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Filed pursuant
to Rule 424(b)(3) PROSPECTUS
3,500,000 Shares COMMON STOCK
File No. 333-124147
Our common stock is listed on the Nasdaq National Market under the symbol JRCC. On May 24, 2005, the reported last sale price of our common stock on the Nasdaq National Market was $32.99 per share.
Concurrent with this offering of shares of our common stock, we are also offering under a separate prospectus $150 million aggregate principal amount of our senior notes due 2012. The offering of shares of our common stock under this prospectus is not contingent on the consummation of the concurrent note offering.
Price to Public |
Underwriting Discounts and Commissions |
Proceeds, before Expenses, to James River Coal Company |
Proceeds to Selling Shareholder |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Per
share |
$32.50 |
$2.1125 |
$30.3875 |
$30.3875 |
||||||||||||||
Total |
$113,750,000 |
$7,393,750 |
$45,581,250 |
$60,775,000 |
James River Coal Company has granted the underwriters the right to purchase up to an additional 525,000 shares to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock to purchasers on or about May 31, 2005.
WACHOVIA SECURITIES |
RAYMOND JAMES |
May 24, 2005
TABLE OF CONTENTS
Page |
||||||
---|---|---|---|---|---|---|
Prospectus
Summary |
1 | |||||
Risk
Factors |
11 | |||||
Forward
Looking Statements |
28 | |||||
Market for Our
Common Stock |
29 | |||||
Use of
Proceeds |
30 | |||||
Dividend
Policy |
30 | |||||
Capitalization |
31 | |||||
Unaudited Pro
Forma Condensed Consolidated Financial Statements |
32 | |||||
Selected
Historical Financial Data |
40 | |||||
Managements Discussion and Analysis of Financial Condition and Results of Operations |
44 | |||||
The Coal
Industry |
62 | |||||
Business |
67 | |||||
The Triad
Acquisition |
77 | |||||
Government
Regulation |
82 | |||||
Management |
88 | |||||
Executive
Compensation |
91 | |||||
Principal and
Selling Shareholders |
101 | |||||
Related Party
Transactions |
103 | |||||
Description of
Capital Stock |
104 | |||||
Description of
Indebtedness |
110 | |||||
Shares
Eligible for Future Sale |
112 | |||||
Underwriting |
115 | |||||
Legal
Matters |
118 | |||||
Experts |
118 | |||||
Where You Can
Find More Information |
118 | |||||
Index to Our
Consolidated Financial Statements |
F-1 | |||||
Index to Triad
Mining, Inc. Consolidated Financial Statements |
T-1 |
i
PROSPECTUS SUMMARY
The Company
1
Competitive Strengths
Electric utilities prefer the high-energy, low sulfur characteristics that our coal reserves exhibit
We operate in areas with producer-favorable supply and demand dynamics for the types of coal we produce
We have highly productive, low cost operations
2
We have extensive experience in thin seam mining
Our balance sheet enhances our financial flexibility
We have assembled a strong, experienced team of senior managers with a track record of successful operations
Business Strategy
Capitalizing on industry conditions through the opportunistic contracting of our coal
Maintaining our position as a low-cost producer
|
Productivity: High productivity is a key area of focus for all of our employees and is a core component of the James River culture. We compare our five mining complexes on tonnage, Linear Feet (of mine advance) Per Man Hour (LFPMH) and other metrics, which helps us to assess the relative performance of our operations. We employ an incentive-based compensation structure for our mine-level employees based in part on tonnage produced and on efficiency. |
|
Costs: We actively monitor our spending and fixed-cost base by continuously assessing our cost per ton produced. We selectively use our capital to enhance our cost structure and overall productivity by, for example, investing in preparation plants and conveyors. Furthermore, we focus on minimizing non-mining costs, such as administrative overhead. |
3
Maximizing the consistency and profitability of our mining operations through diversification and balance
|
Mining methods: While maintaining our strength in underground mining, we intend to expand our surface mining operations. Triad currently operates six surface mines and one underground mine, which will significantly enhance the balance between our underground and surface mining operations. We expect that adding surface mines to our operations will reduce the overall costs per ton and volatility of the production at our mining operations. |
|
Coal basins: In addition to expanding our production in the Central Appalachian basin, we plan to expand our operations in other coal basins. Through the Triad acquisition, we will begin operating in the Illinois basin, thereby diversifying our operations into an area with supply/demand dynamics and mining conditions that differ from those in Central Appalachia. |
|
Other diversification opportunities: In addition to seeking balance between mining methods and coal basins, we will seek opportunities in other energy-related areas within our existing regions of operation. |
Pursuing growth opportunities via the efficient use of capital
Demand for Coal
4
Additional Information
Risk Factors
5
Summary Historical and Unaudited Pro Forma Financial Information
6
Predecessor Company |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, |
||||||||||||||||||||||||||||||||||||||||||
Pro Forma Three Months Ended 3/31/05 |
Successor Company Three Months Ended 3/31/05 |
Pro Forma Twelve Months Ended 12/31/04 |
Successor Company Eight Months Ended 12/31/04 |
Four Months Ended 4/30/04 |
Three Months Ended 3/31/04 |
2003 |
2002 |
2001 |
||||||||||||||||||||||||||||||||||
(All amounts in thousands, except per ton amounts) |
||||||||||||||||||||||||||||||||||||||||||
Statement of
Operations Data: |
||||||||||||||||||||||||||||||||||||||||||
Revenues
|
$ | 121,271 | 97,875 | 427,250 | 231,698 | 113,949 | 80,858 | 304,052 | 397,599 | 384,248 | ||||||||||||||||||||||||||||||||
Cost of coal
sold |
98,145 | 80,942 | 339,511 | 190,926 | 89,294 | 65,707 | 278,939 | 344,222 | 328,408 | |||||||||||||||||||||||||||||||||
Depreciation,
depletion, and amortization |
12,214 | 9,478 | 42,572 | 21,765 | 12,314 | 9,272 | 40,427 | 46,393 | 43,175 | |||||||||||||||||||||||||||||||||
Gross profit
(loss) |
10,912 | 7,455 | 45,167 | 19,007 | 12,341 | 5,879 | (15,314 | ) | 6,984 | 12,665 | ||||||||||||||||||||||||||||||||
Selling,
general, and administrative expenses |
6,259 | 5,035 | 24,226 | 11,412 | 5,023 | 3,561 | 19,835 | 19,994 | 15,725 | |||||||||||||||||||||||||||||||||
Other operating
expenses |
| | | | | | | 26,554 | | |||||||||||||||||||||||||||||||||
Operating
income (loss) |
4,653 | 2,420 | 20,941 | 7,595 | 7,318 | 2,318 | (35,149 | ) | (39,564 | ) | (3,060 | ) | ||||||||||||||||||||||||||||||
Interest
expense |
3,832 | 2,186 | 15,433 | 5,733 | 567 | 403 | 18,536 | 29,883 | 23,923 | |||||||||||||||||||||||||||||||||
Interest income
|
(21 | ) | (21 | ) | (72 | ) | (72 | ) | | | (144 | ) | (1,003 | ) | (662 | ) | ||||||||||||||||||||||||||
Miscellaneous
income, net |
(52 | ) | (123 | ) | (1,221 | ) | (833 | ) | (331 | ) | (53 | ) | (1,519 | ) | (1,222 | ) | 206 | |||||||||||||||||||||||||
Reorganization
items, net |
| | | | (100,907 | ) | 1,557 | 7,630 | | | ||||||||||||||||||||||||||||||||
Income tax
expense (benefit) |
198 | 69 | 1,701 | 791 | | | (2,891 | ) | (8,125 | ) | (10,318 | ) | ||||||||||||||||||||||||||||||
Income (loss)
before cumulative effect of accounting change |
696 | 309 | 5,100 | 1,976 | 107,989 | 411 | (56,761 | ) | (59,097 | ) | (16,209 | ) | ||||||||||||||||||||||||||||||
Cumulative
effect of accounting change |
| | | | | | (3,045 | ) | | | ||||||||||||||||||||||||||||||||
Net income
(loss) |
696 | 309 | 5,100 | 1,976 | 107,989 | 411 | (59,806 | ) | (59,097 | ) | (16,209 | ) | ||||||||||||||||||||||||||||||
Preferred
dividends |
| | | | | | (340 | ) | (680 | ) | (595 | ) | ||||||||||||||||||||||||||||||
(Increase)
decrease in redemption amount of redeemable common stock |
| | | | | | | 8,798 | 45,831 | |||||||||||||||||||||||||||||||||
Net income
(loss) attributable to common shareholders |
696 | 309 | 5,100 | 1,976 | 107,989 | 411 | (60,146 | ) | (50,979 | ) | 29,027 | |||||||||||||||||||||||||||||||
Consolidated
Balance Sheet Data (at end of period): |
||||||||||||||||||||||||||||||||||||||||||
Working capital
(deficit) (1) |
48,610 | 4,213 | 10,046 | 5,896 | 12,227 | 9,009 | (263,146 | ) | (241,857 | ) | ||||||||||||||||||||||||||||||||
Property,
plant, and equipment, net |
308,120 | 260,781 | 255,575 | 254,259 | 254,646 | 257,156 | 270,989 | 310,643 | ||||||||||||||||||||||||||||||||||
Total assets
|
473,716 | 341,133 | 327,826 | 332,589 | 327,241 | 318,289 | 340,311 | 393,411 | ||||||||||||||||||||||||||||||||||
Long term debt,
including current portion |
150,885 | 95,000 | 95,000 | 6,400 | 6,400 | | 252,876 | 249,576 | ||||||||||||||||||||||||||||||||||
Liabilities
subject to compromise |
| | | 319,451 | 319,813 | 319,595 | | | ||||||||||||||||||||||||||||||||||
Total
shareholders equity (deficit) |
120,973 | 66,342 | 65,585 | (127,837 | ) | (123,189 | ) | (123,601 | ) | (68,726 | ) | (9,034 | ) | |||||||||||||||||||||||||||||
Consolidated
Statement of Cash Flow Data: |
||||||||||||||||||||||||||||||||||||||||||
Net cash
provided by (used in) |
||||||||||||||||||||||||||||||||||||||||||
Operating
activities |
12,689 | 14,098 | 1,513 | (3,071 | ) | 23,033 | 28,899 | 30,793 | ||||||||||||||||||||||||||||||||||
Investing
activities |
(14,711 | ) | (21,744 | ) | (9,463 | ) | (6,796 | ) | (15,660 | ) | (33,522 | ) | (43,640 | ) | ||||||||||||||||||||||||||||
Financing
activities |
(133 | ) | 10,224 | 4,361 | 6,299 | (2,489 | ) | 3,347 | 14,119 | |||||||||||||||||||||||||||||||||
Capital
expenditures |
16,446 | 14,690 | 40,037 | 25,811 | 9,521 | 6,815 | 20,116 | 22,925 | 43,694 | |||||||||||||||||||||||||||||||||
Other
Financial Data: |
||||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA
(2) |
16,919 | 12,021 | 64,734 | 30,193 | 19,963 | 11,643 | 6,797 | 8,051 | 39,909 | |||||||||||||||||||||||||||||||||
Long term debt,
including current portion (3) |
150,885 | 95,000 | 95,000 | 325,851 | 326,213 | 319,595 | 252,876 | 249,576 | ||||||||||||||||||||||||||||||||||
Interest
expense |
3,832 | 2,186 | 15,433 | 5,733 | 567 | 403 | 18,536 | 29,883 | 23,923 | |||||||||||||||||||||||||||||||||
Ratio of
earnings to fixed charges (4) |
1.2 | 1.2 | 1.4 | 1.5 | 160.3 | 2.2 | | | | |||||||||||||||||||||||||||||||||
Supplemental
Operating Data: |
||||||||||||||||||||||||||||||||||||||||||
Tons sold
|
3,128 | 2,228 | 12,273 | 5,775 | 3,107 | 2,287 | 10,083 | 13,926 | 14,065 | |||||||||||||||||||||||||||||||||
Tons produced
|
3,206 | 2,301 | 12,235 | 5,770 | 3,081 | 2,400 | 9,294 | 12,350 | 13,134 | |||||||||||||||||||||||||||||||||
Revenue per ton
sold (excluding synfuel) |
$ | 38.30 | 43.27 | 34.21 | 39.21 | 35.98 | 34.65 | 29.53 | 28.26 | 27.29 |
7
(1) | Working capital is current assets less current liabilities. |
(2) | Adjusted EBITDA is a measure used by management to measure operating performance. We define Adjusted EBITDA as net income plus interest expense (net), income tax expense (benefit) and depreciation, depletion and amortization (EBITDA), as thereafter adjusted by management for items related to our reorganization and the cumulative effect of accounting changes, to better measure our operating performance. We regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates by using Adjusted EBITDA. In addition, we use Adjusted EBITDA in evaluating acquisition targets. |
Adjusted EBITDA is not a recognized term under GAAP and is 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 Adjusted EBITDA
may not be comparable to other similarly titled measures of other companies. Additionally, Adjusted EBITDA is not intended to be a measure of free cash
flow for managements discretionary use, as it does not reflect certain cash requirements such as tax payments, interest payments and other
contractual obligations. The amounts presented for Adjusted EBITDA differ from the amounts calculated under the definition of EBITDA used in our debt
covenants. The definition of EBITDA used in our debt covenants is further adjusted for certain cash and non-cash charges and 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. |
Our pro forma Adjusted EBITDA for the three months ended March 31, 2005 and the year ended December 31, 2004 and our Adjusted EBITDA for the three months ended March 31, 2005, the three months ended March 31, 2004, the eight months ended December 31, 2004, the four months ended April 30, 2004 and the years ended December 31, 2003, 2002 and 2001 is calculated and reconciled to net income in the table below: |
Predecessor Company |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, |
||||||||||||||||||||||||||||||||||||||||||
Pro Forma Three Months Ended 3/31/05 |
Successor Company Three Months Ended 3/31/05 |
Pro Forma Twelve Months Ended 12/31/04 |
Successor Company Eight Months Ended 12/31/04 |
Four Months Ended 4/30/04 |
Three Months Ended 3/31/04 |
2003 |
2002 |
2001 |
||||||||||||||||||||||||||||||||||
(All amounts in thousands) |
||||||||||||||||||||||||||||||||||||||||||
Net income
(loss) |
$ | 696 | 309 | 5,100 | 1,976 | 107,989 | 411 | (59,806 | ) | (59,097 | ) | (16,209 | ) | |||||||||||||||||||||||||||||
Income tax
expense (benefit) |
198 | 69 | 1,701 | 791 | | | (2,891 | ) | (8,125 | ) | (10,318 | ) | ||||||||||||||||||||||||||||||
Interest
expense |
3,832 | 2,186 | 15,433 | 5,733 | 567 | 403 | 18,536 | 29,883 | 23,923 | |||||||||||||||||||||||||||||||||
Interest income
|
(21 | ) | (21 | ) | (72 | ) | (72 | ) | | | (144 | ) | (1,003 | ) | (662 | ) | ||||||||||||||||||||||||||
Depreciation,
depletion, and amortization |
12,214 | 9,478 | 42,572 | 21,765 | 12,314 | 9,272 | 40,427 | 46,393 | 43,175 | |||||||||||||||||||||||||||||||||
EBITDA
|
16,919 | 12,021 | 64,734 | 30,193 | 120,870 | 10,086 | (3,878 | ) | 8,051 | 39,909 | ||||||||||||||||||||||||||||||||
Cumulative
effect of accounting change |
| | | | | | 3,045 | | | |||||||||||||||||||||||||||||||||
Reorganization
items, net |
| | | | (100,907 | ) | 1,557 | 7,630 | | | ||||||||||||||||||||||||||||||||
Adjusted
EBITDA |
$ | 16,919 | 12,021 | 64,734 | 30,193 | 19,963 | 11,643 | 6,797 | 8,051 | 39,909 |
(3) | During the predecessor period, debt includes liabilities subject to compromise. |
(4) | For purposes of this computation, earnings consist of pre-tax income from continuing operations plus fixed charges. Fixed charges consist of interest expense on all indebtedness plus amortization of deferred costs of financing and the interest component of lease rental expense. Earnings were insufficient to cover fixed charges by $59.7 million, $67.2 million and $26.5 million for the years ended December 31, 2003, 2002 and 2001, respectively. Excluding the effect of the Triad acquisition, the pro forma ratio of earnings to fixed charges is 37.0 for the four months ended April 30, 2004 (Predecessor Company). The amount of the pro forma deficiency of earnings to fixed charges for the three months ended March 31, 2005 (Successor Company) and the eight months ended December 31, 2004 (Successor Company) is $1,585 and $4,376, respectively. |
8
The Offering
Common stock
offered: |
||||||
By James River
Coal Company |
1,500,000 shares |
|||||
By selling
shareholder |
2,000,000 shares |
|||||
Total |
3,500,000 shares |
|||||
Common stock
to be outstanding after this offering |
16,240,694 shares |
|||||
Over-allotment
option |
The
underwriters have an option to purchase 525,000 additional shares of our common stock from us to cover any over-allotments. |
|||||
Use of
proceeds |
We
estimate that we will receive gross proceeds of approximately $48.7 million from our sale of the common stock in this offering and $150.0 million from our sale of the notes in the concurrent offering. If the underwriters exercise their
over-allotment option in full, we estimate that we will receive gross proceeds of approximately $65.8 million from our sale of common stock. We will
not receive any of the proceeds from the sale of common stock by the selling shareholder. |
|||||
We
intend to use the gross proceeds of this offering and the concurrent notes offering in the following manner: |
||||||
approximately $95.0 million (without giving effect to payments since March 31, 2005) to repay amounts outstanding under our Senior
Secured Credit Facility and our Term Credit Facility; |
||||||
approximately $58.7 million to finance the Triad acquisition; |
||||||
approximately $11.4 million for offering expenses, including underwriting discounts, and for the pre-payment penalty under our existing
debt facilities; and |
||||||
approximately $33.6 million for general corporate purposes, which may be used to fund internal growth projects or to reduce the
underfunded portion of our pension plan. |
||||||
If
the Triad acquisition is not consummated, the amount of the net proceeds of this offering and the concurrent notes offering available for general
corporate purposes will increase commensurately. Completion of this common stock offering is not contingent upon completion of the notes offering. If
the concurrent notes offering is not completed, proceeds of this offering will first be used to finance the Triad acquisition. See Use of
Proceeds. |
||||||
Dividend
policy |
We
currently do not anticipate paying cash dividends on our shares of common stock in the near future. |
|||||
Nasdaq National
Market symbol |
JRCC |
9
Concurrent Financings
10
RISK FACTORS
Risks Related to the Coal Industry
Because the demand and pricing for coal is greatly influenced by consumption patterns of the domestic electricity generation industry, a reduction in the demand for coal by this industry would likely cause our profitability to decline significantly.
Changes in the export and import markets for coal products could affect the demand for our coal, our pricing and our profitability.
|
currency exchange rates; |
|
growth of economic development; and |
|
ocean freight rates. |
11
Increased consolidation and competition in the U.S. coal industry may adversely affect our revenues and profitability.
Fluctuations in transportation costs and the availability and dependability of transportation could affect the demand for our coal and our ability to deliver coal to our customers.
Shortages or increased costs of skilled labor in the Central Appalachian coal region may hamper our ability to achieve high labor productivity and competitive costs.
12
related recruiting efforts by our competitors. Any future shortage of skilled miners, or increases in our labor costs, could have an adverse impact on our labor productivity and costs and on our ability to expand production.
Government laws, regulations and other requirements relating to the protection of the environment, health and safety and other matters impose significant costs on us, and future requirements could limit our ability to produce coal.
|
employee health and safety; |
|
permitting and licensing requirements; |
|
air quality standards; |
|
water quality standards; |
|
plant, wildlife and wetland protection; |
|
the management and disposal of hazardous and non-hazardous materials generated by mining operations; |
|
the storage of petroleum products and other hazardous substances; |
|
reclamation and restoration of properties after mining operations are completed; |
|
discharge of materials into the environment, including air emissions and wastewater discharge; |
|
surface subsidence from underground mining; and |
|
the effects of mining operations on groundwater quality and availability. |
The passage of legislation responsive to the Framework Convention on Global Climate Change or similar governmental initiatives could result in restrictions on coal use.
13
We are subject to the federal Clean Water Act and similar state laws which impose treatment, monitoring and reporting obligations.
New regulations have expanded the definition of black lung disease and generally made it easier for claimants to assert and prosecute claims, which could increase our exposure to black lung benefit liabilities.
Extensive environmental laws and regulations affect the end-users of coal and could reduce the demand for coal as a fuel source and cause the volume of our sales to decline.
14
The characteristics of coal may make it difficult for coal users to comply with various environmental standards related to coal combustion. As a result, they may switch to other fuels, which would affect the volume of our sales.
15
We must obtain governmental permits and approvals for mining operations, which can be a costly and time consuming process and result in restrictions on our operations.
Litigation or regulatory changes resulting in restrictions on underground mining activities could impact our operations.
16
We have significant reclamation and mine closure obligations. If the assumptions underlying our accruals are materially inaccurate, we could be required to expend greater amounts than anticipated.
Terrorist attacks and threats, escalation of military activity in response to such attacks or acts of war may negatively affect our business, financial condition and results of operations.
Risks Related to Our Operations
The loss of, or significant reduction in, purchases by our largest customers
could adversely affect our revenues.
|
British thermal units (Btus); |
17
|
sulfur content; |
|
ash content; |
|
grindability; and |
|
ash fusion temperature. |
In some cases, failure to meet these specifications could result in economic penalties, including price adjustments, the rejection of deliveries or termination of the contracts. In addition, all of our contracts allow our customers to renegotiate or terminate their contracts in the event of changes in regulations or other governmental impositions affecting our industry that increase the cost of coal beyond specified limits. Further, we and Triad have been required in the past to purchase sulfur credits or make other pricing adjustments to comply with contractual requirements of our customers relating to the sulfur content of coal sold to them, and may be required to do so in the future.
Our profitability will be negatively impacted if we are unable to balance our mix of contract and spot sales.
Our ability to operate our company effectively could be impaired if we lose senior executives or fail to employ needed additional personnel.
Unexpected increases in raw material costs could significantly impair our operating results.
Coal mining is subject to conditions or events beyond our control, which could cause our quarterly or annual results to deteriorate.
18
production and the cost of mining at particular mines for varying lengths of time and have a significant impact on our operating results. These conditions or events have included:
|
variations in thickness of the layer, or seam, of coal; |
|
variations in geological conditions; |
|
amounts of rock and other natural materials intruding into the coal seam; |
|
equipment failures and unexpected major repairs; |
|
unexpected maintenance problems; |
|
unexpected departures of one or more of our contract miners; |
|
fires and explosions from methane and other sources; |
|
accidental minewater discharges or other environmental accidents; |
|
other accidents or natural disasters; and |
|
weather conditions. |
Mining in Central Appalachia is complex due to geological characteristics of the region.
Our future success depends upon our ability to acquire or develop additional coal reserves that are economically recoverable.
Our financial performance may suffer if we do not successfully develop our new mine at the McCoy Elkhorn mining complex.
19
Factors beyond our control could impact the amount and pricing of coal supplied by our independent contractors and other third parties.
We face significant uncertainty in estimating our recoverable coal reserves, and variations from those estimates could lead to decreased revenues and profitability.
|
currently available geological, mining and property control data and maps; |
|
our own operational experience and that of our consultants; |
|
historical production from similar areas with similar conditions; |
|
previously completed geological and reserve studies; |
|
the assumed effects of regulations and taxes by governmental agencies; and |
|
assumptions governing future prices and future operating costs. |
|
mining activities; |
|
new engineering and geological data; |
|
acquisition or divestiture of reserve holdings; and |
|
modification of mining plans or mining methods. |
Therefore, actual coal tonnage recovered from identified reserve areas or properties, and costs associated with our mining operations, may vary from estimates. These variations could be material, and therefore could result in decreased profitability. For a further discussion of our coal reserves, see Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Estimates and BusinessReserves.
20
Our operations could be adversely affected if we are unable to obtain required surety bonds.
We have significant unfunded obligations for long-term employee benefits for which we accrue based upon assumptions, which, if incorrect, could result in us being required to expend greater amounts than anticipated.
We may be unable to adequately provide funding for our pension plan obligations based on our current estimates of those obligations.
As a result of our adoption of fresh start accounting in connection with our emergence from bankruptcy, you will not be able to compare our financial statements for periods before our emergence from bankruptcy with our financial results for periods after our emergence from bankruptcy.
21
Substantially all of our assets are subject to security interests.
We may be unable to comply with restrictions imposed by the terms of our indebtedness, which could result in a default under these agreements.
|
minimum fixed charge coverage ratio; |
|
maximum total leverage ratio; |
|
minimum levels of consolidated tangible net worth; |
|
minimum levels of Consolidated Total EBITDA (as defined in our credit facilities); and |
|
maximum limits on capital expenditures. |
Changes in our credit ratings could adversely affect our costs and expenses.
22
Defects in title or loss of any leasehold interests in our properties could limit our ability to mine these properties or result in significant unanticipated costs.
Inability to satisfy contractual obligations may adversely affect our profitability.
The disallowance or early termination of Section 29 tax credits for synfuel plants by the Internal Revenue Service could decrease our revenues.
Our auditors have previously identified material weaknesses in our internal controls. Although we have remediated these material weaknesses, if additional internal control issues develop, we may be unable to accurately report our financial results, detect fraud or comply with the requirements of Section 404 of the Sarbanes-Oxley Act.
23
We may be unable to exploit opportunities to diversify our operations.
There are risks associated with our acquisition strategy, including our inability to successfully complete acquisitions, our assumption of liabilities, dilution of your investment, significant costs and additional financing required.
24
The proceeds of our proposed financing transactions may not be sufficient to finance any additional acquisitions.
Because we do not have a combined operating history with Triad, historical financial information is not necessarily a good indicator of future results of operations or financial condition, and we may be unable to successfully integrate those operations.
Allocation of the excess of the purchase price we expect to pay for Triad over the book value of Triads fixed assets may impact our future earnings.
Our company could be less valuable if we are unable to close the Triad acquisition.
25
Triads current reserve base is limited.
Surface mining is subject to increased regulation, and may require us to incur additional costs.
