frm10-q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form 10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2009
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period
from
to
Commission
File No. 001-32679
International
Coal Group, Inc.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
|
|
20-2641185
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
300
Corporate Centre Drive
Scott
Depot, West Virginia
|
|
25560
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
(304) 760-2400
(Registrant’s
Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such
files). Yes ¨
No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer x
Accelerated filer
¨ Non-accelerated filer ¨ Smaller
reporting company
¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS:
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court. Yes ¨
No ¨
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Number
of shares of the Registrant’s Common Stock, $0.01 par value, outstanding as of
November 1, 2009—154,154,964.
TABLE
OF CONTENTS
2
|
Condensed
Consolidated Financial Statements
|
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets (Unaudited)
(Dollars
in thousands, except per share amounts)
|
|
September
30,
2009
|
|
|
December 31,
2008
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
97,660
|
|
|
$
|
63,930
|
|
Accounts
receivable, net of allowances of $222 and $1,516
|
|
|
80,005
|
|
|
|
75,321
|
|
Inventories,
net
|
|
|
78,576
|
|
|
|
58,788
|
|
Deferred
income taxes
|
|
|
16,817
|
|
|
|
17,649
|
|
Prepaid
insurance
|
|
|
3,020
|
|
|
|
13,380
|
|
Income
taxes receivable
|
|
|
11
|
|
|
|
8,030
|
|
Prepaid
expenses and other
|
|
|
8,834
|
|
|
|
10,893
|
|
Total
current assets
|
|
|
284,923
|
|
|
|
247,991
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT, EQUIPMENT AND MINE DEVELOPMENT, net
|
|
|
1,039,934
|
|
|
|
1,069,297
|
|
DEBT
ISSUANCE COSTS, net
|
|
|
9,576
|
|
|
|
10,462
|
|
ADVANCE
ROYALTIES, net
|
|
|
18,061
|
|
|
|
17,462
|
|
OTHER
NON-CURRENT ASSETS
|
|
|
6,701
|
|
|
|
5,435
|
|
Total
assets
|
|
$
|
1,359,195
|
|
|
$
|
1,350,647
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
56,665
|
|
|
$
|
75,810
|
|
Short-term
debt
|
|
|
269
|
|
|
|
4,741
|
|
Current
portion of long-term debt and capital lease
|
|
|
17,998
|
|
|
|
15,319
|
|
Current
portion of reclamation and mine closure costs
|
|
|
10,118
|
|
|
|
11,139
|
|
Current
portion of employee benefits
|
|
|
3,359
|
|
|
|
3,359
|
|
Accrued
expenses and other
|
|
|
72,026
|
|
|
|
87,704
|
|
Total
current liabilities
|
|
|
160,435
|
|
|
|
198,072
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT AND CAPITAL LEASE
|
|
|
426,223
|
|
|
|
417,551
|
|
RECLAMATION
AND MINE CLOSURE COSTS
|
|
|
69,812
|
|
|
|
68,107
|
|
EMPLOYEE
BENEFITS
|
|
|
69,553
|
|
|
|
61,194
|
|
DEFERRED
INCOME TAXES
|
|
|
56,489
|
|
|
|
49,403
|
|
BELOW-MARKET
COAL SUPPLY AGREEMENTS
|
|
|
30,589
|
|
|
|
43,888
|
|
OTHER
NON-CURRENT LIABILITIES
|
|
|
4,001
|
|
|
|
6,195
|
|
Total
liabilities
|
|
|
817,102
|
|
|
|
844,410
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
|
|
|
Preferred
stock – par value $0.01, 200,000,000 shares authorized, none
issued
|
|
|
—
|
|
|
|
—
|
|
Common
stock – par value $0.01, 2,000,000,000 shares authorized, 154,159,183 and
154,151,862 shares issued and outstanding, respectively, as of September
30, 2009 and 153,322,245 shares issued and outstanding, as of December 31,
2008
|
|
|
1,542
|
|
|
|
1,533
|
|
Treasury
stock
|
|
|
(14
|
)
|
|
|
—
|
|
Additional
paid-in capital
|
|
|
659,955
|
|
|
|
656,997
|
|
Accumulated
other comprehensive loss
|
|
|
(5,028
|
)
|
|
|
(5,157
|
)
|
Retained
deficit
|
|
|
(114,380
|
)
|
|
|
(147,171
|
)
|
Total
International Coal Group, Inc. stockholders’ equity
|
|
|
542,075
|
|
|
|
506,202
|
|
Noncontrolling
interest
|
|
|
18
|
|
|
|
35
|
|
Total
stockholders’ equity
|
|
|
542,093
|
|
|
|
506,237
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
1,359,195
|
|
|
$
|
1,350,647
|
|
See
notes to condensed consolidated financial statements.
3
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Operations (Unaudited)
(Dollars
in thousands, except per share amounts)
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
sales revenues
|
|
$
|
246,788
|
|
|
$
|
282,250
|
|
|
$
|
775,281
|
|
|
$
|
761,963
|
|
Freight
and handling revenues
|
|
|
5,777
|
|
|
|
12,339
|
|
|
|
20,452
|
|
|
|
35,492
|
|
Other
revenues
|
|
|
44,057
|
|
|
|
14,610
|
|
|
|
83,652
|
|
|
|
41,554
|
|
Total
revenues
|
|
|
296,622
|
|
|
|
309,199
|
|
|
|
879,385
|
|
|
|
839,009
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of coal sales
|
|
|
208,083
|
|
|
|
240,204
|
|
|
|
647,372
|
|
|
|
666,598
|
|
Freight
and handling costs
|
|
|
5,777
|
|
|
|
12,339
|
|
|
|
20,452
|
|
|
|
35,492
|
|
Cost
of other revenues
|
|
|
12,724
|
|
|
|
9,690
|
|
|
|
28,690
|
|
|
|
27,847
|
|
Depreciation,
depletion and amortization
|
|
|
26,996
|
|
|
|
24,227
|
|
|
|
79,294
|
|
|
|
70,878
|
|
Selling,
general and administrative
|
|
|
5,351
|
|
|
|
8,396
|
|
|
|
24,632
|
|
|
|
27,051
|
|
(Gain)
loss on sale of assets, net
|
|
|
2
|
|
|
|
(6,383
|
)
|
|
|
(3,184
|
)
|
|
|
(32,675
|
)
|
Total
costs and expenses
|
|
|
258,933
|
|
|
|
288,473
|
|
|
|
797,256
|
|
|
|
795,191
|
|
Income from
operations
|
|
|
37,689
|
|
|
|
20,726
|
|
|
|
82,129
|
|
|
|
43,818
|
|
INTEREST
EXPENSE, net
|
|
|
(13,409
|
)
|
|
|
(9,455
|
)
|
|
|
(39,641
|
)
|
|
|
(30,819
|
)
|
Income before
income taxes
|
|
|
24,280
|
|
|
|
11,271
|
|
|
|
42,488
|
|
|
|
12,999
|
|
INCOME
TAX EXPENSE
|
|
|
(5,566
|
)
|
|
|
(1,949
|
)
|
|
|
(9,674
|
)
|
|
|
(1,815
|
)
|
Net
income
|
|
|
18,714
|
|
|
|
9,322
|
|
|
|
32,814
|
|
|
|
11,184
|
|
Net
(income) loss attributable to noncontrolling interest
|
|
|
2
|
|
|
|
2
|
|
|
|
(23
|
)
|
|
|
(3
|
)
|
Net
income attributable to International Coal Group, Inc.
|
|
$
|
18,716
|
|
|
$
|
9,324
|
|
|
$
|
32,791
|
|
|
$
|
11,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
|
$
|
0.06
|
|
|
$
|
0.21
|
|
|
$
|
0.07
|
|
Diluted
|
|
$
|
0.12
|
|
|
$
|
0.06
|
|
|
$
|
0.21
|
|
|
$
|
0.07
|
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
152,998,598
|
|
|
|
152,761,955
|
|
|
|
152,869,195
|
|
|
|
152,587,831
|
|
Diluted
|
|
|
155,214,868
|
|
|
|
153,025,680
|
|
|
|
154,289,039
|
|
|
|
152,745,474
|
|
See
notes to condensed consolidated financial statements.
4
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(Dollars
in thousands)
|
|
Nine
months ended
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
32,814
|
|
|
$
|
11,184
|
|
Adjustments
to reconcile net income to net cash from operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
79,294
|
|
|
|
70,878
|
|
Amortization
of deferred finance costs and debt discount
|
|
|
5,183
|
|
|
|
4,559
|
|
Provision
for bad debt
|
|
|
(1,294
|
)
|
|
|
(522
|
)
|
Compensation
expense on equity instruments
|
|
|
2,967
|
|
|
|
3,216
|
|
Gain
on sale of assets, net
|
|
|
(3,184
|
)
|
|
|
(32,675
|
)
|
Deferred
income taxes
|
|
|
8,416
|
|
|
|
1,680
|
|
Amortization
of accumulated postretirement benefit obligation
|
|
|
216
|
|
|
|
323
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(3,390
|
)
|
|
|
(33,337
|
)
|
Inventories
|
|
|
(19,788
|
)
|
|
|
(7,172
|
)
|
Prepaid
expenses and other
|
|
|
20,438
|
|
|
|
3,007
|
|
Other
non-current assets
|
|
|
246
|
|
|
|
1,969
|
|
Accounts
payable
|
|
|
(14,779
|
)
|
|
|
5,625
|
|
Accrued
expenses and other
|
|
|
(15,798
|
)
|
|
|
13,492
|
|
Reclamation
and mine closure costs
|
|
|
1,231
|
|
|
|
(1,961
|
)
|
Other
liabilities
|
|
|
(1,532
|
)
|
|
|
4,202
|
|
Net
cash from operating activities
|
|
|
91,040
|
|
|
|
44,468
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from the sale of assets
|
|
|
3,218
|
|
|
|
8,688
|
|
Additions
to property, plant, equipment and mine development
|
|
|
(48,695
|
)
|
|
|
(93,632
|
)
|
Cash
paid related to acquisitions and net assets acquired
|
|
|
—
|
|
|
|
(603
|
)
|
(Deposits)
withdrawals of restricted cash
|
|
|
(1,535
|
)
|
|
|
18
|
|
Net
cash from investing activities
|
|
|
(47,012
|
)
|
|
|
(85,529
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayments
on short-term debt
|
|
|
(4,472
|
)
|
|
|
—
|
|
Borrowings
on long-term debt and capital lease
|
|
|
9,086
|
|
|
|
—
|
|
Repayments
on long-term debt and capital lease
|
|
|
(13,682
|
)
|
|
|
(3,828
|
)
|
Purchases
of treasury stock
|
|
|
(14
|
)
|
|
|
—
|
|
Proceeds
from stock options exercised
|
|
|
—
|
|
|
|
149
|
|
Debt
issuance costs
|
|
|
(1,216
|
)
|
|
|
(188
|
)
|
Net
cash from financing activities
|
|
|
(10,298
|
)
|
|
|
(3,867
|
)
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
33,730
|
|
|
|
(44,928
|
)
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
63,930
|
|
|
|
107,150
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
97,660
|
|
|
$
|
62,222
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest (net of amount capitalized)
|
|
$
|
43,292
|
|
|
$
|
35,859
|
|
Cash
received for income taxes, net
|
|
$
|
7,164
|
|
|
$
|
—
|
|
Supplemental
disclosure of non-cash items:
|
|
|
|
|
|
|
|
|
Purchases
of property, plant, equipment and mine development through accounts
payable
|
|
$
|
8,576
|
|
|
$
|
13,481
|
|
Purchases
of property, plant, equipment and mine development through financing
arrangements
|
|
$
|
12,866
|
|
|
$
|
17,294
|
|
Assets
acquired through assumption of liabilities
|
|
$
|
—
|
|
|
$
|
17,464
|
|
Assets
acquired through the exchange of coal reserves
|
|
$
|
—
|
|
|
$
|
22,608
|
|
See
notes to condensed consolidated financial statements.
5
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
(1)
Basis of Presentation
The
accompanying interim condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial reporting and include the
accounts of International Coal Group, Inc. and its subsidiaries (the “Company”)
and its controlled affiliates. Significant intercompany transactions, profits
and balances have been eliminated in consolidation. The Company accounts for its
undivided interest in coalbed methane wells using the proportionate
consolidation method, whereby its share of assets, liabilities, revenues and
expenses are included in the appropriate classification in the financial
statements.
The
accompanying interim condensed consolidated financial statements as of September
30, 2009 and for the three and nine months ended September 30, 2009 and
2008, and the notes thereto, are unaudited. However, in the opinion of
management, these financial statements reflect all normal, recurring adjustments
necessary for a fair presentation of the results of the periods presented. The
balance sheet information as of December 31, 2008 has been derived from the
Company’s audited consolidated balance sheet. These statements should be read in
conjunction with the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2008. The results of operations for the three and nine
months ended September 30, 2009 are not necessarily indicative of the
results to be expected for future quarters or for the year ending
December 31, 2009.
(2)
Summary of Significant Accounting Policies and General
Fair Value Measurements—In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and
Disclosures (“ASC 820”). ASC 820 clarified the definition of fair value,
established a framework for measuring fair value and expanded the disclosures on
fair value measurements. Additionally, ASC 820 permitted delayed adoption for
certain non-financial assets and liabilities, which are not recognized at fair
value on a recurring basis, until fiscal years, and interim periods within those
fiscal years, beginning after November 15, 2008. ASC 820 demonstrated how
the fair value of a financial asset is determined when the market for that
financial asset is inactive, provided guidance on estimating fair value when the
volume and level of activity for an asset or liability have significantly
decreased in relation to normal market activity for the asset or liability and
provided guidance on circumstances that may indicate that a transaction is not
orderly. ASC 820 is effective for fiscal years beginning after November 15,
2007. Adoption of ASC 820 did not have a material impact on the Company’s
financial position, results of operations or cash flows.
