================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
COMMISSION FILE NUMBER 1-815
CONSOL ENERGY INC. INVESTMENT PLAN FOR SALARIED EMPLOYEES
CONSOL PLAZA
1800 WASHINGTON ROAD
PITTSBURGH, PENNSYLVANIA 15241
(FULL TITLE OF THE PLAN)
CONSOL ENERGY INC.
300 DELAWARE AVENUE
SUITE 567
WILMINGTON, DELAWARE 19801
================================================================================
AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL
SCHEDULE
CONSOL Energy Inc. Investment Plan for Salaried Employees
Years ended December 31, 2001 and 2000
with Report of Independent Auditors
CONSOL Energy Inc. Investment Plan for Salaried Employees
Audited Financial Statements and Supplemental Schedule
Years ended December 31, 2001 and 2000
Contents
Report of Independent Auditors........................................ 1
Audited Financial Statements
Statements of Net Assets Available for Benefits....................... 2
Statement of Changes in Net Assets Available for Benefits............. 3
Notes to Financial Statements......................................... 4
Supplemental Schedule
Schedule H, Line 4(i)--Schedule of Assets (Held at End of Year)....... 11
Report of Independent Auditors
To the Investment Plan Committee
CONSOL Energy Inc.
We have audited the accompanying statements of net assets available for benefits
of the CONSOL Energy Inc. Investment Plan for Salaried Employees as of December
31, 2001 and 2000, and the related statement of changes in net assets available
for benefits for the year ended December 31, 2001. These financial statements
are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2001 and 2000, and the changes in its net assets available for
benefits for the year ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
held at end of year as of December 31, 2001 is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
June 6, 2002
1
CONSOL Energy Inc. Investment Plan for Salaried Employees
Statements of Net Assets Available for Benefits
(Dollars in Thousands)
December 31
2001 2000
----------- ----------
Investment at contract value:
Stable Value Fund $505,379 $ 496,674
Investments at fair value:
Noninterest-bearing cash and cash equivalents 951 196
Interests in registered investment companies 149,128 175,234
Barclays 3-Way Fund 17,621 20,907
Aggressive Asset Allocation Portfolio 941 1,310
Conservative Asset Allocation Portfolio 289 418
Moderate Asset Allocation Portfolio 1,291 1,197
Merrill Lynch Small Cap Index Trust 1,112 880
Merrill Lynch International Index Trust 862 936
Merrill Lynch Equity Index Trust 15,672 18,635
E.I. DuPont de Nemours & Company common stock 189,099 245,939
CONSOL Stock Fund 35,827 19,960
Daimler Chrysler common stock 131 146
Participant loans 16,504 18,350
----------- ----------
Total investments 934,807 1,000,782
Employee contributions receivable 1,769 1,535
Employer contributions receivable 4,999 4,871
Pending Settlement Fund 57 2,494
----------- ----------
Net assets available for benefits $941,632 $1,009,682
=========== ==========
See accompanying notes.
2
CONSOL Energy Inc. Investment Plan for Salaried Employees
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2001
(Dollars in Thousands)
Contributions:
Employer contributions $ 11,401
Employee contributions 20,299
Rollover contributions 7,774
-----------
Total contributions 39,474
Investment income (dividends and interest) 11,803
Net realized and unrealized depreciation
in fair value of investments (42,570)
-----------
8,707
Benefits paid to participants (76,757)
-----------
Decrease in net assets available for benefits (68,050)
Net assets available for benefits at beginning of year 1,009,682
-----------
Net assets available for benefits at end of year $ 941,632
===========
See accompanying notes.
3
CONSOL Energy Inc. Investment Plan for Salaried Employees
Notes to Financial Statements
December 31, 2001
(Dollars in Thousands)
1. Description of the Plan
The following description of the CONSOL Energy Inc. Investment Plan for Salaried
Employees (the Plan) provides only general information. Participants should
refer to the summary plan description for a more complete description of the
Plan's provisions.
