PEABODY ENERGY CORPORATION As used in this report, the terms "we," "us," "our," "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 our 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 our expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and are intended to come within the safe harbor protection provided by those sections. These statements relate to future events or our future financial performance, including, without limitation, the section captioned "Outlook" in this Item 2. We use 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 our 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 we believe 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 our control. Factors that could affect our results or an investment in our securities include, but are not limited to: •our profitability depends upon the prices we receive for our coal; •if a substantial number of our long-term coal supply agreements terminate, or if the pricing, volumes or other elements of those agreements materially adjust, our revenues and operating profits could suffer if we are unable to find alternate buyers willing to purchase our coal on comparable terms to those in our contracts; •the loss of, or significant reduction in, purchases by our largest customers could adversely affect our revenues; •our trading and hedging activities do not cover certain risks and may expose us to earnings volatility and other risks; •our operating results could be adversely affected by unfavorable economic and financial market conditions; •our ability to collect payments from our customers could be impaired if their creditworthiness or contractual performance deteriorates; •risks inherent to mining could increase the cost of operating our business, and events and conditions that could occur during the course of our mining operations could have a material adverse impact on us; •if transportation for our coal becomes unavailable or uneconomic for our customers, our ability to sell coal may be diminished; •a decrease in the availability or increase in costs of key supplies, capital equipment or commodities such as diesel fuel, steel, explosives and tires could decrease our anticipated profitability; •take-or-pay arrangements within the coal industry could unfavorably affect our profitability; •an inability of trading, brokerage, mining or freight counterparties to fulfill the terms of their contracts with us could reduce our profitability; •we may not recover our investments in our mining, exploration and other assets, which may require us to recognize impairment charges related to those assets; •our ability to operate our company effectively could be impaired if we lose key personnel or fail to attract qualified personnel; •we could be negatively affected if we fail to maintain satisfactory labor relations; •we could be adversely affected if we fail to appropriately provide financial assurances for our obligations; •our mining operations are extensively regulated, which imposes significant costs on us, and future regulations and developments could increase those costs or limit our ability to produce coal; •our operations may impact the environment or cause exposure to hazardous substances, and our properties may have environmental contamination, which could result in material liabilities to us; •we may be unable to obtain, renew or maintain permits necessary for our operations, or we may be unable to obtain, renew or maintain such permits without conditions on the manner in which we run our operations, which would reduce our production, cash flows and profitability; 37 -------------------------------------------------------------------------------- •our mining operations are subject to extensive forms of taxation, which imposes significant costs on us, and future regulations and developments could increase those costs or limit our ability to produce coal competitively; •if the assumptions underlying our asset retirement obligations for reclamation and mine closures are materially inaccurate, our costs could be significantly greater than anticipated; •our future success depends upon our ability to continue acquiring and developing coal reserves that are economically recoverable; •we face numerous uncertainties in estimating our economically recoverable coal reserves and inaccuracies in our estimates could result in lower than expected revenues, higher than expected costs and decreased profitability; •our global operations increase our exposure to risks unique to international mining and trading operations; •our proposed joint venture with Arch Resources, Inc.,(Arch), known as Arch Coal, Inc. prior toMay 15, 2020 , may not be completed; •joint ventures, partnerships or non-managed operations may not be successful and may not comply with our operating standards; •we may undertake further repositioning plans that would require additional charges; •we could be exposed to significant liability, reputational harm, loss of revenue, increased costs or other risks if we sustain cyber-attacks or other security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information about us, our employees, our customers or other third-parties; •our business, results of operations, financial condition and prospects could be materially and adversely affected by the recent coronavirus (COVID-19) pandemic and the related effects on public health; •our expenditures for postretirement benefit obligations could be materially higher than we have predicted if our underlying assumptions prove to be incorrect; •concerns about the impacts of coal combustion on global climate are increasingly leading to consequences that have affected and could continue to affect demand for our products or our securities and our ability to produce, including increased governmental regulation of coal combustion and unfavorable investment decisions by electricity generators; •numerous activist groups are devoting substantial resources to anti-coal activities to minimize or eliminate the use of coal as a source of electricity generation, domestically and internationally, thereby further reducing the demand and pricing for coal, and potentially materially and adversely impacting our future financial results, liquidity and growth prospects; •our financial performance could be adversely affected by our indebtedness; •despite our indebtedness, we may still be able to incur substantially more debt, including secured debt, which could further increase the risks associated with our indebtedness; •the terms of our indenture governing our senior secured notes and the agreements and instruments governing our other indebtedness impose restrictions that may limit our operating and financial flexibility; •the number and quantity of viable financing and insurance alternatives available to us may be significantly impacted by unfavorable lending and investment policies by financial institutions and insurance companies associated with concerns about environmental impacts of coal combustion, and negative views around our efforts with respect to environmental and social matters and related governance considerations could harm the perception of our company by certain investors or result in the exclusion of our securities from consideration by those investors; •the price of our securities may be volatile; •our Common Stock is subject to dilution and may be subject to further dilution in the future; •there may be circumstances in which the interests of a significant stockholder could be in conflict with other stakeholders' interests; •the payment of dividends on our stock or repurchases of our stock is dependent on a number of factors, and future payments and repurchases cannot be assured; •we may not be able to fully utilize our deferred tax assets; •acquisitions and divestitures are a potentially important part of our long-term strategy, subject to our investment criteria, and involve a number of risks, any of which could cause us not to realize the anticipated benefits; •our certificate of incorporation and by-laws include provisions that may discourage a takeover attempt; •diversity in interpretation and application of accounting literature in the mining industry may impact our reported financial results; and 38 -------------------------------------------------------------------------------- •other risks and factors detailed in this report, including, but not limited to, those discussed in "Legal Proceedings," set forth in Part II, Item 1 and in "Risk Factors," set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. When considering these forward-looking statements, you should keep in mind the cautionary statements in this document and in our otherSecurities and Exchange Commission (SEC) filings, including, but not limited to, the more detailed discussion of these factors and other factors that could affect our results contained in Item 1A. "Risk Factors" and Item 3. "Legal Proceedings" of our Annual Report on Form 10-K for the year endedDecember 31, 2019 filed with theSEC onFebruary 21, 2020 . These forward-looking statements speak only as of the date on which such statements were made, and we undertake no obligation to update these statements except as required by federal securities laws. Overview We are a leading coal producer. In 2019, we produced and sold 164.7 million and 165.5 million tons of coal, respectively, from continuing operations. SinceDecember 31, 2019 , theMillennium Mine in the Seaborne Metallurgical Mining segment and theWildcat Hills Underground Mine in the OtherU.S. Thermal Mining segment shipped their final tons. As a result, we owned interests in 18 active coal mining operations located inthe United States (U.S. ) andAustralia atJune 30, 2020 . Included in that count is our 50% equity interest inMiddlemount Coal Pty Ltd. (Middlemount), which owns theMiddlemount Mine inQueensland, Australia . In addition to our mining operations, we market and broker coal from other coal producers, both as principal and agent, and trade coal and freight-related contracts. We conduct business through four operating segments: Seaborne Thermal Mining, Seaborne Metallurgical Mining, PowderRiver Basin Mining and OtherU.S. Thermal Mining. Refer to Note 19. "Segment Information" to the accompanying unaudited condensed consolidated financial statements for further information regarding those segments and the components of our Corporate and Other segment. From time to time, we initiate restructuring activities in connection with our repositioning efforts to appropriately align our cost structure or optimize our coal production relative to prevailing market conditions. As further described in the "Results of Operations" section contained within this Item 2, we incurred restructuring charges of$16.5 million and$23.0 million during the three and six months endedJune 30, 2020 , respectively, related to workforce reductions made across the organization through the use of both involuntary and voluntary reductions. Coronavirus (COVID-19) Pandemic OnMarch 11, 2020 , the COVID-19 outbreak was declared a pandemic by theWorld Health Organization . The pandemic has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, "shelter in place" and "stay at home" orders, travel restrictions, business curtailments, school closures and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of the COVID-19 pandemic. Coal mining in theU.S. andAustralia has been designated as an essential business to support coal-fueled electric power generation and critical steelmaking needs. As part of Peabody's commitment to the ongoing health and safety of our employees, vendors and communities, we are following advice from government authorities and taking precautions to manage the spread of COVID-19. Peabody operations have implemented rigorous protocols, control and prevention measures, including mandatory temperature and health checks; paid leave for recommended self-isolation periods; enhanced cleaning and sterilization practices; expanded use of personal protective equipment; social distancing; and working remotely when circumstances warrant. While our operations have been designated as essential, each operation will only continue to operate when it is safe and economic to do so. The global impact on economic activity has severely curtailed demand for numerous commodities. Within the global coal industry, supply and demand disruptions have been widespread. In the seaborne metallurgical and thermal markets, demand remains weak as a result of curtailed steel production and reduced electricity generation. Thermal coal demand in theU.S. has been pressured by low natural gas prices, increased renewable energy usage and weak electric power sector consumption due to reduced industrial activity. Coal industry fundamentals, as well as known impacts specific to Peabody, are further addressed in the "Results of Operations" section contained within this Item 2. 39
