International Coal Group Reports First Quarter 2011 Results

News provided by

International Coal Group, Inc.

Apr 27, 2011, 04:05 ET

SCOTT DEPOT, W.Va., April 27, 2011 /PRNewswire/ --

First-Quarter Highlights:

Adjusted EBITDA increases 39% over first quarter 2010
Record margin of $17.07 per ton is a 46% increase over first quarter 2010
Metallurgical shipments up 53% over first quarter 2010

International Coal Group, Inc. (NYSE: ICO) today reported its results for the first quarter of 2011.

Adjusted EBITDA was $65.1 million in the first quarter of 2011 compared to $46.9 million during the first quarter of 2010.

Net income was $22.0 million, or $0.10 per share on a diluted basis, in the first quarter of 2011 compared to a net loss of $8.9 million, or $0.05 per share on a diluted basis, during the first quarter of 2010. Net loss for the first quarter of 2010 included a $22.0 million pre-tax loss on extinguishment of debt related to the Company's capital restructuring. Excluding this loss, first quarter 2010 net income would have been $6.2 million, or $0.03 per share on a diluted basis.

Margin per ton sold increased 46% to $17.07 in the first quarter of 2011 compared to $11.67 during the same period in 2010, primarily due to higher price realization from increased metallurgical sales.

Coal sales revenues increased to $283.7 million in the first quarter of 2011 compared to $270.5 million during the first quarter of 2010.

"International Coal Group delivered another strong quarter as our commitment to increasing metallurgical coal production continues to pay dividends," said Ben Hatfield, President and CEO of ICG. "However, the quarter was not without its challenges, as extreme winter weather reduced production at our Vindex mine complex and continued rail congestion lowered shipments at several other operations."

Hatfield continued, "Steady operational performance at most business units during the quarter, coupled with strong sales prices, resulted in the highest per ton margin in our company's history. We expect margins to grow in each quarter this year as our metallurgical output is projected to increase and lower-priced sales commitments roll off."

Summarizing the current coal markets, Hatfield stated, "Metallurgical coal demand improved throughout the quarter, with prices reaching near-record levels. Conversely, thermal market conditions remain somewhat weak as low natural gas prices continue to constrain coal-fired electricity output."

Sales, Production and Reserves

ICG sold 3.9 million tons of coal during the first quarter of 2011 compared to 4.3 million tons during the first quarter of 2010. Production totaled 4.0 million tons for the first quarter of 2011 versus 3.9 million in the same period of 2010. Metallurgical shipments of 718,000 tons represented a 53% increase over the same period in 2010.

As of March 31, 2011, ICG controlled approximately 1.1 billion tons of coal reserves, located primarily in Illinois, Kentucky, West Virginia, Ohio, Maryland and Virginia. Additionally, the Company controlled approximately 437 million tons of non-reserve coal deposits, which may be classified as reserves in the future as additional drilling and geological work is completed.

Operational and Other Updates

Construction at the new Tygart Valley No. 1 deep mine complex is proceeding on schedule. Slope and shaft construction are progressing as planned. Foundation construction for the state-of-the-art coal preparation facility is underway, with construction of the structure expected to begin in June 2011. Initial coal production is projected for late fourth quarter of this year. At full output, currently projected for early 2014, Tygart Valley No. 1 is expected to produce approximately 3.5 million tons per year.

Results for the first quarter of 2011 include a $6.5 million pre-tax gain from the sale of an idled dragline, previously used at ICG Eastern's Birch River operation.

Market Outlook and Committed Sales

Near term market conditions remain mixed. While metallurgical markets are near record price levels, thermal demand has been lukewarm, as low natural gas prices continue to restrict coal-fired electricity output. The effect of low natural gas prices is magnified during the "shoulder months" when electricity demand is traditionally curbed. Nevertheless, several positive signs support our expectation of a stronger thermal market in the second half of 2011 and throughout 2012, including:

cold winter weather that helped draw down record level natural gas inventories;
coal inventories that are approaching more normalized levels as industry-wide coal production remains disciplined;
an overall economic climate that is anticipated to improve; and
metallurgical markets that are expected to remain strong.

