PITTSBURGH, July 31 PA-CONSOL-2Q-Earnings
PITTSBURGH, July 31 /PRNewswire-FirstCall/ -- CONSOL Energy Inc.
(NYSE: CNX), a high-Btu bituminous coal and natural gas company, reported
earnings of $101.0 million, or $0.54 per diluted share, for its second quarter
ended June 30, 2008, compared with $153.1 million, or $0.83 per diluted share
for the same period a year earlier, which included asset sales that resulted
in the recognition of $59 million in net income in the 2007 period. Net cash
from operating activities was $323.9 million for the quarter just ended,
compared with $271.1 million for the June 2007 quarter.
FINANCIAL RESULTS - Period-To-Period Comparison
Quarter QuarterSix Months Six Months
Ended Ended Ended Ended
June 30,June 30,June 30,June 30,
2008 200720082007
Total Revenue and Other
Income $1,210.9$1,060.0$2,236.6$1,975.2
Net Income$101.0 $153.1 $176.1 $266.4
Earnings Per Share -
diluted $0.54 $0.83 $0.95 $1.44
Net Cash from Operating
Activities $323.9 $271.1 $470.0 $454.5
EBITDA$266.5 $310.7 $479.2 $545.3
EBIT $170.7 $235.0 $290.7 $392.8
Capital Expenditures $259.9 $194.4 $436.3 $344.6
Cash Provided by (Used in)
Other Investing Activities* ($0.9) $56.9 $16.5 $58.8
In millions of dollars except per share. Amounts for capital expenditures
do not include amounts for equity affiliates.
*Represents net cash used in investment in Equity Affiliates and Proceeds
from Sales of Assets.
For the June 2008 quarter, total revenue and other income was up more than
14 percent period-to-period. Coal sales revenue was up approximately 19
percent while revenue from gas sales was up more than 58 percent, due
primarily to higher average prices for both products and higher gas sales
volumes.
Total revenue and other income for the second quarter 2008 was adversely
impacted by an $11 million loss on mark-to-market adjustments for three free
standing coal sales options that will reverse as coal is purchased under these
options or as the options expire.
Net income for the second quarter 2008 was down 34 percent compared with
the same period a year earlier due to an asset sale and an asset exchange in
the second quarter of 2007 that totaled $100 million in pretax income and
approximately $59 million in net income which was recognized in last year's
second quarter.
"Higher energy prices were the key factor in the second quarter's
results," said J. Brett Harvey, president and chief executive officer. "Gas
prices period-to-period rose 24 percent, while coal prices period-to-period
rose 15 percent, allowing us to generate solid cash flows and higher revenues.
Despite mixed economic news in recent months, global energy demand still
favors this higher pricing environment for the foreseeable future."
He said net income (excluding the prior gain from asset sales) improved
both period-to-period and sequentially. "The period-to-period improvement is
a reflection of the higher pricing environment," Harvey noted, "while the
trailing quarter net income improvement primarily reflected getting Buchanan
Mine back on-line."
Harvey also said that results for the quarter further underscored the
value created by the company's strategic decision to retain its ownership in
CNX Gas. "CNX Gas was able to capitalize on the current pricing environment by
increasing production more than 27 percent, while limiting increases in unit
cost of goods sold and other changes to 9.4 percent," Harvey explained.
"On the other hand, productivity at our coal operations declined for a
variety of reasons," Harvey continued, "while at the same time we faced rising
cost pressure. As a result, our unit costs increased substantially.
"The key factor to controlling our unit costs of production is that we
must mine the tons we forecast," he continued. "I expect the adjustments that
we have made to our operating plans will get us back on track in the second
half of the year." Harvey said the company reiterated its previous production
guidance for the second half of 2008.
Period-To-Period Analysis of Financial Results for the Quarter
Total Revenue and Other Income increased 14 percent, due to higher
realized pricing and higher sales volumes for gas and higher realized pricing
for coal in the second quarter of 2008.
Net Cash from Operating Activities was $323.9 million for the quarter just
ended, compared with $271.1 million for the June 2007 quarter, an increase of
approximately 19.5 percent.
Total Costs increased 26.4 percent, primarily due to higher Cost of Goods
Sold and Other Operating Charges, and to a lesser extent, higher Depreciation,
Depletion and Amortization, and higher Taxes Other Than Income.
Total Cost of Goods Sold (including Purchased Gas Costs and Gas Royalty
Interest Costs) increased approximately 26.3 percent. Produced coal Cost of
Goods Sold and Other Charges increased in the period-to-period comparison
primarily due to the impact on the current quarter of the July 2007
acquisition of AMVEST, higher supply costs, higher labor costs, and higher
health and retirement costs.
Gas Costs of Goods Sold and Other Charges increased due primarily to a
27.4 percent increase in the volume of produced gas sold and a 9.4 percent
increase in unit Costs of Goods Sold and Other Charges.
