Form 10-Q
Table of Contents

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 September 30, 2003 or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

  For the transition period from              to             

 

Commission File Number: 001-14901

 


 

CONSOL Energy Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware   51-0337383

(State or other jurisdiction of

incorporation or organization)

  (IRS Employer Identification No.)

 

1800 Washington Road, Pittsburgh, Pennsylvania 15241

(Address of principal executive offices, including zip code)

 

(412) 831-4000

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes  x    No  ¨

 

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 October 31, 2003


Common stock, $0.01 par value   89,803,864

 



Table of Contents

TABLE OF CONTENTS

 

         Page

    PART I     
    FINANCIAL INFORMATION     

Note –

  No Review of Condensed Financial Statements by Independent Auditor    3

ITEM 1.

  CONDENSED FINANCIAL STATEMENTS     
    Consolidated Statements of Income for the three months and nine months ended September 30, 2003 and 2002    4
    Consolidated Balance Sheets at September 30, 2003 and December 31, 2002    5
    Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2003    7
    Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002    8
    Notes to Consolidated Financial Statements    9

ITEM 2.

  MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION    35

ITEM 3.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    56

ITEM 4.

  CONTROLS AND PROCEDURES    58
    PART II     
    OTHER INFORMATION     

ITEM 1.

  LEGAL PROCEEDINGS    58

ITEM 2.

  CHANGES IN SECURITIES AND USE OF PROCEEDS    59

ITEM 4.

  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS    59

ITEM 6.

  EXHIBITS AND REPORTS ON FORM 8-K    59

 

 

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As more fully described in Note 15 to the Condensed Financial Statements of CONSOL Energy Inc. (CONSOL Energy), PricewaterhouseCoopers LLP (PricewaterhouseCoopers), CONSOL Energy’s independent auditor, has advised CONSOL Energy that, due to the ongoing status of an internal investigation by independent members of the CONSOL Energy Board of Directors into allegations, including that certain directors and senior executive officers have misappropriated corporate funds and other assets and engaged in other illegal or inappropriate activities, raised in an October 2003 letter addressed to the Securities and Exchange Commission and received by PricewaterhouseCoopers, it is currently unable to complete its review under Statement of Auditing Standards No. 100 (SAS 100) of the unaudited Condensed Financial Statements included in this Form 10-Q. If the allegations in the letter are proved to be accurate, it could have a material adverse effect upon CONSOL Energy, its financial statements and the value of CONSOL Energy’s common stock. CONSOL Energy, however, cannot predict the timing or possible outcome of the internal investigation.

 

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Table of Contents

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
September 30,


   

Nine Months Ended

September 30,


 
     2003

    2002

    2003

    2002

 

Sales - Outside

   $ 511,571     $ 506,901     $ 1,529,366     $ 1,494,175  

Sales - Related Parties

     —         —         1,369       819  

Freight - Outside

     27,329       31,723       84,937       101,854  

Freight - Related Parties

     —         1       562       550  

Other Income

     13,260       7,748       52,253       31,649  
    


 


 


 


Total Revenue and Other Income

     552,160       546,373       1,668,487       1,629,047  

Cost of Goods Sold and Other Operating Charges

     415,078       426,915       1,206,640       1,152,335  

Freight Expense

     27,329       31,724       85,499       102,404  

Selling, General and Administrative Expense

     20,218       15,728       56,691       49,580  

Depreciation, Depletion and Amortization

     61,116       65,248       184,115       197,506  

Interest Expense

     8,036       11,625       26,002       33,610  

Taxes Other Than Income

     38,783       37,780       124,345       131,372  

Export Sales Excise Tax Resolution

     —         (669 )     (614 )     (1,706 )
    


 


 


 


Total Costs

     570,560       588,351       1,682,678       1,665,101  
    


 


 


 


Earnings (Loss) Before Income Taxes

     (18,400 )     (41,978 )     (14,191 )     (36,054 )

Income Tax Expense (Benefit)

     (12,505 )     (34,992 )     (22,244 )     (43,596 )
    


 


 


 


Earnings (Loss) Before Cumulative Effect of Change in Accounting Principle

     (5,895 )     (6,986 )     8,053       7,542  

Cumulative Effect of Changes in Accounting for Mine Closing, Reclamation and Gas Well Closing Costs, net of Income Taxes of $3,035

     —         —         4,768       —    
    


 


 


 


Net Income (Loss)

   $ (5,895 )   $ (6,986 )   $ 12,821     $ 7,542  
    


 


 


 


Basic Earnings Per Share

   $ (0.07 )   $ (0.09 )   $ 0.16     $ 0.10  
    


 


 


 


Dilutive Earnings Per Share

   $ (0.07 )   $ (0.09 )   $ 0.16     $ 0.10  
    


 


 


 


Weighted Average Number of Common Shares Outstanding:

                                

Basic

     79,500,793       78,735,267       79,006,036       78,721,808  
    


 


 


 


Dilutive

     79,835,053       78,770,328       79,247,950       78,856,972  
    


 


 


 


Dividends Paid Per Share

   $ 0.14     $ 0.28     $ 0.42     $ 0.70  
    


 


 


 


 

The accompanying notes are an integral part of these consolidated financial statements.

 

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CONSOL ENERGY INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

 

    

(Unaudited)

SEPTEMBER 30,

2003


  

DECEMBER 31,

2002


ASSETS

             

Current Assets:

             

Cash and Cash Equivalents

   $ 170,118    $ 11,517

Accounts and Notes Receivable:

             

Trade

     90,897      205,891

Other Receivables

     87,272      127,226

Inventories

     110,511      135,621

Deferred Income Taxes

     78,255      92,236

Recoverable Income Taxes

     35,141      21,935

Prepaid Expenses

     35,470      28,411
    

  

Total Current Assets

     607,664      622,837

Property, Plant and Equipment:

             

Property, Plant and Equipment

     5,440,888      5,257,141

Less - Accumulated Depreciation, Depletion and Amortization

     2,781,212      2,663,035
    

  

Total Property, Plant and Equipment - Net

     2,659,676      2,594,106

Other Assets:

             

Deferred Income Taxes

     444,211      420,718

Intangible Assets - Net

     389,793      400,479

Investment in Affiliates

     86,005      135,362

Restricted Cash

     918      —  

Other

     113,071      119,658
    

  

Total Other Assets

     1,033,998      1,076,217
    

  

TOTAL ASSETS

   $ 4,301,338    $ 4,293,160
    

  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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CONSOL ENERGY INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

 

    

(Unaudited)

SEPTEMBER 30,

2003


   

DECEMBER 31,

2002


 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Current Liabilities:

                

Accounts Payable

   $ 114,135     $ 151,371  

Short-Term Notes Payable

     3,399       204,545  

Current Portion of Long-Term Debt

     51,014       8,615  

Other Accrued Liabilities

     588,792       449,902  
    


 


Total Current Liabilities

     757,340       814,433  

Long-Term Debt:

                

Long-Term Debt

     444,549       485,535  

Capital Lease Obligations

     2,828       2,896  
    


 


Total Long-Term Debt

     447,377       488,431  

Deferred Credits and Other Liabilities:

                

Postretirement Benefits Other Than Pensions

     1,461,014       1,437,987  

Pneumoconiosis Benefits

     444,671       455,436  

Mine Closing

     358,111       332,920  

Workers’ Compensation

     254,308       261,250  

Deferred Revenue

     68,792       102,400  

Salary Retirement

     67,063       91,474  

Reclamation

     12,641       5,812  

Other

     102,664       140,970  
    


 


Total Deferred Credits and Other Liabilities

     2,769,264       2,828,249  

Stockholders’ Equity:

                

Common Stock, $.01 par value; 500,000,000 Shares Authorized, 91,267,558 Issued; and 89,792,239 Outstanding at September 30, 2003, and 78,749,001 Outstanding at December 31, 2002

     913       803  

Preferred Stock, 15,000,000 Shares Authorized; None Issued and Outstanding

                

Capital in Excess of Par Value

     833,438       643,787  

Retained Earnings (Deficit)

     (392,277 )     (372,017 )

Other Comprehensive Loss

     (98,047 )     (93,370 )

Common Stock in Treasury, at Cost - 1,475,319 Shares at September 30, 2003 and 1,518,557 Shares at December 31, 2002

     (16,670 )     (17,156 )
    


 


Total Stockholders’ Equity

     327,357       162,047  
    


 


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 4,301,338     $ 4,293,160  
    


 


 

The accompanying notes are an integral part of these consolidated financial statements.

 

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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)


   

Other
Compre-

hensive
Income
(Loss)


    Treasury
Stock


   

Total
Stock-

holders’
Equity


 

Balance - December 31, 2002

   $ 803    $ 643,787    $ (372,017 )   $ (93,370 )   $ (17,156 )   $ 162,047  
    

  

  


 


 


 


(Unaudited)

                                              

Net Income

     —        —        12,821       —         —         12,821  

Issuance of Common Stock

     110      189,442      —         —         —         189,552  

Minimum Pension Liability (Net of $3,136 tax)

     —        —        —         (5,825 )     —         (5,825 )

Treasury Rate Lock (Net of $39 tax)

     —        —        —         (61 )     —         (61 )

Interest Rate Swap Contract (Net of $90 tax)

     —        —        —         (142 )     —         (142 )

Gas Cash Flow Hedge (Net of $859 tax)

     —        —        —         1,351       —         1,351  
    

  

  


 


 


 


Comprehensive Income (Loss)

     110      189,442      12,821       (4,677 )     —         197,696  

Treasury Stock Issued (43,238 shares)

     —        209      —         —         486       695  

Dividends ($.42 per share)

     —        —        (33,081 )     —         —         (33,081 )
    

  

  


 


 


 


Balance - September 30, 2003

   $ 913    $ 833,438    $ (392,277 )   $ (98,047 )   $ (16,670 )   $ 327,357  
    

  

  


 


 


 


 

The accompanying notes are an integral part of these consolidated financial statements.