Recent over-the-counter trades support this view as prompt-month CSX pricing is 17% higher than a year ago, calendar year 2012 pricing is nearly 10% higher and the recent Australian quarterly benchmark price settlement of $330 per tonne is 46% higher than last year.

For 2011, committed and priced sales total approximately 13.9 million tons, or 85% of planned shipments, at an average price of $75.75 per ton, excluding freight and handling expenses. Unpriced tonnage includes approximately 1.8 million tons of thermal coal and 0.6 million tons of metallurgical coal.

For 2012, committed and priced sales total approximately 4.2 million tons, or 25% of planned shipments, at an average price of $60.00 per ton, excluding freight and handling expenses. Unpriced tonnage includes approximately 9.6 million tons of thermal coal and 3.2 million tons of metallurgical coal. The majority of 2012 committed sales consists of lower-priced Illinois Basin and Northern Appalachia legacy contracts.

Liquidity and Debt

As of March 31, 2011, the Company had $186.6 million in cash and $39.2 million in borrowing capacity available under its credit agreement.

Debt outstanding as of March 31, 2011 totaled $333.6 million, net of a $32.3 million discount, consisting primarily of $115.0 million aggregate principal amount of 4.0% Convertible Senior Notes and $200.0 million aggregate principal amount of 9.125% Senior Secured Second-Priority Notes.

On March 31, 2011, the Company announced that its $115.0 million of 4.0% Convertible Senior Notes and $731,000 of 9.0% Convertible Senior Notes became convertible at the option of the holders beginning April 1, 2011. Although all of the convertible notes are now classified as current liabilities, the Company does not believe that a significant number of conversions are likely at this time, and to date has received no notices of exercise of conversion rights. The triggering of the conversion rights are not expected to have a material effect on the Company's financial position.

Outlook

The Company has updated its guidance, reflecting modifications to its production mix and the global economic conditions affecting the coal market, as follows:

For 2011, the Company expects to produce and sell between 16.1 million and 16.5 million tons of coal, including 3.2 million to 3.5 million tons of metallurgical coal. The average selling price is projected to be $76.00 per ton to $79.00 per ton, with an anticipated average cost of $56.50 to $58.50 per ton, excluding selling, general and administrative expenses.

Adjusted EBITDA, or earnings before deducting interest, income taxes, depreciation, depletion, amortization and noncontrolling interest, is expected to be in the range of $290 million to $320 million in 2011.

The Company projects its effective tax rate to be approximately 30% for 2011.

The Company's expectation for average coal pricing by region for 2011 is as follows:


Region		2011 Forecast
Central Appalachia		$81.00 – $85.00
Northern Appalachia		$90.00 – $94.00
Illinois Basin		$38.50 – $39.50
Average		$76.00 – $79.00

The Company anticipates 2011 capital expenditures of between $225 million and $245 million, including approximately $145 million related to development projects, primarily at our Tygart Valley No. 1, Illinois and Vindex operations.

For 2012, the Company expects to produce and sell between 16.5 million and 17.5 million tons of coal, including 3.3 million to 3.7 million tons of metallurgical coal. The average selling price is projected to be $83.00 per ton to $89.00 per ton

General Information

ICG is a leading producer of coal in Northern and Central Appalachia and the Illinois Basin. The Company has 13 active mining complexes, of which 12 are located in Northern and Central Appalachia and one in Central Illinois. ICG's mining operations and reserves are strategically located to serve utility, metallurgical and industrial customers domestically and internationally.

