ASHLAND, Ky., Oct. 26 /PRNewswire/ -- International Coal Group today
reported that its results of operations for the quarter and nine months ended
September 30, 2005 improved significantly when compared to the results of
operations for the comparable periods last year for its predecessor, Horizon
Natural Resources. International Coal Group was organized by WL Ross & Co.
LLC to acquire the principal operations of then-bankrupt Horizon Natural
Resources on October 1, 2004.
Wilbur L. Ross, ICG's Chairman, said, "We continued to post solid year-
over-year gains and position ICG for even greater growth in the future. Our
revenue growth was strong without major volume increases and our investment in
the business is beginning to show results. While our third quarter margins
were adversely affected by commodity price increases and other short-term
effects, we remain optimistic for 2006 as the full effects of our investment
program are felt, recent cost pressures abate and revenues are favorably
impacted by tonnage increases, sales contract price reopeners and general
market improvement."
Highlights
ICG's results for the third quarter and nine months of 2005 compared to
those of its predecessor for the comparable periods in the prior year were:
-- Revenue was $158.4 million for the three months ended September 30,
2005, up 30% from $121.6 million in the third quarter of 2004;
-- Operating income was $14.7 million for the three months ended
September 30, 2005, up 237% from $4.4 million in the third quarter of
2004;
-- Net income was $8.6 million for the three months ended September 30,
2005, or $0.08 per share, versus a loss of $37.2 million, in the third
quarter of 2004;
-- Earnings before net interest, income taxes and depreciation, depletion
and amortization, or EBITDA, was $27.1 million for the three months
ended September 30, 2005, up 102% from $13.4 million in the third
quarter of 2004; and.
-- For the nine months ended September 30, 2005, revenue was $465.7
million, up 25% from $373.4 million; operating income was $51.1
million, up 193% from $17.4 million; net income was $28.6 million, or
$0.27 per share, versus a loss of $107.7 million and EBITDA was $83.4
million, up 47% from $56.6 million, in each case, from the comparable
period last year.
Third quarter and year-to-date profitability was affected by approximately
$1.2 million and $5.3 million, respectively, of non-cash costs associated with
initial restricted stock grants to senior management. Additionally, third
quarter costs were adversely impacted by significant price increases for
various commodities and services influenced by the recent price acceleration
of crude oil and natural gas -- a trend that was greatly exacerbated by the
Gulf hurricanes. These cost increases are expected to moderate over the
coming months but will nevertheless affect the balance of 2005. Management
presently expects that this margin compression will be substantially mitigated
in 2006 as the commodity cost pressure abates and revenues are favorably
impacted by sales contract price reopeners and general market improvement.
Bennett K. Hatfield, President and Chief Executive Officer of ICG, said
"Although we're pleased with the substantial performance improvement over last
year, our third quarter efforts fell short of internal expectations. Problem
areas included not only the fuel and explosives cost pressures that are
impacting the entire coal industry, but also short term geological issues and
permit delays at two of our East Kentucky operations. However, the 2006
outlook remains strong as we're expecting to have more production available
and a favorable market to service."
Quarter Business Developments
In other third quarter business developments, ICG announced the successful
startup of the new Flint Ridge mining complex in Breathitt County, Kentucky.
The preparation plant began processing coal for shipment in early August. The
Flint Ridge mining operations now include a deep mine, contour surface mine,
and highwall mining system. When full production is achieved in early 2006,
the Flint Ridge Complex is expected to produce approximately 2.0 million
annual tons of high quality coal for the utility market.
On September 27, ICG management was joined by West Virginia Governor Joe
Manchin and other dignitaries for a groundbreaking ceremony at the site of the
new corporate headquarters building near Charleston, West Virginia.
Construction of the 3-story, 51,000 square-feet office building, located at
the Teays Valley Business Park in the community of Scott Depot, is expected to
be complete in June of 2006.
In another mine development milestone, the company issued a request for
bids on shaft and slope facilities for the proposed Bay Hill Mine on Anker
property near Beckley, West Virginia. Site preparation for the mine portals
is expected to commence within the next 3 months. Startup is projected for
mid 2007 with targeted shipments of 1.1 million annual tons. The Bay Hill
Mine will produce low volatile metallurgical coal from the Pocahontas #3 Seam
for marketing to export and domestic steel producers.
