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James River Coal Company Reports Fourth Quarter 2005 Financial Results

Posted on: Wednesday, 1 March 2006, 09:00 CST

RICHMOND, Va., March 1 /PRNewswire-FirstCall/ -- James River Coal Company , a producer of steam and industrial grade coal, today announced that it had a net loss of $9.4 million or $0.60 per fully diluted share, for the fourth quarter of 2005 and a net loss of $12.3 million or $0.83 per fully diluted share, for the year ended December 31, 2005.

"This was a very busy quarter and a very busy year for James River Coal Company," said Peter T. Socha, the Company's Chairman and Chief Executive Officer. "We spent a great deal of time and effort setting the stage for profitable growth in 2006 and 2007. However, setting the stage for profitable future growth has required substantial current investment. These investments have included both people and mine infrastructure. Thus far in 2006, we are clearly seeing the results of these investments. Our production in January 2006 from CAPP was 19% higher than the comparable period in 2005. During 2005, we closed three high cost mines and opened four new lower cost mines. Lastly, we are benefiting from new higher sales prices. Our average sales price in January 2006 was almost $6.00 per ton higher than the average CAPP sales price just one month earlier in December 2005. In summary, we are very confident about the future. Our major investment program has almost concluded, we have continued to attract some of the best employees and management in the coal mining industry and the overall industry dynamics continue to be very bright."

QUARTERLY RESULTS

Mr. Socha continued: "With a few minor exceptions, our mining conditions this quarter were good. We had three mines performing development work in connection with moves to better mining conditions. All three mines have completed this work and are currently in normal mining conditions. Our costs this quarter, detailed in the bridge below, were higher than the 3rd quarter of 2005 and the 4th quarter of 2004. We continue to be impacted by industry-wide cost inflation in both labor and raw materials. We have also been impacted by lower productivity resulting from more operational and safety training for our miners. Lower productivity was also due to more time being spent on belt and infrastructure maintenance. The fourth quarter is traditionally the slowest production time of year and our mine operations teams performed extra maintenance in expectation of a busy 2006. The strategy has proven to be successful as equipment and belt availability have both shown improvement in 2006. We have also seen a dramatic reduction in injuries and lost-time accidents. Lastly, our SG&A increased primarily due to salaries, benefits, and stock related compensation. We have added an entire team of managers and associates dedicated to the development of our new surface mines. This team includes technical, operations, and land acquisition personnel to acquire additional properties, design the new mines, obtain all necessary permits, and manage the new mine operations."

The following table shows selected operating results for the quarter ended December 31, 2005 compared to the quarter ended December 31, 2004 (in 000's, except per ton amounts). The following table includes the results of operations of Triad from the date of acquisition (May 31, 2005).

Total Results Three Months Ended December 31, 2005 2004 Total Per Ton Total Per Ton Coal Shipments (tons) 3,047 2,004 Revenues Coal Sales $117,914 38.70 75,355 37.60 Synfuel Handling 1,960 1,978 Cost of Coal Sold 111,241 36.51 70,034 34.95 Depreciation, Depletion, & Amort. 16,004 5.25 8,204 4.09 Gross Profit (7,371) (2.42) (906) (0.45) Selling, General & Administrative 6,833 2.24 4,004 2.00 Segment Results Three Months Ended December 31, 2005 2004 CAPP Midwest CAPP Midwest Coal Shipments (tons) 2,198 849 2,004 - Tons produced 2,101 833 1,935 - Coal sales revenue $94,352 23,562 75,355 - Average sales price per ton 42.93 27.75 37.60 - Cost of coal sold 91,034 20,207 70,034 - Cost of coal sold per ton 41.42 23.80 34.95 - Cost Bridge Q-3 2005 vs. Q-4 2005 Q-42004 vs. Q-4 2005 CAPP Midwest CAPP Midwest Beginning Cash Cost $38.78 20.59 34.95 - Labor Costs and benefits 0.60 1.10 3.05 - Variable Costs (steel, diesel, etc) 1.00 2.00 2.85 - Seasonal Factors (work days) 0.65 - - - Growth Costs 0.30 - 0.55 - Other Costs 0.09 0.11 0.02 - Ending Cash Cost 41.42 23.80 41.42 - NOTE: Growth Costs are temporary costs that may include, but are not limited to, trucking costs during the plant upgrade projects or extra labor staffing in advance of new mine openings. ANNUAL RESULTS