 

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CONSOL ENERGY INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

    

Nine Months Ended

September 30,


 
     2003

    2002

 

Operating Activities:

                

Net Income

   $ 12,821     $ 7,542  

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

                

Cumulative Effect of Change in Accounting Principle, net of tax

     (4,768 )     —    

Depreciation, Depletion and Amortization

     184,115       197,506  

Gain on the Sale of Assets

     (19,002 )     (5,617 )

Amortization of Intangible Assets - Advance Mining Royalties

     3,760       7,212  

Deferred Income Taxes

     (8,849 )     44,879  

Equity in Earnings of Affiliates

     4,561       5,736  

Changes in Operating Assets:

                

Accounts Receivable Securitization

     115,900       —    

Accounts and Notes Receivable

     36,048       7,406  

Inventories

     19,891       (27,062 )

Prepaid Expenses

     (10,278 )     6,736  

Changes in Other Assets

     5,842       5,119  

Changes in Operating Liabilities:

                

Accounts Payable

     (26,460 )     (36,636 )

Other Operating Liabilities

     125,190       10,868  

Changes in Other Liabilities

     (116,300 )     (41,141 )

Other

     (5,502 )     (3,274 )
    


 


       304,148       171,732  
    


 


Net Cash Provided by Operating Activities

     316,969       179,274  
    


 


Investing Activities:

                

Capital Expenditures

     (186,720 )     (238,053 )

Additions to Intangible Assets - Advance Mining Royalties

     (3,787 )     (3,342 )

Investment in Equity Affiliates

     (8,626 )     (58,791 )

Proceeds from Sales of Assets

     85,583       7,148  
    


 


Net Cash Used in Investing Activities

     (113,550 )     (293,038 )
    


 


Financing Activities:

                

Payments on Commercial Paper

     (202,953 )     (26,893 )

Proceeds from (Payments on) Miscellaneous Borrowings

     130       (2,976 )

Payments on Long Term Notes

     —         (66,000 )

Proceeds from Long Term Notes

     1,757       260,246  

Dividends Paid

     (33,051 )     (55,070 )

Proceeds from Issuance of Common Stock, net of related costs

     189,552       —    

Proceeds from Treasury Rate Lock

     —         1,332  

Payments for Bond Issuance Costs

     —         (1,026 )

Deposit to Restricted Cash

     (918 )     —    

Issuance of Treasury Stock

     665       609  
    


 


Net Cash (Used in) Provided by Financing Activities

     (44,818 )     110,222  
    


 


Net Increase (Decrease) in Cash and Cash Equivalents

     158,601       (3,542 )

Cash and Cash Equivalents at Beginning of Period

     11,517       15,582  
    


 


Cash and Cash Equivalents at End of Period

   $ 170,118     $ 12,040  
    


 


 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

CONSOL ENERGY INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2003

(Dollars in thousands, except per share data)

 

NOTE 1 - BASIS OF PRESENTATION:

 

Except as described in Note 15 below, the accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2003 are not necessarily indicative of the results that may be expected for future periods.

 

The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all the disclosures required by generally accepted accounting principles for complete financial statements.

 

For further information, refer to the consolidated financial statements and footnotes to the consolidated financial statements for the year ended December 31, 2002 included in CONSOL Energy Inc.’s (CONSOL Energy), Annual Report on Form 10-K for the year ended December 31, 2002, as amended.

 

In connection with the review by the Staff of the Securities and Exchange Commission of a registration statement on Form S-3 filed by CONSOL Energy on May 30, 2003, and its Annual Report on Form 10-K for the year ended December 31, 2002 and its Quarterly Reports on Form 10-Q filed since then, CONSOL Energy had discussions with the Staff regarding the balance sheet classification of certain leased coal interests and whether such assets constitute tangible or intangible assets based upon certain guidance contained in Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. Historically CONSOL Energy has classified such assets and the related accumulated depreciation, depletion and amortization, as Property, Plant and Equipment. CONSOL Energy has reclassified $309,918 of net leased coal interest at December 31, 2002 as intangible assets. Previously reported historical amounts also have been reclassified for comparative purposes. These assets will continue to be amortized over their respective useful lives using the units of production method where proven and probable reserves are reported and using the straight line method where proven and probable reserves are not yet reported. The reclassification had no material effect on CONSOL Energy’s operating results or financial position.

 

CONSOL Energy also reclassified the advance mining royalty balance sheet line item of $90,561 at December 31, 2002 to intangible assets based upon the same discussions with the Staff of the Securities and Exchange Commission. Previously reported historical amounts also have been reclassified for comparative purposes. These assets will continue to be amortized over their respective useful lives using the units of production method where proven and probable reserves are reported and using the straight line method where proven and probable reserves are not yet reported. The reclassification had no effect on CONSOL Energy’s operating results or financial position.

 

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 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, 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. Options to purchase 1,089,818 and

 

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1,730,205 shares of common stock were outstanding for the three and nine month periods ended September 30, 2003, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Options to purchase 2,277,591 and 1,101,693 shares of common stock were outstanding for the three and nine month periods ended September 30, 2002, respectively, but were not included in the computation of diluted earnings per share because the options’ were antidilutive.

 

The computations for basic and diluted earnings per share from continuing operations are as follows:

 

    

For the Three

Months Ended

September 30,


   

For the Nine

Months Ended

September 30,


     2003

    2002

    2003

   2002

Net Income (Loss)

   $ (5,895 )   $ (6,986 )   $ 12,821    $ 7,542

Average shares of common stock Outstanding:

                             

Basic

     79,500,793       78,735,267       79,006,036      78,721,808

Effect of stock options

     334,260       35,061       241,914      135,164
    


 


 

  

Diluted

     79,835,053       78,770,328       79,247,950      78,856,972

Earnings per share:

                             

Basic

   $ (0.07 )   $ (0.09 )   $ 0.16    $ 0.10
    


 


 

  

Diluted

   $ (0.07 )   $ (0.09 )   $ 0.16    $ 0.10
    


 


 

  

 

NOTE 2 – STOCK-BASED COMPENSATION:

 

CONSOL Energy has implemented the disclosure-only provisions of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-an Amendment of SFAS 123” (SFAS No. 148). 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. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. The following table illustrates the

 

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effect on net income and earnings per share if CONSOL Energy had applied the fair value recognition provisions of SFAS Nos. 123 and 148 to stock-based employee compensation:

 

    

Three Months
Ended

September 30,


   

Nine Months

Ended

September 30,


 
     2003

    2002

    2003

    2002

 

Net (loss) income, as reported

   $ (5,895 )   $ (6,986 )   $ 12,821     $ 7,542  

Deduct: Total stock-based employee compensation expense determined under Black-Scholes option pricing model

     (1,257 )     (486 )     (2,952 )     (1,745 )
    


 


 


 


Pro forma net (loss) income

   $ (7,152 )   $ (7,472 )   $ 9,869     $ 5,797  
    


 


 


 


Earnings per share:

                                

Basic - as reported

   $ (0.07 )   $ (0.09 )   $ 0.16     $ 0.10  
    


 


 


 


Basic - pro forma

   $ (0.09 )   $ (0.09 )   $ 0.12     $ 0.07  
    


 


 


 


Diluted - as reported

   $ (0.07 )   $ (0.09 )   $ 0.16     $ 0.10  
    


 


 


 


Diluted - pro forma

   $ (0.09 )   $ (0.09 )   $ 0.12     $ 0.07  
    


 


 


 


 

The pro forma adjustments in the current period are not necessarily indicative of future period pro forma adjustments as the assumptions used to determine fair value can vary significantly and the number of future shares to be issued under these plans is unknown.

 

NOTE 3 – CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING FOR MINE CLOSING, RECLAMATION AND GAS WELL CLOSING COSTS:

 

Effective January 1, 2003, CONSOL Energy adopted Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 143). As a result of this statement, CONSOL Energy recognized additional liabilities of $51,692 for asset retirement obligations associated with the costs of mine closing, reclamation and gas well closing. In addition, CONSOL Energy capitalized asset retirement costs by increasing the carrying amount of related long-lived assets, net of the associated accumulated depreciation, by $59,495.

 

The cumulative effect adjustment recognized upon adoption of this statement was a gain of $4,768, net of a tax cost of approximately $3,035. The cumulative effect adjustment was recognized in the three months ended March 31, 2003. Net income for the three months and nine months ended September 30, 2002 and for the twelve months ended December 31, 2002 would not materially differ if this statement had been adopted January 1, 2002. The obligation for asset retirements is included in Mine Closing, Reclamation, Other Accrued Liabilities and Other Liabilities in the balance sheets.

