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| ICO > SEC Filings for ICO > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
Cautionary Note Regarding Forward-Looking Statements
Statements in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements within the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995 and may involve a number of risks and uncertainties. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project" and similar terms and phrases, including references to assumptions, in this report to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to various risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from our forward-looking statements:
• market demand for coal, electricity and steel;
• availability of qualified workers;
• future economic or capital market conditions;
• weather conditions or catastrophic weather-related damage;
• our production capabilities;
• consummation of financing, acquisition or disposition transactions and the effect thereof on our business;
• a significant number of conversions of our Convertible Senior Notes prior to maturity;
• our plans and objectives for future operations and expansion or consolidation;
• our relationships with, and other conditions affecting, our customers;
• availability and costs of key supplies or commodities such as diesel fuel, steel, explosives and tires;
• availability and costs of capital equipment;
• prices of fuels which compete with or impact coal usage, such as oil and natural gas;
• timing of reductions or increases in customer coal inventories;
• long-term coal supply arrangements;
• reductions and/or deferrals of purchases by major customers;
• risks in or related to coal mining operations, including risks related to third-party suppliers and carriers operating at our mines or complexes;
• unexpected maintenance and equipment failure;
• environmental, safety and other laws and regulations, including those directly affecting our coal mining and production, and those affecting our customers' coal usage;
• ability to obtain and maintain all necessary governmental permits and authorizations;
• competition among coal and other energy producers in the United States and internationally;
• railroad, barge, trucking and other transportation availability, performance and costs;
• employee benefits costs and labor relations issues;
• replacement of our reserves;
• our assumptions concerning economically recoverable coal reserve estimates;
• availability and costs of credit, surety bonds and letters of credit;
• title defects or loss of leasehold interests in our properties which could result in unanticipated costs or inability to mine these properties;
• future legislation and changes in regulations or governmental policies or changes in interpretations or enforcement thereof, including with respect to safety enhancements and environmental initiatives relating to global warming;
• impairment of the value of our long-lived and deferred tax assets;
• our liquidity, including the ability to adhere to financial covenants related to our borrowing arrangements, results of operations and financial condition;
• adequacy and sufficiency of our internal controls; and
• legal and administrative proceedings, settlements, investigations and claims and the availability of related insurance coverage.
You should keep in mind that any forward-looking statements made by us in this Quarterly Report on Form 10-Q or elsewhere speaks only as of the date on which the statements were made. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us or anticipated results. We have no duty to, and do not intend to, update or revise the forward-looking statements in this report after the date of this report, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this report might not occur. When considering these forward-looking statements, you should keep in mind the cautionary statements in this document and in our other SEC filings, including the more detailed discussion of these factors, as well as other factors that could affect our results, contained in Item 3, "Quantitative and Qualitative Disclosures About Market Risk," as well as in the "Risks Relating to Our Business" section of Item 1A of our 2008 Annual Report on Form 10-K.
RESULTS OF CONTINUING OPERATIONS
Three months ended September 30, 2009 compared to the three months ended September 30, 2008
Revenues, coal sales revenues by reportable segment and tons sold by reportable segment
The following table depicts revenues for the three months ended September 30, 2009 and 2008 for the indicated categories:
Three months ended Increase
September 30, (Decrease)
2009 2008 $ or Tons %
(in thousands, except percentages and per ton data)
Coal sales revenues $ 246,788 $ 282,250 $ (35,462 ) (13 )%
Freight and handling revenues 5,777 12,339 (6,562 ) (53 )%
Other revenues 44,057 14,610 29,447 202 %
Total revenues $ 296,622 $ 309,199 $ (12,577 ) (4 )%
Tons sold 4,136 4,794 (658 ) (14 )%
Coal sales revenue per ton $ 59.67 $ 58.87 $ 0.80 1 %
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The following table depicts coal sales revenues by reportable segment for the three months ended September 30, 2009 and 2008:
Three months ended Increase
September 30, (Decrease)
2009 2008 $ %
(in thousands, except percentages)
Central Appalachian $ 166,552 $ 198,812 $ (32,260 ) (16 )%
Northern Appalachian 48,951 52,531 (3,580 ) (7 )%
Illinois Basin 20,230 18,530 1,700 9 %
Ancillary 11,055 12,377 (1,322 ) (11 )%
Total coal sales revenues $ 246,788 $ 282,250 $ (35,462 ) (13 )%
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The following table depicts tons sold by reportable segment for the three months ended September 30, 2009 and 2008:
Three months ended Increase
September 30, (Decrease)
2009 2008 Tons %
(in thousands, except percentages)
Central Appalachian 2,463 3,022 (559 ) (18 )%
Northern Appalachian 904 918 (14 ) (2 )%
Illinois Basin 564 619 (55 ) (9 )%
Ancillary 205 235 (30 ) (13 )%
Total tons sold 4,136 4,794 (658 ) (14 )%
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Coal sales revenues-Coal sales revenues are derived from sales of produced coal and brokered coal contracts. Coal sales revenues decreased for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, primarily due to a 14% decrease in tons sold. Offsetting the decrease in tons sold was an increase in sales realization per ton resulting from favorable pricing on contracts entered into throughout 2008.
