Under the terms of the Securitization Program, the Company contributes the trade receivables of its participating subsidiaries on a revolving basis to P&L Receivables, itsa wholly-owned, bankruptcy-remote subsidiary, which then sells the receivables to unaffiliated banks. P&L Receivables retainsThe Securitization Program does not receive off-balance sheet accounting treatment due to the Company’s ability to repurchase the receivables in certain circumstances. The assets and liabilities of P&L Receivables are consolidated with Peabody, and the Securitization Program is treated as a secured borrowing for accounting purposes, but the assets of P&L Receivables will be used first to satisfy the creditors of P&L Receivables, not Peabody’s creditors. The borrowings under the Securitization Program remain outstanding throughout the term of the agreement, subject to the Company maintaining sufficient eligible receivables, by continuing to contribute trade receivables to P&L Receivables, unless an event of default occurs.
From time to time, the Company or its subsidiaries are involved in legal proceedings arising in the ordinary course of business or related to indemnities or historical operations. The Company believes it has recorded adequate reserves for these liabilities. The Company discusses its significant legal proceedings below, including ongoing proceedings and those that impacted the Company’s results of operations for the periods presented.
Litigation Relating to Continuing Operations
24
Peabody Monto Coal Pty Ltd, Monto Coal 2 Pty Ltd and Peabody Energy Australia PCI Pty Ltd (PEA-PCI). On October 1, 2007, a claim was made against Peabody Monto Coal Pty Ltd, a wholly-owned subsidiary of Macarthur Coal Limited (Macarthur) that is now a wholly-owned subsidiary of the Company, and Monto Coal 2 Pty Ltd, an equity accounted investee of Macarthur, now known as PEA-PCI. The claim, made by the minority interest holders in the joint venture, alleged that the Macarthur companies breached certain agreements by failing to develop a mine project. The claim was amended to assert that Macarthur also induced the alleged breach of the Monto Coal Joint Venture Agreement. The Company acquired Macarthur and its subsidiaries in 2011. The claim originally sought damages of up to $1.1 billion Australian dollars, plus interest and costs, but was amended in November 2019 to seek $18 million Australian dollars, plus interest and costs.
The Company asserted that the Macarthur companies were never under an obligation to develop the mine project because the project was not economically viable. A trial commenced in the Supreme Court of Queensland, Australia on April 8, 2019 and concluded on December 12, 2019. Before a decision was handed down, the parties reached a settlement to end the multi-year dispute, the terms of which included the Company (a) transferring its interests in Monto Coal 2 Pty Ltd, and therefore the Monto Coal Joint Venture, to the claimant; and (b) agreeing to use commercially reasonable efforts to transfer certain other assets to the claimant. These settlement terms are not expected to result in a material impact to the Company’s financial accounts. As a result of the settlement, the parties filed a dismissal of the litigation on January 24, 2020.
County of San Mateo, County of Marin, City of Imperial Beach. The Company was named as a defendant, along with numerous other companies, in 3 nearly identical lawsuits brought by municipalities in California on July 17, 2017. The lawsuits seek to hold a wide variety of companies that produce fossil fuels liable for the alleged impacts of the greenhouse gas emissions attributable to those fuels and seek compensatory and punitive damages in an amount to be proven at trial, attorneys’ fees and costs, disgorgement of profits and equitable relief of abatement.The lawsuits primarily assert that the companies’ products have caused a sea level rise that is damaging the plaintiffs. The complaints specifically alleged that the defendants’ activities from 1965 to 2015 caused such damage. The Company filed a motion to enforce the Company’s Second Amended Joint Plan of Reorganization of Debtors and Debtors in Possession as revised March 15, 2017 (the Plan) because it enjoins claims that arose before the effective date of the Plan. The motion to enforce was granted on October 24, 2017, and the Bankruptcy Court ordered the plaintiffs to dismiss their lawsuits against the Company. On November 26, 2017, the plaintiffs appealed the Bankruptcy Court’s October 24, 2017 order to the United States District Court for the Eastern District of Missouri (the District Court). On November 28, 2017, the plaintiffs sought a stay pending appeal from the Bankruptcy Court, which was denied on December 8, 2017. On December 19, 2017, the plaintiffs moved the District Court for a stay pending appeal. The District Court denied the stay request on September 20, 2018, and the plaintiffs have appealed that decision to the United States Court of Appeals for the Eighth Circuit. On March 29, 2019, the District Court affirmed the Bankruptcy Court ruling enjoining the plaintiffs from proceeding with their lawsuits against the Company. That ruling likewise was appealed. On May 6, 2020, the Eighth Circuit Court of Appeals denied the plaintiffs’ request for stay and affirmed the order compelling the plaintiffs to dismiss the Company. The plaintiffs may ask the Eight Circuit Court of Appeals to reconsider or may appeal to the United States Supreme Court.In the underlying cases pending in California, the U.S. District Court for the Northern District of California granted plaintiffs’ motion for remand and decided the cases should be heard in state court. The defendants appealed the order granting remand to the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) and sought a stay of the U.S. District Court for the Northern District of California decision pending completion of the Ninth Circuit appeal. The U.S. District Court for the Northern District of California granted defendants’ request for a stay pending completion of the Ninth Circuit appeal. The plaintiffs filed a motion to dismiss part of the appeal. The parties are now litigating at the Ninth Circuit whether a state or federal court should hear these lawsuits. Regardless of whether state court or federal court is the venue, the Company believes the lawsuits against it should be dismissed under enforcement of the Plan. The Company does not believe the lawsuits are meritorious and, if the lawsuits are not dismissed, the Company intends to vigorously defend them.
PEABODY ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Litigation Relating to Continuing Operations
OtherSecurities Class Action. On September 28, 2020, the Oklahoma Firefighters Pension and Retirement System brought a lawsuit, styled In Re Peabody Energy Corporation Securities Litigation No. 1:20-cv-08024 (PKC), against the Company and certain of its officers in the U.S. District Court for the Southern District of New York (the Court) on behalf of a putative class of shareholders (Plaintiffs) who held Company stock between April 3, 2017 and October 28, 2019, for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder (Securities Class Action). Plaintiffs allege that the defendants made false or misleading statements and/or failed to disclose certain adverse facts pertaining to safety practices at the Company’s North Goonyella Mine and the events leading up to a fire at the mine, and that, after a September 28, 2018 fire at the mine, made false or misleading statements and/or failed to disclose certain adverse facts pertaining to the feasibility of the Company’s plan to restart the mine after the fire. The Company believes the lawsuit lacks merit and intends to vigorously defend against the allegations. On January 12, 2021, the Court appointed the Oregon Public Employees Retirement Fund as lead plaintiff. On January 25, 2021, the Court entered a scheduling order for this matter. Plaintiffs filed their amended complaint on March 19, 2021. The defendants filed a pre-motion letter on April 30, 2021 and the Plaintiffs’ response letter is due May 6, 2021. The defendants must file their motion to dismiss by June 7, 2021. Additional briefings at this phase of litigation should be completed by the end of August 2021.
Derivative Actions. On December 22, 2020, a plaintiff (Phelps) , putatively on behalf of the Company, brought a shareholder derivative lawsuit, styled Phelps v. Samantha Algaze, et al., Case No. 1:20-cv-01747-UNA (D. Del. filed Dec. 22, 2020), in the United States District Court for the District of Delaware against certain directors and a former officer of the Company, as defendants. The Company was also named as a nominal defendant. The plaintiff did not make a demand on the Company’s board before instituting the lawsuit and alleges such demand would have been futile. In the complaint, the plaintiff alleges that the defendants failed to disclose adverse facts relating to the safety practices at the Company’s North Goonyella Mine, thereby leading to a September 28, 2018 fire, and allegedly failed to disclose adverse facts pertaining to the feasibility of reopening the mine. The derivative complaint alleges (i) contribution against certain current and former officers for securities fraud based on the Securities Class Action, and against all defendants, (ii) breach of fiduciary duties, (iii) waste of corporate assets for causing the Company to incur legal liability and (iv) unjust enrichment.
On February 10, 2021, a second plaintiff (Di Fusco), putatively on behalf of the Company, filed a similar shareholder derivative lawsuit, styled Di Fusco v. Glenn Kellow, et al., Case No. 1:21-cv-00183-UNA (D. Del. filed Feb. 10, 2021), in the United States District Court for the District of Delaware against the directors, two current officers and a former officer of the Company, as defendants. The Company was named as a nominal defendant. This suit makes claims similar to those made in the Phelps matter, but asserts a claim for alleged misstatements in a proxy statement under Section 14(a) of the Securities and Exchange Act of 1934. In late March 2021, the parties filed a stipulation agreeing to consolidate and stay both derivative actions for judicial efficiency and cost until the United States District Court for the District of Delaware ruled on the motion to dismiss in the Securities Class Action. The Company also believes that the derivative actions lack merit and intended to vigorously defend against the allegations.
Litigation Relating to Continuing Operations
At times, the Company becomes a party to other disputes, including those related to contract miner performance, claims, lawsuits, arbitration proceedings, regulatory investigations and administrative procedures in the ordinary course of business in the U.S., Australia and other countries where the Company does business. Based on current information, the Company believes that such other pending or threatened proceedings are likely to be resolved without a material adverse effect on its financial condition, results of operations or cash flows. The Company reassesses the probability and estimability of contingent losses as new information becomes available.
(19)(18) Segment Information
During the year ended December 31, 2019, the Cottage Grove and Kayenta Mines shipped their final tons, and the Company announced the closures of the Wildcat HiIls Underground and Somerville Central Mines, with both of those operations expecting to ship their final tons in 2020. Due to these changes, the Company has revised its reportable segments beginning in the first quarter of 2020 to reflect the manner in which the chief operating decision maker (CODM) views the Company’s businesses going forward for purposes of reviewing performance, allocating resources and assessing future prospects and strategic execution. The Company now reports its results of operations primarily through the following reportable segments: Seaborne Thermal Mining, Seaborne Metallurgical Mining, Powder River Basin Mining, Other U.S. Thermal Mining and Corporate and Other. Prior period results have been recast for comparability.
The business of the Company’s seabornechief operating platform is primarily export focused with customers spread across several countries, with a portion of its thermal and metallurgical coal sold within Australia. Generally, revenues from individual countries vary year by year based on electricity and steel demand, the strength of the global economy, governmental policies and several other factors, including those specific to each country. The Company classifies its seaborne mines within the Seaborne Thermal Mining or Seaborne Metallurgical Mining segments based ondecision maker uses Adjusted EBITDA as the primary customer base and coal reserve type of each mining operation. A small portion ofmetric to measure the coal mined by the Seaborne Thermal Mining segment is of a metallurgical grade. Similarly, a small portion of the coal mined by the Seaborne Metallurgical Mining segment is of a thermal grade. Additionally, the Company may market some of its metallurgical coal products as a thermal coal product from time to time depending on market conditions.
The Company’s Seaborne Thermal Mining operations consist of mines in New South Wales, Australia. The mines in that segment utilize both surface and underground extraction processes to mine low-sulfur, high Btu thermal coal.
The Company’s Seaborne Metallurgical Mining operations consist of mines in Queensland, Australia, one in New South Wales, Australia and one in Alabama. The mines in that segment utilize both surface and underground extraction processes to mine various qualities of metallurgical coal (low-sulfur, high Btu coal). The metallurgical coal qualities include hard coking coal, semi-hard coking coal, semi-soft coking coal and pulverized coal injection coal.
The principal business of the Company’s thermal mining segments in the U.S. is the mining, preparation and sale of thermal coal, sold primarily to electric utilities in the U.S. under long-term contracts, with a relatively small portion sold as international exports as conditions warrant. The Company’s Powder River Basin Mining operations consist of its mines in Wyoming. The mines in that segment are characterized by surface mining extraction processes, coal with a lower sulfur content and Btu and higher customer transportation costs (due to longer shipping distances). The Company’s Other U.S. Thermal Mining operations historically reflect the aggregation of its Illinois, Indiana, New Mexico, Colorado and Arizona mining operations. The mines in that segment are characterized by a mix of surface and underground mining extraction processes, coal with a higher sulfur content and Btu and lower customer transportation costs (due to shorter shipping distances). Geologically, the Company’s Powder River Basin Mining operations mine sub-bituminous coal deposits and its Other U.S. Thermal Mining operations mine both bituminous and sub-bituminous coal deposits.
The Company’s Corporate and Other segment includes selling and administrative expenses, including its technical and shared services functions; results from equity affiliates; corporate hedging activities; trading and brokerage activities; results from certain mining and export/transportation joint ventures; minimum charges on certain transportation-related contracts; the closure of inactive mining sites; and certain commercial matters.
segments’ operating performance.
PEABODY ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company’s CODM uses Adjusted EBITDA as the primary metric to measure the segments’ operating performance. Adjusted EBITDA is a non-GAAP financial measure defined as (loss) incomeloss 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 the segments’ operating performance, as displayed in the reconciliation below. The Company has retrospectively modified its 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 its normal operations. Management believes non-GAAP performance measures are used by investors to measure the Company’s operating performance and lenders to measure the Company’s ability to incur and service debt. Adjusted EBITDA is not intended to serve as an alternative to U.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies.
Reportable segment results were as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
| (Dollars in millions) |
Revenues: | | | |
Seaborne Thermal Mining | $ | 201.1 |
| | $ | 251.0 |
|
Seaborne Metallurgical Mining | 193.2 |
| | 324.5 |
|
Powder River Basin Mining | 266.6 |
| | 287.3 |
|
Other U.S. Thermal Mining | 192.3 |
| | 334.8 |
|
Corporate and Other | (7.0 | ) | | 53.0 |
|
Total | $ | 846.2 |
| | $ | 1,250.6 |
|
| | | |
Adjusted EBITDA: | | | |
Seaborne Thermal Mining | $ | 55.1 |
| | $ | 94.7 |
|
Seaborne Metallurgical Mining | (32.7 | ) | | 85.8 |
|
Powder River Basin Mining | 25.4 |
| | 36.4 |
|
Other U.S. Thermal Mining | 38.5 |
| | 75.9 |
|
Corporate and Other | (49.5 | ) | | (38.7 | ) |
Total | $ | 36.8 |
| | $ | 254.1 |
|
PEABODY ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | (Dollars in millions) |
Revenues: | | | | | | | |
Seaborne Thermal Mining | | | | | $ | 176.4 | | | $ | 201.1 | |
Seaborne Metallurgical Mining | | | | | 87.5 | | | 193.2 | |
Powder River Basin Mining | | | | | 228.4 | | | 266.6 | |
Other U.S. Thermal Mining | | | | | 149.3 | | | 192.3 | |
Corporate and Other | | | | | 9.7 | | | (7.0) | |
Total | | | | | $ | 651.3 | | | $ | 846.2 | |
| | | | | | | |
Adjusted EBITDA: | | | | | | | |
Seaborne Thermal Mining | | | | | $ | 28.5 | | | $ | 55.1 | |
Seaborne Metallurgical Mining | | | | | (22.4) | | | (32.7) | |
Powder River Basin Mining | | | | | 30.1 | | | 25.4 | |
Other U.S. Thermal Mining | | | | | 36.2 | | | 38.5 | |
Corporate and Other | | | | | (11.3) | | | (49.5) | |
Total | | | | | $ | 61.1 | | | $ | 36.8 | |
A reconciliation of consolidated (loss) incomeloss from continuing operations, net of income taxes to Adjusted EBITDA follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | (Dollars in millions) |
Loss from continuing operations, net of income taxes | | | | | $ | (77.7) | | | $ | (129.3) | |
Depreciation, depletion and amortization | | | | | 68.3 | | | 106.0 | |
Asset retirement obligation expenses | | | | | 15.9 | | | 17.6 | |
Restructuring charges | | | | | 2.1 | | | 6.5 | |
Transaction costs related to joint ventures | | | | | 0 | | | 4.2 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates | | | | | (1.5) | | | (0.7) | |
Interest expense | | | | | 52.4 | | | 33.1 | |
Gain on early debt extinguishment | | | | | (3.5) | | | 0 | |
Interest income | | | | | (1.5) | | | (3.1) | |
| | | | | | | |
Unrealized losses on economic hedges | | | | | 1.9 | | | 2.2 | |
Unrealized losses (gains) on non-coal trading derivative contracts | | | | | 7.6 | | | (0.1) | |
| | | | | | | |
Take-or-pay contract-based intangible recognition | | | | | (1.1) | | | (2.6) | |
Income tax (benefit) provision | | | | | (1.8) | | | 3.0 | |
Adjusted EBITDA | | | | | $ | 61.1 | | | $ | 36.8 | |
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
| (Dollars in millions) |
(Loss) income from continuing operations, net of income taxes | $ | (129.3 | ) | | $ | 133.3 |
|
Depreciation, depletion and amortization | 106.0 |
| | 172.5 |
|
Asset retirement obligation expenses | 17.6 |
| | 13.8 |
|
Restructuring charges | 6.5 |
| | 0.2 |
|
Transaction costs related to joint ventures | 4.2 |
| | — |
|
Provision for North Goonyella equipment loss | — |
| | 24.7 |
|
North Goonyella insurance recovery - equipment (1) | — |
| | (91.1 | ) |
Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates | (0.7 | ) | | — |
|
Interest expense | 33.1 |
| | 35.8 |
|
Interest income | (3.1 | ) | | (8.3 | ) |
Unrealized losses (gains) on economic hedges | 2.2 |
| | (39.8 | ) |
Unrealized gains on non-coal trading derivative contracts | (0.1 | ) | | (0.2 | ) |
Take-or-pay contract-based intangible recognition | (2.6 | ) | | (5.6 | ) |
Income tax provision | 3.0 |
| | 18.8 |
|
Total Adjusted EBITDA | $ | 36.8 |
| | $ | 254.1 |
|
| |
(1)
| As described in Note 15. “Other Events,” the Company recorded a $125.0 million insurance recovery during the three months ended March 31, 2019 related to losses incurred at its North Goonyella Mine. 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 three months ended March 31, 2019 and the year ended December 31, 2018, respectively. The remaining $33.9 million, applicable to incremental costs and business interruption losses, is included in Adjusted EBITDA for the three months ended March 31, 2019. |
26
32
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As used in this report, the terms “we,” “us,” “our,” “Peabody” or “the Company” refer to Peabody Energy Corporation or its applicable subsidiary or subsidiaries. Unless otherwise noted herein, disclosures in this Quarterly Report on Form 10-Q relate only to ourthe Company’s continuing operations.
