benefit claims as they become due. For the three months ended March 31, 2011, $8,053 of workers’ compensation benefits, state administrative fees and surety bond premiums have been paid.
 
NOTE 5—INCOME TAXES:
The following is a reconciliation, stated in dollars and as a percentage of pretax income, of the U.S. statutory federal income tax rate to CONSOL Energy’s effective tax rate:
 
 
For the Three Months Ended March 31,
 
2011
 
2010
 
Amount
 
Percent
 
Amount
 
Percent
Statutory U.S. federal income tax rate
$
87,877
 
 
35.0
 %
 
$
49,759
 
 
35.0
 %
Excess tax depletion
(39,169
)
 
(15.6
)
 
(15,169
)
 
(10.7
)
Effect of domestic production activities
(1,916
)
 
(0.8
)
 
(2,502
)
 
(1.8
)
Net effect of state income taxes
8,818
 
 
3.5
 
 
5,616
 
 
4.0
 
Other
3,318
 
 
1.4
 
 
(3,418
)
 
(2.4
)
Income Tax Expense / Effective Rate
$
58,928
 
 
23.5
 %
 
$
34,286
 
 
24.1
 %
 
The effective rate for the three months ended March 31, 2011 was calculated using the annual effective rate projection on recurring earnings. The effective rate for the three months ended March 31, 2010 was calculated using the annual effective rate projection on recurring earnings and includes tax liabilities related to certain discrete transactions, such as the Canadian tax settlement described below.

 
10

 

CONSOL Energy was advised by the Canadian Revenue Agency and various provinces that its appeal of tax deficiencies paid as a result of the Agency's audit of the Canadian tax returns filed for years 1997 through 2003 had been successfully resolved. As a result of the audit settlement, the Company reflected $3,450 as a discrete reduction to foreign income tax expense in the three months ended March 31, 2010. As a result of the foreign income tax reduction, the Company reflected an additional $1,457 as discrete federal income tax expense. These discrete transactions were reflected in the Other line of the rate reconciliation in 2010.
The total amounts of uncertain tax positions at March 31, 2011 and 2010 were $65,510 and $56,916, respectively. If these uncertain tax positions were recognized, approximately $16,802 and $15,502, respectively, would affect CONSOL Energy’s effective tax rate. There were no additions to the liability for uncertain tax positions during the three months ended March 31, 2011 and 2010.
CONSOL Energy and its subsidiaries file income tax returns in the U.S. federal, various states and Canadian tax jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2005.
CONSOL Energy recognizes interest accrued related to uncertain tax positions in its interest expense. As of March 31, 2011 and 2010, the Company reported an accrued interest liability relating to uncertain tax positions of $11,895 and $9,129, respectively. The accrued interest liability includes $1,121 and $791 of interest expense that is reflected in the Company’s Consolidated Statements of Income for the three months ended March 31, 2011 and 2010, respectively.
CONSOL Energy recognizes penalties accrued related to uncertain tax positions in its income tax expense. As of March 31, 2011 and 2010, CONSOL Energy had no accrued liability for tax penalties.
 
NOTE 6—INVENTORIES:
Inventory components consist of the following:
 
 
March 31,
2011
 
December 31,
2010
Coal
$
136,277
 
 
$
108,694
 
Merchandise for resale
50,790
 
 
50,120
 
Supplies
100,742
 
 
99,724
 
Total Inventories
$
287,809
 
 
$
258,538
 
 
Merchandise for resale is valued using the last-in, first-out (LIFO) cost method. The excess of replacement cost of merchandise for resale inventories over carrying LIFO value was $22,995 and $19,624 at March 31, 2011 and December 31, 2010, respectively.
 
NOTE 7—ACCOUNTS RECEIVABLE SECURITIZATION:
CONSOL Energy and certain of our U.S. subsidiaries are party to a trade accounts receivable facility with financial institutions for the sale on a continuous basis of eligible trade accounts receivable. The facility allows CONSOL Energy to receive on a revolving basis up to $200,000. The facility also allows for the issuance of letters of credit against the $200,000 capacity. At March 31, 2011, there were no letters of credit outstanding against the facility.
CNX Funding Corporation, a wholly owned, special purpose, bankruptcy-remote subsidiary, buys and sells eligible trade receivables generated by certain subsidiaries of CONSOL Energy. Under the receivables facility, CONSOL Energy and certain subsidiaries, irrevocably and without recourse, sell all of their eligible trade accounts receivable to CNX Funding Corporation, who in turn sells these receivables to financial institutions and their affiliates, while maintaining a subordinated interest in a portion of the pool of trade receivables. This retained interest, which is included in Accounts and Notes Receivable Trade in the Consolidated Balance Sheets, is recorded at fair value. Due to a short average collection cycle for such receivables, our collection experience history and the composition of the designated pool of trade accounts receivable that are part of this program, the fair value of our retained interest approximates the total amount of the designated pool of accounts receivable. CONSOL Energy will continue to service the sold trade receivables for the financial institutions for a fee based upon market rates for similar services.
    

 
11

 

The cost of funds under this facility is based upon commercial paper rates, plus a charge for administrative services paid to the financial institutions. Costs associated with the receivables facility totaled $724 and $452 for three months ended March 31, 2011 and 2010, respectively. These costs have been recorded as financing fees which are included in Cost of Goods Sold and Other Operating Charges in the Consolidated Statements of Income. No servicing asset or liability has been recorded. The receivables facility expires in April 2012 with the underlying liquidity agreement renewing annually each April.
At March 31, 2011 and December 31, 2010, eligible accounts receivable totaled $200,000. There was subordinated retained interest of $200,000 at March 31, 2011 and there was no subordinated retained interest at December 31, 2010. There was no Accounts Receivable – Securitization and Borrowings under the Securitization Facility recorded on the Consolidated Balance Sheet at March 31, 2011. Accounts Receivable - Securitized and Borrowings under the Securitization Facility totaled $200,000 at December 31, 2010. The $200,000 decrease in the accounts receivable securitization program for the three months ended March 31, 2011 is reflected in the Net Cash (Used in) Provided by Financing Activities in the Consolidated Statement of Cash Flows. In accordance with the facility agreement, the Company is able to receive proceeds based upon the eligible accounts receivable at the previous month end.
 
