PEABODY ENERGY CORPORATION As used in this report, the terms "Peabody" or "the Company" refer toPeabody Energy Corporation or its applicable subsidiary or subsidiaries. Unless otherwise noted herein, disclosures in this Quarterly Report on Form 10-Q relate only to the Company's continuing operations. When used in this filing, the term "ton" refers to short or net tons, equal to 2,000 pounds (907.18 kilograms), while "tonne" refers to metric tons, equal to 2,204.62 pounds (1,000 kilograms).
Cautionary Notice Regarding Forward-Looking Statements
This report includes statements of Peabody's expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and are intended to come within the safe harbor protection provided by those sections. These statements relate to future events or Peabody's future financial performance. The Company uses words such as "anticipate," "believe," "expect," "may," "forecast," "project," "should," "estimate," "plan," "outlook," "target," "likely," "will," "to be" or other similar words to identify forward-looking statements. Without limiting the foregoing, all statements relating to Peabody's future operating results, anticipated capital expenditures, future cash flows and borrowings, and sources of funding are forward-looking statements and speak only as of the date of this report. These forward-looking statements are based on numerous assumptions that Peabody believes are reasonable, but are subject to a wide range of uncertainties and business risks, and actual results may differ materially from those discussed in these statements. These factors are difficult to accurately predict and may be beyond the Company's control. When considering these forward-looking statements, you should keep in mind the cautionary statements in this document and in the Company's otherSecurities and Exchange Commission (SEC) filings, including, but not limited to, the more detailed discussion of these factors and other factors that could affect its results contained in Item 1A. "Risk Factors" and Item 3. "Legal Proceedings" of its Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onFebruary 18, 2022 . These forward-looking statements speak only as of the date on which such statements were made, and the Company undertakes no obligation to update these statements except as required by federal securities laws. Non-GAAP Financial Measures
The following discussion of the Company's results of operations includes
references to and analysis of Adjusted EBITDA, which is a financial measure not
recognized in accordance with
Also included in the following discussion of the Company's results of operations are references to Revenue per Ton, Costs per Ton and Adjusted EBITDA Margin per Ton for each mining segment. These metrics are used by management to measure each of its mining segments' operating performance. Management believes Costs per Ton and Adjusted EBITDA Margin per Ton best reflect controllable costs and operating results at the mining segment level. The Company considers all measures reported on a per ton basis to be operating/statistical measures; however, the Company includes reconciliations of the related non-GAAP financial measures (Adjusted EBITDA and Total Reporting Segment Costs) in the "Reconciliation of Non-GAAP Financial Measures" section contained within this Item 2. In its discussion of liquidity and capital resources, the Company includes references to Free Cash Flow which is also a non-GAAP measure. Free Cash Flow is used by management as a measure of its financial performance and its ability to generate excess cash flow from its business operations. The Company believes non-GAAP performance measures are used by investors to measure its operating performance and lenders to measure its ability to incur and service debt. These measures are not intended to serve as alternatives toU.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies. Refer to the "Reconciliation of Non-GAAP Financial Measures" section contained within this Item 2 for definitions and reconciliations to the most comparable measures underU.S. GAAP. 28
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Table of Contents Overview Peabody is a leading producer of metallurgical and thermal coal. In 2021, the Company produced and sold 126.9 million and 130.1 million tons of coal, respectively, from continuing operations. AtMarch 31, 2022 , the Company owned interests in 17 active coal mining operations located inthe United States (U.S. ) andAustralia . Included in that count is Peabody's 50% equity interest inMiddlemount Coal Pty Ltd. (Middlemount), which owns theMiddlemount Mine inQueensland, Australia . In addition to its mining operations, the Company markets and brokers coal from other coal producers, both as principal and agent, and trades coal and freight-related contracts. The Company reports its results of operations primarily through the following reportable segments: Seaborne Thermal Mining, Seaborne Metallurgical Mining, PowderRiver Basin Mining , OtherU.S. Thermal Mining and Corporate and Other. Refer to Note 17. "Segment Information" to the accompanying unaudited condensed consolidated financial statements for further information regarding those segments and the components of its Corporate and Other segment. Spot pricing for premium low-vol hard coking coal (Premium HCC), premium low-vol pulverized coal injection (Premium PCI) coal,Newcastle index thermal coal and API 5 thermal coal, and prompt month pricing for PRB 8,880 Btu/Lb coal andIllinois Basin 11,500 Btu/Lb coal during the three months endedMarch 31, 2022 is set forth in the table below. The seaborne pricing included in the table below is not necessarily indicative of the pricing the Company realized during the three months endedMarch 31, 2022 due to quality differentials and the majority of its seaborne sales being executed through annual and multi-year international coal supply agreements that contain provisions requiring both parties to renegotiate pricing periodically. The Company's typical practice is to negotiate pricing for seaborne metallurgical coal contracts on a bi-annual, quarterly, spot or index basis and seaborne thermal coal contracts on an annual, spot or index basis. In theU.S. , the pricing included in the table below is also not necessarily indicative of the pricing the Company realized during the three months endedMarch 31, 2022 since the Company generally sells coal under long-term contracts where pricing is determined based on various factors. Such long-term contracts in theU.S. may vary significantly in many respects, including price adjustment features, price reopener terms, coal quality requirements, quantity parameters, permitted sources of supply, treatment of environmental constraints, extension options, force majeure and termination and assignment provisions. Competition from alternative fuels such as natural gas and other fuel sources may also impact the Company's realized pricing. March 31, April 29, High Low Average 2022 2022 Premium HCC (1)$ 670.50 $ 357.75 $ 487.80 $ 515.00 $ 518.00 Premium PCI coal (1) 655.00 244.50 393.47 475.50 460.00Newcastle index thermal coal (1) 395.59 201.54 263.75 271.06 356.03 API 5 thermal coal (1) 284.20 109.66 172.41 190.00 196.62 PRB 8,800 Btu/Lb coal (2) 27.50 17.50 21.67 17.50 15.78Illinois Basin 11,500 Btu/Lb coal (2) 155.00 88.00 104.06 126.00 131.00 (1) Prices expressed per metric tonne. (2) Prices expressed per short ton. Within the global coal industry, supply and demand for its products and the supplies used for mining have been impacted by the recent Russian-Ukrainian conflict and the coronavirus (COVID-19) pandemic. Furthermore, inflationary pressures have contributed to rising costs. As future developments related to the Russian-Ukrainian conflict, the COVID-19 pandemic and rising inflation are unknown, the global coal industry data for the three months endedMarch 31, 2022 presented herein may not be indicative of their ultimate impacts. 29
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Within the seaborne metallurgical coal market, the three months endedMarch 31, 2022 were characterized by significant volatility, primarily driven by sanctions and trade redistribution efforts following the onset of the Russian-Ukrainian conflict. Buyers inAtlantic markets are seeking to mitigate exposure to Russian coal imports, causing an upswell in demand for supply from other regions such asAustralia , theU.S. andCanada . Market prices rose approximately$300 per metric tonne from January to mid-March, far exceeding prior records, before falling a similar quantum through the end of March and start of April amid scant market liquidity. Prices have once more begun increasing in April, following theEuropean Union andJapan firming their stance and announcing total bans on Russian coal imports. This will have a particular impact on the PCI market, whereRussia accounts for approximately 35% of global traded volumes.China's unofficial ban on Australian coal remains in place and continues to disrupt traditional trade flows. Global supply remains tight and this dynamic is only intensifying with the sanctions imposed on Russian imports. The Company believes energy shortages in some markets present a risk to industrial activity but the underlying market fundamentals remain constructive. Within the seaborne thermal coal market, the Russian-Ukrainian conflict and the subsequent ban of Russian coal by European countries has driven global thermal coal prices to record levels and high volatility during the three months endedMarch 31, 2022 . Prior to the Russian-Ukrainian conflict, thermal coal supply was already tight due to an export ban inIndonesia in January as well as heavy rains and COVID-19 restrictions inAustralia . During the three months endedMarch 31, 2022 ,Newcastle thermal coal pricing hit record levels due to concerns over a severe supply shock following the onset of the Russian-Ukrainian conflict, but pricing subsided slightly to end the quarter in the$200 per metric tonne range. InChina , domestic coal production has been strong during the three months endedMarch 31, 2022 , which has lowered import demand to start the year. InIndia , coal production has been elevated as well, allowing coal buyers to wait for lower thermal seaborne prices and limit imports; however stockpile levels have fallen recently. Overall, global thermal coal markets remain turbulent as supply remains tight and European coal importers look to replace Russian coal. Inthe United States , overall electricity demand increased more than 3% year-over-year, positively impacted by weather. Through the three months endedMarch 31, 2022 , electricity generation from thermal coal has declined year-over-year due to strong year-over-year comparatives inFebruary 2021 , as well as record renewable generation. Coal's share of electricity generation has declined slightly to approximately 22% for the three months endedMarch 31, 2022 , while wind generation's share has increased to 11%. Coal inventories have continued to decline sinceDecember 2021 , with a decline of approximately 5% or 5 million tons. During the three months endedMarch 31, 2022 , utility consumption of PRB coal rose approximately 1% compared to the prior year period.
