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James River Coal Company Reports Third Quarter 2009 Operating Results
- Q-3 Earnings per Share of $0.36 Compared to ($.86) in 2008
- Q-3 Adjusted EBITDA of $33.2 Million Compared to $7.1 Million in 2008
- Cash Costs in CAPP Decline by $1.82 Per Ton Compared with Q-2 Despite Lower Production Levels
- Cash Margin in CAPP of $22.73 Per Ton Compared with $5.43 in Q-3 2008
- New Contracts for CAPP at an Average of $73.16 Per Ton and Midwest at an Average of $44.57
- Temporary Amendment to Shareholder Rights Plan to Preserve Substantial NOL Tax Assets
RICHMOND, Va., Nov. 3 /PRNewswire-FirstCall/ -- James River Coal Company (Nasdaq: JRCC), a producer of steam and industrial-grade coal, today announced that it had net income of $9.8 million or $0.36 per fully diluted share for the third quarter of 2009 and net income of $54.2 million or $1.97 per fully diluted share for the nine months ended September 30, 2009. This is compared to a net loss of $21.7 million or $0.86 per fully diluted share for the third quarter of 2008 and a net loss of $62.4 million or $2.62 per fully diluted share for the nine months ended September 30, 2008.
Peter T. Socha, Chairman and Chief Executive Officer commented: "This was a relatively quiet quarter at James River Coal Company. We are continuing to post very strong financial results for our shareholders. In the operations area, we have continued to invest in both people and equipment in preparation for the next strong coal market. In the sales area, we have continued to maintain very close relationships with our domestic utility customers and international market participants. In the financial area, we have continued to strengthen our balance sheet through paying down a substantial amount of debt and starting to accumulate a cash balance. In summary, we are pleased with our results today, but we are also very busy planning and taking actions that will lead to an even better tomorrow."
FINANCIAL RESULTS
The following tables show selected operating results for the quarter ended September 30, 2009 compared to the quarter ended September 30, 2008 (in 000's except per ton amounts).
Three Months Ended Nine Months Ended
Total Results September 30, September 30,
---------------- ------------------
2009 2008 2009 2008
----- ----- ----- -----
Total Total Total Total
----- ----- ----- -----
Company and contractor
production (tons 2,390 2,731 7,743 8,379
Coal purchased from other
sources (tons) 17 30 79 227
-- -- -- ---
Total coal available to
ship (tons) 2,407 2,761 7,822 8,606
Coal shipments (tons) 2,439 2,777 7,477 8,591
Coal sales revenue $168,320 $151,842 $532,090 $427,733
Cost of coal sold 128,361 138,873 388,789 393,470
Depreciation, depletion, &
amortization 15,572 17,158 45,967 52,000
Gross profit (loss) 24,387 (4,189) 97,334 (17,737)
Selling, general &
administrative 10,266 9,057 30,112 25,123
Adjusted EBITDA (1) $33,169 $7,099 $123,399 $17,774
(1) Adjusted EBITDA is defined under "Reconciliation of Non-GAAP
Measures" in this release. Adjusted EBITDA is used to determine
compliance with financial covenants in our senior secured credit
facilities.
