Business context and reporting period
The supplied filing is CONSOL Energy Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2009—not a filing identified as CNX Resources Corp. The companies’ relationship is not explained in the supplied text; confirm the issuer before relying on this summary. CONSOL’s principal businesses were coal and natural gas, with CNX Gas 83.3% owned.
Financial results and liquidity
Amounts below are in millions of dollars unless otherwise stated.
| Metric | Q2 2009 | Q2 2008 | Six months 2009 | Six months 2008 |
|---|---|---|---|---|
| Revenue and other income | $1,070.6 | $1,210.9 | $2,289.3 | $2,236.6 |
| Earnings before income taxes | $173.3 | $174.6 | $458.0 | $294.4 |
| Net income attributable to CONSOL shareholders | $113.3 | $101.0 | $309.2 | $176.1 |
| Diluted earnings per share | $0.62 | $0.54 | $1.69 | $0.95 |
- Shareholder-attributable net margin, calculated against revenue and other income, was about 10.6% in Q2 2009 versus 8.3% in Q2 2008, and 13.5% for the first half versus 7.9%.
- First-half operating cash flow was $566.2 million, compared with $470.0 million. Capital expenditures were $496.4 million versus $436.3 million; operating cash flow less capital expenditures was approximately $69.8 million versus $33.7 million.
- Cash was $108.3 million at June 30, down from $138.5 million at year-end 2008. Current assets were $926.2 million and current liabilities $1,265.4 million.
- Balance-sheet short-term notes were $452.0 million; long-term debt and capital lease obligations totaled $461.6 million, including current debt. The company also reported $371 million drawn on its $1 billion revolver and $81 million drawn on CNX Gas’s $200 million facility. Available capacity was approximately $361 million and $104 million, respectively, after letters of credit.
- CONSOL reported $1.987 billion in total equity and $5.371 billion in total liabilities at June 30. Postretirement benefits other than pensions were a substantial $2.494 billion liability.
Material changes versus comparable periods
- Q2 revenue and other income fell 11.6%, but shareholder-attributable net income rose 11.9%. Management cited higher coal prices, increased gas volumes, a $14 million coal-contract buyout benefit, and the absence of approximately $11 million of coal-option losses recorded in Q2 2008. Lower coal volumes and gas prices partly offset these gains.
- Q2 produced coal sold fell 22.4% to 13.2 million tons, while average price rose 22.3% to $58.70 per ton. Produced gas sales volume increased 20.4% to 22.4 Bcf, while average price fell 30.4% to $6.73 per Mcf.
- For the first half, revenue and other income increased 2.3% and shareholder-attributable net income increased 75.6%. Coal price and gas volume gains, along with coal-contract buyout income, were important contributors. Comparability benefited from a $50 million Buchanan Mine business-interruption insurance recovery in the 2008 period; 2009 also had higher coal and gas depreciation, depletion and amortization.
- First-half coal tons sold declined 12.6% to 28.5 million, while average coal price increased 29.9% to $59.01 per ton. Produced gas volume increased 30.0% to 44.2 Bcf, while average price declined 21.7% to $7.08 per Mcf.
- Inventories increased to $324.7 million from $227.8 million at year-end, principally reflecting higher coal inventory. First-half capital spending rose by $60 million, and cash decreased by $30.2 million.
Outlook, commentary, risks and unusual items
- Management described a weak economy, lower electricity generation, elevated coal stockpiles and gas storage, and reduced demand. It expected industry coal-production cuts to continue and potentially support a recovery in contract prices; it also expected gas rig counts to remain relatively flat through 2009 and 2010. Management was cautiously optimistic about metallurgical-coal demand and pricing, while acknowledging economic uncertainty. No quantified company earnings or production guidance is provided in the supplied text.
- Management said cash from operations and borrowing capacity were expected to cover working capital, anticipated capital spending, scheduled debt payments and dividends, but noted dependence on future operating performance and market conditions. The company maintained a $0.10 quarterly dividend; future dividends remain discretionary and subject to credit restrictions.
- Natural-gas derivatives had a reported net asset fair value of $194.3 million; $106.5 million of unrealized gains was expected to be reclassified into earnings over the next 12 months. The company reported 96.3 Bcf of outstanding gas forward contracts and stated that hedging could limit benefits from price increases. A hypothetical 10% or 25% gas-price decline was estimated to reduce pretax income by $53.5 million or $133.9 million, respectively, before the offset from underlying hedged items.
- Unusual items included a $14 million Q2 coal-contract buyout benefit; approximately $13 million of expense related to vacating the former headquarters, partly offset by recognition of a deferred sale-leaseback gain; and a $15.4 million cash payment plus surrender of leased coal resources in settlement of Levisa-related litigation. The company collected a $59.7 million Black Lung Excise Tax refund and related interest in Q2, with additional income and expense recognized.
- Contingencies include a Pennsylvania dam-damage claim seeking $58 million; approximately 25,000 asbestos claims against a subsidiary, for which it reported no insurance coverage; Superfund remediation obligations; and other mining, gas, antitrust, royalty and tax disputes. Management considered current estimates for many claims immaterial but said future liabilities could be material. Some proceedings were at early stages or had uncertain outcomes.
- The filing lists $1.475 billion of maximum potential commitments under letters of credit, surety bonds and guarantees, generally not recorded as balance-sheet liabilities, and $495.5 million of unconditional purchase obligations. Management believed guarantees would expire without funding. The filing also identifies pension funding, environmental and reclamation obligations, commodity prices, customer demand, mine operations, regulation and financing-market conditions as risks.
Important facts for investors to verify
- Confirm the issuer and its connection, if any, to CNX Resources Corp.; the filing itself names CONSOL Energy Inc.
- Check whether coal demand, deferred deliveries, inventory accumulation and realized prices support the reported earnings improvement.
- Assess gas-price exposure, hedge settlement and reclassification timing, and the effect of lower unhedged prices.
- Reconcile liquidity and debt maturities with capital spending, dividend plans, letters of credit and other commitments.
- Review developments in the dam, asbestos, Superfund and Buchanan Mine-related matters, including potential cash exposure and the status of remediation.
- Separate recurring operating performance from contract buyouts, tax refunds, insurance recoveries and other unusual items.