Financing and Liquidity Transactions
During the first quarter of 2022, Peabody issued convertible senior unsecured notes and used the proceeds of the offering to retire nearer term higher cost senior secured debt. This both lowered the Company's borrowing rates and extended debt maturities to 2028. High demand and tight supply for coal globally has resulted in a substantial rise in seaborne thermal coal prices, which has been amplified by the Russian-Ukrainian conflict, resulting in unprecedented upward volatility inNewcastle coal pricing since late February. As a result, Peabody posted additional cash margin of$351.6 million during the three months endedMarch 31, 2022 to satisfy the margin requirements for its derivative contracts. During the quarter, the Company put in place a revolving financing facility to support near-term liquidity requirements, particularly with respect to these cash margin requirements which fluctuate depending upon the underlying market coal prices. The Company received proceeds under the revolving financing facility which were repaid in full with proceeds from the sale of shares under the at-the-market offering program.
Refer to the "Liquidity and Capital Resources" section contained within this Item 2 for a further discussion of these financing and liquidity transactions.
Other
InMarch 2022 , the Company entered into a joint venture with unrelated partners to formR3 Renewables LLC (R3). R3 was formed with the intent of developing various sites, including certain non-mining land held by the Company in theU.S. , for utility-scale photovoltaic solar generation and battery storage. The Company's interest in R3 is accounted for as an equity method investment. The Company contributed$2.0 million to R3 and recorded an equity loss of$1.0 million from its operations during the three months endedMarch 31, 2022 . 30
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InMarch 2022 ,Peabody Investments Corp. , a wholly owned subsidiary of the Company, entered into a commitment agreement relating to one of its qualified pension plans (the Plan) with an insurer. Under the commitment agreement, the Plan purchased a group annuity contract for approximately$500 million and the insurer will reimburse the Plan for future benefit payments to be made to the Plan's participants. Under the terms of this transaction, the Plan will continue to administer and pay the retirement benefits of Plan participants but will be reimbursed by the insurer for the payment of all benefits covered by the group annuity contract. Refer to Note 12. "Pension and Postretirement Benefit Costs" to the accompanying unaudited condensed consolidated financial statements for a further discussion of this transaction.
Results of Operations
Three Months Ended
Summary The Company's revenue for the three months endedMarch 31, 2022 increased compared to the same period in 2021 ($40.1 million ) primarily due to the impacts of higher pricing, offset by net unrealized mark-to-market losses on derivative contracts related to forecasted sales and other financial trading activity ($290.2 million ). Results from continuing operations, net of income taxes for the three months endedMarch 31, 2022 decreased compared to the same period in the prior year ($42.1 million ), primarily due to higher operating costs and expenses ($116.4 million ) which reflected inflationary pressures and increased costs for materials, services, repairs and labor related to the Company's efforts to ramp up the operations to meet current and anticipated volumes. The results were further impacted by net losses on early debt extinguishments in the current year ($27.0 million ). These unfavorable variances were offset by improved results from equity affiliates ($45.6 million ), a favorable revenue variance due to higher pricing exceeding the net unrealized mark-to-market losses as described above ($40.1 million ); and decreased interest expense ($13.0 million ).
Adjusted EBITDA for the three months ended
As ofMarch 31, 2022 , the Company's available liquidity was approximately$842 million . Refer to the "Liquidity and Capital Resources" section contained within this Item 2 for a further discussion of factors affecting the Company's available liquidity.
Tons Sold
The following table presents tons sold by operating segment:
(Decrease ) Increase
Three Months Ended March 31, to Volumes
2022 2021 Tons %
(Tons in millions)
Seaborne Thermal Mining 3.8 4.1 (0.3) (7) %
Seaborne Metallurgical Mining 1.2 1.0 0.2 20 %
Powder River Basin Mining 20.6 20.7 (0.1) - %
Other U.S. Thermal Mining 4.2 3.9 0.3 8 %
Total tons sold from mining segments 29.8 29.7 0.1 - %
Corporate and Other 0.1 0.5 (0.4) (80) %
Total tons sold 29.9 30.2 (0.3) (1) %
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Supplemental Financial Data
The following table presents supplemental financial data by operating segment:
Increase
Three Months Ended March 31, (Decrease)
2022 2021 $ %
Revenue per Ton - Mining Operations (1)
Seaborne Thermal $ 66.86 $ 43.36 $ 23.50 54 %
Seaborne Metallurgical 258.43 87.47 170.96 195 %
Powder River Basin 12.18 11.01 1.17 11 %
Other U.S. Thermal 48.46 38.76 9.70 25 %
Costs per Ton - Mining Operations (1)(2)
Seaborne Thermal $ 42.77 $ 36.36 $ 6.41 18 %
Seaborne Metallurgical 112.87 109.89 2.98 3 %
Powder River Basin 11.81 9.56 2.25 24 %
Other U.S. Thermal 36.54 29.37 7.17 24 %
Adjusted EBITDA Margin per Ton - Mining Operations (1)(2)
Seaborne Thermal $ 24.09 $ 7.00 $ 17.09 244 %
Seaborne Metallurgical 145.56 (22.42) 167.98 749 %
Powder River Basin 0.37 1.45 (1.08) (74) %
Other U.S. Thermal 11.92 9.39 2.53 27 %
(1)This is an operating/statistical measure not recognized in accordance with
U.S. GAAP. Refer to the "Reconciliation of Non-GAAP Financial Measures" section
below for definitions and reconciliations to the most comparable measures under
U.S. GAAP.
(2)Includes revenue-based production taxes and royalties; excludes depreciation,
depletion and amortization; asset retirement obligation expenses; selling and
administrative expenses; restructuring charges; asset impairment; amortization
of take-or-pay contract-based intangibles; and certain other costs related to
post-mining activities.
Revenue
The following table presents revenue by reporting segment:
Increase (Decrease) to
Three Months Ended March 31, Revenue
2022 2021 $ %
(Dollars in millions)
Seaborne Thermal Mining $ 251.2 $ 176.4 $ 74.8 42 %
Seaborne Metallurgical Mining 321.3 87.5 233.8 267 %
Powder River Basin Mining 251.2 228.4 22.8 10 %
Other U.S. Thermal Mining 203.1 149.3 53.8 36 %
Corporate and Other (335.4) 9.7 (345.1) (3,558) %
Revenue $ 691.4 $ 651.3 $ 40.1 6 %
Seaborne Thermal Mining. Segment revenue increased during the three months ended
March 31, 2022 compared to the same period in the prior year primarily due to
favorable realized coal pricing ($110.9 million ), offset by unfavorable volumes
($36.1 million ) which were impacted by a longwall move at the Wambo Underground
Mine , wet weather and COVID-19-related staffing shortages.
Seaborne Metallurgical Mining. Segment revenue increased during the three months
ended March 31, 2022 compared to the same period in the prior year due to
favorable realized coal pricing ($190.2 million ) and favorable volume and mix
variances ($43.6 million ).
Powder River Basin Mining . Segment revenue increased during the three months
ended March 31, 2022 compared to the same period in the prior year primarily due
to favorable realized coal pricing ($27.2 million ), partially offset by
unfavorable volumes ($4.4 million ).
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Other
Corporate and Other. Segment revenue decreased during the three months endedMarch 31, 2022 compared to the same period in the prior year primarily due to net unrealized mark-to-market losses on derivative contracts related to forecasted coal sales and other financial trading activity ($285.3 million ) and lower results from trading activities ($61.8 million ).