Depreciation, Depletion and Amortization increased 26.5 percent, primarily
reflecting the additional assets acquired in the July 2007 acquisition of
AMVEST as well as various coal assets and other projects placed in service
after the 2007 period, and to a lesser extent, increases in gas production-
related Depreciation, Depletion and Amortization due to increased production
combined with an increase in units of production rates.
Interest Expense increased 38.1 percent, mainly due to interest on
outstanding borrowings from the revolving credit facility. There were no
outstanding borrowings on the revolving credit facility in the 2007 period.
Taxes Other Than Income increased 17.3 percent, primarily due to higher
severance and other taxes attributable to an increase in average sale price
for produced coal, and higher gas production taxes due to higher severances
taxes attributable to higher average sales prices for gas and higher volumes
of gas produced.
As of June 30, 2008, CONSOL Energy (excluding CNX Gas) had $180.0 million
of short-term debt and had $592.7 million in total liquidity, which is
comprised of $32.1 million of cash and $560.6 million available to be borrowed
under its $1 billion bank facility. As of June 30, 2008, CNX Gas Corporation
had $27 million of short-term debt and had $181.2 million in total liquidity,
which is comprised of $23.1 million of cash and $158.1 million available to be
borrowed under its $200 million bank facility.
Coal Operations
QuarterQuarterSix Months Six Months
Ended Ended EndedEnded
June 30, June 30,June 30, June 30,
2008 20072008 2007
Total Coal Sales
(millions of tons)17.5 17.133.5 34.2
Sales - Company
Produced (millions
of tons) 17.0 17.032.7 34.0
Coal Production
(millions of tons) 16.6* 16.4* 32.8 34.3
Average Realized
Price Per Ton -
Company Produced$48.50 $41.64 $46.07 $40.70
Operating Costs Per
Ton $32.03 $25.46 $30.20 $23.98
Non-Operating Charges
Per Ton $5.44 $4.64 $5.30$4.53
DD&A Per Ton $4.14 $3.26 $4.03$3.13
Total Cost Per Ton -
Company Produced$41.60** $33.36 $39.52** $31.64
Operating Margins Per
Ton $16.47 $16.18 $15.87 $16.72
Financial Margins Per
Ton $6.90 $8.28 $6.54** $9.06
Sales and production includes CONSOL Energy's portion from equity
affiliates and consolidated variable interest entities. Operating costs
include items such as labor, supplies, power, preparation costs, project
expenditures, subsidence costs, gas well plugging costs, charges for
employee benefits (including Combined Fund premium), royalties, as well as
production and property taxes. Non-operating charges include items such
as charges for long-term liabilities, direct administration, selling and
general administration. Operating Margins Per Ton are defined as Average
Realized Price Per Ton less Operating Costs Per Ton. Financial Margins
Per Ton are defined as Average Realized Price Per Ton less Total Costs Per
Ton - Company Produced.
*Includes 1.1 and 1.5 million tons of metallurgical grade coal for the
quarters ended June 30, 2008 and 2007 respectively. **May not add due to
rounding.
Coal segment operating margins (average realized price per ton less
operating costs per ton) were $16.47 per ton, an increase of 1.8 percent
period-to-period, while financial margins (average realized price less total
costs) were $6.90 per ton, a decline of 16.7 percent period-to-period.
Operating margins increased $0.29 per ton, for the quarter-to-quarter
comparison, primarily due to higher average realized pricing per ton of
company produced coal, offset by higher operating costs per ton. Coal segment
financial margins declined $1.38 per ton, due to higher operating and non-
operating charges per ton and higher Depreciation, Depletion and Amortization.
Operating costs were impacted, in part, by the addition of the AMVEST mines to
the mix of production. AMVEST operations are in Central Appalachia, an area
that has operating costs that typically are higher than costs in Northern
Appalachia, where CONSOL's largest mines are located.
Compared with the trailing quarter, operating margins increased 8.0
percent, while financial margins increased 11.7 percent, or $1.22 per ton and
$0.72 per ton respectively.
Sales of company-produced coal were essentially unchanged versus last
year's second quarter. Compared with the trailing quarter, sales of company
produced coal increased 1.3 million tons.
Average realized prices were up 16.5 percent for the period-to-period
comparison, reflecting an increase in market prices primarily due to increased
demand for the company's steam and metallurgical coal and a robust pricing
environment globally for coal. Compared with the trailing quarter, average
realized prices increased 11.3 percent.
Total costs for company-produced coal increased $8.24 per ton,
period-to-period. Approximately $2.00 per ton was attributable to the AMVEST
acquisition and the previously unscheduled start-up of the Shoemaker Mine
(which had been idled but was restarted in order to partially offset
production shortfalls at other mines); and approximately $0.76 per ton was
attributable to commodity price increases. The remaining unit cost increase
was attributable to lower production volumes (excluding AMVEST and Shoemaker);
higher labor costs; and higher supply usage. Lower production resulted from
lower productivity which was impacted by adverse geological conditions,
equipment moves required to avoid surface features, changes in mine plans, and
requirements related to safety compliance.