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While the ultimate impacts of the COVID-19 pandemic on our business are unknown, we expect continued interference with general commercial activity, which may further negatively affect both demand and prices for our products. We also face disruption to supply chain and distribution channels, potentially increasing costs of production, storage and distribution, and potential adverse effects to our workforce, each of which could have a material adverse effect on our business, financial condition or results of operations. In addition, the COVID-19 pandemic could continue to have an adverse impact on the timing of key events, including the timing of our litigation in theU.S. federal court system as we pursue the completion of the proposed joint venture with Arch. Given the uncertainties with respect to future COVID-19 developments, including the duration, severity and scope, as well as the necessary government actions to limit the spread, we are unable to estimate the full impact of the pandemic on our business, financial condition or results of operations at this time. We have taken actions to mitigate our financial risk given the uncertainty in global markets caused by the COVID-19 pandemic, and we also made the decision during the first quarter to pause debt reduction activities. We are continuing to advance our program to reposition the cost structure of the corporate functions and mines to counter the impacts of reduced demand and low pricing. These initiatives include temporarily idling production at some mines; adjusting shift schedules to match demand; reducing the number of units in operation; offloading take-or-pay commitments; and eliminating additional positions, among other items. During the second quarter of 2020, we borrowed$300.0 million under our revolving credit facility. The borrowing was made as part of our ongoing efforts to preserve financial flexibility in light of the current uncertainty in the global markets and related effects on our business resulting from the COVID-19 pandemic. As described below in the "Liquidity and Capital Resources" section contained within this Item 2, we anticipate significant risk of noncompliance with the leverage ratio limitations under our credit agreement during the second half of 2020 unless we successfully take mitigating action. This risk is driven by unfavorable trends in our results from continuing operations, net of income taxes, and our Adjusted EBITDA, as further described within the "Results of Operations" section below. OnMarch 27, 2020 , the President ofthe United States signed and enacted into law the Coronavirus Aid, Relief and Economic Security Act (the CARES Act), a$2 trillion economic relief bill. The CARES Act contains an income tax provision that provides for the acceleration of refunds of previously generated alternative minimum tax credits. We have requested accelerated refunds of approximately$24 million from the Internal Revenue Service and have adjusted our current and deferred tax asset balances accordingly. The CARES Act also contains a provision for deferred payment of 2020 employer payroll taxes after the date of enactment to future years. We will defer a portion of our remaining 2020 employer payroll taxes to subsequent years. United Wambo Joint Venture with Glencore InDecember 2019 , after receiving the requisite regulatory and permitting approvals, we formed an unincorporated joint venture with Glencore plc (Glencore), in which we hold a 50% interest, to combine the existing operations of ourWambo Open-Cut Mine inAustralia with the adjacent coal reserves ofGlencore's United Mine . We proportionally consolidate the entity based upon our economic interest. Both parties contributed mining tenements upon formation of the joint venture. Construction and development efforts are currently underway to combine operations. The joint venture agreement specifies that we will continue to fully own and operate the existingWambo Open-Cut Mine through the date that development of the combined operations is completed, which is currently expected to be during the second half of 2020. The parties will then contribute mining equipment and other assets, and joint operations will commence. Glencore is responsible for construction and development activities and will manage the mining operations of the joint venture. PRB Colorado Joint Venture with Arch OnJune 18, 2019 , we entered into a definitive implementation agreement (the Implementation Agreement) with Arch, to establish a joint venture that will combine the respectivePowder River Basin (PRB) andColorado operations of Peabody and Arch. We expect the joint venture to result in several operational synergies, including improved mining productivity and lower per-unit operating costs. Pursuant to the terms of the Implementation Agreement, we will hold a 66.5% economic interest in the joint venture and Arch will hold a 33.5% economic interest. We expect to proportionally consolidate the entity based upon our economic interest. Governance of the joint venture will be overseen by the joint venture's board of managers, which will be comprised of Peabody and Arch representatives with voting powers proportionate with the companies' economic interests, with the exception of certain specified matters which will require supermajority approval. We will manage the operations of the joint venture, subject to the supervision of the joint venture's board of managers. 40
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OnFebruary 26, 2020 , theU.S. Federal Trade Commission (FTC) sought a preliminary injunction to challenge our proposed joint venture. We and Arch continue to pursue creation of the joint venture and are litigating theFTC's decision in theU.S. federal court in theEastern District ofMissouri . Related hearings took placeJuly 14, 2020 throughJuly 24, 2020 and closing arguments are scheduled forAugust 10, 2020 , with a ruling expected during the third quarter of 2020. TheFTC has also initiated an administrative proceeding on the merits, which is currently scheduled for hearing onOctober 27, 2020 . If the court denies the preliminary injunction, we plan to proceed with the joint venture. Formation of the joint venture is subject to favorable resolution of theFTC's challenge noted above and customary closing conditions, including the termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the receipt of certain other required regulatory approvals and the absence of injunctions or other legal restraints preventing the formation of the joint venture. InSeptember 2019 , we amended our credit agreement to expressly permit formation of the joint venture and intend to address such formation under the indenture governing our senior secured notes. At such time as control over the existing operations is exchanged, we will account for our interest in the combined operations at fair value. North Goonyella OurNorth Goonyella Mine inQueensland, Australia experienced a fire in a portion of the mine duringSeptember 2018 and mining operations have been suspended since then. During 2018 and 2019, we recorded provisions for equipment losses amounting to$149.6 million related to the fire, representing the best estimate of losses to date. Of that amount,$24.7 million was recorded during the six months endedJune 30, 2019 . No additional provisions for equipment losses were recorded during the three and six months endedJune 30, 2020 . We have also incurred containment and idling costs subsequent to the mine's suspension which amounted to$11.3 million and$28.4 million during the three months endedJune 30, 2020 and 2019, respectively, and$21.4 million and$65.3 million during the six months endedJune 30, 2020 and 2019, respectively. InMarch 2019 , we entered into an insurance claim settlement agreement with our insurers and various re-insurers under a combined property damage and business interruption policy and recorded a$125 million insurance recovery, the maximum amount available under the policy above a$50 million deductible. We have collected the full amount of the recovery. Results of Operations Non-GAAP Financial Measures The following discussion of our results of operations includes references to and analysis of Adjusted EBITDA, which is a financial measure not recognized in accordance withU.S. generally accepted accounting principles (U.S. GAAP). Adjusted EBITDA is used by management as the primary metric to measure each of our segments' operating performance. We have retrospectively modified our calculation of Adjusted EBITDA to exclude restructuring charges and transaction costs related to joint ventures as management does not view these items as part of our normal operations. Also included in the following discussion of our results of operations are references to Revenues 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 our 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. We consider all measures reported on a per ton basis to be operating/statistical measures; however, we include 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 our discussion of liquidity and capital resources, we include references to Free Cash Flow which is also a non-GAAP measure. Free Cash Flow is used by management as a measure of our financial performance and our ability to generate excess cash flow from our business operations. We believe non-GAAP performance measures are used by investors to measure our operating performance and lenders to measure our 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. 41
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Three and Six Months EndedJune 30, 2020 Compared to the Three and Six Months EndedJune 30, 2019 Summary 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 endedJune 30, 2020 is set forth in the table below. The seaborne pricing included in the table below is not necessarily indicative of the pricing we realized during the three months endedJune 30, 2020 due to quality differentials and the majority of our seaborne sales being executed through annual and multi-year international coal supply agreements that contain provisions requiring both parties to renegotiate pricing periodically. Our typical practice is to negotiate pricing for seaborne metallurgical coal contracts on a 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 we realized during the three months endedJune 30, 2020 since we generally sell 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 our realized pricing. High Low Average June 30, 2020 Premium HCC (1)$ 143.80 $ 108.30 $ 118.47 $ 113.70 Premium PCI coal (1) 84.75 66.60 71.22 70.15 Newcastle index thermal coal (1) 68.33 50.48 55.08 51.17 API 5 thermal coal (1) 52.80 37.70 43.44 37.70 PRB 8,800 Btu/Lb coal (2) 12.00 11.90 11.97 11.90
30.41 28.00 (1) Prices expressed per tonne. (2) Prices expressed per ton. Within the global coal industry, supply and demand disruptions have been widespread as the COVID-19 pandemic has forced country-wide lockdowns and regional restrictions. Future COVID-19-related developments are unknown, including the duration, severity, scope and the necessary government actions to limit the spread. The global coal industry data for the six months endedJune 30, 2020 presented herein, is not indicative of the ultimate impacts of the COVID-19 pandemic given the various levels of response and unknown duration, the significant decline in prices for our products and continued weak demand for our products. With respect to seaborne metallurgical coal, global steel production decreased approximately 6% through the six months endedJune 30, 2020 compared to the prior year period, as the COVID-19 pandemic continued to have significant impacts on steel demand. Steel production inChina increased approximately 3% through the six months endedJune 30, 2020 compared to the prior year, including a new monthly production record achieved in May as the country attempts to recover from the COVID-19 pandemic. Despite a strong start to the year,China's coking coal imports have been pressured recently by intensified import restrictions, which are likely to be a factor for the remainder of 2020. Steel production, excludingChina , was down approximately 14% through the six months endedJune 30, 2020 compared to the prior year due to COVID-19 related lockdowns and economic weakness. Steel demand deterioration has caused producers, including Peabody customers, to idle capacity and restrict output, which has pressured seaborne metallurgical coal demand. This deterioration could continue given ongoing effects from the COVID-19 pandemic on economic conditions in key demand centers. The recovery inIndia is underway with the restart of steel mills and improving blast furnace utilization rates, but is threatened by the increasing spread of COVID-19, and will likely be delayed by elevated inventories and the pending monsoon season. European steel and metallurgical coal demand recovery is also underway, but is likely to lag behind the full reopening of the automotive sector. 42