Central Appalachian. Coal sales revenues from our Central Appalachian segment for the three months ended September 30, 2009 decreased over the same period in 2008, primarily due to an 18% decrease in tons sold, largely driven by decreased spot market sales. Partially offsetting the decrease in tons sold was an increase in sales realization of $1.85 per ton, which was driven by higher average contract prices of our coal.
Northern Appalachian. For the three months ended September 30, 2009, our Northern Appalachian coal sales revenues decreased due to a decrease in sales realization of $3.07 per ton, principally resulting from a decrease in sales of high-priced metallurgical coal, as well as a 2% decrease in tons sold, primarily due to reduced spot market sales.
Illinois Basin. The increase in coal sales revenues from our Illinois Basin segment for the three months ended September 30, 2009 was primarily due to an increase in sales realization of $5.91 per ton, partially offset by a 9% decrease in tons sold.
Ancillary. Our Ancillary segment's coal sales revenues are comprised of coal sold under brokered coal contracts. For the three months ended September 30, 2009, our Ancillary coal sales revenues decreased 11% primarily, due to a 13% decrease in tons sold related to the expiration of certain coal supply agreements, as well as to decreased shipments on various remaining contracts. This decrease was partially offset by increased realization of $1.28 per ton sold.
Freight and handling revenues-Freight and handling revenues represent reimbursement of freight and handling costs for certain shipments for which we initially pay the costs and are then reimbursed by the customer. Freight and handling revenues and costs decreased for the three months ended September 30, 2009 compared to the comparable period of 2008 primarily due to a decrease in sales volumes. Additionally, transportation rates and fuel surcharges have decreased as a result of decreased fuel prices.
Other revenues-The increase in other revenues for the three months ended September 30, 2009 compared to the three months ended September 30, 2008 was mainly due to a $27.0 million payment received for early termination of two related coal supply agreements and lost margin on pre-termination shipments, and to the sale of a highwall mining system during the three months ended September 30, 2009. Partially offsetting these increases were decreases in coalbed methane and contract mining revenues.
Costs and expenses
The following table depicts cost of operations for the three months ended September 30, 2009 and 2008 for the indicated categories:
Three months ended Increase
September 30, (Decrease)
2009 2008 $ %
(in thousands, except percentages and per ton data)
Cost of coal sales $ 208,083 $ 240,204 $ (32,121 ) (13 )%
Freight and handling costs 5,777 12,339 (6,562 ) (53 )%
Cost of other revenues 12,724 9,690 3,034 31 %
Depreciation, depletion and 26,996
amortization 24,227 2,769 11 %
Selling, general and 5,351
administrative expenses 8,396 (3,045 ) (36 )%
(Gain) loss on sale of assets 2 (6,383 ) 6,385 *
Total costs and expenses $ 258,933 $ 288,473 $ (29,540 ) (10 )%
Cost of coal sales per ton $ 50.31 $ 50.10 $ 0.21 0 %
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* not meaningful
The following table depicts cost of coal sales by reportable segment for the three months ended September 30, 2009 and 2008:
Three months ended Increase
September 30, (Decrease)
2009 2008 $ %
(in thousands, except percentages)
Central Appalachian $ 140,854 $ 164,193 $ (23,339 ) (14 )%
Northern Appalachian 44,491 50,494 (6,003 ) (12 )%
Illinois Basin 15,453 15,921 (468 ) (3 )%
Ancillary 7,285 9,596 (2,311 ) (24 )%
Cost of coal sales $ 208,083 $ 240,204 $ (32,121 ) (13 )%
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Cost of coal sales-For the three months ended September 30, 2009, our cost of coal sales decreased compared to the three months ended September 30, 2008 primarily as a result of a 14% decrease in tons sold.