The following table shows selected operating results for the year ended December 31, 2005 compared to the year ended December 31, 2004 (in 000's, except per ton amounts). In order to provide a basis for comparing the year ended December 31, 2005 ("2005") with the year ended December 31, 2004 ("2004"), the operating results of the Successor Company for the eight months ended December 31, 2004 have been combined with the operating results for the Predecessor Company for the four months ended April 30, 2004, for purposes of the following table and discussion. The combining of the predecessor and successor accounting periods is not permitted by U.S. generally accepted accounting principles. Additionally, as explained above, the operating results of the Successor Company and the Predecessor Company are not comparable. Additionally, the Company's results of operations include the impact of the Triad acquisition subsequent to May 31, 2005.

Total Results Twelve Months Ended December 31, 2005 2004 Total Per Ton Total Per Ton Coal Shipments (tons) 11,091 8,882 Revenues Coal Sales $445,742 40.19 338,297 38.09 Synfuel Handling 8,257 7,350 Cost of Coal Sold 389,222 35.09 280,220 31.55 Depreciation, Depletion, & Amortization 51,822 4.67 34,079 3.84 Gross Profit 12,955 1.17 31,348 3.53 Selling, General & Administrative 25,453 2.29 16,435 1.85 Segment Results Twelve Months Ended December 31, 2005 2004 CAPP Midwest CAPP Midwest Coal Shipments (tons) 9,023 2,068 8,882 - Tons produced 9,100 2,055 8,851 - Coal sales revenue $389,861 55,881 338,297 - Average sales price per ton 43.21 27.02 38.09 - Cost of coal sold 344,094 45,128 280,220 - Cost of coal sold per ton 38.14 21.82 31.55 - RESERVES

We estimate that, as of December 31, 2005, we controlled approximately 241.6 million tons of proven and probable coal reserves in the CAPP region and approximately 20.2 million tons in the Midwest. The table below provides additional information regarding changes to our reserves during the period noted (in millions of tons).

CAPP Midwest Proven and Probable Reserves, as of September 30, 2005 241.2 19.9 Coal Extracted (2.1) (0.8) Acquisitions 3.5 1.1 Adjustments (1.0) - Proven and Probable Reserves, as of December 31, 2005 241.6 20.2 GUIDANCE AND SALES COMMITMENTS

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.

2006 2007 CAPP Operations ($ in millions, except per ton amounts) Guidance Production 10.8 - 11.2 11.8 - 12.4 Guidance Mining Costs (per ton) $38 - 39 $39 - 40 Tons committed and priced 9.1 1.6 Average price of committed tons $46.98 $38.37 Midwest Operations (in millions, except per ton amounts) Guidance Production 3.4 - 3.5 3.4 - 3.5 Guidance Mining Costs (per ton) $22 - 23 $23 - 24 Tons committed and priced 3.4 1.2 Average price of committed tons $24.92 24.77 Note: The average price for the Midwest Operations does not include cost index adjustments (diesel fuel) currently expected to be approximately $3.25 per ton Total JRCC Operations Depreciation, depletion and amortization $81 - 84 $83 - 89 Capital expenditures $80 - 85 $68 - 74 Tax rate 25% 25% GROWTH PROJECTS

Mr. Socha continued: "After opening a number of new mines, including the major investment at Mine 15, and shortly completing the upgrade projects at our coal prep plants, we are finally nearly at the end of our major initiatives and growth projects for 2004 through 2006. The remaining surface mine projects will be managed with our existing operations management team. The following represent a summary of the current status of each of these major investment projects."