When used in this filing, the term “ton” refers to short or net tons, equal to 2,000 pounds (907.18 kilograms), while “tonne” refers to metric tons, equal to 2,204.62 pounds (1,000 kilograms).
Cautionary Notice Regarding Forward-Looking Statements
This report includes statements of ourPeabody’s 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, as amended (the Exchange Act), and are intended to come within the safe harbor protection provided by those sections. These statements relate to future events or ourPeabody’s future financial performance, including, without limitation, the section captioned “Outlook” in this Item 2. We useThe Company uses words such as “anticipate,” “believe,” “expect,” “may,” “forecast,” “project,” “should,” “estimate,” “plan,” “outlook,” “target,” “likely,” “will,” “to be” or other similar words to identify forward-looking statements.
Without limiting the foregoing, all statements relating to ourPeabody’s future operating results, anticipated capital expenditures, future cash flows and borrowings, and sources of funding are forward-looking statements and speak only as of the date of this report. These forward-looking statements are based on numerous assumptions that we believePeabody believes are reasonable, but are subject to a wide range of uncertainties and business risks, and actual results may differ materially from those discussed in these statements. These factors are difficult to accurately predict and may be beyond ourthe Company’s control. Factors that could affect ourits results or an investment in ourits securities include, but are not limited to:
our•the Company’s profitability depends upon the prices we receiveit receives for ourits coal;
•if a substantial number of ourthe Company’s long-term coal supply agreements, including those with its largest customers, terminate, or if the pricing, volumes or other elements of those agreements materially adjust, ourits revenues and operating profits could suffer if we arethe Company is unable to find alternate buyers willing to purchase ourits coal on comparable terms to those in ourits 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 ourthe Company’s business, and events and conditions that could occur during the course of ourits mining operations could have a material adverse impact on us;the Company;
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;
Company’s take-or-pay arrangements within the coal industry could unfavorably affect ourits profitability;
an inability of trading, brokerage, mining or freight counterparties to fulfill •the terms of their contracts with us could reduce our profitability;
weCompany may not recover ourits investments in ourits mining, exploration and other assets, which may require usthe Company 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•the Company could be negatively affected if we failit fails to maintain satisfactory labor relations;
we•the Company could be adversely affected if we failit fails to appropriately provide financial assurances for ourits obligations;
our•the Company’s mining operations are extensively regulated, which imposes significant costs on us,it, and future regulations and developments could increase those costs or limit ourits ability to produce coal;
our•the Company’s operations may impact the environment or cause exposure to hazardous substances, and ourits properties may have environmental contamination, which could result in material liabilities to us;the Company;
we•the Company may be unable to obtain, renew or maintain permits necessary for ourits operations, or wethe Company may be unable to obtain, renew or maintain such permits without conditions on the manner in which we run ourit runs its operations, which would reduce ourits production, cash flows and profitability;
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 Coal, Inc. (Arch) 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 COVID-19 pandemic and the related effects on public health, or by other global events;
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 ourthe Company’s products or ourits securities and ourits 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 ourthe Company’s future financial results, liquidity and growth prospects;
our•the Company’s trading and hedging activities do not cover certain risks and may expose it to earnings volatility and other risks;
•if the assumptions underlying the Company’s asset retirement obligations for reclamation and mine closures are materially inaccurate, its costs could be significantly greater than anticipated;
•the Company’s future success depends upon its ability to continue acquiring and developing coal reserves that are economically recoverable;
•the Company faces numerous uncertainties in estimating its economically recoverable coal reserves and inaccuracies in its estimates could result in lower than expected revenues, higher than expected costs and decreased profitability;
•joint ventures, partnerships or non-managed operations may not be successful and may not comply with the Company’s operating standards;
•the Company may undertake further repositioning plans that would require additional charges;
•the Company’s business, results of operations, financial condition and prospects could be materially and adversely affected by the coronavirus (COVID-19) pandemic and the related effects on public health;
•the Company’s expenditures for postretirement benefit obligations could be materially higher than it has predicted if its underlying assumptions prove to be incorrect;
•the Company is subject to various general operating risks which may be fully or partially outside of its control;
•the Company’s financial performance could be adversely affected by our indebtedness;its funded indebtedness (Indebtedness);
•despite our indebtedness, wethe Company’s Indebtedness, it may still be able to incur substantially more debt, including secured debt, which could further increase the risks associated with our indebtedness;its Indebtedness;
•the terms of our indenturethe indentures governing ourthe Company’s senior secured notes and the agreements and instruments governing ourits other indebtednessIndebtedness and surety bonding obligations impose restrictions that may limit ourits operating and financial flexibility;
•the number and quantity of viable financing and insurance alternatives available to usthe Company 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 ourits efforts with respect to environmental and social matters and related governance considerations could harm the perception of our companythe Company by certaina significant number of investors or result in the exclusion of ourits securities from consideration by those investors;
•the price of ourPeabody’s securities may be volatile;volatile and could fall below the minimum allowed by New York Stock Exchange listing requirements;
our Common Stock•Peabody’s 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 ourPeabody’s stock or repurchasesrepurchase of ourits stock is dependent on a number of factors, and future payments and repurchases cannot be assured;
we•the Company may not be able to fully utilize ourits deferred tax assets;
•acquisitions and divestitures are a potentially important part of ourthe Company’s long-term strategy, subject to ourits investment criteria, and involve a number of risks, any of which could cause usthe Company not to realize the anticipated benefits;
our•Peabody’s 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 ourthe Company’s reported financial results; and
•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 ourthe Company’s other Securities and Exchange Commission (SEC) filings, including, but not limited to, the more detailed discussion of these factors and other factors that could affect ourits results contained in Item 1A. “Risk Factors” and Item 3. “Legal Proceedings” of ourits Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC on February 21, 2020.23, 2021. These forward-looking statements speak only as of the date on which such statements were made, and we undertakethe Company undertakes no obligation to update these statements except as required by federal securities laws.
Overview
We arePeabody is a leading coal producer. In 2019, we2020, the Company produced and sold 164.7128.8 million and 165.5132.6 million tons of coal, respectively, from continuing operations. As ofAt March 31, 2020, we2021, the Company owned interests in 2117 active coal mining operations located in the United States (U.S.) and Australia. Included in that count is ourPeabody’s 50% equity interest in Middlemount Coal Pty Ltd. (Middlemount), which owns the Middlemount Mine in Queensland, Australia and our 50% proportional interest in the United Wambo Joint Venture with Glencore plc (Glencore).Australia. In addition to ourits mining operations, we marketthe Company markets and brokerbrokers coal from other coal producers, both as principal and agent, and tradetrades coal and freight-related contracts.
We conduct businessThe Company reports its results of operations primarily through four operatingthe following reportable segments: Seaborne Thermal Mining, Seaborne Metallurgical Mining, Powder River Basin Mining, and Other U.S. Thermal Mining. During the year ended December 31, 2019, the Cottage GroveMining and Kayenta Mines shipped their final tons,Corporate and we announced the closures of the Wildcat HiIls Underground and Somerville Central Mines, with both of those operations expecting to ship their final tons in 2020. Due to these changes, we have revised our segment reporting beginning with this report to reflect the manner in which our chief operating decision maker now views our businesses for purposes of reviewing performance, allocating resources and assessing future prospects and strategic execution. Prior period results have been recast for comparability.Other. Refer to Note 19.18. “Segment Information” to the accompanying unaudited condensed consolidated financial statements for further information regarding those segments and the components of ourits Corporate and Other segment.
From time to time, we initiatethe Company initiates restructuring activities in connection with its repositioning efforts to appropriately align ourits cost structure or optimize ourits coal production relative to prevailing market conditions. As further described in the “Results of Operations” section contained within this Item 2, wethe Company incurred restructuring charges of $2.1 million and $6.5 million during the three months ended March 31, 2021 and 2020, respectively, related primarily to involuntary workforce reductions. During April 2020, we further reduced our workforce by approximately 250 positions, primarily within our Powder River Basin Mining and Other U.S. Thermal Mining operating segments,reductions made across the organization through the use of both involuntary reductions and voluntary programs. We will incur additional restructuring charges duringreductions.
The Shoal Creek Mine remains idled as the Company continues activities to increase productivity, lower costs and improve yields from the operation in the future. The restart of mine production and coal shipments is contingent upon successful completion of these initiatives and stable customer demand. Included in the initiatives is a preparation plant upgrade project, which is anticipated to be commissioned by the middle of the third quarter of 2021. Additionally, the Shoal Creek labor contract expired on April 1, 2021 and negotiations with the workforce are ongoing.
While discussions are ongoing with customers and workforce, the Metropolitan Mine full workforce returned to the mine in early May. Development work at the mine has been ongoing through the idle period and longwall production is anticipated to restart in the second quarter of 2020, the amount of which will be dependent upon the ultimate participation in ongoing voluntary programs. Additionally, we have advanced a detailed mine-by-mine analysis2021, with ramp up to improve operating capabilities. Our initial focus will be on the highest-value opportunities, and mines that cannot demonstrate a path to cash generation at lower pricing levels will be suspended.
Coronavirus Disease 2019 (COVID-19) Pandemic
On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World 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 miningfull production in the U.S. and Australia has been designated as an essential business to support coal-fueled electric power generation and critical steelmaking needs. As partthird quarter 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; working remotely, where possible; and social distancing. While our operations have been designated as essential, each operation will only continue to operate when it is safe and economic to do so.2021.
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 markets, thermal demand from non-power sectors remains weak and steel production has been curtailed. Thermal coal demand in the U.S. has been pressured by low natural gas prices, subsidized renewable energy and weak electric power sector consumption due to reduced industrial activity. Supply risks have also emerged at a number of global and domestic producers. 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.
While the ultimate impacts of the COVID-19 pandemic 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 potential 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 have an adverse impact on the timing of key events, including the timing of our litigation in the U.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. In early April 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. While we do not currently expect to use the proceeds from these borrowings for any near-term liquidity needs, we may use the proceeds for working capital and other general corporate purposes.
On March 27, 2020, the President of the 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 numerous tax provisions including a 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 expect to defer a portion of our remaining 2020 employer payroll taxes to subsequent years. We continue to evaluate the implications of the remaining provisions of the CARES Act.
United Wambo Joint Venture with Glencore
In December 2019, after receiving the requisite regulatory and permitting approvals, we formed an unincorporated joint venture with Glencore, in which we hold a 50% interest, to combine the existing operations of our Wambo Open-Cut Mine in Australia with the adjacent coal reserves of Glencore’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 existing Wambo Open-Cut Mine through December 1, 2020, at which point the development of the combined operations is expected to be completed, the parties will 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
On June 18, 2019, we entered into a definitive implementation agreement (the Implementation Agreement) with Arch, to establish a joint venture that will combine the respective Powder River Basin (PRB) and Colorado 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.
On February 26, 2020, the U.S. Federal Trade Commission (FTC) sought a preliminary injunction to challenge our proposed joint venture. We and Arch intend to continue to pursue creation of the joint venture and will litigate the FTC’s decision within the U.S. federal court system. Court proceedings are currently scheduled to begin on July 13, 2020, with a ruling expected shortly thereafter, subject to any potential changes to the court’s schedule as a result of the COVID-19 pandemic or other exigent circumstances. The FTC has also initiated an administrative proceeding on the merits, which is currently scheduled for hearing on October 27, 2020.
Formation of the joint venture is subject to favorable resolution of the FTC’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. In September 2019, we amended our credit agreement to expressly permit formation of the joint venture and we are currently addressing 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
Our North Goonyella Mine in Queensland, Australia experienced a fire in a portion of the mine during September 2018 and mining operations have been suspended since then. During 2019, we completed segmenting of the mine into multiple zones to facilitate a phased re-ventilation and re-entry of the mine, re-ventilation of the first zone of the mine and subsequently re-entered the area. Following these activities and a detailed review and assessment, we determined that due to the time, cost and required regulatory approach to ventilate and re-enter the rest of the mine, we will not pursue attempts to access certain portions of the mine through existing mine workings, but instead will move to the southern panels. We are in ongoing discussions with the Queensland Mines Inspectorate (QMI) regarding ventilation and re-entry of the second zone of the current mine configuration. Based on the planned approach, we expect no meaningful production from North Goonyella for three or more years. In 2020, we commenced a commercial process for North Goonyella in conjunction with the existing mine development. The process comes in response to expressions of interest from potential strategic partners and other producers. Commercial outcomes could include a strategic financial partner, a joint venture structure or the complete sale of North Goonyella. Alternatively, the commercial process could be abandoned in the absence of an acceptable outcome. Based on the success of discussions with QMI and/or progression of the commercial process being launched, we will determine the appropriate level, if any, and timing of capital expenditures. We have entered into commercial agreements to reduce the rail and port commitments related to North Goonyella for the second half of 2020 through the first half of 2023, while maintaining sufficient capacity for future production. As a result, we anticipate that ongoing holding costs will decrease to approximately $5 million per quarter by the second half of 2020.
During the three months ended March 31, 2020 and 2019, we recorded $10.1 million and $36.9 million, respectively, in containment and idling costs. An additional provision of $24.7 million related to equipment losses was recorded during the three months ended March 31, 2019, which was incremental to amounts recorded in prior periods and represented the best estimate of loss based on the assessments made as of that date. No provision for equipment losses was recorded during the three months ended March 31, 2020.
In March 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 ourthe Company’s results of operations includes references to and analysis of Adjusted EBITDA, which is a financial measure not recognized in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Adjusted EBITDA is used by management as the primary metric to measure each of ourits 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 ourthe Company’s 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 ourits 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 considerThe Company considers all measures reported on a per ton basis to be operating/statistical measures; however, we includethe Company includes reconciliations of the related non-GAAP financial measures (Adjusted EBITDA and Total Reporting Segment Costs) in the “Reconciliation of Non-GAAP Financial Measures” section contained within this Item 2.
In ourits discussion of liquidity and capital resources, we includethe Company includes references to Free Cash Flow which is also a non-GAAP measure. Free Cash Flow is used by management as a measure of ourits financial performance and ourits ability to generate excess cash flow from ourits business operations.
We believeThe Company believes non-GAAP performance measures are used by investors to measure ourits operating performance and lenders to measure ourits ability to incur and service debt. These measures are not intended to serve as alternatives to U.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 under U.S. GAAP.
Three Months Ended March 31, 20202021 Compared to the Three Months Ended March 31, 20192020
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 and Illinois Basin 11,500 Btu/Lb coal during the three months ended March 31, 20202021 is set forth in the table below.
The seaborne pricing included in the table below is not necessarily indicative of the pricing wethe Company realized during the three months ended March 31, 20202021 due to quality differentials and the majority of ourits seaborne sales being executed through annual and multi-year international coal supply agreements that contain provisions requiring both parties to renegotiate pricing periodically. OurThe Company’s 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 the U.S., the pricing included in the table below is also not necessarily indicative of the pricing wethe Company realized during the three months ended March 31, 20202021 since wethe Company generally sellsells coal under long-term contracts where pricing is determined based on various factors. Such long-term contracts in the U.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 coal producersfuel sources may also impact ourthe Company’s realized pricing. Subsequent to March 31, 2020, seaborne pricing decreased as a result of economic and industry conditions related to the COVID-19 pandemic as evidenced by the April 30, 2020 pricing provided in the table and as further discussed below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | High | | Low | | Average | | March 31, 2021 | | | |
Premium HCC (1) | | $ | 158.70 | | | $ | 99.50 | | | $ | 127.57 | | | $ | 112.80 | | | | |
Premium PCI coal (1) | | 110.50 | | | 91.50 | | | 103.22 | | | 110.50 | | | | |
Newcastle index thermal coal (1) | | 103.95 | | | 80.78 | | | 88.50 | | | 100.59 | | | | |
API 5 thermal coal (1) | | 59.32 | | | 50.75 | | | 54.65 | | | 56.00 | | | | |
PRB 8,800 Btu/Lb coal (2) | | 11.95 | | | 11.85 | | | 11.91 | | | 11.95 | | | | |
Illinois Basin 11,500 Btu/Lb coal (2) | | 32.00 | | | 29.75 | | | 30.96 | | | 32.00 | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | High | | Low | | Average | | March 31, 2020 | | April 30, 2020 |
Premium HCC (1) | | $ | 163.40 |
| | $ | 139.00 |
| | $ | 154.88 |
| | $ | 145.50 |
| | $ | 108.80 |
|
Premium PCI coal (1) | | $ | 102.80 |
| | $ | 85.75 |
| | $ | 94.53 |
| | $ | 85.75 |
| | $ | 67.20 |
|
Newcastle index thermal coal (1) | | $ | 73.78 |
| | $ | 64.80 |
| | $ | 67.70 |
| | $ | 69.41 |
| | $ | 50.76 |
|
API 5 thermal coal (1) | | $ | 57.90 |
| | $ | 52.49 |
| | $ | 54.83 |
| | $ | 54.30 |
| | $ | 40.50 |
|
PRB 8,800 Btu/Lb coal (2) | | $ | 12.10 |
| | $ | 12.00 |
| | $ | 12.02 |
| | $ | 12.00 |
| | $ | 12.00 |
|
Illinois Basin 11,500 Btu/Lb coal (2) | | $ | 33.80 |
| | $ | 31.15 |
| | $ | 32.62 |
| | $ | 31.15 |
| | $ | 31.15 |
|
(1) Prices expressed per tonne. | |
(1)(2) Prices expressed per ton. | 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, some of which occurred after March 31, 2020.restrictions. Future COVID-19COVID-19-related developments are unknown, including the duration, severity, scope and the necessary government actions to limit the spread.spread of COVID-19. The global coal industry data for the three months ended March 31, 20202021 presented herein ismay not be indicative of the ultimate impacts of the COVID-19 pandemic given the various levels of response and unknown duration, and the significant decline in pricespotential for our products at the start of the second quarter and continued weak demand for ourthe Company’s products.