Risks Relating to our Common Stock
The market price of our common stock has been volatile and difficult to predict, and may continue to be volatile and difficult to predict after the offering, and the value of your investment may decline.
|
variations in our quarterly operating results; |
|
changes in financial estimates by securities analysts; |
|
changes in general conditions in the economy or the financial markets; |
|
changes in accounting standards, policies or interpretations; |
|
other developments affecting us, our industry, clients or competitors; and |
|
the operating and stock price performance of companies that investors deem comparable to us. |
Dividends are prohibited by our existing loan agreements and will be limited by our proposed new senior secured credit facility and senior notes.
26
Provisions of our articles of incorporation, bylaws and shareholder rights agreements could discourage potential acquisition proposals and could deter or prevent a change in control.
27
FORWARD LOOKING STATEMENTS
|
our cash flows, results of operation or financial condition; |
|
the consummation of acquisition, disposition or financing transactions and the effect thereof on our business; |
|
governmental policies and regulatory actions; |
|
legal and administrative proceedings, settlements, investigations and claims; |
|
weather conditions or catastrophic weather-related damage; |
|
our production capabilities; |
|
availability of transportation; |
|
market demand for coal, electricity and steel; |
|
competition; |
|
our relationships with, and other conditions affecting, our customers; |
|
employee workforce factors; |
|
our assumptions concerning economically recoverable coal reserve estimates; |
|
future economic or capital market conditions; |
|
our plans and objectives for future operations and expansion or consolidation; and |
|
the closing or successful integration of the Triad acquisition. |
28
MARKET FOR OUR COMMON STOCK
Price Range of Common Stock |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
High |
Low |
||||||||||
Year
Ended December 31, 2004 |
|||||||||||
Fourth
Quarter |
$ | 59.00 | $ | 34.25 | |||||||
Year
Ending December 31, 2005 |
|||||||||||
First
Quarter |
$ | 45.75 | $ | 37.41 | |||||||
Second
Quarter (through May 24, 2005) |
$ | 40.50 | $ | 28.64 |
29
USE OF PROCEEDS
|
approximately $95.0 million (without giving effect to payments since March 31, 2005) to repay amounts outstanding under our Senior Secured Credit Facility and our Term Credit Facility; |
|
approximately $58.7 million to finance the Triad acquisition; |
|
approximately $11.4 million for offering expenses, including underwriting discounts, and for the pre-payment penalty under our existing debt facilities; and |
|
approximately $33.6 million for general corporate purposes, which may be used to fund internal growth projects or to reduce the underfunded portion of our pension plan. |
DIVIDEND POLICY
30
CAPITALIZATION
As of March 31, 2005 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Actual |
As Adjusted |
Pro Forma, as adjusted |
|||||||||||||
(dollars in thousands) |
|||||||||||||||
Cash and cash
equivalents |
$ | 1,724 | 94,035 | 35,299 | |||||||||||
Debt |
|||||||||||||||
Existing
Senior Secured Credit Facility |
|||||||||||||||
Term Loan
Component |
20,000 | | | ||||||||||||
Revolver
Component |
| | | ||||||||||||
Existing Term
Credit Facility |
75,000 | | | ||||||||||||
Proposed New
Senior Secured Credit Facility (1) |
| | | ||||||||||||
%
Senior Notes due 2012 |
| 150,000 | 150,000 | ||||||||||||
Other |
| | 885 | ||||||||||||
Total
Debt |
95,000 | 150,000 | 150,885 | ||||||||||||
Shareholders Equity (2) |
|||||||||||||||
Common
Stock |
147 | 162 | 166 | ||||||||||||
Additional
Paid in Capital |
73,592 | 119,158 | 130,154 | ||||||||||||
Deferred Stock
Based Compensation |
(8,900 | ) | (8,900 | ) | (8,900 | ) | |||||||||
Retained
Earnings (Deficit) (3) |
1,460 | (490 | ) | (490 | ) | ||||||||||
Accumulated
Comprehensive Income |
43 | 43 | 43 | ||||||||||||
Total
Shareholders Equity |
66,342 | 109,973 | 120,973 | ||||||||||||
Total
Capitalization |
$ | 161,342 | 259,973 | 271,858 |
(1) | Availability under our proposed new $100 million senior secured credit facility will be reduced on a dollar for dollar basis by the amount of letters of credit issued under the facility. See Description of Indebtedness for a description of the proposed new senior secured credit facility. As of March 31, 2005, we had $32.7 million of letters of credit outstanding under our existing Senior Secured Credit Facility and Triad had letters of credit outstanding of $6.9 million, and we expect that such letters of credit will be replaced with letters of credit issued under our proposed new senior secured credit facility. |
(2) | Excludes the impact of the contingent issuance of shares of our common stock with an aggregate value of up to $5,000,000 in connection with the Triad acquisition. |
(3) | Reflects a prepayment penalty of $0.8 million on our existing debt and the write-off of $1.8 million of unamortized debt issuance costs associated with the payment of our existing debt, net of taxes. |
31
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
the completion of this offering and the concurrent notes offering and the application of the net proceeds therefrom to refinance our debt and finance the Triad acquisition, as described under Use of Proceeds; |
|
the completion of our proposed new senior secured credit facility; and |
|
the Triad acquisition as described under The Triad Acquisition. |
32
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31,
2005
(dollars in thousands)
(Unaudited)
Historical James River Coal |
Financing Adjustments |
Pro Forma for Financing |
Historical Triad |
Acquisition Adjustments |
Pro Forma |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(a) |
||||||||||||||||||||||||||
Cash and
marketable securities |
$ | 1,724 | 188,111 | (b) | 94,035 | 23,546 | (17,782 | )(g) | 35,299 | |||||||||||||||||
(95,800 | )(c) | (64,500 | )(h) | |||||||||||||||||||||||
Trade
receivables |
37,496 | | 37,496 | 10,317 | | 47,813 | ||||||||||||||||||||
Other
receivables |
2,928 | | 2,928 | | | 2,928 | ||||||||||||||||||||
Total
receivables |
40,424 | 40,424 | 10,317 | | 50,741 | |||||||||||||||||||||
Coal
inventories |
5,500 | | 5,500 | 1,179 | | 6,679 | ||||||||||||||||||||
Materials and
supplies inventories |
4,446 | | 4,446 | 1,052 | | 5,498 | ||||||||||||||||||||
Total
inventories |
9,946 | 9,946 | 2,231 | | 12,177 | |||||||||||||||||||||
Other current
assets |
8,041 | | 8,041 | 1,082 | | 9,123 | ||||||||||||||||||||
Total current
assets |
60,135 | 92,311 | 152,446 | 37,176 | (82,282 | ) | 107,340 | |||||||||||||||||||
Property,
plant and equipment, net |
260,781 | | 260,781 | 25,207 | 22,132 | (h) | 308,120 | |||||||||||||||||||
Goodwill |
| | | | 31,188 | (h) | 31,188 | |||||||||||||||||||
Restricted
cash |
8,425 | | 8,425 | | | 8,425 | ||||||||||||||||||||
Other
assets |
11,792 | 6,320 | (d) | 18,112 | 531 | | 18,643 | |||||||||||||||||||
Total
assets |
$ | 341,133 | 98,631 | 439,764 | 62,914 | (28,962 | ) | 473,716 |
33
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31,
2005
(dollars in thousands)
(Unaudited)
Historical James River Coal |
Pro Forma Financing Adjustment |
Pro Forma for Financing |
Historical Triad |
Pro Forma Acquisition Adjustments |
Pro Forma |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(a) |
||||||||||||||||||||||||||
Current
maturities of long-term debt |
$ | 3,600 | (3,600 | )(e) | | 885 | | 885 | ||||||||||||||||||
Accounts
payable |
25,043 | | 25,043 | 3,561 | | 28,604 | ||||||||||||||||||||
Other current
liabilities |
27,279 | | 27,279 | 1,962 | | 29,241 | ||||||||||||||||||||
Total current
liabilities |
55,922 | (3,600 | ) | 52,322 | 6,408 | | 58,730 | |||||||||||||||||||
Long-term
debt, less current maturities |
91,400 | 58,600 | (e) | 150,000 | | | 150,000 | |||||||||||||||||||
Noncurrent
portion of workers compensation benefits |
38,381 | | 38,381 | | | 38,381 | ||||||||||||||||||||
Noncurrent
portion of black lung benefits |
23,421 | 23,421 | | | 23,421 | |||||||||||||||||||||
Pension
obligations |
15,206 | | 15,206 | | | 15,206 | ||||||||||||||||||||
Asset
retirement obligations |
15,129 | | 15,129 | 7,488 | | 22,617 | ||||||||||||||||||||
Other |
35,332 | | 35,332 | | 9,056 | (h) | 44,388 | |||||||||||||||||||
Total other
liabilities |
127,469 | | 127,469 | 7,488 | 9,056 | 144,013 | ||||||||||||||||||||
Total
liabilities |
274,791 | 55,000 | 329,791 | 13,896 | 9,056 | 352,743 | ||||||||||||||||||||
Total
shareholders equity |
66,342 | 45,581 | (b) | 109,973 | 49,018 | (17,782 | )(g) | 120,973 | ||||||||||||||||||
(1,950 | )(f) | (20,236 | )(i) | |||||||||||||||||||||||
Total
liabilities and shareholders equity |
$ | 341,133 | 98,631 | 439,764 | 62,914 | (28,962 | ) | 473,716 |
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet Data
34
(dollars in thousands) |
||||||
---|---|---|---|---|---|---|
Repayment of
senior secured credit facility |
$ | (75,000 | ) | |||
Repayment of
term credit facility |
(20,000 | ) | ||||
New senior
notes |
150,000 | |||||
55,000 | ||||||
Repayment of
current maturities of long-term debt |
3,600 | |||||
Net increase
in long-term debt net of current maturities |
$ | 58,600 |
Cash |
$ | 64,000 | ||||
Equity |
11,000 | |||||
Acquisition
Costs |
500 | |||||
Total Purchase
Price |
$ | 75,500 |
35
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE
YEAR ENDED DECEMBER 31, 2004
(dollars in thousands, except share data)
(Unaudited)
James River Coal |
||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Predecessor Four Months April 30, 2004 |
Successor Eight Months December 31, 2004 |
(a) Pro Forma Fresh Start Adjustments |
Pro Forma Twelve Months December 31, 2004 |
(b) Pro Forma Financing Adjustments |
Pro Forma |
Triad Year Ended December 31, 2004 |
Pro Forma Acquisition Adjustments |
Pro Forma Triad Acquisition |
||||||||||||||||||||||||||||||
Revenues |
$ | 113,949 | 231,698 | | 345,647 | | 345,647 | 81,603 | | 427,250 | ||||||||||||||||||||||||||||
Cost of
sales |
||||||||||||||||||||||||||||||||||||||
Cost of coal
sold |
89,294 | 190,926 | | 280,220 | | 280,220 | 59,291 | | 339,511 | |||||||||||||||||||||||||||||
Depreciation,
depletion and amortization |
12,314 | 21,765 | (1,431 | ) | 32,648 | | 32,648 | 5,500 | 4,424 | (f) | 42,572 | |||||||||||||||||||||||||||
Total cost of
sales |
101,608 | 212,691 | (1,431 | ) | 312,868 | | 312,868 | 64,791 | 4,424 | 382,083 | ||||||||||||||||||||||||||||
Gross
profit |
12,341 | 19,007 | 1,431 | 32,779 | | 32,779 | 16,812 | (4,424 | ) | 45,167 | ||||||||||||||||||||||||||||
Sales, general
and administrative expenses |
5,023 | 11,412 | | 16,435 | 4,055 | (c) | 20,490 | 3,736 | | 24,226 | ||||||||||||||||||||||||||||
Operating income
(loss) |
7,318 | 7,595 | 1,431 | 16,344 | (4,055 | ) | 12,289 | 13,076 | (4,424 | ) | 20,941 | |||||||||||||||||||||||||||
Interest
expense |
567 | 5,733 | 2,300 | 8,600 | 6,659 | (d) | 15,259 | 174 | | 15,433 | ||||||||||||||||||||||||||||
Interest
income |
| (72 | ) | | (72 | ) | | (72 | ) | (567 | ) | 567 | (g) | (72 | ) | |||||||||||||||||||||||
Miscellaneous
income, net |
(331 | ) | (833 | ) | | (1,164 | ) | | (1,164 | ) | (57 | ) | | (1,221 | ) | |||||||||||||||||||||||
Total other
expense (income) |
236 | 4,828 | 2,300 | 7,364 | 6,659 | 14,023 | (450 | ) | 567 | 14,140 | ||||||||||||||||||||||||||||
Income (loss)
before reorganization costs and income taxes |
7,082 | 2,767 | (869 | ) | 8,980 | (10,714 | ) | (1,734 | ) | 13,526 | (4,991 | ) | 6,801 | |||||||||||||||||||||||||
Reorganization
gain, net |
(100,907 | ) | | 100,907 | | | | | | | ||||||||||||||||||||||||||||
Income loss
before income tax |
107,989 | 2,767 | (101,776 | ) | 8,980 | (10,714 | ) | (1,734 | ) | 13,526 | (4,991 | ) | 6,801 | |||||||||||||||||||||||||
Income tax
provision (benefit) |
| 791 | 1,454 | 2,245 | (2,678 | )(e) | (433 | ) | | 2,134 | (h) | 1,701 | ||||||||||||||||||||||||||
Net income
(loss) |
$ | 107,989 | 1,976 | (103,230 | ) | 6,735 | (8,036 | ) | (1,301 | ) | 13,526 | (7,125 | ) | 5,100 |
Earnings per share |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Basic |
Diluted |
|||||||||
Weighted
average shares used to calculate earnings per share at December 31, 2004 |
13,799,994 | 14,622,620 | ||||||||
Shares issued
to Triad (i) |
338,462 | 338,462 | ||||||||
Shares issued
in financing (i) |
1,500,000 | 1,500,000 | ||||||||
Pro forma
shares |
15,638,456 | 16,461,082 | ||||||||
Pro forma
earnings per share |
$ | 0.33 | 0.31 |
36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE
THREE MONTHS ENDED MARCH 31, 2005
(dollars in thousands, except share data)
(Unaudited)
James River Coal Three Months March 31, 2005 |
(b) Pro Forma Financing Adjustments |
Pro Forma |
Triad Three Months Ended March 31, 2005 |
Pro Forma Acquisition Adjustments |
Pro Forma Triad Acquisition |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues |
$ | 97,875 | | 97,875 | 23,396 | | 121,271 | |||||||||||||||||||
Cost of
sales |
||||||||||||||||||||||||||
Cost of coal
sold |
80,942 | | 80,942 | 17,203 | | 98,145 | ||||||||||||||||||||
Depreciation, depletion and amortization |
9,478 | | 9,478 | 1,630 | 1,106 | (f) | 12,214 | |||||||||||||||||||
Total cost
of sales |
90,420 | | 90,420 | 18,883 | 1,106 | 110,359 | ||||||||||||||||||||
Gross
profit |
7,455 | | 7,455 | 4,563 | (1,106 | ) | 10,912 | |||||||||||||||||||
Sales,
general and administrative expenses |
5,035 | 338 | (c) | 5,373 | 886 | | 6,259 | |||||||||||||||||||
Operating
income (loss) |
2,420 | (338 | )(c) | 2,082 | 3,677 | (1,106 | ) | 4,653 | ||||||||||||||||||
Interest
expense |
2,186 | 1,625 | (d) | 3,811 | 21 | | 3,832 | |||||||||||||||||||
Interest
income |
(21 | ) | | (21 | ) | (149 | ) | 149 | (g) | (21 | ) | |||||||||||||||
Miscellaneous income, net |
(123 | ) | | (123 | ) | 71 | | (52 | ) | |||||||||||||||||
Total other
expense (income) |
2,042 | 1,625 | 3,667 | (57 | ) | 149 | 3,759 | |||||||||||||||||||
Income loss
before income tax |
378 | (1,963 | ) | (1,585 | ) | 3,734 | (1,255 | ) | 894 | |||||||||||||||||
Income tax
provision (benefit) |
69 | (491 | )(e) | (422 | ) | | 620 | (h) | 198 | |||||||||||||||||
Net income
(loss) |
$ | 309 | (1,472 | ) | (1,163 | ) | 3,734 | (1,875 | ) | 696 |
Earnings per share |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Basic |
Diluted |
|||||||||
Weighted
average shares used to calculate earnings per share at March 31, 2005 |
13,799,994 | 14,751,672 | ||||||||
Shares issued
to Triad (i) |
338,462 | 338,462 | ||||||||
Shares issued
in financing (i) |
1,500,000 | 1,500,000 | ||||||||
Pro forma
shares |
15,638,456 | 16,590,134 | ||||||||
Pro forma
earnings per share |
$ | 0.04 | 0.04 |
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
37
completion of our proposed new $100 million senior secured credit facility. The common stock and notes offerings are not contingent upon each other or completion of the Triad acquisition. The proposed new senior secured credit facility is contingent upon completion of the Triad acquisition. As of March 31, 2005, we had $32.7 million of letters of credit outstanding under our existing Senior Secured Credit Facility and Triad had letters of credit outstanding of $6.9 million, and we expect that such letters of credit and letters of credit issued subsequently will be replaced with letters of credit issued under our proposed new senior secured credit facility.
Three Months Ended March 31, 2005 |
Twelve Months Ended December 31, 2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Write off of
deferred financing costs associated with debt to be refinanced |
$ | | 1,800 | |||||||
Prepayment
penalty associated with the refinancing |
| 800 | ||||||||
Incremental
fees associated with our new senior secured credit facility |
338 | 1,455 | ||||||||
$ | 338 | 4,055 |
Three Months Ended March 31, 2005 |
Twelve Months Ended December 31, 2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Eliminates
historical interest expense |
$ | (2,157 | ) | (8,471 | ) | |||||
Interest on
senior notes |
3,515 | 14,063 | ||||||||
Amortization
of financing costs |
267 | 1,067 | ||||||||
Pro forma
interest adjustment |
$ | 1,625 | 6,659 |
38
39
SELECTED HISTORICAL FINANCIAL DATA
Recent Reorganization
|
exchanged approximately $266 million in debt under various existing credit facilities for (1) restructured term debt of approximately $75 million, which is secured by a second lien on substantially all of our assets, and (2) a total of 13,799,994 shares of our new common stock, par value $0.01 per share, issued on a pro rata basis to the holders of the existing debt; |
|
distributed interests in an unsecured creditor liquidating trust (which trust initially held life insurance policies with cash surrender values of approximately $3.1 million, the right to receive certain refunds and the right to pursue certain derivative claims) to our general unsecured creditors in exchange for their claims, which were estimated to be valued at approximately $44.9 million; |
|
entered into a new senior secured credit facility allowing borrowings up to $50 million, which is secured by a first lien on substantially all of our assets; |
|
satisfied and discharged all of our obligations under our $20 million debtor-in-possession credit facility; |
|
rejected (i.e., terminated) certain agreements that we had entered into before the bankruptcy that were found to be unduly burdensome to us, and discharged the claims of creditors related to those agreements; |
|
canceled our existing equity securities; |
|
acknowledged that all intercompany debt was deemed to be extinguished; |
|
acknowledged that pre- and post-petition (i) environmental and regulatory obligations; (ii) obligations with respect to workers compensation and black lung programs; and (iii) regulatory obligations related to our employees would be unaffected by the Plan of Reorganization and would survive effectuation of the Plan of Reorganization; and |
|
elected and installed a new Board of Directors. |
Fresh Start Accounting
|
The reorganization value of the entity should be allocated to the entitys assets in conformity with SFAS No. 141 Business Combinations. |
|
Each liability existing at the plan confirmation date, other than deferred taxes, should be stated at present values of amounts to be paid as determined at appropriate current interest rates. |
|
Deferred taxes should be reported in conformity with generally accepted accounting principles. Benefits realized from pre-reorganization net operating loss carryforwards should first reduce reorganization value in excess of amounts allocable to identifiable assets and other intangibles until exhausted and thereafter be reported as a direct addition to paid-in capital. |
40
James River Coal Company and Subsidiaries
Selected Historical Financial
Data
|
Successor Company |
Predecessor Company
|
||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, |
||||||||||||||||||||||||||||||||||||||
Three Months Ended 3/31/05 |
Eight Months Ended 12/31/04 |
Four Months Ended 4/30/04 |
Three Months Ended 3/31/04 |
2003 |
2002 |
2001 |
2000 |
|||||||||||||||||||||||||||||||
(in thousands, except share information) |
||||||||||||||||||||||||||||||||||||||
Consolidated Statement of Operations: |
||||||||||||||||||||||||||||||||||||||
Revenues
|
$ | 97,875 | 231,698 | 113,949 | 80,858 | 304,052 | 397,599 | 384,248 | 416,756 | |||||||||||||||||||||||||||||
Cost of coal
sold
|
80,942 | 190,926 | 89,294 | 65,707 | 278,939 | 344,222 | 328,408 | 341,092 | ||||||||||||||||||||||||||||||
Depreciation,
depletion,
and amortization |
9,478 | 21,765 | 12,314 | 9,272 | 40,427 | 46,393 | 43,175 | 43,272 | ||||||||||||||||||||||||||||||
Gross profit
(loss)
|
7,455 | 19,007 | 12,341 | 5,879 | (15,314 | ) | 6,984 | 12,665 | 32,392 | |||||||||||||||||||||||||||||
Selling,
general, and administrative expenses
|
5,035 | 11,412 | 5,023 | 3,561 | 19,835 | 19,994 | 15,725 | 15,281 | ||||||||||||||||||||||||||||||
Other
operating expenses |
| | | | 26,554 | | | |||||||||||||||||||||||||||||||
Operating
income (loss)
|
2,420 | 7,595 | 7,318 | 2,318 | (35,149 | ) | (39,564 | ) | (3,060 | ) | 17,111 | |||||||||||||||||||||||||||
Interest
expense
|
2,186 | 5,733 | 567 | 403 | 18,536 | 29,883 | 23,923 | 17,706 | ||||||||||||||||||||||||||||||
Interest
income
|
(21 | ) | (72 | ) | | | (144 | ) | (1,003 | ) | (662 | ) | | |||||||||||||||||||||||||
Miscellaneous
income, net
|
(123 | ) | (833 | ) | (331 | ) | (53 | ) | (1,519 | ) | (1,222 | ) | 206 | (3,977 | ) | |||||||||||||||||||||||
Reorganization items, net
|
| | (100,907 | ) | 1,557 | 7,630 | | | | |||||||||||||||||||||||||||||
Income tax
expense (benefit) |
69 | 791 | | | (2,891 | ) | (8,125 | ) | (10,318 | ) | (2,503 | ) | ||||||||||||||||||||||||||
Income (loss)
before cumulative effect of accounting change
|
309 | 1,976 | 107,989 | 411 | (56,761 | ) | (59,097 | ) | (16,209 | ) | 5,885 | |||||||||||||||||||||||||||
Cumulative
effect of
accounting change |
| | | | (3,045 | ) | | | | |||||||||||||||||||||||||||||
Net income
(loss)
|
309 | 1,976 | 107,989 | 411 | (59,806 | ) | (59,097 | ) | (16,209 | ) | 5,885 | |||||||||||||||||||||||||||
Preferred
dividends
|
| | | | (340 | ) | (680 | ) | (595 | ) | (714 | ) | ||||||||||||||||||||||||||
Decrease in redemption amount of redeemable
common stock |
| | | | | 8,798 | 45,831 | 14,311 | ||||||||||||||||||||||||||||||
Net income
(loss) attributable to common shareholders |
$ | 309 | 1,976 | 107,989 | 411 | (60,146 | ) | (50,979 | ) | 29,027 | 19,482 |
41
James River Coal Company and Subsidiaries
Selected Historical Financial
Data
|
Successor Company |
Predecessor Company
|
||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Year Ended December 31, |
|||||||||||||||||||||||||||||||||||||
Three Months Ended 3/31/05 |
Eight Months Ended 12/31/04 |
Four Months Ended 4/30/04 |
Three Months Ended 3/31/04 |
2003 |
2002 |
2001 |
2000 |
|||||||||||||||||||||||||||||||
(in thousands, except
per
share
information) |
||||||||||||||||||||||||||||||||||||||
Basic
earnings (loss) per common share: |
||||||||||||||||||||||||||||||||||||||
Income (loss)
before cumulative effect of accounting change
|
$ | 0.02 | 0.14 | 6,393.67 | 24.33 | (3,380.78 | ) | (3,018.31 | ) | 1,718.56 | 1,153.46 | |||||||||||||||||||||||||||
Cumulative
effect of accounting change |
| | | | (180.28 | ) | | | | |||||||||||||||||||||||||||||
Net income
(loss) |
0.02 | 0.14 | 6,393.67 | 24.33 | (3,561.06 | ) | (3,018.31 | ) | 1,718.56 | 1,153.46 | ||||||||||||||||||||||||||||
Shares used
to calculate basic earnings (loss) per common share |
13,800 | 13,800 | 17 | 17 | 17 | 17 | 17 | 17 | ||||||||||||||||||||||||||||||
Diluted
earnings (loss) per common share: |
||||||||||||||||||||||||||||||||||||||
Income (loss)
before cumulative effect of accounting change
|
0.02 | 0.14 | 6,393.67 | 24.33 | (3,380.78 | ) | (3,018.31 | ) | 1,718.56 | 1,153.46 | ||||||||||||||||||||||||||||
Cumulative
effect of accounting change |
| | | | (180.28 | ) | | | | |||||||||||||||||||||||||||||
Net income
(loss) |
$ | 0.02 | 0.14 | 6,393.67 | 24.33 | (3,561.06 | ) | (3,018.31 | ) | 1,718.56 | 1,153.46 | |||||||||||||||||||||||||||
Shares used
to calculate diluted earnings (loss) per share |
14,752 | 14,623 | 17 | 17 | 17 | 17 | 17 | 17 |
42
Successor Company
|
Predecessor Company
|
|||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, |
||||||||||||||||||||||||||||||||||||||
3/31/05 |
12/31/04 |
4/30/04 |
3/31/04 |
2003 |
2002 |
2001
|
2000
|
|||||||||||||||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||||||||||||||||
Consolidated Balance Sheet Data: |
||||||||||||||||||||||||||||||||||||||
Working
capital (deficit) |
$ | 4,213 | 10,046 | 5,896 | 12,227 | 9,009 | (263,149 | ) | (241,857 | ) | (17,505 | ) | ||||||||||||||||||||||||||
Property,
plant, and equipment, net |
260,781 | 255,575 | 254,259 | 254,646 | 257,156 | 270,989 | 310,643 | 306,399 | ||||||||||||||||||||||||||||||
Total assets
|
341,133 | 327,826 | 332,589 | 327,241 | 318,289 | 340,311 | 393,411 | 382,534 | ||||||||||||||||||||||||||||||
Long term
debt, including current portion |
95,000 | 95,000 | 6,400 | 6,400 | | 252,876 | 249,576 | 232,734 | ||||||||||||||||||||||||||||||
Liabilities
subject to compromise |
| | 319,451 | 319,813 | 319,595 | | | | ||||||||||||||||||||||||||||||
Total
shareholders equity (deficit) |
66,342 | 65,585 | (127,837 | ) | (123,189 | ) | (123,601 | ) | (68,726 | ) | (9,034 | ) | (29,786 | ) |
Successor Company
|
Predecessor Company
|
|||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31,
|
||||||||||||||||||||||||||||||||||||||
Three Months Ended 3/31/05 |
Eight Months Ended 12/31/04 |
Four Months Ended 4/30/04 |
Three Months Ended 3/31/04 |
2003 |
2002 |
2001 |
2000 |
|||||||||||||||||||||||||||||||
(in thousands, except per ton information and number of
employees) |
||||||||||||||||||||||||||||||||||||||
Consolidated Statement of Cash Flow Data: |
||||||||||||||||||||||||||||||||||||||
Net cash
provided by (used in) operating activities |
$ | 12,689 | 14,098 | 1,513 | (3,071 | ) | 23,033 | 28,899 | 30,793 | 46,038 | ||||||||||||||||||||||||||||
Net cash used
in investing activities |
(14,711 | ) | (21,744 | ) | (9,463 | ) | (6,796 | ) | (15,660 | ) | (33,522 | ) | (43,640 | ) | (34,061 | ) | ||||||||||||||||||||||
Net cash
provided by (used in) financing activities |
(133 | ) | 10,224 | 4,361 | 6,299 | (2,489 | ) | 3,347 | 14,119 | (11,981 | ) | |||||||||||||||||||||||||||
Supplemental Operating Data: |
||||||||||||||||||||||||||||||||||||||
Tons sold
|
2,228 | 5,775 | 3,107 | 2,287 | 10,083 | 13,926 | 14,065 | 15,961 | ||||||||||||||||||||||||||||||
Tons produced
|
2,301 | 5,770 | 3,081 | 2,400 | 9,294 | 12,350 | 13,134 | 15,599 | ||||||||||||||||||||||||||||||
Revenue per
ton sold (excluding synfuel) |
$ | 43.27 | 39.21 | 35.98 | 34.65 | 29.53 | 28.26 | 27.29 | 26.11 | |||||||||||||||||||||||||||||
Number of
employees |
1,141 | 1,070 | 984 | 972 | 1,127 | 1,145 | 1,319 | 1,172 | ||||||||||||||||||||||||||||||
Capital
expenditures |
$ | 14,690 | 25,811 | 9,521 | 6,815 | 20,116 | 22,925 | 43,694 | 35,927 |
43
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Overview
44
Reserves
Three Months Ended March 31, 2005 |
Nine Months Ended December 31, 2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Proven and
Probable Reserves beginning of period (1) |
207.4 | 207.2 | ||||||||
Coal
Extracted |
(2.2 | ) | (6.3 | ) | ||||||
Acquisitions
(2) |
15.4 | 3.7 | ||||||||
Adjustments
(3) |
1.0 | 2.8 | ||||||||
Proven and
Probable Reserves end of period |
221.6 | 207.4 |
(1) | Calculated in the same manner, and based on the same assumptions and qualifications, as described above. Proven reserves have the highest degree of geologic assurance and are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings, or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspections, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established. Probable reserves have a moderate degree of geologic assurance and are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. This reserve information reflects recoverable tonnage on an as-received basis with 5.5% moisture. |
(2) | Represents estimated reserves on properties acquired during the relevant period. We calculated the reserves in the same manner, and based on the same assumptions and qualifications, as described above, but such estimates were not covered by the MM&A report. |
(3) | Represents changes in reserves due to additional information obtained from exploration activities, production activities or discovery of new geologic information. We calculated the reserves in the same manner, and based on the same assumptions and qualifications, as described above, but such estimates were not covered by the MM&A report. |
45
Key Performance Indicators
Trends In Our Business
|
the supply of domestic and foreign coal; |
|
the demand for electricity; |
|
the demand for steel and the continued financial viability of the domestic and foreign steel industries; |
|
the cost of transporting coal to the customer; |
|
domestic and foreign governmental regulations and taxes; |
|
air emission standards and other environmental requirements for coal-fired power plants; and |
|
the price and availability of alternative fuels for electricity generation. |
46
Plan of Reorganization
Workers Compensation Cost and Accrued Liabilities
47
Results of Operations
Three Months Ended March 31, 2005 Compared with the Three Months Ended March 31, 2004
Three Months Ended March 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 |
2004 |
Total |
|||||||||||||
Volume
(tons) |
2,228 | 2,287 | (3 | %) | |||||||||||
Revenues |
|||||||||||||||
Coal
sales |
$ | 96,401 | 79,239 | 22 | % | ||||||||||
Synfuel
handling |
1,474 | 1,619 | (9 | %) | |||||||||||
Cost of coal
sold |
80,942 | 65,707 | 23 | % | |||||||||||
Depreciation,
depletion and amortization |
9,478 | 9,272 | 2 | % | |||||||||||
Gross
Profit |
7,455 | 5,879 | 27 | % | |||||||||||
Selling,
general and administrative |
5,035 | 3,561 | 41 | % |
48
Year Ended December 31, 2004 Compared with the Year Ended December 31, 2003
Year Ended December 31, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
Change |
||||||||||||
Volume
(millions of tons) |
8.9 | 10.1 | (12 | %) | ||||||||||
Revenues
(000) |
||||||||||||||
Coal
sales |
$ | 338,297 | $ | 297,713 | 14 | % | ||||||||
Synfuel
handling |
7,350 | 6,339 | 16 | % | ||||||||||
Cost of coal
sold (000) |
280,220 | 278,939 | 1 | % |
49
in the average sales price per ton for sales under long-term contracts. For the year ended December 31, 2004, we sold 7.2 million tons of coal under long-term contracts (81% of total sales volume) at an average selling price of $35.22. For 2003, we sold 9.3 million tons of coal under long-term contracts (92% of total sales volume) at an average selling price of $28.91. The increase in average selling price from 2003 to 2004 was due to the renegotiation of below-market contract prices as part of our bankruptcy proceedings. For the year ended December 31, 2004, we sold 1.7 million tons of coal (19% of total sales volume) to the spot market at an average selling price of $50.09 per ton. For 2003, we sold 772,000 tons of coal (8% of total sales volume) to the spot market at an average selling price of $36.91 per ton.