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Seaborne thermal coal demand continues to be impacted by the COVID-19 induced reduction in overall electric generation, along with competition from alternative fuel sources and low gas prices. Chinese thermal coal imports increased by approximately 18 million tonnes through the six months endedJune 30, 2020 compared to the prior year, mainly reflecting carryover tonnes from port restrictions in 2019 andChina's domestic production, which is flat through the six months endedJune 30, 2020 due to COVID-19 related disruption and safety checks. Meanwhile, Chinese thermal power generation declined approximately 2% year-over-year during the six months endedJune 30, 2020 leading to above-average inventory at utilities. Seaborne demand outside ofChina remains pressured as economies are at various phases of reopening.India has seen domestic power demand recover, but thermal imports are down by approximately 20 million tonnes through the six months endedJune 30, 2020 compared to the prior year and are likely to remain under pressure given inventory overhang, domestic production growth and subdued demand. Inthe United States , overall electricity demand has been negatively impacted year-over-year due to COVID-19 induced economic shutdowns during the six months endedJune 30, 2020 . The reduction in thermal coal demand during that period has outpaced the reduction in overall electricity demand as continued coal plant retirements, growth in natural gas and renewable generation and weak natural gas prices continue to negatively impact coal's share of electricity generation. COVID-19 related curtailments reduced total electricity demand in the second quarter, which has resulted in coal's share of generation declining to approximately 17% for the six months endedJune 30, 2020 , while natural gas and renewables continue to gain. Through the six months endedJune 30, 2020 utility consumption of PRB coal fell over 30% compared to the prior year period. Moreover, reduced coal consumption year-to-date has resulted in elevated coal inventories, pressuring the required coal shipments needed to meet demand. Our revenues for the three and six months endedJune 30, 2020 decreased compared to the same periods in 2019 ($522.3 million and$926.7 million , respectively) primarily due to lower sales volumes which were affected by the COVID-19 pandemic and lower realized prices. Results from continuing operations, net of income taxes for the three and six months endedJune 30, 2020 decreased compared to the same periods in the prior year ($1,588.2 million and$1,850.8 million , respectively). The decrease was driven by the asset impairment charges recorded in the current period (three and six months,$1,418.1 million ), the unfavorable revenue variances described above and a prior year insurance recovery related to the events at ourNorth Goonyella Mine (six months,$125.0 million ). These unfavorable variances were partially offset by lower operating costs and expenses due largely to the sales volume decline as well as production efficiencies and other cost improvements ($301.5 million and$470.2 million , respectively), lower depreciation, depletion and amortization ($77.1 million and$143.6 million , respectively) and lower selling and administrative expenses ($13.7 million and$25.5 million , respectively). Adjusted EBITDA for the three and six months endedJune 30, 2020 reflected a year-over-year decrease of$206.6 million and$423.9 million , respectively. As ofJune 30, 2020 , our available liquidity was approximately$926 million . Refer to the "Liquidity and Capital Resources" section contained within this Item 2 for a further discussion of factors affecting our available liquidity. Tons Sold The following table presents tons sold by operating segment: Three Months Ended (Decrease) Increase Six Months Ended (Decrease) IncreaseJune 30 , to VolumesJune 30 , to Volumes 2020 2019 Tons % 2020 2019 Tons % (Tons in millions) (Tons in millions) Seaborne Thermal Mining 4.6 4.7 (0.1) (2) % 9.2 9.2 - - % Seaborne Metallurgical Mining 1.1 2.1 (1.0) (48) % 3.1 4.4 (1.3) (30) % Powder River Basin Mining 17.9 25.0 (7.1) (28) % 41.4 50.3 (8.9) (18) % Other U.S. Thermal Mining 3.8 7.2 (3.4) (47) % 8.7 15.1 (6.4) (42) % Total tons sold from mining segments 27.4 39.0 (11.6) (30) % 62.4 79.0 (16.6) (21) % Corporate and Other 0.9 0.4 0.5 125 % 1.5 0.9 0.6 67 % Total tons sold 28.3 39.4 (11.1) (28) % 63.9 79.9 (16.0) (20) % 43
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Supplemental Financial Data
The following table presents supplemental financial data by operating segment:
Three Months Ended (Decrease) Six Months Ended (Decrease)
June 30, Increase June 30, Increase
2020 2019 $ % 2020 2019 $ %
Revenues per Ton - Mining Operations (1)
Seaborne Thermal $ 35.10 $ 46.41 $ (11.31) (24) % $ 39.58 $ 51.18 $ (11.60) (23) %
Seaborne Metallurgical 86.80 138.42 (51.62) (37) % 92.61 140.45 (47.84) (34) %
Powder River Basin 11.45 11.33 0.12 1 % 11.40 11.34 0.06 1 %
Other U.S. Thermal 39.81 43.04 (3.23) (8) % 39.49 42.60 (3.11) (7) %
Costs per Ton - Mining Operations (1)(2)
Seaborne Thermal $ 29.19 $ 30.73 $ (1.54) (5) % $ 30.56 $ 32.82 $ (2.26) (7) %
Seaborne Metallurgical (3) 120.72 111.12 9.60 9 % 115.00 107.77 7.23 7 %
Powder River Basin 9.26 9.72 (0.46) (5) % 9.84 9.82 0.02 - %
Other U.S. Thermal 31.22 31.47 (0.25) (1) % 31.31 32.08 (0.77) (2) %
Adjusted EBITDA Margin per Ton - Mining Operations (1)(2)
Seaborne Thermal $ 5.91 $ 15.68 $ (9.77) (62) % $ 9.02 $ 18.36 $ (9.34) (51) %
Seaborne Metallurgical (3) (33.92) 27.30 (61.22) (224) % (22.39) 32.68 (55.07) (169) %
Powder River Basin 2.19 1.61 0.58 36 % 1.56 1.52 0.04 3 %
Other U.S. Thermal 8.59 11.57 (2.98) (26) % 8.18 10.52 (2.34) (22) %
(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; provision for
North Goonyella equipment loss and related insurance recovery; amortization of
take-or-pay contract-based intangibles; and certain other costs related to
post-mining activities.
(3)Costs incurred at the North Goonyella Mine from January 1, 2020 forward are
included within the Corporate and Other segment. Costs incurred at the North
Goonyella Mine during the three and six months ended June 30, 2019 remain within
the Seaborne Metallurgical Mining segment and resulted in additional Costs per
Ton and lower Adjusted EBITDA Margin per Ton of $13.51 and $7.17 , respectively.
Revenues
The following table presents revenues by reporting segment:
Three Months Ended Decrease Six Months Ended Decrease
June 30, to Revenues June 30, to Revenues
2020 2019 $ % 2020 2019 $ %
(Dollars in millions) (Dollars in millions)
Seaborne Thermal Mining $ 162.0 $ 220.2 $ (58.2) (26) % $ 363.1 $ 471.2 $ (108.1) (23) %
Seaborne Metallurgical Mining 91.6 290.9 (199.3) (69) % 284.8 615.4 (330.6) (54) %
Powder River Basin Mining 205.8 282.6 (76.8) (27) % 472.4 569.9 (97.5) (17) %
Other U.S. Thermal Mining 152.0 309.6 (157.6) (51) % 344.3 644.4 (300.1) (47) %
Corporate and Other 15.3 45.7 (30.4) (67) % 8.3 98.7 (90.4) (92) %
Revenues $ 626.7 $ 1,149.0 $ (522.3) (45) % $ 1,472.9 $ 2,399.6 $ (926.7) (39) %
Seaborne Thermal Mining. Segment revenues decreased during the three and six
months ended June 30, 2020 compared to the same periods in the prior year due to
unfavorable realized coal pricing (three months, $47.0 million ; six months,
$97.0 million ) and unfavorable volume and mix variances (three months, $11.2
million ; six months, $11.1 million ).
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Seaborne Metallurgical Mining. Segment revenues decreased during the three and six months endedJune 30, 2020 compared to the same periods in the prior year due to unfavorable volume and mix variances (three months,$153.8 million ; six months,$203.7 million ) and unfavorable realized coal pricing (three months,$45.5 million ; six months,$126.9 million ). The unfavorable volume variances primarily resulted from demand-based volume decreases across our mines and the impact of the conveyor upgrade at ourShoal Creek Mine . PowderRiver Basin Mining . Segment revenues decreased during the three and six months endedJune 30, 2020 compared to the same periods in the prior year primarily due to demand-based volume decreases (three months,$79.4 million ; six months,$104.1 million ). OtherU.S. Thermal Mining. Segment revenues decreased during the three and six months endedJune 30, 2020 compared to the same periods in the prior year primarily due to volume decreases (three months,$153.2 million ; six months,$289.6 million ) which were driven by the closure of the Kayenta and Cottage Grove Mines during the third quarter of 2019 and theWildcat Hills Underground Mine during the second quarter of 2020 and unfavorable realized pricing (three months,$4.4 million ; six months,$10.5 million ). Corporate and Other. Segment revenues decreased during the three and six months endedJune 30, 2020 compared to the same periods in the prior year primarily due to lower results on economic hedge activities. Adjusted EBITDA The following table presents Adjusted EBITDA for each of our reporting segments: Three Months Ended Decrease Six Months Ended Decrease to Segment AdjustedJune 30 , EBITDAJune 30 , to Segment Adjusted EBITDA 2020 2019 $ % 2020 2019 $ % (Dollars in millions) (Dollars in millions) Seaborne Thermal Mining$ 27.7 $ 74.4 $ (46.7) (63) %$ 82.8 $ 169.1 $ (86.3) (51) % Seaborne Metallurgical Mining (36.1) 57.4 (93.5) (163) % (68.8) 143.2 (212.0) (148) % Powder River Basin Mining 39.3 40.2 (0.9) (2) % 64.7 76.6 (11.9) (16) % Other U.S. Thermal Mining 32.9 83.1 (50.2) (60) % 71.4 159.0 (87.6) (55) % Corporate and Other (40.4) (25.1) (15.3) (61) % (89.9) (63.8) (26.1) (41) % Adjusted EBITDA (1)$ 23.4 $ 230.0 $ (206.6) (90) %$ 60.2 $ 484.1 $ (423.9) (88) % (1)This is a financial measure not recognized in accordance withU.S. GAAP. Refer to the "Reconciliation of Non-GAAP Financial Measures" section below for definitions and reconciliations to the most comparable measures underU.S. GAAP. Seaborne Thermal Mining. Segment Adjusted EBITDA decreased during the three months endedJune 30, 2020 compared to the same period in the prior year as a result of lower realized net coal pricing ($43.2 million ), unfavorable mine sequencing impacts and higher costs for materials, services and repairs at our thermal surface mines ($6.1 million ) and unfavorable volume variances as described above ($6.0 million ); the decrease was partially offset by lower pricing for fuel ($5.9 million ). Segment Adjusted EBITDA decreased during the six months endedJune 30, 2020 compared to the same period in the prior year as a result of lower realized net coal pricing ($89.2 million ), longwall performance issues at ourWambo Underground Mine ($16.6 million ) and unfavorable volume variances as described above ($7.3 million ); the decrease was partially offset by favorable foreign currency impacts ($12.1 million ), favorable mine sequencing impacts and lower costs for materials, services and repairs at our thermal surface mines ($6.9 million ) and lower pricing for fuel ($5.6 million ). Seaborne Metallurgical Mining. Segment Adjusted EBITDA decreased during the three and six months endedJune 30, 2020 compared to the same periods in the prior year due to unfavorable volume variances which included non-cash charges to record certain mines' coal inventories to their net realizable values (three months,$65.1 million ; six months,$91.4 million ), lower realized net coal pricing (three months,$42.9 million ; six months,$118.8 million ), higher costs associated with the conveyor upgrade at ourShoal Creek Mine (three months,$18.4 million ; six months,$31.5 million ), and the impact of a longwall move at ourMetropolitan Mine during the current year (six months,$21.9 million ). These negative variances were partially offset by the exclusion of the current year containment and holding costs for ourNorth Goonyella Mine (three months,$28.4 million ; six months,$31.4 million ) and favorable foreign currency impacts (three months,$10.4 million ; six months,$22.3 million ). 45
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PowderRiver Basin Mining . Segment Adjusted EBITDA decreased during the three and six months endedJune 30, 2020 compared to the same periods in the prior year as the result of unfavorable mine sequencing impacts (three months,$29.6 million ; six months,$36.8 million ) and the impact of lower volumes (three months,$12.5 million ; six months,$17.0 million ) as described above, partially offset by lower costs for materials, services, repairs and labor (three months,$27.5 million ; six months,$26.8 million ) and lower pricing for fuel and explosives (three months,$9.2 million ; six months,$13.2 million ). OtherU.S. Thermal Mining. Segment Adjusted EBITDA decreased during the three and six months endedJune 30, 2020 compared to the same periods in the prior year due to the impact of lower volume (three months,$52.2 million ; six months,$93.8 million ) which was primarily driven by the closure of theKayenta Mine during the third quarter of 2019, unfavorable mine sequencing impacts (three months,$13.2 million ; six months,$15.4 million ) and lower realized net coal pricing (three months,$5.6 million ; six months,$11.8 million ), partially offset by lower costs for materials, services and repairs (three months,$12.5 million ; six months,$19.9 million ) and lower pricing for fuel and explosives (three months,$6.5 million ; six months,$9.3 million ). Corporate and Other Adjusted EBITDA. The following table presents a summary of the components of Corporate and Other Adjusted EBITDA: Three Months Ended (Decrease) Increase Six Months Ended (Decrease) IncreaseJune 30 , to Adjusted EBITDAJune 30 , to Adjusted EBITDA 2020 2019 $ % 2020 2019 $ % (Dollars in millions) (Dollars in millions) Middlemount (1)$ (6.4) $ 10.0 $ (16.4) (164) %$ (16.1) $ 13.9 $ (30.0) (216) % Resource management activities (2) 0.8 1.7 (0.9) (53) % 8.8 3.7 5.1 138 % Selling and administrative expenses (25.2) (38.9) 13.7 35 % (50.1) (75.6) 25.5 34 % Other items, net (3)(4) (9.6) 2.1 (11.7) (557) % (32.5) (5.8) (26.7) (460) %
Corporate and Other Adjusted EBITDA
(61) % $ (89.9) $ (63.8) $ (26.1) (41) %
(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 $8.8 million and
$9.5 million during the three months ended June 30, 2020 and 2019, respectively,
and $13.2 million and $17.0 million during the six months ended June 30, 2020
and 2019, respectively.