With respect toWithin the seaborne metallurgical coal market, the imbalance between Australian export and Chinese delivered prices remains wide, with the delivered price into China trading at roughly double those seen free on board Australia as the unofficial ban on Australian coals remains in place. In addition, increased COVID-19 concerns in India are further weighing on Australian hard coking coal pricing. These factors continue to pressure the seaborne metallurgical coal market despite global steel production decreased 1% throughincreasing 5% year-over-year.
In contrast, the three months ended March 31, 2020spread between Australian hard coking coal pricing and low-vol PCI has recently narrowed to near parity. Tight low-vol PCI supply, coupled with China paying a premium for Russian coals, have contributed to rising low-vol PCI prices.
Within the seaborne thermal coal market, tight supplies and low inventory levels have kept Newcastle thermal coal pricing at improved levels year-to-date. China’s domestic thermal coal supply remains hampered by heightened safety inspections. In addition, India’s thermal coal stockpiles have been falling gradually since mid-December as compared togovernment-owned plants have reduced intake and there has been a delay in typical restocking ahead of the prior year period, and declined 6% year-over-yearmonsoon season in June. As of the monthend of March as the impacts of the COVID-19 pandemic2021, India’s plant inventory levels were beginning to materialize. Steel production in China increasedestimated at approximately 1% through the three months ended March 31, 2020 as compared to the prior15 days burn versus 28 days a year and was down 2% year-over-year in the month of March. Despite a strong start to the year, China’s coking coal imports have been pressured by reduced margins for steel producers and high steel inventories. Steel production, excluding China, was down 4% through the three months ended March 31, 2020, and declined 11% year-over-year in the month of March due to COVID-19 related lockdowns. Steel demand deterioration has caused producers, including Peabody customers, to idle capacity and restrict output, while steel prices continue to fall. There is weakness in seaborne metallurgical coal demand which could continue given ongoing lockdowns in key demand centers, including India and Japan.
ago.
Seaborne thermal coal demand was impacted by the COVID-19 pandemic which further exacerbated the weak fundamentals and low gas prices in Europe, while significantly dampening Asian demand as major importers entered into lockdown. Chinese thermal coal imports increased by approximately 17 million tonnes through the three months ended March 31, 2020 as compared to the prior year mainly reflecting carryover tonnes from port restrictions in 2019. China’s domestic production, which had been constrained by COVID-19 lockdowns, declined 6% through the two months ended February 29, 2020, but increased 10% year-over-year in the month of March. Meanwhile, Chinese thermal power generation declined 8% during the three months ended March 31, 2020 year-over-year leading to above average stockpiles at utilities, dampening the outlook for seaborne imports. Seaborne demand outside of China has also been pressured by reduced industrial activity related to the COVID-19 pandemic, impacting global electric generation and coal consumption.
In the United States, overall electricity demand was downincreased 2% year-over-year, throughpositively impacted by cold weather during the three months ended March 31, 20202021. Electricity generation from thermal coal has increased by 37% year-over-year as a result of milder weather. Lower demand, continued coal plant retirements, growth inhigher natural gas and renewableprices. This has positively impacted coal’s share of electricity generation, and weakwith a rise to approximately 24% for the three months ended March 31, 2021, while causing natural gas prices negatively impactedgas’s share to decline to approximately 34%. Stronger coal generation.use has contributed to decreasing coal stockpile levels. Since December 2020, coal inventories have fallen by approximately 20 million tons. Through the three months ended March 31, 20202021, utility consumption of PRB coal fell over 30%rose approximately 35% compared to the prior year period. Demand pressures related to COVID-19 related curtailments have reduced total electricity demand in April to the lowest levels in over 15 years, which has resulted in coal’s share of generation declining to 18% for the three months ended March 31, 2020, while gas, nuclear and renewables continue to gain. Moreover, reduced coal consumption year-to-date has resulted in elevated coal inventories, pressuring the required coal shipments needed to meet demand. Our U.S. customers’ 2020 volume nominations have declined approximately 8% from the beginning of the year.
OurThe Company’s revenues for the three months ended March 31, 20202021 decreased as compared to the same periodperiods in 20192020 ($404.4194.9 million) primarily due to lower sales volumes and lower realized prices.
Results from continuing operations, net of income taxes for the three months ended March 31, 2020 decreased as2021 increased compared to the same period in the prior year ($262.651.6 million). The decrease was driven by as the unfavorable revenue variance described above and a prior year insurance recovery related to the events at our North Goonyella Mine ($125.0 million). These unfavorable variances were partially offset byresult of lower operating costs and expenses due largely to the sales volume decline as well as production efficiencies and other cost improvements ($168.7196.9 million), and lower depreciation, depletion and amortization ($66.537.7 million). These favorable variances were offset by the unfavorable revenue variance described above and a prior year provision for equipment losses at our North Goonyella Mineincreased interest expense ($24.719.3 million). primarily resulting from fees related to new debt arrangements entered into during the three months ended March 31, 2021.
Adjusted EBITDA for the three months ended March 31, 20202021 reflected a year-over-year decreaseincrease of $217.3$24.3 million.
As of March 31, 2020, our2021, the Company’s available liquidity was approximately $1.19 billion.$604 million. Refer to the “Liquidity and Capital Resources” section contained within this Item 2 for a further discussion of factors affecting ourthe Company’s available liquidity.
Tons Sold
The following table presents tons sold by operating segment:
|
| | | | | | | | | | | |
| Three Months Ended | | Increase (Decrease) |
| March 31, | | to Volumes |
| 2020 | | 2019 | | Tons | | % |
| (Tons in millions) | | |
Seaborne Thermal Mining | 4.6 |
| | 4.5 |
| | 0.1 |
| | 2 | % |
Seaborne Metallurgical Mining | 2.0 |
| | 2.3 |
| | (0.3 | ) | | (13 | )% |
Powder River Basin Mining | 23.5 |
| | 25.3 |
| | (1.8 | ) | | (7 | )% |
Other U.S. Thermal Mining | 4.9 |
| | 7.9 |
| | (3.0 | ) | | (38 | )% |
Total tons sold from mining segments | 35.0 |
| | 40.0 |
| | (5.0 | ) | | (13 | )% |
Corporate and Other | 0.6 |
| | 0.5 |
| | 0.1 |
| | 20 | % |
Total tons sold | 35.6 |
| | 40.5 |
| | (4.9 | ) | | (12 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | Decrease |
| | | | | March 31, | | to Volumes |
| | | | | | | | | 2021 | | 2020 | | Tons | | % |
| | | | | (Tons in millions) | | |
Seaborne Thermal Mining | | | | | | | | | 4.1 | | | 4.6 | | | (0.5) | | | (11) | % |
Seaborne Metallurgical Mining | | | | | | | | | 1.0 | | | 2.0 | | | (1.0) | | | (50) | % |
Powder River Basin Mining | | | | | | | | | 20.7 | | | 23.5 | | | (2.8) | | | (12) | % |
Other U.S. Thermal Mining | | | | | | | | | 3.9 | | | 4.9 | | | (1.0) | | | (20) | % |
Total tons sold from mining segments | | | | | | | | | 29.7 | | | 35.0 | | | (5.3) | | | (15) | % |
Corporate and Other | | | | | | | | | 0.5 | | | 0.6 | | | (0.1) | | | (17) | % |
Total tons sold | | | | | | | | | 30.2 | | | 35.6 | | | (5.4) | | | (15) | % |
Supplemental Financial Data
The following table presents supplemental financial data by operating segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | (Decrease) |
| | | | | March 31, | | Increase |
| | | | | | | | | 2021 | | 2020 | | $ | | % |
Revenues per Ton - Mining Operations (1) |
Seaborne Thermal | | | | | | | | | $ | 43.36 | | | $ | 44.10 | | | $ | (0.74) | | | (2) | % |
Seaborne Metallurgical | | | | | | | | | 87.47 | | | 95.65 | | | (8.18) | | | (9) | % |
Powder River Basin | | | | | | | | | 11.01 | | | 11.36 | | | (0.35) | | | (3) | % |
Other U.S. Thermal | | | | | | | | | 38.76 | | | 39.25 | | | (0.49) | | | (1) | % |
Costs per Ton - Mining Operations (1)(2) |
Seaborne Thermal | | | | | | | | | $ | 36.36 | | | $ | 32.03 | | | $ | 4.33 | | | 14 | % |
Seaborne Metallurgical | | | | | | | | | 109.89 | | | 111.82 | | | (1.93) | | | (2) | % |
Powder River Basin | | | | | | | | | 9.56 | | | 10.28 | | | (0.72) | | | (7) | % |
Other U.S. Thermal | | | | | | | | | 29.37 | | | 31.39 | | | (2.02) | | | (6) | % |
Adjusted EBITDA Margin per Ton - Mining Operations (1)(2) |
Seaborne Thermal | | | | | | | | | $ | 7.00 | | | $ | 12.07 | | | $ | (5.07) | | | (42) | % |
Seaborne Metallurgical | | | | | | | | | (22.42) | | | (16.17) | | | (6.25) | | | (39) | % |
Powder River Basin | | | | | | | | | 1.45 | | | 1.08 | | | 0.37 | | | 34 | % |
Other U.S. Thermal | | | | | | | | | 9.39 | | | 7.86 | | | 1.53 | | | 19 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended | | (Decrease) |
| March 31, | | Increase |
| 2020 | | 2019 | | $ | | % |
Revenues per Ton - Mining Operations (1) | | | | | | | |
Seaborne Thermal | $ | 44.10 |
| | $ | 56.24 |
| | $ | (12.14 | ) | | (22 | )% |
Seaborne Metallurgical | 95.65 |
| | 142.33 |
| | (46.68 | ) | | (33 | )% |
Powder River Basin | 11.36 |
| | 11.35 |
| | 0.01 |
| | — | % |
Other U.S. Thermal | 39.25 |
| | 42.21 |
| | (2.96 | ) | | (7 | )% |
Costs per Ton - Mining Operations (1)(2) | | | | | | | |
Seaborne Thermal | $ | 32.03 |
| | $ | 35.03 |
| | $ | (3.00 | ) | | (9 | )% |
Seaborne Metallurgical (3) | 111.82 |
| | 104.69 |
| | 7.13 |
| | 7 | % |
Powder River Basin | 10.28 |
| | 9.91 |
| | 0.37 |
| | 4 | % |
Other U.S. Thermal | 31.39 |
| | 32.65 |
| | (1.26 | ) | | (4 | )% |
Adjusted EBITDA Margin per Ton - Mining Operations (1)(2) | | | | | | | |
Seaborne Thermal | $ | 12.07 |
| | $ | 21.21 |
| | $ | (9.14 | ) | | (43 | )% |
Seaborne Metallurgical (3) | (16.17 | ) | | 37.64 |
| | (53.81 | ) | | (143 | )% |
Powder River Basin | 1.08 |
| | 1.44 |
| | (0.36 | ) | | (25 | )% |
Other U.S. Thermal | 7.86 |
| | 9.56 |
| | (1.70 | ) | | (18 | )% |
(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. | |
(1)(2)Includes revenue-based production taxes and royalties; excludes depreciation, depletion and amortization; asset retirement obligation expenses; selling and administrative expenses; restructuring charges; asset impairment; amortization of take-or-pay contract-based intangibles; and certain other costs related to post-mining activities. | 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 months ended March 31, 2019 remain within the Seaborne Metallurgical segment and resulted in additional Costs per Ton and lower Adjusted EBITDA Margin per Ton of $1.32. |
Revenues
The following table presents revenues by reporting segment:
| | | Three Months Ended | | Decrease | | | Three Months Ended | | (Decrease) Increase |
| March 31, | | to Revenues | | | March 31, | | to Revenues |
| 2020 | | 2019 | | $ | | % | | | 2021 | | 2020 | | $ | | % |
| (Dollars in millions) | | | | | (Dollars in millions) | | |
Seaborne Thermal Mining | $ | 201.1 |
| | $ | 251.0 |
| | $ | (49.9 | ) | | (20 | )% | Seaborne Thermal Mining | | $ | 176.4 | | | $ | 201.1 | | | $ | (24.7) | | | (12) | % |
Seaborne Metallurgical Mining | 193.2 |
| | 324.5 |
| | (131.3 | ) | | (40 | )% | Seaborne Metallurgical Mining | | 87.5 | | | 193.2 | | | (105.7) | | | (55) | % |
Powder River Basin Mining | 266.6 |
| | 287.3 |
| | (20.7 | ) | | (7 | )% | Powder River Basin Mining | | 228.4 | | | 266.6 | | | (38.2) | | | (14) | % |
Other U.S. Thermal Mining | 192.3 |
| | 334.8 |
| | (142.5 | ) | | (43 | )% | Other U.S. Thermal Mining | | 149.3 | | | 192.3 | | | (43.0) | | | (22) | % |
Corporate and Other | (7.0 | ) | | 53.0 |
| | (60.0 | ) | | (113 | )% | Corporate and Other | | 9.7 | | | (7.0) | | | 16.7 | | | 239 | % |
Revenues | $ | 846.2 |
| | $ | 1,250.6 |
| | $ | (404.4 | ) | | (32 | )% | Revenues | | $ | 651.3 | | | $ | 846.2 | | | $ | (194.9) | | | (23) | % |
Seaborne Thermal Mining. Segment revenues decreased during the three months ended March 31, 20202021 compared to the same period in the prior year primarily due to unfavorable volume and mix variances ($18.6 million) and unfavorable realized coal pricing ($50.7 million), partially offset by favorable volume and mix variances ($0.86.1 million).
Seaborne Metallurgical Mining. Segment revenues decreased during the three months ended March 31, 20202021 compared to the same period in the prior year due to unfavorable realized coal pricing ($80.7 million) and unfavorable volume and mix variances (0.3 million tons; $50.6($101.3 million) and unfavorable realized coal pricing ($4.4 million). The unfavorable volume variance resultingvariances resulted from the beginningidling of the upgrade project for the main line conveyor system at our Shoal Creek and Metropolitan Mines during the fourth quarter of 2020, lower demand and the closure of the Millennium Mine (0.3 million tons) and an extended longwall move at our Metropolitan Mine (0.1 million tons) was partially offset by favorable volumes at our surface operations (0.2 million tons) due to sales deferrals fromduring the previous quarter.second quarter of 2020.
Powder River Basin Mining. Segment revenues decreased during the three months ended March 31, 20202021 compared to the same period in the prior year primarily due to demand-based volume decreaseslower demand ($24.631.6 million), partially offset by favorable and unfavorable realized pricing.coal pricing ($6.6 million).
Other U.S. Thermal Mining. Segment revenues decreased during the three months ended March 31, 2020 compared to the same period in the prior year primarily due to demand-based volume decreases ($135.4 million) which were driven by the closure of the Kayenta and Cottage Grove Mines during the third quarter of 2019 and unfavorable realized pricing ($7.1 million).
Corporate and Other. Segment revenues decreased during the three months ended March 31, 20202021 compared to the same period in the prior year primarily due to lower demand.
Corporate and Other. Segment revenues increased during the three months ended March 31, 2021 compared to the same period in the prior year primarily due to higher results on economic hedgefrom trading activities.
Adjusted EBITDA
The following table presents Adjusted EBITDA for each of ourthe Company’s reporting segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | (Decrease) Increase |
| | | | | March 31, | | to Segment Adjusted EBITDA |
| | | | | | | | | 2021 | | 2020 | | $ | | % |
| | | | | (Dollars in millions) | | |
Seaborne Thermal Mining | | | | | | | | | $ | 28.5 | | | $ | 55.1 | | | $ | (26.6) | | | (48) | % |
Seaborne Metallurgical Mining | | | | | | | | | (22.4) | | | (32.7) | | | 10.3 | | | 31 | % |
Powder River Basin Mining | | | | | | | | | 30.1 | | | 25.4 | | | 4.7 | | | 19 | % |
Other U.S. Thermal Mining | | | | | | | | | 36.2 | | | 38.5 | | | (2.3) | | | (6) | % |
Corporate and Other | | | | | | | | | (11.3) | | | (49.5) | | | 38.2 | | | 77 | % |
Adjusted EBITDA (1) | | | | | | | | | $ | 61.1 | | | $ | 36.8 | | | $ | 24.3 | | | 66 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended | | Decrease |
| March 31, | | to Segment Adjusted EBITDA |
| 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | |
Seaborne Thermal Mining | $ | 55.1 |
| | $ | 94.7 |
| | $ | (39.6 | ) | | (42 | )% |
Seaborne Metallurgical Mining | (32.7 | ) | | 85.8 |
| | (118.5 | ) | | (138 | )% |
Powder River Basin Mining | 25.4 |
| | 36.4 |
| | (11.0 | ) | | (30 | )% |
Other U.S. Thermal Mining | 38.5 |
| | 75.9 |
| | (37.4 | ) | | (49 | )% |
Corporate and Other | (49.5 | ) | | (38.7 | ) | | (10.8 | ) | | (28 | )% |
Adjusted EBITDA (1) | $ | 36.8 |
| | $ | 254.1 |
| | $ | (217.3 | ) | | (86 | )% |
| |
(1)(1)This is a financial 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.
| This is a financial 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. |
Seaborne Thermal Mining. Segment Adjusted EBITDA decreased during the three months ended March 31, 20202021 compared to the same period in the prior year as a result of unfavorable foreign currency impacts ($16.5 million), unfavorable volume variances ($14.6 million) and lower realized net coal pricing ($46.6 million) and longwall performance issues at our Wambo Underground Mine ($16.35.6 million). The decrease in Segment Adjusted EBITDA was partially offset by favorable mine sequencing impacts and lower costs for materials, services and repairs at our thermal surface minesvarious cost improvements ($11.3 million) and favorable foreign currency impacts ($9.07.5 million).