Year Ended December 31, 2003 Compared with the Year Ended December 31, 2002
Year Ended December 31, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
2002 |
Change |
||||||||||||
Volume
(millions of tons) |
10.1 | 13.9 | (27 | %) | ||||||||||
Revenues
(000) |
||||||||||||||
Coal
sales |
$ | 297,713 | 393,512 | (24 | %) | |||||||||
Synfuel
handling |
6,339 | 4,087 | 55 | % | ||||||||||
Cost of coal
sold (000) |
278,939 | 344,222 | (19 | %) | ||||||||||
Depreciation,
depletion and amortization |
40,427 | 46,393 | (13 | %) | ||||||||||
Selling,
general and administrative expenses |
19,835 | 19,994 | (1 | %) | ||||||||||
Other
operating expenses |
| 26,554 | ||||||||||||
Operating
loss |
(35,149 | ) | (39,564 | ) |
50
51
Liquidity and Capital Resources
52
53
Actual |
As adjusted |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands) |
|||||||||||
Senior
Secured Credit Facility: |
|||||||||||
Term loan
component |
$ | 20,000 | | ||||||||
Revolver
component |
| | |||||||||
Term Credit
Facility |
75,000 | | |||||||||
Proposed New
Senior Secured Credit Facility |
| | |||||||||
Senior Notes
due 2012 |
| 150,000 | |||||||||
Other |
| 1,712 | |||||||||
Total long
term debt |
95,000 | 151,712 | |||||||||
Less amounts
classified as current |
2,700 | 1,712 | |||||||||
Total long
term debt, less current maturities |
$ | 92,300 | 150,000 |
54
55
Contractual Obligations
Payment Due by Period (in thousands) |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations |
Total |
Less than 1 year |
13 years |
35 years |
More than 5 years |
||||||||||||||||||
Long term debt
(1) |
$ | 95,000 | $ | 2,700 | $ | 17,700 | $ | 29,100 | $ | 45,500 | |||||||||||||
Interest on
long term debt (2) |
51,469 | 11,158 | 21,491 | 14,214 | 4,606 | ||||||||||||||||||
Capital lease
obligations (3) |
1,142 | 459 | 683 | | | ||||||||||||||||||
Operating
lease obligations (3) |
1,239 | 605 | 552 | 82 | | ||||||||||||||||||
Royalty
obligations (4) |
141,732 | 14,705 | 31,233 | 28,414 | 67,380 | ||||||||||||||||||
Purchase
obligations (5) |
603 | 603 | | | | ||||||||||||||||||
$ | 291,185 | $ | 30,230 | $ | 71,659 | $ | 71,810 | $ | 117,486 |
(1) | All existing long term debt will be repaid and replaced with the notes and the proposed new senior secured credit facility. Assuming our refinancing transactions are consummated as contemplated, subsequent to the refinancing, we will have $150 million of new senior notes outstanding, which will mature in 2012. |
(2) | Includes interest payments on variable rate debt that is based on the interest rate in effect as of December 31, 2004. All such debt will be repaid with proceeds from the concurrent notes offering and the proposed new senior secured credit facility. Assuming interest on the senior notes of 9.375%, we will be contractually obligated to pay approximately $14.1 million of interest annually on such notes. |
(3) | Capital lease obligations include the amount of imputed interest over the terms of the leases. See Note 13 in the notes to the consolidated financial statements for additional information on capital and operating leases. |
(4) | Royalty obligations include minimum royalties payable on leased coal rights. Certain coal leases do not have set expiration dates but extend until completion of mining of all merchantable and mineable coal reserves. For purposes of this table, we have generally assumed that minimum royalties on such leases will be paid for a period of ten years. |
(5) | Purchase obligations include agreements to purchase coal that include fixed quantities or minimum amounts and a fixed price provision. They do not include agreements to purchase coal with vendors that do not include quantities or minimum tonnages, or monthly purchase orders. |
Payments Due by Years (in thousands) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Within 1 Year |
23 Years |
45 Years |
|||||||||
$17,700 |
$25,938 |
$21,318 |
Off-Balance Sheet Arrangements
56
Critical Accounting Estimates
Overview
Workers Compensation
Coal Miners Pneumoconiosis
57
Defined Benefit Pension
Reclamation and Mine Closure Obligation
Contingencies
58
Income Taxes
Coal Reserves
|
all currently available data; |
|
our own operational experience and that of our consultants; |
|
historical production from similar areas with similar conditions; |
|
previously completed geological and reserve studies; |
|
the assumed effects of regulations and taxes by governmental agencies; and |
|
assumptions governing future prices and future operating costs. |
|
mining activities; |
|
new engineering and geological data; |
|
acquisition or divestiture of reserve holdings; and |
|
modification of mining plans or mining methods. |
59
Recent Accounting Pronouncements
Other Supplemental Information
Labor and Turnover
Sales Commitments
Nine Months Ending December 31, 2005 |
2006 |
2007 |
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average Price Per Ton |
Tons |
Average Price Per Ton |
Tons |
Average Price Per Ton |
Tons |
||||||||||||||||||||||
Total Sales
Commitments |
$ | 41.87 | 6,665,600 | $ | 40.21 | 4,694,000 | $ | 38.37 | 1,630,000 |
Project Development
Mine 15 Project
60
Potential Surface Mining Projects
Potential Preparation Plant Projects
Market Risk
61
THE COAL INDUSTRY
U.S. Coal Production Regions
Demand for U.S. Coal Production
62
End Use |
Tons |
% of Total |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) |
|||||||||||
Electricity
generation |
1,015.1 | 91.92 | % | ||||||||
Industrial |
84.9 | 7.69 | % | ||||||||
Commercial |
3.8 | 0.34 | % | ||||||||
Residential |
0.5 | 0.05 | % | ||||||||
Total |
1,104.3 | 100 | % |
Electrical Generation Type |
Cents per Kilowatt Hour |
|||||
---|---|---|---|---|---|---|
Natural
Gas |
6.161 | |||||
Oil |
6.217 | |||||
Coal |
1.898 | |||||
Nuclear |
1.703 | |||||
Hydroelectric |
0.548 |
Electricity Generation Source |
% of Total Electricity Generation |
|||||
---|---|---|---|---|---|---|
Coal |
50.1 | % | ||||
Nuclear |
20.0 | % | ||||
Natural
Gas |
17.7 | % | ||||
Hydroelectric |
6.6 | % | ||||
Oil and
Other |
5.6 | % | ||||
Total |
100 | % |
63
Industry Trends
64
|
burning lower sulfur coal, either exclusively or mixed with higher sulfur coal; |
|
installing pollution control devices, such as scrubbers, that reduce the emissions from high sulfur coal; |
|
reducing electricity generating levels; or |
|
purchasing or trading emission credits to allow them to comply with the sulfur dioxide emission compliance requirements. |
Recent Coal Market Conditions
|
stronger industrial demand following a recovery in the U.S. manufacturing sector, evidenced by the most recent estimate of 3.9% real GDP growth in the fourth quarter of 2004 (from the fourth quarter of 2003), as reported by the Bureau of Economic Analysis; |
|
relatively low customer stockpiles, estimated by the EIA to be approximately 147 million tons at the end of 2004, down 11% from the prior year; |
|
declining coal production in Central Appalachia, including a decline of 13% in Central Appalachian coal production volume in 2004 as compared to 2000, according to Platts; |
|
capacity constraints of U.S. nuclear-powered electricity generators, which operated at an average utilization rate of 88.4% in 2003, up from 70.5% in 1993, as estimated by the EIA; |
|
high current and forward prices for natural gas and oil, important fuels for electricity generation, with spot prices as of April 12, 2005 for natural gas and heating oil at $7.34 per million Btu (Henry Hub) and $51.86 per barrel (WTI crude), respectively, as reported by Bloomberg L.P.; and |
|
increased international demand for U.S. coal for steelmaking, driven by global economic growth, high ocean freight rates and the weak U.S. dollar. |
65
66
General Business
Tons (000) |
Percentage of total coal obtained by the Company |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Coal produced
from Company-operated mines |
7,987 | 90 | % | |||||||
Coal obtained
from mines operated by independent contractors |
534 | 6 | % | |||||||
Coal purchased
from other third parties |
330 | 4 | % | |||||||
8,851 | 100 | % |
67
Mining Operations
|
Bell County Coal Corporation; |
|
Bledsoe Coal Corporation; |
|
Blue Diamond Coal Corporation; |
|
Leeco, Inc.; and |
|
McCoy Elkhorn Coal Corporation. |
68
69
Reserves
70
Approximate Overall Reserve Quality (2) |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mining Complex |
Proven & Probable Reserves (1) (millions of tons) |
Ash Content (%) |
Sulfur Content (%) |
Heat Value (Btu/lb.) |
|||||||||||||||
Bell
County |
12.5 | 5.1 | 1.0 | 13,500 | |||||||||||||||
Bledsoe |
59.1 | 7.8 | 1.2 | 13,000 | |||||||||||||||
Blue
Diamond |
66.2 | 4.7 | 1.1 | 13,700 | |||||||||||||||
Leeco |
35.7 | 7.0 | 1.2 | 13,200 | |||||||||||||||
McCoy
Elkhorn |
33.8 | 5.7 | 1.6 | 13,300 | |||||||||||||||
Total/Average |
207.3 | 6.3 | 1.3 | 13,300 |
(1) | Proven reserves have the highest degree of geologic assurance and are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings, or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspections, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established. Probable reserves have a moderate degree of geologic assurance and are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. This reserve information reflects recoverable tonnage on an as-received basis with 5.5% moisture. |
(2) | Ash and sulfur content is expressed as the percent by weight of those constituents in the coal sample compared to the total weight of the sample being tested. Heat value is expressed as Btu per pound in the coal based on laboratory testing of coal samples. The samples are typically obtained from exploratory core borings placed at strategic locations within the coal reserve area. Approximately 82% of the reserve tons have representative samples (degree of representation varies from area to area) and 18% of the reserve tons have no site-specific samples (and are therefore not included in the overall quality estimate). The samples are sent to accredited laboratories for testing under protocols established by the American Society of Testing and Materials (ASTM). The estimated overall quality values are derived by a multiple step process, including: a) for each mine or reserve area, an arithmetic average quality (dry basis) was prepared to represent the coal tons within the area, based on samples from the area; b) the overall quality of reserves for each mine complex was determined by performing a tonnage-weighted average of the average quality of all mine and reserve areas within the division; and c) the resulting dry basis overall quality was converted to wet product basis to reflect its anticipated moisture content at the time of sale. The actual quality of the shipped coal may vary from these estimates due to factors such as: a) the particle size of the coal fed to the plant; b) the specific gravity of the float media in use at the preparation plant; c) the type of plant circuit(s); d) the efficiency of the plant circuit(s); e) the moisture content of the final product; and f) customer requirements. |
|
Room and pillar underground mining; |
|
Contour and auger surface mining; and |
|
Area mining (also known as mountaintop removal). |
71
Mine Characteristics
Processing and Transportation
72
Customers and Coal Contracts
|
Fixed price contracts; |
|
Annually negotiated prices that reflect market conditions at the time; or |
|
Base-price-plus-escalation methods that allow for periodic price adjustments based on fixed percentages or, in certain limited cases, pass-through of actual cost changes. |
73
Properties
(1) |
mineral rights, which allows the controlling party to remove the minerals on the property; |
(2) |
surface rights, which allows the controlling party to use and disturb the surface of the property; and |
(3) |
fee control, which includes both mineral and surface rights. |
|
length of term; |
|
renewal requirements; |
|
minimum royalties; |
|
recoupment provisions; |
|
tonnage royalty rates; |
|
minimum tonnage royalty rates; |
|
wheelage rates; |
|
usage fees; and |
|
other factors. |
Competition
|
the price of competing coal and alternative fuel supplies, including nuclear, natural gas, oil and renewable energy sources, such as hydroelectric power; |
|
coal quality; |
|
transportation costs from the mine to the customer; and |
|
the reliability of supply. |
74
Legal Proceedings
Employees
Recent Reorganization
|
exchanged approximately $266 million in debt under various existing credit facilities for (1) restructured term debt of approximately $75 million, which is secured by a second lien on substantially all of our assets, and (2) a total of 13,799,994 shares of our new common stock, par value $0.01 per share, issued on a pro rata basis to the holders of the existing debt; |
|
distributed interests in an unsecured creditor liquidating trust (which trust initially held life insurance policies with cash surrender values of approximately $3.1 million, the right to receive certain refunds and the right to pursue certain derivative claims) to our general unsecured creditors in exchange for their claims, which were estimated to be valued at approximately $44.9 million; |
|
entered into a new senior secured credit facility providing borrowings of up to $50 million, which is secured by a first lien on substantially all of our assets; |
|
satisfied and discharged all of our obligations under our $20 million debtor-in-possession credit facility; |
|
rejected (i.e., terminated) certain agreements that we had entered into before the bankruptcy that were found to be unduly burdensome to us, and discharged the claims of creditors related to those agreements; |
|
canceled our existing equity securities; |
|
acknowledged that all intercompany debt was deemed to be extinguished; |
|
acknowledged that pre- and post-petition (i) environmental and regulatory obligations; (ii) obligations with respect to workers compensation and black lung programs; and (iii) regulatory obligations related to our employees would be unaffected by the Plan of Reorganization and would survive effectuation of the Plan of Reorganization; and |
|
elected and installed a new Board of Directors. |
Fresh Start Accounting
|
The reorganization value of the entity should be allocated to the entitys assets in conformity with SFAS No. 141 Business Combinations. |
75
|
Each liability existing at the plan confirmation date, other than deferred taxes, should be stated at present values of amounts to be paid as determined at appropriate current interest rates. |
|
Deferred taxes should be reported in conformity with generally accepted accounting principles. Benefits realized from pre-reorganization net operating loss carryforwards should first reduce reorganization value in excess of amounts allocable to identifiable assets and other intangibles until exhausted and thereafter be reported as a direct addition to paid-in capital. |
Estimated
enterprise value of the reorganized company |
$ | 155,000 | ||||
Borrowings
under credit agreement |
(6,400 | ) | ||||
Capital
leases assumed |
(1,396 | ) | ||||
Cash balance
excluded from enterprise value |
1,301 | |||||
Administrative claims payable excluded from enterprise value |
(10,214 | ) | ||||
138,291 | ||||||
Less: new
secured debt issued to extinguish prepetition debt |
75,000 | |||||
Fair value
of common shares issued to extinguish prepetition debt |
$ | 63,291 |
76
THE TRIAD ACQUISITION
General
Triads Business
Summary Financial and Other Information
2005 |
2006 |
2007 |
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average Price Per Ton |
Tons |
Average Price Per Ton |
Tons |
Average Price Per Ton |
Tons |
||||||||||||||||||||||
Total Sales
Commitments |
$ | 23.77 | 3.4 | million | $ | 23.51 | 3.1 | million | $ | 24.77 | 1.3 | million |
77
Mining Operations
Name |
Type of Mine |
County (Indiana) |
2004 Shipments (tons) |
Employees (December 31, 2004) |
Proven and Probable Reserves (February 1, 2005) (tons) |
Projected Years of Operation* |
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Augusta |
Surface |
Pike |
676,000 | 35 | 1.9
million |
2.8 | ||||||||||||||||||||
Freelandville Central |
Surface |
Knox |
311,000 | 15 | 1.3
million |
4.1 | ||||||||||||||||||||
Freelandville |
Surface |
Knox |
408,000 | 54 | 5.8
million |
14.2 | ||||||||||||||||||||
Freelandville East |
Surface |
Knox |
462,000 | 16 | 870,000 |
1.9 | ||||||||||||||||||||
Freelandville Underground |
Underground |
Knox |
444,000 | 40 | 2.4
million |
5.4 | ||||||||||||||||||||
Patoka
River |
Surface |
Pike |
799,000 | 33 | 1.2
million |
1.5 | ||||||||||||||||||||
South
Augusta |
Surface |
Pike |
N/A** | N/A** | 4.1
million |
N/A** |
* | Based on 2004 levels of production. |
** | Mining operations at South Augusta mine began in January 2005. |
Terms of Acquisition Agreement
Purchase Price
|
$64.0 million in cash will be paid to Triads shareholders as of the closing date; and |
|
the remainder of the purchase price will be paid by issuing to Triads shareholders shares of our common stock having a market value equal to $11.0 million, based on the average closing price of our common stock on The Nasdaq Stock Market for the 15 consecutive trading days ending two trading days prior to the closing date. |
78
Conditions, Termination and Indemnification
|
our having obtained financing for the acquisition on terms and conditions approved by our Board of Directors; |
|
the material accuracy of the representations and warranties of each party to the purchase agreement as of the closing date; |
|
receipt of all consents and regulatory approvals required to consummate the acquisition; and |
|
receipt by each party of certain legal opinions and other documents. |
Consulting Agreements
Registration Rights
79
the holders sell less than 33.3% in a given 90-day period, they would have the right to carry over and sell such additional amount in a subsequent period.
Selected Historical Consolidated Financial Information of Triad Mining, Inc.
Twelve Months Ended 12/31/04 |
Three Months Ended 3/31/05 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
(amounts in thousands, except per ton amounts) |
||||||||||
Consolidated Statement of Operations: |
||||||||||
Revenues |
$ | 81,603 | 23,396 |
|||||||
Cost of coal
sold |
59,291 | 17,203 |
||||||||
Depreciation, depletion and amortization |
5,500 | 1,630 |
||||||||
Gross
profit |
16,812 | 4,563 |
||||||||
Selling,
general and administrative expenses |
3,736 | 886 |
||||||||
Operating
income |
13,076 | 3,677 |
||||||||
Interest
expense |
174 | 21 |
||||||||
Interest
income |
(567 | ) | (149 |
) | ||||||
Other,
net |
(57 | ) | 71 |
|||||||
Net income
(a) |
13,526 | 3,734 |
||||||||
Consolidated Balance Sheet Data: |
||||||||||
Working
capital |
$ | 27,551 | 30,768 |
|||||||
Property,
plant and equipment, net |
26,368 | 25,207 |
||||||||
Total
assets |
62,191 | 62,914 |
||||||||
Long term
debt, including current portion |
1,712 | 885 |
||||||||
Total
shareholders equity |
47,054 | 49,018 |
||||||||
Consolidated Statement of Cash Flow Data: |
||||||||||
Net cash
provided by operating activities |
$ | 20,413 | 3,055 |
|||||||
Net cash
used in investing activities |
(6,965 | ) | (2,034 |
) | ||||||
Net cash
used in financing activities |
(14,387 | ) | (2,478 |
) | ||||||
Supplemental Operating Data: |
||||||||||
Tons
sold |
3,391 | 900 |
||||||||
Tons
produced |
3,384 | 905 |
||||||||
Revenue per
ton sold |
$ | 24.06 | 26.00 |
|||||||
Capital
expenditures |
4,705 | 1,756 |
(a) |
Triad is an S-Corporation and therefore does not have income tax expense. |
80
Twelve Months Ended 12/31/04 |
Three Months Ended 3/31/05 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Net
income |
$ | 13,526 | 3,734 |
|||||||
Interest
expense |
174 | 21 |
||||||||
Interest
income |
(567 | ) | (149 |
) | ||||||
Depreciation, depletion and amortization |
5,500 | 1,630 |
||||||||
EBITDA |
$ | 18,633 | 5,236 |
81
GOVERNMENT REGULATION
|
employee health and safety; |
|
permitting and licensing requirements regarding environmental and safety matters; |
|
air quality standards; |
|
water quality standards; |
|
plant and wildlife and wetland protection; |
|
blasting operations; |
|
the management and disposal of hazardous and non-hazardous materials generated by mining operations; |
|
the storage of petroleum products and other hazardous substances; |
|
reclamation and restoration of properties after mining operations are completed; |
|
discharge of materials into the environment, including air emissions and wastewater discharge; |
|
surface subsidence from underground mining; and |
|
the effects of mining operations on groundwater quality and availability. |
82
Mine Health and Safety Laws
Black Lung Legislation
|
current and former coal miners totally disabled from black lung disease; |
|
certain survivors of a miner who dies from black lung disease or pneumoconiosis; and |
|
a trust fund for the payment of benefits and medical expenses to any claimant whose last mine employment was before January 1, 1970, or where a miners last coal employment was on or after January 1, 1970 and no responsible coal mine operator has been identified for claims, or where the responsible coal mine operator has defaulted on the payment of such benefits. |
83
and easier for participants to understand. These and other changes to the black lung regulations could significantly increase our exposure to federal black lung benefits liabilities. Experience to date related to these changes is not sufficient to determine the impact of these changes. The National Mining Association challenged the amendments but the courts, to date, with minor exception, affirmed the rules. However, the decision left many contested issues open for interpretation. Consequently, we anticipate increased litigation until the various federal District Courts have had an opportunity to rule on these issues.