Forward-Looking Statements

Statements in this press release that are not historical facts are forward-looking statements within the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995 and may involve a number of risks and uncertainties. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project" and similar terms and phrases, including references to assumptions, to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to various risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from our forward-looking statements: market demand for coal, electricity and steel; availability of qualified workers; future economic or capital market conditions; weather conditions or catastrophic weather-related damage; our production capabilities; consummation of financing, acquisition or disposition transactions and the effect thereof on our business; a significant number of conversions of our convertible senior notes prior to maturity; our plans and objectives for future operations and expansion or consolidation; our relationships with, and other conditions affecting, our customers; availability and costs of key supplies or commodities, such as diesel fuel, steel, explosives and tires; availability and costs of capital equipment; prices of fuels which compete with or impact coal usage, such as oil and natural gas; timing of reductions or increases in customer coal inventories; long-term coal supply arrangements; reductions and/or deferrals of purchases by major customers; risks in or related to coal mining operations, including risks related to third-party suppliers and carriers operating at our mines or complexes; unexpected maintenance and equipment failure; adoption by Appalachian states of EPA guidance regarding stringent water quality-based limitations in CWA Section 402 wastewater discharge permits and CWA Section 404 dredge and fill permits; environmental, safety and other laws and regulations, including those directly affecting our coal mining and production, and those affecting our customers' coal usage; ability to obtain and maintain all necessary governmental permits and authorizations; competition among coal and other energy producers in the United States and internationally; railroad, barge, trucking and other transportation availability, performance and costs; employee benefits costs and labor relations issues; replacement of our reserves; our assumptions concerning economically recoverable coal reserve estimates; availability and costs of credit, surety bonds and letters of credit; title defects or loss of leasehold interests in our properties which could result in unanticipated costs or inability to mine these properties; the impact of the mine explosion at a competitor's mine on federal and state authorities' decisions to enact laws and regulations that result in more frequent mine inspections, stricter enforcement practices and enhanced reporting requirements; future legislation and changes in regulations or governmental policies or changes in interpretations or enforcement thereof, including with respect to safety enhancements and environmental initiatives relating to global warming and climate change; impairment of the value of our long-lived and deferred tax assets; our liquidity, including our ability to adhere to financial covenants related to our borrowing arrangements; adequacy and sufficiency of our internal controls; and legal and administrative proceedings, settlements, investigations and claims, including those related to citations and orders issued by regulatory authorities, and the availability of related insurance coverage.

You should keep in mind that any forward-looking statement made by us in this press release or elsewhere speaks only as of the date on which the statements were made. See also the "Risk Factors" in our 2010 Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission, all of which are currently available on our website at www.intlcoal.com. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us or our anticipated results. We have no duty to, and do not intend to, update or revise the forward-looking statements in this press release, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this press release might not occur.

INTERNATIONAL COAL GROUP, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (in thousands, except share and per share amounts)

	Three months ended March 31,
	2011			2010
REVENUES:
Coal sales revenues	$	283,711	$	270,490
Freight and handling revenues		7,152		9,377
Other revenues		11,126		8,727
Total revenues		301,989		288,594
COSTS AND EXPENSES:
Cost of coal sales		217,964		220,065
Freight and handling costs		7,152		9,377
Cost of other revenues		7,342		7,181
Depreciation, depletion and amortization		25,656		26,397
Selling, general and administrative		11,152		8,585
Gain on sale of assets, net		(6,723)		(3,481)
Total costs and expenses		262,543		268,124
Income from operations		39,446		20,470
INTEREST AND OTHER INCOME (EXPENSE)
Loss on extinguishment of debt		—		(21,987)
Interest expense, net		(8,110)		(13,300)
Total interest and other income (expense)		(8,110)		(35,287)
Income (loss) before income taxes		31,336		(14,817)
INCOME TAX BENEFIT (EXPENSE)		(9,357)		5,965
Net income (loss)		21,979		(8,852)
Net income attributable to noncontrolling interest		(11)		—
Net income (loss) attributable to International Coal Group, Inc.	$	21,968	$	(8,852)

Other Data:
Adjusted EBITDA (a)	$	65,102	$	46,867
Earnings per share:
Basic	$	0.11	$	(0.05)
Diluted	$	0.10	$	(0.05)
Weighted-average shares:
Basic		202,699,052		181,382,766
Diluted		214,478,342		181,382,766