Segment Results Three Months Ended September 30,
--------------- --------------------------------
2009 2008
---- ----
CAPP Midwest CAPP Midwest
---- ------- ---- -------
Company and contractor
production (tons) 1,606 784 1,892 839
Coal purchased from other
sources (tons) 17 - 30 -
-- -- -- --
Total coal available to
ship (tons) 1,623 784 1,922 839
Coal shipments (tons) 1,647 792 1,932 845
Coal sales revenue $141,371 26,949 $123,691 28,151
Average sales price per ton 85.84 34.03 64.02 33.31
Cost of coal sold $103,946 24,415 $113,187 25,686
Cost of coal sold per ton 63.11 30.83 58.59 30.40
Segment Results Nine Months Ended September 30,
--------------- -------------------------------
2009 2008
---- ----
CAPP Midwest CAPP Midwest
---- ------- ---- -------
Company and contractor
production (tons) 5,324 2,419 6,063 2,316
Coal purchased from other
sources (tons) 79 - 227 -
-- -- --- --
Total coal available to
ship (tons) 5,403 2,419 6,290 2,316
Coal shipments (tons) 5,092 2,385 6,290 2,301
Coal sales revenue $453,859 78,231 $353,388 74,345
Average sales price per ton 89.13 32.80 56.18 32.31
Cost of coal sold $319,382 69,407 $322,549 70,921
Cost of coal sold per ton 62.72 29.10 51.28 30.82
Cost Bridge Q-2 2009 vs. Q-3 2009
----------- ---------------------
CAPP Midwest
---- -------
Beginning cash costs (Q-2 2009) $64.93 29.49
Labor and benefits (1.49) 0.23
Plant repairs - 0.42
Other (0.33) 0.69
----- ----
Ending cash costs (Q-3 2009) $63.11 30.83
====== =====
C.K. Lane, Senior Vice President and Chief Operating Officer commented: "We continue to be very pleased with our safety results. Our NFDL (Non-Fatal Days Lost) rate has been reduced 36% from the comparable period in 2008, which is well below the national average. Our Central Appalachia operations continued to perform well. We reduced our costs by $1.82 per ton compared to the second quarter while decreasing production by 81,000 tons to better manage inventories. We are continuing to make minor adjustments to our production schedules to match our contract portfolio and the needs of our customers. Beyond normal mine and train operations issues, we have not had to delay or defer any utility shipments this year. Our Illinois Basin operations had another strong quarter. Surface production was reduced from the second quarter to match shipping schedules for our customers."
LIQUIDITY AND CASH FLOW
As of September 30, 2009, the Company had available liquidity of $42.6 million calculated as follows (in millions):
Cash and Cash Equivalents $7.6
Availability under the Revolver 35.0
Drawn under the Revolver -
-----
Available Liquidity $42.6
=====
The Company was in compliance with all of the covenants in its senior secured credit facilities as of September 30, 2009.
For the three months ended September 30, 2009 capital expenditures were $18.3 million.
Mr. Socha commented: "Our liquidity position and the strength of our balance sheet continues to improve dramatically. In addition to beginning to accumulate a cash balance, we have paid down our revolver by $18 million and we have reduced our trade accounts payable by approximately $5 million this year."
SALES POSITION AND MARKET COMMENTS
As of October 31, 2009, we had the following agreements to ship coal at a fixed and known price (in 000's except per ton amounts):
2010 Priced
------------------------------------------------------------
As of July 31, 2009 As of October 31, 2009 Change
Avg Price Avg Price Avg Price
Tons Per Ton Tons Per Ton Tons Per Ton
CAPP 4,782 $100.60 5,171 $98.49 389 $72.62
---- ----- ------- ----- ------ --- ------
Midwest (1) 2,642 $41.47 2,642 $41.47 - $-
---------- ----- ------ ----- ------ -- --
2011 Priced
------------------------------------------------------------
As of July 31, 2009 As of October 31, 2009 Change
Avg Price Avg Price Avg Price
Tons Per Ton Tons Per Ton Tons Per Ton
CAPP 2,350 $122.51 2,389 $121.80 39 $78.57
---- ----- ------- ----- ------- -- ------
Midwest (1) 375 $45.47 1,375 $44.66 1,000 $44.36
---------- --- ------ ----- ------ ----- ------
2012 Priced
------------------------------------------------------------
As of July 31, 2009 As of October 31, 2009 Change
Avg Price Avg Price Avg Price
Tons Per Ton Tons Per Ton Tons Per Ton
CAPP 350 $108.31 350 $108.31 - $-
---- --- ------- --- ------- -- --
Midwest (1) - $- 500 $45.00 500 45.00
----------- -- -- --- ------ --- -----
(1) The prices for the Midwest in 2010 are minimum base price amounts
adjusted for projected fuel escalators.
Mr. Socha added: "We were very pleased to reach agreement for future deliveries from both our CAPP and our Midwest operations this quarter. In particular, we are beginning to see increased activity for industrial coal and flex coal that is capable of moving from the utility market to the metallurgical market. As widely reported, the market for domestic utility steam coal continues to be very soft. This is a result of high inventories and lower demand from electric utilities. While we can see a number of items that should improve the overall domestic coal market in the future, it is still very early. We continue to look for the coal market in Europe to improve in the first half of 2010 and the market in the United States to improve in late 2010 or early 2011. Our customer relationships and our contract portfolio allow us to be patient with our contracting activities."