Adjusted EBITDA
The following table presents Adjusted EBITDA for each of the Company's reporting
segments:
Increase (Decrease) to
Three Months Ended March 31, Segment Adjusted EBITDA
2022 2021 $ %
(Dollars in millions)
Seaborne Thermal Mining $ 90.5 $ 28.5 $ 62.0 218 %
Seaborne Metallurgical Mining 181.0 (22.4) 203.4 908 %
Powder River Basin Mining 7.6 30.1 (22.5) (75) %
Other U.S. Thermal Mining 50.0 36.2 13.8 38 %
Corporate and Other (1.6) (11.3) 9.7 86 %
Adjusted EBITDA (1) $ 327.5 $ 61.1 $ 266.4 436 %
(1)This is a financial measure not recognized in accordance with
Seaborne Thermal Mining. Segment Adjusted EBITDA increased during the three months endedMarch 31, 2022 compared to the same period in the prior year as a result of higher realized net coal pricing ($102.3 million ), partially offset by unfavorable operational costs ($40.5 million ) resulting from the longwall move at theWambo Underground Mine , the impacts of wet weather, COVID-19-related staffing shortages and inflationary pressures. Seaborne Metallurgical Mining. Segment Adjusted EBITDA increased during the three months endedMarch 31, 2022 compared to the same period in the prior year due to higher realized net coal pricing ($176.3 million ) and cost improvements at certain mines ($23.4 million ). PowderRiver Basin Mining . Segment Adjusted EBITDA decreased during the three months endedMarch 31, 2022 compared to the same period in the prior year due to higher costs for materials, services, repairs and labor ($29.5 million ) related to efforts to ramp up the operations to meet current and anticipated volumes and the unfavorable impacts of higher commodity pricing ($14.7 million ), both of which were also impacted by inflationary pressures. These decreases were partially offset by higher realized net coal pricing ($27.3 million ). OtherU.S. Thermal Mining. Segment Adjusted EBITDA increased during the three months endedMarch 31, 2022 compared to the same period in the prior year due to higher realized net coal pricing ($41.6 million ) and favorable volumes ($6.7 million ). These increases were offset by higher costs for materials, services, repairs and labor ($24.4 million ) related to efforts to ramp up the operations to meet current and anticipated volumes and the unfavorable impacts of higher commodity pricing ($10.0 million ), both of which were also impacted by inflationary pressures. 33
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Corporate and Other Adjusted EBITDA. The following table presents a summary of the components of Corporate and Other Adjusted EBITDA:
Increase (Decrease) to
Three Months Ended March 31, Adjusted EBITDA
2022 2021 $ %
(Dollars in millions)
Middlemount (1) $ 45.1 $ (2.3) $ 47.4 2,061 %
Resource management activities (2) 3.5 0.4 3.1 775 %
Selling and administrative expenses (23.1) (21.7) (1.4) (6) %
Other items, net (3) (27.1) 12.3 (39.4) (320) %
Corporate and Other Adjusted EBITDA $ (1.6) $ (11.3) $ 9.7 86 %
(1)Middlemount's results are before the impact of related changes in deferred
tax asset valuation allowance and reserves and amortization of basis difference.
Middlemount's standalone results included (on a 50% attributable basis)
aggregate amounts of depreciation, depletion and amortization, asset retirement
obligation expenses, net interest expense and income taxes of $45.0 million and
$11.7 million during the three months ended March 31, 2022 and 2021,
respectively.
(2)Includes gains (losses) on certain surplus coal reserve and surface land sales and property management costs and revenue.
(3)Includes trading and brokerage activities, costs associated with post-mining
activities, gains (losses) on certain asset disposals, minimum charges on
certain transportation-related contracts, costs associated with suspended
operations including the
Corporate and Other Adjusted EBITDA benefited during the three months endedMarch 31, 2022 compared to the same period in the prior year from a favorable variance in Middlemount's results ($47.4 million ) due to the impact of higher sales pricing. This benefit was largely offset by unfavorable trading results ($41.9 million ).
Loss From Continuing Operations, Net of Income Taxes
The following table presents loss from continuing operations, net of income taxes:
Three Months Ended
2022 2021 $ %
(Dollars in millions)
Adjusted EBITDA (1) $ 327.5 $ 61.1 $ 266.4 436 %
Depreciation, depletion and amortization (72.9) (68.3) (4.6) (7) %
Asset retirement obligation expenses (15.0) (15.9) 0.9 6 %
Restructuring charges (1.6) (2.1) 0.5 24 %
Changes in deferred tax asset valuation allowance and
reserves and amortization of basis difference related to
equity affiliates 0.6 1.5 (0.9) (60) %
Interest expense (39.4) (52.4) 13.0 25 %
Net (loss) gain on early debt extinguishment (23.5) 3.5 (27.0) (771) %
Interest income 0.5 1.5 (1.0) (67) %
Unrealized losses on derivative contracts related to forecasted sales
(301.0) (1.9) (299.1) (15,742) %
Unrealized gains (losses) on foreign currency option contracts
3.3 (7.6) 10.9 143 %
Take-or-pay contract-based intangible recognition 0.7 1.1 (0.4) (36) %
Income tax benefit 1.0 1.8 (0.8) (44) %
Loss from continuing operations, net of income taxes $ (119.8) $ (77.7) $ (42.1) (54) %
(1)This is a financial measure not recognized in accordance with
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Depreciation, Depletion and Amortization. The following table presents a summary of depreciation, depletion and amortization expense by segment:
Three Months Ended March 31, (Decrease) Increase to Income
2022 2021 $ %
(Dollars in millions)
Seaborne Thermal Mining $ (24.0) $ (21.1) $ (2.9) (14) %
Seaborne Metallurgical Mining (19.9) (16.5) (3.4) (21) %
Powder River Basin Mining (10.5) (9.6) (0.9) (9) %
Other U.S. Thermal Mining (15.7) (17.2) 1.5 9 %
Corporate and Other (2.8) (3.9) 1.1 28 %
Total $ (72.9) $ (68.3) $ (4.6) (7) %
Additionally, the following table presents a summary of the Company's
weighted-average depletion rate per ton for active mines in each of its mining
segments:
Three Months Ended March 31,
2022 2021
Seaborne Thermal Mining $ 2.48 $ 1.87
Seaborne Metallurgical Mining 2.12 1.00
Powder River Basin Mining 0.33 0.23
Other U.S. Thermal Mining 1.17 1.12
Depreciation, depletion and amortization expense increased during the three
months ended March 31, 2022 compared to the same period in the prior year
primarily due to increased depletion. The increase in the weighted-average
depletion rate per ton for the Seaborne Thermal Mining segment during the three
months ended March 31, 2022 compared to the same period in the prior year
reflects the impact of the transition to the United Wambo Joint Venture. The
increase in the weighted-average depletion rate per ton for the Seaborne
Metallurgical Mining segment during the three months ended March 31, 2022
compared to the same period in the prior year reflects the volume and mix
variances which impacted the Company's revenue as described above.
Interest Expense. The decrease in interest expense during the three months ended
March 31, 2022 was primarily driven by prior year fees related to a series of
refinancing transactions completed by the Company ($10.6 million ) as further
described in Note 11. "Long-term Debt" to the Annual Report on Form 10-K for the
year ended December 31, 2021 .
Net (Loss) Gain on Early Debt Extinguishment. The loss recognized during the
three months ended March 31, 2022 was primarily related to the redemption of
existing notes during the period as further discussed in Note 11. "Long-term
Debt" to the accompanying unaudited condensed consolidated financial statements.
Unrealized Losses on Derivative Contracts Related to Forecasted Sales.
Unrealized losses primarily relate to mark-to-market activity on derivatives
related to forecasted sales. For additional information, refer to
Note 7. "Derivatives and Fair Value Measurements" to the accompanying unaudited
condensed consolidated financial statements.
Unrealized Gains (Losses) on Foreign Currency Option Contracts. Unrealized gains
(losses) primarily relate to mark-to-market activity on foreign currency option
contracts. For additional information, refer to Note 7. "Derivatives and Fair
Value Measurements" to the accompanying unaudited condensed consolidated
financial statements.