Also during the third quarter, ICG signed a letter of intent to purchase
an East Kentucky property containing approximately 15 million tons of coal
reserves. The acquisition is expected to close during the fourth quarter with
initial coal production planned for early 2006.
ICG also provided an update on development of the joint coalbed methane
project previously announced between CoalQuest Development, LLC and CDX Gas,
LLC. The first production well site, located in Barbour County, West
Virginia, is now fully permitted and drilling is expected to begin in mid-
November. CoalQuest has exercised its right for 50% participation in
development of this well.
Capital Resources, Reserves, and Sales Commitments
At September 30, 2005, cash totaled $15.5 million and ICG had an
additional $42.1 million of unused borrowing capacity. Gross funded
indebtedness was $188.9 million while net debt was only $173.4 million, versus
net worth of $186.6 million. Capital expenditures totaled $32.7 million
during third quarter and $75.9 million for the nine months ending September
30, 2005.
ICG has filed a registration statement with the SEC to raise at least $250
million in a public offering. Net proceeds from the offering will be used to
retire substantially all debt and for general corporate purposes.
ICG has an estimated 510 million tons of reserves located principally in
West Virginia, Kentucky and Illinois. As of September 30, 2005, ICG had all
of its remaining planned production for 2005 committed, approximately 80% of
planned production in 2006 and approximately 50% of planned production in
2007.
Anker and CoalQuest acquisitions
In March 2005, International Coal agreed to acquire Anker Coal Group, Inc.
and CoalQuest Development, LLC. All conditions to closing the acquisitions
have been satisfied other than effectiveness of the related registration
statement. ICG expects to consummate the acquisitions during the fourth
quarter.
The transition period for implementation of various operational
improvements planned for Anker has taken longer than originally anticipated.
This extended transition resulted in decreased coal production and increased
production costs in the third quarter -- some of which are expected to
continue into the fourth quarter. Since these issues are temporary in nature,
and Anker's recent operating performance has markedly improved, 2006
production rates and profit margins are expected to be significantly higher.
Anker's revenue for the first nine months of 2005 totaled $120.1 million,
compared to $122.6 million for the comparable period last year. Its operating
loss and net loss were $17.4 million and $14.5 million, respectively, compared
to $4.7 million and $2.9 million for the prior period in 2004.
CoalQuest royalty income for the first nine months of 2005 totaled $0.9
million, compared to $1.4 million for the comparable period last year.
Operating income and net income were $0.6 million and $0.1 million,
respectively, compared to $0.9 and $0.5 for the prior period in 2004.
Basis of Reporting
The financial statements for the periods before International Coal Group's
acquisition of certain assets from Horizon Natural Resources and commencement
of operations on October 1, 2004 have been prepared on a "carve-out" basis to
include the assets, liabilities and results of operations of ICG that were
previously included in the consolidated financial statements of Horizon. The
financial statements for the predecessor periods include allocations of
certain expenses, taxation charges, interest and cash balances relating to the
predecessor based on management's estimates. The predecessor financial
information is not necessarily indicative of the consolidated financial
position, results of operations and cash flows of ICG if it had operated
during the predecessor periods presented.
General Information
ICG is a leading producer of coal in Central Appalachia and the Illinois
Basin. The company has five mining complexes in Central Appalachia and a
sixth mining complex in Central Illinois. ICG's mining operations and
reserves are strategically located to serve industrial and utility customers
in the southeast, northeast, and central United States.
The foregoing statements in this document which are not statements of
historical fact are forward-looking statements within the "safe harbor"
provision of the Private Securities Litigation Reform Act of 1995. Because
these forward-looking statements are subject to various risks and
uncertainties, actual results may differ materially from those implied in the
forward-looking statements. The following factors are among those that may
cause actual results to differ materially from the forward-looking statements:
market conditions for coal, electricity and steel; changes in legislation,
regulations and government policies affecting the coal industry and affecting
coal usage and changes in relationships with customers, transportation, a
variety of other operational, geologic, environmental, permitting, labor,
transportation, weather and market related factors. International Coal does
not intend to update or revise the forward-looking statements in this
document.