Seaborne Metallurgical Mining. Segment Adjusted EBITDA decreasedincreased during the three months ended March 31, 2021 compared to the same period in the prior year due to cost improvements at certain mines ($18.6 million) and lower costs for materials, services, repairs and labor ($21.2 million) as a result of the idling of the Metropolitan Mine during the fourth quarter of 2020 and the closure of the Millennium Mine during the second quarter of 2020. The increase was offset by unfavorable foreign currency impacts ($28.2 million).
Powder River Basin Mining. Segment Adjusted EBITDA increased during the three months ended March 31, 2021 compared to the same period in the prior year due to lower realized net coal pricingcosts for materials, services, repairs and labor ($76.3 million), unfavorable volume variances as described above ($39.27.4 million) and the impact of a longwall move at our Metropolitan Mine during the current quarter ($25.6 million). These negative variances were partially offset by favorable foreign currency impacts ($12.9 million)
Powder River Basin Mining. Segment Adjusted EBITDA decreased during the three months ended March 31, 2020 compared to the same period in the prior year as the result of unfavorable mine sequencing impacts ($11.23.8 million),. The increase was partially offset by the impact of lower volumes ($3.54.9 million) as described above and lower realized net coal pricing ($2.4 million), partially offset by lower pricing for fuel and explosives ($4.1 million) and lower costs for materials, services and repairs ($1.93.8 million).
Other U.S. Thermal Mining. Segment Adjusted EBITDA decreased during the three months ended March 31, 20202021 compared to the same period in the prior year due to the impact of lowerunfavorable volume ($45.2 million) which was primarily driven by the closure of the Kayenta Mine during the third quarter of 2019 and lower realized net coal pricingmix variances ($7.021.5 million), partially offset by lower costs for materials, services, repairs and repairslabor ($6.6 million) and lower pricing for fuel and explosives ($2.821.3 million).
Corporate and Other Adjusted EBITDA. The following table presents a summary of the components of Corporate and Other Adjusted EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | Increase (Decrease) |
| | | | | March 31, | | to Adjusted EBITDA |
| | | | | | | | | 2021 | | 2020 | | $ | | % |
| | | | | (Dollars in millions) | | |
Middlemount (1) | | | | | | | | | $ | (2.3) | | | $ | (9.7) | | | $ | 7.4 | | | 76 | % |
Resource management activities (2) | | | | | | | | | 0.4 | | | 8.0 | | | (7.6) | | | (95) | % |
Selling and administrative expenses | | | | | | | | | (21.7) | | | (24.9) | | | 3.2 | | | 13 | % |
Other items, net (3) | | | | | | | | | 12.3 | | | (22.9) | | | 35.2 | | | 154 | % |
Corporate and Other Adjusted EBITDA | | | | | | | | | $ | (11.3) | | | $ | (49.5) | | | $ | 38.2 | | | 77 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended | | (Decrease) Increase |
| March 31, | | to Adjusted EBITDA |
| 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | |
Middlemount (1) | $ | (9.7 | ) | | $ | 3.9 |
| | $ | (13.6 | ) | | (349 | )% |
Resource management activities (2) | 8.0 |
| | 2.0 |
| | 6.0 |
| | 300 | % |
Selling and administrative expenses | (24.9 | ) | | (36.7 | ) | | 11.8 |
| | 32 | % |
Other items, net (3)(4) | (22.9 | ) | | (7.9 | ) | | (15.0 | ) | | (190 | )% |
Corporate and Other Adjusted EBITDA | $ | (49.5 | ) | | $ | (38.7 | ) | | $ | (10.8 | ) | | (28 | )% |
(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 $11.7 million and $4.4 million during the three months ended March 31, 2021 and 2020, respectively. | |
(1)(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 the Company’s other commercial activities. | 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 $4.4 million and $7.5 million during the three months ended March 31, 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 segment. |
The decreaseincrease in Corporate and Other Adjusted EBITDA during the three months ended March 31, 20202021 compared to the same period in the prior year was primarily driven by an unfavorablefavorable trading results ($12.1 million); lower postretirement healthcare costs ($11.3 million) primarily due to changes made to one of the Company’s postretirement health care benefit plans during the third quarter of 2020; a favorable variance in Middlemount’s results due to the impactscombined impact of wet weather, current yearimproved production and cost improvements; lower containment and holding costs for ourthe Company’s North Goonyella Mine ($10.16.1 million); and unfavorablefavorable corporate hedging results from trading and brokerage activities ($8.85.7 million). These unfavorable variancesfavorable results were partially offset by lower selling and administrative expenses ($11.8 million) 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 tenementsresource management gains recorded in the Bowen Basinprior year period ($7.5 million).
(Loss) IncomeLoss From Continuing Operations, Net of Income Taxes
The following table presents (loss) incomeloss from continuing operations, net of income taxes:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | Increase (Decrease) |
| | | | | March 31, | | to Income |
| | | | | | | | | 2021 | | 2020 | | $ | | % |
| | | | | (Dollars in millions) | | |
Adjusted EBITDA (1) | | | | | | | | | $ | 61.1 | | | $ | 36.8 | | | $ | 24.3 | | | 66 | % |
Depreciation, depletion and amortization | | | | | | | | | (68.3) | | | (106.0) | | | 37.7 | | | 36 | % |
Asset retirement obligation expenses | | | | | | | | | (15.9) | | | (17.6) | | | 1.7 | | | 10 | % |
Restructuring charges | | | | | | | | | (2.1) | | | (6.5) | | | 4.4 | | | 68 | % |
Transaction costs related to joint ventures | | | | | | | | | — | | | (4.2) | | | 4.2 | | | 100 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates | | | | | | | | | 1.5 | | | 0.7 | | | 0.8 | | | 114 | % |
Interest expense | | | | | | | | | (52.4) | | | (33.1) | | | (19.3) | | | (58) | % |
Gain on early debt extinguishment | | | | | | | | | 3.5 | | | — | | | 3.5 | | | n.m. |
Interest income | | | | | | | | | 1.5 | | | 3.1 | | | (1.6) | | | (52) | % |
| | | | | | | | | | | | | | | |
Unrealized losses on economic hedges | | | | | | | | | (1.9) | | | (2.2) | | | 0.3 | | | 14 | % |
Unrealized (losses) gains on non-coal trading derivative contracts | | | | | | | | | (7.6) | | | 0.1 | | | (7.7) | | | (7,700) | % |
Take-or-pay contract-based intangible recognition | | | | | | | | | 1.1 | | | 2.6 | | | (1.5) | | | (58) | % |
Income tax benefit (provision) | | | | | | | | | 1.8 | | | (3.0) | | | 4.8 | | | 160 | % |
Loss from continuing operations, net of income taxes | | | | | | | | | $ | (77.7) | | | $ | (129.3) | | | $ | 51.6 | | | 40 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended | | (Decrease) Increase |
| March 31, | | to Income |
| 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | |
Adjusted EBITDA (1) | $ | 36.8 |
| | $ | 254.1 |
| | $ | (217.3 | ) | | (86 | )% |
Depreciation, depletion and amortization | (106.0 | ) | | (172.5 | ) | | 66.5 |
| | 39 | % |
Asset retirement obligation expenses | (17.6 | ) | | (13.8 | ) | | (3.8 | ) | | (28 | )% |
Restructuring charges | (6.5 | ) | | (0.2 | ) | | (6.3 | ) | | (3,150 | )% |
Transaction costs related to joint ventures | (4.2 | ) | | — |
| | (4.2 | ) | | n.m. |
|
Provision for North Goonyella equipment loss | — |
| | (24.7 | ) | | 24.7 |
| | 100 | % |
North Goonyella insurance recovery - equipment | — |
| | 91.1 |
| | (91.1 | ) | | (100 | )% |
Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates | 0.7 |
| | — |
| | 0.7 |
| | n.m. |
|
Interest expense | (33.1 | ) | | (35.8 | ) | | 2.7 |
| | 8 | % |
Interest income | 3.1 |
| | 8.3 |
| | (5.2 | ) | | (63 | )% |
Unrealized (losses) gains on economic hedges | (2.2 | ) | | 39.8 |
| | (42.0 | ) | | (106 | )% |
Unrealized gains on non-coal trading derivative contracts | 0.1 |
| | 0.2 |
| | (0.1 | ) | | (50 | )% |
Take-or-pay contract-based intangible recognition | 2.6 |
| | 5.6 |
| | (3.0 | ) | | (54 | )% |
Income tax provision | (3.0 | ) | | (18.8 | ) | | 15.8 |
| | 84 | % |
(Loss) income from continuing operations, net of income taxes | $ | (129.3 | ) | | $ | 133.3 |
| | $ | (262.6 | ) | | (197 | )% |
| |
(1)(1)This is a financial 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.
| This is a financial 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. |
Depreciation, Depletion and Amortization. The following table presents a summary of depreciation, depletion and amortization expense by segment:
| | | Three Months Ended | | Increase (Decrease) | | | Three Months Ended | | Increase (Decrease) |
| March 31, | | to Income | | | March 31, | | to Income |
| 2020 | | 2019 | | $ | | % | | | 2021 | | 2020 | | $ | | % |
| (Dollars in millions) | | | | | (Dollars in millions) | | |
Seaborne Thermal Mining | $ | (22.2 | ) | | $ | (23.2 | ) | | $ | 1.0 |
| | 4 | % | Seaborne Thermal Mining | | $ | (21.1) | | | $ | (22.2) | | | $ | 1.1 | | | 5 | % |
Seaborne Metallurgical Mining | (24.8 | ) | | (40.1 | ) | | 15.3 |
| | 38 | % | Seaborne Metallurgical Mining | | (16.5) | | | (24.8) | | | 8.3 | | | 33 | % |
Powder River Basin Mining | (35.2 | ) | | (36.6 | ) | | 1.4 |
| | 4 | % | Powder River Basin Mining | | (9.6) | | | (35.2) | | | 25.6 | | | 73 | % |
Other U.S. Thermal Mining | (21.4 | ) | | (70.8 | ) | | 49.4 |
| | 70 | % | Other U.S. Thermal Mining | | (17.2) | | | (21.4) | | | 4.2 | | | 20 | % |
Corporate and Other | (2.4 | ) | | (1.8 | ) | | (0.6 | ) | | (33 | )% | Corporate and Other | | (3.9) | | | (2.4) | | | (1.5) | | | (63) | % |
Total | $ | (106.0 | ) | | $ | (172.5 | ) | | $ | 66.5 |
| | 39 | % | Total | | $ | (68.3) | | | $ | (106.0) | | | $ | 37.7 | | | 36 | % |
Additionally, the following table presents a summary of ourthe Company’s weighted-average depletion rate per ton for active mines in each of ourits mining segments:
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
Seaborne Thermal Mining | $ | 1.90 |
| | $ | 1.80 |
|
Seaborne Metallurgical Mining | 2.68 |
| | 2.58 |
|
Powder River Basin Mining | 0.79 |
| | 0.81 |
|
Other U.S. Thermal Mining | 1.06 |
| | 1.53 |
|
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
| | | | | 2021 | | 2020 |
Seaborne Thermal Mining | | | | | $ | 1.87 | | | $ | 1.90 | |
Seaborne Metallurgical Mining | | | | | 1.00 | | | 2.68 | |
Powder River Basin Mining | | | | | 0.23 | | | 0.79 | |
Other U.S. Thermal Mining | | | | | 1.12 | | | 1.06 | |
Depreciation, depletion and amortization expense decreased during the three months ended March 31, 20202021 compared to the same period in the prior year primarily due to the closureimpact of the Kayenta and Cottage Grove Minesasset impairment recorded at the North Antelope Rochelle Mine during the thirdsecond quarter of 20192020 ($40.9 million), lower amortization of the fair value of certain U.S. coal supply agreements ($6.025.2 million) and decreased expense related todepletion driven by lower sales volumes ($6.6 million). The decrease in the upcoming closure ofweighted-average depletion rate per ton for the Millennium Mine ($5.4 million).
Restructuring Charges. Restructuring charges increasedSeaborne Metallurgical Mining segment during the three months ended March 31, 20202021 compared to the same period in the prior year reflects the volume and mix variances which impacted the Company’s revenues as described above. The decrease in the weighted-average depletion rate per ton for the Powder River Basin Mining segment during the three months ended March 31, 2021 compared to the same period in the prior year reflects the asset impairment recorded during the second quarter of 2020.
Restructuring Charges. Restructuring charges decreased during the three months ended March 31, 2021 compared to the same period in the prior year as the result of involuntary workforce reductions made across the organization during the prior year through the use of involuntary and voluntary reductions, as discussed in Note 15.14. “Other Events” to the accompanying unaudited condensed consolidated financial statements.
Transaction Costs Related to Joint Ventures. The charges recorded during the three months ended March 31, 2020prior year period related to the proposed PRB Colorado joint venture with Arch Resources, Inc. which was terminated during the third quarter of 2020.
Interest Expense. Interest expense increased during the three months ended March 31, 2021 compared to the same period in the prior year as the result of a series of refinancing transactions completed by the Company during the first quarter of 2021, which included a senior notes exchange, a revolving credit facility exchange and various amendments to the Company’s existing debt agreements as further describeddiscussed in Note 15. “Other Events”11. “Long-term Debt” to the accompanying unaudited condensed consolidated financial statements.
Provision for North Goonyella Equipment Loss.Gain on Early Debt Extinguishment. A provision for expected equipment lossesThe gain recognized during the three months ended March 31, 2021 related to the events at our North Goonyella Mine was recordedsenior notes exchange completed during the prior yearfirst quarter of 2021 as further discussed in Note 15. “Other Events”11. “Long-term Debt” to the accompanying unaudited condensed consolidated financial statements.
North Goonyella Insurance Recovery - Equipment. During the three months ended March 31, 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 three months ended March 31, 2019 and the year ended December 31, 2018, respectively. The remaining $33.9 million, applicable to incremental costs and business interruption losses, is included in Adjusted EBITDA for the three months ended March 31, 2019.
Interest Income. The decrease in interest income during the three months ended March 31, 2020 compared to the same period 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 (Losses) Gains on Economic Hedges.Non-Coal Trading Derivative Contracts. Unrealized (losses) gains primarily relate to mark-to-market activity from economic hedge activities intended to hedge future coal sales.foreign currency option contracts. 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 months ended March 31, 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 ProvisionBenefit (Provision). The decrease in the income tax provision for the three months ended March 31, 20202021 compared to the same period in the prior year was primarily due to changesdifferences in forecasted taxable income, andpartially offset by an increase in the benefitprovision related to the remeasurement of foreign income tax accounts. Refer to Note 11.10. “Income Taxes” to the accompanying unaudited condensed consolidated financial statements for additional information.
Net (Loss) IncomeLoss Attributable to Common Stockholders
The following table presents net (loss) incomeloss attributable to common stockholders:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | Increase |
| | | | | March 31, | | to Income |
| | | | | | | | | 2021 | | 2020 | | $ | | % |
| | | | | (Dollars in millions) | | |
Loss from continuing operations, net of income taxes | | | | | | | | | $ | (77.7) | | | $ | (129.3) | | | $ | 51.6 | | | 40 | % |
Loss from discontinued operations, net of income taxes | | | | | | | | | (2.0) | | | (2.2) | | | 0.2 | | | 9 | % |
Net loss | | | | | | | | | (79.7) | | | (131.5) | | | 51.8 | | | 39 | % |
Less: Net income (loss) attributable to noncontrolling interests | | | | | | | | | 0.4 | | | (1.8) | | | 2.2 | | | 122 | % |
Net loss attributable to common stockholders | | | | | | | | | $ | (80.1) | | | $ | (129.7) | | | $ | 49.6 | | | 38 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended | | (Decrease) Increase |
| March 31, | | to Income |
| 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | |
(Loss) income from continuing operations, net of income taxes | $ | (129.3 | ) | | $ | 133.3 |
| | $ | (262.6 | ) | | (197 | )% |
Loss from discontinued operations, net of income taxes | (2.2 | ) | | (3.4 | ) | | 1.2 |
| | 35 | % |
Net (loss) income | (131.5 | ) | | 129.9 |
| | (261.4 | ) | | (201 | )% |
Less: Net (loss) income attributable to noncontrolling interests | (1.8 | ) | | 5.7 |
| | (7.5 | ) | | (132 | )% |
Net (loss) income attributable to common stockholders | $ | (129.7 | ) | | $ | 124.2 |
| | $ | (253.9 | ) | | (204 | )% |
Net (Loss) Income Attributable to Noncontrolling Interests. The decrease in net results attributable to noncontrolling interests during the three months ended March 31, 2020 compared to the prior year period was primarily due to lower results of our majority-owned mines in which there is an outside non-controlling interest.
Diluted Earnings per Share (EPS)
The following table presents diluted EPS:
| | | Three Months Ended | | (Decrease) Increase | | | Three Months Ended | | Increase |
| March 31, | | to EPS | | | March 31, | | to EPS |
| 2020 | | 2019 | | $ | | % | | | 2021 | | 2020 | | $ | | % |
Diluted EPS attributable to common stockholders: | | | | | | | | Diluted EPS attributable to common stockholders: | | | | | | | | |
(Loss) income from continuing operations | $ | (1.31 | ) | | $ | 1.15 |
| | $ | (2.46 | ) | | (214 | )% | |
Loss from continuing operations | | Loss from continuing operations | | $ | (0.79) | | | $ | (1.31) | | | $ | 0.52 | | | 40 | % |
Loss from discontinued operations | (0.02 | ) | | (0.03 | ) | | 0.01 |
| | 33 | % | Loss from discontinued operations | | (0.02) | | | (0.02) | | | — | | | — | % |
Net (loss) income attributable to common stockholders | $ | (1.33 | ) | | $ | 1.12 |
| | $ | (2.45 | ) | | (219 | )% | |
Net loss attributable to common stockholders | | Net loss attributable to common stockholders | | $ | (0.81) | | | $ | (1.33) | | | $ | 0.52 | | | 39 | % |
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 97.298.4 million and 110.597.2 million for the three months ended March 31, 20202021 and 2019,2020, respectively.