(2)Includes gains (losses) on certain surplus coal reserve and surface land
sales and property management costs and revenues.
(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 North Goonyella Mine and expenses related to our other
commercial activities.
(4)North Goonyella costs incurred from January 1, 2020 forward are included
within the Corporate and Other segment. Costs incurred prior to January 1, 2020
remain within the Seaborne Metallurgical Mining segment.
The decrease in Corporate and Other Adjusted EBITDA during the three and six
months ended June 30, 2020 compared to the same periods in the prior year was
primarily driven by an unfavorable variance in Middlemount's results due to the
impacts of wet weather and lower sales pricing, current year containment and
holding costs for our North Goonyella Mine (three months, $11.3 million ; six
months, $21.4 million ) and unfavorable results from trading and brokerage
activities (three months, $2.3 million ; six months, $11.1 million ). These
unfavorable variances were partially offset by lower selling and administrative
expenses driven by lower personnel costs and reduced expense associated with our
share-based incentive plans and a gain on the sale of undeveloped Australian
land tenements in the Bowen Basin (six months, $7.5 million ).
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(Loss) Income From Continuing Operations, Net of Income Taxes The following table presents (loss) income from continuing operations, net of income taxes:
Three Months Ended (Decrease) Increase Six Months Ended (Decrease) Increase
June 30 , to Income June 30 , to Income
2020 2019 $ % 2020 2019 $ %
(Dollars in millions) (Dollars in millions)
Adjusted EBITDA (1) $ 23.4 $ 230.0 $ (206.6) (90) % $ 60.2 $ 484.1 $ (423.9) (88) %
Depreciation, depletion and
amortization (88.3) (165.4) 77.1 47 % (194.3) (337.9) 143.6 42 %
Asset retirement obligation
expenses (14.1) (15.3) 1.2 8 % (31.7) (29.1) (2.6) (9) %
Restructuring charges (16.5) (0.4) (16.1) (4,025) % (23.0) (0.6) (22.4) (3,733) %
Transaction costs related to joint
ventures (12.9) (1.6) (11.3) (706) % (17.1) (1.6) (15.5) (969) %
Asset impairment (1,418.1) - (1,418.1) n.m. (1,418.1) - (1,418.1) n.m.
Provision for North Goonyella
equipment loss - - - n.m. - (24.7) 24.7 100 %
North Goonyella insurance recovery
- equipment - - - n.m. - 91.1 (91.1) (100) %
Changes in deferred tax asset
valuation allowance and reserves
and amortization of basis
difference related to equity
affiliates 0.4 (0.3) 0.7 233 % 1.1 (0.3) 1.4 467 %
Interest expense (34.3) (36.0) 1.7 5 % (67.4) (71.8) 4.4 6 %
Interest income 2.4 7.2 (4.8) (67) % 5.5 15.5 (10.0) (65) %
Unrealized gains on economic hedges 7.0 22.4 (15.4) (69) % 4.8 62.2 (57.4) (92) %
Unrealized gains (losses) on
non-coal trading derivative
contracts 2.8 (0.3) 3.1 1,033 % 2.9 (0.1) 3.0 3,000 %
Take-or-pay contract-based
intangible recognition 2.7 5.6 (2.9) (52) % 5.3 11.2 (5.9) (53) %
Income tax benefit (provision) 0.2 (3.0) 3.2 107 % (2.8) (21.8) 19.0 87 %
(Loss) income from continuing
operations, net of income taxes
(3,702) % $ (1,674.6) $ 176.2 $ (1,850.8) (1,050) %
(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 Increase (Decrease) Six Months Ended Increase (Decrease)
June 30, to Income June 30, to Income
2020 2019 $ % 2020 2019 $ %
(Dollars in millions) (Dollars in millions)
Seaborne Thermal Mining $ (20.5) $ (22.0) $ 1.5 7 % $ (42.7) $ (45.2) $ 2.5 6 %
Seaborne Metallurgical Mining (20.5) (31.1) 10.6 34 % (45.3) (71.2) 25.9 36 %
Powder River Basin Mining (28.3) (36.0) 7.7 21 % (63.5) (72.6) 9.1 13 %
Other U.S. Thermal Mining (15.6) (73.7) 58.1 79 % (37.0) (144.5) 107.5 74 %
Corporate and Other (3.4) (2.6) (0.8) (31) % (5.8) (4.4) (1.4) (32) %
Total $ (88.3) $ (165.4) $ 77.1 47 % $ (194.3) $ (337.9) $ 143.6 42 %
Additionally, the following table presents a summary of our weighted-average depletion rate per ton for active mines in each of our mining segments:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Seaborne Thermal Mining $ 2.08 $ 1.97 $ 1.99 $ 1.89
Seaborne Metallurgical Mining 1.81 3.47 2.38 3.01
Powder River Basin Mining 0.80 0.80 0.79 0.81
Other U.S. Thermal Mining 0.96 1.50 1.02 1.51
Depreciation, depletion and amortization expense decreased during the three and
six months ended June 30, 2020 compared to the same periods in the prior year
primarily due to the closure of the Kayenta and Cottage Grove Mines during the
third quarter of 2019 and the Millennium and Wildcat Hills Underground Mines
during the second quarter of 2020 (three months, $47.9 million ; six months,
$95.0 million ), decreased depletion driven by lower sales volumes (three months,
$11.5 million ; six months, $13.3 million ) and lower amortization of the fair
value of certain U.S. coal supply agreements (three months, $5.4 million ; six
months, $11.4 million ). The decrease in the weighted-average depletion rate per
ton for the Seaborne Metallurgical Mining segment during the three and six
months ended June 30, 2020 compared to the same periods in the prior year
reflects the volume and mix variances which impacted our revenues as described
above.
Restructuring Charges. Restructuring charges increased during the three and six
months ended June 30, 2020 compared to the same periods in the prior year as the
result of workforce reductions made across the organization through the use of
involuntary and voluntary reductions, as discussed in Note 15. "Other Events" to
the accompanying unaudited condensed consolidated financial statements.
Transaction Costs Related to Joint Ventures. The charges recorded during the
three and six months ended June 30, 2020 related to the proposed PRB Colorado
joint venture with Arch as further described in Note 15. "Other Events" to the
accompanying unaudited condensed consolidated financial statements.
Asset Impairment. During the three and six months ended June 30, 2020 , we
recognized $1,418.1 million in aggregate asset impairment charges related to the
fair value of our North Antelope Rochelle Mine as discussed in
Note 9. "Property, Plant, Equipment and Mine Development " to the accompanying
unaudited condensed consolidated financial statements.
Provision for North Goonyella Equipment Loss. A provision for expected equipment
losses related to the events at our North Goonyella Mine was recorded during the
prior year as discussed in Note 15. "Other Events" to the accompanying unaudited
condensed consolidated financial statements.