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Net Loss Attributable to Common Stockholders
The following table presents net loss attributable to common stockholders:
(Decrease) Increase
Three Months Ended March 31, to Income
2022 2021 $ %
(Dollars in millions)
Loss from continuing operations, net of income taxes $ (119.8) $ (77.7) $ (42.1) (54) %
Loss from discontinued operations, net of income taxes (0.8) (2.0) 1.2 60 %
Net loss (120.6) (79.7) (40.9) (51) %Less: Net (loss) income attributable to noncontrolling interests
(1.1) 0.4 (1.5) (375) %
Net loss attributable to common stockholders $ (119.5) $ (80.1) $ (39.4) (49) %
Diluted Earnings per Share (EPS)
The following table presents diluted EPS:
(Decrease) Increase
Three Months Ended March 31, to EPS
2022 2021 $ %
Diluted EPS attributable to common stockholders:
Loss from continuing operations $ (0.87) $ (0.79) $ (0.08) (10) %
Loss from discontinued operations (0.01) (0.02) 0.01 50 %
Net loss attributable to common stockholders $ (0.88) $ (0.81) $ (0.07) (9) %
Diluted EPS is commensurate with the changes in results from continuing
operations and discontinued operations during that period. Diluted EPS reflects
weighted average diluted common shares outstanding of 136.2 million and 98.4
million for the three months ended March 31, 2022 and 2021, respectively.
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA is defined as loss from continuing operations before deducting
net interest expense, income taxes, asset retirement obligation expenses and
depreciation, depletion and amortization. Adjusted EBITDA is also adjusted for
the discrete items that management excluded in analyzing each of its segment's
operating performance, as displayed in the reconciliations below.
Three Months Ended
March 31,
2022 2021
(Dollars in millions)
Loss from continuing operations, net of income taxes $ (119.8) $ (77.7)
Depreciation, depletion and amortization 72.9 68.3
Asset retirement obligation expenses 15.0 15.9
Restructuring charges 1.6 2.1
Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates
(0.6) (1.5)
Interest expense 39.4 52.4
Net loss (gain) on early debt extinguishment 23.5 (3.5)
Interest income (0.5) (1.5)
Unrealized losses on derivative contracts related to forecasted sales
301.0 1.9
Unrealized (gains) losses on foreign currency option contracts (3.3) 7.6
Take-or-pay contract-based intangible recognition (0.7) (1.1)
Income tax benefit (1.0) (1.8)
Total Adjusted EBITDA $ 327.5 $ 61.1
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Revenue per Ton and Adjusted EBITDA Margin per Ton are equal to revenue by
segment and Adjusted EBITDA by segment, respectively, divided by segment tons
sold. Costs per Ton is equal to Revenue per Ton less Adjusted EBITDA Margin per
Ton, and are reconciled to operating costs and expenses as follows:
Three Months Ended
March 31,
2022 2021
(Dollars in millions)
Operating costs and expenses $ 699.0 $ 582.6
Unrealized gains (losses) on foreign currency option contracts 3.3 (7.6)
Take-or-pay contract-based intangible recognition 0.7 1.1
Net periodic benefit credit, excluding service cost (12.2) (8.7)
Total Reporting Segment Costs $ 690.8 $ 567.4 The following table presents Reporting Segment Costs by reporting segment:
Three Months Ended March 31,
2022 2021
(Dollars in millions)
Seaborne Thermal Mining $ 160.7 $ 147.9
Seaborne Metallurgical Mining 140.3 109.9
Powder River Basin Mining 243.6 198.3
Other U.S. Thermal Mining 153.1 113.1
Corporate and Other (6.9) (1.8)
Total Reporting Segment Costs $ 690.8 $ 567.4 The following tables present tons sold, revenue, Reporting Segment Costs and Adjusted EBITDA by mining segment:
Three Months Ended
Seaborne
Seaborne Metallurgical Powder River Other U.S.
Thermal Mining Mining Basin Mining Thermal Mining
(Amounts in millions, except per ton data)
Tons sold 3.8 1.2 20.6 4.2
Revenue $ 251.2 $ 321.3 $ 251.2 $ 203.1
Reporting Segment Costs 160.7 140.3 243.6 153.1
Adjusted EBITDA $ 90.5 $ 181.0 $ 7.6 $ 50.0
Revenue per Ton $ 66.86 $ 258.43 $ 12.18 $ 48.46
Costs per Ton 42.77 112.87 11.81 36.54
Adjusted EBITDA Margin per Ton $ 24.09 $ 145.56 $ 0.37 $ 11.92
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Three Months Ended
Seaborne
Seaborne Metallurgical Powder River Other U.S.
Thermal Mining Mining Basin Mining Thermal Mining
(Amounts in millions, except per ton data)
Tons sold 4.1 1.0 20.7 3.9
Revenue $ 176.4 $ 87.5 $ 228.4 $ 149.3
Reporting Segment Costs 147.9 109.9 198.3 113.1
Adjusted EBITDA $ 28.5 $ (22.4) $ 30.1 $ 36.2
Revenue per Ton $ 43.36 $ 87.47 $ 11.01 $ 38.76
Costs per Ton 36.36 109.89 9.56 29.37
Adjusted EBITDA Margin per Ton $ 7.00 $
(22.42)
Free Cash Flow is defined as net cash (used in) provided by operating activities
less net cash provided by (used in) investing activities and excludes cash
outflows related to business combinations. See the table below for a
reconciliation of Free Cash Flow to its most comparable measure under
Three Months Ended March 31,
2022 2021
(Dollars in millions)
Net cash (used in) provided by operating activities $ (273.7) $ 71.0
Net cash provided by (used in) investing activities 35.2 (93.2)
Free Cash Flow $ (238.5) $ (22.2)
Regulatory Update
Other than as described in the following section, there were no significant
changes to the Company's regulatory matters subsequent to December 31, 2021 .
Information regarding the Company's regulatory matters is outlined in Part I,
Item 1. "Business" in its Annual Report on Form 10-K for the year ended
December 31, 2021 .
Regulatory Matters -
National Ambient Air Quality Standards (NAAQS). The Clean Air Act (CAA) requires theUnited States Environmental Protection Agency (EPA ) to review national ambient air quality standards every five years to determine whether revision to current standards are appropriate. As part of this recurring review process, theEPA in 2020 proposed to retain the ozone standards promulgated in 2015, including current secondary standards, and subsequently promulgated final standards to this effect. Fifteen states and other petitioners have filed a petition for review of the rule in theUnited States Court of Appeals for the D.C. Circuit (D.C. Circuit). The litigation is currently in abeyance following a motion filed by theEPA to allow for review of the standards. TheEPA also proposed in 2020 to retain the particulate matter (PM) standards last revised in 2012. OnDecember 18, 2020 , theEPA issued a final rule to retain both the primary annual and 24-hour PM standards for fine particulate matter (PM2.5) and the primary 24-hour standard for coarse particulate matter (PM10) and secondary PM10 standards. This rule has also been challenged in the D.C. Circuit by several states and environmental organizations. The case is currently in abeyance following a motion filed by theEPA to allow for review of the standards. OnMarch 11, 2022 , theEPA announced their Clean Air Act 'good neighbor' proposed rule. The rule would double the number of covered states, set first-time limits on certain industrial source plant boilers and require daily limits on emissions from large coal-fired power plants. TheEPA estimates that by 2026 the compliance cost will be$1.1 billion . More stringent PM or ozone standards would require new state implementation plans to be developed and filed with theEPA and may trigger additional control technology for mining equipment or result in additional challenges to permitting and expansion efforts. This could also be the case with respect to other NAAQS for nitrogen dioxide (NO2) and sulfur dioxide (SO2), although these standards are not subject to a statutorily-required review until 2023 for NO2 and 2024 for SO2. 38
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Cross State Air Pollution Rule (CSAPR) and CSAPR Update Rule. In 2011, theEPA finalized the CSAPR, which requires theDistrict of Columbia and 27 states fromTexas eastward (not including theNew England states orDelaware ) to reduce power plant emissions that cross state lines and significantly contribute to ozone and/or fine particle pollution in other states. In 2016, theEPA published the final CSAPR Update Rule which imposed additional reductions in nitrogen oxides (NOx) beginning in 2017 in 22 states subject to CSAPR. This rule was subsequently remanded back to theEPA .Wisconsin v.EPA , 938 F.3d 303. InApril 2021 , theEPA published a final rule in theFederal Register to address the D.C. Circuit remand. This rule imposed further reductions of NOx emissions in 12 states that were subject to the original 2016 rule, which was based on the 2008 ozone standard. In the same rule, theEPA determined that 9 states did not significantly contribute to downwind nonattainment and/or maintenance issues and therefore did not require additional emission reductions. TheEPA subsequently issued Federal Implementation Plans (FIPs) to lower state ozone season NOx budgets in 2021 to 2024 in the affected states. A petition for review challenging the 2021 rule has been filed in the D.C. Circuit and briefing in this litigation has been completed, but this does not stay the effectiveness of the rule. In addition, onFebruary 28, 2022 , theEPA released a proposed rule for additional FIPs to address interstate air pollution from fossil-fuel power plants in 25 states and certain industrial sources in 23 states. This rule is based on the more stringent 2015 ozone NAAQS and would, if finalized, affect some of the states covered by previous rules, but also include several new states, including states in the westernUnited States . Mercury and Air Toxic Standards (MATS). TheEPA published the final MATS rule in theFederal Register in 2012. The MATS rule revised the new source performance standards (NSPS) for NOx, SO2 and PM for new and modified coal-fueled electricity generating plants, and imposed maximum achievable control technology (MACT) emission limits on hazardous air pollutants (HAPs) from new and existing coal-fueled and oil-fueled electric generating plants. MACT standards limit emissions of mercury, acid gas HAPs, non-mercury HAP metals and organic HAPs. In 2020, theEPA issued a final rule reversing a prior finding and determined that it is not "appropriate and necessary" under the CAA to regulate HAP emissions from coal- and oil-fired power plants. This rule also finalized residual risk and technology review standards for the coal- and oil-fired electricity utility generating units source category. Both actions were challenged in the D.C. Circuit but this litigation was placed in abeyance. OnFebruary 9, 2022 theEPA proposed a rule to revoke the 2020 finding and to reaffirm the agency's 2016 finding that it remains "appropriate and necessary" to regulate HAP emissions from coal- and oil-fired powerplants under Clean Air Act section 112. In the same proposal, theEPA is also soliciting comments on the performance and cost of new or improved technologies to control HAPs from these powerplants as part of the agency's review of related residual risk and technology review standards.
