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James River Coal Company Reports Second Quarter 2005 Financial Results

Posted on: Thursday, 11 August 2005, 09:01 CDT

RICHMOND, Va., Aug. 11 /PRNewswire-FirstCall/ -- James River Coal Company , a producer of steam and industrial grade coal, today announced that it had a net loss of $1.0 million or $0.07 per fully diluted share, for the second quarter of 2005. The net loss for the quarter reflects the impact of a one-time charge of approximately $2.5 million, or $2.0 million after tax or $0.14 per share, for the repayment of debt.

Peter T. Socha, Chairman and Chief Executive Officer of James River, commented: "This was a very busy and productive quarter. Our mines performed very well. We completed our acquisition of Triad. We put in place a balance sheet for future growth by completing both stock and bond offerings during a very difficult time in the global capital markets. We worked with the railroads through some operational challenges. Lastly, but certainly very importantly, we continued to attract extremely talented individuals to join our team. Overall, it was a very good quarter."

QUARTERLY RESULTS

The following table shows selected operating results for the quarter ended June 30, 2005 compared to the quarter ended June 30, 2004 (in 000's, except per ton amounts). Readers should note that the Company's financial statements after our emergence from bankruptcy protection in May 2004 (Successor Company) are not comparable to the financial statements of the pre-emergence company (Predecessor Company). The following table includes the results of operations of Triad from the date of acquisition (May 31, 2005).

Three Months Ended June 30, 2005 2004 Total Per Ton Total Per Ton Company production (tons) 2,451 2,118 Coal from other sources (tons) 314 282 Total coal available to ship (tons) 2,765 2,400 Coal shipped (tons) 2,648 2,372 Revenues Coal sales $111,055 41.94 95,681 40.34 Synfuel handling 2,258 1,895 Cost of coal sold 90,965 34.35 70,896 29.89 Depreciation, depletion and amortization 11,571 4.37 8,580 3.62 Gross profit 10,777 4.07 18,100 7.63 Selling, general and administrative 6,934 2.62 4,029 1.70 Operating Income 3,844 1.45 14,071 5.93

The following table shows selected results broken out by segments for the three months ended June 30, 2005 compared to the three months ended June 30, 2004 (in 000's, except per ton amounts):

Three Months Ended June 30, 2005 2004 CAPP Midwest CAPP Midwest Volume (tons) 2,349 299 2,372 - Coal sales revenue $103,014 8,041 95,681 - Average sales price per ton 43.85 26.89 40.34 - Cost of coal sold 84,989 5,976 70,896 - Cost of coal sold per ton 36.18 19.99 29.89 -

The following table shows selected operating results for each of the three months in the quarter ended June 30, 2005 (tons in 000's):

April May June CAPP Midwest CAPP Midwest CAPP Midwest Tons produced 823 - 827 - 805 310 Tons shipped 744 - 906 - 698 299

Mr. Socha continued: "Mining conditions this quarter were well balanced across the portfolio of mines. On the positive side, we have maintained production of more than 800,000 tons per month each month since February. On the negative side, we have been impacted by the same cost pressures that are present throughout the CAPP coal industry. Our normalized costs have increased by approximately $5.00 per ton during the past year due to increases for steel related purchased materials and trucking, labor and benefits, and higher costs for sales related charges.

"Our financial results this quarter were also impacted by well-publicized difficulties with rail transportation to our customers, the execution, and in some cases acceleration, of our growth and development plans, and lastly, by plant recoveries that were slightly below our expectations. Taken together, these items accounted for approximately $5 million, or $2.00 per ton during the quarter."

RESERVES

We estimate that, as of June 30, 2005, we controlled approximately 220.2 million tons of proven and probable coal reserves in the CAPP region and approximately 19.6 million tons in the Midwest. The table below provides additional information regarding changes to our reserves during the period noted (in millions of tons).

Six Months Ended June 30, 2005 CAPP Midwest Proven and Probable Reserves, at Beginning of Period 207.4 (1) 17.6 (2) Coal extracted (4.5) (1.5) Acquisitions and Adjustments 17.3 3.5 Proven and Probable Reserves, as of June 30, 2005 220.2 19.6 Note 1. The beginning period for CAPP is December 31, 2004, the date of our most recent 10-K Note 2. The beginning period for the Midwest is February 1, 2005, the date of our reserve study

The Company currently has a reserve life in the CAPP operations of greater than 20 years. The Company expects to continue acquiring reserves in the Midwest and expects to have a similar reserve life by mid-year 2007.

MINE 15 UPDATE

The development of Mine 15 at the McCoy Elkhorn complex continues on schedule. The Company expects initial production of development coal to begin in September 2005. The mine is expected to ramp up to full annualized production of approximately 1.4 to 1.5 million tons by the end of 2006. The Company currently expects to use this coal as a low sulfur (<1.0%) blending coal for the utility market.