(a)	This press release includes a non-GAAP financial measure within the meaning of applicable SEC rules and regulations. Adjusted EBITDA is a non-GAAP financial measure used by management to gauge operating performance. We define Adjusted EBITDA as net income or loss attributable to International Coal Group, Inc. before deducting interest, income taxes, depreciation, depletion, amortization, loss on extinguishment of debt and noncontrolling interest. Adjusted EBITDA is not, and should not be used as, a substitute for operating income, net income and cash flow as determined in accordance with GAAP. We present Adjusted EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, substantially all of which present EBITDA or Adjusted EBITDA when reporting their results. We also use Adjusted EBITDA as our executive compensation plan bases incentive compensation payments on our Adjusted EBITDA performance measured against budgets. Our ABL Loan Facility uses Adjusted EBITDA (with additional adjustments) to measure our compliance with covenants, such as fixed charge ratio. EBITDA or Adjusted EBITDA is also widely used by us and others in our industry to evaluate and price potential acquisition candidates. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; changes in, or cash requirements for, our working capital needs; interest expense, or the cash requirements necessary to service interest or principal payments, on our debts. Although depreciation, depletion and amortization are non-cash charges, the assets being depreciated, depleted and amortized will often have to be replaced in the future. Adjusted EBITDA does not reflect any cash requirements for such replacements. Other companies in our industry may calculate EBITDA or Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. A reconciliation of Adjusted EBITDA to GAAP net income or loss attributable to International Coal Group, Inc. appears at the end of this press release.

INTERNATIONAL COAL GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2011 AND DECEMBER 31, 2010
(in thousands)

	March 31, 2011		December 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	186,566	$	215,276
Accounts receivable, net		111,210		82,557
Inventories, net		80,724		70,029
Deferred income taxes		2,983		13,563
Prepaid expenses and other		21,008		19,172
Total current assets		402,491		400,597

PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT, net		1,051,064		1,040,118
DEBT ISSUANCE COSTS, net		8,937		11,998
ADVANCE ROYALTIES, net		21,639		16,037
OTHER NON-CURRENT ASSETS		12,008		10,947
Total assets	$	1,496,139	$	1,479,697

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	80,294	$	78,899
Short-term debt		1,598		2,797
Current portion of long-term debt and capital leases		103,527		17,928
Current portion of reclamation and mine closure costs		8,364		8,414
Current portion of employee benefits		3,831		3,831
Accrued expenses and other		48,991		61,092
Total current liabilities		246,605		172,961

LONG-TERM DEBT AND CAPITAL LEASE		228,437		308,422
RECLAMATION AND MINE CLOSURE COSTS		71,541		70,730
EMPLOYEE BENEFITS		84,129		81,868
DEFERRED INCOME TAXES		57,950		60,452
BELOW-MARKET COAL SUPPLY AGREEMENTS		25,934		26,823
OTHER NON-CURRENT LIABILITIES		3,921		4,176
Total liabilities		718,517		725,432

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Common stock		2,042		2,038
Treasury stock		(309)		(216)
Additional paid-in capital		852,812		851,440
Accumulated other comprehensive loss		(3,353)		(3,459)
Retained deficit		(73,634)		(95,602)
Total International Coal Group, Inc. stockholders’ equity		777,558		754,201
Noncontrolling interest		64		64
Total stockholders’ equity		777,622		754,265
Total liabilities and stockholders’ equity	$	1,496,139	$	1,479,697

INTERNATIONAL COAL GROUP, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (in thousands)

	Three months ended March 31,
	2011		2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	21,979	$	(8,852)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation, depletion and amortization		25,656		26,397
Loss on extinguishment of debt		—		21,987
Amortization and write-off of deferred finance costs and debt discount		1,458		3,158
Amortization of accumulated employee benefit obligations		172		(7)
Compensation expense on share based awards		1,218		984
Gain on sale of assets, net		(6,723)		(3,481)
Provision for bad debt		329		(79)
Deferred income taxes		8,012		(7,583)
Changes in assets and liabilities:
Accounts receivable		(18,813)		(24,463)
Inventories		(10,695)		3,914
Prepaid expenses and other		(1,836)		856
Other non-current assets		(4,530)		761
Accounts payable		912		5,425
Accrued expenses and other		(12,101)		(16,133)
Reclamation and mine closure costs		761		(339)
Other liabilities		2,067		2,890
Net cash from operating activities		7,866		5,435
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets		245		1,000
Additions to property, plant, equipment and mine development		(31,106)		(20,635)
Withdrawals of restricted cash		394		8,854
Distribution to joint venture		(11)		—
Net cash from investing activities		(30,478		(10,781)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on short-term debt		(1,199)		(833)
Repayments on long-term debt and capital lease		(4,964)		(4,928)
Proceeds from convertible notes offering		—		115,000
Proceeds from senior notes offering		—		198,596
Proceeds from common stock offering		—		102,453
Repurchases of senior notes		—		(181,612)
Purchases of treasury stock		(93)		(11)
Proceeds from stock options exercised		158		—
Debt issuance costs		—		(14,243)
Net cash from financing activities		(6,098)		214,422
NET CHANGE IN CASH AND CASH EQUIVALENTS		(28,710)		209,076
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		215,276		92,641
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	186,566	$	301,717