MODIFICATION TO SHAREHOLDER RIGHTS PLAN
The Company also announced today that its Board of Directors has amended its Rights Agreement dated May 25, 2004, as amended, in order to preserve the Company's ability to utilize substantial net operating loss (NOL) carryforwards to offset future taxable income under the Internal Revenue Code. The amendment will be effective on November 3, 2009.
As of December 31, 2008, the Company had regular federal NOL carryforwards of approximately $240 million and federal alternative minimum tax (AMT) NOL carryforwards of approximately $150 million.
The Company's ability to use these tax attributes would be substantially limited if there were an "ownership change" as defined under Section 382 of the Internal Revenue Code and IRS rules. In general, an "ownership change" would be deemed to occur if there is a cumulative change of more than 50% over a rolling three year period by shareholders owning more than 5% of the total outstanding shares.
Previously under the Rights Agreement, a triggering event occurred with the acquisition of beneficial ownership of 20% of the stock of the Company. Pursuant to the amendment approved by the Board, this threshold has been lowered to 4.9 %.
The amendment exempts shareholders whose ownership exceeds 4.9 % at the effective date of the amendment so long as they do not acquire more than an additional 0.5% of the stock of the Company without the advance approval of the Company's board.
The lower threshold of 4.9 % will expire on December 5, 2010, at which time the threshold will revert to the previous level.
The amendment to the Rights Agreement is similar to tax benefit preservation plans recently adopted by numerous other public companies with significant tax attributes. The amendment is designed to protect shareholder value by safeguarding valuable tax attributes of the Company.
The amendment also expands the definition of beneficial ownership to capture all derivatives and synthetic equity positions within the definition of beneficial ownership for purposes of the Rights Agreement.
Additional information regarding the amendment will be contained in a Form 8-K and in an amendment to our Registration Statement on Form 8-A to be filed with the Securities and Exchange Commission
CONFERENCE CALL, WEBCAST AND REPLAY: The Company will hold a conference call with management to discuss the second quarter earnings on November 3, 2009 at 11:00 a.m. Eastern Time. The conference call can be accessed by dialing 877-397-0298, or through the James River Coal Company website at http://www.jamesrivercoal.com. International callers, please dial 719-325-4834. A replay of the conference call will be available on the Company's website and also by telephone, at 888-203-1112 for domestic callers. International callers, please dial 719-457-0820: pass code 7718234.
James River Coal Company mines, processes and sells bituminous steam and industrial-grade coal primarily to electric utility companies and industrial customers. The Company's mining operations are managed through six operating subsidiaries located throughout eastern Kentucky and in southern Indiana.
FORWARD-LOOKING STATEMENTS: Certain statements in this press release, and other written or oral statements made by or on behalf of us are "forward-looking statements" within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management's expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. These forward-looking statements, are subject to a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, the following: changes in the demand for coal by electric utility customers; the loss of one or more of our largest customers; inability to secure new coal supply agreements or to extend existing coal supply agreements at market prices; failure to diversity our operations; failure to exploit additional coal reserves; the risk that reserve estimates are inaccurate; increased capital expenditures; encountering difficult mining conditions; increased costs of complying with mine health and safety regulations; our dependency on one railroad for transportation of a large percentage of our products; bottlenecks or other difficulties in transporting coal to our customers; delays in the development of new mining projects; increased costs of raw materials; lack of availability of financing sources; our compliance with debt covenants; the effects of litigation, regulation and competition; and the other risks detailed in our reports filed with the Securities and Exchange Commission (SEC). Management believes that these forward-looking statements are reasonable; however, you should not place undue reliance on such statements. These statements are based on current expectations and speak only as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise.