GROWTH PROJECTS

The Company provided the following update on two strategic growth initiatives for 2005 and 2006:

1. Surface Mining of Existing Reserves The strategic plan for James River is to achieve balance between mining methods (underground and surface) and coal basins (CAPP and Midwest). As part of executing this plan, the Company is developing CAPP surface mine reserves that are, primarily, controlled by the Company. The initial project is the development of a surface mine project within the Blue Diamond mining complex. This project was originally planned to be operated by a contract miner. The management team decided during the first quarter to change this mine to a Company mine. All permits have been received and all major pieces of equipment have been acquired and are being mobilized to the mine site. The Company expects to begin production from this mine in September 2005. The operations and engineering teams have identified more than 40 additional surface mining projects that merit further review. More than 75% of these reserves are currently controlled by James River. Sixteen of the projects have current state mine permits, and the Corps of Engineers permitting process has already begun on these properties. The Company expects to pare this list to approximately six projects for short and medium term development. The Company expects initial production from 2-3 of these projects to begin during the second half of 2006 with an expected production of approximately 100,000 tons per month prior to December 2006. This production has not been included in current guidance. 2. Preparation Plant Projects The operations and engineering teams have developed a list of projects that are intended to improve the yield from our existing preparation plants. The projects are concentrated in the screening and separation areas of the plants. The Company currently expects these projects to require total funds of $9-11 million. Approximately ninety percent (90%) of these funds will be capital expenditures, with the remaining funds expensed as they are incurred. These projects are expected to improve the overall yield of our preparation plants by 1-2%, or 200,000 - 400,000 tons, per year. The Company has negotiated contracts for the major preparation plant projects. All projects are expected to be completed by the end of the first quarter of 2006. TURNOVER AND EMPLOYEE RELATIONS

Low turnover and strong employee relations continue to be very important to James River Coal Company. We believe that this leads to higher productivity and lower costs. This is particularly true in mining conditions with thinner coal seams and during a period of increased competition for skilled mining labor.

We believe that the average for turnover in the coal mining industry of Central Appalachia is approximately 20-30%. The overall net turnover for James River Coal Company in Central Appalachia for the twelve months ended June 30, 2005 was 10.1%.

GUIDANCE AND CONTRACT ACTIVITY

Below are forecasts, which represent a range of possible outcomes and are provided to assist investors with the development of annual earnings estimates. While the Company believes that these forecasts represent the best estimate of management as to future events, actual events will differ from these forecasts and such differences could be material. These forecasts are subject to the risks identified under Forward Looking Statements below. These forecasts are for CAPP production only. The production guidance in this table does not include any production from Company operated surface mines discussed elsewhere in this release.

2005 2006 2007 (final 6 months) CAPP Operations (in millions, except per ton amounts) Guidance tons 4.5 - 4.9 10.7 - 11.1 11.2 - 11.6 Tons committed and priced 4.6 5.8 1.6 Average price of committed tons $42.46 $42.90 $38.37 Depreciation, depletion and amortization $19 - $22 $40 - $43 $42 - $48 Capital expenditures $33 - $39 $40 - $43 $42 - $48 Tax rate 20% 25% 25% Midwest Operations (in millions, except per ton amounts) Tons committed and priced 1.8 3.4 1.2 Average price of committed tons $24.22 $24.92 $24.77

The Company expects to provide more detailed guidance for the Midwest operations in the fourth quarter of 2005.

CONFERENCE CALL AND WEBCAST AND REPLAY: The Company will hold a conference call with management to discuss first quarter earnings on August 11, 2005 at 11:00 a.m. Eastern Time. The conference call can be accessed by dialing 888-202-2422, or through the James River Coal Company website at http://www.jamesrivercoal.com/. International callers, please dial 913-981- 5592. 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: passcode 3349476.

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: a change 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 exploit additional coal reserves, including contiguous reserves to those currently held by Triad; inability to sell the coal from Mine 15 into the metallurgical coal market; failure to diversify our operations; increased capital expenditures; encountering difficult mining conditions; increased compliance costs; bottlenecks or other difficulties in transporting coal to our customers; lack of availability of financing sources; the effects of regulation and competition; additional turnover of employees and independent contractors; the risk that the Company is unable to successfully integrate the Triad business; and the risk factors detailed in our S-1 registration statement declared effective by the Securities and Exchange Commission on May 24, 2005, which factors are incorporated herein by reference. 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.

Additional information concerning these and other factors can be found in James River Coal Company's public filings with the Securities and Exchange Commission.