Convertible Debt—In May 2008,
the FASB issued ASC Subtopic 470-20, Debt with Conversion and Other
Options (“ASC 470-20”). ASC 470-20 required the liability and equity
components of convertible debt instruments that may be settled in cash upon
conversion to be separately accounted for in a manner that reflects the issuer’s
nonconvertible debt borrowing rate. To allocate the proceeds from a convertible
debt offering in this manner, a company determines the carrying amount of the
liability component, which is based on the fair value of a similar liability,
excluding any embedded conversion options. The resulting debt discount is
amortized as additional non-cash interest expense over the period during which
the debt is expected to be outstanding. ASC 470-20 was effective for financial
statements for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years, and has been applied retrospectively for all
periods presented. The Company has determined its non-convertible borrowing rate
would have been 11.7% at issuance. The effect of adoption of ASC 470-20 was as
follows:
6
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
|
|
December
31, 2008
|
|
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As
Adjusted
|
|
Property,
plant, equipment and mine development
|
|
$
|
1,068,146
|
|
|
$
|
1,151
|
|
|
$
|
1,069,297
|
|
Debt
issuance costs, net
|
|
|
10,635
|
|
|
|
(173
|
)
|
|
|
10,462
|
|
Total
assets
|
|
|
1,349,669
|
|
|
|
978
|
|
|
|
1,350,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt and capital lease
|
|
|
434,920
|
|
|
|
(17,369
|
)
|
|
|
417,551
|
|
Deferred
tax liability
|
|
|
42,468
|
|
|
|
6,935
|
|
|
|
49,403
|
|
Total
liabilities
|
|
|
854,844
|
|
|
|
(10,434
|
)
|
|
|
844,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
643,480
|
|
|
|
13,517
|
|
|
|
656,997
|
|
Retained
deficit
|
|
|
(145,066
|
)
|
|
|
(2,105
|
)
|
|
|
(147,171
|
)
|
Total
International Coal Group, Inc. stockholders’ equity
|
|
|
494,790
|
|
|
|
11,412
|
|
|
|
506,202
|
|
Total
liabilities and stockholders’ equity
|
|
|
1,349,669
|
|
|
|
978
|
|
|
|
1,350,647
|
|
|
|
Three
months ended
September
30, 2008
|
|
|
Nine
months ended
September
30, 2008
|
|
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As
Adjusted
|
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As
Adjusted
|
|
Interest expense,
net
|
|
$
|
(8,837
|
)
|
|
$
|
(618
|
)
|
|
$
|
(9,455
|
)
|
|
$
|
(29,019
|
)
|
|
$
|
(1,800
|
)
|
|
$
|
(30,819
|
)
|
Income
tax expense
|
|
|
(2,183
|
)
|
|
|
234
|
|
|
|
(1,949
|
)
|
|
|
(2,496
|
)
|
|
|
681
|
|
|
|
(1,815
|
)
|
Net
income attributable to International Coal Group, Inc.
|
|
|
9,708
|
|
|
|
(384
|
)
|
|
|
9,324
|
|
|
|
12,300
|
|
|
|
(1,119
|
)
|
|
|
11,181
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
0.06
|
|
|
$
|
—
|
|
|
$
|
0.06
|
|
|
$
|
0.08
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.07
|
|
Business Combinations—In
December 2007, the FASB issued ASC Topic 805, Business Combinations (“ASC
805”). ASC 805 will significantly change the accounting for business
combinations. Under ASC 805, an acquiring entity will be required to recognize
all the assets acquired and liabilities assumed in a transaction at the
acquisition-date fair value with limited exceptions. ASC 805 will change the
accounting treatment for certain specific acquisition-related items including:
(i) expensing acquisition-related costs as incurred, (ii) valuing
noncontrolling interests at fair value at the acquisition date and
(iii) expensing restructuring costs associated with an acquired business.
ASC 805 also includes a substantial number of new disclosure requirements. ASC
805 is to be applied to any business combination for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. Adoption of ASC 805 will impact the accounting
for the Company’s future business combinations, as well as for tax uncertainties
and valuation allowances from prior acquisitions.
7
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
Noncontrolling Interests—In
December 2007, the FASB issued ASC Topic 810, Consolidation (“ASC 810”).
ASC 810 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary
(minority interest) is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements and
separate from the parent company’s equity. Among other requirements, this
statement requires consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the noncontrolling
interest. It also requires disclosure, on the face of the consolidated statement
of operations, of the amounts of consolidated net income attributable to the
parent and to the noncontrolling interest. ASC 810 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Adoption of ASC 810 impacted the presentation of
noncontrolling interest in the Company’s balance sheets and statements of
operations and cash flows. The impact of the changes in presentation was not
material.
Derivative Instruments—In
March 2008, the FASB issued ASC Topic 815, Derivatives and Hedging
(“ASC 815”). ASC 815 requires additional disclosures for derivative
instruments and hedging activities that include how and why an entity uses
derivatives, how these instruments and the related hedged items are accounted
for under ASC 815, and related interpretations, and how derivative instruments
and related hedged items affect the entity’s financial position, results of
operations and cash flows. ASC 815 is effective for fiscal years, and interim
periods within those fiscal years, beginning after November 15, 2008.
Adoption of ASC 815 did not impact the footnotes accompanying the Company’s
consolidated financial statements.
Share-Based Payments—In June
2008, the FASB issued ASC Topic 260, Earnings Per Share (“ASC
260”). ASC 260 clarifies that all outstanding unvested share-based payment
awards that contain rights to nonforfeitable dividends participate in
undistributed earnings with common shareholders. Awards of this nature are
considered participating securities and the two-class method of computing basic
and diluted earnings per share must be applied. ASC 260 is effective for fiscal
years beginning after December 15, 2008. Adoption of ASC 260 did not have a
material impact on the Company’s financial position, results of operations or
cash flows.
Financial Instruments—In June
2008, the FASB ratified ASC Subtopic 815-40, Contracts in Entity’s Own
Equity (“ASC 815-40”). ASC 815-40 provides that an entity should use a
two-step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the
instrument’s contingent exercise and settlement provisions. It also clarifies
the impact of foreign currency denominated strike prices and market-based
employee stock option valuation instruments on the evaluation. ASC 815-40 is
effective for fiscal years beginning after December 15, 2008. Adoption of ASC
815-40 did not have a material impact on the Company’s financial position,
results of operations or cash flows.
Impairments—In April 2009, the
FASB issued ASC Topic 320,
Investments–Debt and Equity Securities (“ASC 320”). ASC 320 modifies the
other-than-temporary impairment guidance for debt securities through increased
consistency in the timing of impairment recognition and enhanced disclosures
related to the credit and noncredit components of impaired debt securities that
are not expected to be sold. In addition, increased disclosures are required for
both debt and equity securities regarding expected cash flows, credit losses and
an aging of securities with unrealized losses. ASC 320 is effective for interim
and annual reporting periods that end after June 15, 2009. Adoption of ASC 320
did not impact the Company’s financial position, results of operations or cash
flows.
8
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
Fair Value Instruments—In
April 2009, the FASB issued ASC Topic 825, Financial Instruments (“ASC
825”). ASC 825 requires fair value disclosures for financial instruments that
are not reflected in the condensed consolidated balance sheets at fair value to
be disclosed on a quarterly basis, providing quantitative and qualitative
information about fair value estimates. ASC 825 is effective for interim
reporting periods ending after June 15, 2009. Adoption of ASC 825 did not impact
the Company’s financial position, results of operations or cash flows; however,
adoption did result in additional information being included in the footnotes
accompanying the Company’s consolidated financial statements. See Note
9.
Subsequent Events—In May 2009,
the FASB issued ASC Topic 855,
Subsequent Events (“ASC 855”). ASC 855 establishes principles and
requirements for events that occur after the balance sheet date, but before the
issuance of the financial statements. ASC 855 requires disclosure of the date
through which subsequent events have been evaluated and disclosure of certain
non-recognized subsequent events. ASC 855 is effective for interim and annual
periods ending after June 15, 2009. Adoption of ASC 855 did not have a material
impact on the Company’s financial position, results of operations or cash
flows.
Variable Interest Entities—In
June 2009, the FASB issued ASC Topic 810, Consolidation (“ASC 810”) to
improve financial reporting by enterprises involved with variable interest
entities and to provide more relevant and reliable information to users of
financial statements. ASC 810 is effective as of the first fiscal year beginning
after November 15, 2009. The Company does not believe that adoption of ASC
810 will materially impact its financial position, results of operations or cash
flows.
FASB Codification—In
June 2009, the FASB issued ASC Topic 105, Generally Accepted Accounting
Principles (“ASC 105”). ASC 105 makes the FASB Accounting Standards
Codification the single source of authoritative U.S. accounting and reporting
standards, but it does not change U.S. generally accepted accounting principles.
ASC 105 is effective for interim and annual periods ending after
September 15, 2009. Adoption of ASC 105 did not have a material impact on
the Company’s financial condition, results of operations or cash
flows.
Corporate Vacation Policy—In
June 2009, the Company changed its policy related to when employees are credited
with vacation time. Under the original policy, employees earned their vacation
in the year prior to vesting, and were vested with 100% of their annual vacation
time on January 1st of
each year. Under the revised policy, employees are vested in their
vacation time ratably throughout the year as it is earned. If the Company
continued to account for vacation under the old policy, it would have recognized
additional cost of coal sales, cost of other revenues and selling, general and
administrative expenses of $1,775, $102 and $113, respectively, for the three
months ended September 30, 2009 and $5,323, $332 and $381, respectively, for the
nine months ended September 30, 2009.
9
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
(3) Inventories
Inventories
consisted of the following:
|
|
September
30,
2009
|
|
|
December 31,
2008
|
|
Coal
|
|
$
|
46,322
|
|
|
$
|
28,436
|
|
Parts
and supplies
|
|
|
34,305
|
|
|
|
32,159
|
|
Reserve
for obsolescence–parts and supplies
|
|
|
(2,051
|
)
|
|
|
(1,807
|
)
|
Total
|
|
$
|
78,576
|
|
|
$
|
58,788
|
|
(4) Property,
Plant, Equipment and Mine Development
Property,
plant, equipment and mine development are summarized by major classification as
follows:
|
|
September
30,
2009
|
|
|
December 31,
2008
|
|
Coal
lands and mineral rights
|
|
$
|
586,508
|
|
|
$
|
586,512
|
|
Plant
and equipment
|
|
|
604,719
|
|
|
|
571,083
|
|
Mine
development
|
|
|
193,576
|
|
|
|
181,876
|
|
Land
and land improvements
|
|
|
24,569
|
|
|
|
24,119
|
|
Coalbed
methane well development costs
|
|
|
14,889
|
|
|
|
14,889
|
|
|
|
|
1,424,261
|
|
|
|
1,378,479
|
|
Less
accumulated depreciation, depletion and amortization
|
|
|
(384,327
|
)
|
|
|
(309,182
|
)
|
Net
property, plant, equipment and mine development
|
|
$
|
1,039,934
|
|
|
$
|
1,069,297
|
|
Depreciation,
depletion and amortization expense related to property, plant, equipment and
mine development was $27,431 and $25,852 for the three months
ended September 30, 2009 and 2008, respectively, and $84,864 and $77,959
for the nine months ended September 30, 2009 and 2008,
respectively.
In
June 2008, the Company exchanged coal reserves with a third-party. In
addition to reserves, the Company received $3,000 in cash. As a result, the
Company recognized a pre-tax gain of $24,633 based upon the fair value of the
underlying assets received in the exchange, which is included in gain on sale of
assets in its statement of operations for the nine months ended September 30,
2008. Additionally, in September 2008, the Company exchanged certain
property resulting in the recognition of a $975 pre-tax gain based upon the fair
value of the underlying assets given up in the exchange. The gain is included in
gain on sale of assets in the Company’s statement of operations for the three
and nine months ended September 30, 2008.
10
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
(5)
Debt
Long-Term
Debt and Capital Lease
Long-term
debt and capital lease consisted of the following:
|
|
September
30,
2009
|
|
|
December 31,
2008
|
|
9.00%
Convertible Senior Notes, due 2012, net of debt discount of $14,287 and $17,369,
respectively
|
|
$
|
210,713
|
|
|
$
|
207,631
|
|
10.25%
Senior Notes, due 2014
|
|
|
175,000
|
|
|
|
175,000
|
|
Equipment
notes
|
|
|
54,566
|
|
|
|
43,378
|
|
Capital
lease and other
|
|
|
3,942
|
|
|
|
6,861
|
|
Total
|
|
|
444,221
|
|
|
|
432,870
|
|
Less
current portion
|
|
|
(17,998
|
)
|
|
|
(15,319
|
)
|
Long-term
debt and capital lease
|
|
$
|
426,223
|
|
|
$
|
417,551
|
|
Convertible senior notes—In
2007, the Company completed a private offering of $225,000 aggregate principal
amount of 9.00% Convertible Senior Notes (the “Convertible Notes”) due 2012. The
Convertible Notes are the Company’s senior unsecured obligations and are
guaranteed on a senior unsecured basis by the Company’s material current and
future domestic subsidiaries. The Convertible Notes and the related guarantees
rank equal in right of payment to all of the Company’s and the guarantors’
respective existing and future unsecured senior indebtedness. Interest is
payable semi-annually in arrears on February 1st and
August 1st of
each year. The Company assesses the convertibility of the Convertible Notes on
an ongoing basis. The Convertible Notes were not convertible as of
September 30, 2009.