 
NOTE 8—PROPERTY, PLANT AND EQUIPMENT:
 
 
March 31,
2011
 
December 31,
2010
Coal & other plant and equipment
$
5,076,520
 
 
$
5,100,085
 
Unproven gas properties
2,218,778
 
 
2,206,399
 
Proven gas properties
1,660,511
 
 
1,662,605
 
Coal properties and surface lands
1,297,301
 
 
1,292,701
 
Intangible drilling cost
1,191,453
 
 
1,116,884
 
Gas gathering equipment
980,063
 
 
941,772
 
Airshafts
667,557
 
 
662,315
 
Mine development
587,129
 
 
587,518
 
Leased coal lands
536,543
 
 
536,603
 
Coal advance mining royalties
392,604
 
 
389,379
 
Gas wells and related equipment
375,488
 
 
367,448
 
Other gas assets
85,034
 
 
84,571
 
Gas advance royalties
3,035
 
 
3,078
 
Total property, plant and equipment
15,072,016
 
 
14,951,358
 
Less Accumulated depreciation, depletion and amortization
4,872,718
 
 
4,822,107
 
Total Net Property, Plant and Equipment
$
10,199,298
 
 
$
10,129,251
 
 
 
 
NOTE 9—SHORT-TERM NOTES PAYABLE:
CONSOL Energy has a four-year $1,500,000 senior secured credit facility, which extends through May 7, 2014. The facility is secured by substantially all of the assets of CONSOL Energy and certain of its subsidiaries and collateral is shared equally and ratably with the holders of CONSOL Energy Inc. 7.875% bonds maturing in 2012. Fees and interest rate spreads are based on a ratio of financial covenant debt to twelve-month trailing earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), measured quarterly. The facility includes a minimum interest coverage ratio covenant of no less than 2.50 to 1.00, measured quarterly. The interest coverage ratio was 4.30 to 1.00 at March 31, 2011. The facility includes a maximum leverage ratio covenant of not more than 4.75 to 1.00, measured quarterly. The leverage ratio was 2.87 to 1.00 at March 31, 2011. The facility also includes a senior secured leverage ratio covenant of not more than 2.00 to 1.00, measured quarterly. The senior secured leverage ratio was 0.46 to 1.00 at March 31, 2011. Affirmative and negative covenants in the facility limit our ability to dispose of assets, make investments, purchase or redeem CONSOL Energy common stock, pay dividends, merge with another corporation and amend, modify or restate the senior unsecured or secured notes. At March 31, 2011, the $1,500,000 facility had no borrowings outstanding and $264,723 of letters of credit outstanding, leaving $1,235,277 of capacity available for borrowings and the issuance of letters of credit. The average interest rate for the three months ended March 31, 2011 was 4.01%. Accrued interest of $206 and $249 is included in Other Accrued Liabilities in the Consolidated Balance Sheets at March 31, 2011 and December 31, 2010, respectively.

 
12

 

 
CNX Gas Corporation (CNX Gas) has a four-year $700,000 senior secured credit agreement which extends through May 6, 2014. The facility is secured by substantially all of the assets of CNX Gas and its subsidiaries. The assets acquired in the Dominion Acquisition are pledged as collateral under the CNX Gas senior secured credit agreement. Collateral is shared equally and ratably with the holders of CONSOL Energy Inc. 7.875% bonds maturing in 2012. Fees and interest rate spreads are based on the percentage of facility utilization, measured quarterly. Covenants in the facility limit CNX Gas’ ability to dispose of assets, make investments, pay dividends and merge with another corporation. The facility includes a maximum leverage ratio covenant of not more than 3.50 to 1.00, measured quarterly. The leverage ratio was 0.78 to 1.00 at March 31, 2011. The facility also includes a minimum interest coverage ratio covenant of no less than 3.00 to 1.00, measured quarterly. This ratio was 51.90 to 1.00 at March 31, 2011. At March 31, 2011, the $700,000 facility had $170,500 of borrowings outstanding and $70,203 of letters of credit outstanding, leaving $459,297 of capacity available for borrowings and the issuance of letters of credit. The facility bore a weighted average interest rate of 2.26% at March 31, 2011. The average interest rate for the three months ended March 31, 2011 was 2.37%. Accrued interest of $231 and $98 is included in Other Accrued Liabilities in the Consolidated Balance Sheets at March 31, 2011 and December 31, 2010, respectively.
 
NOTE 10—LONG-TERM DEBT:
 
 
March 31,
2011
 
December 31,
2010
Debt:
 
 
 
Senior notes due April 2017 at 8.00%, issued at par value
$
1,500,000
 
 
$
1,500,000
 
Senior notes due April 2020 at 8.25%, issued at par value
1,250,000
 
 
1,250,000
 
Senior notes due March 2021 at 6.375%, issued at par value
250,000
 
 
 
Secured notes due March 2012 at 7.875% (par value of $250,000 less unamortized discount of $189 and $242 at March 31, 2011 and December 31, 2010, respectively)
249,811
 
 
249,758
 
Baltimore Port Facility revenue bonds in series due September 2025 at 5.75%
102,865
 
 
102,865
 
Advance royalty commitments (7.56% weighted average interest rate for March 31, 2011 and December 31, 2010, respectively)
32,211
 
 
32,211
 
Note Due December 2012 at 6.10%
8,856
 
 
10,438
 
Other long-term notes maturing at various dates through 2031
95
 
 
93
 
 
3,393,838
 
 
3,145,365
 
Less amounts due in one year
266,673
 
 
16,629
 
Long-Term Debt
$
3,127,165
 
 
$
3,128,736
 
 
On March 9, 2011 CONSOL Energy closed the offering of $250,000 of 6.375% senior notes which mature on March 1, 2021. The notes are guaranteed by substantially all of our existing wholly owned domestic subsidiaries. The Company plans to use the net proceeds of the note offering to repay its outstanding 7.875% senior secured notes due March 1, 2012 on or before their maturity. See Note 17—Subsequent Events for additional details.
Accrued interest related to Long-Term Debt of $114,778 and $64,009 was included in Other Accrued Liabilities in the Consolidated Balance Sheets at March 31, 2011 and December 31, 2010, respectively.
 