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA is defined as (loss) incomeloss 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 ourits 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 |
| | | March 31, |
| | | | | 2021 | | 2020 |
| | | | | (Dollars in millions) |
Loss from continuing operations, net of income taxes | | | | | $ | (77.7) | | | $ | (129.3) | |
Depreciation, depletion and amortization | | | | | 68.3 | | | 106.0 | |
Asset retirement obligation expenses | | | | | 15.9 | | | 17.6 | |
Restructuring charges | | | | | 2.1 | | | 6.5 | |
Transaction costs related to joint ventures | | | | | — | | | 4.2 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates | | | | | (1.5) | | | (0.7) | |
Interest expense | | | | | 52.4 | | | 33.1 | |
Gain on early debt extinguishment | | | | | (3.5) | | | — | |
Interest income | | | | | (1.5) | | | (3.1) | |
| | | | | | | |
Unrealized losses on economic hedges | | | | | 1.9 | | | 2.2 | |
Unrealized losses (gains) on non-coal trading derivative contracts | | | | | 7.6 | | | (0.1) | |
Take-or-pay contract-based intangible recognition | | | | | (1.1) | | | (2.6) | |
Income tax (benefit) provision | | | | | (1.8) | | | 3.0 | |
Total Adjusted EBITDA | | | | | $ | 61.1 | | | $ | 36.8 | |
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
| (Dollars in millions) |
(Loss) income from continuing operations, net of income taxes | $ | (129.3 | ) | | $ | 133.3 |
|
Depreciation, depletion and amortization | 106.0 |
| | 172.5 |
|
Asset retirement obligation expenses | 17.6 |
| | 13.8 |
|
Restructuring charges | 6.5 |
| | 0.2 |
|
Transaction costs related to joint ventures | 4.2 |
| | — |
|
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 | (0.7 | ) | | — |
|
Interest expense | 33.1 |
| | 35.8 |
|
Interest income | (3.1 | ) | | (8.3 | ) |
Unrealized losses (gains) on economic hedges | 2.2 |
| | (39.8 | ) |
Unrealized gains on non-coal trading derivative contracts | (0.1 | ) | | (0.2 | ) |
Take-or-pay contract-based intangible recognition | (2.6 | ) | | (5.6 | ) |
Income tax provision | 3.0 |
| | 18.8 |
|
Total Adjusted EBITDA | $ | 36.8 |
| | $ | 254.1 |
|
37
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 | | | Three Months Ended |
| March 31, | | | March 31, |
| 2020 | | 2019 | | | 2021 | | 2020 |
| (Dollars in millions) | | | (Dollars in millions) |
Operating costs and expenses | $ | 779.5 |
| | $ | 948.2 |
| Operating costs and expenses | | $ | 582.6 | | | $ | 779.5 | |
Unrealized gains on non-coal trading derivative contracts | 0.1 |
| | 0.2 |
| |
Unrealized (losses) gains on non-coal trading derivative contracts | | Unrealized (losses) gains on non-coal trading derivative contracts | | (7.6) | | | 0.1 | |
Take-or-pay contract-based intangible recognition | 2.6 |
| | 5.6 |
| Take-or-pay contract-based intangible recognition | | 1.1 | | | 2.6 | |
North Goonyella insurance recovery - cost recovery and business interruption | — |
| | (33.9 | ) | |
Net periodic benefit costs, excluding service cost | 2.8 |
| | 4.9 |
| |
| Net periodic benefit (credit) costs, excluding service cost | | Net periodic benefit (credit) costs, excluding service cost | | (8.7) | | | 2.8 | |
Total Reporting Segment Costs | $ | 785.0 |
| | $ | 925.0 |
| Total Reporting Segment Costs | | $ | 567.4 | | | $ | 785.0 | |
The following table presents Reporting Segment Costs by reporting segment:
| | | Three Months Ended | | | Three Months Ended |
| March 31, | | | March 31, |
| 2020 | | 2019 | | | 2021 | | 2020 |
| (Dollars in millions) | | | (Dollars in millions) |
Seaborne Thermal Mining | $ | 146.0 |
| | $ | 156.3 |
| Seaborne Thermal Mining | | $ | 147.9 | | | $ | 146.0 | |
Seaborne Metallurgical Mining | 225.9 |
| | 238.7 |
| Seaborne Metallurgical Mining | | 109.9 | | | 225.9 | |
Powder River Basin Mining | 241.2 |
| | 250.9 |
| Powder River Basin Mining | | 198.3 | | | 241.2 | |
Other U.S. Thermal Mining | 153.8 |
| | 258.9 |
| Other U.S. Thermal Mining | | 113.1 | | | 153.8 | |
Corporate and Other | 18.1 |
| | 20.2 |
| Corporate and Other | | (1.8) | | | 18.1 | |
Total Reporting Segment Costs | $ | 785.0 |
| | $ | 925.0 |
| Total Reporting Segment Costs | | $ | 567.4 | | | $ | 785.0 | |
The following tables present tons sold, revenues, Reporting Segment Costs and Adjusted EBITDA by mining segment:
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
| Seaborne Thermal Mining | | Seaborne Metallurgical Mining | | Powder River Basin Mining | | Other U.S. Thermal Mining |
| (Amounts in millions, except per ton data) |
Tons sold | 4.6 |
| | 2.0 |
| | 23.5 |
| | 4.9 |
|
| | | | | | | |
Revenues | $ | 201.1 |
| | $ | 193.2 |
| | $ | 266.6 |
| | $ | 192.3 |
|
Reporting Segment Costs | 146.0 |
| | 225.9 |
| | 241.2 |
| | 153.8 |
|
Adjusted EBITDA | 55.1 |
| | (32.7 | ) | | 25.4 |
| | 38.5 |
|
| | | | | | | |
Revenues per Ton | $ | 44.10 |
| | $ | 95.65 |
| | $ | 11.36 |
| | $ | 39.25 |
|
Costs per Ton | 32.03 |
| | 111.82 |
| | 10.28 |
| | 31.39 |
|
Adjusted EBITDA Margin per Ton | 12.07 |
| | (16.17 | ) | | 1.08 |
| | 7.86 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| Seaborne Thermal Mining | | Seaborne Metallurgical Mining | | Powder River Basin Mining | | Other U.S. Thermal Mining |
| (Amounts in millions, except per ton data) |
Tons sold | 4.1 | | | 1.0 | | | 20.7 | | | 3.9 | |
| | | | | | | |
Revenues | $ | 176.4 | | | $ | 87.5 | | | $ | 228.4 | | | $ | 149.3 | |
Reporting Segment Costs | 147.9 | | | 109.9 | | | 198.3 | | | 113.1 | |
Adjusted EBITDA | $ | 28.5 | | | $ | (22.4) | | | $ | 30.1 | | | $ | 36.2 | |
| | | | | | | |
Revenues per Ton | $ | 43.36 | | | $ | 87.47 | | | $ | 11.01 | | | $ | 38.76 | |
Costs per Ton | 36.36 | | | 109.89 | | | 9.56 | | | 29.37 | |
Adjusted EBITDA Margin per Ton | $ | 7.00 | | | $ | (22.42) | | | $ | 1.45 | | | $ | 9.39 | |
| | | Three Months Ended March 31, 2019 | | Three Months Ended March 31, 2020 |
| Seaborne Thermal Mining | | Seaborne Metallurgical Mining | | Powder River Basin Mining | | Other U.S. Thermal Mining | | Seaborne Thermal Mining | | Seaborne Metallurgical Mining | | Powder River Basin Mining | | Other U.S. Thermal Mining |
| (Amounts in millions, except per ton data) | | (Amounts in millions, except per ton data) |
Tons sold | 4.5 |
| | 2.3 |
| | 25.3 |
| | 7.9 |
| Tons sold | 4.6 | | | 2.0 | | | 23.5 | | | 4.9 | |
| | | | | | | | |
Revenues | $ | 251.0 |
| | $ | 324.5 |
| | $ | 287.3 |
| | $ | 334.8 |
| Revenues | $ | 201.1 | | | $ | 193.2 | | | $ | 266.6 | | | $ | 192.3 | |
Reporting Segment Costs | 156.3 |
| | 238.7 |
| | 250.9 |
| | 258.9 |
| Reporting Segment Costs | 146.0 | | | 225.9 | | | 241.2 | | | 153.8 | |
Adjusted EBITDA | 94.7 |
| | 85.8 |
| | 36.4 |
| | 75.9 |
| Adjusted EBITDA | $ | 55.1 | | | $ | (32.7) | | | $ | 25.4 | | | $ | 38.5 | |
| | | | | | | | |
Revenues per Ton | $ | 56.24 |
| | $ | 142.33 |
| | $ | 11.35 |
| | $ | 42.21 |
| Revenues per Ton | $ | 44.10 | | | $ | 95.65 | | | $ | 11.36 | | | $ | 39.25 | |
Costs per Ton | 35.03 |
| | 104.69 |
| | 9.91 |
| | 32.65 |
| Costs per Ton | 32.03 | | | 111.82 | | | 10.28 | | | 31.39 | |
Adjusted EBITDA Margin per Ton | 21.21 |
| | 37.64 |
| | 1.44 |
| | 9.56 |
| Adjusted EBITDA Margin per Ton | $ | 12.07 | | | $ | (16.17) | | | $ | 1.08 | | | $ | 7.86 | |
Free Cash Flow is defined as net cash provided by (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 under U.S. GAAP.
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2021 | | 2020 |
| (Dollars in millions) |
Net cash provided by (used in) operating activities | $ | 71.0 | | | $ | (4.7) | |
Net cash used in investing activities | (93.2) | | | (37.1) | |
| | | |
Free Cash Flow | $ | (22.2) | | | $ | (41.8) | |
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
| (Dollars in millions) |
Net cash (used in) provided by operating activities | $ | (4.7 | ) | | $ | 197.6 |
|
Net cash used in investing activities | (37.1 | ) | | (38.1 | ) |
Add back: Amount attributable to acquisition of Shoal Creek Mine | — |
| | 2.4 |
|
Free Cash Flow | $ | (41.8 | ) | | $ | 161.9 |
|
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 the U.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.
OurThe Company’s estimates involve risks and uncertainties and are subject to change based on various factors as described more fullysummarized in the “Cautionary Notice Regarding Forward-Looking Statements” section contained within this Item 2.
OurThe Company’s near-term outlook is intended to coincide with the next 12 to 24 months, with subsequent periods addressed in ourits long-term outlook. Peabody is continuing to monitor the rapidly evolving COVID-19 pandemic and any impacts related to both ourits near-term and long-term outlook.
Near-Term Outlook
Seaborne Thermal and Metallurgical Coal. Within the global coal industry, supply and demand disruptions have been widespread due to the ongoing impacts ofas the COVID-19 pandemic which has resulted inforced country-wide lockdowns and regional restrictions acrossrestrictions. Future COVID-19-related developments are unknown, including the globe. While outcomes remain highly uncertain, we believe that significantduration, severity, scope and the necessary government actions to limit the spread of COVID-19.
Within the seaborne metallurgical coal market, the imbalance between Australian export and Chinese delivered prices remains wide, with the delivered price into China trading at roughly double those seen free on board Australia as the unofficial ban on Australian coals remains in place. In addition, increased COVID-19 concerns in India are further weighing on Australian hard coking coal pricing. These factors continue to pressure the seaborne metallurgical coal market despite global steel production increasing 5% year-over-year.
In contrast, the spread between Australian hard coking coal pricing and low-vol PCI has recently narrowed to near parity. Tight low-vol PCI supply, coupled with China paying a premium for Russian coals, have contributed to rising low-vol PCI prices.
Within the seaborne thermal coal market, tight supplies and low inventory levels have kept Newcastle thermal coal pricing at improved levels year-to-date. China’s domestic thermal coal supply remains hampered by heightened safety inspections. In addition, India’s thermal coal stockpiles have been falling gradually since mid-December as government-owned plants have reduced intake and there has been a delay in typical restocking ahead of the monsoon season in June. As of the end of March 2021, India’s plant inventory levels were estimated at approximately 15 days burn versus 28 days a year ago.
In the United States, overall electricity demand increased 2% year-over-year, demand declines are possible. While recovery in China is occurringpositively impacted by cold weather during the three months ended March 31, 2021. Electricity generation from thermal coal has increased by 37% year-over-year as major infrastructure projects recommence,a result of higher natural gas prices. This has positively impacted coal’s share of electricity generation, with a rise to approximately 24% for the three months ended March 31, 2021, while causing natural gas’s share to decline to approximately 34%. Stronger coal use has contributed to decreasing coal stockpile levels. Since December 2020, coal inventories have fallen by approximately 20 million tons. Through the three months ended March 31, 2021, utility consumption of PRB coal rose approximately 35% compared to the prior year period. Ultimately, U.S. thermal demand from non-power sectors remains weak. At the same time, Japan and India - hubs for seaborne coal demand - have shut down non-essential services and slowed steel production.
In addition to demand impacts, supply risks continue to emerge. A number of global and domestic producers have curtailed or suspended production due to precautionary measures and high levels of workforce absenteeism.
U.S. Thermal Coal. Within the U.S., coal demand has been further challenged by the effects of the COVID-19 pandemic. The combination of weak total electric power sector consumption, depressed power prices, reduced industrial activity, as well as lowwill be dependent on general economic conditions, weather, natural gas prices, utility inventory levels and high utility stockpiles continues to pressure demand.other factors.
Long-Term Outlook
There were no significant changes to ourthe Company’s Long-Term Outlook subsequent to December 31, 2019.2020. Information regarding ourthe Company’s Long-Term Outlook is outlined in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in ourits Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Regulatory Update
Other than as described in the following section, there were no significant changes to ourthe Company’s regulatory matters subsequent to December 31, 2019.2020. Information regarding ourthe Company’s regulatory matters is outlined in Part I, Item 1. “Business” in ourits Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Regulatory Matters - U.S.
Clean Air Act (CAA). The CAA, enacted in 1970, and comparable state and tribal laws that regulate air emissions affect the Company’s U.S. coal mining operations both directly and indirectly.
The Clean Air Act requires the EPA to review national ambient air quality standards (NAAQS) every five years to determine whether revision to current standards are appropriate. As part of this recurring review process, the EPA in 2020 proposed to retain the ozone standards promulgated in 2015, including current secondary standards, and subsequently promulgated final standards to this effect. Fifteen states and other petitioners have filed a petition for review of the rule in the D.C. Circuit, State of New York v. EPA, No. 21-1028.
The EPA also proposed to retain the particulate matter (PM) standards promulgated in 2012. On March 26,December 18, 2020, the United States Environmental Protection Agency (EPA) announcedEPA issued a temporary policy regardingfinal rule to retain both the primary annual and 24-hour PM standards for fine particulate matter (PM2.5) and the primary 24-hour standard for coarse particulate matter (PM10) and secondary PM10 standards. This rule has also been challenged in the D.C. Circuit by several states and environmental organizations, State of California v. EPA, enforcement of environmental legal obligations as a result of the COVID-19 pandemic. Under the temporary policy,No. 21-2014.
More stringent PM or ozone standards would require new state implementation plans to be developed and filed with the EPA will exerciseand may trigger additional control technology for mining equipment or result in additional challenges to permitting and expansion efforts. This could also be the enforcement discretioncase with respect to the implementation for certain noncompliance events covered byother NAAQS for nitrogen oxide and SO2 although the temporary policy. For noncompliance that occurs during the period of time that the temporary policy is in effect, and that results from the COVID-19 pandemic, the EPA’s temporary policy will apply to such noncompliance in lieu of an otherwise applicable EPA enforcement response policy. The EPA’s temporary policy does not provide leniency for intentional criminal violations of law and does not apply to activities that are carried out under Superfund and Resource Conservation and Recovery Act (RCRA) Corrective Action enforcement instruments. The EPA will address these matters in separate communications. The EPA's temporary policy became retroactively effectivepromulgated a final rule on March 13, 2020. The EPA will assess18, 2019 that retains, without revision, the continued needexisting NAAQS for and scopeSO2 of this temporary policy on a regular basis and will update it if the EPA determines modifications are necessary.75 ppb averaged over an hour.
EPA Regulation of Greenhouse Gas Emissions from Existing Fossil Fuel-Fired Electricity Utility Generating Units (EGUs).EGUs. On October 23, 2015, the EPA published a final rule in the Federal Register regulating greenhouse gas emissions from existing fossil fuel-fired EGUs under Section 111(d) of the Clean Air Act (CAA)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
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 by West Virginia and Texas (in which other states also joined) (D.C. Cir. No. 15-1363). On October 29, 2015, we filed a motion to intervene in the case filed by West Virginia and Texas, in support of the petitioning states. The motion was granted on January 11, 2016. Numerous states and other entities also intervened in support of the EPA.
On February 9, 2016, the U.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. On April 28, 2017, the D.C. Circuit granted the EPA’s motion to hold the case in abeyance while the agency reconsidered the rule. The D.C. Circuit caseEPA has been in abeyance since so no opinion has been issued.
In October 2017, the EPA proposed to repeal the CPP (82 Fed. Reg. 48,035 (Oct. 16, 2017)). Inand in August 2018 the EPA issued a proposed rule to replace the CPP, with the Affordable Clean Energy (ACE) Rule. (83 Fed. Reg. 44,746 (August 31, 2018)). OnIn June 19, 2019, the EPA issued a combined package that finalizesfinalized 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, EPA-HQ-OAR-2017-0355.
The final ACE rule sets emissions guidelines for greenhouse gas emissions from existing EGUs based on usinga determination that efficiency heat rate improvements as “Bestconstitute the Best System of Emission Reduction” measures.Reduction (BSER). The EPA’s final rule also revises the CAA Section 111(d)certain regulations to give the states greater flexibility on the content and timing of their state plans. Proposed revisions to the regulations under the New Source Review (NSR) program that were part of the ACE proposal were separated, and the EPA indicated that it intends to take final action on the proposed NSR program reforms at a later date.