The
principal amount of the Convertible Notes is payable in cash and amounts above
the principal amount, if any, will be convertible into shares of the Company’s
common stock or, at the Company’s option, cash. The Convertible Notes are
convertible at an initial conversion price, subject to adjustment, of $6.10 per
share (approximating 163.8136 shares per one thousand dollar principal amount of
the Convertible Notes). The Convertible Notes are convertible upon the
occurrence of certain events, including (i) prior to February 12, 2012
during any calendar quarter after September 30, 2007, if the closing sale
price per share of the Company’s common stock for each of 20 or more trading
days in a period of 30 consecutive trading days ending on the last trading day
of the immediately preceding calendar quarter exceeds 130% of the conversion
price in effect on the last trading day of the immediately preceding calendar
quarter; (ii) prior to February 12, 2012 during the five consecutive
business days immediately after any five consecutive trading day period in which
the average trading price for the notes on each day during such five trading-day
period was equal to or less than 97% of the closing sale price of the Company’s
common stock on such day multiplied by the then current conversion rate;
(iii) upon the occurrence of specified corporate transactions; and
(iv) at any time from, and including February 1, 2012 until the close
of business on the second business day immediately preceding August 1,
2012. In addition, upon events defined as a “fundamental change” under the
Convertible Notes indenture, the Company may be required to repurchase the
Convertible Notes at a repurchase price in cash equal to 100% of the principal
amount of the notes to be repurchased, plus any accrued and unpaid interest to,
but excluding, the fundamental change repurchase date. As such, in the event the
Convertible Notes become convertible, the Company would be required to classify
the entire amount outstanding of the Convertible Notes as a current
liability
11
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
in
the following quarter. In the event that a significant number of the holders of
the Convertible Notes were to convert their notes prior to maturity, the Company
may not have enough available funds at any particular time to make the required
repayments. Under these circumstances, the Company would look to WL Ross &
Co. LLC (“WLR”), its banking group and other potential lenders to obtain
short-term funding until such time that it could secure necessary financing on a
long-term basis. The availability of any such financing would depend upon the
circumstances at the time, including the terms of any such financing, and other
factors. In addition, if conversion occurs in connection with certain changes in
control, the Company may be required to deliver additional shares of the
Company’s common stock (a “make-whole” premium) by increasing the conversion
rate with respect to such notes. For a discussion of the effects of the
Convertible Notes on earnings per share, see Note 8.
Effective
January 1, 2009, the Company adopted ASC 470-20 (see Note 2). ASC 470-20
requires disclosure of the carrying amount of the equity component of the
related convertible debt, as well as the interest expense resulting from
amortization of the debt discount and interest expense recognized on the
principal amount of the debt. As of September 30, 2009 and December 31, 2008,
the equity component of the convertible debt was $13,517 and is included in
additional paid-in capital. Interest expense resulting from amortization of the
debt discount was $1,060 and $946 for the three months ended September 30, 2009
and 2008, respectively, and $3,082 and $2,750 for the nine months ended
September 30, 2009 and 2008, respectively. Interest expense on the principal
amount of the Convertible Notes was $5,063 for each of the three month periods
ended September 30, 2009 and 2008 and $15,189 for each of the nine month periods
ended September 30, 2009 and 2008.
Credit facility—The Company
has a $100,000 revolving credit facility (the “Credit Facility”) which matures
on June 23, 2011. A maximum of $80,000 may be used for letters of credit.
In September 2009, the Company executed an amendment to the Credit Facility that
affected certain debt covenants. The amendment modified the maximum permitted
leverage and minimum interest coverage ratios for 2010 and thereafter. The
amendment also decreased the maximum capital spending and added a minimum
liquidity requirement for 2010. Pursuant to the amendment, interest on the
borrowings under the Credit Facility is payable, at the Company’s option, at
either the base rate plus an applicable margin of 2.75% to 3.50% or LIBOR
plus an applicable margin of 3.75% to 4.50%, based on the Company’s
leverage ratio. As of September 30, 2009, the Company had no borrowings
outstanding and letters of credit totaling $73,551 outstanding, leaving $26,449
available for future borrowing capacity, and was in compliance with its
financial covenants under the Credit Facility.
Equipment notes—The equipment
notes, having various maturity dates extending to September 2014, are
collateralized by mining equipment. As of September 30, 2009, the Company had
amounts outstanding with terms ranging from 36 to 60 months and a
weighted-average interest rate of 7.35%. At September 30, 2009, additional funds
are available under the Company’s revolving equipment credit facility for terms
up to 60 months with a current interest rate of 7.25%.
Capital lease and other—The
Company leases certain mining equipment under a capital lease. The Company
imputed interest on its capital lease using a rate of 10.44%. Additionally,
the Company has an insurance policy with a coverage period of 17 months that it
financed over 15 months at an interest rate of 5.42%.
12
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
Short-Term
Debt
The
Company finances the majority of its insurance premiums, a portion of which is
included in short-term debt. As of September 30, 2009, the interest rate
applicable to the note was 5.60%. As of September 30, 2009 and December 31,
2008, the Company had $269 and $4,741, respectively, outstanding related to the
financing of insurance premiums.
(6)
Income Taxes
The
effective income tax rates for the three and nine months ended September
30, 2009 and 2008 were calculated using estimated annual effective rates based
on projected earnings for the respective years, exclusive of discrete items. The
effective income tax rate for the three months ended September 30, 2009
increased to 24% from 17% for the three months ended September 30,
2008. The increase was primarily a result of the effect of income tax deductions
for depletion of mineral rights on increased quarterly earnings. The effective
income tax rate for the nine months ended September 30, 2009 increased to
22% from 14% for the nine months ended September 30, 2008. The
increase was primarily a result of the effect of income tax deductions for
depletion of mineral rights on increased projected earnings, combined with an
increase in other non-deductible expenses and miscellaneous
items.
(7)
Employee Benefits
The
following table details the components of the net periodic benefit cost for
postretirement benefits other than pensions for the three and nine months
ended September 30, 2009 and 2008.
|
|
Three months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
833 |
|
|
$ |
651 |
|
|
$ |
2,501 |
|
|
$ |
1,955 |
|
Interest
cost
|
|
|
437 |
|
|
|
407 |
|
|
|
1,311 |
|
|
|
1,220 |
|
Amortization
of net loss
|
|
|
72 |
|
|
|
107 |
|
|
|
216 |
|
|
|
322 |
|
Benefit
cost
|
|
$ |
1,342 |
|
|
$ |
1,165 |
|
|
$ |
4,028 |
|
|
$ |
3,497 |
|
The
plan is unfunded, therefore, no contributions were made by the Company for the
three and nine months ended September 30, 2009 and 2008.
(8)
Earnings Per Share
Basic
earnings per share is computed by dividing net income available to common
shareholders by the weighted-average number of common shares outstanding during
the period, excluding restricted common stock subject to continuing vesting
requirements. Diluted earnings per share is calculated based on the
weighted-average number of common shares outstanding during the period and, when
dilutive, potential common shares from the exercise of stock options, restricted
common stock subject to continuing vesting requirements, restricted stock units
and convertible debt, pursuant to the treasury stock method.
13
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
Reconciliations
of weighted-average shares outstanding used to compute basic and diluted
earnings per share for the three and nine months ended September 30, 2009
and 2008 are as follows:
|
|
Three months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
income attributable to International Coal Group, Inc.
|
|
$ |
18,716 |
|
|
$ |
9,324 |
|
|
$ |
32,791 |
|
|
$ |
11,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding—basic
|
|
|
152,998,598 |
|
|
|
152,761,955 |
|
|
|
152,869,195 |
|
|
|
152,587,831 |
|
Incremental
shares arising from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
503,020 |
|
|
|
172,624 |
|
|
|
88,861 |
|
|
|
27,249 |
|
Restricted
shares
|
|
|
1,529,555 |
|
|
|
91,101 |
|
|
|
1,246,964 |
|
|
|
130,394 |
|
Restricted
stock units
|
|
|
183,695 |
|
|
|
— |
|
|
|
84,019 |
|
|
|
— |
|
Convertible
notes
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Weighted-average
common shares outstanding—diluted
|
|
|
155,214,868 |
|
|
|
153,025,680 |
|
|
|
154,289,039 |
|
|
|
152,745,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.12 |
|
|
$ |
0.06 |
|
|
$ |
0.21 |
|
|
$ |
0.07 |
|
Diluted
|
|
$ |
0.12 |
|
|
$ |
0.06 |
|
|
$ |
0.21 |
|
|
$ |
0.07 |
|
Options
to purchase 2,736,072 and 2,755,272 shares of common stock outstanding at
September 30, 2009 have been excluded from the computation of diluted net
income per share for the three and nine months, respectively, ended September
30, 2009 because their effect would have been anti-dilutive. Options to purchase
1,076,552 and 1,105,352 shares of common stock outstanding at September 30, 2008
have been excluded from the computation of diluted net income per share for the
three and nine months, respectively, ended September 30, 2008 because their
effect would have been anti-dilutive.
The
principal amount of the Convertible Notes is payable in cash and amounts above
the principal amount, if any, will be settled with shares of the Company’s
common stock or, at the Company’s option, cash. The volume weighted-average
price of the Company’s common stock for the applicable cash settlement averaging
period was below the initial conversion price of $6.10 per share. Accordingly,
there were no potentially dilutive shares related to the Convertible Notes at
September 30, 2009 and 2008.
(9)
Fair Value of Financial Instruments
The
estimated fair values of the Company’s financial instruments are determined
based on relevant market information. These estimates involve uncertainty and
cannot be determined with precision. The following methods and assumptions were
used to estimate the fair value of each class of financial
instrument.
Cash and Cash
Equivalents, Accounts Receivable, Accounts Payable, Short-Term Debt and Other
Current Liabilities—The carrying amounts approximate the fair value due
to the short maturity of these instruments.
14
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
Long-term
Debt—At September 30, 2009 and December 31, 2008, the Company had
$225,000 aggregate principal amount of 9.00% Convertible Notes outstanding. The
fair value of the Convertible Notes was approximately $239,220 and $114,683 as
of September 30, 2009 and December 31, 2008, respectively. At September 30,
2009 and December 31, 2008, the Company had $175,000 aggregate principal
amount of 10.25% Senior Notes outstanding. The fair value of the Senior Notes
was approximately $159,250 and $131,250 as of September 30, 2009 and
December 31, 2008, respectively. The fair value of the Convertible Notes
and Senior Notes were based upon their respective values in active
markets.
The
carrying value of the Company’s capital lease obligations and other debt
approximate fair value at September 30, 2009 and December 31,
2008.
(10)
Commitments and Contingencies
Guarantees and
Financial Instruments with Off-balance Sheet Risk—In the normal course of
business, the Company is a party to certain guarantees and financial instruments
with off-balance sheet risk, such as bank letters of credit and performance or
surety bonds. No liabilities related to these arrangements are reflected in the
Company’s condensed consolidated balance sheets. Management does not expect any
material losses to result from these guarantees or off-balance sheet financial
instruments. The Company has outstanding surety bonds with third parties
totaling $115,118 as of September 30, 2009 to secure reclamation and other
performance commitments. As of September 30, 2009, the Company has bank letters
of credit outstanding of $73,551 under its Credit Facility.
Coal Supply
Agreements—Purchase price allocated to the Company’s below-market coal
supply agreements (sales contracts) acquired in acquisitions accounted for as
business combinations were capitalized and are being amortized on the basis of
coal to be shipped over the term of each respective contract. Value was
allocated to these coal supply agreements based on discounted cash flows
attributable to the difference between the below-market contract price and the
prevailing market price at the date of acquisition. The net book value of the
Company’s below-market coal supply agreements was $30,589 and $43,888 at
September 30, 2009 and December 31, 2008, respectively. Amortization income on
the below-market coal supply agreements was $443 and $1,626 for the three
months ended September 30, 2009 and 2008, respectively, and $5,578 and $7,081
for the nine months ended September 30, 2009 and 2008, respectively.
Amortization income is included in depreciation, depletion and amortization
expense. Based on the expected shipments related to the remaining below-market
contracts, the Company expects to record annual amortization income in each of
the next five years as reflected in the table below.
|
|
Below-market
contracts
|
|
2009
(remainder of year)
|
|
$
|
699
|
|
2010
|
|
|
3,287
|
|
2011
|
|
|
3,287
|
|
2012
|
|
|
3,287
|
|
2013
|
|
|
3,287
|
|
In June 2009, the Company terminated a below-market coal supply agreement and
realized a $7,721 pre-tax non-cash gain. The gain is included in other revenues
in the Company’s statement of operations for the nine months ended September 30,
2009.
In
July 2009, one of the Company’s customers elected to exercise contractual
options that provided for early termination of two related coal supply
agreements. The Company received a $27,000 payment for early termination of the
agreements and lost margin on pre-termination shipments. The income is included
in other revenues in the Company’s statement of operations for the three and
nine months ended September 30, 2009.
15
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
Legal
Matters—On August 23, 2006, a survivor of the Sago mine accident,
Randal McCloy, filed a complaint in the Kanawha Circuit Court in Kanawha County,
West Virginia. The claims brought by Randal McCloy and his family against the
Company and certain of its subsidiaries, and against W.L. Ross & Co.,
and Wilbur L. Ross, Jr., individually, were dismissed on February 14, 2008,
after the parties reached a confidential settlement. Sixteen other complaints
have been filed in Kanawha Circuit Court by the representatives of many of the
miners who died in the Sago mine accident, and several of these plaintiffs have
filed amended complaints to expand the group of defendants in the cases. The
complaints allege various causes of action against the Company and its
subsidiary, Wolf Run Mining Company, one of its shareholders, W.L.