NOTE 11—COMMITMENTS AND CONTINGENCIES:
CONSOL Energy and 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. Our current estimates related to these pending claims, individually and in the aggregate, are immaterial to the financial position, results of operations or cash flows of CONSOL Energy. However, it is reasonably possible that the ultimate liabilities in the future with respect to these lawsuits and claims, individually and in the aggregate, may be material to the financial position, results of operations or cash flows of CONSOL Energy.
Ryerson Dam Litigation: In 2008, the Pennsylvania Department of Conservation and Natural Resources (the Commonwealth) filed a six-count Complaint in the Court of Common Pleas of Allegheny County, Pennsylvania, claiming that the Company's underground longwall mining activities at its Bailey Mine caused cracks and seepage damage to the Ryerson Park Dam. The Commonwealth subsequently altered the dam, thereby eliminating the Ryerson Park Lake. The Commonwealth claimed that the Company is liable for dam reconstruction costs, lake restoration costs and natural resource damages totaling

 
13

 

$58,000. The Court stayed the proceedings in the state court, holding that the Commonwealth should pursue administrative agency review of the claim. Furthermore, the Court found that the Commonwealth could not recover natural resource damages under applicable law. The Commonwealth then filed a subsidence-damage claim with the Pennsylvania Department of Environmental Protection (DEP) and the DEP reviewed the issue of whether the dam was damaged by subsidence. On February 16, 2010, the DEP issued its interim report, concluding that the alleged damage was subsidence related. In the next phase of the DEP proceeding, which was the damage phase, the DEP determined that the Company must repair the dam. The DEP estimated the cost of repair to be approximately $20,000. The Company has appealed the DEP's findings to the Pennsylvania Environmental Hearing Board (PEHB), which will consider the case de novo, meaning without regard to the DEP's decision, as to any finding of causation of damage and/or the amount of damages. In order to perfect its appeal to the PEHB under the applicable statute, the Company deposited $20,291 into escrow as security for the DEP's estimated cost of repair. This amount is reflected as restricted cash on the Consolidated Balance Sheets at March 31, 2011 and December 31, 2010. The Company is seeking to substitute an appeal bond for the cash deposit. Either party may appeal the decision of the PEHB to the Pennsylvania Commonwealth Court, and then, as may be allowed, to the Pennsylvania Supreme Court. On March 31, 2011, the DEP informed the parties that it was withdrawing its Order requiring the Company to repair the dam because of additional movements of the dam, well after mining had ceased. The DEP therefore believes that movement precludes repair of the dam as a remedy. The Commonwealth is contesting the DEP's withdrawal of the Order. It is unclear what the DEP's action means for the status of the case. As to the underlying claim, the Company believes it is not responsible for the damage to the dam and that numerous grounds exist upon which to attack the propriety of the claims.
Asbestos-Related Litigation: One of our subsidiaries, Fairmont Supply Company (Fairmont), which distributes industrial supplies, currently is named as a defendant in approximately 22,500 asbestos-related claims in state courts in Pennsylvania, Ohio, West Virginia, Maryland, Mississippi, New Jersey, Texas and Illinois. 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. Past payments by Fairmont with respect to asbestos cases have not been material.
Ward Transformer Superfund Site: CONSOL Energy was notified in November 2004 by the United States Environmental Protection Agency (EPA) that it is a potentially responsible party (PRP) under the Superfund program established by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA), with respect to the Ward Transformer site in Wake County, North Carolina. At that time, the EPA also identified 38 other PRPs for the Ward Transformer site. The EPA, CONSOL Energy and two other PRPs entered into an administrative Settlement Agreement and Order of Consent, requiring those PRPs to undertake and complete a PCB soil removal action, at and in the vicinity of the Ward Transformer property. Another party joined the participating PRPs and reduced CONSOL Energy's interim allocation share from 46% to 32%. In June 2008, while conducting the PCB soil excavation on the Ward property, it was determined that PCBs have migrated onto adjacent properties. The current estimated cost of remedial action for the area CONSOL Energy was originally named a PRP, including payment of the EPA's past and future cost, is approximately $65,000. The current estimated cost of the most likely remediation plan for the additional areas discovered is approximately $11,000 Also, in September 2008, the EPA notified CONSOL Energy and 60 other PRPs that there were additional areas of potential contamination allegedly related to the Ward Transformer Site. Current estimates of the cost or potential range of cost for this area are not yet available. There was no expense recognized in the three months ended March 31, 2011 and 2010. CONSOL Energy funded $1,209 in the three months ended March 31, 2010 to an independent trust established for this remediation. No funding was made in the three months ended March 31, 2011. As of March 31, 2011, CONSOL Energy and the other participating PRPs had asserted CERCLA cost recovery and contribution claims against approximately 225 nonparticipating PRPs to recover a share of the costs incurred and to be incurred to conduct the removal actions at the Ward Site. CONSOL Energy's portion of recoveries from settled claims is $4,173. Accordingly, the liability reflected in Other Accrued Liabilities was reduced by these settled claims. The remaining net liability at March 31, 2011 is $4,037.
C. L. Ritter: On March 1, 2011, the Company was served with a complaint instituted by C. L. Ritter Lumber Company Incorporated against Consolidation Coal Company (CCC), Island Creek Coal Company, (ICCC), CNX Gas Company LLC, subsidiaries of CONSOL Energy Inc., as well as CONSOL Energy itself in the Circuit Court of Buchanan County, Virginia, seeking damages and injunctive relief in connection with the deposit of untreated water from mining activities at CCC's Buchanan Mine into nearby void spaces at one of the mines of ICCC. The suit alleges damages of up to $300,000 for alleged damage to coal and coalbed methane, as well as assumpsit damages. We have removed the case to federal court and filed a motion to dismiss. CCC believes that it had, and continues to have, the right to store water in these void areas. CCC and the other named CONSOL Energy defendants deny all liability and intend to vigorously defend the action filed against them in

 
14

 