FINANCIAL STATEMENTS JAMES RIVER COAL COMPANY AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands) June 30, 2005 December 31, 2004 Assets (Unaudited) Current assets: Cash $26,038 3,879 Receivables: Trade 39,403 23,871 Other 40 7,362 Total receivables 39,443 31,233 Inventories: Coal 9,921 2,305 Materials and supplies 5,649 4,084 Total inventories 15,570 6,389 Prepaid royalties 4,601 4,358 Other current assets 3,218 6,337 Total current assets 88,870 52,196 Property, plant, and equipment, at cost: Land 5,832 2,698 Mineral rights 194,564 162,577 Buildings, machinery and equipment 159,943 106,105 Mine development costs 16,783 5,729 Construction-in-progress 2,169 231 Total property, plant, and equipment 379,291 277,340 Less accumulated depreciation, depletion, and amortization 42,790 21,765 Property, plant and equipment, net 336,501 255,575 Goodwill 31,444 - Restricted cash 13,262 8,404 Other assets 17,260 11,651 Total assets $487,337 327,826 Liabilities and Shareholders' Equity Current liabilities: Current maturities of long-term debt $259 2,700 Current installments of obligations under capital leases 374 388 Accounts payable 22,520 15,116 Accrued salaries, wages, and employee benefits 4,248 2,093 Workers' compensation benefits 12,175 12,090 Black lung benefits 2,600 2,600 Accrued taxes 3,812 3,530 Other current liabilities 6,462 3,633 Total current liabilities 52,450 42,150 Long-term debt, less current maturities 150,000 92,300 Other liabilities: Noncurrent portion of workers' compensation benefits 38,337 38,223 Noncurrent portion of black lung benefits 23,496 23,341 Pension obligations 13,899 15,744 Asset retirement obligations 22,923 14,939 Obligations under capital leases, excluding current installments 404 637 Deferred income taxes 64,487 34,615 Other 231 292 Total liabilities 366,227 262,241 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 16,585,256 and 14,740,694, respectively 166 147 Paid-in-capital 129,178 71,784 Deferred stock-based compensation (8,787) (7,540) Retained earnings 445 1,151 Accumulated other comprehensive income 108 43 Total shareholders' equity 121,110 65,585 Commitments and contingencies Total liabilities and shareholders' equity $487,337 327,826 JAMES RIVER COAL COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited) Successor Successor Predecessor Three Months Two Months One Month Ended Ended Ended 06/30/05 06/30/04 04/30/04 Revenues $113,313 64,485 33,091 Cost of sales: Cost of coal sold 90,965 47,310 23,586 Depreciation, depletion, and amortization 11,571 5,538 3,042 Total cost of sales 102,536 52,848 26,628 Gross profit 10,777 11,637 6,463 Selling, general, and administrative expenses 6,934 2,566 1,463 Total operating income 3,843 9,071 5,000 Interest expense 2,919 1,302 164 Interest income (39) (14) - Charges associated with repayment of debt 2,524 - - Miscellaneous income, net (293) (289) (277) Total other expense, net 5,111 999 (113) Income (loss) before reorganization items and income taxes (1,268) 8,072 5,113 Reorganization items, net - - (102,465) Income (loss) before income taxes (1,268) 8,072 107,578 Income tax (benefit) expense (251) 1,727 - Net income (loss) $(1,017) 6,345 107,578 Earnings (loss) per common share Basic earnings (loss) per common share $(0.07) 0.46 6,369.32 Shares used to calculate basic earnings per share 14,461 13,800 17 Diluted earnings (loss) per common share $(0.07) 0.43 6,369.32 Shares used to calculate diluted earnings per share 14,461 14,629 17 Successor Successor Predecessor Six Months Two Months Four Months Ended Ended Ended 06/30/05 06/30/04 04/30/04 Revenues $211,188 64,485 113,949 Cost of sales: Cost of coal sold 171,907 47,310 89,294 Depreciation, depletion, and amortization 21,049 5,538 12,314 Total cost of sales 192,956 52,848 101,608 Gross profit 18,232 11,637 12,341 Selling, general, and administrative expenses 11,969 2,566 5,023 Total operating income 6,263 9,071 7,318 Interest expense (note 3) 5,105 1,302 566 Interest income (61) (14) - Charges associated with repayment of debt (note 3) 2,524 - - Miscellaneous income, net (416) (289) (330) Total other expense, net 7,152 999 236 Income (loss) before reorganization items and income taxes (889) 8,072 7,082 Reorganization items, net (note 6) - - (100,907) Income (loss) before income taxes (889) 8,072 107,989 Income tax (benefit) expense (183) 1,727 - Net income (loss) $(706) 6,345 107,989 Earnings (loss) per common share (note 7) Basic earnings (loss) per common share $(0.05) 0.46 6,393.67 Shares used to calculate basic earnings per share 14,131 13,800 17 Diluted earnings (loss) per common share $(0.05) 0.43 6,393.67 Shares used to calculate diluted earnings per share 14,131 14,629 17

James River Coal Company

CONTACT: Elizabeth M. Cook, Director of Investor Relations of JamesRiver Coal Company, +1-804-780-3000

Web site: http://www.jamesrivercoal.com/

Source: PRNewswire-FirstCall

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