Based on the EPA’s final rules repealing and replacing the CPP, petitioners in the D.C. Circuit matter seeking review of CPP, including Peabody,the Company, filed a motion to dismiss, which the court granted in September 2019. Meanwhile, challengers to
Numerous petitions for review challenging the ACE Rule were filed petitions for judicial review; briefing in this case (No. 19-1140 (D.C. Cir.)) is scheduledthe D.C. Circuit and subsequently consolidated. In January 2021, a 3-judge panel of the D.C. Circuit vacated and remanded the ACE Rule to conclude at the end of July 2020.
On March 25, 2020, the EPA, released a draft guidance documentincluding its repeal of the CPP and amendments to the implementing regulations that would allow power plants, refineriesextended the compliance timeline.
Cross State Air Pollution Rule (CSAPR) and other sources of emissions to begin certain construction activities while still awaiting a permit under the NSR program. Under the EPA’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 EPA will take comment on the draft memo until May 11, 2020.
National Environmental Policy Act (NEPA)CSAPR Update Rule. NEPA, signed into law in 1970,In 2011, the EPA finalized the CSAPR, which requires federal agencies to review the environmental impactsDistrict of their decisionsColumbia and issue either an environmental assessment27 states from Texas eastward (not including the New England states 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 (CEQ) issued a proposed rule that would comprehensively update and modernize its longstanding NEPA regulations on January 10, 2020. The comment period closed on March 10, 2020. As proposed, the rule seeksDelaware) to reduce unnecessary paperwork, burdenspower plant emissions that cross state lines and delays, promote better coordination among agency decision makers, and clarify scope of NEPA reviews, amongsignificantly contribute to ozone and/or fine particle pollution in other things.states. In 2016, the EPA published the final CSAPR Update Rule which imposed reductions in nitrogen oxides emissions beginning in 2017 in 22 states subject to CSAPR.
Proposed Rule for Disposal of Coal Combustion Residuals (CCR) from Electric Utilities; Federal CCR Permit Program. On February 20,In October 2020, as required by the Water Infrastructure Improvements for the Nation Act, the EPA proposed a federal permitting program for the disposal of CCR in surface impoundments and landfills. Under the proposal, the EPA 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,rule to address a previous D.C. Circuit remand as well as procedural requirements.NOx emissions in 21 states targeted by the CSAPR Update Rule. On March 15, 2021, the EPA signed a final rule which determined that 9 states do not significantly contribute to downwind nonattainment and/or maintenance issues and therefore do not need additional emission reductions. For 12 other states, however, EPA issued Federal Implementation Plans to lower state ozone season NOx budgets in 2021 to 2024, although limited emission trading can be used for compliance.
Mercury and Air Toxic Standards (MATS). The comment periodEPA published the final MATS rule in the Federal Register in 2012. The MATS rule revised the NSPS for EPA’s proposal endednitrogen oxides, SO2 and PM for new and modified coal-fueled electricity generating plants, and imposed MACT emission limits on April 20,hazardous air pollutants (HAPs) from new and existing coal-fueled and oil-fueled electric generating plants. MACT standards limit emissions of mercury, acid gas HAPs, non-mercury HAP metals and organic HAPs.
In 2020, the EPA issued a final rule reversing a prior finding and determined that it is not “appropriate and necessary” under the CAA to regulate HAP emissions from coal- and oil-fired power plants. This rule also finalized residual risk and technology review standards for the coal- and oil-fired EGU source category. Both actions have been challenged in the D.C. Circuit and placed in abeyance.
CWA Definition of “Waters of the United States”. In January 2020 the EPA and the Corps finalized the Navigable Waters Protection Rule to revise the definition of “Waters of the United States” and thereby establish the scope of federal regulatory authority under the CWA. A federal district judge in Colorado preliminarily enjoined the Navigable Waters Protection Rule in the State of Colorado on June 19, 2020, but the new rule took effect in all other states on June 22, 2020. The U.S. Court of Appeals for the Tenth Circuit reversed the preliminary injunction in Colorado on March 2, 2021, so the Navigable Waters Protection Rule is in effect nationwide. Litigation over the 2020 Navigable Waters Protection Rule remains pending in several federal district courts.
Regulatory Matters - Australia
Occupational HealthThe Australian mining industry is regulated by Australian federal, state and Safety. State legislation requires uslocal governments with respect to provideenvironmental issues such as land reclamation, water quality, air quality, dust control, noise, planning issues (such as approvals to expand existing mines or to develop new mines) 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 mandatedissues. The Australian federal government retains control over the level of foreign investment and export approvals. Industrial relations are regulated under both federal and state legislation specificlaws. Australian state governments also require coal companies to the coalpost deposits or give other security against land which is being used for 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.
Beginning in 2015, a small number of coal mine workers in Queensland and New South Wales were diagnosed with coal workers’ pneumoconiosis (CWP, also known as black lung) following decades of assumed eradication of the disease. The Queensland government held a Parliamentary inquiry into the re-emergence of CWP in the state, which included public hearings with appearances by representatives of the coal mining industry, coal mine workers, the regulator and others. The Queensland Parliamentary Committee conducting the inquiry issued its final report on May 29, 2017. In finding that itthose deposits being returned or security released after satisfactory reclamation is highly unlikely CWP was ever eradicated in Queensland, the Committee made 68 recommendations to ensure the safety and health of coal mine workers. These include an immediate reduction to the occupational exposure limit for respirable coal dust equivalent to 1.5 mg/m3 for coal dust and 0.05 mg/m3 for silica and the establishment of a new and independent Mine Safety Authority to be funded by a dedicated proportion of coal and mineral royalties and overseeing the Mines Safety Inspectorate. The Queensland government has instituted increased reporting requirements for dust monitoring results, broader coal mine worker health assessment requirements and voluntary retirement examinations for coal mine workers to be arranged by the relevant employer and further reform may follow.completed.
Safe Work Australia (SWA). As part of a broader review of workplace exposure standards, SWA is currently reviewingconsidering a proposal to reduce the time weighted average (TWA) Workplace Exposure StandardsStandard (WES) for all airborne contaminantscarbon dioxide (CO2) in Australian coal mines from 12,500ppm to 5,000ppm. Currently there is a separate TWA for CO2 in coal mines however SWA proposes to remove this to align with a general industry standard. If implemented, the change has the potential to affect underground mines operating in CO2 rich coal seams, including welding fumesthe primary coal seam of the Company’s Metropolitan Mine. Importantly, a minimum three-year transition period applies for any change to standards.
Environment Protection and diesel particulate matterBiodiversity Conservation Amendment (Standards and giving priorityAssurance) Bill 2021. On February 25, 2021 the Commonwealth Government introduced the Environment Protection and Biodiversity Conservation Amendment (Standards and Assurance) Bill 2021 into Parliament, which proposes amendments to the WES for coal dustEnvironment Protection and silica. The review is expected to continue until June 2020. SWA’s draft evaluation reports will includeBiodiversity Conservation Act 1999 (EPBC Act) following the release of the Final Report of the Independent Review of the Act undertaken by Professor Graeme Samuel (the Samuel Review) that made 38 recommendations for exposure limits.short and long-term reforms, and ultimately calls for a complete overhaul of the existing legislative framework by 2022, to be undertaken in several tranches, with a strong focus on the setting of National Environmental Standards, assurance and compliance, data availability and management, and indigenous engagement. The exposure limits recommended by SWA are based on toxicological informationbill responds to some of the recommendations for immediate reform made in the Samuel Review, and seeks to: establish a framework for the making, varying, revoking and application of National Environmental Standards; apply the National Environmental Standards to bilateral agreements with States and Territories; and establish an Environment Assurance Commissioner to monitor and audit bilateral agreements and other monitoring data. SWA have recommended exposure limitsprocesses under the EPBC Act.
Native Title and Cultural Heritage. On February 3, 2021 the Native Title Act 1993 was amended largely directed at improving the efficiency of 1.5 mg/m3the native title system for coal dustall parties. The amendments confirm the validity of most section 31 right to negotiate agreements which might be invalid because of non-execution by any of the persons comprising the registered native title claimant following the Full Federal Court's decision in McGlade v Registrar National Native Title Tribunal. Other significant amendments include that: during the right to negotiate process the parties to section 31 agreements are now required to notify the National Native Title Tribunal of the existence of any ancillary agreements; new section 47C allows historical extinguishment to be disregarded on park areas including extinguishment by public works; and 0.05 mg/m3new section 24MD(6B)(f) creates a new 8 month objection period for silica.the creation of a right to mine for the purpose of an infrastructure facility associated with mining and to some compulsory acquisitions of native title.
Since AugustGlobal Climate
In the U.S., Congress has considered legislation addressing global climate issues and greenhouse gas emissions, but to date, no such legislation has been signed into law. While it is possible that the U.S. will adopt legislation in the future, the timing and specific requirements of any such legislation are uncertain. In the absence of new U.S. federal legislation, the EPA has taken steps to regulate greenhouse gas emissions pursuant to the CAA. In response to the U.S. Supreme Court ruling in Massachusetts v. EPA, 549 U.S. 497 (2007) the EPA commenced several rulemaking projects as described under “Regulatory Matters - U.S.” In particular, in 2015, the EPA announced final rules (known as the CPP) for regulating carbon dioxide emissions from existing and new fossil fuel-fired EGUs. Twenty-seven states and governmental entities, as well as utilities, industry groups, trade associations, coal companies (including Peabody), and other entities, challenged the CPP in federal court. Implementation of the CPP was stayed by the U.S. Supreme Court pending resolution of its legal challenges. In October 2017, the Workers’ CompensationEPA proposed to change its legal interpretation of section 111(d) of the CAA, the authority that the agency relied on for the original CPP. The EPA relied on the proposed reinterpretation until August 2018, when it proposed the Affordable Clean Energy Rule (the ACE Rule) to replace the CPP with a system where states would develop emissions reduction plans using BSER measures (essentially efficiency heat rate improvements), and Rehabilitation Act 2003the EPA would approve the state plans if they use EPA-approved candidate technologies. The EPA thereafter repealed the CPP and promulgated the final ACE Rule on July 8, 2019. On January 19, 2021, the D.C. Circuit Court of Appeals vacated and remanded the ACE Rule, including the repeal of the CPP and amendments to implementing regulations that extended compliance timelines.
Several changes in the NSR program have also been issued through guidance and rulemaking as described under “Regulatory Matters – U.S.” in the Company’s Annual Report on Form 10-K and herein. The NSR program provides for the pre-construction review of new, reconstructed and modified stationary sources and results in determinations concerning the emission control technology that must be installed and operated at a medical examination processsource. Clean Air Act standards, known as new source performance standards, generally serve as a “floor” level of control for retiredsources subject to NSR review; the final level of control is determined through the permitting process. In certain cases, performance standards or former coal workers with suspected CWP and an additional lump sum compensation for workers with CWP, and additionally clarifies that a worker with CWP can access further workers’ compensation entitlements if they experience disease progression.
controls regarding greenhouse gas emissions may be required through the NSR process.
At the same time, a number of states in the U.S. have adopted programs to regulate greenhouse gas emissions. For example, 10 northeastern states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont) entered into the Regional Greenhouse Gas Initiative (RGGI) in 2005, which is a mandatory cap-and-trade program to cap regional carbon dioxide emissions from power plants. Six mid-western states (Illinois, Iowa, Kansas, Michigan, Minnesota and Wisconsin) and one Canadian province have entered into the Midwestern Regional Greenhouse Gas Reduction Accord (MGGRA) to establish voluntary regional greenhouse gas reduction targets and develop a voluntary multi-sector cap-and-trade system to help meet the targets. It has been reported that, while the MGGRA has not been formally suspended, the participating states are no longer pursuing it. Seven western states (Arizona, California, Montana, New Mexico, Oregon, Utah and Washington) and four Canadian provinces entered into the Western Climate Initiative (WCI) in 2008 to establish a voluntary regional greenhouse gas reduction goal and develop market-based strategies to achieve emissions reductions. However, in November 2011, the WCI announced that six states had withdrawn from the WCI, leaving California and four Canadian provinces as the remaining members. Of those five jurisdictions, only California and Quebec have adopted greenhouse gas cap-and-trade regulations to date and both programs have begun operating. Many of the states and provinces that left WCI, RGGI and MGGRA, along with many that continue to participate, have joined the new North America 2050 initiative, which seeks to reduce greenhouse gas emissions and create economic opportunities in ways not limited to cap-and-trade programs. Separately, California has committed through Executive Order B-55-18 and SB 100 to 100 percent “clean energy” by 2045.
Several other U.S. states have enacted legislation establishing greenhouse gas emissions reduction goals or requirements. In addition, several states have enacted legislation or have in effect regulations requiring electricity suppliers to use renewable energy sources to generate a certain percentage of power or that provide financial incentives to electricity suppliers for using renewable energy sources. Some states have initiated public utility proceedings that may establish values for carbon emissions.
Increasingly, both foreign and domestic banks, insurance companies and large investors are curtailing or ending their financial relationships with fossil fuel-related companies. This has had adverse impacts on the liquidity and operations of coal producers.
Peabody participated in the Department of Energy’s Voluntary Reporting of Greenhouse Gases Program until its suspension in May 2011, and Peabody regularly discloses in its annual Environmental, Social and Governance Report the quantity of emissions per ton of coal produced by the Company in the U.S. The vast majority of the Company’s emissions are generated by the operation of heavy machinery to extract and transport material at its mines and fugitive emissions from the extraction of coal.
The Kyoto Protocol, adopted in December 1997 by the signatories to the 1992 United Nations Framework Convention on Climate Change (UNFCCC), established a binding set of greenhouse gas emission targets for developed nations. The U.S. signed the Kyoto Protocol but it has never been ratified by the U.S. Senate. Australia ratified the Kyoto Protocol in December 2007 and became a full member in March 2008. There were discussions to develop a treaty to replace the Kyoto Protocol after the expiration of its commitment period in 2012, including at the UNFCCC conferences in Cancun (2010), Durban (2011), Doha (2012) and Paris (2015). At the Durban conference, an ad hoc working group was established to develop a protocol, another legal instrument or an agreed outcome with legal force under the UNFCCC, applicable to all parties. At the Doha meeting, an amendment to the Kyoto Protocol was adopted, which included new commitments for certain parties in a second commitment period, from 2013 to 2020. In December 2012, Australia signed on to the second commitment period. During the UNFCCC conference in Paris, France in late 2015, an agreement was adopted calling for voluntary emissions reductions contributions after the second commitment period ends in 2020 (the Paris Agreement). The agreement was entered into force on November 4, 2016 after ratification and execution by more than 55 countries, including Australia, that account for at least 55% of global greenhouse gas emissions.
In January 2021, the U.S. reentered the Paris Agreement by accepting the agreement and all of its articles and clauses, after having announced its withdrawal from the agreement in November 2019. In April 2021, the U.S. announced its own Nationally Determined Contribution (NDC) with respect to the Paris Agreement. The NDC is voluntary and would aim to cut carbon dioxide output by 50% to 52% compared with 2005 levels by 2030. Recently, the U.S. has announced the goal of a completely emissions-free power grid by 2035, but has not provided specificity for a regulatory framework to achieve that goal. The Company anticipates a series of executive actions and/or orders from the current presidential administration aimed at curbing emission levels.
In October 20182017, the QueenslandAustralian Federal Government released a plan aimed at delivering an affordable and reliable energy system that meets Australia’s international commitments to emissions reduction. The plan was referred to as the National Energy Guarantee (NEG) and was aimed at changing the National Electricity Market and associated legislative framework. The NEG was abandoned by the Australian government passedin September 2018. Following the Mines Legislation (Resources Safety) Amendment Act 2018,outcome of the federal election in May 2019, the federal government confirmed it will not revive the former NEG policy. Instead, the government will pursue a new energy and climate change policy, which introduces significant changesincludes a $2 billion Australian dollars investment in projects to bring down Australia's greenhouse gas emissions. The Climate Solutions Fund is an extension of the Coal Mining Safety and Health Act 1999 concerning, amongformer Emissions Reduction Fund. The government has confirmed that it remains committed to meeting Australia’s Paris Agreement targets but that the focus of energy policy will be on driving down electricity prices.
The enactment of future laws or the passage of regulations regarding emissions from the use of coal by the U.S., some of its states or other things, dutiescountries, or other actions to limit such emissions, could result in electricity generators switching from coal to other fuel sources. Further, policies limiting available financing for the development of officers, reporting requirementsnew coal-fueled power stations could adversely impact the global demand for coal mine worker diseases, reporting defects and hazards affecting plant and substances, contractor and service provider safety and health management plans, new powersin the future. The potential financial impact on the Company of such future laws, regulations or other policies will depend upon the degree to suspendwhich any such laws or cancel an individual’s statutory certificate of competency and increasing penalties and inspector powers.
Following the re-identification ofregulations force electricity generators to diminish their reliance on 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 in September 2019, was passed into law in March 2020 and will take effect on July 1, 2020. It establishes Resources Safety and Health Queensland (RSHQ) as a statutory body designed to ensure independencefuel source. That, in turn, will depend on a number of factors, including the mining safety and health regulator. RSHQ will include inspectorates for coal mines, mineral mines and quarries, explosives and petroleum and gas. The newspecific requirements imposed by any such laws, seek to enhanceregulations or other policies, the role of advisory committees to identify, quantify and prioritize safety and health issuestime periods over which those laws, regulations or other policies would be phased in, the miningstate of development and quarrying industries. It also provides for an independent Work Health and Safety Prosecutor to prosecute serious offenses under resources safety legislation.
In February 2020, the Queensland government introduced into Parliament a bill to introduce the criminal offensedeployment of ‘industrial manslaughter’ for executive officers, individuals who are “senior officers” and companies in the mining industry. Individuals would face a maximum prison sentence of 20 years and companies could be fined up to approximately $13 million Australian dollars. The bill also introduces the requirement for statutory role holders to be employees of the coal mine operator entity with a 12-month transition period. The bill is currently under review by a Parliamentary Committee.