 

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Table of Contents

The following table illustrates the pro forma impact on the carrying amounts of the obligations as of and for the period ended December 31, 2002 as if this statement had been adopted on January 1, 2002:

 

    

Nine Months Ended

September 30, 2003


   

Twelve Months Ended

December 31, 2002


 

Balance at beginning of period

   $ 452,750,822     $ 450,420,116  

Accretion Expense

     18,570,573       24,793,428  

Payments

     (24,430,017 )     (24,378,722 )

Other

     (1,927,558 )     1,916,000  
    


 


Balance at end of period

   $ 444,963,820     $ 452,750,822  
    


 


 

NOTE 4 - 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

September 30,


 
     2003

    2002

 
     Amount

    Percent

    Amount

    Percent

 

Statutory U.S. federal income tax rate

   $ (6,440 )   35.0  %   $ (14,692 )   35.0  %

Excess tax depletion

     (10,020 )   54.5       (17,920 )   42.7  

Net effect of state tax

     188     (1.0 )     (4,571 )   10.9  

Net effect of foreign tax

     2,079     (11.3 )     2,749     (6.5 )

Other

     1,688     (9.2 )     (558 )   1.3  
    


 

 


 

Income Tax (Benefit)Expense/Effective Rate

   $ (12,505 )   68.0  %   $ (34,992 )   83.4  %
    


 

 


 

 

    

For the Nine Months Ended

September 30,


 
     2003

    2002

 
     Amount

    Percent

    Amount

    Percent

 

Statutory U.S. federal income tax rate

   $ (4,967 )   35.0  %   $ (12,619 )   35.0  %

Excess tax depletion

     (19,698 )   138.8       (25,865 )   71.7  

Net effect of state tax

     (585 )   4.1       (3,344 )   9.3  

Net effect of foreign tax

     2,943     (20.7 )     4,039     (11.2 )

Prior year tax settlement

     —       —         (1,908 )   5.3  

Other

     63     (0.4 )     (3,899 )   10.8  
    


 

 


 

Income Tax (Benefit)Expense/ Effective Rate

   $ (22,244 )   156.8  %   $ (43,596 )   120.9  %
    


 

 


 

 

CONSOL Energy used a discrete tax calculation for the nine months ended September 30, 2003. An annual effective rate was not applied to the nine-month results due to the sensitivity of the rate to small changes in forecasted income. The 2002 period rate was calculated using the annual effective rate projection available at that time. A small change in our estimated annual income was not projected to cause a disproportionately large change in the annual effective rate for the year ended December 31, 2002. In addition, the provision for income tax is adjusted at the time the tax returns are filed to reflect changes in previously estimated amounts.

 

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These adjustments, of which the federal portion is included in the Other line above, decreased income tax expense by $1,128 for the nine months ended September 30, 2003, and $1,460 for the three and nine months ended September 30, 2002.

 

NOTE 5 - INVENTORIES:

 

The components of inventories consist of the following:

 

    

September 30,

2003


  

December 31,

2002


Coal

   $ 35,377    $ 67,119

Merchandise for resale

     21,214      18,855

Supplies

     53,920      49,647
    

  

Total Inventories

   $ 110,511    $ 135,621
    

  

 

NOTE 6 – ACCOUNTS RECEIVABLE SECURITIZATION:

 

In April 2003, CONSOL Energy and certain of its U.S. subsidiaries entered into a trade accounts receivable facility with financial institutions for the sale on a continuous basis of eligible trade accounts receivable. CONSOL Energy formed CNX Funding Corporation, a wholly owned, special purpose, bankruptcy-remote subsidiary for the sole purpose of buying and selling 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. CNX Funding Corporation then sells, on a revolving basis, an undivided percentage interest in the pool of eligible trade accounts receivable to financial institutions and their affiliates, while maintaining a subordinated interest in a portion of the pool of trade receivables. CONSOL Energy will continue to service the sold trade receivables for the financial institutions for a fee based upon market rates for similar services.

 

The receivables facility allows CONSOL Energy to receive, on a revolving basis, up to $125 million. The cost of funds are consistent with commercial paper rates, plus a charge for administrative services paid to the financial institutions. The receivables facility expires in 2006.

 

At September 30, 2003, eligible accounts receivable totaled approximately $120,100, of which the subordinated retained interest was approximately $4,200. Accordingly, $115,900 of accounts receivable were removed from the consolidated balance sheet at September 30, 2003. The $115,900 of proceeds are included in cash flows from operating activities in the consolidated statement of cash flows. Costs associated with the receivables facility totaled $439 and $691 for the three months and nine months ended September 30, 2003, 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 key economic assumptions used to measure the retained interest at the date of the securitization for all such sales completed in 2003 were a discount rate of 1.60% and an estimated life of 35 days. At September 30, 2003, an increase in the discount rate or estimated life of 10% and 20% would have reduced the fair value of the retained interest by $19 and $37, respectively. These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumption to the change in fair value may not be linear. Also, in this example, the effect of a variation in a particular assumption on the fair value of the subordinated retained interest is calculated without changing any other assumption. Changes in one factor may result in changes in another.

 

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NOTE 7 –INTANGIBLE ASSETS:

 

Intangible assets consist of leased coal interests and advance mining royalties. Advance mining royalties are advance payments made to lessors under terms of mineral lease agreements that are recoupable against future production using the units-of-production method where proven and probable coal reserves are reported and using the straight-line method where proven and probable coal reserves are not yet reported. Depletion of coal interests is computed using the units-of-production method where proven and probable coal reserves are reported and using the straight-line method where proven and probable coal reserves are not yet reported. Advance mining royalties and leased coal interests are evaluated quarterly for impairment issues, of which none were recognized in the nine months ended September 30, 2003.

 

    

September 30,

2003


  

December 31,

2002


Leased coal interests

     434,418      440,583

Advance mining royalties

     344,778      340,229
    

  

Total gross carrying value

     779,196      780,812

Less - Accumulated depletion of leased coal interests

     135,974      130,665

Less - Accumulated amortization of advance mining royalties

     253,429      249,668
    

  

Total accumulated depletion and amortization

     389,403      380,333

Net Intangible Assets

   $ 389,793    $ 400,479
    

  

 

Included in the September 30, 2003 gross carrying value for leased coal interests and advance mining royalties are $454 and $3,787 of current year additions, respectively.

 

The aggregate depletion and amortization expense for the nine months ended September 30, 2003 was $10,182.

 

Estimated depletion and amortization expense of lease coal interests and advance mining royalties during the next five years is as follows:

 

Year ended December 31,


    

2003

   $ 14,624

2004

   $ 14,323

2005

   $ 5,499

2006

   $ 3,627

2007

   $ 3,350

 

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Table of Contents

NOTE 8 – DEBT

 

In September 2003, CONSOL Energy completed a 364-day $150 million Senior Secured Revolving Loan Agreement. The new agreement replaced a 364-day bank credit facility of $218,250 that expired September 15, 2003. The new agreement subsequently was terminated on September 24, 2003 upon receipt of proceeds from the Company’s sale of CONSOL Energy common stock. Additionally, the existing multi-year Senior Revolving Loan Agreement, which expires September 15, 2005, was amended to conform to the terms of the new 364-day Agreement including the provision of collateral security to the participating banks. The multi-year Senior Revolving Credit Facility provides for an aggregate of $266,750 that may be used for letters of credit and borrowings for other corporate purposes. Interest is based at our option, upon the Prime (Base) Rate or London Interbank Offered Rates (LIBOR) plus a spread, which is dependent on our credit rating. The senior credit facility has various covenants, including covenants that limit our ability to dispose of assets and merge with another corporation. We are also required to maintain a ratio of total consolidated indebtedness to twelve month trailing earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) of not more than 3.5 to 1.0, measured quarterly. This ratio was 2.23 to 1.0 at September 30, 2003. In addition, we are required to maintain a ratio of twelve months trailing EBITDA to interest expense and amortization of debt discount of no less than 4.5 to 1.0, measured quarterly. This ratio was 6.85 to 1.0 at September 30, 2003. The multi-year Senior Revolving Credit Facility also has covenants restricting the level of annual capital expenditures to be made by CONSOL Energy. The capital expenditure limit is $293.5 million, $455.0 million and $470.0 million for the twelve months ending December 31, 2003, 2004 and 2005, respectively. At September 30, 2003, this facility had approximately $183.1 million letters of credit issued, leaving approximately $83.6 million of unused capacity. At October 31, 2003, this facility had approximately $3.6 million of letters of credit issued and $20.0 million of borrowings, leaving approximately $243.2 million of unused capacity.

 

NOTE 9 - COMMITMENTS AND CONTINGENCIES:

 

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 approximately 22,500 asbestos claims in state courts in Pennsylvania, Ohio, West Virginia, Maryland, New Jersey 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 of 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 the financial position, results of operations or cash flows of CONSOL Energy.

 

CONSOL Energy is 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 September 1991, CONSOL Energy was named a potentially responsible party related to the Buckeye Landfill Superfund Site. The estimated total remaining remediation cost for all

 

15


Table of Contents

responsible parties is estimated to be approximately $15,000. CONSOL Energy’s portion of this claim is approximately 15-20%. CONSOL Energy has paid $2,227 to date, of which $45 has been paid in the three months ended September 30, 2003, related to the remediation of this waste disposal site and, accordingly, reduced the liability to $2,748 at September 30, 2003. 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.

 

CONSOL Energy and certain of its subsidiaries have provided the following financial guarantees. CONSOL Energy management believes that these guarantees will expire without being funded, and therefore, the commitments will not have a material adverse effect on the financial condition of CONSOL Energy and its subsidiaries. The fair values of all liabilities associated with these guarantees have been properly recorded and reported in the financial statements at September 30, 2003.