Central Appalachian. Cost of coal sales from our Central Appalachian segment decreased primarily due to a 18% decrease in tons sold. Offsetting the decrease in tons sold was an increase in cost of coal sales per ton from $54.32 per ton for the three months ended September 30, 2008 to $57.19 per ton for the three months ended September 30, 2009. The increase in cost of coal sales per ton is primarily due to increases in labor and benefit costs and royalties, taxes and fees. Labor and benefit costs increased on a per ton basis as a result of lower production volumes in 2009. Royalties, taxes and fees increased on a per ton basis for the three months ended September 30, 2009 due to increased sales realization on tons sold and increased royalty rates on certain leased reserves, as well as increased property tax obligations. Partially offsetting the increase in cost per ton was a decrease in fuel, lubricants and chemicals and contract labor costs.
Northern Appalachian. Our Northern Appalachian segment cost of coal sales decreased due to a 2% decrease in tons sold coupled with a decrease in cost of coal sales per ton from $55.00 per ton for the three months ended September 30, 2008 to $49.21 per ton for the three months ended September 30, 2009. The decrease in cost per ton was primarily due to decreases in fuel, lubricants and chemicals, transportation, drilling and blasting and various other direct costs as a result of more favorable commodity pricing and production cutbacks in response to the weak market demand. Offsetting these decreases in cost per ton were increases in labor and benefit costs and contract labor costs.
Illinois Basin. For the three months ended September 30, 2009, cost of coal sales decreased due to a 9% decrease in tons sold, offset by an increase in cost of coal sales of $1.66 per ton. Cost of coal sales per ton increased as a result of an increase in labor and benefit costs. Labor and benefits increased for the three months ended September 30, 2009 due to an increase in the number of employees over the three months ended September 30, 2008.
Ancillary. Cost of coal sales from our Ancillary segment decreased for the three months ended September 30, 2009 due to a 13% decrease in tons sold and a $5.27 decrease in cost per ton.
Cost of other revenues-For the three months ended September 30, 2009, cost of other revenues increased primarily due to costs related to the sale of a highwall mining system. The increase in cost of other revenues was partially offset by decreases in repairs and maintenance costs associated with our highwall mining activities and contract buyout payments that were made in the three months ended September 30, 2008, with no comparable costs in the three months ended September 30, 2009.
Depreciation, depletion and amortization-Depreciation, depletion and amortization expense increased for the three months ended September 30, 2009, primarily due to additional capital spending throughout 2008 and into 2009 and increased depletion expense resulting from increased mining of company-owned reserves. Additionally, amortization income decreased as contracted shipments on a below-market contract was terminated in 2009. These increases were partially offset by a decrease in amortization of coalbed methane well development costs.
Selling, general and administrative expenses-Selling, general and administrative expenses for the three months ended September 30, 2009 decreased primarily due to the favorable resolution of certain legal matters and the recovery of a potential bad debt.
Gain on sale of assets-Gain on sale of assets decreased for the three months ended September 30, 2009 due to a $3.6 million gain related to the sale of a used highwall mining system during the comparable period in 2008.
Adjusted EBITDA by reportable segment
Adjusted EBITDA represents earnings before deducting interest, income taxes, depreciation, depletion, amortization and noncontrolling interest. Adjusted EBITDA is presented because it is an important supplemental measure of our performance used by our chief operating decision maker in such areas as capital investment and allocation of resources. It is considered "adjusted" as we adjust EBITDA for noncontrolling interest. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. Adjusted EBITDA is reconciled to its most comparable GAAP measure on page 29 of this Quarterly Report on Form 10-Q and in Note 12 to our condensed consolidated financial statements for the three months ended September 30, 2009.
The following table depicts Adjusted EBITDA by reportable segment for the three months ended September 30, 2009 and 2008:
Three months ended Increase
September 30, (Decrease)
2009 2008 $ %
(in thousands, except percentages)
Central Appalachian $ 53,654 $ 36,779 $ 16,875 46 %
Northern Appalachian 5,795 3,796 1,999 53 %
Illinois Basin 5,170 3,924 1,246 32 %
Ancillary 66 454 (388 ) (85 )%
Total Adjusted EBITDA $ 64,685 $ 44,953 $ 19,732 44 %
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Central Appalachian. Adjusted EBITDA for the three months ended September 30, 2009 increased compared to the three months ended September 30, 2008 primarily due to a $27.0 million payment received for early termination of two related coal supply agreements and lost margin on pre-termination shipments. Partially offsetting this increase was a $1.02 per ton decrease in profit margins and 559,000 fewer tons sold.
Northern Appalachian. The increase in Adjusted EBITDA was due to increased profit margins of $2.72 per ton, offset by a decrease of approximately 14,000 tons sold.