connection with the removal and deposit of water from the Buchanan Mine. Consequently, we have not recognized any liability related to these actions.
South Carolina Gas & Electric Company Arbitration: South Carolina Electric & Gas Company (SCE&G), a utility, has demanded arbitration, seeking $36,000 in damages against CONSOL of Kentucky and CONSOL Energy Sales Company. SCE&G claims it suffered damages in obtaining cover coal to replace coal which was not delivered in 2008 under a coal sales agreement. The Company counterclaimed against SCE&G for $9,400 for terminating coal shipments under the sales agreement which SCE&G had agreed could be made up in 2009. A hearing on the claims is scheduled for October 2011. The named CONSOL Energy defendants deny all liability and intend to vigorously defend the action filed against them.
Northern Appalachia Water Issues: In the Fall of 2009, a fish kill occurred in Dunkard Creek, which is a creek with segments in both Pennsylvania and West Virginia. The fish kill was caused by the growth of golden algae in the creek, which appears to be an invasive species. Our subsidiary, CCC, discharges treated mine water into Dunkard Creek from its Blacksville No. 2 Mine and from its Loveridge Mine. The discharges have levels of chlorides that cause Dunkard Creek to exceed West Virginia in-stream water quality standards. Prior to the fish kill and continuing thereafter, CCC was subject to an Agreed Order with the West Virginia Department of Environmental Protection (WVDEP) that set forth a schedule for compliance with these in-stream chloride limits. On December 18, 2009, the WVDEP issued a Unilateral Order that imposed additional conditions on CCC's discharges into Dunkard Creek and required CCC to develop a plan for long-term treatment of those and other high-chloride discharges. Pursuant to the Unilateral Order as well as a subsequent Unilateral Order issued by the WVDEP, CCC submitted a plan and schedule to WVDEP which provides for construction of a centralized advanced technology mine water treatment plant by May 31, 2013 to achieve compliance with chloride effluent limits and in-stream chloride water quality standards. The cost of the treatment plant and related facilities may reach or exceed $200,000. CCC has negotiated a joint Consent Decree with the U.S. Environmental Protection Agency (EPA) and the WVDEP that includes a compliance plan and schedule. The Consent Decree, which has been finalized, will include a civil penalty of $5,500, which was previously accrued, to settle alleged past violations related to chlorides, without any admission of liability. CCC also negotiated a settlement with the WVDEP and the West Virginia Department of Natural Resources settling state claims for natural resource damages for $500, without any admission of liability.
CNX Gas Shareholders Litigation: CONSOL Energy has been named as a defendant in five putative class actions brought by alleged shareholders of CNX Gas challenging the tender offer by CONSOL Energy to acquire all of the shares of CNX Gas common stock that CONSOL Energy did not already own for $38.25 per share. The two cases filed in Pennsylvania Common Pleas Court have been stayed and the three cases filed in the Delaware Chancery Court have been consolidated under the caption In Re CNX Gas Shareholders Litigation (C.A. No. 5377-VCL). With one exception, these cases also name CNX Gas and certain officers and directors of CONSOL Energy and CNX Gas as defendants. All five actions generally allege that CONSOL Energy breached and/or aided and abetted in the breach of fiduciary duties purportedly owed to CNX Gas public shareholders, essentially alleging that the $38.25 price that CONSOL Energy paid to CNX Gas shareholders in the tender offer and subsequent short-form merger was unfair. Among other things, the actions sought a permanent injunction against or rescission of the tender offer, damages, and attorneys' fees and expenses. The Delaware Court of Chancery denied an injunction against the tender offer and CONSOL Energy completed the acquisition of the outstanding shares of CNX Gas on June 1, 2010. The Delaware Court of Chancery certified to the Delaware Supreme Court the question of what legal standard should be applied to the tender offer, which would effectively determine whether the shareholders can proceed with a damage claim. The Delaware Supreme Court declined to accept the appeal pending a final judgment. Therefore, the lawsuit will likely go to trial, possibly later in 2011. CONSOL Energy believes that these actions are without merit and intends to defend them vigorously.
Hale Litigation: A purported class action lawsuit was filed on September 23, 2010 in U.S. District Court in Abingdon, Virginia styled Hale v. CNX Gas Company LLC et. al. The lawsuit alleges that the plaintiff class consists of oil and gas owners, that the Virginia Supreme Court has decided that coalbed methane (CBM) belongs to the owner of the oil and gas estate, that the Virginia Gas and Oil Act of 1990 unconstitutionally allows force pooling of CBM, that the Act unconstitutionally provides only a 1/8 royalty to CBM owners for gas produced under the force pooling orders, and that the Company only relied upon control of the coal estate in force pooling the CBM notwithstanding the Virginia Supreme Court decision holding that if only the coal estate is controlled, the CBM is not thereby controlled. The lawsuit seeks a judicial declaration of ownership of the CBM and that the entire net proceeds of CBM production (that is, the 1/8 royalty and the 7/8 of net revenues since production began) be distributed to the class members. The Magistrate Judge issued a Report and Recommendation in which she recommended that the District Judge decide that the deemed lease provision of the Gas and Oil Act is constitutional as is the 1/8 royalty, and that CNX Gas need not distribute the net proceeds to class members. The Magistrate Judge recommended against the dismissal of certain other claims, none of which are believed to have any significance. We have appealed that recommendation to the trial judge and are awaiting a decision. CONSOL Energy believes that the case is without merit and intends to defend it vigorously.

 
15

 

Addison Litigation: A purported class action lawsuit was filed on April 28, 2010 in Federal court in Virginia styled Addison v. CNX Gas Company LLC. The case involves two primary claims: (i) the plaintiff and similarly situated CNX Gas lessors identified as conflicting claimants during the force pooling process before the Virginia Gas and Oil Board are the owners of the CBM and, accordingly, the owners of the escrowed royalty payments being held by the Commonwealth of Virginia; and (ii) CNX Gas failed to either pay royalties due these conflicting claimant lessors or paid them less than required because of the alleged practice of improper below market sales and/or taking alleged improper post-production deductions. Plaintiffs seek a declaratory judgment regarding ownership and compensatory and punitive damages for breach of contract; conversion; negligence (voluntary undertaking), for force pooling coal owners after the Ratliff decision declared coal owners did not own the CBM; negligent breach of duties as an operator; breach of fiduciary duties; and unjust enrichment. We filed a Motion to Dismiss in this case, which is pending. CONSOL Energy believes that the case is without merit and intends to defend it vigorously.
Hall Litigation: A purported class action lawsuit was filed on December 23, 2010 styled Hall v. CONSOL Gas Company in Allegheny County Pennsylvania Common Pleas Court. The named plaintiff is Earl D. Hall. The purported class plaintiffs are all Pennsylvania oil and gas lessors to Dominion Exploration and Production Company, whose leases were acquired by CONSOL Energy. The complaint alleges more than 1,000 similarly situated lessors. The lawsuit alleges that CONSOL Energy incorrectly calculated royalties by (i) calculating line loss on the basis of allocated volumes rather than on a well-by-well basis, (ii) possibly calculating the royalty on the basis of an incorrect price, (iii) possibly taking unreasonable deductions for post-production costs and costs that were not arms-length, and (iv) not paying royalties on oil production. The complaint also alleges that royalty statements were false and misleading. The complaint seeks damages, interest and an accounting on a well-by-well basis. The plaintiff amended the complaint and we have filed preliminary objections. CONSOL Energy believes that the case is without merit and intends to defend it vigorously.
Kennedy Litigation: The Company is a party to a case filed on March 26, 2008 captioned Earl Kennedy (and others) v. CNX Gas and CONSOL Energy in the Court of Common Pleas of Greene County, Pennsylvania. The lawsuit alleges that CNX Gas and CONSOL Energy trespassed and converted gas and other minerals allegedly belonging to the plaintiffs in connection with wells drilled by CNX Gas. The complaint, as amended, seeks injunctive relief, including removing CNX Gas from the property, and compensatory damages of $20,000. The suit also sought to overturn existing law as to the ownership of coalbed methane in Pennsylvania, but that claim was dismissed by the court; the plaintiffs are seeking to appeal that dismissal. The suit also seeks a determination that the Pittsburgh 8 coal seam does not include the “roof/rider” coal. The court denied the plaintiff's summary judgment motion on that issue. The court will likely hold a bench trial on the “roof/rider” coal issue in 2011. CNX Gas believes this lawsuit to be without merit and intends to vigorously defend it.
Severance Tax Litigation: In December 2010, Tazewell County, Virginia asserted a claim for the tax year 2007, although the County has not filed a lawsuit against CNX Gas Company LLC. The complaint alleged that CNX Gas' calculation of the license tax on the basis of the wellhead value (sales price less post production costs) rather than the sales price is improper. We continued to pay Tazewell County taxes based on our method of calculating the taxes. CONSOL Energy is evaluating the merits of that claim.
Decker/Gillingham Litigation: Two contractor employees-Messrs. Decker and Gillingham-were injured when a stairway affixed to the exterior of a building collapsed at CONSOL Energy's Research and Development facility in Allegheny County, Pennsylvania in 2007. Mr. Decker sustained a broken hip and leg. Mr. Gillingham sustained a torn rotator cuff. Both men have recovered and are working, although both claim that the accident has limited their ability to perform their jobs. Messrs. Decker and Gillingham sued CONSOL Energy on June 4, 2008 and June 20, 2008, respectively, in Allegheny County Common Pleas Court, alleging, among other things, that CONSOL Energy was negligent in the maintenance of the stairway. The cases were consolidated. In late November, 2010, after a jury trial, the jury found that CONSOL Energy was negligent in maintaining the stairway and the jury awarded Mr. Decker and his spouse $5,000 and Mr. Gillingham and his spouse $2,800. These amounts included compensatory damages, as well as damages for pain and suffering, embarrassment and humiliation, and loss of ability to enjoy the pleasures of life. We have filed post-trial motions, including a motion for a new trial and a request that the jury verdict be reduced. If those motions are not granted, we intend to appeal the verdict. We have accrued $5,000 which is included in Other Accrued Liabilities for this claim. CONSOL Energy maintains insurance for damages and costs in excess of $5,000.