Higher unit supply costs were due to several factors including the higher
unit cost impact of the AMVEST mines, which were acquired on July 31, 2007.
The AMVEST mines are surface mines that require significant hauling of
overburden from stripping operations, require coal to be trucked from the area
of extraction to a central preparation plant, and require fuel oil for
blasting operations, all of which result in additional costs that are
exacerbated by increasing costs of diesel fuel. Supply costs were also up in
the period-to-period comparison, due to additional costs related to roof
control. Additional roof control costs were related to geological conditions,
compliance with health and safety regulations which required additional
support to be added to existing operations, and inflation-related price
increases for steel products.
Unit costs were impacted by the increased use of contract labor at several
of the company's longwall operations. The increase in contract labor also was
related to compliance with health and safety regulations in existing
operations, as well as additional belt line maintenance for the current
quarter versus the year ago period.
Higher labor costs were due to the effects of wage increases at the union
and non-union mines. Labor also increased due to the higher number of
employees in the 2008 period versus the same period a year ago. Higher health
and retirement costs were attributable to additional contributions required to
be made into employee benefit funds in 2008 compared to 2007 as a result of
the five-year labor agreement with the United Mine Workers of America (UMWA)
that commenced January 1, 2007. The contribution increase over 2007 was $1.27
per UMWA hour worked.
Compared with the trailing quarter, total costs increased $4.21 per ton.
Gas Operations
CNX Gas Corporation (NYSE: CXG), 81.7 percent of which is owned by CONSOL
Energy, reported total net income of $64.3 million for the quarter ended June
30, 2008, compared with $41.5 million in the same period a year earlier. CNX
Gas Corporation issued its earnings release on July 30, 2008. Additional
information regarding CNX Gas Corporation financial and operating results for
the quarter are available in their release and can be found in the investor
section of their website: http://www.cnxgas.com
Subsequent Events
In July, CONSOL Energy Inc. and Synthesis Energy Systems Inc. ("SES"), a
global industrial gasification company, announced plans to develop through a
joint venture their first U. S. coal gasification plant in West Virginia.
CONSOL ( through its subsidiary Terra Firma Company) and SES formed Northern
Appalachia Fuel LLC ("NAF"), as the company through which the development will
occur. The Board of Directors of both companies authorized funds for
development activities, including the front-end engineering design ("FEED")
package. Each member company will contribute equally to this phase of the
project. NAF is finalizing agreements with Aker Solutions US Inc., a
subsidiary of Aker Solutions ASA (OSL: AKSO), to perform the FEED. The FEED
will include a carbon management strategy which may focus on carbon
sequestration in a deep saline aquifer.
It is expected that the plant will be a 'mine mouth' facility with
feedstock supplied directly from CONSOL's nearby Shoemaker complex. Coal will
be converted to syngas utilizing SES's proprietary U-Gas technology. It also
is expected that syngas will be used to produce approximately 720,000 metric
tons per year of methanol which can be converted into approximately 100
million gallons/year of gasoline.
Outlook
In the tables below, the company provides certain financial and production
guidance measures. CONSOL Energy updates its production guidance on a
quarterly basis, if needed. These measures are based on the company's current
estimates and are subject to change based on changing circumstances and on
risks associated with the business that are described at the end of this news
release. The company is reiterating its previous production forecasts for the
years 2009, 2010 and 2011.
GUIDANCE
2008 2009 2010 2011
Estimate Estimate Estimate Estimate
COAL
Tons Produced
(millions of tons) 68.0 - 72.0 70.0 - 74.0 76.6 - 80.6 76.7 - 80.7
Tons Committed
(millions of tons
at July. 11, 2008) 69.2 63.3*52.4*43.2*
Tons Committed and
Priced (millions of
tons at July 11, 2008) 69.2 54.9 28.2 17.1
Avg. Realized Price/Ton
Committed & Priced $47.83 $55.61 $48.27 $47.66
* For 2009, includes 2.5 million tons capped at a maximum average price of
$44.24 per ton; for 2010, includes 8.7 million tons capped at a maximum
average price of $52.91 per ton; and for 2011, includes 6.3 million tons
capped at a maximum average price of $60.40 per ton.
2008 Quarterly Production Guidance
3Q4Q
1Q Actual 2Q Actual Estimate Estimate
Coal (millions of tons)16.216.616.4 - 18.4 17.8 - 19.8
Coal and Gas Markets
The global demand for coal continues to grow as industrialized and
developing nations' demand for low-cost energy increases. Over the next two
decades, the U.S. Department of Energy has forecasted that total worldwide
energy demand will grow more than 55 percent and that the two fastest growing
segments are expected to be coal and natural gas, which are forecasted to grow
approximately 74 percent and 63 percent, respectively.
CONSOL Energy believes it is well-positioned to capitalize on this growing
demand for coal and natural gas. "Our coal reserves are some of the best
bituminous coal in the world and we own the most of them in fee," Harvey said.