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North Goonyella Insurance Recovery - Equipment. During the six months endedJune 30, 2019 , we entered into an insurance claim settlement agreement with our insurance providers related to North Goonyella equipment losses and recorded a$125.0 million insurance recovery, as discussed in Note 15. "Other Events" to the accompanying unaudited condensed consolidated financial statements. Of this amount, Adjusted EBITDA excludes an allocated amount applicable to total equipment losses recognized at the time of the insurance recovery settlement, which consisted of$24.7 million and$66.4 million recognized during the six months endedJune 30, 2019 and the year endedDecember 31, 2018 , respectively. The remaining$33.9 million , applicable to incremental costs and business interruption losses, is included in Adjusted EBITDA for the six months endedJune 30, 2019 . Interest Income. The decrease in interest income during the three and six months endedJune 30, 2020 compared to the same periods in the prior year was driven by the conclusion of a contract during the fourth quarter of 2019 which contained an embedded financing element and by lower cash balances. Unrealized Gains on Economic Hedges. Unrealized gains primarily relate to mark-to-market activity from economic hedge activities intended to hedge future coal sales. For additional information, refer to Note 7. "Derivatives and Fair Value Measurements" to the accompanying unaudited condensed consolidated financial statements. Take-or-Pay Contract-Based Intangible Recognition. During the three and six months endedJune 30, 2020 and 2019, we ratably recognized contract-based intangible liabilities for port and rail take-or-pay contracts. For additional details, refer to Note 8. "Intangible Contract Assets and Liabilities" to the accompanying unaudited condensed consolidated financial statements. Income Tax Benefit (Provision). The decrease in the income tax provision for the three and six months endedJune 30, 2020 compared to the same periods in the prior year was primarily due to changes in forecasted taxable income, partially offset by an increase in the provision related to the remeasurement of foreign income tax accounts. Refer to Note 11. "Income Taxes" to the accompanying unaudited condensed consolidated financial statements for additional information. Net (Loss) Income Attributable to Common Stockholders The following table presents net (loss) income attributable to common stockholders: Three Months Ended (Decrease) Increase Six Months Ended (Decrease) IncreaseJune 30 , to IncomeJune 30 , to Income 2020 2019 $ % 2020 2019 $ % (Dollars in millions) (Dollars in millions) (Loss) income from continuing operations, net of income taxes$ (1,545.3) $ 42.9 $ (1,588.2) (3,702) %$ (1,674.6) $ 176.2 $ (1,850.8) (1,050) % Loss from discontinued operations, net of income taxes (2.3) (3.4) 1.1 32 % (4.5) (6.8) 2.3 34 % Net (loss) income (1,547.6) 39.5 (1,587.1) (4,018) % (1,679.1) 169.4 (1,848.5) (1,091) % Less: Net (loss) income attributable to noncontrolling interests (3.4) 2.4 (5.8) (242) % (5.2) 8.1 (13.3) (164) % Net (loss) income attributable to common stockholders$ (1,544.2) $ 37.1 $ (1,581.3) (4,262) %$ (1,673.9) $ 161.3 $ (1,835.2) (1,138) % Net (Loss) Income Attributable to Noncontrolling Interests. The decrease in net results attributable to noncontrolling interests during the three and six months endedJune 30, 2020 compared to the prior year periods was primarily due to lower results of our majority-owned mines in which there is an outside non-controlling interest. 49
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Diluted Earnings per Share (EPS)
The following table presents diluted EPS:
Three Months Ended (Decrease) Increase Six Months Ended (Decrease) Increase
June 30 , to EPS June 30 , to EPS
2020 2019 $ % 2020 2019 $ %
Diluted EPS attributable to common
stockholders:
(Loss) income from continuing
operations $ (15.76) $ 0.37 $ (16.13) (4,359) % $ (17.12) $ 1.54 $ (18.66) (1,212) %
Loss from discontinued operations (0.02) (0.03) 0.01 33 % (0.04) (0.06) 0.02 33 %
Net (loss) income attributable to
common stockholders $ (15.78) $ 0.34 $ (16.12) (4,741) % $ (17.16) $ 1.48 $ (18.64) (1,259) %
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 97.9 million and 108.1
million for the three months ended June 30, 2020 and 2019, respectively, and
97.5 million and 109.3 million for the six months ended June 30, 2020 and 2019,
respectively.
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA is defined as (loss) income 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
our segment's operating performance, as displayed in the reconciliations below.
We have retrospectively modified our calculation of Adjusted EBITDA to exclude
restructuring charges and transaction costs related to joint ventures as
management does not view these items as part of our normal operations.
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
(Dollars in millions)
(Loss) income from continuing operations, net of income taxes $ (1,545.3)
88.3 165.4 194.3 337.9
Asset retirement obligation expenses 14.1 15.3 31.7 29.1
Restructuring charges 16.5 0.4 23.0 0.6
Transaction costs related to joint ventures 12.9 1.6 17.1 1.6
Asset impairment 1,418.1 - 1,418.1 -
Provision for North Goonyella equipment loss - - - 24.7
North Goonyella insurance recovery - equipment - - - (91.1)
Changes in deferred tax asset valuation allowance and
reserves and amortization of basis difference related to
equity affiliates (0.4) 0.3 (1.1) 0.3
Interest expense 34.3 36.0 67.4 71.8
Interest income (2.4) (7.2) (5.5) (15.5)
Unrealized gains on economic hedges (7.0) (22.4) (4.8) (62.2)
Unrealized (gains) losses on non-coal trading derivative contracts
(2.8) 0.3 (2.9) 0.1
Take-or-pay contract-based intangible recognition (2.7) (5.6) (5.3) (11.2)
Income tax (benefit) provision (0.2) 3.0 2.8 21.8
Total Adjusted EBITDA $ 23.4 $ 230.0 $ 60.2 $ 484.1
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Revenues per Ton and Adjusted EBITDA Margin per Ton are equal to revenues by
segment and Adjusted EBITDA by segment, respectively, divided by segment tons
sold. Costs per Ton is equal to Revenues per Ton less Adjusted EBITDA Margin per
Ton, and are reconciled to operating costs and expenses as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
(Dollars in millions)
Operating costs and expenses $ 556.3
2.8 (0.3) 2.9 (0.1)
Take-or-pay contract-based intangible recognition 2.7 5.6 5.3 11.2
North Goonyella insurance recovery - cost recovery and business interruption
- - - (33.9)
Net periodic benefit costs, excluding service cost 2.7 4.8 5.5 9.7
Total Reporting Segment Costs $ 564.5 The following table presents Reporting Segment Costs by reporting segment:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
(Dollars in millions)
Seaborne Thermal Mining $ 134.3 $ 145.8 $ 280.3 $ 302.1
Seaborne Metallurgical Mining 127.7 233.5 353.6 472.2
Powder River Basin Mining 166.5 242.4 407.7 493.3
Other U.S. Thermal Mining 119.1 226.5 272.9 485.4
Corporate and Other 16.9 19.7 35.0 39.9
Total Reporting Segment Costs $ 564.5 $ 867.9 $ 1,349.5 $ 1,792.9 The following tables present tons sold, revenues, Reporting Segment Costs and Adjusted EBITDA by mining segment:
Three Months Ended
Seaborne Seaborne Powder River Other U.S.
Thermal Mining Metallurgical Mining Basin Mining Thermal Mining
(Amounts in millions, except per ton data)
Tons sold 4.6 1.1 17.9 3.8
Revenues $ 162.0 $ 91.6 $ 205.8 $ 152.0
Reporting Segment Costs 134.3 127.7 166.5 119.1
Adjusted EBITDA 27.7 (36.1) 39.3 32.9
Revenues per Ton $ 35.10 $ 86.80 $ 11.45 $ 39.81
Costs per Ton 29.19 120.72 9.26 31.22
Adjusted EBITDA Margin per Ton 5.91 (33.92) 2.19 8.59
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Three Months Ended
Seaborne Seaborne Powder River Other U.S.
Thermal Mining Metallurgical Mining Basin Mining Thermal Mining
(Amounts in millions, except per ton data)
Tons sold 4.7 2.1 25.0 7.2
Revenues $ 220.2 $ 290.9 $ 282.6 $ 309.6
Reporting Segment Costs 145.8 233.5 242.4 226.5
Adjusted EBITDA 74.4 57.4 40.2 83.1
Revenues per Ton $ 46.41 $ 138.42 $ 11.33 $ 43.04
Costs per Ton 30.73 111.12 9.72 31.47
Adjusted EBITDA Margin per Ton 15.68 27.30 1.61 11.57
Six Months Ended June 30, 2020
Seaborne Seaborne Powder River Other U.S.
Thermal Mining Metallurgical Mining Basin Mining Thermal Mining
(Amounts in millions, except per ton data)
Tons sold 9.2 3.1 41.4 8.7
Revenues $ 363.1 $ 284.8 $ 472.4 $ 344.3
Reporting Segment Costs 280.3 353.6 407.7 272.9
Adjusted EBITDA 82.8 (68.8) 64.7 71.4
Revenues per Ton $ 39.58 $ 92.61 $ 11.40 $ 39.49
Costs per Ton 30.56 115.00 9.84 31.31
Adjusted EBITDA Margin per Ton 9.02 (22.39) 1.56 8.18
Six Months Ended June 30, 2019
Seaborne Seaborne Powder River Other U.S.