Ross & Co., and Wilbur L. Ross Jr., individually, related to the
accident and seek compensatory and punitive damages. In addition, the plaintiffs
also allege causes of action against other third parties, including claims
against the manufacturer of Omega block seals used to seal the area where the
explosion occurred and against the manufacturer of self-contained self-rescuer
(“SCSR”) devices worn by the miners at the Sago mine. Some of these third
parties have been dismissed from the actions upon settlement. The amended
complaints add other of the Company’s subsidiaries to the cases, including ICG,
Inc., ICG, LLC and Hunter Ridge Coal Company, unnamed parent, subsidiary and
affiliate companies of the Company, W.L. Ross & Co., and Wilbur L. Ross
Jr., and other third parties, including a provider of electrical services and a
supplier of components used in the SCSR devices. The Company believes that it is
appropriately insured for these and other potential claims, and has fully paid
its deductible applicable to its insurance policies. In addition to the
dismissal of the McCloy claim, the Company has settled and dismissed five other
actions. These settlements required the release of the Company, its
subsidiaries, W.L. Ross & Co., and Wilbur L. Ross, Jr. Some of the
plaintiffs involved in one of the dismissed actions sought permission from the
Supreme Court of Appeals of West Virginia to appeal the settlement, alleging
that the settlement negotiated by the decedent’s estate should not have been
approved by the trial court. The West Virginia Supreme Court of Appeals refused
the petition for appeal by order entered September 3, 2009, rendering such
settlement final. The Company will vigorously defend itself against the
remaining complaints and any appeal of any prior settlements.
Allegheny
Energy Supply (“Allegheny”), the sole customer of coal produced at the Company’s
subsidiary Wolf Run Mining Company’s (“Wolf Run”) Sycamore No. 2 mine,
filed a lawsuit against Wolf Run, Hunter Ridge Holdings, Inc.
(“Hunter Ridge”), and the Company in state court in Allegheny County,
Pennsylvania on December 28, 2006, and amended its complaint on
April 23, 2007. Allegheny claims that the Company breached a coal supply
contract when it declared force majeure under the contract upon idling the
Sycamore No. 2 mine in the third quarter of 2006. The Sycamore No. 2
mine was idled after encountering adverse geologic conditions and abandoned gas
wells that were previously unidentified and unmapped. The amended complaint also
alleges that the production stoppages constitute a breach of the guarantee
agreement by Hunter Ridge and breach of certain representations made upon
entering into the contract in early 2005, a claim that Allegheny has since
voluntarily dropped. Allegheny claims that it will incur costs in excess of
$100,000 to purchase replacement coal over the life of the contract. The
Company, Wolf Run and Hunter Ridge answered the amended complaint on August
13, 2007, disputing all of the remaining claims. On November 3, 2008, the
Company, Wolf Run and Hunter Ridge filed an amended answer and counterclaim
against the plaintiffs seeking to void the coal supply agreement due to, among
other things, fraudulent inducement and conspiracy. The counterclaim alleges
further that Allegheny breached a confidentiality agreement with
Hunter Ridge, which prohibited the solicitation of its employees. After the
coal supply agreement was executed, Allegheny hired the then-president of Anker
Coal Group, Inc. (now Hunter Ridge) who engaged in negotiations on behalf
of Wolf Run and Hunter Ridge. In addition to seeking a declaratory judgment
that the coal supply agreement and guaranty be deemed void and unenforceable and
rescission of the contracts, the counterclaim also seeks compensatory and
punitive damages. On September 23, 2009, Allegheny filed a second amended
complaint alleging several alternative theories of liability in its effort to
extend contractual liability to the Company, which was not a party to the
original contract. No new substantive claims were asserted. The Company answered
the second amended complaint on October 13, 2009, denying all of the new claims.
In late September 2009, Allegheny suspended deliveries from the Sycamore No. 2
mine, claiming excessive inventory at its Harrison station. The Sycamore No. 2
mine remains on idle status with no indication from the customer as to when
shipments will resume.
16
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
On
December 6, 2007, the Kentucky Waterways Alliance, Inc., and The Sierra
Club sued the U.S. Army Corps of Engineers (the “Corps”) in the United States
District Court for the Western District of Kentucky, Louisville Division,
asserting that a permit to construct five valley fills was issued unlawfully to
the Company’s Hazard subsidiary for its Thunder Ridge Surface mine. The suit
alleges that the Corps failed to comply with the requirements of both
Section 404 of the Clean Water Act and the National Environmental Policy
Act. Hazard intervened in the suit to protect the Company’s interests. The Corps
suspended the Section 404 permit on December 26, 2007 in order to
evaluate the issues raised by the plaintiffs. The Corps completed its evaluation
on March 25, 2009, and on March 27, 2009, reinstated Hazard’s permit. Pursuant
to earlier agreements with the plaintiffs in the litigation, the Company
provided thirty (30) days notice to plaintiffs’ counsel of Hazard’s intent to
proceed with activities authorized under the permit. After such notice, the
plaintiffs agreed to amend the earlier agreement to allow Hazard partial use of
the reinstated permit, including construction of an additional valley fill.
Subsequently, the parties agreed to pursue resolution of the case in accordance
with a scheduling order entered by the court. Pursuant to that order, the
plaintiffs filed an amended complaint on July 10, 2009. The amended complaint
modifies the plaintiffs’ allegations to apply to the reissued permit, rather
than the original permit. The action will proceed in accordance with the
scheduling order through November 2009, after which the court is expected to
render a decision. If the court ultimately finds that the permit is unlawful,
production could be materially affected at the Thunder Ridge Surface
mine.
On
January 7, 2008, Saratoga Advantage Trust (“Saratoga”) filed a class action
lawsuit in the U.S. District Court for the Southern District of West Virginia
against the Company and certain of its officers and directors. The complaint
asserts claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, and Rule 10b-5 promulgated thereunder, based on alleged false and
misleading statements in the registration statements filed in connection with
the Company’s November 2005 reorganization and December 2005 public offering of
common stock. In addition, the complaint challenges other of the Company’s
public statements regarding its operating condition and safety record. On July
6, 2009, Saratoga filed an amended complaint asserting essentially the same
claims but seeking to add an individual co-plaintiff. The Company has filed a
motion to dismiss the amended complaint. The Company intends to vigorously
defend the action.
On
July 3, 2007, Taylor Environmental Advocacy Membership, Inc. (“T.E.A.M.”) filed
a petition to appeal the issuance of ICG Tygart Valley, LLC’s
(“Tygart Valley”) Surface Mine Permit U-2004-06 against the West Virginia
Department of Environmental Protection (the “WVDEP”) in an action before the
West Virginia Surface Mine Board (the “Board”). On December 10, 2007, the Board
remanded the permit to the WVDEP for revision to certain provisions related to
pre-mining water monitoring and cumulative hydrologic impacts. The WVDEP issued
a modification on April 1, 2008 addressing those issues. T.E.A.M. filed an
appeal of the WVDEP’s approval of the permit modification on April 30, 2008. On
October 7, 2008, the Board issued an order remanding the permit to the WVDEP
requiring Tygart Valley to address a technical issue related to projected
post-mining water quality. Tygart Valley prepared and submitted a permit
modification to alleviate the Board’s concerns. The revision was approved by the
WVDEP on May 27, 2009, reinstating the Tygart permit. As expected, T.E.A.M.
appealed the reinstatement. A hearing has been set for December 8,
2009.
In
addition, from time to time, the Company is involved in legal proceedings
arising in the ordinary course of business. These proceedings include
assessments of penalties for citations and orders asserted by MSHA and other
regulatory agencies, none of which are expected by management to, individually
or in the aggregate, have a material adverse effect on the Company. In the
opinion of management, the Company has recorded adequate reserves for
liabilities arising in the ordinary course and it is management’s belief there
is no individual case or group of related cases pending that is likely to have a
material adverse effect on the Company’s financial condition, results of
operations or cash flows.
17
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
(11)
Related Party Transactions and Balances
Under
an Advisory Services Agreement dated as of October 1, 2004 between the
Company and WLR, WLR has agreed to provide advisory services to the Company
(consisting of consulting and advisory services in connection with strategic and
financial planning, investment management and administration and other matters
relating to the business and operation of the Company of a type customarily
provided by sponsors of U.S. private equity firms to companies in which they
have substantial investments, including any consulting or advisory services
which the Board of Directors reasonably requests). WLR is paid a quarterly fee
of $500 and reimbursed for any reasonable out-of-pocket expenses (including
expenses of third-party advisors retained by WLR). The agreement is for a period
of seven years; however, it may be terminated upon the occurrence of certain
events.
(12)
Segment Information
The
Company extracts, processes and markets steam and metallurgical coal from deep
and surface mines for sale to electric utilities and industrial customers,
primarily in the eastern United States. The Company operates only in the United
States with mines in the Central Appalachian, Northern Appalachian and
Illinois Basin regions. The Company has three reportable business segments:
Central Appalachian, Northern Appalachian and Illinois Basin. The Company’s
Central Appalachian operations are located in southern West Virginia, eastern
Kentucky and western Virginia and include eight mining complexes. The Company’s
Northern Appalachian operations are located in northern West Virginia and
Maryland and include four mining complexes. The Company’s Illinois Basin
operations include one mining complex. The Company also has an Ancillary
category, which includes the Company’s brokered coal functions, corporate
overhead, contract highwall mining services and land activities.
Reportable
segment results from continuing operations for the three and nine months
ended September 30, 2009 and 2008 and segment assets as of September 30,
2009 and 2008 were as follows:
Three
months ended September 30, 2009:
|
|
Central
Appalachian
|
|
|
Northern
Appalachian
|
|
|
Illinois
Basin
|
|
|
Ancillary
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
197,567
|
|
|
$
|
52,403
|
|
|
$
|
22,099
|
|
|
$
|
24,553
|
|
|
$
|
296,622
|
|
Adjusted
EBITDA
|
|
|
53,654
|
|
|
|
5,795
|
|
|
|
5,170
|
|
|
|
66
|
|
|
|
64,685
|
|
Depreciation,
depletion and amortization
|
|
|
18,171
|
|
|
|
5,100
|
|
|
|
2,221
|
|
|
|
1,504
|
|
|
|
26,996
|
|
Capital
expenditures
|
|
|
10,995
|
|
|
|
4,700
|
|
|
|
6,953
|
|
|
|
1,045
|
|
|
|
23,693
|
|
Total
assets
|
|
|
724,037
|
|
|
|
181,497
|
|
|
|
48,644
|
|
|
|
405,017
|
|
|
|
1,359,195
|
|
Three
months ended September 30, 2008:
|
|
Central
Appalachian
|
|
|
Northern
Appalachian
|
|
|
Illinois
Basin
|
|
|
Ancillary
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
207,452
|
|
|
$
|
57,589
|
|
|
$
|
21,114
|
|
|
$
|
23,044
|
|
|
$
|
309,199
|
|
Adjusted
EBITDA
|
|
|
36,779
|
|
|
|
3,796
|
|
|
|
3,924
|
|
|
|
454
|
|
|
|
44,953
|
|
Depreciation,
depletion and amortization
|
|
|
16,004
|
|
|
|
5,078
|
|
|
|
1,658
|
|
|
|
1,487
|
|
|
|
24,227
|
|
Capital
expenditures
|
|
|
32,937
|
|
|
|
9,456
|
|
|
|
2,898
|
|
|
|
1,270
|
|
|
|
46,561
|
|
Total
assets
|
|
|
744,202
|
|
|
|
186,389
|
|
|
|
35,831
|
|
|
|
401,769
|
|
|
|
1,368,191
|
|
Goodwill
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,237
|
|
|
|
30,237
|
|
18
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
Revenue
in the Ancillary category consists primarily of $11,054 and $12,423 relating to
the Company’s brokered coal sales and $11,810 and $5,799 relating to contract
highwall mining and machine sales activities for the three months
ended September 30, 2009 and 2008, respectively. Capital expenditures
include non-cash amounts of $14,542 and $24,935 for the three months
ended September 30, 2009 and 2008, respectively. Capital expenditures do
not include $3,794 and $16,673 paid during the three months ended September
30, 2009 and 2008, respectively, related to capital expenditures accrued in
prior periods.
Nine
months ended September 30, 2009:
|
|
Central
Appalachian
|
|
|
Northern
Appalachian
|
|
|
Illinois
Basin
|
|
|
Ancillary
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
574,718
|
|
|
$
|
170,849
|
|
|
$
|
62,570
|
|
|
$
|
71,248
|
|
|
$
|
879,385
|
|
Adjusted
EBITDA
|
|
|
130,253
|
|
|
|
21,248
|
|
|
|
11,803
|
|
|
|
(1,881
|
)
|
|
|
161,423
|
|
Depreciation,
depletion and amortization
|
|
|
53,011
|
|
|
|
15,921
|
|
|
|
5,884
|
|
|
|
4,478
|
|
|
|
79,294
|
|
Capital
expenditures
|
|
|
24,919
|
|
|
|
15,882
|
|
|
|
12,241
|
|
|
|
4,153
|
|
|
|
57,195
|
|
Total
assets
|
|
|
724,037
|
|
|
|
181,497
|
|
|
|
48,644
|
|
|
|
405,017
|
|
|
|
1,359,195
|
|
Nine
months ended September 30, 2008:
|
|
Central
Appalachian
|
|
|
Northern
Appalachian
|
|
|
Illinois
Basin
|
|
|
Ancillary
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
536,956
|
|
|
$
|
172,923
|
|
|
$
|
60,399
|
|
|
$
|
68,731
|
|
|
$
|
839,009
|
|
Adjusted
EBITDA
|
|
|
98,924
|
|
|
|
15,321
|
|
|
|
10,167
|
|
|
|
(9,716
|
)
|
|
|
114,696
|
|
Depreciation,
depletion and amortization
|
|
|
47,569
|
|
|
|
12,639
|
|
|
|
5,420
|
|
|
|
5,250
|
|
|
|
70,878
|
|
Capital
expenditures
|
|
|
71,706
|
|
|
|
31,164
|
|
|
|
3,474
|
|
|
|
4,812
|
|
|
|
111,156
|
|
Total
assets
|
|
|
744,202
|
|
|
|
186,389
|
|
|
|
35,831
|
|
|
|
401,769
|
|
|
|
1,368,191
|
|
Goodwill
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,237
|
|
|
|
30,237
|
|
Revenue
in the Ancillary category consists primarily of $34,494 and $39,513 relating to
the Company’s brokered coal sales and $22,668 and $15,577 relating to contract
highwall mining and machine sales activities for the nine months
ended September 30, 2009 and 2008, respectively. Capital expenditures
include non-cash amounts of $21,442 and $30,775 for the nine months
ended September 30, 2009 and 2008, respectively. Capital expenditures do
not include $12,942 and $14,290 paid during the nine months ended September
30, 2009 and 2008, respectively, related to capital expenditures accrued in
prior periods.