 

Guarantee


  

Term


  

Maximum

Payments


Workers’ Compensation Surety Bonds (a)

   Various    $ 410,569

Reclamation Surety Bonds (b)

   Various      255,270

1992 Benefit Plan (c)

   10/2002-10/2003      127,009

Gas Sales Agreements (d)

   Various      109,000

Ohio Power Company (e)

   6/1993-6/2006      44,542

Miscellaneous Surety Bonds (f)

   Various      29,013

West Virginia Workers’ Compensation Division (g)

   4/2003-4/2004      26,261

Orix Financial Services (h)

   12/2002-12/2007      17,700

U.S. Bancorp (i)

   7/2002-7/2007      15,311

Ginger Hill Synfuels, LLC (j)

   1/2003-12/2007      10,428

Ohio Valley Electric Corporation (k)

   5/2000-12/2006      10,347

Illinois Industrial Commission (l)

   10/2002-10/2003      8,325

Old Republic Insurance (m)

   11/2002-11/2003      6,777

Bank of Novia Scotia (n)

   9/2003-10/2004      5,000

U.S. Department of Energy (o)

          4,900

Pennsylvania Dept. of Environmental Protection (p)

   9/2003-9/2004      4,626

Duke Energy Corporation (q)

   2/2003-12/2004      3,670

Court Bonds (r)

   Various      3,447

GE Capital Finance (s)

   12/2002-1/2010      2,294

Commonwealth of Kentucky (t)

   8/2003-8/2004      2,172

Reliant Energy (u)

   12/2002-12/2005      1,575

Centimark Corp. (v)

   8/2000-8/2008      1,438

U.S. Department of Labor (w)

   12/2002-12/2003      1,350

W. V. Department of Environmental Protection(x)

   8/2003-8/2008      918

Citibank ISDA Agreements (y)

   Various      800

Orion Power (z)

   12/2002-12/2005      635

Delkor Technik (Pty) Ltd (aa)

   7/2003-1/2004      581

Highmark Life & Casualty (bb)

   5/2003-4/2004      500

LABAR Co. (cc)

   4/1999-4/2005      260

Lumbermens Mutual (dd)

   7/2002-11/2003      253
         

Total Guarantees

        $ 1,104,971
         


 

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Table of Contents
a) CONSOL Energy and its subsidiaries, at various times throughout the year, have obtained surety bonds related to workers’ compensation obligations. These bonds are necessary as a result of CONSOL Energy being self insured for workers’ compensation, and will be called to the extent that CONSOL Energy or any of its subsidiaries fails to pay workers’ compensation claims.
b) A number of CONSOL Energy subsidiaries have obtained surety bonds related to reclamation and subsidence obligations. CONSOL Energy, through these bonds, guarantees the performance of these obligations related to reclamation and subsidence.
c) On October 15, 2002, a subsidiary of CONSOL Energy arranged for the issuance of a letter of credit to the 1992 Benefit Plan. This letter of credit will be drawn upon if the subsidiary fails to pay the claims related to this plan. As of October 14, 2003, this guarantee was funded by the letter of credit facility that was established with the proceeds received by CONSOL Energy’s sale of common stock.
d) Certain subsidiaries of CONSOL Energy have entered into gas sales agreements in which CONSOL Energy guarantees the delivery of a specific quantity of fixed price gas for the duration of the contract. These agreements include the following:
  1) CNX Gas Company LLC, a subsidiary of CONSOL Energy, has an agreement with CONOCO/Phillips Inc. that guarantees the physical delivery of CNX Gas Company LLC production through December 31, 2005. CONSOL Energy has guaranteed any unpaid obligations of CNX Gas Company LLC to this sales agreement, up to $60,000.
  2) CONSOL Energy has an agreement with Dominion Field Services to guarantee any unpaid obligations of CNX Gas Company LLC and Greene Energy, subsidiaries of CONSOL Energy, pursuant to their gas sales agreements with Dominion Field Services. The maximum undiscounted future payments required pursuant to the agreement to be made by these subsidiaries at September 30, 2003 are as follows: (a) CNX Gas Company LLC—$36,000 and (b) Greene Energy—$3,000.
  3) CONSOL Energy has an agreement with AEP Energy Services to unconditionally guarantee the full and prompt payment of all obligations, up to $10,000, of CNX Gas Company LLC, a subsidiary of CONSOL Energy, arising from AEP Energy Services’ purchase, sale or exchange of energy services or energy related commodities with respect to the sales agreement between CNX Gas Company LLC and AEP Energy Services.
  4) The CNX Gas Company LLC Sales Agreement guarantees the delivery of specific quantities of gas through May 7, 2022. If our subsidiary fails to deliver the volume specified in the contract, it is obligated to pay a deficiency charge, for each day delivery is not made, equal to the undelivered volumes times the daily price of gas.
e) CONSOL Energy is the guarantor of the Coal Supply Agreement dated June 3, 1993 between several of its subsidiaries and Ohio Power Company. Under this agreement, CONSOL Energy guarantees full and timely performance of all obligations of its subsidiary arising from the Coal Supply Agreement.
f) Several subsidiaries of CONSOL Energy have issued miscellaneous surety bonds, primarily water quality bonds and road bonds. CONSOL Energy guarantees the performance of these obligations by its subsidiaries.
g) On April 24, 2003, a subsidiary of CONSOL Energy issued a letter of credit to the West Virginia Workers’ Compensation Division. This letter of credit is related to workers’ compensation, as a result of the fact that CONSOL Energy and its subsidiaries are self insured for these liabilities. This letter of credit will be drawn upon if CONSOL Energy or its subsidiaries fails to pay the related workers’ compensation claims. As of October 23, 2003, this guarantee was funded by the letter of credit facility that was established with the proceeds received by CONSOL Energy’s sale of common stock.
h) A CONSOL Energy subsidiary entered into an equipment lease agreement with Orix Financial Services on December 30, 2002 for a longwall to be used at Buchanan Mine. In accordance with this agreement, CONSOL Energy guarantees the payment of all liabilities and the performance of all obligations of the subsidiary.

 

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Table of Contents
i) A CONSOL Energy subsidiary entered into an agreement on July 17, 2002 with U.S. Bancorp Equipment Finance, Inc. to lease a longwall for use at McElroy Mine. CONSOL Energy is the guarantor of this agreement and promises prompt and full payment to U.S. Bancorp upon the failure of the subsidiary to satisfy the obligations of the agreement.
j) CONSOL Energy is the guarantor of the Coal Supply Agreement dated January 15, 2003 between one of its subsidiaries and Ginger Hill Synfuels, LLC. Under this agreement, CONSOL Energy guarantees the full and faithful performance of all obligations of these subsidiaries with respect to this Coal Supply Agreement.
k) CONSOL Energy is the guarantor of the Coal Supply Agreement dated May 22, 2000 between several of its subsidiaries and Ohio Valley Electric Corporation. Under this agreement, CONSOL Energy guarantees the full and faithful performance of all obligations of these subsidiaries with respect to this Coal Supply Agreement.
l) On October 15, 2002, CONSOL Energy, in conjunction with several of its subsidiaries, obtained the issuance of a letter of credit to the Illinois Industrial Commission. This letter of credit is related to CONSOL Energy’s self- insurance program for workers’ compensation. Should CONSOL Energy, or any of these subsidiaries, fail to pay the workers’ compensation claims, the Illinois Industrial Commission will draw on this letter of credit. As of October 14, 2003, this guarantee was funded by the letter of credit facility that was established with the proceeds received by CONSOL Energy’s sale of common stock.
m) A subsidiary of CONSOL Energy obtained the issuance of several letters of credit to Old Republic Insurance Company at various times. These letters of credit are related to workers’ compensation liabilities, and are due to the fact that CONSOL Energy and its subsidiaries are self insured for workers’ compensation. The letters of credit will be drawn upon if the subsidiary fails to pay the related workers’ compensation claims. As of October 23, 2003, this guarantee was funded by the letter of credit facility that was established with the proceeds received by CONSOL Energy’s sale of common stock.
n) A subsidiary of CONSOL Energy obtained the issuance of a letter of credit to the Bank of Nova Scotia on September 16, 2003. This letter of credit serves as a guarantee of performance of certain reclamation obligations and will be drawn if CONSOL Energy’s subsidiary defaults on these obligations. As of October 14, 2003, this guarantee was funded by the letter of credit facility that was established with the proceeds received by CONSOL Energy’s sale of common stock.
o) CONSOL Energy, along with SynAggs Inc., organized Universal Aggregates, LLC on January 1, 2000. Universal Aggregates is obligated to complete the design, construction and operation phases of the Birchwood Power Plant Project, and CONSOL Energy is obligated to provide its 50% share of the funds for this project. CONSOL Energy, acting as guarantor, guarantees the performance of the obligations of Universal Aggregates, with respect to this agreement, to the U. S. Department of Energy, to the extent of its 50% membership interest in Universal Aggregates.
p) A subsidiary of CONSOL Energy obtained the issuance of a letter of credit to the Commonwealth of Pennsylvania Department of Environmental Protection on September 19, 2003. This letter of credit is related to obtaining a permit for a new refuse area and will be drawn upon if the subsidiary fails to perform the related reclamation obligations.
q) CONSOL Energy is the guarantor of the Coal Supply Agreement dated February 1, 2003 between several of its subsidiaries and Duke Energy Corporation. Under this agreement, CONSOL Energy guarantees full and timely performance of all obligations of its subsidiaries arising from this Coal Supply Agreement.
r) Several subsidiaries of CONSOL Energy have issued court bonds related to court proceedings in which they are involved. These bonds would be called should any of the subsidiaries file bankruptcy while the proceedings were still in existence and unresolved. The bonds will be released by the court when the proceedings conclude. As of October 14, 2003, this guarantee was funded by the letter of credit facility that was established with the proceeds received by CONSOL Energy’s sale of common stock.