 
16

 

Royalty Owners Group Litigation: These five separate but related cases, filed on February 13, 2006 in the Circuit Court of Buchanan County, Virginia, involve claims by several of CNX Gas's lessors in southwest Virginia that certain improper deductions have been made on their royalty payments by CNX Gas with respect to the period from 1999 to the present. The deductions at issue primarily relate to post production expenses of gathering, compression and transportation. Specifically, the plaintiffs allege that (i) CNX Gas' gathering system in its Virginia field is over built, (ii) CNX Gas is not entitled to deductions for certain compression costs, because that is a production activity, not a post-production activity, and (iii) CNX Gas is not entitled to a deduction for firm transportation expense, because that is a marketing activity, not a post-production cost. Presently, the cases all are in the discovery process. CNX Gas believes the claims largely to be without merit and will defend the suits vigorously.
At March 31, 2011, CONSOL Energy has provided the following financial guarantees, unconditional purchase obligations and letters of credit to certain third parties, as described by major category in the following table. These amounts represent the maximum potential total of future payments that we could be required to make under these instruments. These amounts have not been reduced for potential recoveries under recourse or collateralization provisions. Generally, recoveries under reclamation bonds would be limited to the extent of the work performed at the time of the default. No amounts related to these financial guarantees and letters of credits are recorded as liabilities on the financial statements. CONSOL Energy management believes that these guarantees will expire without being funded, and therefore the commitments will not have a material adverse effect on financial condition.
 
 
Amount of Commitment
Expiration Per Period
 
Total
Amounts
Committed
 
Less Than
1  Year
 
1-3 Years
 
3-5 Years
 
Beyond
5  Years
Letters of Credit:
 
 
 
 
 
 
 
 
 
Employee-Related
$
197,497
 
 
$
134,930
 
 
$
62,567
 
 
$
 
 
$
 
Environmental
56,993
 
 
35,046
 
 
21,947
 
 
 
 
 
Gas
70,203
 
 
70,203
 
 
 
 
 
 
 
Other
10,305
 
 
10,141
 
 
164
 
 
 
 
 
Total Letters of Credit
334,998
 
 
250,320
 
 
84,678
 
 
 
 
 
Surety Bonds:
 
 
 
 
 
 
 
 
 
Employee-Related
202,546
 
 
202,546
 
 
 
 
 
 
 
Environmental
425,256
 
 
416,185
 
 
9,071
 
 
 
 
 
Gas
7,159
 
 
7,158
 
 
 
 
 
 
1
 
Other
6,080
 
 
6,074
 
 
6
 
 
 
 
 
Total Surety Bonds
641,041
 
 
631,963
 
 
9,077
 
 
 
 
1
 
Guarantees:
 
 
 
 
 
 
 
 
 
Coal
160,391
 
 
145,822
 
 
9,069
 
 
1,000
 
 
4,500
 
Gas
105,466
 
 
52,325
 
 
22,519
 
 
 
 
30,622
 
Other
367,379
 
 
69,047
 
 
113,189
 
 
71,310
 
 
113,833
 
Total Guarantees
633,236
 
 
267,194
 
 
144,777
 
 
72,310
 
 
148,955
 
Total Commitments
$
1,609,275
 
 
$
1,149,477
 
 
$
238,532
 
 
$
72,310
 
 
$
148,956
 
 
Employee-related financial guarantees have primarily been provided to support the United Mine Workers’ of America’s 1992 Benefit Plan and various state workers’ compensation self-insurance programs. Environmental financial guarantees have primarily been provided to support various performance bonds related to reclamation and other environmental issues. Gas financial guarantees have primarily been provided to support various performance bonds related to land usage and restorative issues. Other guarantees have been extended to support insurance policies, legal matters and various other items necessary in the normal course of business. Other guarantees have also been provided to promise the full and timely payments to lessors of mining equipment and support various other items necessary in the normal course of business.