JAMES RIVER COAL COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
September 30, 2009 December 31, 2008
------------------ -----------------
Assets (unaudited)
Current assets:
Cash and cash equivalents $7,635 3,324
Receivables:
Trade 46,372 33,086
Other 211 475
--- ---
Total receivables 46,583 33,561
------ ------
Inventories:
Coal 28,379 6,847
Materials and supplies 11,279 9,581
------ -----
Total inventories 39,658 16,428
------ ------
Prepaid royalties 5,023 2,803
Other current assets 5,422 5,094
----- -----
Total current assets 104,321 61,210
------- ------
Property, plant, and equipment, at cost:
Land 7,239 6,693
Mineral rights 230,932 229,841
Buildings, machinery and equipment 353,560 320,982
Mine development costs 40,178 39,596
------ ------
Total property, plant, and equipment 631,909 597,112
Less accumulated depreciation,
depletion, and amortization 285,193 252,264
------- -------
Property, plant and equipment, net 346,716 344,848
Goodwill 26,492 26,492
Other assets 30,255 30,996
------ ------
Total assets $507,784 463,546
======== =======
JAMES RIVER COAL COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
September 30, 2009 December 31, 2008
------------------ -----------------
Liabilities and Shareholders' Equity (unaudited)
Current liabilities:
Current maturities of long-term debt $- 18,000
Accounts payable 51,947 57,068
Accrued salaries, wages, and
employee benefits 10,015 6,642
Workers' compensation benefits 9,300 9,300
Black lung benefits 1,539 1,539
Accrued taxes 5,729 4,457
Other current liabilities 16,497 19,165
------ ------
Total current liabilities 95,027 116,171
------ -------
Long-term debt, less current maturities 150,000 150,000
Other liabilities:
Noncurrent portion of workers'
compensation benefits 48,707 46,477
Noncurrent portion of black lung benefits 30,330 29,029
Pension obligations 20,097 19,693
Asset retirement obligations 39,370 36,409
Other 586 529
--- ---
Total other liabilities 139,090 132,137
------- -------
Total liabilities 384,117 398,308
------- -------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1.00 par value.
Authorized 10,000,000 shares - -
Common stock, $.01 par value.
Authorized 100,000,000 shares; issued and
outstanding 27,553,964 and 27,393,493 shares
as of September 30, 2009 and December 31,
2008, respectively 276 274
Paid-in-capital 275,431 272,366
Accumulated deficit (133,555) (187,712)
Accumulated other comprehensive loss (18,485) (19,690)
------- -------
Total shareholders' equity 123,667 65,238
------- ------
Total liabilities and shareholders'
equity $507,784 463,546
======== =======
JAMES RIVER COAL COMPANY
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Three Months
Ended Ended
September 30, 2009 September 30, 2008
------------------ ------------------
Revenues $168,320 151,842
Cost of sales:
Cost of coal sold 128,361 138,873
Depreciation, depletion and amortization 15,572 17,158
Total cost of sales 143,933 156,031
------- -------
Gross profit (loss) 24,387 (4,189)
Selling, general and administrative
expenses 10,266 9,057
Total operating income (loss) 14,121 (13,246)
------ -------
Interest expense 3,923 4,625
Interest income (5) (55)
Charges associated with repayment and
amendment of debt - 4,223
Miscellaneous income, net (43) (327)
--- ----
Total other expense, net 3,875 8,466
----- -----
Income (loss) before income taxes 10,246 (21,712)
Income tax expense 438 -
--- -
Net income (loss) $9,808 (21,712)
====== =======
Earnings (loss) per common share
Basic earnings (loss) per common share $0.36 (0.86)
===== =====
Diluted earnings (loss) per common share $0.36 (0.86)
===== =====
JAMES RIVER COAL COMPANY
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Nine Months Nine Months
Ended Ended
September 30, 2009 September 30, 2008
------------------ ------------------
Revenues $532,090 427,733
Cost of sales:
Cost of coal sold 388,789 393,470
Depreciation, depletion and
amortization 45,967 52,000
Total cost of sales 434,756 445,470
------- -------
Gross profit (loss) 97,334 (17,737)
Selling, general and administrative
expenses 30,112 25,123
Total operating income (loss) 67,222 (42,860)
------ -------
Interest expense 11,790 13,700
Interest income (55) (317)
Charges associated with repayment and
amendment of debt - 7,236
Miscellaneous income, net (187) (1,073)
---- ------
Total other expense, net 11,548 19,546
------ ------
Income (loss) before income taxes 55,674 (62,406)
Income tax expense 1,517 -
----- -
Net income (loss) $54,157 (62,406)
======= =======
Earnings (loss) per common share
Basic earnings (loss) per common share $1.97 (2.62)
===== =====
Diluted earnings (loss) per common share $1.97 (2.62)
===== =====
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Nine Months