General
The Plan is a defined contribution plan established in 1953. Salaried,
operations and maintenance and, in certain circumstances, production and
maintenance employees of CONSOL Energy Inc. (CONSOL or the Company) and
participating employers are eligible to participate in the Plan on the first of
the month following regular full-time employment. In addition, temporary
employees are eligible to participate in the Plan upon completion of a period of
12 consecutive months, commencing upon their employment date or anniversary date
thereof, during which the employee completes 1,000 or more hours of service. The
Plan is subject to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA).
On April 29, 1999, CONSOL Energy Inc. underwent an initial public offering. In
connection with the public offering, the Plan offers CONSOL Energy Inc. common
stock (CONSOL Stock Fund) as an investment option. Participants of the Plan were
able to transfer funds into the CONSOL Stock Fund in June 1999 and to allocate
contributions to this fund in July 1999. In addition, participants were no
longer able to allocate contributions to E.I. DuPont de Nemours & Company common
stock (DuPont Stock Fund).
Contributions
Each year participants may, with certain restrictions, contribute up to 19% of
monthly base pay to the Plan exclusive of supplemental make-up deposits. CONSOL
and participating employers match these contributions, dollar for dollar, up to
6% of base pay (as defined by the Plan). Contributions may be made with
before-tax or after-tax dollars. In addition, subject to certain limitations, a
participant is allowed to make lump-sum savings deposits in cash to the Plan.
4
CONSOL Energy Inc. Investment Plan for Salaried Employees
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Participant Accounts
Each participant's account is credited with the participant's contributions and
allocations of the Company's contributions and plan investment earnings and is
charged with an allocation of administrative expenses and plan investment
losses. Allocations are based on participant earnings or account balances, as
defined. Forfeited balances of terminated participants' nonvested accounts are
used to reduce future company contributions. The benefit to which a participant
is entitled is the benefit that can be provided from the participant's account.
Vesting
Through December 31, 2001, Plan participants generally become vested upon
completion of five years participation in the Plan or five cumulative years of
service. Effective January 1, 2002, Plan participants will vest upon completion
of three cumulative years of service. Participants are always 100% vested in
their deposits and in the earnings on both their deposits and the Company's
contributions.
Participant Loans
Participants may borrow up to one-half of their nonforfeitable account balances
subject to certain minimum and maximum loan limitations. Such loans are
repayable over periods of 12 to 60 months (120 months maximum if for the
purchase of a principal residence) and bear an interest rate equal to the
average rate charged by selected major banks for secured personal loans.
Principal and interest are paid ratably through payroll deductions.
Payment of Benefits
Participants who retire from active service may elect to withdraw their entire
account in a lump-sum, to defer withdrawal until April 1 of the calendar year
following the year in which the participant attains age 70 1/2, or to elect an
option to have their account distributed over a period of not less than two
years or more than a period which would pay the account balance during the
employee's actuarial life in either a fixed or variable amount. Before-tax
deposits may be withdrawn only in the event of an employee's retirement, death,
termination, attainment of age 59 1/2 or defined hardship. At December 31, 2001,
approximately $903,430 was payable to withdrawing participants. The Plan has
recorded this amount as a liability on the Form 5500 as these claims have been
processed and approved for payment but not paid prior to year-end. For financial
statement purposes, the payments have been deducted from the respective assets.
Accordingly, benefit distributions and net assets available for benefits
included in the financial statements are consistent with those reported on the
Form 5500.
5
CONSOL Energy Inc. Investment Plan for Salaried Employees
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Plan Termination
Although it has not expressed any intent to do so, CONSOL has the right under
the Plan to discontinue its contributions at any time and to terminate the Plan
subject to the provisions of ERISA. In the event of plan termination,
participants will become 100% vested in their accounts.
2. Summary of Significant Accounting Policies
Investment Valuation and Income Recognition
For financial reporting purposes, the assets of the Plan are reflected on the
accrual basis of accounting. The underlying assets of the Stable Value Fund
consist primarily of guaranteed investment contracts (GIC), separate account
portfolios (SAP), and synthetic guaranteed investment contracts (SYN). These
contracts are held for investment purposes by the Plan and are fully benefit
responsive. The Stable Value Fund is stated at cost plus accrued interest, using
the contracted interest rates applied to the daily account balances. The
contract value of the investment contracts is provided by the Plan's trustee and
approximates market value. Changes in contract value are recognized in the
statement of changes in net assets available for benefits as they occur.