Thermal Mining Metallurgical Mining Basin Mining Thermal Mining
(Amounts in millions, except per ton data)
Tons sold 9.2 4.4 50.3 15.1
Revenues $ 471.2 $ 615.4 $ 569.9 $ 644.4
Reporting Segment Costs 302.1 472.2 493.3 485.4
Adjusted EBITDA 169.1 143.2 76.6 159.0
Revenues per Ton $ 51.18 $ 140.45 $ 11.34 $ 42.60
Costs per Ton 32.82 107.77 9.82 32.08
Adjusted EBITDA Margin per Ton 18.36 32.68 1.52 10.52
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Free Cash Flow is defined as net cash (used in) provided by operating activities less net cash 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 underU.S. GAAP. Six Months Ended June 30, 2020 2019 (Dollars in millions) Net cash (used in) provided by operating activities$ (53.1) $ 377.0 Net cash used in investing activities (115.6) (64.0) Add back: Amount attributable to acquisition of Shoal Creek Mine - 2.4 Free Cash Flow$ (168.7) $ 315.4 Outlook As part of its normal planning and forecasting process, Peabody utilizes a broad approach to develop macroeconomic assumptions for key variables, including country-level gross domestic product, industrial production, fixed asset investment and third-party inputs, driving detailed supply and demand projections for key demand centers for coal, electricity generation and steel. Specific to theU.S. , the Company evaluates individual plant needs, including expected retirements, on a plant by plant basis in developing its demand models. Supply models and cost curves concentrate on major supply regions/countries that impact the regions in which the Company operates. Our estimates involve risks and uncertainties and are subject to change based on various factors as described more fully in the "Cautionary Notice Regarding Forward-Looking Statements" section contained within this Item 2. Our near-term outlook is intended to coincide with the next 12 to 24 months, with subsequent periods addressed in our long-term outlook. Peabody is continuing to monitor the rapidly evolving COVID-19 pandemic and any impacts related to both our near-term and long-term outlook. Near-Term Outlook Seaborne Thermal and Metallurgical Coal. While the global economy continues to navigate through the COVID-19 pandemic, the scope and scale of the recovery remains uncertain. Ongoing demand uncertainty driven by idled steel capacity inEurope and theAsia-Pacific , weak overall electricity generation and the implementation of Chinese import restrictions have all contributed to low seaborne coal prices. In addition, based on current economic data, the Company would expect near-term seaborne coal demand to decline from prior-year levels. The ultimate quantum of demand will be highly dependent upon the scope and scale of the eventual COVID-19 pandemic recovery.U.S. Thermal Coal.U.S. thermal coal conditions remain especially challenging given weak overall electricity demand, high customer inventory levels and continued low natural gas prices. These factors have accelerated the secular decline already underway in the industry. TotalU.S. electricity generation year-to-date throughJune 30, 2020 , was down approximately 4%, with coal generation falling 31% to 17% of the generation mix as natural gas and wind took market share, rising to 39% and 9%, respectively, of the generation mix. Long-Term Outlook Given widespread industry changes, in part due to the prolonged COVID-19 pandemic, we have updated our long-term outlook. Current projections indicate a slow seaborne market recovery over the next 12 to 15 months. Future demand will be impacted by economic conditions and public policy related to the COVID-19 pandemic in key demand centers. Further, we believe coal demand and use will be adversely impacted by the policy decisions of various governments, regulatory bodies, financial institutions and others with respect to concerns over the environmental and social impacts of coal combustion. Seaborne Fundamentals. Longer-term, Peabody continues to anticipate that seaborne metallurgical coal demand will continue to grow asIndia increases steel production and lacks the quantity and quality of domestic metallurgical coal to meet its anticipated needs.China will continue to have a significant influence on seaborne demand, which will be highly dependent on the scope and scale of the recovery from the COVID-19 pandemic and use and availability of domestic coal. 53
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For seaborne thermal, Peabody expects longer-term demand growth from theAssociation of Southeast Asian Nations to continue, which is anticipated to help offset demand decline elsewhere, most notably, in theAtlantic markets. The vast majority of seaborne thermal coal demand is projected to come from theAsia-Pacific region asEurope's coal generation continues its secular decline. Seaborne thermal coal will continue to be sourced primarily from seaborne exportersIndonesia andAustralia , along withRussia ,Colombia ,South Africa and theU.S. , among others.U.S. Fundamentals.U.S. thermal coal demand has been dramatically reduced in the first half of 2020, accelerating the secular demand decline already underway. Future demand will be highly dependent on natural gas prices, growth in renewable generation and other competing fuels, and policy and regulations, among other things. Regulatory Update Other than as described in the following section, there were no significant changes to our regulatory matters subsequent toDecember 31, 2019 . Information regarding our regulatory matters is outlined in Part I, Item 1. "Business" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Regulatory Matters -U.S. Temporary Enforcement Policy. OnMarch 26, 2020 , theUnited States Environmental Protection Agency (EPA ) announced a temporary policy regardingEPA enforcement of environmental legal obligations as a result of the COVID-19 pandemic. (COVID-19 Implications forEPA 's Enforcement and Compliance Assurance Program). Under the temporary policy, theEPA will exercise the enforcement discretion for certain noncompliance events that occur during the period of time that the temporary policy is in effect and that result from the COVID-19 pandemic. TheEPA 's temporary policy does not provide leniency for intentional criminal violations of law and imposes conditions on any violation that may result in "acute risk or an imminent threat to human health or the environment." The policy also does not apply to activities that are carried out under Superfund and Resource Conservation and Recovery Act (RCRA) Corrective Action enforcement instruments. TheEPA 's temporary policy became retroactively effective onMarch 13, 2020 and is in effect untilAugust 31, 2020 . (COVID-19 Implications forEPA 's Enforcement and Compliance Assurance Program: Addendum on Termination,June 29, 2020 ).EPA Regulation of Greenhouse Gas Emissions from Existing Fossil Fuel-Fired Electricity Utility Generating Units (EGUs). OnOctober 23, 2015 , theEPA published a final rule in theFederal Register regulating greenhouse gas emissions from existing fossil fuel-fired EGUs under Section 111(d) of the Clean Air Act (CAA) (80 Fed. Reg. 64,662 (Oct. 23, 2015 )). The rule (known as the Clean Power Plan or CPP) established emission guidelines for states to follow in developing plans to reduce greenhouse gas emissions from existing fossil fuel-fired EGUs. The CPP required that the states individually or collectively create systems that would reduce carbon emissions from any EGU located within their borders by 28% in 2025 and 32% in 2030 (compared with a 2005 baseline). Following Federal Register publication, 39 separate petitions for review of the CPP by approximately 157 entities were filed in theUnited States Court of Appeals for the D.C. Circuit (D.C. Circuit). The petitions reflected challenges by 27 states and governmental entities, as well as by utilities, industry groups, trade associations, coal companies and other entities. The lawsuits were consolidated with the case filed byWest Virginia andTexas (in which other states also joined) (D.C. Cir. No. 15-1363). OnOctober 29, 2015 , we filed a motion to intervene in the case filed byWest Virginia andTexas , in support of the petitioning states. The motion was granted onJanuary 11, 2016 . Numerous states and other entities also intervened in support of theEPA . OnFebruary 9, 2016 , theU.S. Supreme Court granted a motion to stay implementation of the CPP until the legal challenges were resolved. Thereafter, oral arguments in the case were heard in the D.C. Circuit sitting en banc. OnApril 28, 2017 , the D.C. Circuit granted theEPA 's motion to hold the case in abeyance while the agency reconsidered the rule. The D.C. Circuit case has been in abeyance since, so no opinion has been issued. InOctober 2017 , theEPA proposed to repeal the CPP (82 Fed. Reg. 48,035 (Oct. 16, 2017 )). InAugust 2018 , theEPA issued a proposed rule to replace the CPP with the Affordable Clean Energy (ACE) Rule. (83 Fed. Reg. 44,746 (August 31, 2018 )). OnJune 19, 2019 , theEPA issued a combined package that finalized the CPP repeal rule as well as the replacement rule, ACE. (Repeal of the Clean Power Plan; Emission Guidelines for Greenhouse Gas Emissions from Existing Electric Utility Generating Units; Revisions to Emission Guidelines Implementing Regulations, 84 Fed. Reg. 32,520 (July 8, 2019 )). The ACE rule sets emissions guidelines for greenhouse gas emissions from existing EGUs based on a determination that efficiency heat rate improvements constitute the Best System of Emission Reduction. TheEPA 's final rule also revises the CAA Section 111(d) regulations to give the states greater flexibility on the content and timing of their state plans. 54
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Based on theEPA 's final rules repealing and replacing the CPP, petitioners in the D.C. Circuit matter seeking review of CPP, including Peabody, filed a motion to dismiss, which the court granted inSeptember 2019 . Meanwhile, challengers to the ACE Rule filed petitions for judicial review; briefing in this case (No. 19-1140 (D.C. Cir.)) has concluded and oral argument has been scheduled forOctober 2020 . New Source Review (NSR). The Clean Air Act imposes permitting requirements when a new source undergoes construction or when an existing source is reconstructed or undergoes a major modification. These requirements are contained in the Clean Air Act's Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NNSR) programs, generally referred to as NSR. OnMarch 25, 2020 , theEPA released a draft guidance document that would allow power plants, refineries and other sources of emissions to begin certain construction activities while still awaiting a permit under the NSR program. Under theEPA 's revised interpretation, a source owner or operator may, prior to obtaining a NSR permit, undertake physical on-site activities- including activities that may significantly alter the site, and/or are permanent in nature- provided that those activities do not constitute physical construction on an emissions unit. The comment period on the draft memo endedMay 11, 2020 . TheEPA has also taken action on a number of different rules and guidance affecting the interpretation and application of NSR. In a final rule (83 Fed. Reg. 57,324 (Nov. 15, 2018 ), theEPA completed reconsideration of a 2009 petition to clarify when certain actions must be "aggregated" for purposes of determining whether these actions are part of a single project to which NSR applies. TheEPA has additionally published guidance on the definition of "ambient air" (Revised Policy on Exclusions from "Ambient Air ,"Dec. 2, 2019 ) and guidance concerning when multiple air pollution-emitting activities may be considered to be "adjacent" so that they should be considered to be a single source (Interpreting "Adjacent" for New Source Review and Title V Source Determinations inAll Industries Other Than Oil and Gas ,Nov. 26, 2019 ). Additional memorandum and applicability determinations have also been made that address other NSR issues. These rules, guidance and memorandum may therefore affect the construction, reconstruction and modification of sources and the level of pollution control requirements that will be necessary on a case-by-case basis. Clean Water Act (CWA) Definition of "Waters ofthe United States ". A final rule defining the scope of waters protected under the CWA (commonly called the Waters ofthe United States , or WOTUS) (WOTUS Rule), was published by theEPA and theU.S. Army Corps of Engineers (Corps) inJune 2015 . Several states and others subsequently filed lawsuits challenging the 2015 WOTUS Rule, and eventually that rule was preliminarily enjoined in over half of the country. OnOctober 22, 2019 , theEPA and the Corps jointly published a final rule, which became effective onDecember 23, 2019 , repealing the 2015 WOTUS Rule and recodifying the regulatory definitions of WOTUS that existed prior to the implementation of the WOTUS Rule. OnJanuary 23, 2020 , theEPA and the Corps finalized the Navigable Waters Protection Rule to revise the definition of "Waters ofthe United States " and thereby establish the scope of federal regulatory authority under the CWA. A federal district judge inColorado preliminarily enjoined the Navigable Waters Protection Rule in theState of Colorado onJune 19, 2020 . The new rule took effect in all other states onJune 22, 2020 , but the pre-2015 definitions apply inColorado . National Environmental Policy Act (NEPA). NEPA, signed into law in 1970, requires federal agencies to review the environmental impacts of their decisions and issue either an environmental assessment or an environmental impact statement. We must provide information to agencies when we propose actions that will be under the authority of the federal government. The NEPA process involves public participation and can involve lengthy timeframes.The White House Council on Environmental Quality issued a proposed rule that would comprehensively update and modernize its longstanding NEPA regulations onJanuary 10, 2020 . The comment period closed onMarch 10, 2020 . As proposed, the rule seeks to reduce unnecessary paperwork, burdens and delays, promote better coordination among agency decision makers, and clarify scope of NEPA reviews, among other things. Proposed Rule for Disposal of Coal Combustion Residuals (CCR) fromElectric Utilities ; Federal CCR Permit Program. OnFebruary 20, 2020 , as required by the Water Infrastructure Improvements for the Nation Act, theEPA proposed a federal permitting program for the disposal of CCR in surface impoundments and landfills. Under the proposal, theEPA would directly implement the permit program in Indian Country, and at CCR units located in states that have not submitted their own CCR permit program for approval. The proposal includes requirements for federal CCR permit applications, content and modification, as well as procedural requirements. The comment period forEPA 's proposal ended onApril 20, 2020 . 55