Mine 15

Mine 15 at McCoy Elkhorn began producing coal in September 2005. Two crews of miners and equipment have been working separately at the base of the slope and shaft completing bottom development work. Due to the 10-15 year expected life of this mine, this development work has been more expensive and more time consuming than normal mining operations. The bottom development work has now been completed and the two crews of miners have joined together to begin advance mining. The second section of miners and equipment are expected to begin production during the second quarter of 2006.

Surface Mines and Highwall Miner

As previously disclosed, the strategic plan for James River is to achieve balance between mining methods (underground and surface) and coal basins (CAPP and Illinois Basin). The Company believes that these strategies will result in greater stability and visibility in operating and financial performance. As part of executing this plan, the Company is developing CAPP surface mine reserves that are, primarily, controlled by the Company. The operations and engineering teams have identified more than 40 projects that merit further review. Approximately six projects have been identified for short and medium term development, including the following:

The first company-operated surface mine opened in September 2005.

The second surface mining project being developed by the Company will be a highwall miner project at the Leeco mine complex. This mine is expected to begin production during the second quarter of 2006. The Company is currently conducting site preparation activities.

The Company anticipates that the third company operated surface mine will begin production during Q-4 2006.

Preparation Plant Upgrade Projects

The Bevins Branch Plant at the McCoy Elkhorn mine complex is being upgraded and expanded to accommodate extra production from Mine 15. Mine 15 is directly across the street from the Bevins Branch Plant. All coal from Mine 15 and the adjacent Mine 16 will be transported by beltline directly into the preparation plant. The upgrade and modification project is expected to significantly decrease our trucking costs at this mine complex. The newly expanded Bevins Branch plant is expected to begin processing coal in early March 2006.

The Leatherwood Plant at the Blue Diamond mine complex will replace older and less efficient coal processing technology with new heavy media cyclones. This project is expected to increase the output of clean coal from the plant by 1.5% to 2%. The efficiency project is expected to be completed in April 2006.

LIQUIDITY

The Company has entered into an amendment of its Senior Secured Credit Facility (the "Amendment") that restored our compliance with all of the financial covenants of the Senior Secured Credit Facility as of December 31, 2005 and revised certain covenants in the Senior Secured Credit Facility on an ongoing basis. As of December 31, 2005, we had available liquidity of approximately $33.9 million. This consisted of unrestricted cash on hand of approximately $8.9 million and availability under the revolver component of our Senior Secured Credit Facility of approximately $25.0 million.

CONFERENCE CALL AND WEBCAST AND REPLAY: The Company will hold a conference call with management to discuss fourth quarter earnings on March 1, 2006 at 11:00 a.m. Eastern Time. The conference call can be accessed by dialing 800-240-7305, or through the James River Coal Company website at http://www.jamesrivercoal.com/. International callers, please dial 303-262- 2131. 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 4667347.

