James River Coal Company Reports Q3 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 -- 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
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
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
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
Reconciliation of Non-GAAP Measures
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.