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Regulatory Matters -Australia Occupational Health and Safety. State legislation requires us to provide and maintain a safe workplace by providing safe systems of work, safety equipment and appropriate information, instruction, training and supervision. In recognition of the specialized nature of mining and mining activities, specific occupational health and safety obligations have been mandated under state legislation specific to the coal mining industry. There are some differences in the application and detail of the laws, and mining operators, directors, officers and certain other employees are all subject to the obligations under this legislation. Safe Work Australia (SWA) is currently reviewing the Workplace Exposure Standards (WES) for all airborne contaminants including welding fumes and diesel particulate matter and giving priority to the WES for coal dust and silica. InMarch 2020 , SWA paused the release and public consultation for the WES review until further notice. SWA's draft evaluation reports will include recommendations for exposure limits. The exposure limits recommended by SWA are based on toxicological information and other monitoring data. SWA have recommended exposure limits of 1.5 mg/m3 for coal dust and 0.05 mg/m3 for silica. Following the re-identification of coal workers' pneumoconiosis and six mining and quarrying fatalities that occurred over a 12-month period, the Resources Safety and Health Queensland Bill 2019 was introduced into Queensland Parliament inSeptember 2019 , was passed into law inMarch 2020 and became effective onJuly 1, 2020 . It establishes Resources Safety and Health Queensland (RSHQ) as a statutory body designed to ensure independence of the mining safety and health regulator. RSHQ will include inspectorates for coal mines, mineral mines and quarries, explosives and petroleum and gas. The new laws seek to enhance the role of advisory committees to identify, quantify and prioritize safety and health issues in the mining and quarrying industries. It also provides for an independentWork Health and Safety Prosecutor to prosecute serious offenses under resources safety legislation. OnMay 20, 2020 , the Queensland Parliament passed a bill into law that introduces the criminal offense of 'industrial manslaughter' for executive officers, individualswho are "senior officers" and companies in the mining industry. Individuals now face a maximum prison sentence of 20 years and companies could be fined up to approximately$13 million Australian dollars. The new law also introduces the requirement for statutory role holders to be employees of the coal mine operator entity with an 18-month transition period endingNovember 25, 2021 . The new law became effectiveJuly 1, 2020 . OnJune 19, 2020 , the Environmental Protection and Other Legislation Amendment Bill 2020 (EPOLA Bill) was introduced into Queensland Parliament. The EPOLA Bill includes the establishment of the Rehabilitation Commissioner as an independent statutory position, which will be responsible for monitoring and reporting on rehabilitation performance and trends acrossQueensland , as well as amendments to the residual risk framework that aim to ensure that any remaining risks on former resource sites are appropriately identified, costed and managed. Sydney Water Catchment Areas. InNovember 2017 , theNew South Wales government established an independent expert panel (Panel) to advise theDepartment of Planning, Industry and Environment (DPIE) on the impact of underground mining activities inSydney's water catchment areas, including at ourMetropolitan Mine . The Panel issued its final report inOctober 2019 . The final report makes findings and recommendations concerning mining activities and effects across the catchment as a whole. The DPIE considered the recommendations in the Panel's final report and inApril 2020 announced that it had accepted all 50 recommendations in the Panel's report, and that it has established an interagency taskforce to implement a detailed action plan during 2020. The action plan includes: ensuring there is a net gain for the metropolitan water supply by requiring more offsetting from mining companies; establishing a new independent expert panel to advise on future mining applications in the catchment; strengthening surface and groundwater monitoring; improving access to and transparency of environmental data; adopting a more stringent approach to the assessment and conditioning of future mining proposals to minimize subsidence impacts; reviewing and updating current and potential future water losses from mining in line with the best available science; introducing a licensing regime to properly account for any water losses; and undertaking further research into mine closure planning to reduce potential long-term impacts. Queensland Royalties. As part of the Queensland Government's 2019-20 Budget, the Government committed to freeze royalty rates on coal and minerals for three years, provided companies voluntarily contribute to aResource Community Infrastructure Fund (the Fund) over this three-year period. The Government contributes$30 million Australian dollars towards the Fund, with companies voluntarily contributing$70 million Australian dollars. Peabody's contribution to the Fund is approximately$750,000 Australian dollars for the first year and is expected to decrease in years two and three based on an expected reduction in production at ourQueensland mines. 56
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Liquidity and Capital Resources Overview Our primary source of cash is proceeds from the sale of our coal production to customers. We have also generated cash from the sale of non-strategic assets, including coal reserves and surface lands, borrowings under our credit facilities and, from time to time, the issuance of securities. Our 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, and selling and administrative expenses. We have 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 be at the discretion of our Board of Directors and will depend on a variety of factors, including the restrictions set forth under our debt agreements, our 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. Our ability to declare dividends, repurchase shares or early retire debt in the future will depend on our future financial performance, which in turn depends on the successful implementation of our 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 our industry, many of which are beyond our control. Liquidity As ofJune 30, 2020 , our cash balances totaled$848.5 million , including approximately$785 million held byU.S. subsidiaries,$33 million held by Australian subsidiaries and the remaining balance held by other foreign subsidiaries in accounts predominantly domiciled in theU.S. A significant majority of the cash held by our 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 . Our available liquidity has declined from$1,275.8 million as ofDecember 31, 2019 to$926.1 million as ofJune 30, 2020 . Available liquidity was comprised of cash and cash equivalents of$732.2 million and$848.5 million as ofDecember 31, 2019 andJune 30, 2020 , respectively, and combined availability under our revolving credit facility and accounts receivable securitization program of$543.6 million and$77.6 million as ofDecember 31, 2019 andJune 30, 2020 , respectively. We have experienced negative cash flows from operations during the first half of 2020, and results from continuing operations, net of income taxes and Adjusted EBITDA for the six months endedJune 30, 2020 declined by$1,850.8 million and$423.9 million , respectively, compared to the corresponding prior year period. During the six months endedJune 30, 2020 , the combined availability under our revolving credit facility and accounts receivable securitization program decreased as a result of borrowing$300.0 million under our revolving credit facility onApril 3, 2020 , which is further described in Note 12. "Long-term Debt" of the accompanying unaudited condensed consolidated financial statements, an additional$83.0 million of letters of credit issuances, and a$83.0 million decrease in available receivable balances under the accounts receivable securitization program. While we were in compliance with the restrictions and covenants under our debt agreements atJune 30, 2020 , as further described below, there is significant risk that we will not be in compliance with the first lien leverage ratio requirement under our credit agreement in the second half of 2020 without successfully taking mitigating action. Noncompliance with the ratio covenant would constitute a default under the credit agreement, and the revolving lenders could elect to accelerate the maturity of the related indebtedness, and could potentially choose to exercise other rights and remedies under the agreement. Further, our senior secured notes and certain lease agreements contain cross-default provisions which would be activated by a default under the credit agreement, which could result in a similar acceleration of maturity under those obligations. We believe we could seek to avoid noncompliance by taking certain mitigating actions, such as obtaining a waiver of the default condition, executing an amendment to the credit agreement, or completing asset sales to generate additional liquidity, but can offer no assurance as to the likelihood of success of such actions. If such actions were not successful, we could avoid noncompliance while maintaining operating liquidity beyond twelve months by repaying the amount currently outstanding under our revolving credit facility and replacing outstanding letters of credit with cash collateral. Such actions would avoid default on the remaining indebtedness under the credit agreement and cross-default on the senior secured notes and lease agreements as described above, but would have negative impacts to our liquidity. Any of these actions could have an adverse effect on our financial condition, results of operations or cash flows. 57
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Our ability to maintain adequate liquidity depends on the successful operation of our business and appropriate management of operating expenses and capital spending. Our anticipated liquidity needs are highly sensitive to changes in each of these and other factors, including the evolving impact of the COVID-19 pandemic. AtJuly 31, 2020 , our available liquidity was approximately$822 million . The decrease subsequent toJune 30, 2020 was driven by a reduction in cash and cash equivalent balances and changes in availability under our accounts receivable securitization program and revolving credit facility, including the issuance of an additional$53.2 million of letters of credit. Also duringJuly 2020 , we issued a bank guarantee for$50 million Australian dollars as a performance guarantee in favor of the largest customer of our Seaborne Thermal Mining segment. Under the terms of our coal supply agreement, which is sourced from ourWilpinjong Mine , that customer may unilaterally demand such a guarantee at any time. The coal supply agreement and an associated step-in deed also require us to maintain compliance with certain covenants and restrictions. In the event of noncompliance, the customer may exercise contractual step-in rights to appoint a receiver to operate the mine within the parameters of the coal supply agreement and step-in deed. As ofAugust 7, 2020 , we were in compliance with the terms of these contractual arrangements. Debt Financing As described in Note 12. "Long-term Debt" of the accompanying unaudited condensed consolidated financial statements, during 2017, we entered into an indenture related to the issuance of$500.0 million of 6.000% senior secured notes dueMarch 2022 and$500.0 million of 6.375% senior secured notes dueMarch 2025 . We make semi-annual interest payments on the senior notes eachMarch 31 andSeptember 30 until maturity. Also during 2017, we entered into a credit agreement and related term loan under which we originally borrowed$950.0 million and have repaid$559.0 million throughJune 30, 2020 . The term loan requires quarterly principal payments of$1.0 million and periodic interest payments, currently at LIBOR plus 