Workers Compensation
Environmental Laws and Regulations
|
the Surface Mining Control and Reclamation Act of 1977; |
|
the Clean Air Act; |
|
the Clean Water Act; |
|
the Toxic Substances Control Act; |
|
the Comprehensive Environmental Response, Compensation and Liability Act; |
|
the U.S. Army Corps of Engineers; and |
|
the Resource Conservation and Recovery Act. |
84
Surface Mining Control and Reclamation Act
Clean Air Act
85
86
Framework Convention On Global Climate Change
Clean Water Act
Comprehensive Environmental Response, Compensation and Liability Act
Resource Conservation and Recovery Act
87
MANAGEMENT
Executive Officers and Directors
Name |
Age |
Position |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Peter T. Socha |
46 | Chairman, President and Chief Executive Officer |
||||||||
Coy K. Lane,
Jr. |
44 | Senior Vice President and Chief Operating Officer |
||||||||
Samuel M.
Hopkins, II |
48 | Vice President and Chief Accounting Officer |
||||||||
Richard L.
Douthat |
54 | Vice PresidentRisk Management |
||||||||
James T.
Ketron |
54 | Vice President, General Counsel and Secretary |
||||||||
Jeffrey A.
Wilson |
54 | Vice PresidentBusiness Development |
||||||||
William R.
Beasley |
64 | President of James River Coal Sales, Inc. |
||||||||
Joseph G.
Evans |
47 | President of Leeco, Inc.; President of Blue Diamond Coal Company |
||||||||
D. Brian Patton,
III |
38 | President of James River Coal Service Company |
||||||||
Charles G.
Snavely |
49 | President of Bell County Coal Corporation; President of Bledsoe Coal Corporation |
||||||||
Randall K.
Taylor |
45 | President of McCoy Elkhorn Coal Corporation |
||||||||
Alan F.
Crown |
57 | Director |
||||||||
Leonard J.
Kujawa |
72 | Director |
||||||||
Paul H.
Vining |
50 | Director |
||||||||
James F.
Wilson |
47 | Director |
88
89
90
EXECUTIVE COMPENSATION
Summary Compensation Table
Long-Term Compensation Awards |
||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Annual Compensation (1) |
||||||||||||||||||||||||||
Name and Principal Position |
Year |
Salary($) |
Bonus($) |
Restricted Stock Award(s) ($)(2) |
Securities Underlying Options/ SARs |
All Other Compensation($) |
||||||||||||||||||||
Peter T.
Socha (3) |
2004 | 409,798 | 601,000 | 1,377,000 | 150,000 | | ||||||||||||||||||||
President
and Chief Executive Officer |
2003 | 312,559 | | | | | ||||||||||||||||||||
Samuel M.
Hopkins, II (4) |
2004 | 145,799 | 50,000 | 315,563 | | | ||||||||||||||||||||
Vice
President and Chief Accounting |
2003 | 31,334 | | | | | ||||||||||||||||||||
Officer |
||||||||||||||||||||||||||
James B.
Crawford (5) |
2004 | | | | | | ||||||||||||||||||||
Former
President and Chief Executive |
2003 | 101,315 | | | | 678,689 | ||||||||||||||||||||
Officer |
2002 | 499,733 | | | | | ||||||||||||||||||||
William T.
Sullivan (6) |
2004 | | | | | | ||||||||||||||||||||
Former Vice
President |
2003 | 146,227 | 45,000 | | | 180,836 | (6) | |||||||||||||||||||
2002 | 135,942 | 67,500 | 85,666 | (7) |
(1) | Excludes perquisites and other personal benefits aggregating less than $50,000 or 10% of the Named Executive Officers annual salary and bonus. |
(2) | Based on our reorganization value of $4.59 per share, as determined in connection with our Plan of Reorganization. Mr. Sochas shares of restricted stock vest as follows: 68.75% of the shares vest in five equal annual installments, beginning on May 25, 2005, the first anniversary of the date of the grant, and the remaining 31.25% of the shares will vest upon the achievement of designated corporate performance criteria. Mr. Hopkins shares vest in five equal annual installments, beginning on May 25, 2005. |
(3) | Mr. Socha joined the Company in March 2003. |
(4) | Mr. Hopkins joined the Company in September 2003. |
(5) | Mr. Crawford resigned from all positions with the Company in March 2003. All Other Compensation represents the 2003 payments to Mr. Crawford in connection with his Settlement Agreement described below. |
(6) | This amount represents payments related to Mr. Sullivan leaving the Company in 2003. |
(7) | This payment was a bonus payment used to partially repay loans to purchase common stock. |
91
Option Grants in Fiscal 2004
Individual Grants |
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term (1) |
|||||||||||||||||||||||||||
Name |
Shares Underlying Options (#) |
Percent of Total Options Granted to Employees in Fiscal Year (2) |
Exercise Price ($/share) |
Expiration Date |
5% ($) |
10% ($) |
|||||||||||||||||||||
Peter T.
Socha |
150,000 | 55.6 | % | 10.80 | 5/7/2014 | 0 | 165,792 | ||||||||||||||||||||
Samuel M.
Hopkins, II |
| | | | | | |||||||||||||||||||||
James B.
Crawford |
| | | | | | |||||||||||||||||||||
William T.
Sullivan |
| | | | | |
(1) | Based on our reorganization value of $4.59 per share as of May 7, 2004, as determined in connection with our Plan of Reorganization. |
(2) | Based on options for 270,000 shares granted to directors and employees in fiscal 2004. |
Fiscal Year-End Option Values
Number of Securities Underlying Unexercised Options at December 31, 2004 |
Value of Unexercised In-the-Money Options at December 31, 2004(1) |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
Exercisable |
Unexercisable |
Exercisable |
Unexercisable |
|||||||||||||||
Peter T.
Socha |
| 150,000 | $ | | $ | 4,762,500 | |||||||||||||
Samuel M.
Hopkins, II |
| | | | |||||||||||||||
James B.
Crawford |
| | | | |||||||||||||||
William T.
Sullivan |
| | | |
(1) | Represents aggregate excess of market value of shares under option as of December 31, 2004, using the closing price of $42.55 at such date, over the exercise price of the options. |
Retirement Benefits
92
Pension Plan Table
Final Average Salary |
Years of Service |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
15 |
20 |
25 |
30 |
35 |
|||||||||||||||||||
$125,000 |
$ | 21,010 | $ | 28,014 | $ | 35,017 | $ | 42,020 | $ | 49,024 | |||||||||||||
$150,000 |
$ | 25,698 | $ | 34,263 | $ | 42,829 | $ | 51,395 | $ | 59,961 | |||||||||||||
$175,000 |
$ | 30,385 | $ | 40,513 | $ | 50,642 | $ | 60,770 | $ | 70,899 | |||||||||||||
$200,000 |
$ | 35,073 | $ | 46,764 | $ | 58,454 | $ | 70,145 | $ | 81,836 | |||||||||||||
$205,000* |
$ | 36,010 | $ | 48,013 | $ | 60,017 | $ | 72,020 | $ | 84,024 |
* | There is a $205,000 cap on compensation under our pension plan; accordingly, each remuneration level greater than $205,000 provides the same level of benefits. |
Peter T.
Socha |
1.00 | |||||
Samuel M.
Hopkins, II |
1.00 | |||||
James B.
Crawford* |
21.67 | |||||
William T.
Sullivan* |
16.00 |
* | These officers left the Company in 2003, and therefore were not active participants in our pension plan as of October 1, 2004. |
Employment Contracts, Termination of Employment, Severance and Change-in-Control Arrangements
(i) |
rights under two life insurance contracts, one of which represented the vested amount in Mr. Crawfords account in our Supplemental Savings and Profit Sharing Plan of $535,021, and the other of which was a life insurance policy with a cash value of $143,668; |
(ii) |
the right to receive $1,383,002 in cash from us upon our consummation of a Chapter 11 plan of reorganization or the sale of all or substantially all of our assets (which amount was paid on May 6, 2004); and |
(iii) |
welfare benefit continuation until the payment under (ii) above was made. |
In the event Mr. Crawford is engaged by us or any purchaser of us, or any successor to either, as Chairman, Chief Executive Officer, Chief Operations Officer or any similar position within the 12 months from the payment under (ii) above, Mr. Crawford is obligated to repay the amount received under (ii) above. Additionally, pursuant to the settlement agreement:
(iv) |
Mr. Crawford sold all of his equity interests in the Company to J.R. Coal Associates in exchange for the transfer by J.R. Coal Associates to the Company of certain life insurance policies; |
(v) |
each of the Company and Mr. Crawford released the other from certain claims; and |
(vi) |
Mr. Crawford agreed not to compete with us for a period that ended October 31, 2003. |
93
of the parties in one-year increments, beginning on the first anniversary of the agreement. The employment agreement provides for a base salary of $375,000 per year, subject to annual review, and that Mr. Socha will participate in our annual cash bonus program. Pursuant to the 2004 Equity Incentive Plan described below, on May 25, 2004, Mr. Socha was granted 300,000 restricted shares of common stock, 206,250 shares of which will vest in five equal annual installments, beginning on the first anniversary of the date of the grant, and the remaining 93,750 shares of which will vest upon the achievement of designated corporate performance criteria. The performance criteria include achieving EBITDA results for 2004 and 2005, as contained in our disclosure statement accompanying the Plan of Reorganization, of approximately $126.3 million for the two year period (80% of vesting) and the successful development of the new mine at McCoy Elkhorn (20% of vesting). The performance criteria will not be measured, and therefore no stock will vest, prior to the completion of the annual audit for the year ended December 31, 2005. Mr. Socha also was granted options to acquire 150,000 shares of common stock for $10.80 per share. The options will vest in five equal annual installments, beginning on the first anniversary of the date of grant. Upon termination without good reason or a change in control (as those terms are defined in the agreement) all of the restricted shares and options will immediately vest and the options will become exercisable. Following the recommendation of the secured creditors from the Chapter 11 reorganization process, the Board of Directors awarded Mr. Socha a one-time restructuring bonus of $800,000. Mr. Socha requested, and the Board of Directors approved, a reduction in the bonus to $601,000. We distributed the remaining bonus of $199,000 to other individuals in the organization not otherwise eligible for bankruptcy-related bonus payments, primarily operating level managers at the individual mine and preparation plant levels.
Indemnification Agreements
(i) |
indemnify each Indemnified Party to the fullest extent permitted by law; |
(ii) |
provide coverage for each Indemnified Party under our directors and officers liability insurance policy; and |
(iii) |
to advance certain expenses incurred by an Indemnified Party. |
2004 Equity Incentive Plan
(i) |
attract, motivate and retain employees, directors, consultants, advisors and other persons who perform services for us by providing compensation opportunities that are competitive with other companies; |
94
(ii) |
provide incentives to those individuals who contribute significantly to our long-term performance and growth and that of our affiliates; and |
(iii) |
align the long-term financial interests of employees and other individuals who are eligible to participate in the 2004 Incentive Plan with those of shareholders. |
95
restrictions, or by any other means which the Committee determines to be consistent with the 2004 Incentive Plans purpose and applicable law.
96
|
Each non-employee director received a grant of options to purchase 10,000 shares of common stock at a strike price of $15.00 per share and a grant of 1,000 restricted shares of common stock. These grants will vest in three equal annual installments, beginning on the first anniversary of the date of grant. Upon a change in control (as defined in the 2004 Incentive Plan) all of the restricted shares and options will immediately vest and the options will become immediately exercisable. |
|
Peter T. Socha received a grant of 300,000 restricted shares of common stock, 206,250 shares of which will vest automatically in five equal annual installments, beginning on the first anniversary of the date of the grant, and the remaining 93,750 shares of which will vest upon the achievement of designated performance criteria. The performance criteria include achieving EBITDA results for 2004 and 2005, as contained in our disclosure statement accompanying the Plan of Reorganization, of approximately $126.3 million for the two year period (80% of vesting) and the successful development of the new mine at McCoy Elkhorn (20% of vesting). The performance criteria will not be measured, and therefore no stock will vest, prior to the completion of the annual audit for the year ended December 31, 2005. Upon a change in control (as defined in the employment agreement between the Company and Mr. Socha) all of the restricted shares will immediately vest. |
|
Other members of our operating and senior management have received or will receive, in the aggregate, grants of 716,700 restricted shares of common stock and options for common stock, of which, 710,450 shares and options will vest automatically in five equal annual installments, beginning on the first anniversary of the date of the grant, and the remaining 6,250 shares and options of which will vest upon the achievement of performance criteria to be approved by the Committee. |
Federal Income Tax Consequences
97
98
Board of Directors
Board Committees
Compensation of Directors
99
Compensation Committee Interlocks and Insider Participation
100
PRINCIPAL AND SELLING SHAREHOLDERS
Shares Beneficially Owned Prior to Offering |
Shares Beneficially Owned After Offering |
||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Without Over-allotment Exercise |
With Over-allotment Exercise |
||||||||||||||||||||||||||||||
Name |
Number(1) |
%(2) |
Number of Shares Offered(3) |
Number(4) |
%(2)(4) |
Number(4) |
%(2)(4) |
||||||||||||||||||||||||
Carl Marks
Group (5) |
2,755,318 | 18.69 | % | 2,000,000 | 755,318 | 4.65 | % | 755,318 | 4.50 | % | |||||||||||||||||||||
Harbert Group
(6) |
2,210,205 | 14.99 | % | | 2,210,205 | 13.61 | % | 2,210,205 | 13.18 | % | |||||||||||||||||||||
Glencore
Finance AG (7) |
2,208,948 | 14.99 | % | | 2,208,948 | 13.60 | % | 2,208,948 | 13.18 | % | |||||||||||||||||||||
Merrill Lynch
PCG, Inc. (8) |
985,000 | 6.68 | % | | 985,000 | 6.07 | % | 985,000 | 5.88 | % | |||||||||||||||||||||
Triage Group
(9) |
813,426 | 5.52 | % | | 813,426 | 5.01 | % | 813,426 | 4.85 | % | |||||||||||||||||||||
Peter T. Socha
(10) |
71,250 | * | | 71,250 | * | 71,250 | * | ||||||||||||||||||||||||
Alan F. Crown
(11) |
3,666 | * | | 3,666 | * | 3,666 | * | ||||||||||||||||||||||||
Leonard J.
Kujawa (12) |
3,666 | * | | 3,666 | * | 3,666 | * | ||||||||||||||||||||||||
Paul H. Vining
(13) |
3,666 | * | | 3,666 | * | 3,666 | * | ||||||||||||||||||||||||
James F.
Wilson (5)(14) |
2,755,318 | 18.69 | % | 2,000,000 | 755,318 | 4.65 | % | 755,318 | 4.50 | % | |||||||||||||||||||||
Samuel M.
Hopkins, II (15) |
13,750 | * | | 13,750 | * | 13,750 | * | ||||||||||||||||||||||||
Coy K. Lane,
Jr. (16) |
0 | * | | 0 | * | 0 | * | ||||||||||||||||||||||||
James B.
Crawford (17) |
0 | * | | 0 | * | 0 | * | ||||||||||||||||||||||||
William T.
Sullivan (18) |
0 | * | | 0 | * | 0 | * | ||||||||||||||||||||||||
Executive
Officers and Directors as a Group (9 persons) |
2,851,316 | 19.29 | % | 2,000,000 | 851,316 | 5.23 | % | 851,316 | 5.06 | % |
* | Less than 1% |
(1) | This column lists all shares of common stock beneficially owned, whether or not registered hereunder, including all restricted shares of common stock that vest, and all shares of common stock that can be acquired through option exercises, within 60 days of the date of this prospectus. |
(2) | In calculating the percentage owned, we assumed that any options for the purchase of common stock that are exercisable by that shareholder within 60 days of the date of this prospectus are exercised by that shareholder (and the underlying shares of common stock issued). The total number of shares outstanding used in calculating the percentage owned assumes a base of 14,740,694 shares of common stock outstanding as of the date of this prospectus and no exercise of options held by other shareholders. |
(3) | Only the shares of common stock shown in this column are being offered by the selling shareholder pursuant to this prospectus. Before our emergence from bankruptcy, the selling shareholder was a secured creditor in our bankruptcy proceedings, as a holder of a portion of our pre-petition secured debt. Pursuant to the Plan of Reorganization, the selling shareholders pre-petition secured claims were converted into new secured notes (governed by the Term Credit Facility) and common stock. Accordingly, the selling shareholder may continue to have a secured lending relationship with us. |
(4) | Assumes all shares of common stock registered hereunder are sold by the selling shareholder. |
(5) | As of April 14, 2005, based on information supplied to us by the Carl Marks Group. Includes the following securities owned by James F. Wilson individually: 333 shares of restricted stock that will vest within 60 days of the date of this prospectus and 3,333 shares subject to presently exercisable stock options and options that will vest within 60 days of the date of this prospectus. The Carl Marks Group consists of Carl Marks Strategic Investments, L.P. (2,600,898 shares), Carl Marks Strategic Investments III, L.P. (150,754 shares) and James F. Wilson, one of our directors. The business address of the Carl Marks Group is 900 Third Avenue, 33rd Floor, New York, New York 10022. Only shares held by Carl Marks Strategic Investments, L.P. and Carl Marks Strategic Investments III, L.P. are being registered hereby and offered in this offering, which shares were issued upon the conversion of our pre-petition secured debt in connection with our emergence from bankruptcy. James F. Wilson is one of three individual general partners of Carl Marks Management Company, L.P., a Delaware limited partnership and registered investment advisor, which is the sole general partner of (i) Carl Marks Strategic Investments, L.P., a Delaware limited partnership and private investment partnership, and (ii) Carl Marks Strategic Investments III, L.P., a Delaware limited partnership and private investment partnership. The shares of common stock which are owned by Carl Marks Strategic Investments, L.P. and Carl Marks Strategic Investments III, L.P. may be deemed to be beneficially owned indirectly, on a shared basis, by Mr. Wilson and the other individual general partners of Carl Marks Management Company, L.P., who share the power to direct the vote or dispose of such securities. |
101
(6) | As of April 14, 2005, based upon information supplied to us by the Harbert Group, which consists of Harbert Distressed Investment Master Fund, Ltd. (Master Fund) and Alpha US Sub Fund VI, LLC (Alpha), and the Form 4 filed by the Master Fund, HMC Distressed Investment Offshore Manager, L.L.C. (Offshore Manager) and HMC Investors, L.L.C. (HMC Investors) with the SEC on April 18, 2005. The Offshore Manager and the Master Fund share voting and dispositive power over 2,155,760 shares of our common stock (the HMC Shares). In addition to the HMC Shares, HMC Investors, Raymond J. Harbert, Michael D. Luce and Philip A. Falcone may also be deemed to have shared voting and dispositive power over an additional 54,445 shares of our common stock owned by Alpha (the Alpha Shares). We have been informed by the Master Fund and Alpha that each disclaims beneficial ownership of the HMC Shares and the Alpha Shares except to the extent of their actual pecuniary interest. Each of Master Fund and Alpha is or may be deemed to be an affiliate of a registered broker-dealer. Master Fund is an entity organized in the Cayman Islands. Offshore Manager is the sole investment manager of the Master Fund. HMC Investors is the managing member of the Offshore Manager. Philip A. Falcone is a member of Offshore Manager and acts as portfolio manager for the Master Fund. Alpha is a separate managed account also managed by Philip A. Falcone. Raymond J. Harbert and Michael D. Luce are members of HMC Investors. The business address of the Master Fund is c/o International Fund Services (Ireland) Limited, 3rd Floor, Bishops Square, Redmonds Hill, Dublin 2, Ireland. The business address of Alpha is c/o 555 Madison Avenue, 16th Floor, New York, New York 10022. |
(7) | As of January 21, 2005, based on information in the Form 4/A filed on January 25, 2005. The business address of Glencore Finance AG is Baarermattstrasse 3, CH-6341 Baar, Switzerland. |
(8) | As of December 31, 2004, based on information in the Schedule 13G filed on February 14, 2005. The business address of Merrill Lynch PCG, Inc. is 4 World Financial Center, New York, New York 10080. |
(9) | As of December 31, 2004, based on information in the Schedule 13G filed on February 15, 2005. The Triage Group consists of Triage Capital LF Group LLC, a Delaware limited liability company (Triage Capital) that acts as a general partner to (i) a general partner of different funds and an investment manager of a managed account and (ii) an investment manager of a Cayman Islands company, and Leonid Frenkel, who is (i) the managing member of Triage Capital and controls its business activities and (ii) the manager of another limited liability company. The business address of the Triage Group is 401 City Avenue, Suite 800, Bala Cynwyd, Pennsylvania 19004. |
(10) | Includes 41,250 shares of restricted stock that will vest within 60 days of the date of this prospectus and 30,000 shares subject to presently exercisable stock options and options that will vest within 60 days of the date of this prospectus. Mr. Sochas business address is c/o James River Coal Company, 901 E. Byrd Street, Suite 1600, Richmond, Virginia 23219. |
(11) | Includes 333 shares of restricted stock that will vest within 60 days of the date of this prospectus and 3,333 shares subject to presently exercisable stock options and options that will vest within 60 days of the date of this prospectus. Mr. Crowns business address is c/o James River Coal Company, 901 E. Byrd Street, Suite 1600, Richmond, Virginia 23219. |
(12) | Includes 333 shares of restricted stock that will vest within 60 days of the date of this prospectus and 3,333 shares subject to presently exercisable stock options and options that will vest within 60 days of the date of this prospectus. Mr. Kujawas business address is c/o James River Coal Company, 901 E. Byrd Street, Suite 1600, Richmond, Virginia 23219. |
(13) | Includes 333 shares of restricted stock that will vest within 60 days of the date of this prospectus and 3,333 shares subject to presently exercisable stock options and options that will vest within 60 days of the date of this prospectus. Mr. Vinings business address is c/o James River Coal Company, 901 E. Byrd Street, Suite 1600, Richmond, Virginia 23219. |
(14) | Includes 333 shares of restricted stock that will vest within 60 days of the date of this prospectus and 3,333 shares subject to presently exercisable stock options and options that will vest within 60 days of the date of this prospectus. Mr. Wilsons business address is 900 Third Avenue, 33rd Floor, New York, New York 10022. Mr. Wilson is one of three individual general partners of Carl Marks Management Company, L.P., a Delaware limited partnership and registered investment advisor, which is the sole general partner of (i) Carl Marks Strategic Investments, L.P., a Delaware limited partnership and private investment partnership, and (ii) Carl Marks Strategic Investments III, L.P., a Delaware limited partnership and private investment partnership. The shares of common stock which are owned by Carl Marks Strategic Investments, L.P. and Carl Marks Strategic Investments III, L.P. may be deemed to be beneficially owned indirectly, on a shared basis, by Mr. Wilson and the other individual general partners of Carl Marks Management Company, L.P., who share the power to direct the vote or dispose of such securities. |
(15) | Includes 13,750 shares of restricted stock that will vest within 60 days of the date of this prospectus. Mr. Hopkins business address is c/o James River Coal Company, 901 E. Byrd Street, Suite 1600, Richmond, Virginia 23219. |
(16) | Mr. Lanes business address is c/o James River Coal Company, 901 E. Byrd Street, Suite 1600, Richmond, Virginia 23219. |
(17) | Mr. Crawfords business address is c/o James River Coal Company, 901 E. Byrd Street, Suite 1600, Richmond, Virginia 23219. |
(18) | Mr. Sullivans business address is c/o James River Coal Company, 901 E. Byrd Street, Suite 1600, Richmond, Virginia 23219. |
102
RELATED PARTY TRANSACTIONS
(i) |
rights under two life insurance contracts, one of which represented the vested amount in Mr. Crawfords account in our Supplemental Savings and Profit Sharing Plan of $535,021, and the other of which was a life insurance policy with a cash value of $143,668; |
(ii) |
the right to receive $1,383,002 in cash from us upon our consummation of a Chapter 11 plan of reorganization or the sale of all or substantially all of our assets (which amount was paid on May 6, 2004); and |
(iii) |
welfare benefit continuation until the payment under (ii) above was made. |
In the event Mr. Crawford is engaged by us or any purchaser of us, or any successor to either, as Chairman, Chief Executive Officer, Chief Operations Officer or any similar position within the 12 months from the payment under (ii) above, Mr. Crawford is obligated to repay the amount received under (ii) above. Additionally, pursuant to the settlement agreement:
(iv) |
Mr. Crawford sold all of his equity interests in the Company to J.R. Coal Associates in exchange for the transfer by J.R. Coal Associates to the Company of certain life insurance policies; |
(v) |
each of the Company and Mr. Crawford released the other from certain claims; and |
(vi) |
Mr. Crawford agreed not to compete with us for a period that ended October 31, 2003. |
103
DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
Common Stock
Preferred Stock
|
the designation of the series; |
|
the number of shares of the series, which number our Board of Directors may later, except where otherwise provided in the preferred stock designation, increase or decrease, but not below the number of shares of that series then outstanding; |
|
whether dividends, if any, will be cumulative or noncumulative, and, in the case of shares of any series having cumulative dividend rights, the date or dates or method of determining the date or dates from which dividends on the shares of the series having cumulative dividend rights shall be cumulative; |
|
the rate of any dividends, or method of determining the dividends, payable to the holders of the shares of the series, any conditions upon which the dividends will be paid and the date or dates or the method for determining the date or dates upon which the dividends will be payable; |
|
the redemption rights and price or prices, if any, for shares of the series; |
|
the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series; |
|
the amounts payable on and the preferences, if any, of shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs; |
|
whether the shares of the series will be convertible or exchangeable into shares of any other class or series, or any other security, of us or any other corporation, and, if so, the specification of the other class or series or the other security, the conversion or exchange price or prices or rate or rates, any adjustments thereof, |
104
the date or dates as of which the shares will be convertible or exchangeable and all other terms and conditions upon which the conversion or exchange may be made; |
|
restrictions on the issuance of shares of the same series or of any other class or series; and |
|
the voting rights, if any, of the holders of the shares of the series. |
Preemptive Rights
Shareholder Rights Agreement
105
Certain Anti-Takeover Provisions of Virginia Law and Our Charter and Bylaws
Anti-Takeover Statutes
|
one-fifth; |
|
one-third; or |
|
a majority. |
106
|
the holders of at least two-thirds of the remaining voting shares; and |
|
a majority of the disinterested directors if the acquisition transaction occurs within three years after the acquiring person became a 10% holder. |
Board of Directors; Duties; Classification; Removal; Vacancies
|
by our shareholders; |
|
by the remaining directors; or |
|
by the affirmative vote of a majority of the remaining directors, though less than a quorum. |
107
Special Meetings of Shareholders
Shareholder Nominations and Proposals
|
with respect to an election to be held at an annual meeting of shareholders, 120 days in advance of such meeting; or |
|
with respect to a special meeting of shareholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is given to shareholders. |
|
the name and address of the shareholder making the nomination and of the person or persons being nominated; |
|
a representation that the shareholder is a holder of record of our stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting; |
|
a description of all the arrangements or understandings between the shareholder and each nominee and any other person pursuant to which the nomination is being made by the shareholder; |
|
any other information regarding each nominee that would be required by the Securities and Exchange Commission to be included in a proxy statement had the nominee been nominated or intended to be nominated by the Board of Directors; and |
|
the consent of each nominee to serve as a director if so elected. |
|
on or after February 1st and before March 1st of the year in which the meeting will be held; or |
|
not less than 90 days before the date of the meeting if the date of such meeting has been changed by more than 30 days. |
|
the name and address of the shareholder proposing business; |
|
the class and number of shares of our stock beneficially owned by such shareholder; |
|
a brief description of the business desired to be brought before the meeting, including the complete text of any resolution and the reasons for conducting such business at the meeting; and |
|
any interest that the shareholder may have in such business. |
108
Indemnification and Limitations on Liability of Directors and Officers
Transfer Agent and Registrar
109
DESCRIPTION OF INDEBTEDNESS
Description of Proposed New Senior Secured Credit Facility
|
declare dividends or make other distributions on capital stock; |
|
redeem and repurchase capital stock; |
|
prepay, redeem and repurchase debt (other than loans under the senior secured credit facilities); |
|
incur liens and sale-leaseback transactions; |
110
|
make loans and investments; |
|
incur debt and enter into hedging arrangements; |
|
engage in mergers and other business combinations, recapitalizations, acquisitions and asset sales; |
|
engage in transactions with affiliates; |
|
alter the business that we conduct; and |
|
amend debt and other material agreements. |
Description of Proposed Senior Notes due 2012
111
SHARES ELIGIBLE FOR FUTURE SALE
Lock-up Agreements
|
the sale of shares of common stock to the underwriters pursuant to this offering; |
|
the issuance by us of shares of common stock pursuant to the exercise of an option or similar security; |
|
transactions by any person other than us relating to shares of our common stock acquired in open market transactions after completion of this offering; |
|
transfers of shares of common stock as a bona fide gift or as a result of testate, intestate succession or bona fide estate planning; transfers of shares to a trust, partnership, limited liability company or other entity, all of the beneficial ownership interests of which are held by the transferor; or distributions of shares to limited partners or shareholders of the transferor, in each case provided that the transferee or distributee agrees to be bound by the restrictions described in the previous paragraph; |
|
the issuance of any shares in connection with the Triad acquisition; or |
|
the transfer of shares to us solely to satisfy tax withholding obligations incurred as a result of the vesting of restricted stock. |
112
release earnings results during the 16-day period beginning on the last day of the 180-day period, the lock-up restrictions described above will continue to apply until the expiration of the 18-day period beginning on the earnings release or the occurrence of the material news or material event.