 

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Table of Contents
s) Universal Aggregates received financing from GE Capital Public Finance, Inc. for the purchase of equipment for the Birchwood Power Plant Project, through an agreement dated December 1, 2002. CONSOL Energy unconditionally guarantees to GE Capital the full and prompt payment when due of all debts, liabilities and obligations owed by Universal Aggregates with respect to this loan agreement, not to exceed $2,500.
t) On August 31, 2003, a subsidiary of CONSOL Energy obtained the issuance of a letter of credit to the Commonwealth of Kentucky in relation to workers’ compensation liabilities. This letter of credit is a result of the fact that CONSOL Energy and its subsidiaries are self-insured for these obligations. The letter of credit will be drawn upon if the subsidiary fails to pay the related workers’ compensation liabilities. As of October 14, 2003, this guarantee was funded by the letter of credit facility that was established with the proceeds received by CONSOL Energy’s sale of common stock.
u) CONSOL Energy is the guarantor of the Coal Supply Agreement dated December 17, 2002 between several of its subsidiaries and Reliant Energy Mid-Atlantic Power Holdings, LLC. Under this agreement, CONSOL Energy guarantees the full and faithful performance of all obligations of these subsidiaries with respect to this Coal Supply Agreement.
v) A subsidiary of CONSOL Energy entered into an agreement to lease office space from Centimark Corporation on August 1, 2000. In connection with this agreement, CONSOL Energy guarantees full and timely performance of all obligations of the subsidiary to Centimark, in relation to this lease agreement.
w) On December 17, 2002, three subsidiaries of CONSOL Energy obtained the issuance of a letter of credit to the U.S. Department of Labor. This letter of credit is related to Longshore and Harbor workers’ compensation claims and will be drawn upon should these subsidiaries fail to pay the claims. As of October 14, 2003, this guarantee was funded by the letter of credit facility that was established with the proceeds received by CONSOL Energy’s sale of common stock.
x) On August 11, 2003, a subsidiary of CONSOL Energy obtained the issuance of a letter of credit to the West Virginia Department of Environmental Protection. This letter of credit is related to environmental liabilities and will be called upon should this subsidiary fail to perform these obligations.
y) CONSOL Energy has several International Swap and Derivative Association (ISDA) Agreements with Citibank effective November 21, 2002. These agreements cover the gas derivative hedging activity of CNX Gas Company LLC.
z) CONSOL Energy is the guarantor of the Coal Supply Agreement dated December 17, 2002 between several of its subsidiaries and Orion Power MidWest, LP. Under this agreement, CONSOL Energy guarantees the full and timely performance of all obligations of these subsidiaries with respect to this Coal Supply Agreement.
aa) A subsidiary of CONSOL Energy obtained the issuance of a letter of credit to Delkor Technik (Pty) Ltd. on July 21, 2003. This letter of credit guarantees Delkor Technik that the subsidiary of CONSOL Energy will perform all obligations with respect to the agreement between these parties.
bb) On May 1, 2003, a subsidiary of CONSOL Energy obtained the issuance of a letter of credit to Highmark Life and Casualty to support the administrative service program of making medical payments under various CONSOL Energy medical benefit programs. CONSOL Energy and its subsidiaries are self-insured. Highmark processes and pays the medical claims under the CONSOL Energy medical benefit programs and then bills CONSOL Energy for reimbursement. The letter of credit will be drawn upon if CONSOL Energy or its subsidiary fails to reimburse Highmark for these payments. As of October 23, 2003, this guarantee was funded by the letter of credit facility that was established with the proceeds received by CONSOL Energy’s sale of common stock.
cc) On April 1, 1999, a subsidiary of CONSOL Energy entered into an agreement with Alaska Supply Chain Integrators (ASCI) to lease warehouse space from LABAR Co. CONSOL Energy guarantees prompt payment of all amounts due under the lease in the event of default by the subsidiary.
dd) On July 19, 2002, CONSOL Energy obtained the issuance of a letter of credit to Lumbermens Mutual. Lumbermens Mutual processes and pays all automobile claims and then bills CONSOL Energy, which is self-insured, for reimbursement. The letter of credit will be drawn upon if CONSOL Energy should fail to reimburse Lumbermens Mutual for these payments.

 

 

19


Table of Contents

NOTE 10- FAIR VALUE 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 sheets for cash and cash equivalents 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.

 

Current and long-term debt: The fair values of current and 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.

 

Capital leases: The fair values of capital leases are estimated using discounted cash flow analyses, based on CONSOL Energy’s current incremental borrowing rates for similar types of borrowing arrangements.

 

The carrying amounts and fair values of financial instruments, excluding derivative financial instruments disclosed in Item 3 – Quantitative and Qualitative Disclosure About Market Risk, are as follows:

 

     September 30, 2003

    December 31, 2002

 
    

Carrying

Amount


   

Fair

Value


   

Carrying

Amount


   

Fair

Value


 

Cash and cash equivalents

   $ 170,118     $ 170,118     $ 11,517     $ 11,517  

Short-term notes payable

   $ (3,399 )   $ (3,399 )   $ (204,545 )   $ (204,545 )

Current and long-term debt

   $ (493,141 )   $ (502,916 )   $ (488,907 )   $ (492,534 )

Capital leases

   $ (5,250 )   $ (5,498 )   $ (8,139 )   $ (8,679 )

 

NOTE 11- SEGMENT INFORMATION:

 

In the third quarter of 2003, CONSOL Energy revised the monthly financial information provided to its Chief Executive Officer (CEO). The segment information presented for the three and nine month periods ended September 30, 2002 and 2003 is consistent with the information currently available to the CEO for evaluating segment performance and allocating resources.

 

CONSOL Energy has two reportable business segments: Coal and Gas. CONSOL Energy’s All Other classification is made up of our terminal services, river and dock services, industrial supply services and other business activities, such as rentals of buildings and flight operations that do not qualify as operating segments. Certain amounts reported in prior periods as segment assets have been reclassified to conform with the asset classifications reported for the nine months ended September 30, 2003.

 

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Table of Contents

Industry segment results for the three months ended September 30, 2003:

 

     Reportable Business Segments

   

All Other


   

Corporate,

Adjustments
& Eliminations


   

Consolidated


 
     Coal

    Gas

   Total

       

Sales - outside

   $ 442,182     $ 50,707    $ 492,889     $ 18,682     $ —       $ 511,571  

Sales - related parties

     —         —        —         —         —         —    

Freight - outside

     27,329       —        27,329               —         27,329  

Freight - related parties

     —         —        —         —         —         —    

Intersegment transfers

     —         708      708       21,745       (22,453 )     —    
    


 

  


 


 


 


Total Sales and Freight

   $ 469,511     $ 51,415    $ 520,926     $ 40,427     $ (22,453 )   $ 538,900  
    


 

  


 


 


 


Earnings (Loss) Before Income Taxes (A)

   $ (24,582 )   $ 17,215    $ (7,367 )   $ (4,797 )   $ (6,236 )   $ (18,400 )
    


 

  


 


 


 


Segment assets (B)

   $ 2,845,963     $ 534,995    $ 3,380,958     $ 189,323     $ 731,057     $ 4,301,338  
    


 

  


 


 


 


Depreciation, depletion and amortization

   $ 48,498     $ 9,340    $ 57,838     $ 3,278     $ —       $ 61,116  
    


 

  


 


 


 


Capital expenditures

   $ 58,374     $ 15,930    $ 74,304     $ 1,510     $ —       $ 75,814  
    


 

  


 


 


 



(A) Includes equity in earnings (loss) of unconsolidated equity affiliates of ($792), ($217) and $1,525 for Coal, Gas and All Other, respectively.
(B) Includes investments in unconsolidated equity affiliates of $39,599, $17,647 and $28,759 for Coal, Gas and All Other, respectively. Also, included in the Coal segment is $26,006 of receivables related to the Export Sales Excise Tax Resolution.