Sydney Water Catchment Areas. In November 2017, the New South Wales government established an independent expert panel (Panel) to advise the Department of Planning, Industry and Environment (DPIE) on the impact of underground mining activities in Sydney’s water catchment areas, including at our Metropolitan Mine. The Panel issued an initial report to DPIE in November 2018, which was publicly released in December 2018 and only concerned mining activities at two mines, our Metropolitan Mine and a competitor’s Dendrobium Mine. After consultation with stakeholders, including Peabody, a final report was released in October 2019. The final report updates and finalizes the initial report and also makes findings and recommendations concerning mining activities and effects across the catchment as a whole.
The Panel’s reports acknowledge the major effort at the Metropolitan and Dendrobium Mines over the last decade to employ best practice modeling and assessment methods undertaken by suitable specialists, with expert peer review while recommending continued rigorous monitoring and impact assessment in order to build on the knowledge base regarding mining-induced subsidence and its impacts on groundwater and surface water. The reports endorse the government taking an incremental approach to mining approvals that provides for considering existing and emerging information and knowledge gaps. The Panel concluded in the final report that the average daily water inflow over the last three years at the Metropolitan Mine is generally less than 0.2 megaliters per day and shows no evidence of connected fracture regime to surface or correlation with rainfall. It also concluded that the potential for water to be diverted out of Woronora Reservoir and into other catchments through valley closure shear planes and geological structures will require careful assessment in the future because it is planned that most of the remaining longwall panels in the approved mining area will pass beneath the reservoir. A range of matters remain to be considered by the Panel, including the cumulative impacts of flow losses and the relative significance of these for water suppliesCCUS technologies as well as acceptance of CCUS technologies to meet regulations and the practicalities associated with establishing a robust regional water balance model.
The DPIE will now consideralternative uses for coal. Higher-efficiency coal-fired power plants may also be an option for meeting laws or regulations related to emissions from coal use. Several countries, including major coal users such as China, India and Japan, included using higher-efficiency coal-fueled power plants in their plans under the recommendationsParis Agreement. From time to time, Peabody attempts to analyze the potential impact on the Company of as-yet-unadopted, potential laws, regulations and policies. Such analyses require that Peabody make significant assumptions as to the specific provisions of such potential laws, regulations and policies which sometimes show that if implemented in the Panel’s final reportmanner assumed by the analyses, the potential laws, regulations and has saidpolicies could result in material adverse impacts on its operations, financial condition or cash flow. The Company does not believe that insuch analyses reasonably predict the meantime no new development applications for mining in the catchment will be determined. We do not currentlyquantitative impact that future laws, regulations or other policies may have any such applications awaiting determination. In March 2020 the DPIE approved the extraction plans for longwalls 305-307. We continue to conduct robust monitoring, data collection and reporting and have been actively consulting with the government on Metropolitan’s approval processes and mine design to ensure that operational impacts are appropriately managed and minimized as far as possible.its results of operations, financial condition or cash flows.
Liquidity and Capital Resources
Overview
OurThe Company’s primary source of cash is proceeds from the sale of ourits coal production to customers. We haveThe Company has also generated cash from the sale of non-strategic assets, including coal reserves and surface lands, borrowings under ourits credit facilities and, from time to time, the issuance of securities. OurThe Company’s primary uses of cash include the cash costs of coal production, capital expenditures, coal reserve lease and royalty payments, debt service costs, capital and operating lease payments, postretirement plans, take-or-pay obligations, post-mining reclamation obligations, and selling and administrative expenses. We haveThe Company has also used cash for dividends, share repurchases and early debt retirements. We believe that our capital structure allows us to satisfy our working capital requirements and fund capital expenditures and debt-service obligations with cash generated from operations and cash on hand.
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 ourthe Company’s debt and surety agreements, ourits 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. OurThe Company’s ability to declare dividends, repurchase shares or early retire debt, declare dividends or repurchase shares in the future will depend on ourits future financial performance, which in turn depends on the successful implementation of ourits 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 ourits industry, many of which are beyond ourthe Company’s control. The Company has presently suspended the payment of dividends and share repurchases, as discussed in Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds.”
Liquidity
As of March 31, 2020, our available liquidity was $1,187.7 million, which was comprised of cash and cash equivalents and availability under our revolver and accounts receivable securitization program as described below. As of March 31, 2020, our2021, the Company’s cash balances totaled $682.5$580.2 million, including approximately $603$396 million held by U.S. subsidiaries $68and $157 million held by Australian subsidiaries, andapproximately $104 million of which was held by the subsidiaries that conduct the operations of its Wilpinjong Mine. The Company’s remaining balance was held by other foreign subsidiaries in accounts predominantly domiciled in the U.S. A significant majority of the cash held by ourits foreign subsidiaries is denominated in U.S. dollars. This cash is generally used to support non-U.S. liquidity needs, including capital and operating expenditures in Australia.
The Company’s available liquidity declined from $728.7 million as of December 31, 2020 to $603.8 million as of March 31, 2021. Available liquidity, which excluded $43.5 million of restricted cash as of March 31, 2021, was comprised of the following:
| | | | | | | | | | | | | |
| | | March 31, 2021 | | December 31, 2020 |
| | | (Dollars in millions) |
Cash and cash equivalents | | | $ | 580.2 | | | $ | 709.2 | |
Revolving credit facility availability | | | 22.8 | | | 0.2 | |
Accounts receivable securitization program availability | | | 0.8 | | | 19.3 | |
Total liquidity | | | $ | 603.8 | | | $ | 728.7 | |
Refinancing and Related Transactions
During the fourth quarter of 2020 and the first quarter of 2021, the Company entered into a series of interrelated agreements with its surety bond providers, the revolving lenders under its credit agreement and certain holders of its senior secured notes to extend a significant portion of its near-term debt maturities to December 2024 and to stabilize collateral requirements for its existing surety bond portfolio. Such agreements and related activities are described below.
Organizational Realignment
In July and August 2020, the Company effected certain changes to its corporate structure in contemplation of a debt-for-debt exchange, which included, among other steps, the formation of certain wholly-owned subsidiaries (the Co-Issuers). In connection with the change in structure, the Company’s subsidiary which owns and operates its Wilpinjong Mine in Australia became a subsidiary of the Co-Issuers. The Co-Issuers and the Wilpinjong subsidiary were designated as unrestricted subsidiaries under the Company’s Credit Agreement and its senior notes’ indenture (the Existing Indenture). In connection with these actions, the Company contributed $100.0 million to the Co-Issuers to provide the Wilpinjong Mine with operating liquidity and address its capital needs over the next twelve months.
Surety Agreement
In November 2020, the Company entered into a surety transaction support agreement (Surety Agreement) with the providers of 99% of its surety bond portfolio (Participating Sureties) to resolve previous collateral demands made by the Participating Sureties. In accordance with the Surety Agreement, the Company initially provided $75.0 million of collateral, in the form of letters of credit.
Upon completion of the Refinancing Transactions, as defined below, other provisions of the Surety Agreement became effective. In particular, the Company granted second liens on $200.0 million of certain mining equipment and will post an additional $25.0 million of collateral per year from 2021 through 2024 for the benefit of the Participating Sureties. The collateral postings may also further increase to the extent the Company generates more than $100.0 million of free cash flow (as defined in the Surety Agreement) in any twelve-month period or have asset sales in excess of $10.0 million. Further, the Participating Sureties have agreed to a standstill through December 31, 2024, during which time, the Participating Sureties will not demand any additional collateral, draw on letters of credit posted for the benefit of themselves, or cancel any existing surety bond. The Company will not pay dividends or make share repurchases during the standstill period, unless otherwise agreed between parties.
Refinancing Transactions
On April 3, 2020, we borrowed $300.0 million under ourJanuary 29, 2021 (the Settlement Date), the Company completed a series of transactions (collectively, the Refinancing Transactions) to, among other things, provide it with maturity extensions and covenant relief, while allowing it to maintain near-term operating liquidity and financial flexibility. The Refinancing Transactions included a senior notes exchange and related consent solicitation, a revolving credit facility which is further described belowexchange, and in Note 12. “Long-term Debt” of the accompanying unaudited condensed consolidated financial statements. This borrowing provides us with additional financial flexibility in light of the current uncertainty in the global markets and related effects on our business resulting from the COVID-19 pandemic. While we do not currently expectvarious amendments to use the proceeds from these borrowings for any near-term liquidity needs, we may use the proceeds for working capital and other general corporate purposes.its existing debt agreements, as summarized below.
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.
Debt Financing45
As described in Note 12. “Long-term Debt”
Exchange Offer
On January 29, 2021, the accompanying unaudited condensed consolidated financial statements, during 2017, we entered intoCompany settled an indenture relatedexchange offer (Exchange Offer) pursuant to the issuancewhich $398.7 million aggregate principal amount of $500.0 million ofits 6.000% senior secured notesSenior Secured Notes due March 2022 (2022 Notes) were validly tendered, accepted by the Company and exchanged for aggregate consideration consisting of (a) $193.9 million aggregate principal amount of new 10.000% Senior Secured Notes due 2024 issued by the Co-Issuers (Co-Issuer Notes), (b) $195.1 million aggregate principal amount of new 8.500% Senior Secured Notes due 2024 issued by Peabody (Peabody Notes), and (c) a cash payment of approximately $9.4 million. In connection with the settlement of the Exchange Offer, the Company also paid early tender premiums totaling $4.0 million in cash. Refer to Note 11. “Long-term Debt” for additional information associated with the Co-Issuer Notes and the Peabody Notes.
Following the settlement of the Exchange Offer, approximately $60.3 million aggregate principal amount of the 2022 Notes remain outstanding and are governed by the Existing Indenture, as amended by the supplemental indenture described below.
As required under the Exchange Offer, the Company purchased $22.4 million Peabody Notes at 80% of their accreted value, plus accrued and unpaid interest, during the first quarter of 2021 and recognized a related net gain of $3.5 million.
Consent Solicitation
Concurrently with the Exchange Offer, the Company solicited consents from holders of the 2022 Notes to certain proposed amendments to the Existing Indenture to (i) eliminate substantially all of the restrictive covenants, certain events of default applicable to the 2022 Notes and certain other provisions contained in the Existing Indenture and (ii) release the collateral securing the 2022 Notes and eliminate certain other related provisions contained in the Existing Indenture. The Company received the requisite consents from holders of the 2022 Notes and entered into a supplemental indenture to the Existing Indenture, which became operative on January 29, 2021.
Revolver Transactions
In connection with the Refinancing Transactions, the Company restructured the revolving loans under the Credit Agreement by (i) making a pay down of revolving loans thereunder in the aggregate amount of $10.0 million, (ii) the Co-Issuers incurring $206.0 million of term loans under a credit agreement, dated as of the Settlement Date (Co-Issuer Term Loans, Co-Issuer Term Loan Agreement), (iii) Peabody entering into a letter of credit facility (the Company LC Agreement), and (iv) amending the Credit Agreement (collectively, the Revolver Transactions).
The Co-Issuer Term Loans mature on December 31, 2024 and bear interest at a rate of 10.00% per annum.
On the Settlement Date, the Company entered into the Company LC Agreement with the revolving lenders party to the Credit Agreement, pursuant to which the Company obtained a $324.0 million letter of credit facility under which its existing letters of credit under the Credit Agreement were deemed to be issued. The commitments under the Company LC Agreement mature on December 31, 2024. Undrawn letters of credit under the Company LC Agreement bear interest at 6.00% per annum and unused commitments are subject to a 0.50% per annum commitment fee.
In connection with the Revolver Transactions, the Company amended the Credit Agreement to make certain changes in consideration of the Company LC Agreement. After giving effect to the Revolver Transactions, there remain no revolving commitments or revolving loans under the Credit Agreement and the first lien net leverage ratio covenant was eliminated, effectively negating the compliance requirement at December 31, 2020 and prospectively. The Company LC Agreement requires that the Company’s restricted subsidiaries maintain minimum aggregate liquidity of $125.0 million at the end of each quarter through December 31, 2024. As such, liquidity attributable to the Co-Issuers, its subsidiaries, and other unrestricted subsidiaries is excluded from the calculation. Liquidity calculated in this manner amounted to $475.3 million at March 31, 2021.
Other Debt Financing
The Refinancing Transactions did not significantly impact the Company’s existing senior secured term loan under the Credit Facility, or its $500.0 million of 6.375% senior secured notes due March 2025. We make semi-annual interest payments on theThe senior notes eachsecured term loan had a balance of $387.3 million at March 31, and September 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 $558.0 million through March 31, 2020.2021. The term loan requires quarterly principal payments of $1.0 million and periodic interest payments, currently at LIBOR plus 2.75%, through December 2024 with the remaining balance due in March 2025.
We also entered into a revolving credit facility allowable under our credit agreement during 2017 for an aggregate commitment of $350.0 million for general corporate purposes. In September 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 The senior secured notes require semi-annual 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 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 ofpayments each March 31 2020, such lettersand September 30 until maturity.
The Company’s debt agreements impose various restrictions and limits on certain categories of payments that wethe Company may make, such as those for dividends, investments, and stock repurchases. We areThe Company is also subject to customary affirmative and negative covenants. We were in complianceThe Company was compliant with all such restrictions and covenants under its debt agreements at March 31, 2020.2021.
As described inConsidering the “Overview” section contained within this Item 2,Refinancing Transactions, the September 2019 amendmentCompany expects to our credit facility madeincur approximately $200 million of interest expense, including approximately $50 million of non-cash interest expense, during the formation of the PRB Colorado 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.
year ended December 31, 2021.
Accounts Receivable Securitization Program
As described in Note 17.16. “Financial Instruments and Other Guarantees” of the accompanying unaudited condensed consolidated financial statements, wethe Company 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 providedutilized for letters of credit in support of other obligations. At March 31, 2020, we had2021, the Company had no outstanding borrowings and $132.7$120.8 million of letters of credit providedissued under the program. The letters of credit areprogram, which were primarily in support of portions of ourthe Company’s obligations for reclamation, workers’ compensationproperty and postretirement benefits. Availabilitycasualty insurance. The Company had $43.5 million of cash collateral posted under the program, which is adjusted for certain ineligible receivables, was $12.8 millionSecuritization Program at March 31, 2020 and there was no cash collateral requirement.2021 due to outstanding letters of credit temporarily exceeding the balance of eligible receivables at quarter-end.
Capital Requirements
There were no material changes to our targetedFor 2021, the Company is targeting capital expenditures from the information previously provided in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-Kapproximately $225 million, which includes approximately $135 million for the year ended December 31, 2019.ongoing extension projects primarily related to its Seaborne Thermal Mining segment. The Company has no substantial future payment requirements under U.S. federal coal reserve leases.
Contractual Obligations
There were no material changes to ourthe Company’s contractual obligations from the information previously provided in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2019, with the exception of our obligations for various short- and long-term take-or-pay arrangements in Australia and the U.S. associated with rail and port commitments for the delivery of coal, including amounts relating to export facilities. Due to changes in the foreign currency exchange rates, our estimated obligations are expected to be $11.1 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 ended December 31, 2019. For the two-year period 2021 through 2022 and the two-year period 2023 through 2024, such obligations are comparatively reduced by $20.4 million and $18.2 million, respectively. For periods thereafter, such obligations are reduced by $72.6 million.2020.
Historical Cash Flows and Free Cash Flow
The following table summarizes ourthe Company’s cash flows for the three months ended March 31, 20202021 and 2019,2020, as reported in the accompanying unaudited condensed consolidated financial statements. Free Cash Flow is a financial measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section above for definitions and reconciliations to the most comparable measures under U.S. GAAP.
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
| (Dollars in millions) |
Net cash (used in) provided by operating activities | $ | (4.7 | ) | | $ | 197.6 |
|
Net cash used in investing activities | (37.1 | ) | | (38.1 | ) |
Net cash used in financing activities | (7.9 | ) | | (337.3 | ) |
Net change in cash, cash equivalents and restricted cash | (49.7 | ) | | (177.8 | ) |
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 | $ | 682.5 |
| | $ | 839.6 |
|
| | | |
Net cash (used in) provided by operating activities | $ | (4.7 | ) | | $ | 197.6 |
|
Net cash used in investing activities | (37.1 | ) | | (38.1 | ) |
Add back: Amount attributable to acquisition of Shoal Creek Mine | — |
| | 2.4 |
|
Free Cash Flow | $ | (41.8 | ) | | $ | 161.9 |
|
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 |
| (Dollars in millions) |
Net cash provided by (used in) operating activities | $ | 71.0 | | | $ | (4.7) | |
Net cash used in investing activities | (93.2) | | | (37.1) | |
Net cash used in financing activities | (63.3) | | | (7.9) | |
Net change in cash, cash equivalents and restricted cash | (85.5) | | | (49.7) | |
Cash, cash equivalents and restricted cash at beginning of period | 709.2 | | | 732.2 | |
Cash, cash equivalents and restricted cash at end of period | $ | 623.7 | | | $ | 682.5 | |
| | | |
Net cash provided by (used in) operating activities | $ | 71.0 | | | $ | (4.7) | |
Net cash used in investing activities | (93.2) | | | (37.1) | |
| | | |
Free Cash Flow | $ | (22.2) | | | $ | (41.8) | |
Operating Activities. The decreasenet increase in net cash (used in) provided by operating activities for the three months ended March 31, 20202021 compared to the same period in the prior year was driven by thea year-over-year decreaseincrease in cash from ourgenerated by Company’s mining operations and an unfavorablea favorable change in net cash flows associated with ourits working capital of $36.1 million.($59.0 million).
Investing Activities. NetThe increase in net cash used in investing activities for the three months ended March 31, 2020 was comparable2021 compared to the same period in the prior year and in both periods was driven by higher capital expenditures ($19.0 million) and higher net contributions to sustain operations.joint ventures ($35.8 million).