Rule 144
|
1% of the number of shares of our common stock then outstanding, which will equal approximately 165,000 shares immediately after this offering (assuming completion of the Triad acquisition); or |
|
the average weekly trading volume of the common stock on the Nasdaq National Market System during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 144(k)
Rule 701
Registration Rights
113
Cutback Right), and such Cutback Right may decrease the number of shares subject to the piggyback registration right.
114
UNDERWRITING
Name |
Number of Shares |
|||||
---|---|---|---|---|---|---|
Morgan Stanley
& Co. Incorporated |
2,240,000 | |||||
Bear, Stearns
& Co. Inc. |
630,000 | |||||
Raymond James
& Associates, Inc. |
315,000 | |||||
Wachovia
Capital Markets, LLC |
315,000 | |||||
Total |
3,500,000 |
Per Share |
Total |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
No Exercise |
Full Exercise |
No Exercise |
Full Exercise |
||||||||||||||||
Underwriting
discounts and commissions paid by us |
$ | 2.1125 | $ | 2.1125 | $ | 3,168,750 | $ | 4,277,812.50 | |||||||||||
Underwriting
discounts and commissions paid by the selling shareholder |
$ | 2.1125 | $ | 2.1125 | $ | 4,225,000 | $ | 4,225,000 |
115
|
offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock, referred to as common stock rights; or |
|
enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, |
whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise.
|
the sale of shares of common stock to the underwriters pursuant to this offering; |
|
the issuance by us of shares of common stock pursuant to the exercise of an option or similar security; |
|
transactions by any person other than us relating to shares of our common stock acquired in open market transactions after completion of this offering; |
|
transfers of shares of common stock as a bona fide gift or as a result of testate, intestate succession or bona fide estate planning; transfers of shares to a trust, partnership, limited liability company or other entity, all of the beneficial ownership interests of which are held by the transferor; or distributions of shares to limited partners or shareholders of the transferor, in each case provided that the transferee or distributee agrees to be bound by the restrictions described in the previous paragraph; |
|
the issuance of any shares in connection with the Triad acquisition; or |
|
the transfer of shares to us solely to satisfy tax withholding obligations incurred as a result of the vesting of restricted stock. |
116
117
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
118
INDEX TO OUR CONSOLIDATED FINANCIAL STATEMENTS
Page |
||||||
---|---|---|---|---|---|---|
Audited
Financial Statements |
||||||
Report of
Independent Registered Public Accounting Firm |
F-2 | |||||
Consolidated
Balance Sheets as of December 31, 2004 (Successor) and December 31, 2003 (Predecessor) |
F-3 | |||||
Consolidated
Statements of Operations for the eight months ended December 31, 2004 (Successor), the four months ended April 30, 2004 (Predecessor) and the years
ended December 31, 2003 (Predecessor) and 2002 (Predecessor) |
F-5 | |||||
Consolidated
Statements of Changes in Shareholders Equity (Deficit) and Comprehensive Income (Loss) for the eight months ended December 31, 2004 (Successor),
the four months ended April 30, 2004 (Predecessor) and the years ended December 31, 2003 (Predecessor) and 2002 (Predecessor) |
F-6 | |||||
Consolidated
Statements of Cash Flows for the eight months ended December 31, 2004 (Successor), the four months ended April 30, 2004 (Predecessor) and the years
ended December 31, 2003 (Predecessor) and 2002 (Predecessor) |
F-7 | |||||
Notes to
Consolidated Financial Statements |
F-8 | |||||
Unaudited
Financial Statements |
||||||
Condensed
Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004 (Successor) |
F-35 | |||||
Condensed
Consolidated Statements of Operations for the three months ended March 31, 2005 (Successor) and March 31, 2004 (Predecessor) |
F-37 | |||||
Condensed
Consolidated Statements of Changes in Shareholders Equity (Deficit) and Comprehensive Income (Loss) for the three months ended March 31, 2005
(Successor), eight months ended December 31, 2004 (Successor) and four months ended April 30, 2004 (Predecessor) |
F-38 | |||||
Condensed
Consolidated Statements of Cash Flows for the three months ended March 31, 2005 (Successor) and March 31, 2004 (Predecessor) |
F-39 | |||||
Notes to
Condensed Consolidated Financial Statements |
F-40 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of James River Coal Company and subsidiaries as of December 31, 2004 (Successor Company) and 2003 (Predecessor Company), and the related consolidated statements of operations, changes in shareholders equity (deficit) and comprehensive income (loss), and cash flows for the eight months ended December 31, 2004 (Successor Company), the four months ended April 30, 2004, and the years ended December 31, 2003 and 2002 (Predecessor Company). These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of James River Coal Company and subsidiaries as of December 31, 2004 (Successor Company) and 2003 (Predecessor Company), and the results of their operations and their cash flows for the eight months ended December 31, 2004 (Successor Company), the four months ended April 30, 2004, and the years ended December 31, 2003 and 2002 (Predecessor Company) in conformity with U.S. generally accepted accounting principles.
As described more fully in Notes 1 and 3 to the consolidated financial statements, the Company was reorganized under a plan of reorganization confirmed by the United States Bankruptcy Court for the Middle District of Tennessee, effective May 6, 2004. In connection with the Companys emergence from Chapter 11, all assets and liabilities were restated to their respective fair values in order to reflect the effects of fresh start accounting. As a result of the application of fresh start accounting, the consolidated financial statements of the Successor Company are presented on a different basis than those of the Predecessor Company and, therefore, are not comparable in all respects.
As discussed in Notes 1(f) and 9(d) to the consolidated financial statements, the Company changed its method of accounting for reclamation liabilities and its method of accounting for redeemable preferred stock in 2003.
/s/ KPMG LLP
Richmond, Virginia
March 25, 2005
F-2
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(in thousands, except share data) |
Successor |
Predecessor |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, |
2004 |
2003 |
|||||||||||
Assets |
|||||||||||||
Current
assets: |
|||||||||||||
Cash |
$ | 3,879 | $ | 4,890 | |||||||||
Receivables: |
|||||||||||||
Trade |
23,871 | 17,631 | |||||||||||
Other |
7,362 | 4,324 | |||||||||||
Total
receivables |
31,233 | 21,955 | |||||||||||
Inventories: |
|||||||||||||
Coal |
2,305 | 3,278 | |||||||||||
Materials and
supplies |
4,084 | 4,624 | |||||||||||
Total
inventories |
6,389 | 7,902 | |||||||||||
Prepaid
royalties |
4,358 | 8,417 | |||||||||||
Other current
assets |
6,337 | 4,742 | |||||||||||
Total current
assets |
52,196 | 47,906 | |||||||||||
Property,
plant, and equipment, at cost: |
|||||||||||||
Land |
2,698 | 6,666 | |||||||||||
Mineral
rights |
162,577 | 216,336 | |||||||||||
Buildings,
machinery and equipment |
106,105 | 230,346 | |||||||||||
Mine
development costs |
5,729 | 11,208 | |||||||||||
Construction-in-progress |
231 | 997 | |||||||||||
Total
property, plant, and equipment |
277,340 | 465,553 | |||||||||||
Less
accumulated depreciation, depletion, and amortization |
21,765 | 208,397 | |||||||||||
Property,
plant and equipment, net |
255,575 | 257,156 | |||||||||||
Restricted
cash (note 1(c)) |
8,404 | 8,321 | |||||||||||
Other
assets |
11,651 | 4,906 | |||||||||||
Total
assets |
$ | 327,826 | $ | 318,289 |
See accompanying notes to consolidated financial statements.
F-3
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(in thousands, except share data) |
Successor |
Predecessor |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, |
2004 |
2003 |
|||||||||||
Liabilities and Shareholders Equity (Deficit) |
|||||||||||||
Current
liabilities: |
|||||||||||||
Current
maturities of long-term debt (note 5) |
$ | 2,700 | $ | | |||||||||
Current
installments of obligations under capital leases |
388 | 613 | |||||||||||
Accounts
payable |
15,116 | 18,566 | |||||||||||
Accrued
salaries, wages, and employee benefits |
2,093 | 2,275 | |||||||||||
Workers
compensation benefits |
12,090 | 9,000 | |||||||||||
Black lung
benefits |
2,600 | 2,200 | |||||||||||
Accrued
taxes |
3,530 | 3,449 | |||||||||||
Other current
liabilities |
3,633 | 2,794 | |||||||||||
Total current
liabilities |
42,150 | 38,897 | |||||||||||
Long-term
debt, less current maturities (note 5) |
92,300 | | |||||||||||
Other
liabilities: |
|||||||||||||
Noncurrent
portion of workers compensation benefits |
38,223 | 41,782 | |||||||||||
Noncurrent
portion of black lung benefits |
23,341 | 11,508 | |||||||||||
Pension
obligations |
15,744 | 14,315 | |||||||||||
Asset
retirement obligations |
14,939 | 13,674 | |||||||||||
Obligations
under capital leases, excluding current installments |
637 | 1,457 | |||||||||||
Deferred
income taxes |
34,615 | | |||||||||||
Other |
292 | 662 | |||||||||||
Total other
liabilities |
127,791 | 83,398 | |||||||||||
Liabilities
subject to compromise |
| 319,595 | |||||||||||
Total
liabilities |
262,241 | 441,890 | |||||||||||
Shareholders equity (deficit): |
|||||||||||||
Preferred
Stock, $1.00 par value. Authorized 10,000,000 shares |
| | |||||||||||
Common stock,
$.01 par value. Authorized 100,000,000 shares; (40,000shares as of December 31, 2003); issued and outstanding 14,715,694shares (16,890 shares as of
December 31, 2003) |
147 | | |||||||||||
Paid-in-capital |
71,784 | 226 | |||||||||||
Deferred
stock-based compensation |
(7,540 | ) | | ||||||||||
Retained
earnings (accumulated deficit) |
1,151 | (107,989 | ) | ||||||||||
Subscribed
shares |
| (821 | ) | ||||||||||
Accumulated
other comprehensive income (loss) |
43 | (15,017 | ) | ||||||||||
Total
shareholders equity (deficit) |
65,585 | (123,601 | ) | ||||||||||
Commitments
and contingencies (note 14) |
|||||||||||||
Total
liabilities and shareholders equity (deficit) |
$ | 327,826 | $ | 318,289 |
See accompanying notes to consolidated financial statements.
F-4
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
Successor |
Predecessor |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands, except per share
data) |
Eight Months Ended 12/31/04 |
Four Months Ended 04/30/04 |
Year Ended 12/31/2003 |
Year Ended 12/31/2002 |
||||||||||||||||||
Revenues |
$ | 231,698 | $ | 113,949 | $ | 304,052 | $ | 397,599 | ||||||||||||||
Cost of
sales: |
||||||||||||||||||||||
Cost of coal
sold |
190,926 | 89,294 | 278,939 | 344,222 | ||||||||||||||||||
Depreciation,
depletion, and amortization |
21,765 | 12,314 | 40,427 | 46,393 | ||||||||||||||||||
Total cost of
sales |
212,691 | 101,608 | 319,366 | 390,615 | ||||||||||||||||||
Gross profit
(loss) |
19,007 | 12,341 | (15,314 | ) | 6,984 | |||||||||||||||||
Selling,
general, and administrative expenses |
11,412 | 5,023 | 19,835 | 19,994 | ||||||||||||||||||
Other
operating expenses (note 15) |
| | | 26,554 | ||||||||||||||||||
Total
operating income (loss) |
7,595 | 7,318 | (35,149 | ) | (39,564 | ) | ||||||||||||||||
Interest
expense |
5,733 | 567 | 18,536 | 29,883 | ||||||||||||||||||
Interest
income |
(72 | ) | | (144 | ) | (1,003 | ) | |||||||||||||||
Miscellaneous
income, net |
(833 | ) | (331 | ) | (1,519 | ) | (1,222 | ) | ||||||||||||||
Total other
expense, net |
4,828 | 236 | 16,873 | 27,658 | ||||||||||||||||||
Income (loss)
before reorganization items and income tax expense |
2,767 | 7,082 | (52,022 | ) | (67,222 | ) | ||||||||||||||||
Reorganization items, net (note 16) |
| (100,907 | ) | 7,630 | | |||||||||||||||||
Income (loss)
before income taxes |
2,767 | 107,989 | (59,652 | ) | (67,222 | ) | ||||||||||||||||
Income tax
expense (benefit) |
791 | | (2,891 | ) | (8,125 | ) | ||||||||||||||||
Net income
(loss) before cumulative effect of accounting change |
1,976 | 107,989 | (56,761 | ) | (59,097 | ) | ||||||||||||||||
Cumulative
effect of accounting change (note 17) |
| | (3,045 | ) | | |||||||||||||||||
Net income
(loss) |
1,976 | 107,989 | (59,806 | ) | (59,097 | ) | ||||||||||||||||
Preferred
dividends (note 9(d)) |
| | (340 | ) | (680 | ) | ||||||||||||||||
Decrease in
redemption amount of redeemable common stock (note 9(e)) |
| | | 8,798 | ||||||||||||||||||
Net income
(loss) attributable to common shareholders |
$ | 1,976 | $ | 107,989 | $ | (60,146 | ) | $ | (50,979 | ) | ||||||||||||
Earnings
(loss) per common share (note 18) |
||||||||||||||||||||||
Basic
earnings (loss) per common share |
||||||||||||||||||||||
Income (loss)
before cumulative effect of accounting change |
$ | 0.14 | $ | 6,393.67 | $ | (3,380.78 | ) | $ | (3,018.31 | ) | ||||||||||||
Cumulative
effect of accounting change |
| | (180.28 | ) | | |||||||||||||||||
Net income
(loss) |
$ | 0.14 | $ | 6,393.67 | $ | (3,561.06 | ) | $ | (3,018.31 | ) | ||||||||||||
Shares used
to calculate basic earnings (loss) per share |
13,800 | 17 | 17 | 17 | ||||||||||||||||||
Diluted
earnings (loss) per common share |
||||||||||||||||||||||
Income (loss)
before cumulative effect of accounting change |
$ | 0.14 | $ | 6,393.67 | $ | (3,380.78 | ) | $ | (3,018.31 | ) | ||||||||||||
Cumulative
effect of accounting change |
| | (180.28 | ) | | |||||||||||||||||
Net income
(loss) |
$ | 0.14 | $ | 6,393.67 | $ | (3,561.06 | ) | $ | (3,018.31 | ) | ||||||||||||
Shares used
to calculate dilutive earnings (loss) per share |
14,623 | 17 | 17 | 17 |
See accompanying notes to consolidated financial statements.
F-5
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS EQUITY
(in thousands) |
Common stock |
Paid-in- capital |
Deferred stock-based Compensation |
Retained earnings (accumulated deficit) |
Subscribed shares |
Accumulated other comprehensive income (loss) |
Total |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Predecessor
Company |
||||||||||||||||||||||||||||||
Balances,
December 31, 2001 |
$ | | 226 | | 3,137 | (1,403 | ) | (10,995 | ) | (9,035 | ) | |||||||||||||||||||
Net
loss |
| | | (59,097 | ) | | | (59,097 | ) | |||||||||||||||||||||
Minimum pension
liability adjustment |
| | | | | (7,546 | ) | (7,546 | ) | |||||||||||||||||||||
Change in fair
value of cash flow hedges |
| | | | | (1,663 | ) | (1,663 | ) | |||||||||||||||||||||
Comprehensive
loss |
| | | | | | (68,306 | ) | ||||||||||||||||||||||
Payments on
subscribed shares |
| | | | 497 | | 497 | |||||||||||||||||||||||
Preferred
dividends |
| | | (680 | ) | | | (680 | ) | |||||||||||||||||||||
Change in
redemption amount of redeemable common stock |
| | | 8,797 | | | 8,797 | |||||||||||||||||||||||
Balances,
December 31, 2002 |
| 226 | | (47,843 | ) | (906 | ) | (20,204 | ) | (68,727 | ) | |||||||||||||||||||
Net
loss |
| | | (59,806 | ) | | | (59,806 | ) | |||||||||||||||||||||
Minimum pension
liability adjustment |
(1,194 | ) | (1,194 | ) | ||||||||||||||||||||||||||
Reclassification
to interest expense, net of taxes of $2,890 |
| | | | | 6,381 | 6,381 | |||||||||||||||||||||||
Comprehensive
loss |
(54,619 | ) | ||||||||||||||||||||||||||||
Forgiveness of
receivable for subscribed shares |
| | | | 85 | | 85 | |||||||||||||||||||||||
Preferred
dividends |
| | | (340 | ) | | | (340 | ) | |||||||||||||||||||||
Balances,
December 31, 2003 |
| 226 | | (107,989 | ) | (821 | ) | (15,017 | ) | (123,601 | ) | |||||||||||||||||||
Net
income |
| | | 107,989 | | | 107,989 | |||||||||||||||||||||||
Minimum pension
liability adjustment |
| | | | | (692 | ) | (692 | ) | |||||||||||||||||||||
Comprehensive
income |
107,297 | |||||||||||||||||||||||||||||
Application of
fresh start accounting (note 3) |
||||||||||||||||||||||||||||||
Cancellation
of Predecessor common stock |
| (226 | ) | | | | | (226 | ) | |||||||||||||||||||||
Elimination of
Predecessor accumulated other comprehensive loss and subscribed shares |
| | | | 821 | 15,709 | 16,530 | |||||||||||||||||||||||
Balances, April
30, 2004 |
| | | | | | | |||||||||||||||||||||||
Successor
Company |
||||||||||||||||||||||||||||||
Issuance of
Successor common stock |
138 | 63,153 | | | | | 63,291 | |||||||||||||||||||||||
Net
income |
| | | 1,976 | | | 1,976 | |||||||||||||||||||||||
Unrealized gain
on marketable securities, net |
| | | | | 43 | 43 | |||||||||||||||||||||||
Comprehensive
Income |
2,019 | |||||||||||||||||||||||||||||
Deferred
compensation related to restricted stock awards |
9 | 8,631 | (8,640 | ) | | | | |||||||||||||||||||||||
Cost to register
common stock |
| | | (825 | ) | | | (825 | ) | |||||||||||||||||||||
Amortization of
deferred stock-based compensation |
| | 1,100 | | | | 1,100 | |||||||||||||||||||||||
Balances,
December 31, 2004 |
$ | 147 | 71,784 | (7,540 | ) | 1,151 | | 43 | 65,585 |
See accompanying notes to consolidated financial statements.
F-6
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
Successor |
Predecessor |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands, except share data) |
Eight Months Ended 12/31/04 |
Four Months Ended 04/30/04 |
Year Ended 12/31/2003 |
Year Ended 12/31/2002 |
||||||||||||||||||
Cash flows from
operating activities: |
||||||||||||||||||||||
Net income
(loss) |
$ | 1,976 | 107,989 | (59,806 | ) | (59,097 | ) | |||||||||||||||
Adjustments
to reconcile net income (loss) to net cash provided by operating activities |
||||||||||||||||||||||
Depreciation,
depletion, and amortization of property, plant, and equipment |
21,765 | 12,314 | 40,692 | 46,664 | ||||||||||||||||||
Accretion of
asset retirement obligations |
807 | 397 | 1,128 | | ||||||||||||||||||
Amortization
of debt issue costs |
275 | | | 5,750 | ||||||||||||||||||
Amortization
of deferred stock-based compensation |
1,100 | | | | ||||||||||||||||||
Deferred
income tax expense (benefit) |
766 | | (2,891 | ) | (3,146 | ) | ||||||||||||||||
Gain (loss)
on sale or disposal of property, plant, and equipment |
(36 | ) | 19 | (23 | ) | 18,881 | ||||||||||||||||
Gain on sale
of investment |
| | (999 | ) | | |||||||||||||||||
Provision for
severance costs |
| | | 2,879 | ||||||||||||||||||
Fresh start
accounting adjustment |
| (111,533 | ) | | | |||||||||||||||||
Non-cash
reorganization items |
| 10,010 | 796 | | ||||||||||||||||||
Cumulative
effect of change in accounting principle |
| | 3,045 | | ||||||||||||||||||
Realized loss
on termination of interest rate swap agreement |
| | 9,272 | | ||||||||||||||||||
Unrealized
gain on interest rate swap |
| | (949 | ) | 111 | |||||||||||||||||
Changes in
operating assets and liabilities: |
||||||||||||||||||||||
Receivables |
4,604 | (12,882 | ) | 4,193 | 7,019 | |||||||||||||||||
Inventories |
6,619 | (4,028 | ) | (233 | ) | 2,226 | ||||||||||||||||
Prepaid
royalties and other current assets |
3,093 | (1,236 | ) | 991 | 1,691 | |||||||||||||||||
Other
assets |
(7,001 | ) | 132 | 661 | (656 | ) | ||||||||||||||||
Accounts
payable |
(11,177 | ) | (2,921 | ) | 15,016 | 2,684 | ||||||||||||||||
Accrued
salaries, wages, and employee benefits |
(2,408 | ) | 1,429 | (818 | ) | (1,169 | ) | |||||||||||||||
Accrued
taxes |
(58 | ) | 139 | (651 | ) | (1,196 | ) | |||||||||||||||
Other current
liabilities |
(404 | ) | 1,535 | 6,574 | 3,880 | |||||||||||||||||
Workers
compensation benefits |
(1,886 | ) | 1,417 | 5,770 | 2,574 | |||||||||||||||||
Black lung
benefits |
(830 | ) | (547 | ) | (630 | ) | (347 | ) | ||||||||||||||
Pension
obligations |
(1,887 | ) | (609 | ) | 2,906 | 451 | ||||||||||||||||
Asset
retirement obligation |
(477 | ) | (108 | ) | (978 | ) | (164 | ) | ||||||||||||||
Other
liabilities |
(743 | ) | (4 | ) | (33 | ) | (136 | ) | ||||||||||||||
Net cash
provided by operating activities |
14,098 | 1,513 | 23,033 | 28,899 | ||||||||||||||||||
Cash flows
from investing activities: |
||||||||||||||||||||||
Additions to
property, plant, and equipment |
(25,811 | ) | (9,521 | ) | (20,116 | ) | (22,925 | ) | ||||||||||||||
Proceeds from
sale of property and equipment |
4,123 | 86 | 179 | | ||||||||||||||||||
Proceeds from
sale of investment |
| | 2,000 | | ||||||||||||||||||
(Increase)
decrease in restricted cash |
(56 | ) | (28 | ) | 2,277 | (10,597 | ) | |||||||||||||||
Net cash used
in investing activities |
(21,744 | ) | (9,463 | ) | (15,660 | ) | (33,522 | ) | ||||||||||||||
Cash flows
from financing activities: |
||||||||||||||||||||||
Proceeds from
issuance of long-term debt |
20,000 | | | 3,373 | ||||||||||||||||||
Proceeds from
(repayments of) short-term borrowings |
(6,400 | ) | 6,400 | (1,940 | ) | (74 | ) | |||||||||||||||
Common stock
registration costs |
(825 | ) | | | ||||||||||||||||||
Principal
payments under capital lease obligations |
(370 | ) | (165 | ) | (549 | ) | (449 | ) | ||||||||||||||
Debt issuance
costs |
(2,181 | ) | (1,874 | ) | | | ||||||||||||||||
Proceeds from
issuance of common stock and payments on subscribed shares |
| | | 497 | ||||||||||||||||||
Net cash
provided by (used in) financing activities |
10,224 | 4,361 | (2,489 | ) | 3,347 | |||||||||||||||||
Increase in
cash |
2,578 | (3,589 | ) | 4,884 | (1,276 | ) | ||||||||||||||||
Cash at
beginning of period |
1,301 | 4,890 | 6 | 1,282 | ||||||||||||||||||
Cash at end
of period |
$ | 3,879 | 1,301 | 4,890 | 6 |
See accompanying notes to consolidated financial statements.
