James River Coal Company Reports Third Quarter 2010 Operating Results

RICHMOND, Va., Nov. 3, 2010 /PRNewswire-FirstCall/ -- James River Coal Company (Nasdaq: JRCC), a producer of steam and industrial-grade coal, today announced that it had net income of $9.2 million or $0.33 per fully diluted share for the third quarter of 2010 and net income of $52.3 million or $1.89 per fully diluted share for the nine months ended September 30, 2010.  This is compared to 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.

Peter T. Socha, Chairman and Chief Executive Officer commented: "In general, we are pleased with our results this quarter.  We continue to generate net income and cash flow from our mining operations.  Like every other coal company in our geographic area, our costs and productivity have been impacted by state and federal regulators.  Our operations team has done an excellent job of making all of the necessary adjustments that have been requested.  As these adjustments are completed, we expect the impact on costs and productivity to be reduced.  In the coal markets, we are clearly starting to see signs of improvement.  We are looking forward to another very profitable year in 2011."

FINANCIAL RESULTS

The following tables show selected operating results for the quarter ended September 30, 2010 compared to the quarter ended September 30, 2009 (in 000's except per ton amounts).  

C.K. Lane, Senior Vice President and Chief Operating Officer said, "Obviously, we are disappointed with our production and costs this quarter. There has been a significant increase in regulatory activities by federal and state authorities.  We believe that the operational and financial impact that we saw this quarter will be reduced over time as we complete all of the changes that have been requested.  I am very pleased with our entire operations team as they continue to adjust to a new regulatory environment."

SAFETY

During the quarter, our Bledsoe Coal Corporation's Old House Branch Mine received the prestigious Sentinels of Safety Award for outstanding safety performance in the Large Underground Coal Group.  The mine placed first with 175,629 man-hours worked without a lost time or restricted duty injury.

Sentinels of Safety Awards are co-sponsored by the National Mining Association and the Mine Safety and Health Administration.  These awards are presented annually to those mines with the best safety records in the country.  Sentinels of Safety winners are those mines that have worked the most employee-hours without experiencing a lost-time injury.  

The Old House Branch Mine was also awarded the Kentucky Coal Association/Kentucky Environmental and Public Protection Cabinet Safety Award for being the safest large underground mine in the Barbourville District.  Our McCoy Elkhorn Coal Corporation's Mine #23 won the same award for the Pikeville District.

Mr. Lane continued, "We are very proud to have received these distinguished awards. Our employees make safety their number one priority and deserve this recognition for their hard work.  We will continue to work hard to provide our employees with a safe work environment."

LIQUIDITY AND CASH FLOW

As of September 30, 2010, the Company had available liquidity of $201.5 million calculated as follows (in millions):

Restricted cash increased by $8.5 million during the quarter because this was the lowest cost method to meet certain bonding requirements.  

Capital Expenditures for the third quarter were $25.6 million and $59.7 million for the nine months ended September 30, 2010.

SALES POSITION AND MARKET COMMENTS

As of November 2, 2010, we had the following agreements to ship coal at a fixed and known price (in 000's except per ton amounts):

Mr. Socha added: "We have been very fortunate in the contracting area.  Our sales agreements from 2008 and 2009 have allowed James River Coal Company to generate both income and free cash flow during a period of extreme economic weakness and soft coal markets.  As a result of these agreements, we believe that we are well positioned for a very profitable year in 2011.  Looking forward to 2012 and beyond, we are beginning to see clear signs that the coal markets will improve as we move through the coming year.  We will continue to monitor these signs and prudently manage our contract portfolio for the benefit of our stockholders."

CONFERENCE CALL, WEBCAST AND REPLAY:  The Company will hold a conference call with management to discuss the third quarter earnings on November 3, 2010 at 11:00 a.m. Eastern Time.  The conference call can be accessed by dialing 877-340-2553, or through the James River Coal Company website at http://www.jamesrivercoal.com.  International callers, please dial 678-224-7860.  A replay of the conference call will be available on the Company's website and also by telephone, at 800-642-1687 for domestic callers.  International callers, please dial 706-645-9291: pass code 17908027.

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. Forward looking statements include, without limitation, statements regarding future contract mine production, costs market improvements, and industry demand.  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: a change in the demand for coal by electric utility customers, as well as the perceived benefits of alternative sources of energy; 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; our dependency on one railroad for transportation of a large percentage of our products; failure to exploit additional coal reserves; the risk that reserve estimates and pension and post-retirement benefit liabilities are inaccurate; failure to diversify our operations; increased capital expenditures; encountering difficult mining conditions; inherent complexities associated with mining in Central Appalachia including special dangers and risks of underground mining; increased costs of complying with mine health and safety regulations; bottlenecks or other difficulties in transporting coal to our customers; delays in the development of new mining projects; increased costs of raw materials; the effects of litigation, regulation, permits and competition; lack of availability of financing sources; our compliance with debt covenants; the risk that we are unable to successfully integrate acquired assets into our business; 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.

EBITDA is 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 revolving credit facility.  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 calculated as coal sales revenue per ton less cost of coal sold per ton.  Although cash margin per ton is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor because it is widely used in the coal industry as a measure to evaluate a company's profitability from tons sold.

EBITDA, Adjusted EBITDA and cash margin per ton 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 per ton may not be comparable to other similarly titled measures of other companies.  Additionally, EBITDA, Adjusted EBITDA or cash margin per ton 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.  The following table reconciles Net Income to EBITDA and Adjusted EBITDA:

SOURCE James River Coal Company