ICG, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT
For the Quarters and Nine Months Ended September 30, 2005 and 2004
(dollars in thousands)
Quarter Ended Nine Months Ended
September 30, September 30,
2005 2004(a) 2005 2004
Revenue $158,391 $121,580 $465,655 $373,383
Costs and expenses:
Cost of operations 125,737 104,801 359,998 306,429
Freight and Handling
costs 1,852 695 6,236 3,700
Depreciation, depletion
and amortization 11,182 8,544 29,489 27,547
Selling, general and
administrative 5,449 3,658 19,390 8,477
Writedowns and special
items - (500) - 10,018
Gain on sale of assets (561) 14 (518) (226)
Total costs and expenses 143,659 117,212 414,595 355,945
Income from operations 14,732 4,368 51,060 17,438
Interest and other income
(expense):
Interest expense, net (3,669) (38,488) (10,453) (114,211)
Reorganization Items - (4,097) - (12,471)
Other, net 1,222 1,010 2,847 1,581
Total interest and other
income (expense), net (2,447) (41,575) (7,606) (125,101)
Net income (loss) before
income taxes 12,285 (37,207) 43,454 (107,663)
Income Tax Expense (3,639) - (14,859) -
Net income (loss) $8,646 $(37,207) $28,595 $(107,663)
EBITDA(b) $27,136 $13,422 $83,396 $56,584
(a) ICG, Inc. began operations as International Coal Group, Inc. on
October 1, 2004 through an acquisition of assets from Horizon Natural
Resources. The Company changed its name to ICG, Inc. in April 2005 in
connection with its proposed acquisitions of Anker Coal Group, Inc. and
CoalQuest Development LLC. The financial statements for periods prior to
October 1,2004 have been prepared on a "carve-out" basis to include the
assets, liabilities and results of operations of ICG that were previously
included in the consolidated financial statements of Horizon. The financial
statements for the predecessor periods include allocations of certain
expenses, taxation charges, interest and cash balances relating to the
predecessor based on management's estimates. The predecessor financial
information is not necessarily indicative of the consolidated financial
position, results of operations and cash flows of ICG if it had operated
during the predecessor periods presented.
(b) This document includes certain non-GAAP financial measures as defined
by applicable SEC regulations. EBITDA represents net income before deducting
net interest expense, income taxes and depreciation, depletion and
amortization. We present EBITDA because we consider it an important
supplemental measure of our performance and believe it is frequently used by
securities analysts, investors and other interested parties in the evaluation
of companies in our industry, substantially all of which present EBITDA when
reporting their results. EBITDA is not and should not be used as a substitute
for operating income, net income and cash flow as determined in accordance
with generally accepted accounting principles. Management uses EBITDA, in
addition to cash flow from operations and net income, as a measure of
operating performance and also believes it is a useful indicator of its
ability to meet debt service and capital expenditure requirements. ICG's
method of calculating EBITDA may differ from methods used by other companies.
As a result, EBITDA may not be comparable to similarly titled measures
disclosed by other companies. New risks and uncertainties arise from time to
time, and it is impossible for ICG to predict these events or how they might
effect it. A reconciliation of EBITDA to GAAP net income appears at the end
of this document.