 

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Industry segment results for the three months ended September 30, 2002:

 

     Reportable Business Segments

   

All

Other


   

Corporate,

Adjustments
& Eliminations


   

Consolidated


 
     Coal

    Gas

   Total

       

Sales - outside

   $ 450,185     $ 37,842    $ 488,027     $ 18,874     $ —       $ 506,901  

Sales - related parties

     —         —        —         —         —         —    

Freight - outside

     31,723       —        31,723       —         —         31,723  

Freight - related parties

     1          —        1       —         —         1  

Intersegment transfers

     —         362      362       18,317       (18,679 )     —    
    


 

  


 


 


 


Total Sales and Freight

   $ 481,909     $ 38,204    $ 520,113     $ 37,191     $ (18,679 )   $ 538,625  
    


 

  


 


 


 


Earnings (Loss) Before Income Taxes (C)

   $ (32,846 )   $ 9,956    $ (22,890 )   $ (5,927 )   $ (13,161 )   $ (41,978 )
    


 

  


 


 


 


Segment assets (D)

   $ 2,925,707     $ 611,005    $ 3,536,712     $ 219,770     $ 589,299     $ 4,345,781  
    


 

  


 


 


 


Depreciation, depletion and amortization

   $ 53,845     $ 8,607    $ 62,452     $ 2,796     $ —       $ 65,248  
    


 

  


 


 


 


Capital expenditures

   $ 76,373     $ 11,198    $ 87,571     $ 708     $ —       $ 88,279  
    


 

  


 


 


 



(C) Includes equity in earnings (loss) of unconsolidated equity affiliates of ($1,846), ($845) and ($456) for Coal, Gas and All Other, respectively.
(D) Includes investments in unconsolidated equity affiliates of $88,878, $12,696 and $29,409 for Coal, Gas and All Other, respectively. Also, included in the Coal segment is $71,581 of receivables related to the Export Sales Excise Tax Resolution.

 

22


Table of Contents

Industry segment results for the nine months ended September 30, 2003:

 

     Reportable Business Segments

  

All

Other


   

Corporate,

Adjustments

& Eliminations


   

Consolidated


 
     Coal

    Gas

   Total

      

Sales - outside

   $ 1,319,255     $ 153,232    $ 1,472,487    $ 56,879     $ —       $ 1,529,366  

Sales - related parties

     1,369       —        1,369      —         —         1,369  

Freight - outside

     84,791       —        84,791      146       —         84,937  

Freight - related parties

     562       —        562      —         —         562  

Intersegment transfers

     —         2,493      2,493      68,611       (71,104 )     —    
    


 

  

  


 


 


Total Sales and Freight

   $ 1,405,977     $ 155,725    $ 1,561,702    $ 125,636     $ (71,104 )   $ 1,616,234  
    


 

  

  


 


 


Earnings (Loss) Before Income Taxes (E)

   $ (24,626 )   $ 50,472    $ 25,846    $ (16,017 )   $ (24,020 )   $ (14,191 )
    


 

  

  


 


 


Segment assets (F)

   $ 2,845,963     $ 534,995    $ 3,380,958    $ 189,323     $ 731,057     $ 4,301,338  
    


 

  

  


 


 


Depreciation, depletion and amortization

   $ 147,248     $ 27,963    $ 175,211    $ 8,904     $ —       $ 184,115  
    


 

  

  


 


 


Capital expenditures

   $ 141,307     $ 42,842    $ 184,149    $ 2,571     $ —       $ 186,720  
    


 

  

  


 


 



(E) Includes equity in earnings (loss) of unconsolidated equity affiliates of ($4,223), ($823) and $485 for Coal, Gas and All Other, respectively.
(F) Includes investments in unconsolidated equity affiliates of $39,599, $17,647 and $28,759 for Coal, Gas and All Other, respectively. Also, included in the Coal segment is $26,006 of receivables related to the Export Sales Excise Tax Resolution.

 

23


Table of Contents

Industry segment results for the nine months ended September 30, 2002:

 

     Reportable Business Segments

  

All

Other


   

Corporate,

Adjustments

& Eliminations


   

Consolidated


 
     Coal

    Gas

   Total

      

Sales - outside

   $ 1,332,717     $ 100,554    $ 1,433,271    $ 60,904     $ —       $ 1,494,175  

Sales - related parties

     819       —        819      —         —         819  

Freight - outside

     101,724       —        101,724      130       —         101,854  

Freight - related parties

     550       —        550      —         —         550  

Intersegment transfers

     —         1,350      1,350      66,458       (67,808 )     —    
    


 

  

  


 


 


Total Sales and Freight

   $ 1,435,810     $ 101,904    $ 1,537,714    $ 127,492     $ (67,808 )   $ 1,597,398  
    


 

  

  


 


 


Earnings (Loss) Before Income Taxes (G)

   $ (7,081 )   $ 21,793    $ 14,712    $ (14,041 )   $ (36,725 )   $ (36,054 )
    


 

  

  


 


 


Segment assets (H)

   $ 2,925,707     $ 611,005    $ 3,536,712    $ 219,770     $ 589,299     $ 4,345,781  
    


 

  

  


 


 


Depreciation, depletion and amortization

   $ 164,554     $ 25,366    $ 189,920    $ 7,586     $ —       $ 197,506  
    


 

  

  


 


 


Capital expenditures

   $ 192,525     $ 41,261    $ 233,786    $ 4,267     $ —       $ 238,053  
    


 

  

  


 


 



(G) Includes equity in earnings (loss) of unconsolidated equity affiliates of ($3,104), ($1,775) and ($857) for Coal, Gas and All Other, respectively.
(H) Includes investments in unconsolidated equity affiliates of $88,878, $12,696 and $29,409 for Coal, Gas and All Other, respectively. Also, included in the Coal segment is $71,581 of receivables related to the Export Sales Excise Tax Resolution.

 

24


Table of Contents

Reconciliation of Segment Information to Consolidated Amounts:

 

Earnings (Loss) Before Income Taxes:

 

     For the Three Months
Ended September 30,


    For the Nine Months
Ended September 30,


 
     2003

    2002

    2003

    2002

 

Segment earnings before income taxes for total reportable business segments

   $ (7,367 )   $ (22,890 )   $ 25,846     $ 14,712  

Segment loss before income taxes for all other businessses

     (4,797 )     (5,927 )     (16,017 )     (14,041 )

Incentive compensation

     4,093       (90 )     —         (3,468 )

Interest income (expense), net and other non-operating activity

     (10,329 )     (13,071 )     (24,020 )     (33,257 )
    


 


 


 


Earnings (Loss) Before Income Taxes

   $ (18,400 )   $ (41,978 )   $ (14,191 )   $ (36,054 )
    


 


 


 


 

Total Assets:

 

     September 30,

     2003

   2002

Segment assets for total reportable business segments

   $ 3,380,958    $ 3,536,712

Segment assets for all other businesses

     189,323      219,770

Items excluded from segment assets:

             

Cash and other investments

     170,488      12,403

Export sales excise tax resolution interest receivable

     —        22,345

Deferred tax assets

     522,466      356,660

Recoverable income taxes

     35,141      194,528

Bond issuance costs

     2,962      3,363
    

  

Total Consolidated Assets

   $ 4,301,338    $ 4,345,781
    

  

 

NOTE 12- GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION:

 

Effective September 30, 2003, CONSOL Energy executed Supplemental Indenture No. 2. This Supplemental Indenture revised the Guarantor Subsidiaries as defined in the First Supplemental Indenture to include additional subsidiaries as guarantors and remove one subsidiary as a guarantor. Accordingly, CONSOL Energy has revised prior year’s data to conform to the classifications effective at September 30, 2003.

 

The payment obligations under the $250,000 7.875 percent Notes due 2012 issued by CONSOL Energy in 2002 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 remove investments in subsidiaries and certain intercompany balances and transactions. CONSOL Energy, the parent, and a guarantor subsidiary 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.

 

25


Table of Contents

Income Statement for the Three Months Ended September 30, 2003:

 

     Parent

    Guarantors

   

Non-

Guarantors


    Elimination

    Consolidated

 

Sales - Outside

   $ —       $ 495,727     $ 15,844     $ —       $ 511,571  

Sales - Related Parties

     —         —         —         —         —    

Freight - Outside

     —         27,329       —         —         27,329  

Freight - Related Parties

     —         —         —         —         —    

Other Income (including equity earnings)

     (1,039 )     7,608       2,894       3,797       13,260  
    


 


 


 


 


Total Revenue and Other Income

     (1,039 )     530,664       18,738       3,797       552,160  

Cost of Goods Sold and Other Operating Charges

     (810 )     420,593       25,942       (30,647 )     415,078  

Intercompany Activity

     (51 )     (12,271 )     (18,577 )     30,899       —    

Freight Expense

     —         27,329       —         —         27,329  

Selling, General and Administrative Expense

     —         19,489       729       —         20,218  

Depreciation, Depletion and Amortization

     1,257       59,592       267       —         61,116  

Interest Expense

     5,179       2,631       226       —         8,036  

Taxes Other Than Income

     945       37,438       400       —         38,783  

Export Sales Excise Tax Resolution

             —                         —    
    


 


 


 


 


Total Costs

     6,520       554,801       8,987       252       570,560  
    


 


 


 


 


Earnings (Loss) Before Income Taxes

     (7,559 )     (24,137 )     9,751       3,545       (18,400 )

Income Taxes (Benefit)

     (1,664 )     (12,581 )     1,740       —         (12,505 )
    


 


 


 


 


Net Income (Loss)

   $ (5,895 )   $ (11,556 )   $ 8,011     $ 3,545     $ (5,895 )
    


 


 


 


 


 

26


Table of Contents

Balance Sheet for September 30, 2003:

 

     Parent

   Guarantors

   

Non-

Guarantors


   Elimination

    Total

Assets:

                                    

Current Assets:

                                    

Cash and Cash Equivalents

   $ 159,491    $ 320     $ 10,307    $ —       $ 170,118

Accounts and Notes Receivable:

                                    

Trade

     —        1,425       89,472      —         90,897

Other

     2,416      81,619       3,237      —         87,272

Inventories

     258      87,752       22,501      —         110,511

Deferred Income Taxes

     78,255      —         —        —         78,255

Recoverable Income Taxes

     35,141      —         —        —         35,141

Prepaid Expenses

     17,562      16,892       1,016      —         35,470
    

  