F-7
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION |
(a) | Description of Business and Principles of Consolidation |
(b) | Bankruptcy and Restructuring |
F-8
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(c) | Restricted Cash |
(d) | Trade Receivables |
(e) | Inventories |
(f) | Reclamation Costs |
F-9
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
12/31/2004 |
12/31/2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Amount
included in other current liabilities |
$ | 1,050 | $ | 1,405 | ||||||
Long term
asset retirement obligations |
13,674 | 6,319 | ||||||||
Reclamation
liability at beginning of year |
14,724 | 7,724 | ||||||||
Cumulative
effect adjustment |
| 6,849 | ||||||||
Liabilities
incurred in current period (Predecessor Company) |
636 | | ||||||||
Accretion
expense |
||||||||||
Predecessor
Company |
398 | 1,128 | ||||||||
Successor
Company |
806 | | ||||||||
Liabilities
settled in current period |
||||||||||
Predecessor
Company |
(131 | ) | (977 | ) | ||||||
Successor
Company |
(454 | ) | | |||||||
Reclamation
liability at end of year |
15,979 | 14,724 | ||||||||
Less amount
included in other current liabilities |
(1,040 | ) | (1,050 | ) | ||||||
Total
noncurrent liability |
$ | 14,939 | $ | 13,674 |
(g) | Property, Plant, and Equipment |
(h) | Impairment of Long-Lived Assets |
(i) | Mine Development Costs |
F-10
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(j) | Prepaid Royalties |
(k) | Revenue Recognition |
(l) | Income Taxes |
(m) | Accumulated Comprehensive Gain (Loss) |
(n) | Derivative Financial Instruments |
F-11
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(o) | Workers Compensation |
(p) | Black Lung Benefits |
(q) | Health Claims |
F-12
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(r) | Stock Plans |
Eight Months December 31, 2004 |
||||||
---|---|---|---|---|---|---|
Net Income,
as reported |
$ | 1,976 | ||||
Add: Net
stock-based employee compensation expense recorded for restricted and performance based stock grants |
785 | |||||
Deduct: Net
stock-based employee compensation expense for restricted and performance based stock determined under Black-Scholes option pricing
model |
(479 | ) | ||||
Pro forma
net income |
$ | 2,282 | ||||
Income per
share: |
||||||
Basicas reported |
$ | 0.14 | ||||
Basicpro forma |
$ | 0.17 | ||||
Dilutedas reported |
$ | 0.14 | ||||
Dilutedpro forma |
$ | 0.16 |
(s) | Use of Estimates |
F-13
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(3) | FRESH START ACCOUNTING |
Estimated
enterprise value of the reorganized company |
$ | 155,000 | ||||
Borrowings under
credit facility |
(6,400 | ) | ||||
Capital leases
assumed |
(1,396 | ) | ||||
Cash balance
excluded from enterprise value |
1,301 | |||||
Administrative
claims payable excluded from enterprise value |
(10,214 | ) | ||||
138,291 | ||||||
Less: new secured
debt issued to extinguish prepetition debt |
75,000 | |||||
Fair value of
common shares issued to extinguish prepetition debt |
$ | 63,291 |
Fresh Start Adjustments |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets |
Predecessor Company 4/30/04 |
Debt Extinguishment |
Reorganization Adjustments |
Successor Company 4/30/04 |
|||||||||||||||
Cash |
$ | 1,301 | | | 1,301 | ||||||||||||||
Receivables |
35,838 | | | 35,838 | |||||||||||||||
Inventories |
11,930 | | 1,079 | (2) | 13,009 | ||||||||||||||
Prepaid
royalties |
9,932 | | (362 | )(2) | 9,570 | ||||||||||||||
Other
current assets |
4,463 | | (347 | )(2) | 4,116 | ||||||||||||||
Total
current assets |
63,464 | | 370 | 63,834 | |||||||||||||||
Land and
mineral rights |
223,004 | | (57,567 | )(2) | 165,437 | ||||||||||||||
Buildings,
machinery, and equipment |
236,901 | | (155,050 | )(2) | 81,851 | ||||||||||||||
Mine
development costs |
12,984 | | (12,984 | )(2) | | ||||||||||||||
Construction-in-progress |
974 | | | 974 | |||||||||||||||
473,863 | | (225,601 | ) | 248,262 | |||||||||||||||
Less
accumulated depreciation, depletion, and amortization |
219,604 | | (219,604 | )(2) | | ||||||||||||||
Net
property, plant, and equipment |
254,259 | | (5,997 | ) | 248,262 | ||||||||||||||
Restricted
cash |
8,348 | | | 8,348 | |||||||||||||||
Other
long-term assets |
6,518 | (3,110 | )(1) | (734 | )(2) | 2,674 | |||||||||||||
Total
assets |
$ | 332,589 | (3,110 | ) | (6,361 | ) | 323,118 |
F-14
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
Fresh Start Adjustments |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Liabilities and Shareholders Equity (Deficit) |
Predecessor Company 4/30/04 |
Debt Extinguishment |
Reorganization Adjustments |
Successor Company 4/30/04 |
|||||||||||||||
Borrowings
under DIP credit agreement |
$ | 6,400 | | | 6,400 | ||||||||||||||
Current
installments of obligations under capital leases |
749 | | (272 | )(3) | 477 | ||||||||||||||
Accounts
payable |
26,293 | | | 26,293 | |||||||||||||||
Accrued
salaries, wages and employee benefits |
4,501 | | | 4,501 | |||||||||||||||
Workers compensation benefits |
9,500 | | | 9,500 | |||||||||||||||
Black lung
benefits |
2,500 | | | 2,500 | |||||||||||||||
Accrued
taxes |
3,588 | | | 3,588 | |||||||||||||||
Other
current liabilities |
4,037 | | | 4,037 | |||||||||||||||
Total
current liabilities |
57,568 | | (272 | ) | 57,296 | ||||||||||||||
Long term
debt |
| 75,000 | (1) | | 75,000 | ||||||||||||||
Noncurrent
portion of workers compensation benefits |
42,699 | | | 42,699 | |||||||||||||||
Noncurrent
portion of black lung benefits |
10,661 | | 13,610 | (4) | 24,271 | ||||||||||||||
Pension
obligations |
14,267 | | 3,363 | (5) | 17,630 | ||||||||||||||
Asset
retirement obligations |
13,963 | | | 13,963 | |||||||||||||||
Obligations
under capital leases, excluding current installments |
1,159 | | (240 | )(3) | 919 | ||||||||||||||
Deferred
income taxes |
| | 27,391 | (6) | 27,391 | ||||||||||||||
Other long
term liabilities |
658 | | | 658 | |||||||||||||||
Total
other liabilities |
83,407 | | 44,124 | 127,531 | |||||||||||||||
Liabilities
subject to compromise |
319,451 | (319,451 | )(1) | | | ||||||||||||||
Total
liabilities |
460,426 | (244,451 | ) | 43,852 | 259,827 | ||||||||||||||
Common
stock |
| 138 | (1) | | 138 | ||||||||||||||
Paid-in-capital |
226 | 63,153 | (1) | (226 | )(7) | 63,153 | |||||||||||||
Retained
earnings (accumulated deficit) |
(111,533 | ) | 178,050 | (1) | (66,517 | )(7) | | ||||||||||||
Subscribed
shares |
(821 | ) | | 821 | (7) | | |||||||||||||
Accumulated
other comprehensive income (loss) |
(15,709 | ) | | 15,709 | (7) | | |||||||||||||
Total
shareholders equity (deficit) |
(127,837 | ) | 241,341 | (50,213 | ) | 63,291 | |||||||||||||
Total
liabilities and shareholders equity |
$ | 332,589 | (3,110 | ) | (6,361 | ) | 323,118 |
F-15
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
Extinguishment of Debt
(1) | Liabilities subject to compromise that were extinguished in bankruptcy consist of: |
Pre-petition bank
loan agreement |
$ | 207,807 | ||||
Pre-petition
senior note |
37,953 | |||||
Accrued and
unpaid interest |
12,234 | |||||
Terminated
interest rate swap |
8,434 | |||||
Total
secured |
266,428 | |||||
Promissory
notes |
5,176 | |||||
Redeemable
preferred stock |
8,500 | |||||
Accounts payable
and other |
39,347 | |||||
Total
unsecured |
53,023 | |||||
Total
liabilities subject to compromise |
$ | 319,451 |
Liabilities
subject to compromise |
$ | 319,451 | ||||
Less: Assets of
rabbi trust transferred to creditors |
(3,110 | ) | ||||
Less: New secured
debt issued in exchange for pre-petition debt |
(75,000 | ) | ||||
Less: Fair value
of common shares issued |
(63,291 | ) | ||||
Gain on
extinguishment of pre-petition claims |
$ | 178,050 |
Reorganization Adjustments
(2) | In connection with the application of fresh start accounting, the Company made adjustments aggregating approximately $6,361 to record its identifiable assets at fair value as follows: |
Increase/(Decrease) |
||||||
---|---|---|---|---|---|---|
Coal
inventories |
$ | 1,079 | ||||
Prepaid
royalties |
(362 | ) | ||||
Other current
assets |
(347 | ) | ||||
Land and mineral
rights |
(57,567 | ) | ||||
Buildings,
machinery and equipment |
(155,050 | ) | ||||
Mine development
costs |
(12,984 | ) | ||||
Less accumulated
depreciation, depletion, and amortization |
219,604 | |||||
Other long-term
assets |
(734 | ) | ||||
Total fair value
adjustments to identifiable assets |
$ | (6,361 | ) |
(3) | Contractual terms of certain capital lease agreements were renegotiated during bankruptcy. Obligations under capital leases have been adjusted to reflect the revised terms. |
(4) | The liability for black lung benefits has been adjusted to reflect the total discounted benefit obligation. |
(5) | The pension liability has been adjusted to reflect the total discounted projected benefit obligation of the plan. |
F-16
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(6) | Deferred income taxes have been adjusted to reflect differences in the book and tax basis of the revalued assets and liabilities of the Company after application of fresh start accounting. |
(7) | The equity of the predecessor company, including subscribed shares and accumulated other comprehensive loss, has been eliminated in fresh start accounting. |
(4) | OTHER CURRENT ASSETS |
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Prepaid
insurance |
$ | 3,535 | $ | 3,107 | ||||||
Income tax
receivable |
2,575 | | ||||||||
Other |
227 | 1,635 | ||||||||
$ | 6,337 | $ | 4,742 |
(5) | LONG TERM DEBT, DIP FINANCING, AND INTEREST EXPENSE |
December 31, 2004 |
||||||
---|---|---|---|---|---|---|
Senior secured
credit facility: |
||||||
Term loan
component |
$ | 20,000 | ||||
Revolver
component |
| |||||
Term credit
facility |
75,000 | |||||
Total
long-term debt |
95,000 | |||||
Less amounts
classified as current |
2,700 | |||||
Total
long-term debt, less current maturities |
$ | 92,300 |
Year ended December 31: |
||||||
---|---|---|---|---|---|---|
2005 |
$ | 2,700 | ||||
2006 |
8,100 | |||||
2007 |
9,600 | |||||
2008 |
12,600 | |||||
2009 |
16,500 | |||||
Thereafter |
45,500 | |||||
Total
Debt |
$ | 95,000 |
(a) | Senior Secured Credit Facility |
F-17
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
term loan was fully funded at closing. Borrowings under the Revolver bear interest at LIBOR +2.5% or the Base Rate (as defined in the credit agreement) +1.0%. Borrowings under the term component bear interest at LIBOR +5.25% or the Base Rate +3.85%. The Companys interest rate was 7.53% at December 31, 2004. The term of the Senior Secured Credit Facility is five years. Principal payments on the term component of $900 per quarter commence on April 1, 2005 and continue through April 1, 2009, with the remaining principal balance due on May 6, 2009. Interest is payable in arrears, on the first day of each month on Base Rate borrowings while interest on LIBOR Rate borrowings is due on the last day of the LIBOR interest period. Advances under the Senior Secured Credit Facility are secured by a first priority lien on substantially all of the Companys assets, and, except for the Term Credit Facility, the Company may not incur additional debt on the assets securing the Revolver. Advances under the Revolver may not exceed a borrowing base calculation derived as a percentage of eligible assets less outstanding letters of credit. Based on the Companys eligible assets and letters of credit outstanding, the Company had no availability under the Revolver at December 31, 2004. The Senior Secured Credit Facility can be terminated with 90 days written notice by paying all outstanding principal and interest and making any prepayment premium payments due. The $30,000 Revolver has a prepayment premium of 2.5% of the total revolver commitment for the first year, declining to 2.0% for the second year, 1.5% for the third year and 0.5% for the fourth year. There is not a prepayment premium for the fifth year of the revolver component of the Senior Secured Credit Facility. The $20,000 term loan component has a prepayment premium of $200 (1.0%) if paid prior to April 30, 2007. There is no prepayment premium after April 30, 2007 for the term loan component. The Revolver has a commitment fee of .375% per annum on the unused portion reduced by outstanding letters of credit (note 14).
(b) | Term Credit Facility |
(c) | Debtor-In-Possession Financing |
F-18
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(d) | Interest Expense and Other |
(e) | Prepetition Debt |
2003 |
||||||
---|---|---|---|---|---|---|
Bank Loan
Agreement, revolving component |
$ | 170,596 | ||||
Bank Loan
Agreement, term component |
37,211 | |||||
Senior Note,
interest at 12.61% |
37,953 | |||||
Promissory note,
interest at 5.32% |
4,664 | |||||
Promissory note,
interest at 5.82% |
512 | |||||
Total notes
payable and debt |
250,936 | |||||
Less amounts
classified as liabilities subject to compromise (note 6) |
250,936 | |||||
Total
long-term debt, less current maturities and debt in default |
$ | |
F-19
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(6) | LIABILITIES SUBJECT TO COMPROMISE |
Prepetition Bank
Loan Agreement |
$ | 207,807 | ||||
Prepetition
Senior Note |
37,953 | |||||
Accrued and
unpaid interest |
12,234 | |||||
Terminated
interest rate swap |
8,434 | |||||
Total
secured |
266,428 | |||||
Promissory
notes |
5,176 | |||||
Redeemable
preferred stock |
8,500 | |||||
Accounts payable
and other |
39,491 | |||||
Total
unsecured |
53,167 | |||||
Total
liabilities subject to compromise |
$ | 319,595 |
(7) | WORKERS COMPENSATION BENEFITS |
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Workers
compensation benefits |
$ | 50,313 | $ | 50,782 | ||||||
Less current
portion |
12,090 | 9,000 | ||||||||
Noncurrent
portion of workers compensation |
$ | 38,223 | $ | 41,782 |
F-20
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(8) | PNEUMOCONIOSIS (BLACK LUNG) BENEFITS |
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Black lung
benefits |
$ | 25,941 | $ | 13,708 | ||||||
Less current
portion |
2,600 | 2,200 | ||||||||
Noncurrent
portion of black lung benefits |
$ | 23,341 | $ | 11,508 |
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Beginning of
the year black lung obligation |
$ | 13,708 | $ | 22,528 | ||||||
Fresh Start
adjustment (note 3) |
13,610 | |||||||||
Service
cost: |
||||||||||
Predecessor
Company |
99 | 350 | ||||||||
Successor
Company |
221 | | ||||||||
Interest
cost: |
||||||||||
Predecessor
Company |
254 | 1,210 | ||||||||
Successor
Company |
566 | | ||||||||
Actuarial
loss: |
||||||||||
Predecessor
Company |
261 | 6,269 | ||||||||
Successor
Company |
2,789 | | ||||||||
Benefit
payments: |
||||||||||
Predecessor
Company |
(1,613 | ) | (3,039 | ) | ||||||
Successor
Company |
(1,165 | ) | | |||||||
End of year
accumulated black lung obligation |
28,730 | 27,318 | ||||||||
Unamortized
actuarial loss |
(2,789 | ) | (13,610 | ) | ||||||
Accrued black
lung obligation |
$ | 25,941 | $ | 13,708 |
F-21
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(9) | EQUITY |
(a) | Preferred Stock and Shareholder Rights Agreement |
(b) | Equity Based Compensation |
Restricted Stock Awards
F-22
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
Performance Stock Awards
Stock Options Awards
Range of Exercise Price |
Outstanding Options |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (Years) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
$10.80 |
150,000 | $ | 10.80 | 4.3 | ||||||||||
$15.00$17.50 |
120,000 | $ | 16.70 | 3.8 | ||||||||||
$10.80$17.50 |
270,000 | $ | 13.41 | 4.1 |
Performance Stock |
Restricted Stock |
Stock Options |
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Number of Shares |
Estimated Fair Value at Issue |
Number of Shares |
Estimated Fair Value at Issue |
Number of Shares |
Weighted Average Exercise Price |
||||||||||||||||||||||
Outstanding at
April 30, 2004 |
| $ | | | $ | | | $ | | ||||||||||||||||||
Granted |
100,000 | 4.59 | 839,000 | 4.59 | 270,000 | 13.41 | |||||||||||||||||||||
Vested/Exercised |
| | | | | | |||||||||||||||||||||
Canceled |
| | (23,300 | ) | 4.59 | | | ||||||||||||||||||||
December 31,
2004 |
100,000 | $ | 4.59 | 815,700 | $ | 4.59 | 270,000 | $ | 13.41 |
(c) | Stock Split |
(d) | Redeemable Preferred Stock (Predecessor Company) |
F-23
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(e) | Redeemable Common Stock (Predecessor Company) |
(10) | INCOME TAXES |
Year Ended |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Eight Months Ended 12/31/2004 |
Four Months Ended 4/30/2004 |
2003 |
2002 |
|||||||||||||||||||
Current: |
||||||||||||||||||||||
Federal |
$ | 25 | | | (4,980 | ) | ||||||||||||||||
State |
| | | | ||||||||||||||||||
25 | | | (4,980 | ) | ||||||||||||||||||
Deferred: |
||||||||||||||||||||||
Federal |
692 | | (2,528 | ) | (3,017 | ) | ||||||||||||||||
State |
74 | | (363 | ) | (128 | ) | ||||||||||||||||
766 | | (2,891 | ) | (3,145 | ) | |||||||||||||||||
$ | 791 | | (2,891 | ) | (8,125 | ) |
F-24
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
Year Ended |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Eight Months Ended 12/31/2004 |
Four Months Ended 4/30/2004 |
2003 |
2002 |
|||||||||||||||||||
Federal income
taxes at statutory rates |
34.0 | % | 34.0 | % | (34.0 | )% | (34.0 | )% | ||||||||||||||
Percentage
depletion |
(42.0 | ) | (2.2 | ) | (0.5 | ) | (1.6 | ) | ||||||||||||||
Other permanent
items |
12.3 | | | | ||||||||||||||||||
Amortization of
coal properties not deductible |
| | 0.8 | 0.9 | ||||||||||||||||||
Non-Taxable gain
on debt discharge |
| (35.1 | ) | | | |||||||||||||||||
Non-deductible
reorganization costs |
| 3.3 | | | ||||||||||||||||||
Change in
valuation allowance |
23.8 | | 28.5 | 21.2 | ||||||||||||||||||
State income
taxes, net of federal |
1.8 | | (0.4 | ) | (0.1 | ) | ||||||||||||||||
Other,
net |
(1.3 | ) | | 1.0 | 1.5 | |||||||||||||||||
28.6 | % | | % | (4.6 | )% | (12.1 | )% |
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Deferred tax
assets: |
||||||||||
Accruals for
financial reporting purposes, principally workers compensation and black lung obligations |
$ | 46,279 | $ | 34,340 | ||||||
Alternative
minimum tax credit carryforwards |
5,450 | 5,425 | ||||||||
Net operating
loss carryforwards |
55,631 | 56,213 | ||||||||
Accumulated
comprehensive income |
26 | 7,162 | ||||||||
Total gross
deferred tax assets |
107,386 | 103,140 | ||||||||
Less valuation
allowance |
61,081 | 45,859 | ||||||||
Net deferred
tax asset |
46,305 | 57,281 | ||||||||
Deferred tax
liabilitiesproperty, plant and equipment, principally due to differences in depreciation, depletion and amortization |
80,920 | 57,281 | ||||||||
Net deferred
tax asset (liability) |
$ | (34,615 | ) | $ | |
F-25
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(11) | EMPLOYEE BENEFIT PLANS |
(a) | Defined Benefit Pension Plan |
F-26
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
2004 |
2003 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amount |
Percentage |
Amount |
Percentage |
||||||||||||||||
Equity
securities |
$ | 24,859 | 67.7 | % | $ | 19,732 | 66.4 | % | |||||||||||
Debt
securities |
10,689 | 29.1 | % | 9,836 | 33.1 | % | |||||||||||||
Other
(includes cash and cash equivalents) |
1,195 | 3.2 | % | 149 | 0.5 | % | |||||||||||||
36,743 | 100.0 | % | 29,717 | 100.0 | % |
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Change in
benefit obligation: |
||||||||||
Benefit
obligation at beginning of year |
$ | 48,522 | $ | 41,013 | ||||||
Service
cost |
1,834 | 1,764 | ||||||||
Interest
cost |
2,924 | 2,707 | ||||||||
Actuarial
loss |
7,207 | 4,985 | ||||||||
Benefits
paid |
(1,851 | ) | (1,947 | ) | ||||||
Benefit
obligation at end of year |
58,636 | 48,522 | ||||||||
Change in plan
assets: |
||||||||||
Fair value of
plan assets at beginning of year |
29,717 | 23,718 | ||||||||
Actual return
on plan assets |
3,590 | 4,333 | ||||||||
Employer
contributions |
5,287 | 3,613 | ||||||||
Benefits
paid |
(1,851 | ) | (1,947 | ) | ||||||
Fair value of
plan assets at end of year |
36,743 | 29,717 | ||||||||
Reconciliation
of funded status: |
||||||||||
Funded
status |
(21,893 | ) | (18,805 | ) | ||||||
Unrecognized
actuarial loss |
6,149 | 23,348 | ||||||||
Unrecognized
prior service cost |
| 390 | ||||||||
Net amount
recognized |
(15,744 | ) | 4,933 | |||||||
Amounts
recognized in the consolidated balance sheets consist of: |
||||||||||
Accrued
benefit liability |
(15,744 | ) | (14,315 | ) | ||||||
Intangible
asset |
| 390 | ||||||||
Accumulated
other comprehensive loss |
| 18,858 | ||||||||
Net amount
recognized |
(15,744 | ) | 4,933 |
F-27
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
Successor |
Predecessor |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Eight Months Ended 12/31/04 |
Four Months Ended 4/30/04 |
Year Ended 2003 |
Year Ended 2002 |
|||||||||||||||||||
Service
cost |
$ | 1,223 | 611 | 1,764 | 1,583 | |||||||||||||||||
Interest
cost |
1,959 | 965 | 2,707 | 2,444 | ||||||||||||||||||
Expected
return on plan assets |
(1,721 | ) | (811 | ) | (2,092 | ) | (2,122 | ) | ||||||||||||||
Amortization
of prior service cost |
| 130 | 843 | 843 | ||||||||||||||||||
Recognized
actuarial loss |
| 340 | 1,178 | 670 | ||||||||||||||||||
Net periodic
benefit cost |
$ | 1,461 | 1,235 | 4,400 | 3,418 | |||||||||||||||||
Benefits
Paid |
$ | 1,288 | 563 | 1,947 |
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Discount
rate |
5.50% |
6.00% |
6.75% |
|||||||||||
Expected return
on plan assets |
8.00% |
8.00% |
8.50% |
|||||||||||
Rate of
compensation increase |
4.00% |
4.00% |
4.00% |
|||||||||||
Measurement
date |
October 1,
2004 |
October 1,
2003 |
October 1,
2002 |
Year ended
December 31: |
||||||
2005 |
$ | 1,989 | ||||
2006 |
2,122 | |||||
2007 |
1,782 | |||||
2008 |
1,982 | |||||
2009 |
2,170 | |||||
Thereafter |
14,485 |
(b) | Savings and Profit Sharing Plan |
(c) | Nonqualified Retirement Plan |
F-28
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
2003 |
||||||
---|---|---|---|---|---|---|
Benefit
obligation at beginning of year |
$ | 4,244 | ||||
Service
cost |
14 | |||||
Interest
cost |
95 | |||||
Actuarial (gain)
loss |
2,423 | |||||
Benefits
paid |
(28 | ) | ||||
Benefits
forfeited |
(2,370 | ) | ||||
Benefit
obligation at end of year |
$ | 4,378 |
2003 |
2002 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Service
cost |
$ | 14 | $ | 158 | ||||||
Interest
cost |
95 | 312 | ||||||||
Amortization
of prior service cost |
28 | 111 | ||||||||
Recognized
actuarial loss |
6 | 55 | ||||||||
Recognized
benefits forfeited |
(2,371 | ) | | |||||||
Effect of plan
termination |
4,388 | | ||||||||
Net periodic
benefit cost |
2,160 | 636 |
2003 |
2002 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Discount
rate |
6.00 | % | 6.75 | % | ||||||
Rate of
compensation increase |
4.00 | % | 4.00 | % | ||||||
Measurement
date |
March 25,
2003 |
October 1,
2002 |
(12) | MAJOR CUSTOMERS |
F-29
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(13) | LEASES |
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Machinery and
equipment |
$ | 1,367 | 3,189 | |||||||
Less
accumulated amortization |
539 | 1,111 | ||||||||
$ | 828 | 2,078 |
Capital leases |
Operating leases |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Year ended
December 31: |
||||||||||
2005 |
$ | 459 | $ | 605 | ||||||
2006 |
444 | 312 | ||||||||
2007 |
239 | 240 | ||||||||
2008 |
| 82 | ||||||||
1,142 | $ | 1,239 | ||||||||
Less amount
representing interest (at 8.5%) |
117 | |||||||||
Present value
of net minimum capital lease payments |
1,025 | |||||||||
Less current
portion of obligations under capital leases |
388 | |||||||||
Obligations
under capital leases, excluding current portion |
$ | 637 |
(14) | COMMITMENTS AND CONTINGENCIES |
Royalty commitments |
||||||
---|---|---|---|---|---|---|
Year ended
December 31: |
||||||
2005 |
$ | 14,705 | ||||
2006 |
15,919 | |||||
2007 |
15,314 | |||||
2008 |
14,512 | |||||
2009 and
thereafter |
81,282 | |||||
$ | 141,732 |
F-30
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(15) | OTHER OPERATING EXPENSES |
Fixed asset
disposals |
$ | 9,111 | ||||
Write off of mine
development costs |
7,664 | |||||
Write off of
prepaid royalties on abandoned properties |
4,167 | |||||
Write off of
capitalized debt issuance costs for terminated transactions |
4,062 | |||||
Accrual for legal
obligations |
1,512 | |||||
Other |