"In addition, we expect CNX Gas to continue to expand its proven reserve base
as well.
"More importantly," he continued, "while coal provides steady growth in
our revenue base over the long-term, the gas business creates a component of
revenue growth tuned to the short-term dynamics of the energy market."
During the quarter, CNX Gas produced a record 18.8 billion cubic feet, up
18 percent from the first quarter of 2008. The gas company achieved the
record production from its coalbed methane operations in Virginia, West
Virginia and Pennsylvania. CNX Gas drilled additional wells during the
period, but also did an extensive "workover" of existing frac wells,
increasing daily production from those wells in the quarter just ended,
compared with the first quarter of this year.
Harvey said that the robust pricing for coal is likely the result of many
factors including but not limited to: the growing international demand for
coal; permit delays for valley fill projects in West Virginia; the effect the
new MINER Act is having on productivity at underground mines; the attempt by
many eastern U.S. power plants to replenish stockpiles thought to be below
historical average levels; and the substitution of steam coal into the
metallurgical markets. The company estimates that during 2009, up to 25
million tons of what was traditionally used for steam coal purposes will be
sold into the world metallurgical coal market.
Coal Contracting Activity
The company booked approximately 10 million tons of sales for delivery in
2009 during the quarter just ended. Approximately 65 percent of those sales
were new contracts or existing contracts where price was reopened to market.
The remainder of the tons primarily was in existing contracts that reopened
for re-pricing but contained provisions that capped the amount of the price
increase. Although the new price was higher than last year, the price was
below the current market price.
"Pricing of our Pittsburgh 8 steam coal was in excess of $100 per ton with
the exception of some very high sulfur product which we sold early in the
period at a somewhat lower price," Harvey said. "Central App steam coal
volumes were sold at about $95 per ton and metallurgical coal sales were in
the range of $235 - $245 per short ton, though the volumes were much smaller
than the steam coal volumes. We also booked more than a million tons of coal
from Emery at prices over $50 -- the highest price for Utah coal in a long
time."
CONSOL has between 12.5 million and 16.5 million tons of coal un-priced
for 2009, of which nearly 5 million tons is low-volatile and high-volatile
metallurgical grade coal, and has between 40.0 million and 44.0 million tons
of coal that is un-priced for 2010, with approximately 6 million tons of
metallurgical grade coal.
Capital Projects Update
CONSOL Energy made progress with several low-cost, brownfield coal
projects that were identified earlier this year. These projects include six
longwall face extensions at four of the company's mines in Northern
Appalachia. Each longwall face extension is expected to take 12 to 18 months
to complete and all are expected to be completed between 2009 and 2013. A
face extension can increase production between 300,000 and 500,000 tons per
year.
The company also continued the permitting process to add a third longwall
mining system at the Bailey Mine in Pennsylvania. Full completion of this
project is expected during 2011 with first full-year production in 2012. The
additional longwall mining system is expected to increase production by 5.0
million to 6.5 million tons per year.
In addition, the upgrade of the underground haulage system at the
Shoemaker Mine in West Virginia is on-schedule with the previously announced
early 2010 start date. This upgrade is expected to increase production at
Shoemaker to approximately 6.0 million tons per year. In order to offset
production shortfalls at other mines, the company has elected to run Shoemaker
on a limited basis utilizing the older haulage system while construction
continues on the new belt haulage. The company expects to produce
approximately 800,000 tons of coal from Shoemaker during the second half of
the year.
In a recent development related to the Shoemaker Mine, CONSOL announced
plans earlier this week to develop, through a joint venture with Synthesis
Energy Systems Inc., the joint venture's first U. S. coal gasification plant
to be located West Virginia. The plant is expected to be a 'mine mouth'
facility with feedstock being supplied from the Shoemaker complex. "We
believe we have another business prospect that is similar to the CNX Gas
opportunity that we capitalized on several years ago," said Harvey. "More
specifically, we are able to capture the coal tailings from our prep plant,
where there is an ongoing disposal cost, and convert that waste, along with
some raw coal, into a profitable business endeavor. The end products could be
approximately 720,000 metric tons of methanol or approximately 100 million
gallons of gasoline per year."
The company also continued with plans to expand capacity at the Buchanan
Mine in Virginia to 6 million tons per year by early 2011. The capacity
expansion involves upgrades to the existing preparation plant, the
construction of a new 7,200 ton raw coal storage silo, upgrades to the water
delivery and treatment system for the preparation plant, the installation of a
new vertical coal transport belt to augment the existing skip hoist, and
modifications to the existing underground haulage system. The preparation
plant project, including the water delivery system and the silo construction,
is already underway.
"We believe that our coal and natural gas assets plus the widening
spectrum of development opportunities place us in a unique position in the
energy markets," concluded Harvey. "We have high expectations for the coal,
natural gas, both unconventional and conventional, as well as coal-to-liquid
projects we have identified and believe these projects will make us a much
stronger energy company over the next five years through the diversification
of our revenue streams."