 

  


 

Total Current Assets

     293,123      188,008       126,533      —         607,664

Property, Plant and Equipment:

                                    

Property, Plant and Equipment

     97,194      5,319,257       24,437      —         5,440,888

Less-Accumulated Depreciation, Depletion and Amortization

     44,503      2,717,777       18,932      —         2,781,212
    

  


 

  


 

Property, Plant and Equipment - Net

     52,691      2,601,480       5,505      —         2,659,676

Other Assets:

                                    

Deferred Income Taxes

     444,211      —         —        —         444,211

Intangible Assets, Net

     —        389,793       —        —         389,793

Investment in Affiliates

     1,345,781      21,267       39,599      (1,320,642 )     86,005

Restricted Cash

     918      —         —        —         918

Other

     2,418      107,391       3,262      —         113,071
    

  


 

  


 

Total Other Assets

     1,793,328      518,451       42,861      (1,320,642 )     1,033,998
    

  


 

  


 

Total Assets

   $ 2,139,142    $ 3,307,939     $ 174,899    $ (1,320,642 )   $ 4,301,338
    

  


 

  


 

Liabilities and Stockholders’ Equity:

                                    

Current Liabilities:

                                    

Accounts Payable

   $ 57,364    $ 36,999     $ 19,772    $ —       $ 114,135

Accounts Payable (Recoverable)-Related Parties

     1,298,455      (1,400,530 )     102,075      —         —  

Short-Term Notes Payable

     —        —         3,399      —         3,399

Current Portion of Long-Term Debt

     —        51,014       —        —         51,014

Other Accrued Liabilities

     75,536      510,412       2,844      —         588,792
    

  


 

  


 

Total Current Liabilities

     1,431,355      (802,105 )     128,090      —         757,340

Long-Term Debt:

                                    

Long-Term Debt

     248,262      179,037       17,250      —         444,549

Capital Lease Obligations

     —        2,828       —        —         2,828
    

  


 

  


 

Total Long-Term Debt

     248,262      181,865       17,250      —         447,377

Deferred Credits and Other Liabilities:

                                    

Postretirement Benefits Other Than Pensions

     —        1,461,014       —        —         1,461,014

Pneumoconiosis Benefits

     —        444,671       —        —         444,671

Mine Closing

     —        358,111       —        —         358,111

Workers’ Compensation

     1,407      252,901       —        —         254,308

Deferred Revenue

     —        68,792       —        —         68,792

Salary Retirement

     66,880      183       —        —         67,063

Reclamation

     —        12,641       —        —         12,641

Other

     63,880      31,440       7,344      —         102,664
    

  


 

  


 

Total Deferred Credits and Other Liabilities

     132,167      2,629,753       7,344      —         2,769,264

Stockholders’ Equity

     327,358      1,298,426       22,215      (1,320,642 )     327,357
    

  


 

  


 

Total Liabilities and Stockholders’ Equity

   $ 2,139,142    $ 3,307,939     $ 174,899    $ (1,320,642 )   $ 4,301,338
    

  


 

  


 

 

27


Table of Contents

Condensed Statement of Cash Flows

For the Three Months Ended September 30, 2003:

 

     Parent

    Guarantors

   

Non-

Guarantors


    Elimination

   Consolidated

 

Net Cash Provided by Operating Activities

   $ 6,462     $ 68,856     $ 2,549     $ —      $ 77,867  
    


 


 


 

  


Cash Flows from Investing Activities:

                                       

Capital Expenditures

   $ (2,690 )   $ (73,124 )   $ —       $ —      $ (75,814 )

Investment in Equity Affiliates

     —         (37 )     (3,879 )     —        (3,916 )

Other Investing Activities

     —         4,097       —         —        4,097  
    


 


 


 

  


Net Cash Used in Investing Activities

   $ (2,690 )   $ (69,064 )   $ (3,879 )   $ —      $ (75,633 )
    


 


 


 

  


Cash Flows from Financing Activities:

                                       

Payments on Short-Term Borrowings

   $ (24,999 )   $ —       $ —       $ —      $ (24,999 )

Proceeds from Long-Term Notes

     —         —         750       —        750  

Dividends Paid

     (11,019 )     —         —         —        (11,019 )

Proceeds from Issuance of Common Stock, Net of Related Costs

     189,552       —         —         —        189,552  

Other Financing Activities

     (581 )     173       41       —        (367 )
    


 


 


 

  


Net Cash Provided by Financing Activities

   $ 152,953     $ 173     $ 791     $ —      $ 153,917  
    


 


 


 

  


 

Income Statement for the Three Months Ended September 30, 2002:

 

     Parent

    Guarantors

   

Non-

Guarantors


    Elimination

    Consolidated

 

Sales - Outside

   $ —       $ 490,865     $ 16,036     $ —       $ 506,901  

Sales - Related Parties

     —         —         —         —         —    

Freight - Outside

     —         29,842       1,881       —         31,723  

Freight - Related Parties

     —         1       —         —         1  

Other Income (including equity earnings)

     (1,931 )     9,381       (1,536 )     1,834       7,748  
    


 


 


 


 


Total Revenue and Other Income

     (1,931 )     530,089       16,381       1,834       546,373  

Cost of Goods Sold and Other Operating Charges

     2,530       429,674       34,311       (39,600 )     426,915  

Intercompany Activity

     (2,695 )     (24,438 )     (16,285 )     43,418       —    

Freight Expense

     —         29,843       1,881       —         31,724  

Selling, General and Administrative Expense

     —         15,693       35       —         15,728  

Depreciation, Depletion and Amortization

     795       64,148       307       (2 )     65,248  

Interest Expense

     6,874       4,637       114       —         11,625  

Taxes Other Than Income

     905       36,208       667       —         37,780  

Export Sales Excise Tax Resolution

             (669 )                     (669 )
    


 


 


 


 


Total Costs

     8,409       555,096       21,030       3,816       588,351  
    


 


 


 


 


Earnings (Loss) Before Income Taxes

     (10,340 )     (25,007 )     (4,649 )     (1,982 )     (41,978 )

Income Taxes (Benefit)

     (3,354 )     (21,663 )     (9,975 )     —         (34,992 )
    


 


 


 


 


Net Income (Loss)

   $ (6,986 )   $ (3,344 )   $ 5,326     $ (1,982 )   $ (6,986 )
    


 


 


 


 


 

 

28


Table of Contents

Balance Sheet for December 31, 2002:

 

     Parent

   Guarantors

   

Non-

Guarantors


   Elimination

    Total

Assets:

                                    

Current Assets:

                                    

Cash and Cash Equivalents

   $ 2,651    $ 1,786     $ 7,080    $ —       $ 11,517

Accounts and Notes Receivable:

                                    

Trade

     —        193,459       12,432      —         205,891

Other

     6,482      118,943       1,801      —         127,226

Inventories

     258      114,563       20,800      —         135,621

Deferred Income Taxes

     92,236      —         —        —         92,236

Recoverable Income Taxes

     21,935      —         —        —         21,935

Prepaid Expenses

     4,769      23,521       121      —         28,411
    

  


 

  


 

Total Current Assets

     128,331      452,272       42,234      —         622,837

Property, Plant and Equipment:

                                    

Property, Plant and Equipment

     87,674      5,145,746       23,721              5,257,141

Less-Accumulated Depreciation, Depletion and Amortization

     41,620      2,603,163       18,252              2,663,035
    

  


 

  


 

Property, Plant and Equipment - Net

     46,054      2,542,583       5,469      —         2,594,106

Other Assets:

                                    

Deferred Income Taxes

     420,718      —         —        —         420,718

Intangible Assets, Net

     15      400,464       —        —         400,479

Investment in Affiliates

     1,367,604      18,923       91,478      (1,342,643 )     135,362

Other

     2,509      116,892       257              119,658
    

  


 

  


 

Total Other Assets

     1,790,846      536,279       91,735      (1,342,643 )     1,076,217
    

  


 

  


 

Total Assets

   $ 1,965,231    $ 3,531,134     $ 139,438    $ (1,342,643 )   $ 4,293,160
    

  


 

  


 

Liabilities and Stockholders' Equity:

                                    

Current Liabilities:

                                    

Accounts Payable

   $ 110,120      27,160       14,091      —       $ 151,371

Accounts Payable (Recoverable)-Related Parties

     1,023,380      (1,068,897 )     45,517      —         —  

Short-Term Notes Payable

     203,139      —         1,406      —         204,545

Current Portion of Long-Term Debt

     100      8,515       —        —         8,615

Other Accrued Liabilities

     62,606      383,823       3,473      —         449,902
    

  


 

  


 

Total Current Liabilities

     1,399,345      (649,399 )     64,487      —         814,433

Long-Term Debt:

                                    

Long-Term Debt

     248,107      221,935       15,493      —         485,535

Capital Lease Obligations

     —        2,896       —        —         2,896
    

  


 

  


 

Total Long-Term Debt

     248,107      224,831       15,493      —         488,431

Deferred Credits and Other Liabilities:

                                    