Clean Water Act (CWA). The CWA of 1972 directly impacts
The U.S. Army Corps of Engineers (Corps) regulates certain activities affecting navigable waters and waters of theU.S. , including wetlands. Section 404 of the CWA requires mining companies to obtain permits from the Corps to place material in or mine through jurisdictional waters of theU.S. States are empowered to develop and apply water quality standards. These standards are subject to change and must be approved by theEPA . Discharges must either meet state water quality standards or be authorized through available regulatory processes such as alternate standards or variances. Standards vary from state to state. Additionally, through the CWA Section 401 certification program, state and tribal regulators have approval authority over federal permits or licenses that might result in a discharge to their waters. State and tribal regulators consider whether the activity will comply with their water quality standards and other applicable requirements in deciding whether or not to certify the activity. TheEPA issued a final rule in 2020 that could limit state and tribal regulators' authority by allowing theEPA to certify projects over state or tribal regulator objections in some circumstances. That rule was temporarily vacated by a district court, but aSupreme Court order onApril 7, 2022 , effectively reinstated the rule. TheEPA , however, plans to issue another proposal in 2022 that would supersede the 2020 rule.
Regulatory Matters -
The outcome of
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OnMarch 15, 2022 , theFull Court of the Federal Court ofAustralia overturned the decision inSharma v Minister for the Environment [2021]FCA 560 (Sharma ), a case which found in 2021 that the Federal Minister for the Environment had a duty to avoid causing personal injury or death to children inAustralia as a result of carbon emissions when deciding an application to approve a coal mine expansion. In light of this decision, the Minister no longer must consider the effects of carbon emissions when assessing referrals under the Environment Protection and Biodiversity Conservation Act 1999. However, an application bySharma for special leave to appeal to theHigh Court of Australia remains probable, and the duty could be reinstated. As part of the Queensland Government's 2019-20 Budget, it committed to freeze royalty rates on coal and minerals for three years provided companies voluntarily contribute to theResources Community Infrastructure Fund . The royalty freeze is due to end inJune 2022 and the Queensland Government has not established a replacement rate.The New South Wales Mining and Geoscience Department will be undertaking consultation with respect to the manner for calculating mining royalties inNew South Wales between April andJune 2022 as part of a proposed redraft of the Mining Royalties (COAL) - Ministerial Determination under Section 283(5) of the Mining Act 1992.
Risks Related to Global Climate Change
Peabody recognizes that climate change is occurring and that human activity, including the use of fossil fuels, contributes to greenhouse gas (GHG) emissions. The Company's largest contribution to GHG emissions occurs indirectly, through the coal used by its customers in the generation of electricity and the production of steel (Scope 3). To a lesser extent, the Company directly and indirectly contributes to GHG emissions from various aspects of its mining operations, including from the use of electrical power and combustible fuels, as well as from the fugitive methane emissions associated with coal mines and stockpiles (Scopes 1 and 2). Peabody's board of directors and management believe that coal is essential to affordable, reliable energy and will continue to play a significant role in the global energy mix for the foreseeable future. Peabody views technology as vital to advancing global climate change solutions, and the company supports advanced coal technologies to drive continuous improvement toward the ultimate goal of net-zero emissions from coal. The board of directors has ultimate oversight for climate-related risk and opportunity assessments, and has delegated certain aspects of these assessments to subject matter committees of the board. In addition, the board and its committees are provided regular updates on major risks and changes, including climate-related matters. The senior management team champions the strategic objectives set forth by the board of directors and Peabody's global workforce turns those objectives into meaningful actions. Management believes that the Company's external communications, including environmental regulatory filings and public notices,SEC filings, its annual Environmental, Social and Governance (ESG) Report, its website and various other stakeholder-focused publications provide a comprehensive picture of the Company's material risks and progress. All such communications are subject to oversight and review protocols established by Peabody's board of directors and executive leadership team. The Company faces risks from both the global transition to a net-zero emissions economy and the potential physical impacts of climate change. Such risks may involve financial, policy, legal, technological, reputational and other impacts as the Company meets various mitigation and adaptation requirements. 40
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The transition to a net-zero emissions economy is driven by many factors, including, but not limited to, legislative and regulatory rulemaking processes, campaigns undertaken by non-governmental organizations to minimize or eliminate the use of coal as a source of electricity generation, and the ESG-related policies of financial institutions and other private companies. The Company has experienced, or may in the future experience, negative effects on its results of operations due to the following specific risks as a result of such factors:
•Reduced utilization or closure of existing coal-fired electricity generating plants;
•Electricity generators switching from coal to alternative fuels, when feasible;
•Increased costs associated with regulatory compliance;
•Unfavorable impact of regulatory compliance on supply and demand fundamentals, such as limitations on financing or construction of new coal-fueled power stations;
•Uncertainty and inconsistency in rulemaking processes related to periodic governmental administrative and policy changes;
•Unfavorable costs of capital and access to financial markets and products due to the policies of financial institutions;
•Disruption to operations or markets due to anti-coal activism and litigation; and
•Reputational damage associated with involvement in GHG emissions.
With respect to the potential or actual physical impacts of climate change, the Company has identified the following specific risks:
•Disruption to water supplies vital to mining operations;
•Disruption to transportation and other supply chain activities;
•Damage to the Company's, customers' or suppliers' plant and equipment, or third-party infrastructure, resulting from weather events or changes in environmental trends and conditions; and
•Electrical grid failures and power outages.
While the Company faces numerous risks associated with the transition to a net-zero emissions economy and the physical impacts of climate change, certain opportunities may also emerge, such as:
•Heightened emphasis among multiple stakeholders to develop high-efficiency, low-emissions (HELE) technologies and carbon capture, use and storage (CCUS) technologies;
•Increased steel demand related to construction and other infrastructure projects related to climate change concerns; and
•The relative expense and reliability of renewable energy sources compared to coal may encourage support for balanced-source energy policies and regulations.
