James River Coal reports profit, change in takeover policy

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Related Companies James River Coal Co. (JRCC)

Related Documents Earnings Release (ER) James River Coal Co. 9/30/2009, filed on 11/3/2009

James River Coal Co. on Nov. 3 reported third-quarter net income of $9.8 million, or 36 cents per share, and net income of $54.2 million, or $1.97 per share, for the nine months ended Sept. 30.

The Thomson First Call mean estimate of analyst expectations had called for net income of 36 cents per share in the third quarter, according to SNL Financial.

The 2009 numbers compare to a net loss of $21.7 million, or 86 cents per share, in the third quarter of 2008 and a net loss of $62.4 million, or $2.62 per share, for the nine months ended Sept. 30, 2008.

"This was a relatively quiet quarter at James River Coal Company. We are continuing to post very strong financial results for our shareholders," James River Chairman and CEO Peter Socha said. "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."

James River reported company and contractor production of 2.4 million tons in the third quarter, down from 2.7 million tons in the year-ago period. In the company's main Central Appalachia production area, company and contractor output was 1.6 million in the third quarter, down from 1.9 million tons a year ago. In Indiana in the Midwest, production was 784,000 tons last quarter, down from 839,000 tons in the third quarter of 2008.

The average sales price per ton in the third quarter was $85.84 in Central Appalachia, up sharply from $64.02 in the third quarter of 2008. In the Midwest, the price rise was much smaller, from $33.31 per ton in the year-ago quarter to $34.03 per ton in the latest quarter. The cost of coal sold in Central Appalachia was $63.11 per ton in the third quarter, up from $58.59 per ton in the year-ago period. In the Midwest, the cost of coal sold rose to $30.83 per ton in the third quarter from $30.40 per ton in the year-ago quarter.

"Our Central Appalachia operations continued to perform well," James River Senior Vice President and COO C.K. Lane said. "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."

"We were very pleased to reach agreement for future deliveries from both our CAPP and our Midwest operations this quarter," Socha said about future prospects. "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."

Rights agreement altered to protect tax benefits

James River also announced that its board of directors amended its rights agreement dated May 25, 2004, as amended, in order to preserve the company's ability to use substantial net operating loss (NOL) carry-forwards to offset future taxable income under the Internal Revenue Code. The amendment will be effective Nov. 3. As of Dec. 31, 2008, the company had regular federal NOL carry-forwards of about $240 million and federal alternative minimum tax (AMT) NOL carry-forwards of about $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," James River said. "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 extra 0.5% of the stock of James River without the advance approval of the company's board. The lower threshold of 4.9 % will expire on Dec. 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," James River said. "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."