Investments in common stock funds and interests in registered investment
companies are stated at fair value based on publicly quoted market prices.
Investments in the Merrill Lynch Small Cap Index Trust, Merrill Lynch
International Index Trust, Merrill Lynch Equity Index Trust, Barclays 3-Way
Fund, and Aggressive Asset Allocation, Conservative Asset Allocation and
Moderate Asset Allocation Portfolios are stated at the fair value of all
underlying assets as reported by the applicable custodian.
The unit value or price of all investments reflects the dollar amount at which
participants' accounts are valued at the end of the period reported.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Gains and losses on the sale of the E.I. DuPont
de Nemours & Company (DuPont) and CONSOL Energy Inc. common stock are based on
average cost of the securities sold and are recognized on the trade date.
Brokerage commissions and Securities and Exchange Commission fees in connection
with the sale of E.I. DuPont de Nemours & Company common stock, CONSOL Energy
Inc. common stock and Daimler Chrysler common stock are added to the cost
thereof or deducted from the sales proceeds derived therefrom.
6
CONSOL Energy Inc. Investment Plan for Salaried Employees
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States, requires management to make estimates
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
3. Investments
The following investments represent 5% or more of the Plan's net assets:
December 31
2001 2000
------------- -----------
E.I. DuPont de Nemours & Company common stock, 4,448,339 and
5,090,636 shares, respectively $ 189,099 $ 245,939
Monumental Life Insurance Company--5.92%, 12/31/2005 52,146 33,805
Monumental Life Insurance Company--6.87%, 1/1/2004 - 50,620
Morgan Guaranty Trust Company--6.21%, 12/31/2025 52,236 41,585
Aetna Life Insurance and Annuity Company--6.24%, 1/1/2025 48,338 -
Aetna Life Insurance and Annuity Company--6.98%, 4/1/2025 53,519 49,696
Deutsche Bank--6.29%, 12/31/2025 52,294 39,979
Union Bank of Switzerland--6.14%, 12/31/2025 52,245 45,396
Fidelity Investments Magellan Fund, 417,694 and 426,260 shares,
respectively 43,532 50,853
7
CONSOL Energy Inc. Investment Plan for Salaried Employees
Notes to Financial Statements (continued)
3. Investments (continued)
During 2001, the Plan's investments (including investments bought, sold, as well
as held during the year) (depreciated) appreciated as follows:
Net (Depreciation)
Appreciation in
Fair Value During Fair Value at End
Year of Year
------------------- -----------------
Fair value as determined by quoted market price:
Interests in registered investment companies $ (35,618) $ 149,128
Common stock:
CONSOL Stock Fund (5,001) 35,827
DuPont Stock Fund (30,124) 189,099
Other 3 131
Stable Value Fund 31,946 505,379
Fair value reported by applicable custodian (3,776) 37,788
Noninterest-bearing cash and cash equivalents - 951
------------------- -----------------
$ (42,570) $ 918,303
=================== =================
The Stable Value Fund is a nonpooled separate account held by the Plan. Prior to
March 1999, the Plan and the Thrift Plan for Employees of Conoco Inc., a wholly
owned subsidiary of DuPont, jointly owned the Stable Value Fund. During 1999,
the balance of all investment contracts, as of December 31, 1998, was allocated
to the two plans by Merrill Lynch based on the relationship of the Plan's Stable
Value Fund participant balances to total Stable Value Fund participant balances.
The investment contracts are entered into based on an evaluation of the credit
risk of the contract issuers and/or third party guarantors. Collateral is
generally not provided.