19
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
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 the
Company’s performance used by the Company’s chief operating decision
maker.
Reconciliation
of net income attributable to International Coal Group, Inc. to Adjusted EBITDA
for the three and nine months ended September 30, 2009 and 2008 is
as follows:
|
|
Three months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
income attributable to International Coal Group, Inc.
|
|
$ |
18,716 |
|
|
$ |
9,324 |
|
|
$ |
32,791 |
|
|
$ |
11,181 |
|
Depreciation,
depletion and amortization
|
|
|
26,996 |
|
|
|
24,227 |
|
|
|
79,294 |
|
|
|
70,878 |
|
Interest
expense, net
|
|
|
13,409 |
|
|
|
9,455 |
|
|
|
39,641 |
|
|
|
30,819 |
|
Income
tax expense
|
|
|
5,566 |
|
|
|
1,949 |
|
|
|
9,674 |
|
|
|
1,815 |
|
Noncontrolling
interest
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
23 |
|
|
|
3 |
|
Adjusted
EBITDA
|
|
$ |
64,685 |
|
|
$ |
44,953 |
|
|
$ |
161,423 |
|
|
$ |
114,696 |
|
(13)
Supplementary Guarantor Information
International
Coal Group, Inc. (the “Parent Company”) issued $175,000 of Senior Notes (the
“Notes”) due 2014 in June 2006 and $225,000 of Convertible Senior Notes (the
“Convertible Notes”) due 2012 in July 2007. The Parent Company has no
independent assets or operations other than those related to the issuance,
administration and repayment of the Notes and the Convertible Notes. All
subsidiaries of the Parent Company (the “Guarantors”), except for a minor
non-guarantor joint venture, have fully and unconditionally guaranteed the Notes
and the Convertible Notes on a joint and several basis. The Guarantors are 100%
owned, directly or indirectly, by the Parent Company. Accordingly, condensed
consolidating financial information for the Parent Company and the Guarantors is
not presented.
The
Notes and the Convertible Notes are senior obligations of the Parent Company and
are guaranteed on a senior basis by the Guarantors and rank senior in right of
payment to the Parent Company’s and Guarantors’ future subordinated
indebtedness. Amounts borrowed under the Amended Credit Facility are secured by
substantially all of the assets of the Parent Company and the Guarantors on a
priority basis, so the Notes and Convertible Notes are effectively subordinated
to amounts borrowed under the Amended Credit Facility. Other than for corporate
related purposes or interest payments required by the Notes or Convertible
Notes, the Amended Credit Facility restricts the Guarantors’ abilities to make
loans or pay dividends to the Parent Company in excess of $25,000 per year (or
at all upon an event of default) and restricts the ability of the Parent Company
to pay dividends. Therefore, all but $25,000 of the subsidiaries’ assets are
restricted assets.
The
Parent Company and Guarantors are subject to certain covenants under the
indenture for the Notes. Under these covenants, the Parent Company and
Guarantors are subject to limitations on the incurrence of additional
indebtedness, payment of dividends and the incurrence of liens, however, the
indenture contains no restrictions on the ability of the Guarantors to pay
dividends or make payments to the Parent Company.
The
obligations of the Guarantors are limited to the maximum amount permitted under
bankruptcy law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar Federal or state law respecting fraudulent
conveyance or fraudulent transfer.
20
INTERNATIONAL
COAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2009
(Dollars
in thousands, except per share amounts)
(14)
Subsequent Events
The
Company has evaluated events and transactions occurring subsequent to the
balance sheet date for items that should potentially be recognized or disclosed
in its financial statements. The evaluation was conducted through November 6,
2009, the date of the filing of this Quarterly Report on Form 10-Q.
21
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
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;
|
|
|
22
•
|
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.
23
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
September
30,
|
|
Increase
(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
|
%
|
The
following table depicts coal sales revenues by reportable segment for the three
months ended September 30, 2009 and 2008:
|
|
Three
months ended
September
30,
|
|
Increase
(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
|
)%
|
The
following table depicts tons sold by reportable segment for the three months
ended September 30, 2009 and 2008:
|
|
Three
months ended
September
30,
|
|
Increase
(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
|
)%
|
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.
24
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
September
30,
|
|
Increase
(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 amortization
|
|
|
26,996
|
|
|
24,227
|
|
|
2,769
|
|
11
|
%
|
Selling,
general and administrative expenses
|
|
|
5,351
|
|
|
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
|
%
|
* not meaningful
25
The
following table depicts cost of coal sales by reportable segment for the three
months ended September 30, 2009 and 2008:
|
|
Three
months ended
September
30,
|
|
Increase
(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
|
)%
|
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.
26
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
September
30,
|
|
Increase
(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
|
%
|
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.
27
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
September
30,
|
|
Increase
(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
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Northern
Appalachian
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to International Coal Group,
Inc.
|
|
$
|
1,078
|
|
$
|
(1,467
|
)
|
$
|
2,545
|
|
*
|
|
Depreciation,
depletion and amortization
|
|
|
5,100
|
|
|
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
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Illinois Basin
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to International Coal Group, Inc.
|
|
$
|
2,241
|
|
$
|
2,204
|
|
$
|
37
|
|
2
|
%
|
Depreciation,
depletion and amortization
|
|
|
2,221
|
|
|
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
|
%
|
28
|
|
Three
months ended
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Ancillary
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to International Coal Group, Inc.
|
|
$
|
(13,942
|
)
|
$
|
(11,693
|
)
|
$
|
(2,249
|
)
|
(19
|
)%
|
Depreciation,
depletion and amortization
|
|
|
1,504
|
|
|
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
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to International Coal Group, Inc.
|
|
$
|
18,716
|
|
$
|
9,324
|
|
$
|
9,392
|
|
101
|
%
|
Depreciation,
depletion and amortization
|
|
|
26,996
|
|
|
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
|
%
|
* 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
September
30,
|
|
Increase
(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
|
%
|
29
The
following table depicts coal sales revenues by reportable segment for the nine
months ended September 30, 2009 and 2008:
|
|
Nine
months ended
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Central
Appalachian
|
|
$
|
526,245
|
|
$
|
512,537
|
|
$
|
13,708
|
|
3
|
%
|
Northern
Appalachian
|
|
|
157,887
|
|
|
157,528
|
|
|
359
|
|
0
|
%
|
Illinois Basin
|
|
|
56,654
|
|
|
52,619
|
|
|
4,035
|
|
8
|
%
|
Ancillary
|
|
|
34,495
|
|
|
39,279
|
|
|
(4,784
|
)
|
(12
|
)%
|
Total
coal sales revenues
|
|
$
|
775,281
|
|
$
|
761,963
|
|
$
|
13,318
|
|
2
|
%
|
The
following table depicts tons sold by reportable segment for the nine months
ended September 30, 2009 and 2008:
|
|
Nine
months ended
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
Tons
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Central
Appalachian
|
|
|
7,712
|
|
|
8,908
|
|
(1,196
|
)
|
(13
|
)%
|
Northern
Appalachian
|
|
|
2,959
|
|
|
2,969
|
|
(10
|
)
|
0
|
%
|
Illinois Basin
|
|
|
1,700
|
|
|
1,762
|
|
(62
|
)
|
(4
|
)%
|
Ancillary
|
|
|
625
|
|
|
863
|
|
(238
|
)
|
(28
|
)%
|
Total
tons sold
|
|
|
12,996
|
|
|
14,502
|
|
(1,506
|
)
|
(10
|
)%
|
Coal sales
revenues—Coal sales revenues are derived from sales of produced coal and
brokered coal contracts. Coal sales revenues increased for the nine months
ended September 30, 2009 compared to the nine months ended September 30,
2008, primarily due to a 14% increase in sales realization per ton
resulting from favorable pricing on sales contracts entered into throughout
2008. Partially offsetting the impact of the improved realization per ton was a
10% decrease in tons sold, primarily a result of decreased participation in the
spot market.
Central Appalachian. Coal
sales revenues from our Central Appalachian segment for the nine months
ended September 30, 2009 increased over the same period in 2008, primarily
due to an increase in sales realization of $10.71 per ton, which was driven by
higher average contract prices of our coal. Partially offsetting the increase in
realization was a 13% decrease in tons sold, largely driven by decreased spot
market sales.
Northern Appalachian. For the
nine months ended September 30, 2009, our Northern Appalachian coal sales
revenues and tons remained relatively consistent as compared to the nine months
ended September 30, 2008.
Illinois Basin. The
increase in coal sales revenues from our Illinois Basin segment for the
nine months ended September 30, 2009 was due to an increase in sales realization
of $3.46 per ton, partially offset by a 4% decrease in tons sold.
Ancillary. Our Ancillary
segment’s coal sales revenues are comprised of coal sold under brokered coal
contracts. For the nine months ended September 30, 2009, our Ancillary coal
sales revenues decreased due to a 28% 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 in tons sold was partially offset
by an increase in sales realization of $9.70 per ton sold.
30
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 nine 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 nine months
ended September 30, 2009 compared to the nine months ended September 30,
2008 was due to $34.9 million in payments for early termination of coal
supply agreements and lost margin on pre-termination shipments and a $7.7
million gain on the termination of a below-market contract, as well as to the
sale of a highwall mining system during the nine months ended September 30,
2009. Partially offsetting these increases were decreases in coalbed methane
revenues and sales of scrap materials.
Costs
and expenses
The
following table depicts cost of operations for the nine months
ended September 30, 2009 and 2008 for the indicated
categories:
|
|
Nine
months ended
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages
and per ton data)
|
|
Cost
of coal sales
|
|
$
|
647,372
|
|
$
|
666,598
|
|
$
|
(19,226
|
)
|
(3
|
)%
|
Freight
and handling costs
|
|
|
20,452
|
|
|
35,492
|
|
|
(15,040
|
)
|
(42
|
)%
|
Cost
of other revenues
|
|
|
28,690
|
|
|
27,847
|
|
|
843
|
|
3
|
%
|
Depreciation,
depletion and amortization
|
|
|
79,294
|
|
|
70,878
|
|
|
8,416
|
|
12
|
%
|
Selling,
general and administrative expenses
|
|
|
24,632
|
|
|
27,051
|
|
|
(2,419
|
)
|
(9
|
)%
|
Gain
on sale of assets
|
|
|
(3,184
|
)
|
|
(32,675
|
)
|
|
29,491
|
|
90
|
%
|
Total
costs and expenses
|
|
$
|
797,256
|
|
$
|
795,191
|
|
$
|
2,065
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of coal sales per ton
|
|
$
|
49.81
|
|
$
|
45.96
|
|
$
|
3.85
|
|
8
|
%
|
The
following table depicts cost of coal sales by reportable segment for the nine
months ended September 30, 2009 and 2008:
|
|
Nine
months ended
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Central
Appalachian
|
|
$
|
436,827
|
|
$
|
443,452
|
|
$
|
(6,625
|
)
|
(1
|
)%
|
Northern
Appalachian
|
|
|
141,614
|
|
|
147,488
|
|
|
(5,874
|
)
|
(4
|
)%
|
Illinois Basin
|
|
|
45,940
|
|
|
44,547
|
|
|
1,393
|
|
3
|
%
|
Ancillary
|
|
|
22,991
|
|
|
31,111
|
|
|
(8,120
|
)
|
(26
|
)%
|
Cost
of coal sales
|
|
$
|
647,372
|
|
$
|
666,598
|
|
$
|
(19,226
|
)
|
(3
|
)%
|
Cost of coal
sales—For the nine months ended September 30, 2009, our cost of coal
sales decreased compared to the nine months ended September 30, 2008, primarily
as a result of a 10% decrease in tons sold. Partially offsetting the decrease in
tons sold was an 8% increase in cost per ton.
31
Central Appalachian. Our
Central Appalachian segment cost of coal sales decreased primarily as a result
of a 13% decrease in tons sold. The decrease in cost of coal sales due to
decreased tons sold was partially offset by an increase in costs to $56.65 per
ton for the nine months ended September 30, 2009 from $49.78 per ton for the
nine months ended September 30, 2008. 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 due to wage increases in the fourth
quarter of 2008 in an effort to remain competitive in a tight labor market,
lower production volumes associated with idled operations and an increase in
high-dollar insurance claims over the nine months ended September 30, 2008.
Royalties, taxes and fees increased on a per ton basis as a result of increased
sales realization on tons sold and increased royalty rates on certain leased
reserves.
Northern Appalachian. Cost of
coal sales from our Northern Appalachian segment decreased for the nine months
ended September 30, 2009 as a result of a decrease in costs of $1.82 per
ton, while tons sold remained relatively consistent as compared to the nine
months ended September 30, 2008. The decrease in cost per ton was primarily due
to decreases in transportation, fuel, lubricants and chemicals and coal
purchased for blending to meet customer specifications. Partially offsetting the
decrease in cost per ton were increases in labor and benefits and contract labor
costs.
Illinois Basin. For the
nine months ended September 30, 2009, our Illinois Basin cost of coal sales
increased as a result of an increase in costs of $1.74 per ton primarily due to
increased labor and benefits costs. Labor and benefits increased subsequent to
the third quarter of 2008 as a result of increased wages in an effort to retain
skilled miners. Partially offsetting the increase in cost per ton was a 4%
decrease in tons sold.
Ancillary. Cost of coal sales from our Ancillary segment decreased for
the nine months ended September 30, 2009 primarily due to decreased purchased
coal costs related to the expiration of certain brokered coal contracts, as well
as to decreased shipments on various remaining contracts throughout 2008 and
into 2009.
Cost of other
revenues—For the nine months ended September 30, 2009, cost of other
revenues increased primarily due to costs related to the sale of a highwall
mining system. Offsetting the increase in cost of other revenues was a decrease
in coalbed methane gathering fees.