Global climate issues continue to attract public and scientific attention. Numerous reports, such as the Fourth and the Fifth Assessment Report of theIntergovernmental Panel on Climate Change, have also engendered concern about the impacts of human activity, especially fossil fuel combustion, on global climate issues. In turn, increasing government attention is being paid to global climate issues and to GHG emissions, including emissions of carbon dioxide from coal combustion by power plants. There have been significant developments in federal and state legislation and regulation and international accords regarding climate change. Such developments are described within Part I, Item 1. "Business" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . 41
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The enactment of future laws or the passage of regulations regarding emissions from the use of coal by theU.S. , some of its states or other countries, or other actions to limit such emissions, could result in electricity generators switching from coal to other fuel sources. Further, policies limiting available financing for the development of new coal-fueled power stations could adversely impact the global demand for coal in the future. The potential financial impact on Peabody of such future laws, regulations or other policies will depend upon the degree to which any such laws or regulations force electricity generators to diminish their reliance on coal as a fuel source. That, in turn, will depend on a number of factors, including the specific requirements imposed by any such laws, regulations or other policies, the time periods over which those laws, regulations or other policies would be phased in, the state of development and deployment of CCUS technologies as well as acceptance of CCUS technologies to meet regulations and the alternative uses for coal. Higher-efficiency coal-fired power plants may also be an option for meeting laws or regulations related to emissions from coal use. Several countries, including major coal users such asChina ,India andJapan , included using higher-efficiency coal-fueled power plants in their plans under the Paris Agreement. The Company believes HELE and CCUS technologies should be part of the solution to achieve substantial reductions in GHG emissions and should be broadly supported and encouraged, including through eligibility for public funding from national and international sources. In addition, CCUS merits targeted deployment incentives, like those provided to other low-emission sources of energy. From time to time, the Company's board of directors and management attempt to analyze the potential impact on the Company of as-yet-unadopted, potential laws, regulations and policies. Such analyses require significant assumptions as to the specific provisions of such potential laws, regulations and policies which sometimes show that if implemented in the manner assumed by the analyses, the potential laws, regulations and policies could result in material adverse impacts on the Company's operations, financial condition or cash flows. Such analyses cannot be relied upon to reasonably predict the quantitative impact that future laws, regulations or other policies may have on the Company's results of operations, financial condition or cash flows. OnMarch 21, 2022 , theSEC proposed rules that would require public companies to disclose extensive climate-related information in certainSEC filings. Specifically, the proposed rules would add new Subpart 1500 to Regulation S-K and new Article 14 to Regulation S-X to require disclosure of climate-related risks that are reasonably likely to have a material impact on a public company's business, results of operations, or financial condition; GHG emissions associated with a public company that includes, in many cases, an attestation report by a GHG emissions attestation provider; and climate-related financial metrics to be included in a company's audited financial statements. The Company is currently assessing the potential impact of the proposed rules. The proposal is open for public comment through at leastMay 21, 2022 .
Liquidity and Capital Resources
Overview
The Company's primary source of cash is proceeds from the sale of its coal production to customers. The Company has also generated cash from the sale of non-strategic assets, including coal reserves and surface lands, and, from time to time, borrowings under its credit facilities and the issuance of securities. The Company's primary uses of cash include the cash costs of coal production, capital expenditures, coal reserve lease and royalty payments, debt service costs, capital and operating lease payments, postretirement plans, take-or-pay obligations, post-mining reclamation obligations, collateral and margining requirements, and selling and administrative expenses. The Company has also used cash for dividends, share repurchases and early debt retirements. Any future determinations to return capital to stockholders, such as dividends or share repurchases will depend on a variety of factors, including the restrictions set forth under the Company's debt and surety agreements, its net income or other sources of cash, liquidity position and potential alternative uses of cash, such as internal development projects or acquisitions, as well as economic conditions and expected future financial results. The Company's ability to early retire debt, declare dividends or repurchase shares in the future will depend on its future financial performance, which in turn depends on the successful implementation of its strategy and on financial, competitive, regulatory, technical and other factors, general economic conditions, demand for and selling prices of coal and other factors specific to its industry, many of which are beyond the Company's control. The Company has presently suspended the payment of dividends and share repurchases, as discussed in Part II, Item 2. "Unregistered Sales ofEquity Securities and Use of Proceeds." 42
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Table of Contents Liquidity As ofMarch 31, 2022 , the Company's cash balances totaled$823.3 million , including approximately$331 million held byU.S. subsidiaries,$473 million held by Australian subsidiaries, and the remainder held by other foreign subsidiaries in accounts predominantly domiciled in theU.S. The Australian subsidiaries that conduct the operations of theWilpinjong Mine held cash of approximately$213 million atMarch 31, 2022 . A significant majority of the cash held by the Company's foreign subsidiaries is denominated inU.S. dollars. This cash is generally used to support non-U.S. liquidity needs, including capital and operating expenditures inAustralia . From time to time, the Company may repatriate excess cash from its foreign subsidiaries to theU.S. During the first quarter of 2022, the Company repatriated approximately$200 million . If additional foreign-held cash is repatriated in the future, the Company does not expect restrictions or potential taxes will have a material effect to its near-term liquidity.
The Company's available liquidity declined from
March 31, 2022 December 31, 2021
(Dollars in millions)
Cash and cash equivalents $ 823.3 $ 954.3
Credit facility availability 16.6 15.3
Accounts receivable securitization program availability 1.6 26.3
Total liquidity $ 841.5 $ 995.9
Subsequent to March 31, 2022 , the Company executed an amendment to its credit
facility to reduce its capacity by approximately $17 million and to make
allowable certain previously restricted payments for joint venture investments.
The amendment creates an investment basket which allows payments of $30.0
million per year specifically limited to investment in renewable energy-related
projects. Unused portions of the basket carryover from year-to-year, and the
total amount of investment will further reduce the credit facility capacity by a
like amount, or a minimum of $10.0 million per year, through the maturity of the
credit facility. The Company has no contractual commitment for such joint
venture investment.
Margin Requirements
From time to time, the Company enters into hedging arrangements, including economic hedging arrangements, to manage various risks, including coal price volatility. Most hedging arrangements require the Company to post margin with its clearing broker based on the value of the related instruments and other credit factors. If the fair value of its exchange-cleared hedge portfolio moves significantly, the Company could be required to post additional margin, which could negatively impact its liquidity. AtMarch 4, 2022 , the Company held coal derivative contracts in aggregate of 2.3 million metric tons. The majority of these contracts were entered into in the first half of 2021 and related to 1.9 million metric tons of production at theWambo Underground Mine in the Company's Seaborne Thermal Mining segment, which were expected to be mined and settled at a rate of 1.2 million metric tons in 2022 and 0.7 million metric tons in 2023. These hedge contracts were put in place to support the profitability of the mine, securing anticipated average prices of$84 per metric ton through mid-2023. The remaining hedges relate to brokered coal transactions and other blending and optimization activities, which will settle throughout 2022. High demand and tight supply for coal globally has resulted in a substantial rise in seaborne thermal coal prices, which has been amplified by the Russian-Ukrainian conflict resulting in unprecedented upward volatility inNewcastle coal pricing since late February. TheNewcastle financial price for March closed at$419.50 per metric ton onMarch 4, 2022 , which was 148% above the closing index price of$169.17 per metric ton onDecember 31, 2021 . As a result, the Company's total initial and variation margin requirements reached approximately$750 million duringMarch 2022 , and were$481.7 million atMarch 31, 2022 . Margin is returned to the Company upon reductions in the underlying market coal price or, absent such reductions, cash is recovered as the Company delivers coal into the market at spot prices.
Of the Company's total expected 2022 export sales from its Seaborne Thermal Mining segment, approximately 6% is hedged and approximately 53% is unpriced. The unpriced volume will benefit if the current pricing environment persists.