Ended Ended
September 30, 2009 September 30, 2008
------------------ ------------------
Cash flows from operating activities:
Net income (loss) $54,157 (62,406)
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities
Depreciation, depletion, and
amortization 45,967 52,000
Accretion of asset retirement
obligations 2,385 2,018
Amortization of deferred
financing costs 880 1,118
Stock-based compensation 4,533 3,614
Gain on sale or disposal of
property, plant, and equipment (24) (163)
Deferred tax expense 150 -
Write-off of deferred financing costs - 2,383
Changes in operating assets and
liabilities:
Receivables (13,022) 5,661
Inventories (21,096) (3,740)
Prepaid royalties and other
current assets (2,548) (2,033)
Other assets (289) 662
Accounts payable (5,121) 5,958
Accrued salaries, wages,
and employee benefits 3,373 2,107
Accrued taxes (269) (1,265)
Other current liabilities (3,025) 6,327
Workers' compensation benefits 2,230 1,828
Black lung benefits 1,301 1,027
Pension obligations 1,609 (1,218)
Asset retirement obligation (422) (978)
Other liabilities 57 161
-- ---
Net cash provided by
operating activities 70,826 13,061
------ ------
Cash flows from investing activities:
Additions to property, plant,
and equipment (48,651) (59,498)
Proceeds from sale of property,
plant, and equipment 61 1,108
-- -----
Net cash used in investing
activities (48,590) (58,390)
------- -------
Cash flows from financing
activities:
Borrowings under Revolver 12,500 21,500
Repayments under Revolver (30,500) (8,500)
Repayment of long-term debt - (22,025)
Net proceeds from issuance of
common stock - 93,955
Debt issuance costs - (486)
Proceeds from exercise of
stock option 75 542
-- ---
Net cash provided by
(used in) financing activities (17,925) 84,986
------- ------
Increase (decrease) in cash 4,311 39,657
Cash at beginning of period 3,324 5,413
----- -----
Cash at end of period $7,635 45,070
====== ======
JAMES RIVER COAL COMPANY
AND SUBSIDIARIES
Reconciliation of Non-GAAP Measures
(in thousands)
(unaudited)
EBITDA is a measure used by management to measure operating performance. We define EBITDA as net income or loss plus interest expense (net), income tax expense (benefit) and depreciation, depletion and amortization (EBITDA), to better measure our operating performance. We regularly use EBITDA to evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates. In addition, we use EBITDA in evaluating acquisition targets.
Adjusted EBITDA is the amount used in several of the covenants in our senior secured credit facilities. Adjusted EBITDA is defined as EBITDA further adjusted for certain cash and non-cash charges. Adjusted EBITDA is used to determine compliance with financial covenants and our ability to engage in certain activities such as incurring additional debt and making certain payments.
Cash margin per ton is an additional measure used by management to better measure our operating performance. Cash margin per ton is a measure to evaluate a company's profitability from produced tons sold. Cash margin per ton is defined as gross profit or loss plus depreciation, depletion and amortization divided by tons sold for the period.
EBITDA, Adjusted EBITDA and cash margin are not recognized terms under GAAP and are not an alternative to net income, operating income or any other performance measures derived in accordance with GAAP or an alternative to cash flow from operating activities as a measure of operating liquidity. Because not all companies use identical calculations, this presentation of EBITDA, Adjusted EBITDA and cash margin may not be comparable to other similarly titled measures of other companies. Additionally, EBITDA and Adjusted EBITDA are not intended to be a measure of free cash flow for management's discretionary use, as they do not reflect certain cash requirements such as tax payments, interest payments and other contractual obligations.
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
------------- ------------- ------------- -------------
Net income (loss) $9,808 (21,712) 54,157 (62,406)
Income tax expense 438 - 1,517 -
Interest expense 3,923 4,625 11,790 13,700
Interest income (5) (55) (55) (317)
Depreciation, depletion,
and amortization 15,572 17,158 45,967 52,000
------ ------ ------ ------
EBITDA (before
adjustments) $29,736 16 113,376 2,977
------- -- ------- -----
Other adjustments
specified in our
current debt agreement:
Charges associated
with repayment
of debt - 4,223 - 7,236
Other adjustments 3,433 2,860 10,023 7,561
----- ----- ------ -----
Adjusted EBITDA $33,169 7,099 123,399 17,774
======= ===== ======= ======
CONTACT: James River Coal Company
Elizabeth M. Cook
Director of Investor Relations
(804) 780-3000
SOURCE James River Coal Company