2.75%, throughDecember 2024 with the remaining balance due inMarch 2025 . We entered into the revolving credit facility allowable under our credit agreement during 2017 for an aggregate commitment of$350.0 million for general corporate purposes. InSeptember 2019 , we entered into an amendment to the credit agreement which increased the aggregate commitment amount under the revolver to$565.0 million and, beginning in 2020, made applicable interest rates and fees dependent upon our periodically-determined first lien leverage ratio, as defined in the credit agreement. To date, we have utilized this revolving credit facility for the$300.0 million borrowing described above and for letters of credit which incur combined fees of 3.125%, while unused capacity bears a commitment fee of 0.4%. As ofJune 30, 2020 , such letters of credit amounted to$197.9 million and were primarily in support of our reclamation obligations. AtJune 30, 2020 , the remaining availability under the revolving credit facility was$67.1 million . Our debt agreements impose various restrictions and limits on certain categories of payments that we may make, such as those for dividends, investments, and stock repurchases. We are also subject to customary affirmative and negative covenants, such as the first lien leverage ratio requirement described above. We were in compliance with all such restrictions and covenants atJune 30, 2020 . As described in the "Overview" section contained within this Item 2, theSeptember 2019 amendment to our credit facility made the formation of the PRBColorado joint venture with Arch expressly permissible. We are currently considering various alternatives for implementing the joint venture in accordance with the terms of the indenture governing our senior secured notes. Our ability to accomplish this objective is subject to market conditions and other factors, including financing options that may be available to us from time to time and conditions in the credit and debt capital markets generally. Accounts Receivable Securitization Program As described in Note 17. "Financial Instruments and Other Guarantees" of the accompanying unaudited condensed consolidated financial statements, we entered into an amended accounts receivable securitization program during 2017 which currently expires in 2022. The program provides for up to$250.0 million in funding, limited to the availability of eligible receivables, accounted for as a secured borrowing. Funding capacity under the program may also be provided for letters of credit in support of other obligations. AtJune 30, 2020 , we had no outstanding borrowings and$84.2 million of letters of credit provided under the program. The letters of credit are primarily in support of portions of our obligations for reclamation, workers' compensation and postretirement benefits. Availability under the program, which is adjusted for certain ineligible receivables, was$10.5 million atJune 30, 2020 and there was no cash collateral requirement. 58
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Capital Requirements As a result of the deferral of certain capital project spending to subsequent periods, we revised our expected 2020 capital expenditures to approximately$200 million during the second quarter of 2020, as compared to approximately$250 million as disclosed in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedDecember 31, 2019 . There were no other material changes to our capital requirements. Contractual Obligations There were no material changes to our contractual obligations from the information previously provided in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedDecember 31, 2019 , with the exception of our obligations for various short- and long-term take-or-pay arrangements inAustralia and theU.S. associated with rail and port commitments for the delivery of coal, including amounts relating to export facilities. Due to extensions to our commercial agreements for rail and port commitments, partially offset by reductions to our near-term commitments related to ourNorth Goonyella Mine , our estimated obligations are expected to be$5.0 million less for the remainder of 2020 than that provided in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedDecember 31, 2019 . For the two-year period 2021 through 2022, such obligations are comparatively reduced by$27.1 million . For the two-year period 2023 through 2024, and periods thereafter, such obligations are comparatively increased by$10.8 million and$158.5 million , respectively. Historical Cash Flows and Free Cash Flow The following table summarizes our cash flows for the six months endedJune 30, 2020 and 2019, as reported in the accompanying unaudited condensed consolidated financial statements. Free Cash Flow is a financial measure not recognized in accordance withU.S. GAAP. Refer to the "Reconciliation of Non-GAAP Financial Measures" section above for definitions and reconciliations to the most comparable measures underU.S. GAAP. Six Months Ended June 30, 2020 2019 (Dollars in millions) Net cash (used in) provided by operating activities$ (53.1) $ 377.0 Net cash used in investing activities (115.6) (64.0) Net cash provided by (used in) in financing activities 285.0 (430.3) Net change in cash, cash equivalents and restricted cash 116.3 (117.3)
Cash, cash equivalents and restricted cash at beginning of period 732.2
1,017.4
Cash, cash equivalents and restricted cash at end of period
$ 900.1 Net cash (used in) provided by operating activities$ (53.1) $ 377.0 Net cash used in investing activities (115.6) (64.0) Add back: Amount attributable to acquisition of Shoal Creek Mine - 2.4 Free Cash Flow$ (168.7) $ 315.4 59
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Operating Activities. The net decrease in net cash (used in) provided by operating activities for the six months endedJune 30, 2020 compared to the same period in the prior year was driven by a year-over-year decrease in cash from our mining operations, partially offset by a favorable change in net cash flows associated with our working capital ($127.3 million ). Investing Activities. The increase in net cash used in investing activities for the six months endedJune 30, 2020 compared to the same period in the prior year was driven by higher advances to related parties and joint ventures, on a net basis, ($23.0 million ) and insurance proceeds attributable to North Goonyella equipment losses in the prior year period ($23.2 million ). Financing Activities. The increase in net cash provided by (used in) financing activities for the six months endedJune 30, 2020 compared to the same period in the prior year was driven by the$300.0 million borrowing under our revolving credit facility and the prior year payment of dividends of$229.3 million , including a supplemental dividend of$1.85 per share of common stock, and common stock repurchases of$156.0 million . We have presently suspended such payments, as discussed in Part II, Item 2. "Unregistered Sales ofEquity Securities and Use of Proceeds." Off-Balance Sheet Arrangements In the normal course of business, we are 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. AtJune 30, 2020 , such instruments included$1,589.4 million of surety bonds and$283.6 million of letters of credit. These financial instruments provide support for our reclamation bonding requirements, lease obligations, insurance policies and various other performance guarantees. We periodically evaluate the instruments for on-balance-sheet treatment based on the amount of exposure under the instrument and the likelihood of required performance. We do not expect any material losses to result from these guarantees or off-balance-sheet instruments in excess of liabilities provided for in our condensed consolidated balance sheets. We could experience a decline in our liquidity as financial assurances associated with reclamation bonding requirements, surety bonds or other obligations are required to be collateralized by cash or letters of credit. Our surety providers have the ability to demand collateral up to the full amount of each surety bond. As described in Note 17. "Financial Instruments and Other Guarantees" in the accompanying unaudited condensed consolidated financial statements, we are required to provide various forms of financial assurance in support of our mining reclamation obligations in the jurisdictions in which we operate. 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 our increased usage of surety bonds and similar third-party instruments. This change in practice has had an unfavorable impact on our liquidity due to increased collateral requirements and surety and related fees. AtJune 30, 2020 , we had total asset retirement obligations of$757.5 million which were backed by a combination of surety bonds 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 our 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 17. "Financial Instruments and Other Guarantees" in our unaudited condensed consolidated financial statements for a discussion of our accounts receivable securitization program and guarantees and other financial instruments with off-balance sheet risk. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based upon our financial statements, which have been prepared in accordance withU.S. GAAP. We are also required underU.S. GAAP to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that we believe 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. 60
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We recognized an asset impairment charge of$1,418.1 million during the three and six months endedJune 30, 2020 related to ourNorth Antelope Rochelle Mine of the PowderRiver Basin Mining segment. The outlook for the mine has been negatively impacted by the accelerated decline of coal-fired electricity generation in theU.S. , driven by the reduced utilization of plants and plant retirements, sustained low natural gas pricing, and the increased use of renewable energy sources. These factors have led to the expectation of reduced future sales volumes. The impairment charge was based upon the remaining estimated discounted cash flows of the mine. Such cash flows were based upon estimates which generally constitute unobservable Level 3 inputs under the fair value hierarchy, including, but not limited to, future tons sold, coal prices for unpriced coal, production costs (including costs for labor, commodity supplies and contractors), transportation costs, and a risk-adjusted, cost of capital. AtJune 30, 2020 , we also identified certain assets with an aggregate carrying value of approximately$850 million in our Seaborne Metallurgical Mining, PowderRiver Basin Mining , OtherU.S. Thermal Mining and Corporate and Other segments whose recoverability is most sensitive to coal pricing, cost pressures, customer demand and customer concentration risk. We conducted a review of those assets for recoverability as ofJune 30, 2020 and determined that no further impairment charges were necessary as of that date. See Note 9. "Property, Plant, Equipment andMine Development " to our accompanying unaudited condensed consolidated financial statements for additional information regarding impairment charges. Our critical accounting policies are discussed in 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 endedDecember 31, 2019 . Our critical accounting policies remain unchanged atJune 30, 2020 . Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented See Note 2. "Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented" to our unaudited condensed consolidated financial statements for a discussion of newly adopted accounting standards and accounting standards not yet implemented. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Foreign Currency Risk We have historically utilized currency forwards and options to hedge currency risk associated with anticipated Australian dollar expenditures. The accounting for these derivatives is discussed in Note 7. "Derivatives and Fair Value Measurements" to the accompanying unaudited condensed consolidated financial statements. As ofJune 30, 2020 , the Company had currency options outstanding with an aggregate notional amount of$613.0 million Australian dollars to hedge currency risk associated with anticipated Australian dollar expenditures over the six-month period endingDecember 31, 2020 . Assuming we had no foreign currency hedging instruments in place, our exposure in operating costs and expenses due to a$0.10 change in the Australian dollar/U.S. dollar exchange rate is approximately$125 million for the next twelve months. Based upon the Australian dollar/U.S. dollar exchange rate atJune 30, 2020 , the currency option contracts outstanding at that date would limit our net exposure to a$0.10 unfavorable change in the exchange rate to approximately$95 million for the next twelve months. Other Non-Coal Trading Activities - Diesel Fuel Price Risk Diesel Fuel Hedges. Previously, we managed price risk of the diesel fuel used in our mining activities through the use of derivatives, primarily swaps. As ofJune 30, 2020 , we did not have any diesel fuel derivative instruments in place. We also manage the price risk of diesel fuel through the use of cost pass-through contacts with certain customers. We expect to consume 85 to 95 million gallons of diesel fuel during the next twelve months. A$10 per barrel change in the price of crude oil (the primary component of a refined diesel fuel product) would increase or decrease our annual diesel fuel costs by approximately$20 million based on our expected usage. 61
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