38 | |||||
$ | 26,554 |
(16) | REORGANIZATION ITEMS, NET |
Predecessor |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Four Months Ended 4/30/04 |
Year Ended 12/31/03 |
||||||||||
Professional
fees and administrative expenses |
$ | 10,685 | 8,399 | ||||||||
Forgiveness of
receivable for subscribed shares, including accrued interest |
| 94 | |||||||||
Gain on
settlements of obligations, net |
(111,533 | ) | (798 | ) | |||||||
Interest
income |
(59 | ) | (65 | ) | |||||||
$ | (100,907 | ) | 7,630 |
F-31
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(17) | CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR RECLAMATION LIABILITIES |
2002 |
||||||
---|---|---|---|---|---|---|
Net loss, as
reported |
$ | (59,097 | ) | |||
Pro forma net
loss |
(59,778 | ) |
(18) | EARNINGS (LOSS) PER SHARE |
Successor Company Eight Months Ended 12/31/04 |
Predecessor Company Four Months Ended 4/30/04 |
Predecessor Company Twelve Months Ended 12/31/03 |
Predecessor Company Twelve Months Ended 12/31/02 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Weighted
average number of common shares outstanding: |
|||||||||||||||||||||
Basic |
13,799,994 | 16,890 | 16,890 | 16,890 | |||||||||||||||||
Effect of
dilutive instruments |
822,626 | | | | |||||||||||||||||
Diluted |
14,622,620 | 16,890 | 16,890 | 16,890 |
(19) | FAIR VALUE OF FINANCIAL INSTRUMENTS |
F-32
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(20) | SUBSEQUENT EVENT |
(21) | QUARTERLY INFORMATION (UNAUDITED) |
Three Months Ended (1) |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2004 |
June 30, 2004 |
September 30, 2004 |
December 31, 2004 |
||||||||||||||||
Total
revenue |
$ | 80,858 | 97,576 | 89,881 | 77,332 | ||||||||||||||
Gross profit
(loss) |
5,879 | 18,099 | 8,276 | (906 | ) | ||||||||||||||
Income
(loss) from operations |
2,318 | 14,071 | 3,434 | (4,910 | ) | ||||||||||||||
Reorganization items gain (loss), net |
(1,557 | ) | 102,465 | | | ||||||||||||||
Income
(loss) before taxes |
411 | 115,650 | 1,780 | (7,085 | ) | ||||||||||||||
Net income
(loss) |
411 | 113,923 | 1,399 | (5,768 | ) | ||||||||||||||
Income per
share (Basic and Diluted) |
$ | 24.33 | N/A | (2) | 0.10 | (0.42 | ) |
Three Months Ended (1) |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2003 |
June 30, 2003 |
September 30, 2003 |
December 31, 2003 |
||||||||||||||||
Total
revenue |
$ | 77,372 | 78,704 | 79,885 | 68,092 | ||||||||||||||
Gross
loss |
(6,375 | ) | (1,015 | ) | (950 | ) | (6,974 | ) | |||||||||||
Loss from
operations |
(14,495 | ) | (5,003 | ) | (4,650 | ) | (11,000 | ) | |||||||||||
Reorganization items gain (loss), net |
| (2,541 | ) | (2,471 | ) | (2,618 | ) | ||||||||||||
Loss before
taxes |
(31,022 | ) | (7,681 | ) | (7,414 | ) | (13,534 | ) | |||||||||||
Loss before
cumulative effect of accounting change |
(28,131 | ) | (7,681 | ) | (7,414 | ) | (13,534 | ) | |||||||||||
Net
loss |
(31,176 | ) | (7,681 | ) | (7,414 | ) | (13,534 | ) | |||||||||||
Loss per
share (Basis and Diluted): |
|||||||||||||||||||
Loss before
cumulative effect of accounting change |
$ | (1,665.56 | ) | (464.85 | ) | (438.97 | ) | (801.33 | ) | ||||||||||
Net
loss |
$ | (1,845.84 | ) | (464.85 | ) | (438.97 | ) | (801.33 | ) |
(1) | The quarters ended in 2003 and the quarter ended March 31, 2004, represent the results of the Predecessor Company. The quarter ended June 30, 2004 includes the Predecessor Company for one month (April 2004) and the Successor Company for two months. The quarters ended September 30, 2004 and December 31, 2004 represent the results of the Successor Company. As discussed in Note 1, the consolidated financial statements of the Company after emergence from bankruptcy are those of a new reporting entity (the Successor) and are not comparable to the financial statements of the pre-emergence Company (the Predecessor). |
F-33
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share Data)
(2) | Information for the net income per share for the two months ended June 30, 2004 (Successor) and the one month ended April 30, 2004 (Predecessor) follows: |
Two Months Ended June 30, 2004 |
One Month Ended April 30, 2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Total
revenue |
$ | 64,485 | 33,091 | |||||||
Gross profit
(loss) |
11,637 | 6,462 | ||||||||
Income from
operations |
9,071 | 5,000 | ||||||||
Reorganization
items gain (loss), net |
| 102,465 | ||||||||
Income before
taxes |
8,072 | 107,578 | ||||||||
Net
income |
6,345 | 107,578 | ||||||||
Basic Earnings
Per Share |
0.46 | 6,369.32 | ||||||||
Diluted
Earning Per Share |
0.43 | 6,369.32 |
F-34
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
March 31, 2005 |
December 31, 2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
(Unaudited) |
||||||||||
Assets |
||||||||||
Current
assets: |
||||||||||
Cash |
$ | 1,724 | 3,879 | |||||||
Receivables: |
||||||||||
Trade |
37,496 | 23,871 | ||||||||
Other |
2,928 | 7,362 | ||||||||
Total
receivables |
40,424 | 31,233 | ||||||||
Inventories: |
||||||||||
Coal |
5,500 | 2,305 | ||||||||
Materials and
supplies |
4,446 | 4,084 | ||||||||
Total
inventories |
9,946 | 6,389 | ||||||||
Prepaid
royalties |
3,731 | 4,358 | ||||||||
Other current
assets |
4,310 | 6,337 | ||||||||
Total current
assets |
60,135 | 52,196 | ||||||||
Property,
plant, and equipment, at cost: |
||||||||||
Land |
2,745 | 2,698 | ||||||||
Mineral
rights |
162,577 | 162,577 | ||||||||
Buildings,
machinery and equipment |
114,597 | 106,105 | ||||||||
Mine
development costs |
11,428 | 5,729 | ||||||||
Construction-in-progress |
706 | 231 | ||||||||
Total
property, plant, and equipment |
292,053 | 277,340 | ||||||||
Less
accumulated depreciation, depletion, and amortization |
31,272 | 21,765 | ||||||||
Property,
plant and equipment, net |
260,781 | 255,575 | ||||||||
Restricted
cash (note 1(c)) |
8,425 | 8,404 | ||||||||
Other
assets |
11,792 | 11,651 | ||||||||
Total
assets |
$ | 341,133 | 327,826 |
See accompanying notes to condensed consolidated financial statements.
F-35
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
March 31, 2005 |
December 31, 2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
(Unaudited) |
||||||||||
Liabilities
and Shareholders Equity |
||||||||||
Current
liabilities: |
||||||||||
Current
maturities of long-term debt (note 3) |
$ | 3,600 | 2,700 | |||||||
Current
installments of obligations under capital leases |
374 | 388 | ||||||||
Accounts
payable |
25,043 | 15,116 | ||||||||
Accrued
salaries, wages, and employee benefits |
3,235 | 2,093 | ||||||||
Workers
compensation benefits |
12,090 | 12,090 | ||||||||
Black lung
benefits |
2,600 | 2,600 | ||||||||
Accrued
taxes |
4,326 | 3,530 | ||||||||
Other current
liabilities |
4,654 | 3,633 | ||||||||
Total current
liabilities |
55,922 | 42,150 | ||||||||
Long-term
debt, less current maturities (note 3) |
91,400 | 92,300 | ||||||||
Other
liabilities: |
||||||||||
Noncurrent
portion of workers compensation benefits |
38,381 | 38,223 | ||||||||
Noncurrent
portion of black lung benefits |
23,421 | 23,341 | ||||||||
Pension
obligations |
15,206 | 15,744 | ||||||||
Asset
retirement obligations |
15,129 | 14,939 | ||||||||
Obligations
under capital leases, excluding current installments |
518 | 637 | ||||||||
Deferred
income taxes |
34,569 | 34,615 | ||||||||
Other |
245 | 292 | ||||||||
Total
liabilities |
274,791 | 262,241 | ||||||||
Shareholders equity |
||||||||||
Preferred
Stock, $1.00 par value. Authorized 10,000,000 shares; none issued |
| | ||||||||
Common stock,
$.01 par value. Authorized 100,000,000 shares; issued and outstanding 14,740,694 and 14,715,694, respectively |
147 | 147 | ||||||||
Paid-in-capital |
73,592 | 71,784 | ||||||||
Deferred
stock-based compensation |
(8,900 | ) | (7,540 | ) | ||||||
Retained
earnings |
1,460 | 1,151 | ||||||||
Accumulated
other comprehensive income |
43 | 43 | ||||||||
Total
shareholders equity |
66,342 | 65,585 | ||||||||
Commitments
and contingencies (note 5) |
||||||||||
Total
liabilities and shareholders equity |
$ | 341,133 | 327,826 |
See accompanying notes to condensed consolidated financial statements.
F-36
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Successor |
Predecessor |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three Months Ended 03/31/05 |
Three Months Ended 03/31/04 |
||||||||||||
Revenues |
$ | 97,875 | 80,858 | ||||||||||
Cost of
sales: |
|||||||||||||
Cost of coal
sold |
80,942 | 65,707 | |||||||||||
Depreciation,
depletion, and amortization |
9,478 | 9,272 | |||||||||||
Total cost of
sales |
90,420 | 74,979 | |||||||||||
Gross
profit |
7,455 | 5,879 | |||||||||||
Selling,
general, and administrative expenses |
5,035 | 3,561 | |||||||||||
Total
operating income |
2,420 | 2,318 | |||||||||||
Interest
expense (note 3) |
2,186 | 403 | |||||||||||
Interest
income |
(21 | ) | | ||||||||||
Miscellaneous
income, net |
(123 | ) | (53 | ) | |||||||||
Total other
expense, net |
2,042 | 350 | |||||||||||
Income before
reorganization items and income tax expense |
378 | 1,968 | |||||||||||
Reorganization items, net (note 6) |
| 1,557 | |||||||||||
Income before
income taxes |
378 | 411 | |||||||||||
Income tax
expense |
69 | | |||||||||||
Net income
attributable to common shareholders |
$ | 309 | 411 | ||||||||||
Earnings per
common share (note 7) |
|||||||||||||
Basic
earnings per common share |
$ | 0.02 | 24.33 | ||||||||||
Shares used
to calculate basic earnings per share |
13,800 | 17 | |||||||||||
Diluted
earnings per common share |
$ | 0.02 | 24.33 | ||||||||||
Shares used
to calculate diluted earnings per share |
14,752 | 17 |
See accompanying notes to condensed consolidated financial statements.
F-37
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
Three Months ended March 31, 2005 (Successor),
eight months ended December 31, 2004 (Successor) and four months ended April 30, 2004 (Predecessor)
(in thousands) |
Common stock |
Paid-in- capital |
Deferred stock-based Compensation |
Retained earnings (accumulated deficit) |
Subscribed shares |
Accumulated other comprehensive income (loss) |
Total |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Predecessor
Company |
||||||||||||||||||||||||||||||
Balances,
December 31, 2003 |
$ | | 226 | | (107,989 | ) | (821 | ) | (15,017 | ) | (123,601 | ) | ||||||||||||||||||
Net
income |
| | | 107,989 | | | 107,989 | |||||||||||||||||||||||
Minimum pension
liability adjustment |
| | | | | (692 | ) | (692 | ) | |||||||||||||||||||||
Comprehensive
income |
107,297 | |||||||||||||||||||||||||||||
Application of
fresh start accounting (note 2) |
||||||||||||||||||||||||||||||
Cancellation
of Predecessor common stock |
| (226 | ) | | | | | (226 | ) | |||||||||||||||||||||
Elimination of
Predecessor accumulated other comprehensive loss and subscribed shares |
| | | | 821 | 15,709 | 16,530 | |||||||||||||||||||||||
Balances, April
30, 2004 |
$ | | | | | | | | ||||||||||||||||||||||
Successor
Company |
||||||||||||||||||||||||||||||
Issuance of
Successor common stock |
$ | 138 | 63,153 | | | | | 63,291 | ||||||||||||||||||||||
Net
income |
| | | 1,976 | | | 1,976 | |||||||||||||||||||||||
Unrealized gain
on marketable securities, net |
| | | | | 43 | 43 | |||||||||||||||||||||||
Comprehensive
Income |
2,019 | |||||||||||||||||||||||||||||
Deferred
compensation related to restricted stock awards |
9 | 8,631 | (8,640 | ) | | | | | ||||||||||||||||||||||
Cost to register
common stock |
| | | (825 | ) | | | (825 | ) | |||||||||||||||||||||
Amortization of
deferred stock-based compensation |
| | 1,100 | | | | 1,100 | |||||||||||||||||||||||
Balances,
December 31, 2004 |
147 | 71,784 | (7,540 | ) | 1,151 | | 43 | 65,585 | ||||||||||||||||||||||
Net
income |
| | | 309 | | | 309 | |||||||||||||||||||||||
Deferred
compensation related to restricted stock awards |
| 1,808 | (1,808 | ) | | | | | ||||||||||||||||||||||
Amortization of
deferred stock-based compensation |
| | 448 | | | | 448 | |||||||||||||||||||||||
Balances, March
31, 2005 |
$ | 147 | 73,592 | (8,900 | ) | 1,460 | | 43 | 66,342 |
See accompanying notes to consolidated financial statements.
F-38
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Successor |
Predecessor |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three Months Ended 03/31/05 |
Three Months Ended 03/31/04 |
||||||||||||
Cash flows
from operating activities: |
|||||||||||||
Net
income |
$ | 309 | 411 | ||||||||||
Adjustments
to reconcile net income to net cash provided by
operating activities |
|||||||||||||
Depreciation,
depletion, and amortization |
9,478 | 9,271 | |||||||||||
Accretion of
asset retirement obligations |
325 | 299 | |||||||||||
Amortization
of debt issue costs |
103 | | |||||||||||
Amortization
of deferred stock-based compensation |
448 | | |||||||||||
Deferred
income tax expense |
(46 | ) | | ||||||||||
Gain on sale
or disposal of property, plant, and equipment |
6 | 14 | |||||||||||
Changes in
operating assets and liabilities: |
|||||||||||||
Receivables |
(9,191 | ) | (10,776 | ) | |||||||||
Inventories |
(3,557 | ) | (3,068 | ) | |||||||||
Prepaid
royalties and other current assets |
627 | (1,193 | ) | ||||||||||
Other
assets |
1,783 | 27 | |||||||||||
Accounts
payable |
9,927 | (3,241 | ) | ||||||||||
Accrued
salaries, wages, and employee benefits |
1,142 | 1,211 | |||||||||||
Accrued
taxes |
796 | 2,127 | |||||||||||
Other current
liabilities |
1,021 | 1,172 | |||||||||||
Workers
compensation benefits |
158 | 1,165 | |||||||||||
Black lung
benefits |
80 | (391 | ) | ||||||||||
Pension
obligations |
(538 | ) | 28 | ||||||||||
Asset
retirement obligation |
(135 | ) | (131 | ) | |||||||||
Other
liabilities |
(47 | ) | 4 | ||||||||||
Net cash
provided by (used in) operating activities |
12,689 | (3,071 | ) | ||||||||||
Cash flows
from investing activities: |
|||||||||||||
Additions to
property, plant, and equipment |
(14,690 | ) | (6,815 | ) | |||||||||
Proceeds from
sale of equipment and property |
| 40 | |||||||||||
Increase in
restricted cash |
(21 | ) | (21 | ) | |||||||||
Net cash used
in investing activities |
(14,711 | ) | (6,796 | ) | |||||||||
Cash flows
from financing activities: |
|||||||||||||
Proceeds from
borrowings |
| 6,400 | |||||||||||
Principal
payments under capital lease obligations |
(133 | ) | (101 | ) | |||||||||
Net cash
provided by (used in) financing activities |
(133 | ) | 6,299 | ||||||||||
Decrease in
cash |
(2,155 | ) | (3,568 | ) | |||||||||
Cash at
beginning of period |
3,879 | 4,890 | |||||||||||
Cash at end
of period |
$ | 1,724 | 1,322 |
See accompanying notes to condensed consolidated financial statements.
F-39
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION |
(a) | Description of Business and Principles of Consolidation |
(b) Bankruptcy and Restructuring
F-40
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
(c) Restricted Cash
(d) Inventories
(e) Reclamation Costs
(f) Workers Compensation
F-41
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
(g) Black Lung Benefits
(h) Revenue Recognition
(i) Income Taxes
(j) Equity-Based Compensation Plan
F-42
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
had followed the fair value method under FASB Statement No. 123 for options outstanding the impact on the three months ended March 31, 2005 would have been less than $.01 per share. In performing the Statement No. 123 analysis for stock options, a risk free rate of 5% was assumed, expected volatility was zero, and no dividends were anticipated. The Company had no stock options outstanding as of March 31, 2004.
Three Months March 31, 2005 |
||||||
---|---|---|---|---|---|---|
Net Income,
as reported |
$ | 309 | ||||
Add: Net
stock-based employee compensation expense recorded for restricted and performance based stock grants |
358 | |||||
Deduct: Net
stock-based employee compensation expense for restricted and performance based stock grants determined under Black-Scholes option pricing
model |
(289 | ) | ||||
Pro forma
net income |
$ | 378 | ||||
Income per
share: |
||||||
Basicas reported |
$ | 0.02 | ||||
Basicpro forma |
$ | 0.03 | ||||
Dilutedas reported |
$ | 0.02 | ||||
Dilutedpro forma |
$ | 0.03 |
(2) FRESH START ACCOUNTING
F-43
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
Estimated
enterprise value of the reorganized company |
$ | 155,000 | ||||
Borrowings under
credit facility |
(6,400 | ) | ||||
Capital leases
assumed |
(1,396 | ) | ||||
Cash balance
excluded from enterprise value |
1,301 | |||||
Administrative
claims payable excluded from enterprise value |
(10,214 | ) | ||||
138,291 | ||||||
Less: new secured
debt issued to extinguish prepetition debt |
75,000 | |||||
Fair value of
common shares issued to extinguish prepetition debt |
$ | 63,291 |
James River Coal Company
Reorganized Condensed Consolidated Balance
Sheet
As of April 30, 2004
(amounts in 000s)
(Unaudited)
Fresh Start Adjustments |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets |
Predecessor Company 4/30/04 |
Debt Extinguishment |
Reorganization Adjustments |
Successor Company 4/30/04 |
|||||||||||||||
Cash |
$ | 1,301 | | | 1,301 | ||||||||||||||
Receivables |
35,838 | | | 35,838 | |||||||||||||||
Inventories |
11,930 | | 1,079 | (2) | 13,009 | ||||||||||||||
Prepaid
royalties |
9,932 | | (362 | )(2) | 9,570 | ||||||||||||||
Other
current assets |
4,463 | | (347 | )(2) | 4,116 | ||||||||||||||
Total
current assets |
63,464 | | 370 | 63,834 | |||||||||||||||
Land and
mineral rights |
223,004 | | (57,567 | )(2) | 165,437 | ||||||||||||||
Buildings,
machinery, and equipment |
236,901 | | (155,050 | )(2) | 81,851 | ||||||||||||||
Mine
development costs |
12,984 | | (12,984 | )(2) | | ||||||||||||||
Construction-in-progress |
974 | | | 974 | |||||||||||||||
473,863 | | (225,601 | ) | 248,262 | |||||||||||||||
Less
accumulated depreciation, depletion, and amortization |
219,604 | | (219,604 | )(2) | | ||||||||||||||
Net
property, plant, and equipment |
254,259 | | (5,997 | ) | 248,262 | ||||||||||||||
Restricted
cash |
8,348 | | | 8,348 | |||||||||||||||
Other
long-term assets |
6,518 | (3,110 | )(1) | (734 | )(2) | 2,674 | |||||||||||||
Total
assets |
$ | 332,589 | (3,110 | ) | (6,361 | ) | 323,118 |
F-44
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
James River Coal Company
Reorganized Condensed Consolidated Balance
Sheet
As of April 30, 2004
(amounts in 000s)
(Unaudited)
Fresh Start Adjustments |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Liabilities and Shareholders Equity (Deficit) |
Predecessor Company 4/30/04 |
Debt Extinguishment |
Reorganization Adjustments |
Successor Company 4/30/04 |
|||||||||||||||
Borrowings
under DIP credit agreement |
$ | 6,400 | | | 6,400 | ||||||||||||||
Current
installments of obligations under capital leases |
749 | | (272 | )(3) | 477 | ||||||||||||||
Accounts
payable |
26,293 | | | 26,293 | |||||||||||||||
Accrued
salaries, wages and employee benefits |
4,501 | | | 4,501 | |||||||||||||||
Workers compensation benefits |
9,500 | | | 9,500 | |||||||||||||||
Black lung
benefits |
2,500 | | | 2,500 | |||||||||||||||
Accrued
taxes |
3,588 | | | 3,588 | |||||||||||||||
Other
current liabilities |
4,037 | | | 4,037 | |||||||||||||||
Total
current liabilities |
57,568 | | (272 | ) | 57,296 | ||||||||||||||
Long term
debt |
| 75,000 | (1) | | 75,000 | ||||||||||||||
Noncurrent
portion of workers compensation benefits |
42,699 | | | 42,699 | |||||||||||||||
Noncurrent
portion of black lung benefits |
10,661 | | 13,610 | (4) | 24,271 | ||||||||||||||
Pension
obligations |
14,267 | | 3,363 | (5) | 17,630 | ||||||||||||||
Asset
retirement obligations |
13,963 | | | 13,963 | |||||||||||||||
Obligations
under capital leases, excluding current installments |
1,159 | | (240 | )(3) | 919 | ||||||||||||||
Deferred
income taxes |
| | 27,391 | (6) | 27,391 | ||||||||||||||
Other long
term liabilities |
658 | | | 658 | |||||||||||||||
Total
other liabilities |
83,407 | | 44,124 | 127,531 | |||||||||||||||
Liabilities
subject to compromise |
319,451 | (319,451 | )(1) | | | ||||||||||||||
Total
liabilities |
460,426 | (244,451 | ) | 43,852 | 259,827 | ||||||||||||||
Common
stock |
| 138 | (1) | | 138 | ||||||||||||||
Paid-in-capital |
226 | 63,153 | (1) | (226 | )(7) | 63,153 | |||||||||||||
Retained
earnings (accumulated deficit) |
(111,533 | ) | 178,050 | (1) | (66,517 | )(7) | | ||||||||||||
Subscribed
shares |
(821 | ) | | 821 | (7) | | |||||||||||||
Accumulated
other comprehensive income (loss) |
(15,709 | ) | | 15,709 | (7) | | |||||||||||||
Total
shareholders equity (deficit) |
(127,837 | ) | 241,341 | (50,213 | ) | 63,291 | |||||||||||||
Total
liabilities and shareholders equity |
$ | 332,589 | (3,110 | ) | (6,361 | ) | 323,118 |
F-45
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
Extinguishment of Debt
(1) | Liabilities subject to compromise that were extinguished in bankruptcy consist of the following (amounts in 000s): |
Pre-petition bank
loan agreement |
$ | 207,807 | ||||
Pre-petition
senior note |
37,953 | |||||
Accrued and
unpaid interest |
12,234 | |||||
Terminated
interest rate swap |
8,434 | |||||
Total
secured |
266,428 | |||||
Promissory
notes |
5,176 | |||||
Redeemable
preferred stock |
8,500 | |||||
Accounts payable
and other |
39,347 | |||||
Total
unsecured |
53,023 | |||||
Total
liabilities subject to compromise |
$ | 319,451 |
Liabilities
subject to compromise |
$ | 319,451 | ||||
Less: Assets of
rabbi trust transferred to creditors |
(3,110 | ) | ||||
Less: New secured
debt issued in exchange for pre-petition debt |
(75,000 | ) | ||||
Less: Fair value
of common shares issued |
(63,291 | ) | ||||
Gain on
extinguishment of pre-petition claims |
$ | 178,050 |
Reorganization Adjustments
(2) | In connection with the application of fresh start accounting, the Company made adjustments aggregating approximately $6.3 million to record its identifiable assets at fair value as follows (amounts in 000s): |
Increase/(Decrease) |
||||||
---|---|---|---|---|---|---|
Coal
inventories |
$ | 1,079 | ||||
Prepaid
royalties |
(362 | ) | ||||
Other current
assets |
(347 | ) | ||||
Land and mineral
rights |
(57,567 | ) | ||||
Buildings,
machinery and equipment |
(155,050 | ) | ||||
Mine development
costs |
(12,984 | ) | ||||
Less accumulated
depreciation, depletion, and amortization |
219,604 | |||||
Other long-term
assets |
(734 | ) | ||||
Total fair value
adjustments to identifiable assets |
$ | (6,361 | ) |
(3) | Contractual terms of certain capital lease agreements were renegotiated during bankruptcy. Obligations under capital leases have been adjusted to reflect the revised terms. |
F-46
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
(4) | The liability for black lung benefits has been adjusted to reflect the total discounted benefit obligation. |
(5) | The pension liability has been adjusted to reflect the total discounted projected benefit obligation of the plan. |
(6) | Deferred income taxes have been adjusted to reflect differences in the book and tax basis of the revalued assets and liabilities of the Company after application of fresh start accounting. |
(7) | The equity of the predecessor company, including subscribed shares and accumulated other comprehensive loss, has been eliminated in fresh start accounting. |
(3) | LONG TERM DEBT AND INTEREST EXPENSE |
March 31, 2005 |
||||||
---|---|---|---|---|---|---|
Senior secured
credit facility: |
||||||
Term loan
component |
$ | 20,000 | ||||
Revolver
component |
| |||||
Term credit
facility |
75,000 | |||||
Total
long-term debt |
95,000 | |||||
Less amounts
classified as current |
3,600 | |||||
Total
long-term debt, less current maturities |
$ | 91,400 |
(a) Senior Secured Credit Facility
F-47
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
(b) Term Credit Facility
(c) Interest Expense and Other
(4) EQUITY
(a) Preferred Stock and Shareholder Rights Agreement
F-48
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
Person, each holder of a Right, other than the Rights beneficially owned by the Acquiring Person (which will thereafter be void), will receive, upon the exercise of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. In the event that any person becomes an Acquiring Person, each Right holder, other than the Acquiring Person (whose Rights will become void), will have the right to receive upon exercise that number of shares of common stock having a market value of two times the exercise price of the Right.