CONSOL Energy Inc., a high-Btu bituminous coal and coal bed methane
company, is a member of the Standard & Poor's 500 Equity Index and has annual
revenues of $3.8 billion. It has 17 bituminous coal mining complexes in six
states and reports proven and probable coal reserves of 4.5 billion tons.
CONSOL Energy was named one of America's most admired companies in 2005 by
Fortune magazine. It received the U.S. Department of the Interior's Office of
Surface Mining National Award for Excellence in Surface Mining for the
company's innovative reclamation practices in 2002, 2003 and 2004. Also in
2003, the company was listed in Information Week magazine's "Information Week
500" list for its information technology operations. In 2002, the company
received a U.S. Environmental Protection Agency Climate Protection Award.
Additional information about the company can be found at its web site:
www.consolenergy.com.
Definition: EBIT is defined as earnings (excluding cumulative effect of
accounting change) before deducting net interest expense (interest expense
less interest income) and income taxes. EBITDA is defined as earnings
(excluding cumulative effect of accounting change) before deducting net
interest expense (interest expense less interest income), income taxes and
depreciation, depletion and amortization. Although EBIT and EBITDA are not
measures of performance calculated in accordance with generally accepted
accounting principles, management believes that it is useful to an investor in
evaluating CONSOL Energy because it is widely used to evaluate a company's
operating performance before debt expense and its cash flow. EBIT and EBITDA
do not purport to represent cash generated by operating activities and should
not be considered in isolation or as a substitute for measures of performance
in accordance with generally accepted accounting principles. In addition,
because all companies do not calculate EBIT or EBITDA identically, the
presentation here may not be comparable to similarly titled measures of other
companies. Reconciliation of EBITDA and EBIT to the income statement is as
follows:
CONSOL Energy Inc.
EBIT & EBITDA
(000) Omitted
SixSix
Quarter Quarter Months Months
EndedEnded Ended Ended
6/30/08 6/30/07 6/30/086/30/07
Net Income$101,012 $153,117$176,094 $266,379
Add: Interest Expense 8,5266,174 18,702 13,437
Less: Interest Income (618) (3,772) (1,457)(9,447)
Add: Income Taxes 61,798 79,524 97,351122,458
Earnings Before
Interest & Taxes (EBIT) 170,718 235,043 290,690392,827
Add: Depreciation,
Depletion &
Amortization 95,775 75,689 188,503152,478
Earnings Before Interest,
Taxes and DD&A (EBITDA) $266,493 $310,732$479,193 $545,305
For purposes of this press release, references to "CONSOL Energy," the
"company," "we," "our," or "us" or similar words (other than the legal
names of companies) shall include CONSOL Energy Inc. and its respective
subsidiaries.
Forward-Looking Statements
Various statements in this document, including those that express a
belief, expectation, or intention, as well as those that are not statements of
historical fact, are forward-looking statements (as defined in Section 21E of
the Securities Exchange Act of 1934 and the Private Securities Litigation
Reform Act of 1995). The forward-looking statements may include projections
and estimates concerning the timing and success of specific projects, our
future production, revenues, income and capital spending. When we use the
words "believe," "intend," "expect," "may," "should," "anticipate," "could,"
"would," "will," "estimate," "plan," "predict," "project," or their negatives,
or other similar expressions, the statements which include those words are
usually forward-looking statements. When we describe strategy that involves
risks or uncertainties, we are making forward-looking statements. The forward-
looking statements in this document speak only as of the date of this
document; we disclaim any obligation to update these statements unless
required by securities law, and we caution you not to rely on them unduly. We
have based these forward-looking statements on our current expectations and
assumptions about future events. While our management considers these
expectations and assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory and other risks,
contingencies and uncertainties, most of which are difficult to predict and
many of which are beyond our control. These risks, uncertainties and
contingencies include, but are not limited to: reliance on customers extending
existing contracts or entering into new long-term contracts for coal; reliance
on major customers; our inability to collect payments from customers if their
creditworthiness declines; the disruption of rail, barge and other systems