The composition of assets of the Stable Value Fund as of December 31, 2001 and
2000 are as follows:
2001 2000
--------- ---------
Investment contracts $ 505,379 $ 495,908
Short-term investments - 766
--------- ---------
$ 505,379 $ 496,674
========= =========
8
CONSOL Energy Inc. Investment Plan for Salaried Employees
Notes to Financial Statements (continued)
3. Investments (continued)
The composition of changes in net assets of the Stable Value Fund as of December
31, 2001 is as follows:
Employer contributions $ 5,563
Employee contributions 9,308
Rollover contributions 5,987
-----------
Total contributions 20,858
Interest and dividend income 609
Net realized/unrealized appreciation in fair value 31,946
Benefits paid to participants (51,592)
Net loan activity (12)
Interfund transfers 6,896
-----------
Increase in net assets available for benefits 8,705
Net assets at beginning of year 496,674
-----------
Net assets at end of year $ 505,379
===========
The aggregate crediting rates for all contracts as of December 31, 2001 was
6.39%. The crediting rates for SAP and SYN contracts are reset annually and are
based on the market value of the underlying portfolio of assets backing these
contracts. Inputs used to determine the crediting rate include each contract's
portfolio market value, current yield-to-maturity, duration (i.e., weighted
average life), and market value relative to contract value. The average yield of
the Stable Value Fund was approximately 6.59% in 2001.
Participants investing in the Stable Value Fund, Barclays 3-Way Fund, Merrill
Lynch Equity Index Trust, Merrill Lynch Small Cap Index Trust, Merrill Lynch
International Index Trust, and Aggressive Asset Allocation, Conservative Asset
Allocation and Moderate Asset Allocation Portfolios are assigned units at the
time of investment based on the net asset value per unit.
9
CONSOL Energy Inc. Investment Plan for Salaried Employees
Notes to Financial Statements (continued)
4. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service
(IRS) dated November 18, 1994, stating that the Plan is qualified under Section
401(a) of the Internal Revenue Code (the Code) and, therefore, the related trust
is exempt from taxation. Once qualified, the Plan is required to operate in
conformity with the Code to maintain its qualification. The Plan was amended
subsequent to the IRS determination letter. Therefore, the amendments are not
covered by the determination letter. The plan administrator believes the Plan is
being operated in compliance with the applicable requirements of the Code and,
therefore, believes that the Plan is qualified and the related trust is
tax-exempt. The plan sponsor has indicated that it will take the necessary
steps, if any, to maintain the Plan's qualified status.
5. Transactions with Parties-in-Interest
Plan investments in the Merrill Lynch Small Cap Index Trust, the Merrill Lynch
International Index Trust and the Merrill Lynch Equity Index Trust are managed
by Merrill Lynch. Merrill Lynch is the trustee as defined by the Plan and,
therefore, these transactions qualify as those conducted with a
party-in-interest to the Plan. Trustee and investment fees paid during 2001 were
based upon customary and reasonable rates for such services.
One of the investment vehicles available to employees, the CONSOL Stock Fund,
contains stock of CONSOL. The Plan held 1,442,310 shares and 714,454 shares of
the Company's common stock at December 31, 2001 and 2000, respectively.
6. Subsequent Event - ESOP Amendment
Effective January 1, 2002, the Plan was amended to convert the CONSOL Stock Fund
within the CONSOL Investment Plan to an Employee Stock Ownership Plan (ESOP). As
amended, a participant in the Plan will be given the opportunity for dividends
on CONSOL stock held in the Plan to be paid in the form of cash for any
dividends declared on or after January 23, 2002. If a participant does not make
an election, default election requiring reinvestment of dividends into the
CONSOL Stock Fund shall be enacted.