ICG, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2005
(dollars in thousands)
As of As of
September December
30, 2005 31, 2004
Assets
Current Assets
Cash and cash equivalents $15,534 $23,967
Accounts receivable 52,592 40,417
Inventories 20,472 13,943
Deferred income taxes 1,968 2,188
Prepaid expenses and other 7,981 13,041
Total current assets 98,547 93,556
Total property, plant and equipment, net 203,531 157,136
Debt issuance costs, net 7,284 7,865
Advanced royalties 5,691 5,424
Acquisition costs 3,181 10,740
Goodwill 187,680 173,206
Other non-current assets, net 12,575 12,048
Total assets $518,489 $459,975
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $36,131 $21,250
Current portion of long-term debt and
capital leases 1,997 6,022
Accrued interest 2,040 2,467
Current portion of reclamation and mine
closure 2,682 2,682
Income taxes payable 161 2,232
Accrued expenses and other 34,883 31,387
Total current liabilities 77,894 66,040
Non-current liabilities, less current
portion
Long-term debt and capital leases 186,938 173,446
Reclamation and mine closure 39,432 40,616
Other non-current liabilities 27,652 25,473
Total non-current liabilities 254,022 239,535
Total liabilities 331,916 305,575
Stockholders' equity
Common stock 11 11
Additional capital 158,850 150,140
Unearned compensation - restricted stock (5,132) -
Retained earnings 32,844 4,249
Total stockholders' equity 186,573 154,400
Total liabilities and stockholders' equity $518,489 $459,975
ICG, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Quarters and Nine months Ended September 30, 2005 and 2004
(dollars in thousands)
Quarter Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Cash flows from operating
activities:
Net income (loss) $8,646 $(37,207) $28,595 $(107,663)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation, depletion
and amortization 11,182 8,544 29,489 27,547
Depreciation, depletion
and amortization from
affiliates - 127 - 127
Stock Compensation 724 - 3,378 -
Amortization of finance
costs included in
interest expense 290 - 838 1,437
(Gain) on sale of assets (561) 14 (518) (226)
Deferred income taxes (3,148) - (260) -
Gain on lease buyout
options - - - (7,736)
Write downs and special
items - (500) - 17,754
Provision for doubtful
accounts - 247 - 247
Changes in assets and liabilities
(Increase) decrease in:
Receivables, trade (4,896) (6,807) (12,175) (10,706)
Inventories 1,414 (1,125) (6,529) (4,242)
Prepaid expenses 3,809 1,866 5,059 7,971
Other non-current assets (4,034) (183) (7,529) 477
Increase (decrease) in:
Accounts payable 5,831 12,488 14,878 21,680
Accrued expenses (675) 16,097 3,069 85,520
Accrued income taxes 161 - (2,071) -
Other liabilities 449 (1,281) 996 (4,102)
Total adjustments 10,546 29,487 28,625 135,748
Net cash provided by (used in)
operating activities 19,192 (7,720) 57,220 28,085
Cash flows from investing
activities
Net proceeds from the sale
of assets 575 12 575 4,089
Net proceeds on lease buyout
option - - - 7,736
Additions to property, plant
and equipment and mine
development (32,717) (3,153) (75,941) (6,624)
(Deposits) withdrawals
of/from restricted cash 2,336 (253) 302 (1,764)
Net cash used in investing
activities (29,806) (3,394) (75,064) 3,437
Cash flows from financing
activities:
Net (repayments) on short-
term debt (646) 89 (3,756) (4,698)
Net (repayments) on long-
term debt (905) - (1,343) -
Net borrowings on
revolving line of credit 15,000 - 15,000 -
Net (repayments) on debtor-
in-possession financing - 9,976 - (27,080)
Proceeds from issuance of
common stock 200 - 200 -
Deferred finance costs (137) - (257) -
Repayments on capital
leases (56) (186) (433) (603)
Net cash provided by (used in)
financing activities 13,456 9,879 9,411 (32,381)
Net increase (decrease) in cash
and cash equivalents 2,842 (1,235) (8,433) (859)
Cash and cash equivalents,
beginning of period 12,692 1,235 23,967 859
Cash and cash equivalents, end
of period $15,534 $- $15,534 $-
ICG, INC.
Reconciliation of EBITDA to Net Income
for the Quarters and Nine months Ended September 30, 2005 and 2004
(unaudited)
(dollars in thousands)
Quarter Ended Nine Months Ended
September 30, September 30,
2005 2004(a) 2005 2004
EBITDA $27,136 $13,422 $83,396 $56,584
Depreciation Depletion
and Amortization (11,182) (8,544) (29,489) (27,547)
Interest Expense (3,669) (38,488) (10,453) (114,211)
Reorganization items - (4,097) - (12,471)
Write downs and special
items - 500 - (10,018)
Income Tax Expense (3,639) - (14,859) -
Net income (loss) $8,646 $(37,207) $28,595 $(107,663)