(b) Redeemable Preferred Stock (Predecessor Company)
(5) COMMITMENTS AND CONTINGENCIES
(6) REORGANIZATION ITEMS, NET
Predecessor Company Three Months Ended 03/31/04 |
||||||
---|---|---|---|---|---|---|
Professional fees
and administrative expenses |
$ | 1,607 | ||||
Interest
income |
(50 | ) | ||||
$ | 1,557 |
F-49
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
(7) EARNINGS PER SHARE
Successor Company Three Months Ended 3/31/05 |
Predecessor Company Three Months Ended 3/31/04 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Weighted
average number of common
shares outstanding: |
|||||||||||||
Basic |
13,799,994 | 16,890 | |||||||||||
Effect of
dilutive instruments |
951,678 | | |||||||||||
Diluted |
14,751,672 | 16,890 |
(8) PENSION EXPENSE
Successor Company Three Months Ended 3/31/05 |
Predecessor Company Three Months Ended 3/31/04 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Service
cost |
$ | 527 | 459 | ||||||||||
Interest
cost |
793 | 723 | |||||||||||
Expected
return on plan assets |
(761 | ) | (608 | ) | |||||||||
Amortization
of prior service cost |
| 97 | |||||||||||
Recognized
actuarial loss |
| 255 | |||||||||||
Net periodic
benefit cost |
$ | 559 | 926 |
F-50
JAMES RIVER COAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
(9) PNEUMOCONIOSIS (BLACK LUNG) BENEFITS
Successor Company Three Months Ended 3/31/05 |
Predecessor Company Three Months Ended 3/31/04 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Service
cost |
$ | 74 | 74 | ||||||||||
Interest
cost |
340 | 188 | |||||||||||
Amortization
of actuarial loss |
54 | 262 | |||||||||||
Total
expense |
$ | 468 | 524 |
(10) DEFINITIVE AGREEMENT TO ACQUIRE TRIAD MINING, INC.
(11) SUBSEQUENT EVENT
F-51
INDEX TO TRIAD MINING, INC. CONSOLIDATED FINANCIAL STATEMENTS
Page |
||||||
---|---|---|---|---|---|---|
Audited
Financial Statements |
||||||
Report of
Independent Registered Public Accounting Firm |
T-2 | |||||
Consolidated
Balance Sheet December 31, 2004 |
T-3 | |||||
Consolidated
Statement of Income Year ended December 31, 2004 |
T-4 | |||||
Consolidated
Statement of Changes in Stockholders Equity and Other Comprehensive Income Year ended December 31, 2004 |
T-5 | |||||
Consolidated
Statement of Cash Flows Year ended December 31, 2004 |
T-6 | |||||
Notes to
Financial Statements December 31, 2004 |
T-7 | |||||
Unaudited
Financial Statements |
||||||
Condensed
Consolidated Balance Sheets March 31, 2005 and December 31, 2004 |
T-14 | |||||
Condensed
Consolidated Statements of Income Three months ended March 31, 2005 and March 31, 2004 |
T-15 | |||||
Condensed
Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income Three months ended March 31, 2005 and year ended December 31, 2004 |
T-16 | |||||
Condensed
Consolidated Statements of Cash Flows Three months ended March 31, 2005 and March 31, 2004 |
T-17 | |||||
Notes to
Condensed Consolidated Financial Statements March 31, 2005 |
T-18 |
T-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Triad Mining, Inc.:
We have audited the accompanying consolidated balance sheet of Triad Mining, Inc. and subsidiary (the Company) as of December 31, 2004 and the related consolidated statements of income, changes in stockholders equity and other comprehensive income, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Triad Mining, Inc. and subsidiary as of December 31, 2004, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Richmond, Virginia
April 12, 2005
T-2
TRIAD MINING, INC. AND SUBSIDIARY
Consolidated Balance Sheet
December
31, 2004
Assets |
||||||
Current
assets: |
||||||
Cash and
cash equivalents |
$ | 8,135,128 | ||||
Available
for sale securities |
16,729,848 | |||||
Accounts
receivable |
7,371,053 | |||||
Coal
inventory |
981,646 | |||||
Stores
inventory |
948,775 | |||||
Advance
royalties current portion |
430,449 | |||||
Prepaid
expenses |
545,660 | |||||
Accrued
interest receivable |
120,881 | |||||
Other |
28,664 | |||||
Total
current assets |
35,292,104 | |||||
Property and
equipment, net |
21,245,321 | |||||
Mineral
rights, net |
4,052,590 | |||||
Mine
development costs, net |
1,070,043 | |||||
Long-term
portion of advance royalties |
530,525 | |||||
$ | 62,190,583 | |||||
Liabilities and Stockholders Equity |
||||||
Current
liabilities: |
||||||
Current
maturities of long-term debt |
$ | 1,712,361 | ||||
Accounts
payable |
4,756,779 | |||||
Accrued
expenses |
1,271,780 | |||||
Total
current liabilities |
7,740,920 | |||||
Reclamation
and mine closing liabilities |
7,395,580 | |||||
Total
liabilities |
15,136,500 | |||||
Stockholders equity: |
||||||
Common
stock, no par value. Authorized 1,000 shares; issued and outstanding 411 shares |
48,446 | |||||
Accumulated
other comprehensive loss |
(135,967 | ) | ||||
Notes
receivable from and advances to stockholders |
(388,928 | ) | ||||
Retained
earnings |
47,530,532 | |||||
Total
stockholders equity |
47,054,083 | |||||
$ | 62,190,583 |
See accompanying notes to consolidated financial statements.
T-3
TRIAD MINING, INC. AND SUBSIDIARY
Consolidated Statement of Income
Year ended December 31, 2004
Coal
sales |
$ | 81,602,894 | ||||
Operating
costs and expenses: |
||||||
Cost of coal
sold |
59,290,543 | |||||
Selling,
administrative, and other |
3,736,452 | |||||
Depreciation |
4,621,489 | |||||
Amortization |
878,321 | |||||
Total
operating costs and expenses |
68,526,805 | |||||
Income from
operations |
13,076,089 | |||||
Other income
(expense): |
||||||
Interest
income |
567,227 | |||||
Interest
expense |
(174,328 | ) | ||||
Loss on sale
and impairment of investments |
(72,696 | ) | ||||
Gain on sale
of assets |
16,615 | |||||
Miscellaneous income |
112,634 | |||||
Total other
income |
449,452 | |||||
Net
income |
$ | 13,525,541 |
See accompanying notes to consolidated financial statements.
T-4
TRIAD MINING, INC. AND SUBSIDIARY
Consolidated Statement of Changes in
Stockholders Equity
and Other Comprehensive Income
Year ended December 31, 2004
Common Stock |
Accumulated other comprehensive loss |
Notes receivable from and advances to stockholders |
Retained earnings |
Total stockholders equity |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balances at
January 1, 2004 |
$ | 48,446 | $ | (45,635 | ) | $ | (137,351 | ) | $ | 45,970,492 | $ | 45,835,952 | ||||||||||
Comprehensive income: |
||||||||||||||||||||||
Net
income |
| | | 13,525,541 | 13,525,541 | |||||||||||||||||
Other
comprehensive loss: |
||||||||||||||||||||||
Unrealized
losses on securities, net of reclassification adjustment |
| (90,332 | ) | | | (90,332 | ) | |||||||||||||||
Comprehensive income |
13,435,209 | |||||||||||||||||||||
Increase in
receivables from and advances to stockholders, net |
| | (251,577 | ) | | (251,577 | ) | |||||||||||||||
Distributions to stockholders |
| | | (11,965,501 | ) | (11,965,501 | ) | |||||||||||||||
Balances at
December 31, 2004 |
$ | 48,446 | $ | (135,967 | ) | $ | (388,928 | ) | $ | 47,530,532 | $ | 47,054,083 |
See accompanying notes to consolidated financial statements.
T-5
TRIAD MINING, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
Year ended December 31, 2004
Operating
activities: |
||||||
Net
income |
$ | 13,525,541 | ||||
Adjustments
to reconcile net income to net cash provided by operating activities: |
||||||
Depreciation
and amortization |
5,499,810 | |||||
Accretion of
reclamation and mine closing liabilities |
323,443 | |||||
Gain on sale
of assets |
(16,615 | ) | ||||
Loss on sale
and impairment of investments |
72,696 | |||||
(Increase)
decrease in: |
||||||
Accounts
receivable |
(329,611 | ) | ||||
Inventories |
74,935 | |||||
Advance
royalties |
171,674 | |||||
Prepaid
expenses |
67,133 | |||||
Accrued
interest |
2,712 | |||||
Other
assets |
158,289 | |||||
Increase
in: |
||||||
Accounts
payable |
707,148 | |||||
Accrued
expenses |
156,190 | |||||
Net cash
provided by operating activities |
20,413,345 | |||||
Investing
activities: |
||||||
Expenditures
for property and equipment |
(4,705,437 | ) | ||||
Proceeds
from sale of property and equipment |
19,615 | |||||
Purchases of
securities |
(7,721,433 | ) | ||||
Proceeds
from maturities of securities |
1,990,000 | |||||
Proceeds
from sale of securities |
4,314,000 | |||||
Purchase of
mineral rights |
(400,887 | ) | ||||
Expenditures
for mine development costs |
(208,821 | ) | ||||
Receivables
from and advances to stockholders |
(571,275 | ) | ||||
Repayment of
receivables from and advances to stockholders |
319,698 | |||||
Net cash
used in investing activities |
(6,964,540 | ) | ||||
Financing
activities: |
||||||
Distributions to stockholders |
(11,965,501 | ) | ||||
Repayment of
long-term debt |
(2,421,859 | ) | ||||
Net cash
used in financing activities |
(14,387,360 | ) | ||||
Net decrease
in cash and cash equivalents |
(938,555 | ) | ||||
Cash and
cash equivalents at beginning of year |
9,073,683 | |||||
Cash and
cash equivalents at end of year |
$ | 8,135,128 | ||||
Supplemental
disclosure of cash flow information: |
||||||
Cash paid
during the year for: |
||||||
Interest |
$ | 174,328 |
See accompanying notes to consolidated financial statements.
T-6
TRIAD MINING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2004
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Operations
(b) Principles of Consolidation
(c) Use of Estimates
(d) Cash and Cash Equivalents
(e) Available for Sale Securities
(f) Inventories
(g) Property and Equipment
(h) Mine Development Costs
T-7
TRIAD MINING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2004
(i) Mineral Rights
Original
cost |
$ | 8,885,588 | ||||
Less
accumulated depletion |
(4,832,998 | ) | ||||
Balance at
December 31, 2004 |
$ | 4,052,590 |
(j) Income Taxes
(k) Allowance for Uncollectible Receivables
(l) Asset Impairment
(m) Revenue Recognition
(n) Advance Coal Royalty
(o) Reclamation and Mine Closing Liabilities
T-8
TRIAD MINING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2004
(p) Derivatives
(2) PROPERTY AND EQUIPMENT
Land |
$ | 2,869,992 | ||||
Mine equipment
and vehicles |
64,368,454 | |||||
Less
accumulated depreciation |
(45,993,125 | ) | ||||
Property and
equipment, net |
$ | 21,245,321 |
(3) MINE DEVELOPMENT COSTS
Mine development
costs |
$ | 2,943,538 | ||||
Less
accumulated amortization |
(1,873,495 | ) | ||||
Mine development
costs, net |
$ | 1,070,043 |
(4) AVAILABLE FOR SALE SECURITIES
Cost Basis |
Gross unrealized gains |
Gross unrealized losses |
Fair value |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity
securities |
$ | 381,359 | $ | 26,620 | $ | (19,253 | ) | $ | 388,726 | |||||||||
U.S. Government
agency obligations |
2,099,156 | 397 | (8,990 | ) | 2,090,563 | |||||||||||||
Municipal bonds
and notes |
14,385,300 | 9,693 | (144,434 | ) | 14,250,559 | |||||||||||||
$ | 16,865,815 | $ | 36,710 | $ | (172,677 | ) | $ | 16,729,848 |
T-9
TRIAD MINING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2004
Greater than 12 months |
Less than 12 months |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fair Value |
Gross unrealized losses |
Fair value |
Gross unrealized losses |
||||||||||||||||
Equity
securities |
$ | 63,017 | | 117,474 | 19,253 | ||||||||||||||
U.S. Government
agency obligations |
199,000 | 1,009 | 1,691,157 | 7,981 | |||||||||||||||
Municipal bonds
and notes |
9,996,848 | 128,924 | 1,333,782 | 15,510 | |||||||||||||||
$ | 10,258,865 | 129,933 | 3,142,413 | 42,744 |
Cost Basis |
Fair value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Year ended
December 31, |
||||||||||
2005 |
$ | 6,194,316 | 6,145,416 | |||||||
2006 |
5,965,468 | 5,895,078 | ||||||||
2007 |
3,896,243 | 3,871,538 | ||||||||
2008 |
428,429 | 429,090 | ||||||||
$ | 16,484,456 | 16,341,122 |
2004 |
||||||
---|---|---|---|---|---|---|
Unrealized
holding losses arising during the year |
$ | (163,028 | ) | |||
Less:
reclassification adjustment for losses included in net income |
72,696 | |||||
Net unrealized
losses on available for sale securities |
$ | (90,332 | ) |
(5) NOTES RECEIVABLE FROM AND ADVANCES TO STOCKHOLDERS
|
A $371,275 unsecured promissory note (interest rate 3.00%) from a stockholder, maturing in 2006. Principal and interest are due at maturity. |
|
A $15,553 unsecured promissory note from a stockholder, maturing in 2007. Principal and interest (6.00%) are payable monthly. |
|
Other non-interest bearing advances to stockholders aggregating $2,100. |
T-10
TRIAD MINING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2004
(6) LONG-TERM DEBT
Note payable
to a bank, principal and interest payable monthly; interest rate based on LIBOR + 1.00% (3.31% as of December 31, 2004), secured by equipment and
accounts receivable; maturing October 2005 |
$ | 1,064,623 | ||||
Note payable
to a bank, principal and interest payable monthly; interest rate based on LIBOR + 1.00% (3.31% as of December 31, 2004), secured by equipment and
accounts receivable; maturing October 2005 |
647,738 | |||||
Total |
1,712,361 | |||||
Less current
maturities |
1,712,361 | |||||
Long-term
debt |
$ | |
(7) RECLAMATION LIABILITY
Reclamation
and mine closing liabilities, beginning of year |
$ | 7,486,744 | ||||
Accretion
expense |
323,443 | |||||
Settlements |
(117,323 | ) | ||||
Reclamation
and mine closing liabilities, end of year |
7,692,864 | |||||
Less: amount
included in accrued expenses |
297,284 | |||||
Non-current
reclamation and mine closing liabilities, end of year |
$ | 7,395,580 |
(8) PNEUMOCONIOSIS (BLACK LUNG) BENEFIT OBLIGATION
(9) LEASES
T-11
TRIAD MINING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2004
(10) SALES COMMITMENTS AND MAJOR CUSTOMERS
Tons |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Minimum |
Maximum |
||||||||||
Year ended
December 31: |
|||||||||||
2005 |
2,601,555 | 3,410,000 | |||||||||
2006 |
2,116,500 | 2,853,500 | |||||||||
2007 |
950,000 | 2,350,000 | |||||||||
2008 |
950,000 | 2,350,000 | |||||||||
2009 |
950,000 | 1,250,000 | |||||||||
7,568,055 | 12,213,500 |
(11) SELF-INSURANCE HEALTH CARE PLAN
(12) EMPLOYEE BENEFIT PLAN
T-12
TRIAD MINING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2004
(13) CONCENTRATION OF CREDIT RISK
(14) CONTINGENCY
(15) SUBSEQUENT EVENT
T-13
TRIAD MINING, INC. AND SUBSIDIARY
Condensed Consolidated Balance
Sheets
March 31, 2005 |
December 31, 2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
(unaudited) |
||||||||||
Assets |
||||||||||
Current
assets: |
||||||||||
Cash and
cash equivalents |
$ | 6,677,899 | 8,135,128 | |||||||
Available
for sale securities |
16,868,567 | 16,729,848 | ||||||||
Accounts
receivable |
10,316,934 | 7,371,053 | ||||||||
Coal
inventory |
1,178,785 | 981,646 | ||||||||
Stores
inventory |
1,052,226 | 948,775 | ||||||||
Advance
royalties current portion |
595,245 | 430,449 | ||||||||
Prepaid
expenses |
367,735 | 545,660 | ||||||||
Accrued
interest receivable |
119,055 | 120,881 | ||||||||
Other |
| 28,664 | ||||||||
Total
current assets |
37,176,446 | 35,292,104 | ||||||||
Property and
equipment, net |
20,620,950 | 21,245,321 | ||||||||
Mineral
rights, net |
3,597,714 | 4,052,590 | ||||||||
Mine
development costs, net |
988,338 | 1,070,043 | ||||||||
Long-term
portion of advance royalties |
530,525 | 530,525 | ||||||||
$ | 62,913,973 | 62,190,583 | ||||||||
Liabilities and Stockholders Equity |
||||||||||
Current
liabilities: |
||||||||||
Current
maturities of long-term debt |
$ | 884,899 | 1,712,361 | |||||||
Accounts
payable |
3,561,019 | 4,756,779 | ||||||||
Accrued
expenses |
1,962,285 | 1,271,780 | ||||||||
Total
current liabilities |
6,408,203 | 7,740,920 | ||||||||
Reclamation
and mine closing liabilities |
7,488,228 | 7,395,580 | ||||||||
Total
liabilities |
13,896,431 | 15,136,500 | ||||||||
Stockholders equity: |
||||||||||
Common
stock, no par value. Authorized 1,000 shares; issued and outstanding 411 shares |
48,446 | 48,446 | ||||||||
Accumulated
other comprehensive loss |
(249,227 | ) | (135,967 | ) | ||||||
Notes
receivable from and advances to stockholders |
(396,201 | ) | (388,928 | ) | ||||||
Retained
earnings |
49,614,524 | 47,530,532 | ||||||||
Total
stockholders equity |
49,017,542 | 47,054,083 | ||||||||
$ | 62,913,973 | 62,190,583 |
See accompanying notes to condensed consolidated financial
statements.
T-14
TRIAD MINING, INC. AND SUBSIDIARY
Condensed Consolidated Statements of
Income
(unaudited)
Three Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2005 |
March 31, 2004 |
||||||||||
Coal
sales |
$ | 23,396,026 | 19,645,000 | ||||||||
Operating
costs and expenses: |
|||||||||||
Cost of coal
sold |
17,202,910 | 14,111,235 | |||||||||
Selling,
administrative, and other |
886,214 | 841,625 | |||||||||
Depreciation |
1,204,724 | 1,125,300 | |||||||||
Amortization |
425,733 | 189,623 | |||||||||
Total
operating costs and expenses |
19,719,581 | 16,267,783 | |||||||||
Income from
operations |
3,676,445 | 3,377,217 | |||||||||
Other income
(expense): |
|||||||||||
Interest
income |
149,543 | 122,055 | |||||||||
Interest
expense |
(21,031 | ) | (53,313 | ) | |||||||
Loss on sale
of investments |
(19,211 | ) | (13,488 | ) | |||||||
Loss on sale
of assets |
(80,500 | ) | | ||||||||
Miscellaneous income |
28,875 | 18,061 | |||||||||
Total other
income |
57,676 | 73,315 | |||||||||
Net
income |
$ | 3,734,121 | 3,450,532 |
See accompanying notes to condensed consolidated financial
statements.
T-15
TRIAD MINING, INC. AND SUBSIDIARY
Condensed Consolidated Statements of
Changes in Stockholders Equity
and Other Comprehensive Income
Three Months Ended March 31, 2005 and the Year Ended December 31, 2004
(unaudited)
Common Stock |
Accumulated other comprehensive loss |
Notes receivable from and advances to stockholders |
Retained earnings |
Total stockholders equity |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balances at
January 1, 2004 |
$ | 48,446 | (45,635 | ) | (137,351 | ) | 45,970,492 | 45,835,952 | ||||||||||||||
Comprehensive income: |
||||||||||||||||||||||
Net
income |
| | | 13,525,541 | 13,525,541 | |||||||||||||||||
Other
comprehensive loss: |
||||||||||||||||||||||
Unrealized
losses on securities, net of reclassification adjustment |
| (90,332 | ) | | | (90,332 | ) | |||||||||||||||
Comprehensive income |
13,435,209 | |||||||||||||||||||||
Increase in
receivables from and advances to stockholders, net |
| | (251,577 | ) | | (251,577 | ) | |||||||||||||||
Distributions to stockholders |
| | | (11,965,501 | ) | (11,965,501 | ) | |||||||||||||||
Balances at
December 31, 2004 |
48,446 | (135,967 | ) | (388,928 | ) | 47,530,532 | 47,054,083 | |||||||||||||||
Comprehensive income: |
||||||||||||||||||||||
Net
income |
| | | 3,734,121 | 3,734,121 | |||||||||||||||||
Other
comprehensive loss: |
||||||||||||||||||||||
Unrealized
losses on securities, net of reclassification adjustment |
| (113,260 | ) | | | (113,260 | ) | |||||||||||||||
Comprehensive income |
3,620,861 | |||||||||||||||||||||
Increase in
receivables from and advances to stockholders, net |
| | (7,273 | ) | | (7,273 | ) | |||||||||||||||
Distributions to stockholders |
| | | (1,650,129 | ) | (1,650,129 | ) | |||||||||||||||
Balances at
March 31, 2005 |
$ | 48,446 | (249,227 | ) | (396,201 | ) | 49,614,524 | 49,017,542 |
See accompanying notes to condensed consolidated financial
statements.
T-16
TRIAD MINING, INC. AND SUBSIDIARY
Condensed Consolidated Statements of
Cash Flows
(unaudited)
Three Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2005 |
March 31, 2004 |
||||||||||
Operating
activities: |
|||||||||||
Net
income |
$ | 3,734,121 | 3,450,532 | ||||||||
Adjustments
to reconcile net income to net cash provided by operating activities: |
|||||||||||
Depreciation
and amortization |
1,630,457 | 1,314,923 | |||||||||
Accretion of
reclamation and mine closing liabilities |
92,648 | 80,800 | |||||||||
Loss on sale
of assets |
80,500 | | |||||||||
Loss on sale
of securities |
19,211 | 13,488 | |||||||||
Change in
operating assets and liabilities |
|||||||||||
Accounts
receivable |
(2,945,881 | ) | (317,797 | ) | |||||||
Inventories |
(300,590 | ) | (552,232 | ) | |||||||
Advance
royalties |
(164,796 | ) | (7,391 | ) | |||||||
Prepaid
expenses |
177,925 | 90,406 | |||||||||
Accrued
interest |
1,826 | (54,410 | ) | ||||||||
Other
assets |
28,664 | 160,807 | |||||||||
Accounts
payable |
10,241 | 86,778 | |||||||||
Other
liabilities |
690,505 | 213,199 | |||||||||
Net cash
provided by operating activities |
3,054,831 | 4,479,103 | |||||||||
Investing
activities: |
|||||||||||
Capital
expenditures |
(1,756,006 | ) | (46,008 | ) | |||||||
Purchases of
securities |
(2,224,401 | ) | (872,365 | ) | |||||||
Proceeds
from maturities of securities |
1,953,211 | 287,300 | |||||||||
Repayment
and advances to stockholders, net |
(7,273 | ) | 102,710 | ||||||||
Net cash
used in investing activities |
(2,034,469 | ) | (528,363 | ) | |||||||
Financing
activities: |
|||||||||||
Distributions to stockholders |
(1,650,129 | ) | (1,100,180 | ) | |||||||
Repayment of
long-term debt |
(827,462 | ) | (613,067 | ) | |||||||
Net cash
used in financing activities |
(2,477,591 | ) | (1,713,247 | ) | |||||||
Net increase
(decrease) in cash and cash equivalents |
(1,457,229 | ) | 2,237,493 | ||||||||
Cash and
cash equivalents at beginning of year |
8,135,128 | 9,073,683 | |||||||||
Cash and
cash equivalents at end of year |
$ | 6,677,899 | 11,311,176 |
See accompanying notes to condensed consolidated financial
statements.
T-17
TRIAD MINING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2005
(unaudited)
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Operations and Definitive Agreement to Sell the Outstanding Common Stock
(b) Principles of Consolidation
(c) Use of Estimates
(d) Cash and Cash Equivalents
(e) Available for Sale Securities
T-18
TRIAD MINING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2005
(unaudited)
(f) Inventories
(g) Property and Equipment
(h) Mine Development Costs
(i) Mineral Rights
(j) Income Taxes
(k) Allowance for Uncollectible Receivables
(l) Asset Impairment
(m) Revenue Recognition
(n) Advance Coal Royalty
T-19
TRIAD MINING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2005
(unaudited)
(o) Reclamation and Mine Closing Liabilities
(p) Derivatives
T-20
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