Depreciation, depletion and amortization—Depreciation, depletion and
amortization expense increased for the nine months ended September 30, 2009,
primarily as a result of capital spending throughout 2008 and into 2009. Further
impacting the increase was increased depletion expense resulting from increased
mining of company-owned reserves, as well as a decrease in amortization income
related to the completion or termination of shipments on certain below-market
contracts. 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 nine months ended September 30, 2009 decreased primarily due to the
favorable resolution of certain legal matters and the recovery of a potential
bad debt. Partially offsetting these decreases was an increase in legal and
professional fees.
Gain on sale of
assets—Gain on sale of assets decreased for the nine months ended
September 30, 2009. In the comparable period of 2008, we recognized a $24.6
million pre-tax gain on exchange of coal reserves with a third-party and a $3.6
million gain related to the sale of a used highwall mining system.
32
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 35 of this Quarterly Report on Form 10-Q and in Note 12 to our
condensed consolidated financial statements for the nine months
ended September 30, 2009.
The
following table depicts Adjusted EBITDA by reportable segment for the nine
months ended September 30, 2009 and 2008:
|
|
Nine
months ended
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Central
Appalachian
|
|
$
|
130,253
|
|
$
|
98,924
|
|
$
|
31,329
|
|
32
|
%
|
Northern
Appalachian
|
|
|
21,248
|
|
|
15,321
|
|
|
5,927
|
|
39
|
%
|
Illinois Basin
|
|
|
11,803
|
|
|
10,167
|
|
|
1,636
|
|
16
|
%
|
Ancillary
|
|
|
(1,881
|
)
|
|
(9,716
|
)
|
|
7,835
|
|
81
|
%
|
Total
Adjusted EBITDA
|
|
$
|
161,423
|
|
$
|
114,696
|
|
$
|
46,727
|
|
41
|
%
|
Central Appalachian. Adjusted
EBITDA for the nine months ended September 30, 2009 increased compared to the
nine months ended September 30, 2008 primarily due to $27.5 million received for
early termination of coal supply agreements and lost margin on pre-termination
shipments coupled with a $3.84 increase in profit margins. Partially offsetting
these increases was a decrease of approximately 1.2 million tons
sold.
Northern Appalachian. The
increase in Adjusted EBITDA was mainly due to a combination of an increase in
sales realization of $0.30 per ton and a decrease of $1.82 in cost per ton,
resulting in increased profit margins of $2.12 per ton.
Illinois Basin. Adjusted
EBITDA increased during the nine months ended September 30, 2009 related to an
increase in sales realization of $3.46 per ton and a $1.74 increase in cost per
ton, resulting in an increase in profit margins of $1.72 per ton.
Ancillary. The increase in
Adjusted EBITDA was primarily due to $7.4 million received for contract
settlements and an increase in sales realization of $9.70 per ton, offset by a
$0.75 increase in cost per ton, resulting in an increase in profit margins of
$8.95 per ton. Further impacting the increase in Adjusted EBITDA from our
Ancillary segment was increased contract mining revenue, offset by decreased
revenue from coalbed methane wells and a decrease of approximately 238,000 tons
sold related to the expiration of brokered coal contracts throughout 2008, as
well as to decreased shipments of various remaining contracts.
33
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 nine months ended September 30, 2009 and 2008:
|
|
Nine
months ended
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Central
Appalachian
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to International Coal Group, Inc.
|
|
$
|
60,675
|
|
$
|
49,961
|
|
$
|
10,714
|
|
21
|
%
|
Depreciation,
depletion and amortization
|
|
|
53,011
|
|
|
47,569
|
|
|
5,442
|
|
11
|
%
|
Interest
expense, net
|
|
|
3,343
|
|
|
1,394
|
|
|
1,949
|
|
140
|
%
|
Income
tax expense
|
|
|
13,224
|
|
|
—
|
|
|
13,224
|
|
100
|
%
|
Adjusted
EBITDA
|
|
$
|
130,253
|
|
$
|
98,924
|
|
$
|
31,329
|
|
32
|
%
|
|
|
Nine
months ended
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Northern
Appalachian
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to International Coal Group, Inc.
|
|
$
|
4,401
|
|
$
|
2,194
|
|
$
|
2,207
|
|
101
|
%
|
Depreciation,
depletion and amortization
|
|
|
15,921
|
|
|
12,639
|
|
|
3,282
|
|
26
|
%
|
Interest
expense, net
|
|
|
340
|
|
|
485
|
|
|
(145
|
)
|
(30
|
)%
|
Income
tax expense
|
|
|
563
|
|
|
—
|
|
|
563
|
|
100
|
%
|
Noncontrolling
interest
|
|
|
23
|
|
|
3
|
|
|
20
|
|
667
|
%
|
Adjusted
EBITDA
|
|
$
|
21,248
|
|
$
|
15,321
|
|
$
|
5,927
|
|
39
|
%
|
|
|
Nine
months ended
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Illinois Basin
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to International Coal Group, Inc.
|
|
$
|
4,505
|
|
$
|
4,569
|
|
$
|
(64
|
)
|
(1
|
)%
|
Depreciation,
depletion and amortization
|
|
|
5,884
|
|
|
5,420
|
|
|
464
|
|
9
|
%
|
Interest
expense, net
|
|
|
175
|
|
|
178
|
|
|
(3
|
)
|
(2
|
)%
|
Income
tax expense
|
|
|
1,239
|
|
|
—
|
|
|
1,239
|
|
100
|
%
|
Adjusted
EBITDA
|
|
$
|
11,803
|
|
$
|
10,167
|
|
$
|
1,636
|
|
16
|
%
|
|
|
Nine
months ended
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Ancillary
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to International Coal Group, Inc.
|
|
$
|
(36,790
|
)
|
$
|
(45,543
|
)
|
$
|
8,753
|
|
19
|
%
|
Depreciation,
depletion and amortization
|
|
|
4,478
|
|
|
5,250
|
|
|
(772
|
)
|
(15
|
)%
|
Interest
expense, net
|
|
|
35,783
|
|
|
28,762
|
|
|
7,021
|
|
24
|
%
|
Income
tax expense (benefit)
|
|
|
(5,352
|
)
|
|
1,815
|
|
|
(7,167
|
)
|
*
|
|
Adjusted
EBITDA
|
|
$
|
(1,881
|
)
|
$
|
(9,716
|
)
|
$
|
7,835
|
|
81
|
%
|
34
|
|
Nine
months ended
September
30,
|
|
Increase
(Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to International Coal Group, Inc.
|
|
$
|
32,791
|
|
$
|
11,181
|
|
$
|
21,610
|
|
193
|
%
|
Depreciation,
depletion and amortization
|
|
|
79,294
|
|
|
70,878
|
|
|
8,416
|
|
12
|
%
|
Interest
expense, net
|
|
|
39,641
|
|
|
30,819
|
|
|
8,822
|
|
29
|
%
|
Income
tax expense
|
|
|
9,674
|
|
|
1,815
|
|
|
7,859
|
|
433
|
%
|
Noncontrolling
interest
|
|
|
23
|
|
|
3
|
|
|
20
|
|
667
|
%
|
Adjusted
EBITDA
|
|
$
|
161,423
|
|
$
|
114,696
|
|
$
|
46,727
|
|
41
|
%
|
* not meaningful
Liquidity
and Capital Resources
Our
business is capital intensive and requires substantial capital expenditures for,
among other things, purchasing and upgrading equipment used in developing and
mining our coal lands, as well as remaining in compliance with environmental
laws and regulations. Our principal liquidity requirements are to finance our
coal production, fund capital expenditures and service our debt and reclamation
obligations. We may also engage in acquisitions from time to time. Our primary
sources of liquidity to meet these needs are cash on hand, cash flows from
operations, borrowings under our senior credit facility and equipment
financing arrangements.
We
believe the principal indicators of our liquidity are our cash position and
remaining availability under our credit facility. As of September 30, 2009, our
available liquidity was $124.1 million, including cash of $97.7 million and
$26.4 million available for borrowing under our $100.0 million senior credit
facility. Total debt represented 45.1% of our total capitalization at September
30, 2009. Our total capitalization represents our current and long-term debt
combined with our total stockholders’ equity.
In
September 2009, we executed an amendment to our $100.0 million credit facility
that affected certain debt covenants. The amendment modified the maximum
permitted leverage and minimum interest coverage ratios for 2010 and thereafter.
The amendment also decreased the maximum capital spending and added a minimum
liquidity requirement for 2010. Management believes, based on currently
available information, that we will remain in compliance with the financial
covenants in our credit facility.
The unprecedented disruption in the credit markets has had a significant adverse
impact on a number of financial institutions. At this time, our liquidity has
not been materially impacted by the credit environment. However, CIT Group, Inc.
(“CIT”), a participant in our credit facility, commenced a voluntary filing
under Chapter 11 of the U.S. Bankruptcy Code on November 2, 2009. It is not
certain whether CIT will honor its commitment to make loans under the credit
facility or whether another lender under the credit facility might assume CIT’s
commitment. Consequently, our ability to borrow under the credit facility may be
adversely impacted if CIT is unable to fund its commitment and no other lender
assumes its commitment. We
believe this will not have a material adverse impact as we expect that
commitments from other lenders under the credit facility, together with cash on
hand and anticipated operating cash flows, will be sufficient to meet our near
term capital requirements. We will continue to closely monitor our
liquidity and the credit markets.
35
We
currently expect our total capital expenditures will be approximately $90.0
million to $95.0 million in 2009, substantially all of which will be for
equipment and infrastructure at our existing operations. Cash paid for capital
expenditures was approximately $48.7 million for the nine months
ended September 30, 2009. We have funded and expect to continue to fund
these capital expenditures from our internal operations and equipment financing
arrangements, such as our $50.0 million equipment revolving credit facility with
Caterpillar Financial Services Corporation. We believe that these sources of
capital will be sufficient to fund our anticipated capital expenditures through
2010. To the extent necessary, management believes it has flexibility in the
timing of the cash requirements by managing the pace of capital spending. In
addition, management may from time to time raise additional capital through the
disposition of non-core assets or engaging in sale-leaseback transactions. The
need and timing of seeking additional capital in the future will be subject to
market conditions.
Approximately
$18.6 million of cash paid for capital expenditures for the nine months ended
September 30, 2009 was attributable to our Central Appalachian operations. This
amount represents investments of approximately $4.2 million in our Beckley
mining complex and $3.2 million at Hazard. We paid approximately $16.8 million
at our Northern Appalachian operations in the nine months ended September 30,
2009, approximately $7.2 million of which was for investments at our Sentinel
complex. Expenditures of approximately $10.2 million for our Illinois Basin
operations were for development of a new mine portal and ongoing operations
improvements. Approximately $3.1 million of cash paid for capital expenditures
for the nine months ended September 30, 2009 was within our Ancillary segment,
primarily for the upgrading of highwall mining machinery and the purchase of
safety equipment.
More
stringent regulatory requirements imposed upon the mining
industry demand substantial capital expenditures to meet safety
standards. For the nine months ended September 30, 2009, we spent $1.6
million to meet these standards and anticipate spending an additional $4.5
million for the remainder of 2009.
Cash
Flows
Net
cash provided by operating activities was $91.0 million for the nine months
ended September 30, 2009, an increase of $46.6 million from the same period
in 2008. This increase is attributable to an increase in net income of $65.8
million, after adjustment for non-cash charges, partially offset by a $19.2
million decrease due to the change in net operating assets and liabilities.
Included in net income for the nine months ended September 30, 2009 is $34.9
million received for early termination of coal supply agreements and lost margin
on pre-termination shipments.
For
the nine months ended September 30, 2009, net cash used in investing
activities was $47.0 million compared to $85.5 million for the nine months
ended September 30, 2008. For the nine months ended September 30,
2009, $48.7 million of cash was paid for capital expenditures at existing mining
and ancillary operations compared to $93.6 million in the same period of
2008.
Net
cash used in financing activities of $10.3 million for the nine months
ended September 30, 2009 was due to repayments on our short- and long-term
debt of $18.2 million and finance costs of $1.2 million paid to amend our credit
facility. Offsetting these repayments were borrowings of $9.1 million used to
finance equipment.
36
Credit
Facility and Long-term Debt Obligations
As
of September 30, 2009 our total long-term indebtedness consisted of the
following (in thousands):
|
|
September
30,
2009
|
|
9.00%
Convertible Senior Notes, due 2012, net of debt discount of
$14,287
|
|
$
|
210,713
|
|
10.25%
Senior Notes, due 2014
|
|
|
175,000
|
|
Equipment
notes
|
|
|
54,566
|
|
Capital
lease and other
|
|
|
3,942
|
|
Total
|
|
|
444,221
|
|
Less
current portion
|
|
|
(17,998
|
)
|
Long-term
debt
|
|
$
|
426,223
|
|
Other
As
a regular part of our business, we review opportunities for, and engage in
discussions and negotiations concerning, the acquisition of coal mining assets
and interests in coal mining companies, and acquisitions of, or combinations
with, coal mining companies. When we believe that these opportunities are
consistent with our growth plans and our acquisition criteria, we will make bids
or proposals and/or enter into letters of intent and other similar agreements,
which may be binding or nonbinding, that are customarily subject to a variety of
conditions and usually permit us to terminate the discussions and any related
agreement if, among other things, we are not satisfied with the results of our
due diligence investigation. Any acquisition opportunities we pursue could
materially affect our liquidity and capital resources and may require us to
incur indebtedness, seek equity capital or both. There can be no assurance that
additional financing will be available on terms acceptable to us, or at
all.
Additionally,
we have other long-term liabilities, including, but not limited to, mine
reclamation and mine closure costs, below-market coal supply agreements and
“black lung” costs, and some of our subsidiaries have long-term liabilities
relating to retiree health and other employee benefits.
