CNX Resources Corp. — 2009 Q3 Form 10-Q Summary
Filing identity: The supplied filing is CONSOL Energy Inc.’s Form 10-Q for the quarter ended September 30, 2009, not a filing identified as CNX Resources Corp. The summary below reflects the filing text provided. Unless noted otherwise, financial amounts are in millions of dollars.
Business context and reporting period
CONSOL Energy reported coal, natural gas, and other businesses for the three and nine months ended September 30, 2009, with comparisons to the same 2008 periods. The statements are unaudited. The company noted that interim results are not necessarily indicative of future results.
Financial performance and liquidity
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Total revenue and other income | $1,094.5 | $1,173.1 | $3,383.8 | $3,409.7 |
| Earnings before income taxes | $128.5 | $143.4 | $586.5 | $437.8 |
| Net income attributable to CONSOL shareholders | $87.4 | $90.1 | $396.5 | $266.1 |
| Diluted earnings per share | $0.48 | $0.49 | $2.17 | $1.44 |
| Cash provided by operating activities | Not provided for quarter | Not provided for quarter | $728.2 | $683.2 |
| Capital expenditures | Not provided for quarter | Not provided for quarter | $689.1 | $740.0 |
- Q3 pretax margin was approximately 11.7% versus 12.2% a year earlier; nine-month pretax margin was approximately 17.3% versus 12.8%. These are calculated as pretax earnings divided by total revenue and other income.
- At September 30, cash was $32.4, down from $138.5 at December 31, 2008. Current assets were $829.9 and current liabilities $1,199.4, for negative working capital of approximately $369.4.
- Short-term notes payable were $410.0; long-term debt, including capital lease obligations, was $454.7. The company separately reported $337 million drawn under its $1 billion revolver and $73 million drawn under CNX Gas’s $200 million facility. Remaining capacity was approximately $395 million and $112 million, respectively, after letters of credit.
- Credit covenants were met with substantial headroom: CONSOL’s leverage ratio was 0.92 against a 3.25 maximum and interest coverage was 26.54 against a 4.50 minimum. CNX Gas’s leverage and interest coverage ratios were 0.40 and 66.77, respectively.
Changes versus comparable periods
- Q3 revenue and other income fell 6.7%, while shareholder net income declined 3.3%. Lower coal sales volumes and gas prices weighed on results; higher coal prices and gas volumes, along with lower gas unit costs, partly offset the declines.
- Q3 produced coal volume declined 8.7% to 13.6 million tons, while average selling price rose 16.5% to $58.85 per ton. Produced gas volume increased 26.3% to 24.5 Bcf, but average price fell 35.3% to $6.30 per Mcf.
- For the first nine months, shareholder net income increased 49.2% even as revenue and other income edged down 0.8%. Higher coal prices, increased gas volumes, and a $13 million coal contract buyout benefit contributed; the prior-year period included $50 million of Buchanan Mine business-interruption insurance income.
- Nine-month operating cash flow increased $45 million. Cash used in investing decreased, principally with capital expenditures down $51 million. Financing cash flow shifted from $7.2 million provided in 2008 to $219.4 million used in 2009, including approximately $148 million of net revolver repayments.
Outlook, management commentary, risks, and unusual items
- Management described a possible modest U.S. economic recovery in 2010 and anticipated improving energy demand. It expected elevated thermal-coal inventories to persist at least into the first half of 2010, while suggesting tighter coal markets and higher gas prices could support future demand. These are expectations, not formal earnings or production guidance.
- Management said cash from operations and borrowing capacity should cover working capital, planned capital spending, debt service, dividends, and letters of credit, while emphasizing dependence on future operating performance and market conditions.
- Coal-market risks included weak industrial demand, customer delivery deferrals, higher unit costs as lower volumes spread fixed costs, and regulatory and permit delays. Gas risks included commodity-price exposure, drilling-program changes, and dependence on pipeline and field-service availability.
- Natural-gas cash-flow hedges had a net fair value of approximately $127 million at September 30; $77.8 million of unrealized gain was expected to be reclassified into earnings over the following 12 months. Management cautioned that hedges can limit benefits from rising prices.
- Unusual items included $13 million of income from coal contract buyouts year to date; headquarters lease-exit expense of $13.4 million, partly offset by $5.8 million of accelerated deferred gain; and collection of $59.7 million of black-lung excise-tax refunds and interest, with $0.7 million of additional income recognized in 2009.
- Material contingencies include a Pennsylvania claim seeking $58 million over alleged damage to Ryerson Park Dam; substantial Yukon mine-water claims, which the company disputes and for which it recorded no liability; GeoMet litigation seeking $385.6 million plus treble damages; and approximately 22,500 asbestos claims against a subsidiary with no insurance coverage. The company also reported an ongoing investigation of a Dunkard Creek fish kill and potential environmental costs. Management said current estimates for pending claims were immaterial overall but acknowledged that future liabilities could be material.
- Management identified permit delays and increased environmental scrutiny of mining, particularly mountaintop-mining permits, as potentially adverse to operations. It also cited uncertain economic conditions, commodity prices, customer credit, safety, environmental compliance, pension funding, and litigation as risks.
Most important facts for investors to verify
- Confirm the intended issuer: the supplied document names CONSOL Energy Inc., while the request identifies CNX Resources Corp.
- Review the underlying filing’s segment results and production/pricing disclosures, especially coal volumes and unit costs and the gas price-volume mix.
- Assess liquidity and refinancing exposure, including revolver availability, letters of credit, the $410 million of short-term notes, and debt maturities.
- Track the status and potential financial exposure of the major legal and environmental matters, particularly Ryerson Dam, Yukon, GeoMet, asbestos claims, and the Dunkard Creek investigation.
- Evaluate the effect of gas hedges, including expected gains reclassified into earnings and the trade-off between price protection and participation in higher prices.