Financing Activities. The decreaseincrease in net cash used in financing activities for the three months ended March 31, 20202021 compared to the same period in the prior year was driven by comparatively higher long-term debt repayments ($33.0 million), including $37.3 million associated with the prior year periodRefinancing Transactions, and the payment of dividends of $214.4 million, including a supplemental dividend of $1.85 per share of common stock, and common stock repurchases of $98.8 million. We have presently suspended such payments, as discussed in Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds.”deferred financing costs associated with the Refinancing Transactions ($22.5 million).
Off-Balance SheetOff-Balance-Sheet Arrangements
In the normal course of business, we arethe Company is a party to various guarantees and financial instruments that carry off-balance-sheet risk and are not reflected in the accompanying condensed consolidated balance sheets. At March 31, 2020,2021, such instruments included $1,557.4included $1,570.8 million of surety bonds and $206.8$423.4 million ofof letters of credit. TheseSuch financial instruments provide support for ourits reclamation bonding requirements, lease obligations, insuranceinsurance policies and various other performance guarantees. WeThe Company periodically evaluateevaluates the instruments for on-balance-sheet treatment based on the amount of exposure under the instrument and the likelihood of required performance. We doThe Company does not expect any material losses to result from these guarantees or off-balance-sheet instruments in excess of liabilities provided for in ourits condensed consolidated balance sheets.
We could experienceAs of March 31, 2021, the Company was party to financial instruments with off-balance-sheet risk in support of the following obligations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Reclamation | | Health and welfare (1) | | Contract performance (2) | | Leased property and equipment | | Other (3) | | Total |
| (Dollars in millions) |
Surety bonds and bank guarantees | $ | 1,394.5 | | | $ | 42.1 | | | $ | 87.6 | | | $ | 30.9 | | | $ | 15.7 | | | $ | 1,570.8 | |
Letters of credit outstanding under letter of credit facility | 198.3 | | | 90.4 | | | 7.5 | | | 5.0 | | | — | | | 301.2 | |
Letters of credit outstanding under accounts receivable securitization program | 99.4 | | | 17.0 | | | 4.4 | | | — | | | — | | | 120.8 | |
Other letters of credit | — | | | 1.4 | | | — | | | — | | | — | | | 1.4 | |
| 1,692.2 | | | 150.9 | | | 99.5 | | | 35.9 | | | 15.7 | | | 1,994.2 | |
Less: Letters of credit in support of surety bonds (4) | (297.7) | | | (29.5) | | | — | | | (1.2) | | | — | | | (328.4) | |
Less: Cash collateral in support of surety bonds (4) | (15.0) | | | — | | | — | | | — | | | — | | | (15.0) | |
Obligations supported, net | $ | 1,379.5 | | | $ | 121.4 | | | $ | 99.5 | | | $ | 34.7 | | | $ | 15.7 | | | $ | 1,650.8 | |
(1) Obligations include pension and healthcare plans, workers’ compensation, and property and casualty insurance
(2) Obligations pertain to customer and vendor contracts
(3) Obligations primarily pertain to the disturbance or alteration of public roadways in connection with the Company’s mining activities that is subject to future restoration
(4) Serve as collateral for certain surety bonds at the request of surety bond providers. The Company has also posted $5.3 million in incremental collateral directly with the beneficiary that is not supported by a decline in our liquidity as financialsurety bond.
Financial assurances associated with new reclamation bonding requirements, surety bonds or other obligations are required to be collateralized bymay require additional collateral in the form of cash or letters of credit.credit causing a decline in the Company’s liquidity.
As described in Note 17.16. “Financial Instruments and Other Guarantees” in the accompanying unaudited condensed consolidated financial statements, we arethe Company is required to provide various forms of financial assurance in support of ourits mining reclamation obligations in the jurisdictions in which we operate.it operates. Such requirements are typically established by statute or under mining permits. Historically, such assurances have taken the form of third-party instruments such as surety bonds, bank guarantees and letters of credit, as well as self-bonding arrangements in the U.S. We have shifted away from extensive self-bondingSelf-bonding in the U.S. has become increasingly restricted in favor ofrecent years, leading to the Company’s increased usage of surety bonds and similar third-party instruments. This change in practice has had an unfavorable impact on ourits liquidity due to increased collateral requirements and surety and related fees.
At March 31, 2020, we2021, the Company had total asset retirement obligations of $758.7$735.9 million which were backed by a combination of surety bonds, bank guarantees and letters of credit.
Bonding requirement amounts may differ significantly from the relatedrelated asset retirement obligation because such requirements are calculated under the assumption that reclamation begins currently, whereas ourthe Company’s accounting liabilities are discounted from the end of a mine’s economic life (when final reclamation work would begin) to the balance sheet date.
Guarantees and Other Financial Instruments with Off-Balance SheetOff-Balance-Sheet Risk. See Note 17.16. “Financial Instruments and Other Guarantees” in ourthe Company’s unaudited condensed consolidated financial statements for a discussion of ourits accounts receivable securitization program and guarantees and other financial instruments with off-balance sheetoff-balance-sheet risk.
Critical Accounting Policies and Estimates
OurThe Company’s discussion and analysis of ourits financial condition, results of operations, liquidity and capital resources is based upon ourits financial statements, which have been prepared in accordance with U.S. GAAP. We areThe Company is also required under U.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 ourthe Company evaluates its estimates. We base ourThe Company bases its estimates on historical experience and on various other assumptions that we believeit believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
At March 31, 2020, we have2021, the Company identified certain assets with an aggregate carrying value of approximately $2.1$1.2 billion in ourits Seaborne Metallurgical Mining, Powder River Basin Mining, Other U.S. Thermal Mining and Corporate and Other segments whose recoverability is most sensitive to coal pricing, cost pressures, customer demand, and customer concentration risk. Werisk and future economic viability. The Company conducted a review of those assets for recoverability as of March 31, 20202021 and determined that no impairment charges were necessary as of that date.
OurThe Company’s critical accounting policies are discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in ourits Annual Report on Form 10-K for the year ended December 31, 2019. Our2020. The Company’s critical accounting policies remain unchanged at March 31, 2020.2021.
Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented
See Note 2. “Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented” to ourthe Company’s 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 haveThe Company has 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 of March 31, 2020,2021, the Company had currency options outstanding with an aggregate notional amount of $550.0$575.0 million Australian dollars to hedge currency risk associated with anticipated Australian dollar expenditures over the six-monthnine-month period ending September 30, 2020.December 31, 2021. Assuming wethe Company had no foreign currency hedging instruments in place, ourits exposure in operating costs and expenses due to a $0.10 change in the Australian dollar/U.S. dollar exchange rate is approximately $145 to $155$115 million for the next twelve months. Based upon the Australian dollar/U.S. dollar exchange rate at March 31, 2020,2021, the currency option contracts outstanding at that date would not materially limit ourthe Company’s net exposure to a $0.10 unfavorable change in the exchange rate to approximately $80 million for the next twelve months.
Other Non-Coal Trading Activities — Diesel Fuel Price Risk
Diesel Fuel Hedges. Previously, wethe Company managed price risk of the diesel fuel used in ourits mining activities through the use of derivatives, primarily swaps. As of March 31, 2020, we2021, the Company did not have any diesel fuel derivative instruments in place. WeThe Company also managemanages the price risk of diesel fuel through the use of cost pass-through contacts with certain customers.
We expectThe Company expects to consume 10075 to 11085 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 ourits annual diesel fuel costs by approximately $25$20 million based on ourits expected usage.
Item 4. Controls and Procedures.
OurThe Company’s disclosure controls and procedures are designed to, among other things, provide reasonable assurance that material information, both financial and non-financial, and other information required under the securities laws to be disclosed is accumulated and communicated to senior management, including ourits principal executive and financial officers, on a timely basis. OurThe Company’s Chief Executive Officer and Interim Chief Financial Officer have evaluated ourits disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of March 31, 2020,2021, and concluded that such controls and procedures arewere effective to provide reasonable assurance that the desired control objectives were achieved. Additionally, there have been no changes to ourthe Company’s internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, ourits internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We areThe Company is subject to various legal and regulatory proceedings. For a description of ourits significant legal proceedings refer to Note 4. “Discontinued Operations” and Note 18.17. “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements” of this Quarterly Report, which information is incorporated by reference herein.
Item 1A. Risk Factors.
We operateThe Company operates in a rapidly changing environment that involves a number of risks. In addition to the risks discussed below,For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors disclosed in Part I, Item 1A. “Risk Factors” in ourits Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC on February 21, 2020.23, 2021. In addition to the other information set forth in this Quarterly Report, including the information presented in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” you should carefully consider thosethe risk factors disclosed in the aforementioned filing, which could materially affect the Company’s results of operations, financial condition and liquidity.
Our business, results of operations, financial condition and prospects could be materially and adversely affected by the recent COVID-19 pandemic and the related effects on public health, or by other global events.
Our operations are susceptible to a widespread outbreak of an illness or other public health issue, such as the recent and continuing COVID-19 pandemic, resulting in confirmed cases across the United States, Australia and China, and many additional cases identified in other countries in which we conduct business, or our customers are located. We are also susceptible to other global events, including acts or threats of war or terrorism, international conflicts, political instability and natural disasters. The occurrence of any of these events could have a material adverse effect on our business, results of operations, financial condition and prospects, including our ability to comply with covenants under our debt agreements.50
The COVID-19 pandemic has caused governments around the world, including in the United States and Australia, to implement quarantines, travel bans, shutdowns and “shelter in place” or “stay-at-home” orders, which have significantly restricted the movement of people and goods and have necessitated teleworking by a significant portion of our workforce, including our executive leadership team. These restrictions and measures, and our efforts to act in the best interests of our employees, customers, suppliers, vendors and joint venture and other business partners, have affected and are continuing to affect our business and operations, causing us to modify a number of our normal business practices and may adversely affect our business, financial condition and results of operations in ways that may be material.
Governmental mandates also may require forced shutdowns of our mines and other facilities for extended or indefinite periods. In addition, the COVID-19 pandemic may cause supply chains to be interrupted, slowed or rendered inoperable, and widespread outbreaks in locations significant to our operations could adversely affect our workforce, resulting in serious health issues and absenteeism. If our operations are curtailed, we may need to seek alternate sources of supply for commodities, services and labor, which may be more expensive. Alternate sources may not be available or may result in delays in shipments to our customers, each of which would affect our results of operations. Further, if our customers’ businesses are similarly affected, they might delay, reduce or cancel purchases from us.
In addition, the COVID-19 pandemic has substantially interfered with general commercial activity related to the transportation of coal and our customer base, which could materially and adversely affect our business, financial condition, results of operations, business and prospects. The continuing spread of COVID-19 has contributed to adverse changes in general domestic and global economic conditions and disrupted domestic and international credit markets, which could negatively affect our customers’ ability to pay us as well as our ability to access capital that could in the future negatively affect our liquidity.
Despite our efforts to manage these potential impacts, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of the COVID-19 pandemic as well as third-party actions taken to contain its spread and mitigate its public health effects. In this regard, there are no comparable recent events that provide guidance as to the effect of the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change and we do not yet know the full extent of the impacts on our business, financial condition, results of operations and prospects, or the global economy as a whole. However, in addition to having a material adverse effect on our business, results of operations, financial condition and prospects, the effects could heighten many of our known risks described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Dividends
The Company suspended dividends in 2020. As more fully described within “Liquidity and Capital Resources” of Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” during the fourth quarter of 2020, the Company entered into transaction support agreements with its surety bond providers which prohibit the payment of dividends through December 31, 2024, unless otherwise agreed to by the parties to the agreements. Additionally, restrictive covenants in its credit facility and in the indentures governing its senior secured notes also limit the Company’s ability to pay cash dividends.
Share Repurchase Program
OurOn August 1, 2017, the Company announced that its Board of Directors has authorized a share repurchase program as amended, to allow repurchases of up to $1.5 billion$500 million of the then outstanding shares of ourits common stock and/or preferred stock (Repurchase Program). Repurchases may be made from timeOn April 25, 2018, the Company announced that the Board authorized the expansion of the Repurchase Program to time at$1.0 billion. On October 30, 2018, the Company’s discretion. The specific timing, price and sizeCompany announced that the Board authorized an additional expansion of purchases will depend on the share price, general market and economic conditions and other considerations, including compliance with various debt agreements as they may be amended from timeRepurchase Program to time.$1.5 billion. The Repurchase Program does not have an expiration date and may be discontinued at any time. Through March 31, 2020, we have2021, the Company has repurchased 41.5 million shares of ourits common stock for $1,340.3$1,340.3 million, which included commissions paid of $0.8$0.8 million, leaving $160.5$160.5 million available for share repurchase under the Repurchase Program.
The purchases were made in compliance with our debt instruments. Limitations on share repurchases imposed by our debt instruments are discussed in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” WeCompany suspended share repurchases in 2019, and no additionalsimilar to the payment of dividends as described above, the same agreements with its surety bond providers prohibit share repurchases are planned.through December 31, 2024, unless otherwise agreed to by the parties to the agreements. Additionally, restrictive covenants in its credit facility and in the indentures governing its senior secured notes also limit the Company’s ability to repurchase shares. Prior to the suspension, repurchases were made at the Company’s discretion. The specific timing, price and size of purchases depended upon the share price, general market and economic conditions and other considerations, including compliance with various debt agreements in effect at the time the repurchases were made.
Share Relinquishments
WeThe Company routinely allowallows employees to relinquish common stock to pay estimated taxes upon the vesting of restricted stock units and the payout of performance units that are settled in common stock under ourits equity incentive plans. The value of common stock tendered by employees is determined based on the closing price of ourthe Company’s common stock on the dates of the respective relinquishments.
Purchases of Equity Securities
The following table summarizes all share purchases for the three months ended March 31, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Dollar Value that May Yet Be Used to Repurchase Shares Under the Publicly Announced Program (In millions) |
January 1 through January 31, 2021 | | 143,465 | | | $ | 2.42 | | | — | | | $ | 160.5 | |
February 1 through February 28, 2021 | | 65,244 | | | 3.83 | | | — | | | 160.5 | |
March 1 through March 31, 2021 | | — | | | — | | | — | | | 160.5 | |
Total | | 208,709 | | | 2.86 | | | — | | | |
(1)Includes shares withheld to cover the withholding taxes upon the vesting of equity awards, which are not part of the Repurchase Program.
|
| | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Dollar Value that May Yet Be Used to Repurchase Shares Under the Publicly Announced Program (In millions) |
January 1 through January 31, 2020 | | 46,872 |
| | $ | 9.99 |
| | — |
| | $ | 160.5 |
|
February 1 through February 29, 2020 | | 34,147 |
| | 8.26 |
| | — |
| | 160.5 |
|
March 1 through March 31, 2020 | | 6,563 |
| | 2.90 |
| | — |
| | 160.5 |
|
Total | | 87,582 |
| | 8.79 |
| | — |
| | |
| |
| Includes shares withheld to cover the withholding taxes upon the vesting of equity awards, which are not part of the Repurchase Program. |
Dividends
The payment of dividends is subject to certain limitations, as set forth in our debt agreements. Such limitations on dividends are discussed in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We are suspending dividends in 2020 and our Board of Directors will continue to evaluate the declaration and payment of dividends in the future. The amount of those dividends, if any, will depend on our results of operations, financial condition, cash requirements, future prospects, any limitations imposed by our debt covenants and other factors that our Board of Directors may deem relevant to such evaluations.
Item 4. Mine Safety Disclosures.
OurPeabody’s “Safety a Way of Lifeand Sustainability Management System” has been designed to set clear and consistent expectations for safety, health and healthenvironmental stewardship across ourthe Company’s business. It aligns to the National Mining Association’s CORESafety® framework and encompasses three fundamental areas: leadership and organization, safety and health risk management and assurance. WePeabody also partnerpartners with other companies and certain governmental agencies to pursue new technologies that have the potential to improve ourits safety performance and provide better safety protection for employees.
WePeabody continually monitor ourmonitors its safety performance and regulatory compliance. The information concerning mine safety violations or other regulatory matters required by SEC regulations is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
Item 6. Exhibits.
See Exhibit Index at page 5853 of this report.
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.
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Exhibit No. | | Description of Exhibit |
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4.8 | | | | Description of Exhibit4.1 to the Registrant’s Current Report on Form 8-K/A filed on February 1, 2021). |
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10.14.9 | | |
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4.10 | | |
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4.11 | | |
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4.12 | | |
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4.13 | | |
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10.1 | | First Amendment to Amended and Restated Transaction Support Agreement, dated as of February 4, 2020, byJanuary 29, 2021, between Peabody, certain subsidiaries of Peabody, the Revolving Lenders, the Administrative Agent, and among Peabody Energy Corporation, Elliott Investment management L.P., Elliott Associates L.P., and Elliott International, L.P. incorporatedthe Consenting Noteholders (Incorporated by reference to Exhibit 10.1 ofto the Registrant’s Current Report on Form 8-K/A filed on February 1, 2021). |
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10.2 | | Credit Agreement, dated as of January 29, 2021, among the Co-Issuers, as borrowers, Peabody Energy Corporation, as parent, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A filed on February 1, 2021). |
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10.3 | | |
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10.4 | | |
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10.5* | | |
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10.2†10.6* | | |
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10.7* | | |
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10.3†31.1† | | |
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10.4† | | |
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10.5† | | |
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31.1† | | |
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31.2† | | |
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31.2† | | |
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32.1† | | |
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32.2† | | |
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95† | | |
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101.INS | | Inline XBRL Instance Document - the instance document does not appear in the interactive data file because XBRL tags are embedded within the Inline XBRL document |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File (embedded within theformatted as Inline XBRL document).and contained in Exhibit 101 |
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* | | These exhibits constitute all management contracts, compensatory plans and arrangements required to be filed as an exhibit to this form pursuant to Item 15(a)(3) and 15(b) of this report. |
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† | | Filed herewith. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | | | | | | | | | | |
| | | PEABODY ENERGY CORPORATION |
Date: | May 6, 20205, 2021 | By: | /s/ MARK A. SPURBECK |
| | | | Mark A. Spurbeck |
| | | | InterimExecutive Vice President and Chief Financial Officer
(On behalf of the registrant and as Principal Financial Officer)
|