that deliver our coal, or pipeline systems which deliver our gas; a loss of
our competitive position because of the competitive nature of the coal
industry and the gas industry, or a loss of our competitive position because
of overcapacity in these industries impairing our profitability; our inability
to hire qualified people to meet replacement or expansion needs; coal users
switching to other fuels in order to comply with various environmental
standards related to coal combustion; the inability to produce a sufficient
amount of coal to fulfill our customers' requirements which could result in
our customers initiating claims against us; the risks inherent in coal mining
being subject to unexpected disruptions, including geological conditions,
equipment failure, timing of completion of significant construction or repair
of equipment, fires, accidents and weather conditions which could cause our
results to deteriorate; increases in the price of commodities used in our
mining operations and could impact our cost of production; obtaining
governmental permits and approvals for our operations; the effects of
government regulation; the effects of stringent federal and state safety
regulations; the effects of mine closing, reclamation and certain other
liabilities; uncertainties in estimating our economically recoverable coal and
gas reserves; we do not insure against all potential operating risks; the
outcomes of various legal proceedings, which proceedings are more fully
described in our reports filed under the Securities Exchange Act of 1934;
increased exposure to employee related long-term liabilities; our
participation in multi-employer pension plans may expose us to obligations
beyond the obligation to our employees; lump sum payments made to retiring
salaried employees pursuant to our defined benefit pension plan; our ability
to comply with laws or regulations requiring that we obtain surety bonds for
workers' compensation and other statutory requirements; acquisitions that we
recently have made or may make in the future including the accuracy of our
assessment of the acquired businesses and their risks, achieving any
anticipated synergies, integrating the acquisitions and unanticipated changes
that could affect assumptions we may have made; the anti-takeover effects of
our rights plan could prevent a change of control; risks in exploring for and
producing gas; new gas development projects and exploration for gas in areas
where we have little or no proven gas reserves; the availability of field
services, equipment and personnel for drilling and producing gas; replacing
our natural gas reserves which if not replaced will cause our gas reserves and
gas production to decline; costs associated with perfecting title for gas
rights in some of our properties; we need to use unproven technologies to
extract coalbed methane on some of our properties; location of a vast majority
of our gas producing properties in three counties in southwestern Virginia,
making us vulnerable to risks associated with having our gas production
concentrated in one area; other persons could have ownership rights in our
advanced gas extraction techniques which could force us to cease using those
techniques or pay royalties; the coalbeds from which we produce methane gas
frequently contain water that may hamper production; and other factors
discussed in our 2007 Form 10-K under "Risk Factors," as updated by any
subsequent Form 10-Qs, which are on file at the Securities and Exchange
Commission.
CONSOL ENERGY INC. AND SUBSIDIARIES
(Unaudited)
CONSOLIDATED STATEMENTS of INCOME
(Dollars in thousands - except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Sales - Outside $1,111,410 $879,300 $1,997,735 $1,712,427
Sales - Gas Royalty
Interests 22,515 14,484 39,019 26,666
Sales - Purchased Gas1,6471,3175,1862,476
Freight - Outside 63,927 43,667 108,671 87,300
Other Income11,397 121,230 86,016 146,314
Total Revenue and
Other Income 1,210,8961,059,9982,236,6271,975,183
Cost of Goods Sold and
Other Operating Charges
(exclusive of
depreciation, depletion
and amortization shown
below)740,735 591,1571,377,4631,110,406
Gas Royalty Interests'
Costs 21,880 12,500 37,954 23,138
Purchased Gas Costs 1,5221,4734,9432,492
Freight Expense 63,927 43,667 108,671 87,300
Selling, General and
Administrative Expense 30,644 26,539 61,114 52,548
Depreciation, Depletion
and Amortization 95,775 75,689 188,503 152,478
Interest Expense 8,5266,174 18,702 13,437
Taxes Other Than Income 73,299 62,474 144,905 130,752
Total Costs1,036,308 819,6731,942,2551,572,551
Earnings Before Income
Taxes and Minority
Interest 174,588 240,325 294,372 402,632
Income Taxes61,798 79,524 97,351 122,458
Earnings Before
Minority Interest 112,790 160,801 197,021 280,174