Illinois Basin. Adjusted EBITDA increased during the three months ended September 30, 2009 resulting from an increase in sales realization of $5.91 per ton and a $1.66 increase in cost per ton, resulting in an increase in profit margins of $4.25 per ton.
Ancillary. The decrease in Adjusted EBITDA was primarily due to decreased revenue from coalbed methane wells and a decrease of approximately 30,000 tons sold related to the expiration of brokered coal contracts throughout 2008, as well as to decreased shipments on various remaining contracts. Partially offsetting these decreases were an increase in sales realization of $1.28 per ton and a $5.27 decrease in cost per ton, resulting in an increase in profit margin of $6.55 per ton.
Reconciliation of Adjusted EBITDA to net income (loss) by reportable segment
The following tables reconcile Adjusted EBITDA to net income (loss) by reportable segment for the three months ended September 30, 2009 and 2008:
Three months ended Increase
September 30, (Decrease)
2009 2008 $ %
(in thousands, except percentages)
Central Appalachian
Net income attributable to
International Coal Group, Inc. $ 29,339 $ 20,280 $ 9,059 45 %
Depreciation, depletion and
amortization 18,171 16,004 2,167 14 %
Interest expense, net 1,246 495 751 152 %
Income tax expense 4,898 - 4,898 100 %
Adjusted EBITDA $ 53,654 $ 36,779 $ 16,875 46 %
Three months ended Increase
September 30, (Decrease)
2009 2008 $ %
(in thousands, except percentages)
Northern Appalachian
Net income (loss) attributable
to International Coal Group, $ 1,078
Inc. $ (1,467 ) $ 2,545 *
Depreciation, depletion and 5,100
amortization 5,078 22 0 %
Interest expense, net 200 187 13 7 %
Income tax benefit (581 ) - (581 ) (100 )%
Noncontrolling interest (2 ) (2 ) - 0 %
Adjusted EBITDA $ 5,795 $ 3,796 $ 1,999 53 %
Three months ended Increase
September 30, (Decrease)
2009 2008 $ %
(in thousands, except percentages)
Illinois Basin
Net income attributable to $ 2,241
International Coal Group, Inc. $ 2,204 $ 37 2 %
Depreciation, depletion and 2,221
amortization 1,658 563 34 %
Interest expense, net 31 62 (31 ) (50 )%
Income tax expense 677 - 677 100 %
Adjusted EBITDA $ 5,170 $ 3,924 $ 1,246 32 %
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Three months ended Increase
September 30, (Decrease)
2009 2008 $ %
(in thousands, except percentages)
Ancillary
Net loss attributable to $ (13,942 )
International Coal Group, Inc. $ (11,693 ) $ (2,249 ) (19 )%
Depreciation, depletion and 1,504
amortization 1,487 17 1 %
Interest expense, net 11,932 8,711 3,221 37 %
Income tax expense 572 1,949 (1,377 ) (71 )%
Adjusted EBITDA $ 66 $ 454 $ (388 ) (85 )%
Three months ended Increase
September 30, (Decrease)
2009 2008 $ %
(in thousands, except percentages)
Consolidated
Net income attributable to $ 18,716
International Coal Group, Inc. $ 9,324 $ 9,392 101 %
Depreciation, depletion and 26,996
amortization 24,227 2,769 11 %
Interest expense, net 13,409 9,455 3,954 42 %
Income tax expense 5,566 1,949 3,617 186 %
Noncontrolling interest (2 ) (2 ) - 0 %
Adjusted EBITDA $ 64,685 $ 44,953 $ 19,732 44 %
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* not meaningful
RESULTS OF CONTINUING OPERATIONS
Nine months ended September 30, 2009 compared to the nine months ended September 30, 2008
Revenues, coal sales revenues by reportable segment and tons sold by reportable segment
The following table depicts revenues for the nine months ended September 30, 2009 and 2008 for the indicated categories:
Nine months ended Increase
September 30, (Decrease)
2009 2008 $ or Tons %
(in thousands, except percentages and per ton data)
Coal sales revenues $ 775,281 $ 761,963 $ 13,318 2 %
Freight and handling revenues 20,452 35,492 (15,040 ) (42 )%
Other revenues 83,652 41,554 42,098 101 %
Total revenues $ 879,385 $ 839,009 $ 40,376 5 %
Tons sold 12,996 14,502 (1,506 ) (10 )%
Coal sales revenue per ton $ 59.66 $ 52.54 $ 7.12 14 %
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The following table depicts coal sales revenues by reportable segment for the nine months ended September 30, 2009 and 2008:
Nine months ended Increase
September 30, (Decrease)
2009 2008 $ %
. . .
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