Our
ability to meet our long-term debt obligations will depend upon our future
performance, which in turn, will depend upon general economic, financial and
business conditions, along with competition, legislation and regulation — factors that are largely
beyond our control. We believe that cash flow from operations, together with
other available sources of funds, including additional borrowings under our
credit facility and equipment credit facility, will be adequate at least through
the third quarter of 2010 for making required payments of principal and interest
on our indebtedness and for funding anticipated capital expenditures and working
capital requirements. To the extent necessary, management believes it has some
flexibility to manage its cash requirements by controlling the pace and timing
of capital spending, utilizing availability under its credit facilities,
reducing certain costs and idling high-cost operations. In addition, management
may from time to time raise additional capital through the disposition of
non-core assets or engage in sale-leaseback transactions. However, we cannot
assure you that our operating results, cash flow and capital resources will be
sufficient for repayment of our debt obligations in the future.
Our
Convertible Senior Notes (the “Convertible Notes”) were not convertible as of
September 30, 2009. In the event that the Convertible Notes were to become
convertible and a significant number of the holders were to convert their notes
prior to maturity, we may not have enough available funds at any particular time
to make the required repayments. Under these circumstances, we would look to WL
Ross & Co. LLC, our banking group and other potential lenders to obtain
short-term funding until such time that we could secure necessary financing on a
long-term basis. The availability of any such financing would depend upon the
circumstances at the time, including the terms of any such financing, and other
factors.
37
Recent
Accounting Pronouncements
Fair Value Measurements—In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and
Disclosures (“ASC 820”). ASC 820 clarified the definition of fair value,
established a framework for measuring fair value and expanded the disclosures on
fair value measurements. Additionally, ASC 820 permitted delayed adoption for
certain non-financial assets and liabilities, which are not recognized at fair
value on a recurring basis, until fiscal years, and interim periods within those
fiscal years, beginning after November 15, 2008. ASC 820 demonstrated how
the fair value of a financial asset is determined when the market for that
financial asset is inactive, provided guidance on estimating fair value when the
volume and level of activity for an asset or liability have significantly
decreased in relation to normal market activity for the asset or liability and
provided guidance on circumstances that may indicate that a transaction is not
orderly. ASC 820 is effective for fiscal years beginning after November 15,
2007. Adoption of ASC 820 did not have a material impact on our financial
position, results of operations or cash flows.
Convertible Debt—In May 2008,
the FASB issued ASC Subtopic 470-20, Debt with Conversion and Other
Options (“ASC 470-20”). ASC 470-20 required the liability and equity
components of convertible debt instruments that may be settled in cash upon
conversion to be separately accounted for in a manner that reflects the issuer’s
nonconvertible debt borrowing rate. To allocate the proceeds from a convertible
debt offering in this manner, a company determines the carrying amount of the
liability component, which is based on the fair value of a similar liability,
excluding any embedded conversion options. The resulting debt discount is
amortized as additional non-cash interest expense over the period during which
the debt is expected to be outstanding. ASC 470-20 was effective for financial
statements for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years, and has been applied retrospectively for all
periods presented. We have determined our non-convertible borrowing rate would
have been 11.7% at issuance. The effect of adoption of ASC 470-20 was as
follows:
|
|
December
31, 2008
|
|
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As
Adjusted
|
|
Property,
plant, equipment and mine development
|
|
$
|
1,068,146
|
|
|
$
|
1,151
|
|
|
$
|
1,069,297
|
|
Debt
issuance costs, net
|
|
|
10,635
|
|
|
|
(173
|
)
|
|
|
10,462
|
|
Total
assets
|
|
|
1,349,669
|
|
|
|
978
|
|
|
|
1,350,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt and capital lease
|
|
|
434,920
|
|
|
|
(17,369
|
)
|
|
|
417,551
|
|
Deferred
tax liability
|
|
|
42,468
|
|
|
|
6,935
|
|
|
|
49,403
|
|
Total
liabilities
|
|
|
854,844
|
|
|
|
(10,434
|
)
|
|
|
844,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
643,480
|
|
|
|
13,517
|
|
|
|
656,997
|
|
Retained
deficit
|
|
|
(145,066
|
)
|
|
|
(2,105
|
)
|
|
|
(147,171
|
)
|
Total
International Coal Group, Inc. stockholders’ equity
|
|
|
494,790
|
|
|
|
11,412
|
|
|
|
506,202
|
|
Total
liabilities and stockholders’ equity
|
|
|
1,349,669
|
|
|
|
978
|
|
|
|
1,350,647
|
|
|
|
Three
months ended
September
30, 2008
|
|
|
Nine
months ended
September
30, 2008
|
|
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As
Adjusted
|
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As
Adjusted
|
|
Interest expense,
net
|
|
$
|
(8,837
|
)
|
|
$
|
(618
|
)
|
|
$
|
(9,455
|
)
|
|
$
|
(29,019
|
)
|
|
$
|
(1,800
|
)
|
|
$
|
(30,819
|
)
|
Income
tax expense
|
|
|
(2,183
|
)
|
|
|
234
|
|
|
|
(1,949
|
)
|
|
|
(2,496
|
)
|
|
|
681
|
|
|
|
(1,815
|
)
|
Net
income attributable to International Coal Group, Inc.
|
|
|
9,708
|
|
|
|
(384
|
)
|
|
|
9,324
|
|
|
|
12,300
|
|
|
|
(1,119
|
)
|
|
|
11,181
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
0.06
|
|
|
$
|
—
|
|
|
$
|
0.06
|
|
|
$
|
0.08
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.07
|
|
38
Business Combinations—In
December 2007, the FASB issued ASC Topic 805, Business Combinations (“ASC
805”). ASC 805 will significantly change the accounting for business
combinations. Under ASC 805, an acquiring entity will be required to recognize
all the assets acquired and liabilities assumed in a transaction at the
acquisition-date fair value with limited exceptions. ASC 805 will change the
accounting treatment for certain specific acquisition-related items including:
(i) expensing acquisition-related costs as incurred, (ii) valuing
noncontrolling interests at fair value at the acquisition date and
(iii) expensing restructuring costs associated with an acquired business.
ASC 805 also includes a substantial number of new disclosure requirements. ASC
805 is to be applied to any business combination for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. Adoption of ASC 805 will impact the accounting
for our future business combinations, as well as for tax uncertainties and
valuation allowances from prior acquisitions.
Noncontrolling Interests—In
December 2007, the FASB issued ASC Topic 810, Consolidation (“ASC 810”).
ASC 810 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary
(minority interest) is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements and
separate from the parent company’s equity. Among other requirements, this
statement requires consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the noncontrolling
interest. It also requires disclosure, on the face of the consolidated statement
of operations, of the amounts of consolidated net income attributable to the
parent and to the noncontrolling interest. ASC 810 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Adoption of ASC 810 impacted the presentation of
noncontrolling interest in our balance sheets and statements of operations
and cash flows. The impact of the changes in presentation was not
material.
Derivative Instruments—In
March 2008, the FASB issued ASC Topic 815, Derivatives and Hedging
(“ASC 815”). ASC 815 requires additional disclosures for derivative
instruments and hedging activities that include how and why an entity uses
derivatives, how these instruments and the related hedged items are accounted
for under ASC 815, and related interpretations, and how derivative instruments
and related hedged items affect the entity’s financial position, results of
operations and cash flows. ASC 815 is effective for fiscal years, and interim
periods within those fiscal years, beginning after November 15, 2008.
Adoption of ASC 815 did not impact the footnotes accompanying our consolidated
financial statements.
Share-Based Payments—In June
2008, the FASB issued ASC Topic 260, Earnings Per Share (“ASC
260”). ASC 260 clarifies that all outstanding unvested share-based payment
awards that contain rights to nonforfeitable dividends participate in
undistributed earnings with common shareholders. Awards of this nature are
considered participating securities and the two-class method of computing basic
and diluted earnings per share must be applied. ASC 260 is effective for fiscal
years beginning after December 15, 2008. Adoption of ASC 260 did not have a
material impact on our financial position, results of operations or cash
flows.
Financial Instruments—In June
2008, the FASB ratified ASC Subtopic 815-40, Contracts in Entity’s Own
Equity (“ASC 815-40”). ASC 815-40 provides that an entity should use a
two-step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the
instrument’s contingent exercise and settlement provisions. It also clarifies
the impact of foreign currency denominated strike prices and market-based
employee stock option valuation instruments on the evaluation. ASC 815-40 is
effective for fiscal years beginning after December 15, 2008. Adoption of ASC
815-40 did not have a material impact on our financial position, results of
operations or cash flows.
39
Impairments—In April 2009, the
FASB issued ASC Topic 320,
Investments–Debt and Equity Securities (“ASC 320”). ASC 320 modifies the
other-than-temporary impairment guidance for debt securities through increased
consistency in the timing of impairment recognition and enhanced disclosures
related to the credit and noncredit components of impaired debt securities that
are not expected to be sold. In addition, increased disclosures are required for
both debt and equity securities regarding expected cash flows, credit losses and
an aging of securities with unrealized losses. ASC 320 is effective for interim
and annual reporting periods that end after June 15, 2009. Adoption of ASC 320
did not impact our financial position, results of operations or cash
flows.
Fair Value Instruments—In
April 2009, the FASB issued ASC Topic 825, Financial Instruments (“ASC
825”). ASC 825 requires fair value disclosures for financial instruments that
are not reflected in the condensed consolidated balance sheets at fair value to
be disclosed on a quarterly basis, providing quantitative and qualitative
information about fair value estimates. ASC 825 is effective for interim
reporting periods ending after June 15, 2009. Adoption of ASC 825 did not impact
our financial position, results of operations or cash flows; however, adoption
did result in additional information being included in the footnotes
accompanying our consolidated financial statements. See Note 9.
Subsequent Events—In May 2009,
the FASB issued ASC Topic 855,
Subsequent Events (“ASC 855”). ASC 855 establishes principles and
requirements for events that occur after the balance sheet date, but before the
issuance of the financial statements. ASC 855 requires disclosure of the date
through which subsequent events have been evaluated and disclosure of certain
non-recognized subsequent events. ASC 855 is effective for interim and annual
periods ending after June 15, 2009. Adoption of ASC 855 did not have a material
impact on our financial position, results of operations or cash
flows.
Variable Interest Entities—In
June 2009, the FASB issued ASC Topic 810, Consolidation (“ASC 810”) to
improve financial reporting by enterprises involved with variable interest
entities and to provide more relevant and reliable information to users of
financial statements. ASC 810 is effective as of the first fiscal year beginning
after November 15, 2009. We do not believe that adoption of ASC 810 will
materially impact our financial position, results of operations or cash
flows.
FASB Codification—In
June 2009, the FASB issued ASC Topic 105, Generally Accepted Accounting
Principles (“ASC 105”). ASC 105 makes the FASB Accounting Standards
Codification the single source of authoritative U.S. accounting and reporting
standards, but it does not change U.S. generally accepted accounting principles.
ASC 105 is effective for interim and annual periods ending after
September 15, 2009. Adoption of ASC 105 did not have a material impact on
our financial condition, results of operations or cash flows.
Critical
Accounting Policies, Estimates and Assumptions
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to
make estimates and assumptions that affect reported amounts. These estimates and
assumptions are based on information available as of the date of the financial
statements. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year-end. The results of operations for the nine
months ended September 30, 2009 are not necessarily indicative of results
that can be expected for the full year. Please refer to the section entitled
“Critical Accounting Policies and Estimates” of Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” in
our Annual Report on Form 10-K for the year ended December 31, 2008 for a
discussion of our critical accounting policies and estimates.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Market price risk. We are
exposed to market price risk in the normal course of mining and selling
coal. We manage this risk through the use of long-term coal supply
agreements, rather than through the use of derivative instruments. As of
September 30, 2009, substantially all of our 2009 projected sales are committed
and priced. Any committed and unpriced projected sales are subject to future
market price volatility.
40
Disclosure
Controls and Procedures
We
maintain a set of disclosure controls and procedures designed to provide
reasonable assurance that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934 (the “Exchange
Act”) is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. Our disclosure
controls and procedures are also designed to provide reasonable assurance that
information required to be disclosed in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including
the Chief Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosure. As of the end of the period covered by
this Quarterly Report on Form 10-Q, an evaluation of the effectiveness of our
disclosure controls and procedures has been carried out under the supervision
and with the participation of our management, including the Chief Executive
Officer and Chief Financial Officer. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective.
Changes
in Internal Controls Over Financial Reporting
There
have been no changes in our internal controls over financial reporting during
the third quarter of fiscal 2009 that have materially affected, or are
reasonably likely to materially affect, our system of internal control over
financial reporting.
See
Note 10 – Commitments and
Contingencies-Legal Matters to the condensed consolidated financial
statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q
relating to certain legal proceedings, which information is incorporated herein
by reference.
Listed
below are risk factors that have been revised or added to those disclosed in our
Annual Report on Form 10-K for the fiscal year ended December 31,
2008.
Judicial
rulings that restrict disposal of mining spoil material could significantly
increase our operating costs, discourage customers from purchasing our coal and
materially harm our financial condition and operating results.
Mining
in the mountainous terrain of Appalachia typically requires the use of valley
fills for the disposal of excess spoil (rock and soil material) generated by
construction and mining activities. In our surface mining operations, we use
mountaintop removal mining wherever feasible because it allows us to recover
more tons of coal per acre and facilitates the permitting of larger projects,
which allows mining to continue over a longer period of time than would be the
case using other mining methods. Mountaintop removal mining, along with other
methods of surface mining, depends on valley fills to dispose of mining spoil
material. Construction of roads, underground mine portal sites, coal processing
and handling facilities and coal refuse embankments or impoundments related to
both surface and underground mining also require the development of valley
fills. We obtain permits to construct and operate valley fills and surface
impoundments from the Army Corps of Engineers (the “Corps”) under the auspices
of Section 404 of the federal Clean Water Act. Lawsuits challenging the
Corps’s authority to authorize surface mining activities under Nationwide Permit
21 (“NWP21”) or under more comprehensive individual permits have been instituted
by environmental groups, which also advocate for changes in federal and state
laws that would prevent or further restrict the issuance of such permits. Under
the provisions of a Memorandum of Understanding executed on June 11, 2009
between the Environmental Protection Agency, the Corps and the Department of the
Interior, the Corps intends to suspend the use of NWP21 for surface mining
activities in Appalachia while NWP21 is modified to prohibit its use to
authorize discharges of dredged or fill material into waters of the United
States for surface coal mining activities in the Appalachian region of the
following states: Kentucky, Ohio, Pennsylvania, Tennessee, Virginia and West
Virginia.