Minority Interest (11,778) (7,684) (20,927) (13,795)
Net Income $101,012 $153,117 $176,094 $266,379
Basic Earnings
Per Share $0.55$0.84$0.96$1.46
Dilutive Earnings
Per Share $0.54$0.83$0.95$1.44
Weighted Average
Number of Common Shares
Outstanding:
Basic182,977,726 182,195,390 182,775,355 182,282,857
Dilutive 185,637,248 185,000,122 185,330,300 184,788,415
Dividends Paid Per
Share $0.10$0.07$0.20$0.14
CONSOL ENERGY INC. AND SUBSIDIARIES
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30,June 30,
2008 2007 2008 2007
Operating Activities:
Net Income $101,012 $153,117 $176,094 $266,379
Adjustments to Reconcile Net
Income to
Net Cash Provided by Operating
Activities:
Depreciation, Depletion and
Amortization95,77575,689 188,503 152,478
Stock-based Compensation 6,767 5,17812,42516,717
Gain on the Sale of Assets (764) (103,026) (8,050) (106,541)
Change in Minority Interest 11,778 7,68420,92713,795
Amortization of Mineral Leases1,153 2,011 3,240 3,465
Deferred Income Taxes54,56839,38868,99657,034
Equity in Earnings of
Affiliates (2,290) (1,854) (3,645) (2,733)
Changes in Operating Assets:
Accounts Receivable
Securitization 18,500 - 29,900 -
Accounts and Notes
Receivable (29,208) 49,728 (110,856) 14,059
Inventories9,700 9,181 (11,467) (14,998)
Prepaid Expenses 16,198 4,35819,28911,542
Changes in Other Assets 481 3,07613,82216,518
Changes in Operating
Liabilities:
Accounts Payable 34,874 (22,052) 21,058 (39,195)
Other Operating
Liabilities 7,78918,67211,27636,107
Changes in Other Liabilities (1,098) 30,00837,73929,078
Other(1,351) (55) 726 765
Net Cash Provided by Operating
Activities 323,884 271,103 469,977 454,470
Investing Activities:
Capital Expenditures (258,091) (189,595) (429,848) (335,748)
Additions to Mineral Leases(1,844) (4,785) (6,429) (8,851)
Net Investment in Equity
Affiliates(2,355) (438) (819) (2,240)
Proceeds from Sales of Assets 1,47757,32017,28061,055
Net Cash Used in Investing
Activities(260,813) (137,498) (419,816) (285,784)
Financing Activities:
Proceeds from Miscellaneous
Borrowings 1,306 4,769 6,307 284
Payments on Revolver (73,000) - (40,500) -
Payments on Long Term Notes - (45,000) - (45,000)
Tax Benefit from Stock-Based
Compensation 10,473 3,73219,994 4,643
Dividends Paid(18,294) (12,751) (36,549) (25,526)
Issuance of Treasury Stock 8,886 4,08814,156 5,153
Purchases of Treasury Stock (28) - (31) (25,618)
Net Cash Used in Financing
Activities (70,657) (45,162) (36,623) (86,064)
Net (Decrease)/Increase in Cash
and Cash Equivalents(7,586) 88,44313,53882,622
Cash and Cash Equivalents at
Beginning of Period 62,775 218,06241,651 223,883
Cash and Cash Equivalents at End
of Period $55,189 $306,505 $55,189 $306,505
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands - except per share data)
(Unaudited)
June 30,December 31,
2008 2007
ASSETS
Current Assets:
Cash and Cash Equivalents$55,189 $41,651
Accounts and Notes Receivable:
Trade 282,409 180,545
Other Receivables 52,73669,771
Inventories 174,660 163,193
Deferred Income Taxes204,713 130,820
Recoverable Income Taxes 37,18619,090
Prepaid Expenses 46,86578,085
Total Current Assets 853,758 683,155
Property, Plant and Equipment:
Property, Plant and Equipment 9,352,002 8,945,312
Less - Accumulated Depreciation,
Depletion
and Amortization4,101,556 3,980,270
Total Property, Plant and
Equipment - Net 5,250,446 4,965,042
Other Assets:
Deferred Income Taxes343,823 374,811
Investment in Affiliates 68,19994,866
Other 75,00990,216
Total Other Assets487,031 559,893
TOTAL ASSETS $6,591,235$6,208,090
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands - except per share data)
(Unaudited)
June 30,December 31,
2008 2007
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable$267,966 $238,312
Short-Term Notes Payable 207,000 247,500
Current Portion of Long-Term Debt 20,71618,283
Other Accrued Liabilities733,880 512,302
Total Current Liabilities 1,229,562 1,016,397
Long-Term Debt:
Long-Term Debt 411,887 398,077
Capital Lease Obligations 85,64090,848
Total Long-Term Debt 497,527 488,925
Deferred Credits and Other
Liabilities:
Postretirement Benefits Other Than
Pensions 2,388,980 2,336,809
Pneumoconiosis Benefits 180,535 171,896
Mine Closing 402,270 399,633
Workers' Compensation131,356 118,356
Deferred Revenue - 3,162
Salary Retirement 61,33067,392
Reclamation 33,82134,317
Other269,972 193,666
Total Deferred Credits and
Other Liabilities 3,468,264 3,325,231
Minority Interest 158,181 163,118
Total Liabilities and Minority
Interest 5,353,534 4,993,671
Stockholders' Equity:
Common Stock, $.01 par value;
500,000,000 Shares Authorized,
185,126,526 Issued and
183,150,253
Outstanding at June 30, 2008;
185,126,526 Issued and
182,291,623
Outstanding at December 31, 2007 1,851 1,851
Preferred Stock, 15,000,000 Shares
Authorized; None Issued
