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8-K - CURRENT REPORT ON FORM 8-K - James River Coal COjrcc_8k-110309.htm
EX-99.2 - PRESENTATION - James River Coal COjrcc_8k-ex9902.htm
Exhibit 99.1
 


FOR IMMEDIATE RELEASE

CONTACT: 
James River Coal Company
Elizabeth M. Cook
Director of Investor Relations
(804) 780-3000
 


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., November 3, 2009 - 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.”


 
1

 


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).

Total Results
   
Three Months Ended September 30,
     
Nine Months Ended September 30,
 
   
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  

 
2

 

Segment Results
 
Nine Months Ended June 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.”


 
3

 


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
 
   
Tons
   
Avg Price Per Ton
   
Tons
   
Avg Price Per Ton
   
Tons
   
Avg Price 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
 
   
Tons
   
Avg Price Per Ton
   
Tons
   
Avg Price Per Ton
   
Tons
   
Avg Price 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
 
   
Tons
   
Avg Price Per Ton
   
Tons
   
Avg Price Per Ton
   
Tons
   
Avg Price 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.
 

 
4

 

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.


 
5

 



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.
 
 

 
6

 

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  

 
7

 

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  

 
8

 

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 )
 
 

 
9

 

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 )
                 





 
10

 

 
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 )
Defferred 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  

 
11

 

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  

 
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