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 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 exploit additional coal reserves, including reserves contiguous to those currently held by our Midwest operations; increased capital expenditures; encountering difficult mining conditions; increased compliance costs; 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; 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 Consolidated Balance Sheets December 31, 2005 and 2004 (in thousands, except share data) December 31, December 31, 2005 2004 Assets Current assets: Cash $8,936 3,879 Receivables: Trade 35,326 23,871 Other 1,099 7,362 Total receivables 36,425 31,233 Inventories: Coal 7,481 2,305 Materials and supplies 6,536 4,084 Total inventories 14,017 6,389 Prepaid royalties 4,213 4,358 Other current assets 4,126 6,337 Total current assets 67,717 52,196 Property, plant, and equipment, at cost: Land 6,142 2,698 Mineral rights 194,824 162,577 Buildings, machinery and equipment 207,558 106,105 Mine development costs 16,380 5,729 Construction-in-progress 7,438 231 Total property, plant, and equipment 432,342 277,340 Less accumulated depreciation, depletion, and amortization 72,342 21,765 Property, plant and equipment, net 360,000 255,575 Goodwill 28,048 - Restricted cash - 8,404 Other assets 16,904 11,651 Total assets $472,669 327,826 JAMES RIVER COAL COMPANY AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2005 and 2004 (in thousands, except share data) December 31, December 31, 2005 2004 Liabilities and Shareholders' Equity (Deficit) Current liabilities: Current maturities of long-term debt $- 2,700 Current installments of obligations under capital leases 395 388 Accounts payable 32,855 15,116 Accrued salaries, wages, and employee benefits 4,289 2,093 Workers' compensation benefits 10,050 12,090 Black lung benefits 2,930 2,600 Accrued taxes 4,215 3,530 Other current liabilities 6,860 3,633 Total current liabilities 61,594 42,150 Long-term debt, less current maturities 150,000 92,300 Other liabilities: Noncurrent portion of workers' compensation benefits 42,231 38,223 Noncurrent portion of black lung benefits 24,352 23,341 Pension obligations 13,598 15,744 Asset retirement obligations 24,930 14,939 Obligations under capital leases, excluding current installments 230 637 Deferred income taxes 44,240 34,615 Other 227 292 Total other liabilities 149,808 127,791 Total liabilities 361,402 262,241 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 16,652,681 and 14,715,694 shares as of December 31, 2005 and 2004, respectively 167 147 Paid-in-capital 135,923 71,784 Deferred stock-based compensation (13,226) (7,540) Retained earnings (accumulated deficit) (11,187) 1,151 Accumulated other comprehensive income (loss) (410) 43 Total shareholders' equity 111,267 65,585 Commitments and contingencies Total liabilities and shareholders' equity $472,669 327,826 JAMES RIVER COAL COMPANY AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except per share data) Successor Successor Predecessor Predecessor Eight Four Year Months Months Year Ended Ended Ended Ended December 31, December 31, April 30, December 31, 2005 2004 2004 2003 Revenues $453,999 231,698 113,949 304,052 Cost of sales: Cost of coal sold 389,222 190,926 89,294 278,939 Depreciation, depletion, and amortization 51,822 21,765 12,314 40,427 Total cost of sales 441,044 212,691 101,608 319,366 Gross profit (loss) 12,955 19,007 12,341 (15,314) Selling, general, and administrative expenses 25,453 11,412 5,023 19,835 Total operating income (loss) (12,498) 7,595 7,318 (35,149) Interest expense 12,892 5,733 567 18,536 Interest income (226) (72) - (144) Charges associated with repayment of debt 2,524 - - - Miscellaneous income, net (1,067) (833) (331) (1,519) Total other expense, net 14,123 4,828 236 16,873 Income (loss) before reorganization items and income taxes (26,621) 2,767 7,082 (52,022) Reorganization items, net - - (100,907) 7,630 Income (loss) before income taxes (26,621) 2,767 107,989 (59,652) Income tax expense (benefit) (14,283) 791 - (2,891) Net income (loss) before cumulative effect of accounting change (12,338) 1,976 107,989 (56,761) Cumulative effect of accounting change - - - (3,045) Net income (loss) (12,338) 1,976 107,989 (59,806) Preferred dividends - - - (340) Net income (loss) attributable to common shareholders $(12,338) 1,976 107,989 (60,146) Earnings (loss) per common share Basic earnings (loss) per common share Income (loss) before cumulative effect of accounting change $(0.83) 0.14 6,393.67 (3,380.78) Cumulative effect of accounting change - - - (180.28) Net income (loss) $(0.83) 0.14 6,393.67 (3,561.06) Shares used to calculate basic earnings (loss) per share 14,955 13,800 17 17 Diluted earnings (loss) per common share Income (loss) before cumulative effect of accounting change $(0.83) 0.14 6,393.67 (3,380.78) Cumulative effect of accounting change - - - (180.28) Net income (loss) $(0.83) 0.14 6,393.67 (3,561.06) Shares used to calculate dilutive earnings (loss) per share 14,955 14,623 17 17 CONTACT: James River Coal Company Elizabeth M. Cook Director of Investor Relations (804) 780-3000

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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