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OnMarch 7, 2022 , the Company entered into a credit agreement, by and among the Company, as borrower,Goldman Sachs Lending Partners LLC , as administrative agent, and the lenders party thereto (the Credit Agreement). The Credit Agreement provides for a$150 million unsecured revolving credit facility (the Revolving Facility), which will mature onApril 1, 2025 and bears interest at a rate of 10.0% per annum on drawn amounts. The Revolving Facility is intended to support the Company's near-term liquidity requirements, particularly with respect to the cash margin requirements associated with the Company's coal derivative contracts. Concurrently with the Credit Agreement, the Company entered into an agreement withGoldman Sachs & Company LLC to act as sales agent for at-the-market equity offerings of up to$225.0 million of the Company's common stock. During the three months endedMarch 31, 2022 , the Company borrowed and repaid$225.0 million under the Revolving Facility using net proceeds of$222.0 million from at-the-market issuances of 10.1 million shares of common stock and available cash. The equity offering agreement limit was reached as a result of these issuances and may not be further utilized without amendment and approval by the sales agent. The Company had no outstanding borrowings and no availability under the Revolving Facility atMarch 31, 2022 . To reduce exposure to additional margin requirements, subsequent toMarch 31, 2022 , the Company converted 0.8 million metric tons of financial hedges into fixed price physical sales over the next 12 months. With these transactions, 1.4 million metric tons remain outstanding with 0.9 million metric tons projected to settle over the remainder of 2022. OnApril 29, 2022 , the Company had$535.9 million of margin posted. For additional information regarding the Company's coal derivative contracts and related margin requirements, refer to Part I, Item 3. "Quantitative and Qualitative Disclosures About Market Risk" of this Quarterly Report. Indebtedness
The Company's total funded indebtedness (Indebtedness) as of
December 31,
Debt Instrument (defined below, as applicable) March 31, 2022 2021
(Dollars in millions)
6.000% Senior Secured Notes due March 2022 (2022 Notes) $
-
- 62.6
10.000% Senior Secured Notes due
193.6 193.9
Senior Secured Term Loan due 2024 (Co-Issuer Term Loans) 188.8 206.0
6.375% Senior Secured Notes due March 2025 (2025 Notes) 77.5 334.9
Senior Secured Term Loan due 2025, net of original issue discount (Senior Secured Term Loan)
321.8 322.8
3.250% Convertible Senior Notes due March 2028 (2028
Convertible Notes) 320.0 -
Finance lease obligations 27.6 29.3
Less: Debt issuance costs (31.2) (34.8)
1,098.1 1,137.8
Less: Current portion of long-term debt 19.1 59.6
Long-term debt $ 1,079.0 $ 1,078.2
The Company's Indebtedness will require estimated principal and interest
payments, assuming interest rates in effect at March 31, 2022 , of approximately
$60 million during the nine months ending December 31, 2022 , and approximately
$70 million in 2023, $455 million in 2024, $405 million in 2025, and $355
million thereafter.
Cash payments for interest related to the Company's Indebtedness and financial
assurance instruments amounted to $37.2 million and $56.3 million during the
three months ended March 31, 2022 and 2021, respectively.
2021 Financing Activity
During the first quarter of 2021, the Company completed a series of transactions
to, among other things, provide the Company with maturity extensions and
covenant relief, while allowing it to maintain near-term operating liquidity and
financial flexibility. These transactions included a senior notes exchange and
related consent solicitation, a revolving credit facility exchange, various
amendments to the Company's existing debt agreements, and completion of a
related surety transaction support agreement with the Company's surety bond
providers.
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Subsequent to these transactions in the first quarter of 2021, the Company completed additional financing transactions during 2021 intended to improve its capital structure. Such transactions included the implementation of an at-the-market equity offering program pursuant to which the Company sold approximately 24.8 million shares of common stock for net cash proceeds of$269.8 million , the retirement of$270.9 million principal amount of existing debt through various open market purchases at an aggregate cost of$232.4 million , and the issuance of an aggregate 10.0 million shares of common stock in exchange for an additional$106.1 million principal amount of existing debt through multiple bilateral transactions with debt holders. In the event of allowable open market purchases of its debt, the terms of the 2024 Peabody Notes and the letter of credit facility entered into by the Company in connection with the 2021 financing activity (Company LC Agreement) require the Company to make a mandatory repurchase offer to those debt and lien holders. In general, the repurchase offers equate to 25% of the principal amount of priority lien debt repurchased in the preceding quarter at a price equal to the weighted average repurchase price paid over that quarter. The open market debt repurchases completed during the three months endedDecember 31, 2021 necessitated a mandatory repurchase offer of up to$38.6 million of 2024 Peabody Notes, at 94.940% of their aggregate accreted value, plus accrued and unpaid interest, and a concurrent repurchase offer of priority lien obligations under the Company LC Agreement. The offer resulted in the valid tender and purchase of$0.1 million aggregate accreted value of 2024 Peabody Notes and$30.0 million aggregate principal and commitment amounts under the Company LC Agreement during the three months endedMarch 31, 2022 . The Company's purchase of the principal and commitment amounts under the Company LC Agreement was effected by the posting of$28.5 million of collateral with the administrative agent and did not reduce the availability under the facility. During the three months endedMarch 31, 2022 , the Company made no other open market purchases of its debt. The 2024 Co-Issuer Notes and the Co-Issuer Term Loans are also subject to mandatory prepayment offers at the end of each six-month period, beginning withJune 30, 2021 , whereby the Excess Cash Flow (as defined in the 2024 Co-Issuer Notes indenture) generated by theWilpinjong Mine during each such period will be applied to the principal of such notes and loans on a pro rata basis, provided that the liquidity attributable to theWilpinjong Mine would not fall below$60.0 million . Such prepayments may be accepted or declined at the option of the debt holders. Based upon theWilpinjong Mine's results for the six-month period endedDecember 31, 2021 , a required offer to prepay$105.6 million of total principal resulted in the prepayment of$17.2 million of Co-Issuer Term Loans principal,$0.3 million of 2024 Co-Issuer Notes principal, and a related loss on early debt extinguishment of$0.5 million during the three months endedMarch 31, 2022 . The 2021 financing activity and related agreements are more fully described in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theU.S. Securities and Exchange Commission onFebruary 18, 2022 .
Retirement of 2022 Notes
On
3.250% Convertible Senior Notes due 2028
OnMarch 1, 2022 , through a private offering, the Company issued$320.0 million in aggregate principal amount of 3.250% Convertible Senior Notes due 2028 (the 2028 Convertible Notes). The 2028 Convertible Notes are senior unsecured obligations of the Company and are governed under an indenture. The Company used the proceeds of the offering of the 2028 Convertible Notes to redeem the remaining$62.6 million of its outstanding 2024 Peabody Notes and, together with available cash, approximately$257.4 million of its outstanding 2025 Notes, and to pay related premiums, fees and expenses relating to the offering of the 2028 Convertible Notes and the redemptions. The redemption of existing notes was deemed a debt extinguishment for accounting purposes. The Company capitalized$11.2 million of debt issuance costs related to the offering and recognized a loss on early debt extinguishment of$23.0 million during the three months endedMarch 31, 2022 . The 2028 Convertible Notes will mature onMarch 1, 2028 , unless earlier converted, redeemed or repurchased in accordance with their terms. The 2028 Convertible Notes will bear interest fromMarch 1, 2022 at a rate of 3.250% per year payable semi-annually in arrears onMarch 1 andSeptember 1 of each year, beginning onSeptember 1, 2022 . During the three months endedMarch 31, 2022 , the Company incurred interest expense of$1.0 million related to the 2028 Convertible Notes. 45
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The 2028 Convertible Notes will be convertible at the option of the holders only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending onJune 30, 2022 , if the last reported sale price per share of the Company's common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the Measurement Period) in which the trading price per$1,000 principal amount of 2028 Convertible Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of the Company's common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company's common stock; (4) if the Company calls any 2028 Convertible Notes for redemption; and (5) at any time from, and including,September 1, 2027 until the close of business on the second scheduled trading day immediately before the maturity date. Upon conversion, the Company may satisfy its conversion obligation by paying or delivering, as applicable, cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election, in the manner and subject to the terms and conditions provided in the indenture. The initial conversion rate for the 2028 Convertible Notes will be 50.3816 shares of the Company's common stock per$1,000 principal amount of 2028 Convertible Notes, which represents an initial conversion price of approximately$19.85 per share of the Company's common stock. The initial conversion price represents a premium of approximately 32.5% to the$14.98 per share closing price of the Company's common stock onFebruary 24, 2022 . The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the indenture. If certain corporate events described in the indenture occur prior to the maturity date, or the Company delivers a notice of redemption (as described below), the conversion rate will be increased for a holder who elects to convert its 2028 Convertible Notes in connection with such corporate event or notice of redemption, as the case may be, in certain circumstances. The Company may not redeem the 2028 Convertible Notes prior toMarch 1, 2025 . The Company may redeem for cash all or any portion of the 2028 Convertible Notes, at its option, on or afterMarch 1, 2025 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to 100% of the principal amount of the 2028 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company's common stock exceeds 130% of the conversion price on (1) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (2) the trading day immediately before the date the Company sends such notice. However, the Company may not redeem less than all of the outstanding 2028 Convertible Notes unless at least$75 million aggregate principal amount of 2028 Convertible Notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice. No sinking fund is provided for the 2028 Convertible Notes. If the Company undergoes a fundamental change (as defined in the indenture), noteholders may require the Company to repurchase their 2028 Convertible Notes at a cash repurchase price equal to 100% of the principal amount of the 2028 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.
