James River Coal (JRCC)

Q4 2010 Earnings Call

March 07, 2011 9:00 am ET


Peter Socha - Chairman, Chief Executive Officer and President

Elizabeth Cook - Director of Investor Relations

Coy Lane - Chief Operating Officer and Senior Vice President


Brian Gamble - Simmons and Company

Justine Fisher - Goldman Sachs Group Inc.

James Rollyson - Raymond James & Associates, Inc.

Brett Levy - Jefferies & Company

William Burns - Johnson Rice & Company, L.L.C.

Justine Fisher - Goldman Sachs

Michael Dudas - Jefferies & Company, Inc.

Shneur Gershuni - UBS Investment Bank

David Khani - FBR Capital Markets & Co.

Curt Woodworth - Macquarie Research

Jeremy Sussman - Brean Murray, Carret & Co., LLC



Good day, ladies and gentlemen, and welcome to the James River Coal Company Fourth Quarter Earnings Call. [Operator Instructions] And now I'll turn the call over to Beth Cook. Please begin.

Elizabeth Cook

Thanks, Tyrone. And thank you, and good morning. Welcome to James River Coal Company's Fourth Quarter Earnings Call. We released our earnings yesterday evening and our current releases and presentation are posted on our website and were furnished to the SEC on a Form 8-K.

On the call with me today are Peter Socha, Chairman and Chief Executive Officer; C.K. Lane, Senior Vice President and Chief Operating Officer; Sam Hopkins, Vice President and Chief Accounting Officer; and Jim Ketron, Vice President and General Counsel.

Before we begin this morning, I need to remind you that this call will contain forward-looking statements. These forward-looking statements should be considered along with the risk factors that we note at the end of our press release as well as in our annual report on Form 10-K and other SEC filings.

I'll now turn the call over to Peter Socha.

Peter Socha

Hey, good morning, Thank you, Beth. Good morning, everyone. We appreciate your time. Also, on the call with us today are Gary White, the Chief Executive Officer of IRP; and Joe Czul, who is in Charleston. I think Joe's in listen-only mode, but if I say something stupid he's going to send me an e-mail. So he's kind of on the call.

Anyway, we are going to walk through the slides and discuss the IRP transaction. It is a transaction that we've been working on since December, and certainly, since January in a very hard way. And we're very excited about it. It is the perfect fit, as I've described to several of you in e-mails and text messages that we got overnight. It's the perfect fit for James River Coal Company, and certainly, those of you who have followed us for the last several years recognize it to be that way.

Just going through the overview, it is a transaction for $475 million cash-free, debt-free, all cash consideration. Synergies, I'll talk to in a few moments. We do have -- we've not quantified all of the synergies, but they are definitely there. We haven't obtained, from Deutsche Bank and from UBS, $375 million of committed financing. Our intent is to access the capital markets before that committed financing is required. And so, I'm sure we'll get to that in the Q&A. We do expect it to close fairly quickly, and we do not expect much in a way of regulatory issues or conditions preceding to closing.

It is an accretive transaction in virtually every scenario that we have modeled. It's accretive on earnings per share and on cash flow per share, that is assuming the permanent financing is in place Obviously, with the bridge financing it would be very accretive, but we don't believe that, that is appropriate or prudent. But it is accretive on a cash-flow and EPS basis, permanent financing in place.

You can see on the next slide that IRP and L&K are very profitable. They, like us, focus very much on margin. Let me back up a little bit and say that we first met with all of the principals of IRP and L&K back in January. And we had looked at it. We had some information on it presented to us in December. But culturally, just in terms of comfort, when you're in the room with the principals and you get a sense of how they run their business and how we run our business, it was an exact fit.

On the L&K side, they start with the customer. They start with that direct relationship with the customer, constant contact, understanding what they need. On the IRP side, in the mines, they start with the employees. They start with the community's. And they start with safety. Those are all things that are dearly important to us. And inside of 10 minutes of that first meeting, I was absolutely certain we were going to do this transaction, that it would be best fit. C.K. said to me, this is the best fit of any company we have looked at ever at James River. So that's something we're very, very pleased. And I'll talk about it, hopefully, in the Q&A.

What it does for James River? And what it does for IRP and L&K? We got size and scale. If you have followed us for a while, size, scale, diversity of assets is important to us. It adds metal shipments; it adds global coal shipments; and it adds -- it's union-free, so we will not have the UMWA issues possible later this year; and it has minimum legacy liabilities.

You can see on the next two sides, I think. Yes, the next two sides, you can see how it fits up with us geographically. Southwestern, West Virginia and Eastern Kentucky, Laurel Mountain Resources are the former Miller Bros. properties in Eastern Kentucky and at Hampden Coal Company down in Gilbert.

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