Postretirement Benefits Other Than Pensions

     —        1,437,987       —        —         1,437,987

Pneumoconiosis Benefits

     —        455,436       —        —         455,436

Mine Closing

     —        332,920       —        —         332,920

Workers' Compensation

     1,827      259,423       —        —         261,250

Deferred Revenue

     —        102,400       —        —         102,400

Salary Retirement

     90,665      809       —        —         91,474

Reclamation

     —        5,812       —        —         5,812

Other

     63,241      71,424       6,305      —         140,970
    

  


 

  


 

Total Deferred Credits and Other Liabilities

     155,733      2,666,211       6,305      —         2,828,249

Stockholders' Equity

     162,046      1,289,491       53,153      (1,342,643 )     162,047
    

  


 

  


 

Total Liabilities and Stockholders' Equity

   $ 1,965,231    $ 3,531,134     $ 139,438    $ (1,342,643 )   $ 4,293,160
    

  


 

  


 

 

29


Table of Contents

Condensed Statement of Cash Flows for Three Months Ended September 30, 2002:

 

     Parent

    Guarantors

   

Non-

Guarantors


    Elimination

   Consolidated

 

Net Cash Provided by (Used in) Operating Activities

   $ 18,625     $ 80,209     $ 4,711     $ —      $ 103,545  
    


 


 


 

  


Cash Flows from Investing Activities:

                                       

Capital Expenditures

   $ (4,307 )   $ (83,972 )   $ —       $ —      $ (88,279 )

Investment in Equity Affiliates

     (8,918 )     —         (14,953 )     —        (23,871 )

Other Investing Activities

     —         3,173       —         —        3,173  
    


 


 


 

  


Net Cash Used in Investing Activities

   $ (13,225 )   $ (80,799 )   $ (14,953 )   $ —      $ (108,977 )
    


 


 


 

  


Cash Flows from Financing Activities:

                                       

Payments on Short-Term Borrowings

   $ 5,185     $ —       $ —       $ —      $ 5,185  

Proceeds from Long-Term Notes

     —         —         13,936       —        13,936  

Dividends Paid

     (11,016 )     —         —         —        (11,016 )

Other Financing Activities

     156       1,464       (2,467 )     —        (847 )
    


 


 


 

  


Net Cash Provided by (Used in) Financing Activities

   $ (5,675 )   $ 1,464     $ 11,469     $ —      $ 7,258  
    


 


 


 

  


 

30


Table of Contents

Income Statement for the Nine Months Ended September 30, 2003:

 

     Parent

    Guarantors

   

Non-

Guarantors


    Elimination

    Consolidated

 

Sales - Outside

   $ —       $ 1,480,189     $ 49,177     $ —       $ 1,529,366  

Sales - Related Parties

     —         1,369       —         —         1,369  

Freight - Outside

     —         84,722       215       —         84,937  

Freight - Related Parties

     —         562       —         —         562  

Other Income (including equity earnings)

     35,368       27,960       15,688       (26,763 )     52,253  
    


 


 


 


 


Total Revenue and Other Income

     35,368       1,594,802       65,080       (26,763 )     1,668,487  

Cost of Goods Sold and Other Operating Charges

     9,617       1,194,327       112,251       (109,555 )     1,206,640  

Intercompany Activity

     227       (56,474 )     (59,876 )     116,123       —    

Freight Expense

     —         85,284       215       —         85,499  

Selling, General and Administrative Expense

     —         54,883       1,808       —         56,691  

Depreciation, Depletion and Amortization

     2,792       182,310       867       (1,854 )     184,115  

Interest Expense

     15,365       9,901       736       —         26,002  

Taxes Other Than Income

     3,079       120,152       1,114       —         124,345  

Export Sales Excise Tax Resolution

             (614 )                     (614 )
    


 


 


 


 


Total Costs

     31,080       1,589,769       57,115       4,714       1,682,678  
    


 


 


 


 


Earnings (Loss) Before Income Taxes

     4,288       5,033       7,965       (31,477 )     (14,191 )

Income Taxes (Benefit)

     (8,533 )     (16,499 )     2,788       —         (22,244 )
    


 


 


 


 


Earnings (Loss) before Cumulative Effect of Change in Accounting Principle

     12,821       21,532       5,177       (31,477 )     8,053  

Cumulative Effect of Changes in Accounting for Mine Closing, Reclamation, and Gas Well Closing Costs, Net of Income Taxes of $3,035

     —         (2,900 )     (1,868 )     —         (4,768 )
    


 


 


 


 


Net Income (Loss)

   $ 12,821     $ 24,432     $ 7,045     $ (31,477 )   $ 12,821  
    


 


 


 


 


 

31


Table of Contents

Condensed Statement of Cash Flows

For the Nine Months Ended September 30, 2003:

 

     Parent

    Guarantors

   

Non-

Guarantors


    Elimination

   Consolidated

 

Net Cash Provided by (Used in) Operating Activities

   $ 211,638     $ 163,942     $ (58,611 )   $ —      $ 316,969  
    


 


 


 

  


Cash Flows from Investing Activities:

                                       

Capital Expenditures

   $ (7,993 )   $ (178,727 )   $ —       $ —      $ (186,720 )

Investment in Equity Affiliates

     —         (251 )     (8,375 )     —        (8,626 )

Other Investing Activities

     —         16,826       64,970       —        81,796  
    


 


 


 

  


Net Cash (Used in) Provided by Investing Activities

   $ (7,993 )   $ (162,152 )   $ 56,595     $ —      $ (113,550 )
    


 


 


 

  


Cash Flows from Financing Activities:

                                       

Payments on Short-Term Borrowings

   $ (202,953 )   $ —       $ —       $ —      $ (202,953 )

Proceeds from Long-Term Notes

     —         —         1,757       —        1,757  

Dividends Paid

     (33,051 )     —         —         —        (33,051 )

Proceeds from Issuance of Common Stock, Net of Related Costs

     189,552                              189,552  

Other Financing Activities

     (353 )     (1,763 )     1,993       —        (123 )
    


 


 


 

  


Net Cash (Used in) Provided by Financing Activities

   $ (46,805 )   $ (1,763 )   $ 3,750     $ —      $ (44,818 )
    


 


 


 

  


 

Income Statement for the Nine Months Ended September 30, 2002:

 

     Parent

    Guarantors

    Non-
Guarantors


    Elimination

    Consolidated

 

Sales - Outside

   $ —       $ 1,442,823     $ 51,352     $ —       $ 1,494,175  

Sales - Related Parties

     —         819       —         —         819  

Freight - Outside

     —         96,476       5,378       —         101,854  

Freight - Related Parties

     —         1,815       —         (1,265 )     550  

Other Income (including equity earnings)

     24,386       33,458       (3,587 )     (22,608 )     31,649  
    


 


 


 


 


Total Revenue and Other Income

     24,386       1,575,391       53,143       (23,873 )     1,629,047  

Cost of Goods Sold and Other Operating Charges

     11,063       1,148,818       111,289       (118,835 )     1,152,335  

Intercompany Activity

     (6,420 )     (72,069 )     (56,584 )     135,073       —    

Freight Expense

     —         98,291       5,378       (1,265 )     102,404  

Selling, General and Administrative Expense

     —         49,545       35       —         49,580  

Depreciation, Depletion and Amortization

     1,636       196,801       926       (1,857 )     197,506  

Interest Expense

     16,953       16,543       114       —         33,610  

Taxes Other Than Income

     2,928       126,894       1,550       —         131,372  

Export Sales Excise Tax Resolution

     —         (1,706 )     —         —         (1,706 )
    


 


 


 


 


Total Costs

     26,160       1,563,117       62,708       13,116       1,665,101  
    


 


 


 


 


Earnings (Loss) Before Income Taxes

     (1,774 )     12,274       (9,565 )     (36,989 )     (36,054 )

Income Taxes (Benefit)

     (9,316 )     (30,320 )     (3,960 )     —         (43,596 )
    


 


 


 


 


Net Income (Loss)

   $ 7,542     $ 42,594     $ (5,605 )   $ (36,989 )   $ 7,542  
    


 


 


 


 


 

32


Table of Contents

Condensed Statement of Cash Flows for Nine Months Ended September 30, 2002

 

     Parent

    Guarantors

   

Non-

Guarantors


    Elimination

   Consolidated

 

Net Cash (Used in) Provided by Operating Activities

   $ (125,681 )   $ 293,303     $ 11,652     $ —      $ 179,274  
    


 


 


 

  


Cash Flows from Investing Activities:

                                       

Capital Expenditures

   $ (10,824 )   $ (227,229 )   $ —       $ —      $ (238,053 )

Investment in Equity Affiliates

     (29,095 )     (50 )     (29,646 )     —        (58,791 )

Other Investing Activities

     —         3,806       —         —        3,806  
    


 


 


 

  


Net Cash Used in Investing Activities

   $ (39,919 )   $ (223,473 )   $ (29,646 )   $ —      $ (293,038 )
    


 


 


 

  


Cash Flows from Financing Activities:

                                       

Payments on Short-Term Borrowings

   $ (26,893 )   $ —       $ —       $ —      $ (26,893 )

Proceeds from Long-Term Notes

     246,310       —         13,936       —        260,246  

Payments on Long-Term Notes

     —         (66,000 )     —         —        (66,000 )

Dividends Paid

     (55,070 )     —         —         —        (55,070 )

Other Financing Activities

     815       (2,876 )     —         —        (2,061 )
    


 


 


 

  


Net Cash Provided by (Used in) Financing Activities

   $ 165,162     $ (68,876 )   $ 13,936     $ —      $ 110,222