INTERNATIONAL COAL GROUP, INC. AND SUBSIDIARIES RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (Unaudited) (in thousands)

	Three months ended March 31,
	2011		2010
Net income (loss) attributable to International Coal Group, Inc.	$	21,968	$	(8,852)
Depreciation, depletion and amortization		25,656		26,397
Interest expense, net		8,110		13,300
Income tax (benefit) expense		9,357		(5,965)
Loss on extinguishment of debt		—		21,987
Noncontrolling interest		11		—
Adjusted EBITDA	$	65,102	$	46,867

RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME FOR THE THREE months ENDED March 31, 2011 and 2010 (Unaudited) (in thousands)

	Three months ended March 31,
	2011		2010
Net income (loss) attributable to International Coal Group, Inc.	$	21,968	$	(8,852)
Loss on extinguishment of debt		—		21,987)
Income tax benefit		—		(6,926)
Adjusted net income attributable to International Coal Group, Inc.	$	21,968	$	6,209

OPERATING STATISTICS FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2011 (Unaudited) (in thousands, except per ton amounts)

	Central Appalachia		Northern Appalachia		Illinois Basin		Purchased Coal and Ancillary			Total
For the three months ended March 31, 2011:
Tons sold		2,240		957		654		—			3,851
Coal sales revenues	$	179,359	$	79,080	$	25,272	$	—		$	283,711
Cost of coal sales	$	142,777	$	55,672	$	18,513	$	1,002		$	217,964
Coal sales revenue per ton (b)	$	80.07	$	82.66	$	38.61	$	n/m	(c)	$	73.67
Cost of coal sales per ton (b)	$	63.74	$	58.19	$	28.29	$	n/m	(c)	$	56.60

For the three months ended March 31, 2010:
Tons sold		2,473		1,069		651		130			4,323
Coal sales revenues	$	178,964	$	60,365	$	23,536	$	7,625		$	270,490
Cost of coal sales	$	140,266	$	53,671	$	19,408	$	6,720		$	220,065
Coal sales revenue per ton (b)	$	72.36	$	56.45	$	36.14	$	59.00		$	62.57
Cost of coal sales per ton (b)	$	56.71	$	50.19	$	29.80	$	52.00		$	50.90

(b)	"Coal sales revenue per ton" and "Cost of coal sales per ton" are calculated as Coal sales revenues or Cost of coal sales, respectively, divided by Tons sold. Although Coal sales revenue per ton and Cost of coal sales per ton are not measures of performance calculated in accordance with GAAP, management believes that they are useful to an investor in evaluating performance because they are widely used in the coal industry as a measure to evaluate a company's sales performance or control over its costs. Coal sales revenue per ton and Cost of coal sales per ton should not be considered in isolation or as substitutes for measures of performance in accordance with GAAP. In addition, because Coal sales revenue per ton and Cost of coal sales per ton are not calculated identically by all companies, ICG's presentation may not be comparable to other similarly titled measures of other companies.
(c)	Coal sales within the Purchased Coal and Ancillary segment represent coal sold under brokered coal contracts, all of which were legacy contracts obtained in conjunction with business combinations. Per ton information for the three months ended March 31, 2011 within the Purchased Coal and Ancillary segment is not meaningful as all such supply contracts have expired. Cost of coal sales shown for the three months ended March 31, 2011 represents costs incurred at non-producing coal operations.