 
17

 

CONSOL Energy and CNX Gas enter into long-term unconditional purchase obligations to procure major equipment purchases, natural gas firm transportation, gas drilling services and other operating goods and services. These purchase obligations are not recorded on the Consolidated Balance Sheet. As of March 31, 2011, the purchase obligations for each of the next five years and beyond were as follows:
 
Obligations Due
Amount
Less than 1 year
$
210,292
 
1 - 3 years
241,667
 
3 - 5 years
75,402
 
More than 5 years
302,331
 
Total Purchase Obligations
$
829,692
 
 
Costs related to these purchase obligations include:
 
 
Three Months Ended
 
March 31,
 
2011
 
2010
Major equipment purchases
$
7,655
 
 
$
18,205
 
Firm transportation expense
12,818
 
 
6,695
 
Gas drilling obligations
25,818
 
 
605
 
Other
101
 
 
30
 
Total costs related to purchase obligations
$
46,392
 
 
$
25,535
 
 
NOTE 12—DERIVATIVE INSTRUMENTS:
CONSOL Energy enters into financial derivative instruments to manage our exposure to commodity price volatility. We measure each derivative instrument at fair value and record it on the balance sheet as either an asset or liability. Changes in the fair value of the derivatives are recorded currently in earnings unless special hedge accounting criteria are met. For derivatives designated as fair value hedges, the changes in fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of changes in fair value of the derivative are reported in Other Comprehensive Income or Loss (OCI) and reclassified into earnings in the same period or periods which the forecasted transaction affects earnings. The ineffective portions of hedges are recognized in earnings in the current period. CONSOL Energy currently utilizes only cash flow hedges that are considered highly effective.
CONSOL Energy formally assesses both at inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in the fair values or the cash flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a highly effective hedge, CONSOL Energy will discontinue hedge accounting prospectively.
CONSOL Energy is exposed to credit risk in the event of nonperformance by counterparties. The creditworthiness of counterparties is subject to continuing review. The Company has not experienced any issues of non-performance by derivative counterparties.
CONSOL Energy has entered into swap contracts for natural gas to manage the price risk associated with the forecasted natural gas revenues. The objective of these hedges is to reduce the variability of the cash flows associated with the forecasted revenues from the underlying commodity. As of March 31, 2011, the total notional amount of the Company’s outstanding natural gas swap contracts was 140.4 billion cubic feet. These swap contracts are forecasted to settle through December 31, 2014 and meet the criteria for cash flow hedge accounting. During the next twelve months, $24,918 of unrealized gain is expected to be reclassified from Other Comprehensive Income and into earnings, as a result of the settlement of cash flow hedges. No gains or losses have been reclassified into earnings as a result of the discontinuance of cash flow hedges.
The fair value at March 31, 2011 of CONSOL Energy's derivative instruments, which were all natural gas swaps and qualify for hedging, were an asset of $70,829 and a liability of $18,968. The total asset is comprised of $49,029 and $21,800 which were included in Prepaid Expense and Other Assets, respectively, on the Consolidated Balance Sheets. The total liability is comprised of $7,973 and $10,995 which were included in Other Accrued Liabilities and Other Liabilities, respectively, on the Consolidated Balance Sheets.
 

 
18

 

The effect of derivative instruments on the Consolidated Statements of Income for the three months ended March 31, 2011 is as follows:
 
Derivative in Cash Flow Hedging Relationship
Amount of
Gain
Recognized
in OCI on
Derivative
2011
 
Location of
Gain
Reclassified
from
Accumulated
OCI into
Income
 
Amount of
Gain
Reclassified
from
Accumulated
OCI into
Income
2011
 
Location of
(Loss)
Recognized in
Income on
Derivative
 
Amount of
(Loss)
Recognized
in Income on
Derivative
2011
Natural Gas Price Swaps
$
4,263
 
 
Outside Sales
 
$
18,840
 
 
Outside Sales
 
$
(108
)
Total
$
4,263
 
 
 
 
$
18,840
 
 
 
 
$
(108
)
 
 
The fair value at December 31, 2010 of CONSOL Energy's derivative instruments, which were all natural gas swaps and qualify for hedging, were an asset of $79,960 and a liability of $3,720. The total asset is comprised of $52,022 and $27,938 which were included in Prepaid Expense and Other Assets, respectively, on the Consolidated Balance Sheets. The total liability is comprised of $3,191 and $529 which were included in Other Accrued Liabilities and Other Liabilities, respectively, on the Consolidated Balance Sheets.
 
The effect of derivative instruments on the Consolidated Statements of Income for the three months ended March 31, 2010 is as follows:
 
Derivative in Cash Flow Hedging Relationship
Amount of
Gain
Recognized
in OCI on
Derivative
2010
 
Location of
Gain
Reclassified
from
Accumulated
OCI into
Income
 
Amount of
Gain
Reclassified
from
Accumulated
OCI into
Income
2010
 
Location of
(Loss)
Recognized
in Income on
Derivative
 
Amount of
(Loss)
Recognized
in Income on
Derivative
2010
Natural Gas Price Swaps
$
74,708
 
 
Outside Sales
 
$
43,399
 
 
Outside Sales
 
$
(142
)
Total
$
74,708
 
 
 
 
$
43,399
 
 
 
 
$
(142
)
 
 
NOTE 13—OTHER COMPREHENSIVE LOSS:
Total comprehensive income (loss), net of tax, for the three months ended March 31, 2011 is as follows:
 
 
Treasury
Rate
Lock
 
Change in
Fair Value
of Cash Flow
Hedges
 
Adjustments
for Actuarially
Determined
Liabilities
 
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2010
$
96
 
 
$
46,087
 
 
$
(920,521
)
 
$
(874,338
)
Net increase in value of cash flow hedges
 
 
4,263
 
 
 
 
4,263
 
Reclassification of cash flow hedges from other comprehensive income to earnings
 
 
(18,732
)
 
 
 
(18,732
)
Current period change
(20
)
 
 
 
13,123
 
 
13,103
 
Balance at March 31, 2011
$
76
 
 
$
31,618
 
 
$
(907,398
)
 
$
(875,704
)

 
19

 

 
NOTE 14—FAIR VALUE OF FINANCIAL INSTRUMENTS:
The financial instruments measured at fair value on a recurring basis are summarized below:
 
 
Fair Value Measurements at March 31, 2011
 
Fair Value Measurements at December 31, 2010
Description
Quoted Prices in
Active Markets
for Identical
Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Quoted Prices in
Active Markets
for Identical
Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Gas Cash Flow Hedges
$
 
 
$
51,861
 
 
$
 
 
$
 
 
$
76,240
 
 
$
 
 
The following methods and assumptions were used to estimate the fair value for which the fair value option was not elected:
Cash and cash equivalents: The carrying amount reported in the balance sheets for cash and cash equivalents approximates its fair value due to the short-term maturity of these instruments.
Restricted cash: The carrying amount reported in the balance sheets for restricted cash approximates its fair value due to the short-term maturity of these instruments.
Short-term notes payable: The carrying amount reported in the balance sheets for short-term notes payable approximates its fair value due to the short-term maturity of these instruments.
Borrowings under Securitization Facility: The carrying amount reported in the balance sheets for borrowings under the securitization facility 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 current market rates for instruments with similar cash flows.
The carrying amounts and fair values of financial instruments for which the fair value option was not elected are as follows:
 