41
In
a March 2007 decision pertaining originally to certain Section 404 permits
issued to Massey Energy Company, Judge Robert C. Chambers of the U.S. District
Court for the Southern District of West Virginia ruled that the Corps failed to
adequately assess the impacts of surface mining on headwaters and approved
mitigation that did not appropriately compensate for stream losses. Judge
Chambers in June 2007 found that sediment ponds situated within a stream channel
violated the prohibition against using the waters of the U.S. for waste
treatment and further decided that using the reach of stream between a valley
fill and the sediment pond to transport sediment-laden runoff is prohibited by
the Clean Water Act. The Corps along with several intervenors appealed Judge
Chambers’ decisions to the Fourth Circuit Court of Appeals, which heard oral
arguments in September 2008. A three-judge panel of the Fourth Circuit on
February 13, 2009 reversed, vacated and remanded Judge Chambers’ March 2007 and
June 2007 decisions in their entirety, ruling that the Corps properly exercised
its discretion in the permit review and approval process. On May 29, 2009 the
Fourth Circuit Court of Appeals declined to rehear the case or to conduct a
hearing en banc. The appellees have stated their intentions to appeal the
February 13, 2009 decision to the U.S. Supreme Court.
A
similar challenge to the Corps Section 404 permit process was launched by
environmental groups in Kentucky in December 2007 when a lawsuit was filed in
federal court against the Corps alleging that it wrongfully issued a
Section 404 authorization for the expansion of ICG Hazard’s Thunder Ridge
surface mine. Hazard intervened in the suit to protect our interests. The Corps
suspended the Section 404 permit on December 26, 2007 in order to
evaluate the issues raised by the plaintiffs. The Corps completed its evaluation
on March 25, 2009, and on March 27, 2009, reinstated Hazard’s permit. Pursuant
to earlier agreements with the plaintiffs in the litigation, the Company
provided thirty (30) days notice to plaintiffs’ counsel of Hazard’s intent to
proceed with activities authorized under the permit. After such notice, the
plaintiffs agreed to amend the earlier agreement to allow Hazard partial use of
the reinstated permit, including construction of an additional valley fill.
Subsequently, the parties agreed to pursue resolution of the case in accordance
with a scheduling order issued by the court on June 24, 2009. In accordance with
that order, the plaintiffs filed an amended complaint on July 10, 2009. The
amended complaint updates the plaintiffs’ allegation to challenge the reissued
permit, rather than the original permit. The sequence of filings outlined in the
scheduling order will continue through November 2009, after which the court is
expected to render a decision. The Company currently has two subsidiaries in
that jurisdiction of Kentucky that will require Section 404 permits within
the next two years. If permitting requirements are substantially increased or if
mining methods at issue are limited or prohibited, it could greatly lengthen the
time needed to permit new reserves, significantly increase our operational
costs, make it more difficult to economically recover a significant portion of
our reserves and lead to a material adverse effect on our financial condition
and results of operation. We may not be able to increase the price we charge for
coal to cover higher production costs without reducing customer demand for our
coal. See “Legal Proceedings” contained in Part II, Item 1 of this Quarterly
Report on Form 10-Q.
Federal
or state legislation that restricts disposal of mining spoil material or coal
refuse material could eliminate certain mining methods, significantly increase
our operating costs and materially harm our financial condition and operating
results.
Congress
and state legislatures from time to time consider proposals that would
effectively prohibit the placement of materials generated by coal mining into
waters of the United States, which practice is essential to surface mining in
central Appalachia. A prohibition against excess spoil placement in streams
would essentially eliminate surface mining in steep terrain, thus rendering much
of our coal reserves unmineable. Restrictions on the placement of coal refuse
material in streams or in abandoned underground coal mines could limit the life
of existing coal processing operations, potentially block new coal preparation
plants and at minimum significantly increase our operating costs.
42
Reduced
coal consumption by North American electric power generators could result in
lower prices for our coal, which could reduce our revenues and adversely impact
our earnings and the value of our coal reserves.
Restrictions
on the emission of greenhouse gases, including carbon dioxide, continue to be
proposed and adopted by various legislative and regulatory bodies at federal,
state and local levels of government. The intended effect of these restrictions
is to discourage the combustion of fossil fuels in general and the generation of
electricity by coal in particular in favor of "alternative sources" of
energy which do not involve the combustion of fossil fuels. Most notably, on
June 26, 2009 the U.S. House of Representatives passed The American Clean Energy
and Security Act of 2009 (House Bill 2454). If enacted, this Bill would create
or expand myriad federal programs designed to reduce energy produced by burning
fossil fuels and increase alternative energy sources. In particular, the Bill
would reduce greenhouse gas emissions via a cap and trade system for larger
emitters, including coal-fired power plants. A cap would be placed on overall
U.S. greenhouse gas emissions beginning in 2012 and, compared to 2005 levels,
would increasingly reduce emissions by 83 percent in 2050. The economic impact
of the cost of this cap on coal users would be mitigated by allocating to
electric utilities and certain other industries "free allowances" which would
progressively decrease over time. The imposition of such a program may result in
more electric power generators shifting from coal to natural gas-fired plants or
alternative energy sources. Any reduction in the amount of coal consumed by
North American electric power generators could reduce the price of steam coal
that we mine and sell, thereby reducing our revenues and adversely impacting our
earnings and the value of our coal reserves.
We must obtain governmental permits and approvals for mining operations, which
can be a costly and time-consuming process, can result in restrictions on our
operations and is subject to litigation that may delay or prevent us from
obtaining necessary permits.
Our operations are principally regulated under surface mining permits issued
pursuant to the Surface Mining Control and Reclamation Act and state counterpart
laws. Such permits are issued for terms of five years with the right of
successive renewal. Separately, the Clean Water Act requires permits for
operations that discharge into waters of the United States. Valley fills and
refuse impoundments are authorized under permits issued by the Corps. The
Environmental Protection Agency (the “EPA”) has the authority, which it has
rarely exercised until recently, to object to permits issued by the
Corps. While the Corps is authorized to issue permits even when the EPA has
objections, the EPA does have the ability to override the Corps decision and
“veto” the permits. In September 2009, the EPA announced it had identified 79
pending permit applications for Appalachian surface coal mining, under a
coordination process with the Corps and the United States Department of the
Interior entered into in June 2009, that the EPA believes warrant further review
because of its continuing concerns about water quality and/or regulatory
compliance issues. These include four of our permit applications. While the
EPA has stated that its identification of these 79 permits does not constitute a
determination that the mining involved cannot be permitted under the Clean Water
Act and does not constitute a final recommendation from the EPA to the Corps on
these projects, it is unclear how long the further review will take
for our four permits or what the final outcome will be. It is also
unclear what impact this process may have on our future applications for surface
coal mining permits. Permitting under the Clean Water Act has been a frequent
subject of litigation by environmental advocacy groups that has resulted in
periodic delays in such permits issued by the Corps. Additionally, certain
operations (particularly preparation plants) have permits issued pursuant to the
Clean Air Act and state counterpart laws allowing and controlling the discharge
of air pollutants. Regulatory authorities exercise considerable discretion in
the timing of permit issuance. Requirements imposed by these authorities may be
costly and time-consuming and may result in delays in, or in some instances
preclude, the commencement or continuation of development or production
operations. Adverse outcomes in lawsuits challenging permits or failure to
comply with applicable regulations could result in the suspension, denial or
revocation of required permits, which could have a material adverse impact on
our financial condition, results of operations or cash flows.
43
10-Q
EXHIBIT INDEX
3.1
|
|
Form
of Second Amended and Restated Certificate of Incorporation of
International Coal Group, Inc.
|
|
(A
|
)
|
|
|
|
3.2
|
|
Form
of Second Amended and Restated By-laws of International Coal Group,
Inc.
|
|
(B
|
)
|
|
|
|
4.1
|
|
Form
of certificate of International Coal Group, Inc. common
stock
|
|
(C
|
)
|
|
|
|
10.1
|
|
Amendment
No. 1 to the Second Amended and Restated Credit Agreement, dated as of
January 31, 2007, among ICG, LLC, as borrower, International Coal Group,
Inc. and certain of its subsidiaries as guarantors, the lenders party
thereto, J.P. Morgan Chase Securities Inc. and UBS Securities LLC, as
joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A. and
CIT Capital USA Inc., as co-syndication agents, Bank of America, N.A. and
Wachovia Bank, N.A., as co-documentation agents, JPMorgan Chase Bank and
Bank of America, N.A., as issuing banks, UBS Loan Finance LLC, as
swingline lender, and UBS AG, Stamford Branch, as issuing bank, as
administrative agent and as collateral agent for the
lenders
|
|
(D
|
)
|
|
|
|
10.2
|
|
Second
Amendment and Limited Waiver to Second Amended and Restated Credit
Agreement, effective as of July 31, 2007, by and among ICG, LLC, as
borrower, the guarantors party thereto, the lenders party thereto, J.P.
Morgan Securities Inc. and UBS Securities LLC, as joint lead arrangers and
joint bookrunners, JPMorgan Chase Bank, N.A. and CIT Capital Securities
LLC, as co-syndication agents, Bank of America, N.A. and Wachovia Bank,
N.A. as co-documentation agents, JPMorgan Chase Bank, N.A. as an issuing
bank, UBS Loan Finance LLC, as swingline lender, and UBS AG, Stamford
Branch, as an issuing bank, administrative agent and collateral
agent
|
|
(E
|
)
|
|
|
|
10.3
|
|
Amendment
No. 3 to the Second Amended and Restated Credit Agreement, dated as of
February 20, 2009, among ICG, LLC, as borrower, International Coal Group,
Inc. and certain of its subsidiaries as guarantors, the lenders party
thereto, J.P. Morgan Chase Securities Inc. and UBS Securities LLC, as
joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A. and
CIT Capital USA Inc., as co-syndication agents, Bank of America, N.A. and
Wachovia Bank, N.A., as co-documentation agents, JPMorgan Chase Bank and
Bank of America, N.A., as issuing banks, UBS Loan Finance LLC, as
swingline lender, and UBS AG, Stamford Branch, as issuing bank, as
administrative agent and as collateral agent for the
lenders
|
|
(F
|
)
|
|
|
|
|
|
|
10.4
|
|
Amendment
No. 4 to the Second Amended and Restated Credit Agreement, dated as of
September 28, 2009, among ICG, LLC, as borrower, International Coal Group,
Inc. and certain of its subsidiaries as guarantors, the lenders party
thereto, J.P. Morgan Chase Securities Inc. and UBS Securities LLC, as
joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A. and
CIT Capital USA Inc., as co-syndication agents, Bank of America, N.A. and
Wachovia Bank, N.A., as co-documentation agents, JPMorgan Chase Bank and
Bank of America, N.A., as issuing banks, UBS Loan Finance LLC, as
swingline lender, and UBS AG, Stamford Branch, as issuing bank, as
administrative agent and as collateral agent for the
lenders
|
|
(G
|
)
|
|
|
|
|
|
|
31.1
|
|
Certification
of the Principal Executive Officer
|
|
(H
|
)
|
|
|
|
31.2
|
|
Certification
of the Principal Financial Officer
|
|
(H
|
)
|
|
|
|
32.1
|
|
Certification
Pursuant to §906 of the Sarbanes Oxley Act of 2002
|
|
(H
|
)
|
44
(A)
|
|
Previously
filed as an exhibit to Amendment No. 4 to International Coal Group,
Inc.’s Registration Statement on Form S-1 (Reg. No. 333-124393),
filed on October 24, 2005.
|
|
|
(B)
|
|
Previously
filed as an exhibit to Amendment No. 5 to International Coal Group,
Inc.’s Registration Statement on Form S-1 (Reg. No. 333-124393),
filed on November 9, 2005.
|
|
|
(C)
|
|
Previously
filed as an exhibit to Amendment No. 3 to International Coal Group,
Inc.’s Registration Statement on Form S-1 (Reg. No. 333-124393),
filed on September 28, 2005 and incorporated herein by
reference.
|
|
|
(D)
|
|
Previously
filed as an exhibit to International Coal Group, Inc.’s Annual Report on
Form 10-K for the year ended December 31, 2006 filed on March 1,
2007.
|
|
|
(E)
|
|
Previously
filed as an exhibit to International Coal Group, Inc.’s Current Report on
Form 8-K filed on July 31, 2007.
|
|
|
(F)
|
|
Previously
filed as an exhibit to International Coal Group, Inc.’s Current Report on
Form 8-K for filed on February 23, 2009.
|
|
|
|
(G)
|
|
Previously
filed as an exhibit to International Coal Group, Inc.’s Current Report on
Form 8-K filed on September 29, 2009.
|
|
|
(H)
|
|
Filed
herewith.
|
|
|
45
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
INTERNATIONAL
COAL GROUP, INC.
|
|
|
By:
|
|
/s/
Bennett K. Hatfield
|
Name:
|
|
Bennett
K. Hatfield
|
Title:
|
|
President, Chief Executive Officer and Director
|
|
|
(Principal
Executive Officer)
|
|
|
By:
|
|
/s/
Bradley W. Harris
|
Name:
|
|
Bradley
W. Harris
|
Title:
|
|
Senior
Vice President, Chief Financial Officer and Treasurer
|
|
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(Principal
Financial Officer)
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Date:
November 6, 2009
46