and Outstanding- -
Capital in Excess of Par Value 997,308 966,544
Retained Earnings852,123 766,536
Other Comprehensive Loss(542,789) (419,284)
Common Stock in Treasury, at Cost -
1,976,273 Shares at
June 30, 2008 and 2,834,903
Shares at December 31, 2007 (70,792) (101,228)
Total Stockholders' Equity 1,237,701 1,214,419
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $6,591,235$6,208,090
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in Thousands - except per share data)
Capital inRetained
Common Excess ofEarnings
Stock Par Value(Deficit)
Balance -
December 31, 2007 $1,851 $966,544 $766,536
(Unaudited)
Net Income -- 176,094
Treasury Rate Lock
(Net of ($31) tax) ---
Amortization of Prior Service
Costs and Actuarial Gains (Loss)
(Net of ($106) tax) ---
Minority Interest in Other
Comprehensive Income and
Stock-based Compensation of Gas ---
Gas Cash Flow Hedge
(Net of ($96,705) tax) ---
Comprehensive Income (Loss) 176,094
Cumulative Effect of
FAS 158 Measurement
(Net of $22,973 tax) -- (37,647)
Issuance of Treasury Stock -- (16,311)
Purchases of Treasury Stock ---
Tax Benefit from Stock-Based
Compensation - 19,994-
Amortization of Stock-Based
Compensation Awards - 10,770-
Dividends ($0.20 per share) -- (36,549)
Balance -
June 30, 2008 $1,851 $997,308 $852,123
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in Thousands - except per share data)
Other
Compre- Total
hensive Stock-
Income Treasuryholders'
(Loss) Stock Equity
Balance -
December 31, 2007 $(419,284) $(101,228) $1,214,419
(Unaudited)
Net Income -- 176,094
Treasury Rate Lock
(Net of ($31) tax) (35) - (35)
Amortization of Prior Service
Costs and Actuarial Gains (Loss)
(Net of ($106) tax) (173) - (173)
Minority Interest in Other
Comprehensive Income and
Stock-based Compensation of Gas 27,667- 27,667
Gas Cash Flow Hedge
(Net of ($96,705) tax)(150,877) - (150,877)
Comprehensive Income (Loss) (123,418) 52,676
Cumulative Effect of
FAS 158 Measurement
(Net of $22,973 tax) (87) - (37,734)
Issuance of Treasury Stock - 30,467 14,156
Purchases of Treasury Stock - (31) (31)
Tax Benefit from Stock-Based
Compensation -- 19,994
Amortization of Stock-Based
Compensation Awards -- 10,770
Dividends ($0.20 per share) -- (36,549)
Balance -
June 30, 2008 $(542,789)$(70,792) $1,237,701
INCOME STATEMENT BY SEGMENT
In Millions
2nd Quarter June 30, 2008
COAL
Pro- Total Total
duced Other Total Gas Other TOTAL
Sales$815$32 $847 $181 $85 $1,113
Gas Royalty Interest- - -23 - 23
Freight Revenue64 -64 - - 64
Other Income- 1 1(3) 13 11
Total Revenue and Other Income 879 33 912 20198 1,211
Cost of Goods Sold550 58 6084688742
Gas Royalty Interests' Costs- - -22 - 22
Freight Expense64 -64 - - 64
Selling, General & Admin. 17 118 6 6 30
DD&A 71 37417 5 96
Interest Expense- - - - 9 9
Taxes Other Than Income41 2263 7 3 73
Total Cost 743 84 82798 111 1,036
Earnings Before Income Taxes $136 $(51) $85 $103 $(13) 175
Income Tax(62)
Earnings Before Minority Interest 113
Minority Interest (12)
Net Income $101
INCOME STATEMENT BY SEGMENT
In Millions
Quarter Ended June 30, 2007
COAL
Pro- Total Total
duced Other Total Gas Other TOTAL
Sales$705 $9 $714 $114 $52 $880
Gas Royalty Interests - - -14 - 14
Freight Revenue44 -44 - - 44
Other Income-100 100 715122
Total Revenue and Other Income 749109 858 13567 1,060
Cost of Goods Sold440 46 4863471591
Gas Royalty Interests' Costs- - -13 - 13
Freight Expense44 -44 - - 44
Selling, General & Admin. 16 -16 5 6 27
DD&A 58 26012 4 76
Interest Expense- - - - 6 6
Taxes Other Than Income38 1755 5 2 62
Total Cost 596 65 6616989819
Earnings Before Income Taxes $153$44 $197 $66 $(22) 241
Income Tax Expense(80)
Earnings Before Minority Interest 161
Minority Interest (8)
Net Income $153
CONSOL Energy Inc.
Financial and Operating Statistics
Quarter Ended June 30,
2008 2007
AS REPORTED FINANCIALS:
Revenue ($ MM) $1,210.896$1,059.998
EBIT ($MM) * $170.718 $235.043
EBITDA ($ MM) * $266.493 $310.732
Net Income / (Loss) ($ MM) $101.012 $153.117
EPS(diluted) $0.54 $0.83
Average shares outstanding -
Dilutive 185,637,248 185,000,122
CAPEX ($ MM) (including acquisitions) $259.935 $194.380
COAL OPERATIONAL:
# Complexes Producing (end of period)1715
Sales (MM tons)-Produced only17.03416.972
Average sales price ** ($/ton) $48.50$41.64
Production income ($/ton) $6.90 $8.28
Production (MM tons)-Produced only 16.62216.432
Produced Tons Ending inventory (MM tons)*** 1.315 1.647
* Year to date total may not add due to rounding
** note: average sales price of tons produced
***note: includes equity companies
CONSOL ENERGY INC.
PRODUCTION
2nd Quarter 2nd Quarter
2008 2007
ACTUALACTUAL
Northern Appalachia12,79613,360
Central Appalachia 3,570 2,828
Other Areas 256 245
TOTAL PRODUCTION 16,62216,432
* May not add due to rounding.
SOURCE CONSOL Energy Inc.