 
March 31, 2011
 
December 31, 2010
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Cash and cash equivalents
$
127,695
 
 
$
127,695
 
 
$
32,794
 
 
$
32,794
 
Restricted cash
$
20,291
 
 
$
20,291
 
 
$
20,291
 
 
$
20,291
 
Short-term notes payable
$
(170,500
)
 
$
(170,500
)
 
$
(284,000
)
 
$
(284,000
)
Borrowings under Securitization Facility
$
 
 
$
 
 
$
(200,000
)
 
$
(200,000
)
Long-term debt
$
(3,393,838
)
 
$
(3,683,718
)
 
$
(3,145,365
)
 
$
(3,341,406
)
 

 
20

 

NOTE 15—SEGMENT INFORMATION:
CONSOL Energy has two principal business divisions: Coal and Gas. The principal activities of the Coal division are mining, preparation and marketing of steam coal, sold primarily to power generators, and metallurgical coal, sold to metal and coke producers. The Coal division includes four reportable segments. These reportable segments are Steam, Low Volatile Metallurgical, High Volatile Metallurgical and Other Coal. Each of these reportable segments includes a number of operating segments (mines or type of coal sold). For the three months ended March 31, 2011, the Steam aggregated segment includes the following mines: Bailey, Blacksville #2, Emery, Enlow Fork, Fola Complex, Loveridge, McElroy, Miller Creek Complex, Robinson Run and Shoemaker. For the three months ended March 31, 2011, the Low Volatile Metallurgical aggregated segment includes the Buchanan mine. For the three months ended March 31, 2011, the High Volatile Metallurgical aggregated segment includes: Bailey, Blacksville #2, Enlow Fork, Loveridge and Robinson Run coal sales. The Other Coal segment includes our purchased coal activities, idled mine activities, as well as various other activities assigned to the coal segment but not allocated to each individual mine. The principal activity of the Gas division is to produce pipeline quality methane gas for sale primarily to gas wholesalers. The Gas division includes four reportable segments. These reportable segments are Coalbed Methane, Marcellus, Conventional and Other Gas. The Other Gas segment includes our purchased gas activities as well as various other activities assigned to the gas division but not allocated to each individual well type. CONSOL Energy’s All Other segment includes terminal services, river and dock services, industrial supply services and other business activities. Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on sales less identifiable operating and non-operating expenses.
 
 

 
21

 

 
 
Industry segment results for three months ended March 31, 2011 are:
 
 
Steam
 
Low Volatile
Metallurgical
 
High Volatile
Metallurgical
 
Other
Coal
 
Total Coal
 
Coalbed
Methane
 
Marcellus
Shale
 
Conventional
Gas
 
Other
Gas
 
Total
Gas
 
All
Other
 
Corporate,
Adjustments
&
Eliminations
 
Consolidated
 
Sales—outside
$
801,937
 
 
$
236,895
 
 
$
78,233
 
 
$
13,379
 
 
$
1,130,444
 
 
$
113,774
 
 
$
20,272
 
 
$
38,745
 
 
$
3,418
 
 
$
176,209
 
 
$
78,825
 
 
$
 
 
$
1,385,478
 
 
Sales—purchased gas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
980
 
 
980
 
 
 
 
 
 
980
 
  
Sales—gas royalty interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18,835
 
 
18,835
 
 
 
 
 
 
18,835
 
  
Freight—outside
 
 
 
 
 
 
36,868
 
 
36,868
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36,868
 
  
Intersegment transfers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
993
 
 
993
 
 
53,396
 
 
(54,389
)
 
 
  
Total Sales and Freight
$
801,937
 
 
$
236,895
 
 
$
78,233
 
 
$
50,247
 
 
$
1,167,312
 
 
$
113,774
 
 
$
20,272
 
 
$
38,745
 
 
$
24,226
 
 
$
197,017
 
 
$
132,221
 
 
$
(54,389
)
 
$
1,442,161
 
  
Earnings (Loss) Before Income Taxes
$
207,773
 
 
$
139,739
 
 
$
39,948
 
 
$
(88,768
)
 
$
298,692
 
 
$
40,157
 
 
$
6,385
 
 
$
(5,321
)
 
$
(17,045
)
 
$
24,176
 
 
$
(1,849
)
 
$
(69,942
)
 
$
251,077
 
(A)
Segment assets
 
 
 
 
 
 
 
 
$
5,092,682
 
 
 
 
 
 
 
 
 
 
$
5,966,395
 
 
$
341,613
 
 
$
823,051
 
 
$
12,223,741
 
(B)
Depreciation, depletion and amortization
 
 
 
 
 
 
 
 
$
95,081
 
 
 
 
 
 
 
 
 
 
$
49,664
 
 
$
4,317
 
 
$
 
 
$
149,062
 
  
Capital expenditures
 
 
 
 
 
 
 
 
$
100,530
 
 
 
 
 
 
 
 
 
 
$
150,638
 
 
$
3,610
 
 
$
 
 
$
254,778
 
  
 
(A)
Includes equity in earnings of unconsolidated affiliates of $4,462, $484 and $535 for Coal, Gas and All Other, respectively.
(B)
Includes investments in unconsolidated equity affiliates of $24,455, $24,053 and $49,012 for Coal, Gas and All Other, respectively.

 
22

 

Industry segment results for three months ended March 31, 2010 are:
 
 
Steam
 
Low Volatile
Metallurgical
 
High Volatile
Metallurgical
 
Other
Coal
 
Total
Coal
 
Coalbed
Methane
 
Marcellus
Shale
 
Conventional
Gas
 
Other
Gas
 
Total Gas
 
All
Other
 
Corporate,
Adjustments
&
Eliminations
 
Consolidated
 
Sales—outside
$
716,723
 
 
$
126,457
 
 
$
57,367
 
 
$
23,063
 
 
$
923,610
 
 
$
161,043
 
 
$
7,983
 
 
$
2,685
 
 
$
1,436
 
 
$
173,147
 
 
$
72,757
 
 
$
 
 
$
1,169,514
 
 
Sales—purchased gas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,016
 
 
3,016
 
 
 
 
 
 
3,016
 
  
Sales—gas royalty interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14,339
 
 
14,339
 
 
 
 
 
 
14,339
 
  
Freight—outside
 
 
 
 
 
 
31,200
 
 
31,200
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31,200
 
  
Intersegment transfers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
866
 
 
866
 
 
43,604
 
 
(44,470
)
 
 
  