10
Supplemental Schedule
CONSOL Energy Inc. Investment Plan for Salaried Employees
EIN: 51-0337383 Plan Number: 002
Schedule H, Line 4(i)--Schedule of Assets
(Held at End of Year)
December 31, 2001
(Dollars in Thousands)
Identity of Issue, Borrower, Description of Number of
Lessor or Similar Party Investment Shares/Units Current Value
------------------------------- -------------- ------------ -------------
Noninterest-bearing cash and cash
equivalents - $ 951
Common stock
CONSOL Stock Fund 1,442,310 35,827
E.I. DuPont de Nemours & Company 4,448,339 189,099
Daimler Chrysler 3,141 131
-------------
Total common stock 225,057
Interests in registered investment companies
Merrill Lynch* Global Holdings Fund 250,609 1,744
Balanced Capital Fund 159,483 4,263
Basic Value Fund 276,191 8,087
Fundamental Growth Fund 44,651 809
-------------
14,903
Janus Investments Enterprise Fund 447,285 14,313
Mercury Fund 1,306,587 27,164
-------------
41,477
Fidelity Investments Fidelity Fund 171,520 4,953
Equity Income Fund 33,516 1,635
Magellan Fund 417,694 43,532
Low Priced Stock Fund 282,388 7,743
Growth & Income Fund 187,129 6,995
-------------
64,858
Franklin Value Investors Trust Small Cap Growth Fund 206,175 6,426
Balance Sheet 70,805 2,834
Custodian Fund Inc. 17,136 540
-------------
9,800
11
Schedule H, Line 4(i)--Schedule of Assets
(Held at End of Year) (continued)
Identity of Issue, Borrower, Description of Number of
Lessor or Similar Party Investment Shares/Units Current Value
------------------------------ -------------- ------------ -------------
Interests in registered investment
companies (continued)
AIM Value Fund 654,827 7,118
Equity Constellation Fund 120,930 2,673
-------------
9,791
Franklin Templeton Growth Fund 62,680 1,128
Foreign Fund 293,774 2,717
-------------
3,845
MFS Investment Management Total Return Fund 98,705 1,429
Research Fund 86,987 1,635
-------------
3,064
Hotchkis and Wiley 71,357 1,390
-------------
Total interests in registered
investment companies International Fund 149,128
Stable Value Fund
Aetna Life Insurance Co. SYNGIC, 6.98%,
4/1/2025 53,519,382 53,519
Aetna Life Insurance and Annuity SYNGIC 6.24%,
Company 1/1/2025 48,337,847 48,338
Bankers' Trust SYNGIC, 5.43%,
12/1/2002 17,654,352 17,654
CDC Investment Mgmt. Corp. SYNGIC, 6.95%,
10/1/2002 17,005,257 17,005
Connecticut Life Insurance Company SYNGIC, 7.14%,
5/31/2008 38,920,127 38,920
Deutsche Bank SYNGIC, 6.29%,
12/31/2025 52,294,313 52,294
Monumental Life Ins. Co. SYNGIC, 5.92%,
12/31/2025 52,145,750 52,146
12
Schedule H, Line 4(i--Schedule of Assets
(Held at End of Year) (continued)
Identity of Issue, Borrower, Description of Number of
Lessor or Similar Party Investment Shares/Units Current Value
----------------------------- -------------- ------------ -------------
Stable Value Fund (continued)
Transamerica Life Ins. SAGIC, 7.10%, 9/1/2006 42,254,363 42,254
John Hancock Mutual Life SAGIC, 6.01%, 7/1/2003 17,104,754 17,105
Union Bank of Switzerland SYNGIC, 6.14%,
12/31/2025 52,244,603 52,245
Morgan Guarantee Trust Co. SYNGIC, 6.21%,
12/31/2025 52,236,243 52,236
Morgan Guarantee Trust Co. SYNGIC, 8.01%,
12/31/2025 40,446,365 40,447
Security Life of Denver SYNGIC, 6.19%,
3/3/2008 10,018,117 10,018
Merrill Lynch Premier Institutional Money Market, 2.08%,
Fund 12/31/2025 11,197,805 11,198
-------------
Total Stable Value Fund 505,379
Common/collective trusts
Aggressive Asset Allocation Portfolio 73,352 941
Conservative Asset Allocation
Portfolio 21,172 289
Moderate Asset Allocation Portfolio 96,924 1,291
Merrill Lynch* Small Cap Index Trust 84,970 1,112
International Index Trust 86,229 862
Equity Index Trust 192,650 15,672
BZW Global Investors* Barclays 3-Way Fund 659,478 17,621
-------------
Total common/collective trusts 37,788
Participant loans* 6.25% to 9.00% 16,504
-------------
Total investments $ 934,807
=============
*Indicates parties-in-interest
13