Covenant Compliance
The Company was compliant with all relevant covenants under its debt agreements atMarch 31, 2022 , including the minimum aggregate liquidity requirement under the Company LC Agreement which requires the Company's restricted subsidiaries to maintain minimum aggregate liquidity of$125.0 million at the end of each quarter throughDecember 31, 2024 . The Company's restricted subsidiaries' relevant liquidity amounted to$610.0 million atMarch 31, 2022 .
Accounts Receivable Securitization Program
As described in Note 15. "Financial Instruments and Other Guarantees" of the accompanying unaudited condensed consolidated financial statements, the Company entered into an accounts receivable securitization program during 2017. The securitization program was amended inJanuary 2022 to extend its maturity toJanuary 2025 and reduce the available funding capacity from$250.0 million to$175.0 million , which better aligns with the current average borrowing base. Funding capacity is limited to the availability of eligible receivables and is accounted for as a secured borrowing. Funding capacity under the program may also be utilized for letters of credit in support of other obligations. AtMarch 31, 2022 , the Company had no outstanding borrowings and$161.8 million of letters of credit issued under the program, which were primarily in support of portions of the Company's reclamation obligations. The Company was required to post$24.7 million of cash collateral under the Securitization Program atMarch 31, 2022 . 46
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Cash Flows and Free Cash Flow
The following table summarizes the Company's cash flows for the three months endedMarch 31, 2022 and 2021, as reported in the accompanying unaudited condensed consolidated financial statements. Free Cash Flow is a financial measure not recognized in accordance withU.S. GAAP. Refer to the "Reconciliation of Non-GAAP Financial Measures" section above for definitions and reconciliations to the most comparable measures underU.S. GAAP. Three Months Ended March 31, 2022 2021 (Dollars in millions) Net cash (used in) provided by operating activities $ (273.7)$ 71.0 Net cash provided by (used in) investing activities 35.2 (93.2) Net cash provided by (used in) financing activities 132.2 (63.3) Net change in cash, cash equivalents and restricted cash (106.3) (85.5)
Cash, cash equivalents and restricted cash at beginning of period
954.3 709.2
Cash, cash equivalents and restricted cash at end of period $ 848.0
Net cash (used in) provided by operating activities $ (273.7)$ 71.0 Net cash provided by (used in) investing activities 35.2 (93.2) Free Cash Flow $ (238.5)$ (22.2) Operating Activities. The increase in net cash used in operating activities for the three months endedMarch 31, 2022 compared to the same period in the prior year was driven by a year-over-year increase in cash utilized to satisfy the margin requirements associated with derivative financial instruments ($351.6 million ). Investing Activities. The increase in net cash provided by investing activities for the three months endedMarch 31, 2022 compared to the same period in the prior year was driven by higher distributions from related parties and joint ventures, on a net basis ($55.2 million ), higher cash receipts from the Company's equity method investments ($44.9 million ), and lower capital expenditures and payments of capital accruals ($25.0 million ). Financing Activities. The increase in net cash provided by financing activities for the three months endedMarch 31, 2022 compared to the same period in the prior year was driven by cash proceeds from long-term debt and common stock issuances ($545.0 million and$222.0 million , respectively), partially offset by higher repayments of debt principal ($559.7 million ) and higher distributions to non-controlling interests ($13.7 million ).
Off-Balance-Sheet Arrangements
In the normal course of business, the Company is a party to various guarantees and financial instruments that carry off-balance-sheet risk and are not reflected in the accompanying condensed consolidated balance sheets. AtMarch 31, 2022 , such instruments included$1,484.9 million of surety bonds and$469.1 million of letters of credit. Such financial instruments provide support for its reclamation bonding requirements, lease obligations, insurance policies and various other performance guarantees. The Company periodically evaluates the instruments for on-balance-sheet treatment based on the amount of exposure under the instrument and the likelihood of required performance. The Company does not expect any material losses to result from these guarantees or off-balance-sheet instruments in excess of liabilities provided for in its condensed consolidated balance sheets. 47
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As of
Health and Contract Leased property
Reclamation welfare (1) performance (2) and equipment Other (3) Total
(Dollars in millions)
Surety bonds and bank guarantees
$ 81.6$ 30.9 $ 18.2 $ 1,484.9 Letters of credit outstanding under letter of credit facility 206.0 89.2 7.1 5.0 -
307.3
Letters of credit outstanding under
accounts receivable securitization
program 134.0 17.7 10.1 - - 161.8
1,652.1 149.0 98.8 35.9 18.2 1,954.0
Less: Letters of credit in support of
surety bonds (4) (332.6) (30.2) (2.4) (1.2) - (366.4)
Less: Cash collateral in support of surety bonds (4) (15.0) - - - - (15.0) Obligations supported, net$ 1,304.5 $ 118.8 $ 96.4$ 34.7 $ 18.2 $ 1,572.6
(1) Obligations include pension and health care plans, workers' compensation, and property and casualty insurance
(2) Obligations pertain to customer and vendor contracts
(3) Obligations primarily pertain to the disturbance or alteration of public roadways in connection with the Company's mining activities that is subject to future restoration (4) Serve as collateral for certain surety bonds at the request of surety bond providers. The Company has also posted$9.1 million in incremental collateral directly with the beneficiary that is not supported by a surety bond.
Financial assurances associated with new reclamation bonding requirements, surety bonds or other obligations may require additional collateral in the form of cash or letters of credit causing a decline in the Company's liquidity.
As described in Note 15. "Financial Instruments and Other Guarantees" in the accompanying unaudited condensed consolidated financial statements, the Company is required to provide various forms of financial assurance in support of its mining reclamation obligations in the jurisdictions in which it operates. Such requirements are typically established by statute or under mining permits. Historically, such assurances have taken the form of third-party instruments such as surety bonds, bank guarantees and letters of credit, as well as self-bonding arrangements in theU.S. Self-bonding in theU.S. has become increasingly restricted in recent years, leading to the Company's increased usage of surety bonds and similar third-party instruments. This change in practice has had an unfavorable impact on its liquidity due to increased collateral requirements and surety and related fees. AtMarch 31, 2022 , the Company had total asset retirement obligations of$724.5 million which were backed by a combination of surety bonds, bank guarantees and letters of credit. Bonding requirement amounts may differ significantly from the related asset retirement obligation because such requirements are calculated under the assumption that reclamation begins currently, whereas the Company's accounting liabilities are discounted from the end of a mine's economic life (when final reclamation work would begin) to the balance sheet date. Guarantees and Other Financial Instruments with Off-Balance-Sheet Risk. See Note 15. "Financial Instruments and Other Guarantees" in the Company's unaudited condensed consolidated financial statements for a discussion of its accounts receivable securitization program and guarantees and other financial instruments with off-balance-sheet risk.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition, results of operations, liquidity and capital resources is based upon its financial statements, which have been prepared in accordance withU.S. GAAP. The Company is also required underU.S. GAAP to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. 48
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AtMarch 31, 2022 , the Company identified certain assets with an aggregate carrying value of approximately$0.5 billion in its OtherU.S. Thermal Mining and Corporate and Other segments whose recoverability is most sensitive to customer demand, customer concentration risk and future economic viability. The Company conducted a review of those assets as ofMarch 31, 2022 and determined that no impairment charges were necessary as of that date. The Company's critical accounting policies and estimates are discussed in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in its Annual Report on Form 10-K for the year endedDecember 31, 2021 . The Company's critical accounting policies remain unchanged atMarch 31, 2022 , and there have been no material changes in the Company's critical accounting estimates.
Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented
See Note 2. "Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented" to the Company's unaudited condensed consolidated financial statements for a discussion of newly adopted accounting standards and accounting standards not yet implemented.
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