Total Sales and Freight
$
716,723
 
 
$
126,457
 
 
$
57,367
 
 
$
54,263
 
 
$
954,810
 
 
$
161,043
 
 
$
7,983
 
 
$
2,685
 
 
$
19,657
 
 
$
191,368
 
 
$
116,361
 
 
$
(44,470
)
 
$
1,218,069
 
  
Earnings (Loss) Before Income Taxes
$
167,602
 
 
$
48,586
 
 
$
31,172
 
 
$
(134,269
)
 
$
113,091
 
 
$
80,998
 
 
$
2,088
 
 
$
309
 
 
$
(9,711
)
 
$
73,684
 
 
$
3,369
 
 
$
(47,976
)
 
$
142,168
 
(C)
Segment assets
 
 
 
 
 
 
 
 
$
4,948,660
 
 
 
 
 
 
 
 
 
 
$
2,264,026
 
 
$
310,551
 
 
$
2,351,327
 
 
$
9,874,564
 
(D)
Depreciation, depletion and amortization
 
 
 
 
 
 
 
 
$
82,324
 
 
 
 
 
 
 
 
 
 
$
32,092
 
 
$
4,770
 
 
$
 
 
$
119,186
 
  
Capital expenditures
 
 
 
 
 
 
 
 
$
199,325
 
 
 
 
 
 
 
 
 
 
$
65,314
 
 
$
705
 
 
$
 
 
$
265,344
 
  
 
(C)
Includes equity in earnings of unconsolidated affiliates of $2,430, ($517) and $1,960 for Coal, Gas and All Other, respectively.
(D)
Includes investments in unconsolidated equity affiliates of $15,648, $24,074 and $48,134 for Coal, Gas and All Other, respectively.
 
 
 
 
 

 
23

 

 
Reconciliation of Segment Information to Consolidated Amounts:
Earnings Before Income Taxes:
 
 
For the Three Months Ended March 31,
 
2011
 
2010
Segment Earnings Before Income Taxes for total reportable business segments
$
322,868
 
 
$
186,775
 
Segment Earnings Before Income Taxes for all other businesses
(1,849
)
 
3,369
 
Interest income (expense), net and other non-operating activity (E)
(69,286
)
 
(1,541
)
Acquisition and Financing Fees (E)
 
 
(46,563
)
Fees for disposing non-core assets (E)
(656
)
 
 
Operating lease cease-use
 
 
128
 
Earnings Before Income Taxes
$
251,077
 
 
$
142,168
 
 
Total Assets:
March 31,
2011
 
2010
Segment assets for total reportable business segments
$
11,059,077
 
 
$
7,212,686
 
Segment assets for all other businesses
341,613
 
 
310,551
 
Items excluded from segment assets:
 
 
 
Cash and other investments (E)
126,613
 
 
1,878,464
 
Recoverable income taxes
5,031
 
 
 
Deferred tax assets
636,636
 
 
472,261
 
Bond issuance costs
54,771
 
 
602
 
Total Consolidated Assets
$
12,223,741
 
 
$
9,874,564
 
_________________________ 
(E) Excludes amounts specifically related to the gas segment.
 
NOTE 16—GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION:
The payment obligations under the $250,000, 7.875% per annum notes due March 1, 2012, the $1,500,000, 8.000% per annum notes due April 1, 2017, the $1,250,000, 8.250% per annum notes due April 1, 2020, and the $250,000, 6.375% per annum notes due March 1, 2021 issued by CONSOL Energy are jointly and severally, and also fully and unconditionally guaranteed by substantially all subsidiaries of CONSOL Energy. In accordance with positions established by the Securities and Exchange Commission (SEC), the following financial information sets forth separate financial information with respect to the parent, CNX Gas, a guarantor subsidiary, the remaining guarantor subsidiaries and the non-guarantor subsidiaries. The principal elimination entries include investments in subsidiaries and certain intercompany balances and transactions. CONSOL Energy, the parent, and a guarantor subsidiary manage several assets and liabilities of all other wholly owned subsidiaries. These include, for example, 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.
 

 
24

 

Income Statement for the three months ended March 31, 2011 (unaudited):
 
 
Parent
Issuer
 
CNX Gas
Guarantor
 
Other
Subsidiary
Guarantors
 
Non-
Guarantors
 
Elimination
 
Consolidated
Sales—Outside
$
 
 
$
177,202
 
 
$
1,155,350
 
 
$
54,096
 
 
$
(1,170
)
 
$
1,385,478
 
Sales—Purchased Gas
 
 
980
 
 
 
 
 
 
 
 
980
 
Sales—Gas Royalty Interests
 
 
18,835
 
 
 
 
 
 
 
 
18,835
 
Freight—Outside
 
 
 
 
36,868
 
 
 
 
 
 
36,868
 
Other Income (including equity earnings)
246,864
 
 
1,680
 
 
11,421
 
 
9,241
 
 
(245,990
)
 
23,216
 
Total Revenue and Other Income
246,864
 
 
198,697
 
 
1,203,639
 
 
63,337
 
 
(247,160
)
 
1,465,377
 
Cost of Goods Sold and Other Operating Charges
28,976
 
 
71,399
 
 
659,517
 
 
186
 
 
53,631
 
 
813,709
 
Purchased Gas Costs
 
 
676
 
 
 
 
 
 
 
 
676
 
Gas Royalty Interests’ Costs
 
 
16,821
 
 
 
 
 
 
(14
)
 
16,807
 
Related Party Activity
(3,240
)
 
 
 
(1,741
)
 
54,267
 
 
(49,286
)
 
 
Freight Expense
 
 
 
 
36,679
 
 
 
 
 
 
36,679
 
Selling, General and Administrative Expense
 
 
25,569
 
 
14,344
 
 
283
 
 
 
 
40,196
 
Depreciation, Depletion and Amortization
2,361
 
 
49,664
 
 
96,408
 
 
629
 
 
 
 
149,062
 
Interest Expense
61,142
 
 
2,680
 
 
2,742
 
 
13
 
 
(95
)
 
66,482
 
Taxes Other Than Income
1,503
 
 
7,807
 
 
80,514
 
 
865
 
 
 
 
90,689
 
Total Costs
90,742
 
 
174,616
 
 
888,463
 
 
56,243
 
 
4,236
 
 
1,214,300
 
Earnings (Loss) Before Income Taxes
156,122
 
 
24,081
 
 
315,176
 
 
7,094
 
 
(251,396
)
 
251,077
 
Income Tax Expense (Benefit)
(36,027
)
 
9,435
 
 
82,837
 
 
2,683
 
 
 
 
58,928
 
Net Income (Loss) Attributable to CONSOL Energy Inc. Shareholders
$
192,149
 
 
$
14,646
 
 
$
232,339
 
 
$
4,411
 
 
$