What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-05 compared with 2020-11-09 · 457 added, 783 removed, 298 unchanged (81% of the section changed)

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 our continuing operations.

As used in this report, the terms “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 the Company’s continuing operations.

When used in this filing, the term “ton” refers to short or net tons, equal to 2,000 pounds (907.18 kilograms), while “tonne” refers to metric tons, equal to 2,204.62 pounds (1,000 kilograms).

Cautionary Notice Regarding Forward-Looking Statements

This report includes statements of our expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and are intended to come within the safe harbor protection provided by those sections.

These statements relate to future events or our future financial performance, including, without limitation, the section captioned “Outlook” in this Item 2.

We use words such as “anticipate,” “believe,” “expect,” “may,” “forecast,” “project,” “should,” “estimate,” “plan,” “outlook,” “target,” “likely,” “will,” “to be” or other similar words to identify forward-looking statements.

Without limiting the foregoing, all statements relating to our future operating results, anticipated capital expenditures, future cash flows and borrowings, and sources of funding are forward-looking statements and speak only as of the date of this report.

These forward-looking statements are based on numerous assumptions that we believe are reasonable, but are subject to a wide range of uncertainties and business risks, and actual results may differ materially from those discussed in these statements.

These factors are difficult to accurately predict and may be beyond our control.

Factors that could affect our results or an investment in our securities include, but are not limited to:

• the combined risks associated with our recent financial results and market conditions, additional collateral demands, and potential Credit Agreement (as defined below) noncompliance raise substantial doubt about whether we will meet our obligations as they become due and our ability to continue as a going concern;

• our profitability depends upon the prices we receive for our coal;

• if a substantial number of our long-term coal supply agreements terminate, or if the pricing, volumes or other elements of those agreements materially adjust, our revenues and operating profits could suffer if we are unable to find alternate buyers willing to purchase our coal on comparable terms to those in our contracts;

• the loss of, or significant reduction in, purchases by our largest customers could adversely affect our revenues;

• our trading and hedging activities do not cover certain risks and may expose us to earnings volatility and other risks;

• our operating results could be adversely affected by unfavorable economic and financial market conditions;

• our ability to collect payments from our customers could be impaired if their creditworthiness or contractual performance deteriorates;

• risks inherent to mining could increase the cost of operating our business, and events and conditions that could occur during the course of our mining operations could have a material adverse impact on us;

• if transportation for our coal becomes unavailable or uneconomic for our customers, our ability to sell coal may be diminished;

• a decrease in the availability or increase in costs of key supplies, capital equipment or commodities such as diesel fuel, steel, explosives and tires could decrease our anticipated profitability;

• take-or-pay arrangements within the coal industry could unfavorably affect our profitability;

• an inability of trading, brokerage, mining or freight counterparties to fulfill the terms of their contracts with us could reduce our profitability;

• we may not recover our investments in our mining, exploration and other assets, which may require us to recognize impairment charges related to those assets;

• our ability to operate our company effectively could be impaired if we lose key personnel or fail to attract qualified personnel;

• we could be negatively affected if we fail to maintain satisfactory labor relations;

• we could be adversely affected if we fail to appropriately provide financial assurances for our obligations;

• our mining operations are extensively regulated, which imposes significant costs on us, and future regulations and developments could increase those costs or limit our ability to produce coal;

• our operations may impact the environment or cause exposure to hazardous substances, and our properties may have environmental contamination, which could result in material liabilities to us;

• we may be unable to obtain, renew or maintain permits necessary for our operations, or we may be unable to obtain, renew or maintain such permits without conditions on the manner in which we run our operations, which would reduce our production, cash flows and profitability;

• our operations may be affected by sites within or near mining areas deemed to have cultural heritage significance to indigenous peoples, and our mining permits may be rescinded or modified, or our mining plans may be voluntarily adjusted, to mitigate against adverse impacts to such sites;

• 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;

• joint ventures, partnerships or non-managed operations may not be successful and may not comply with our operating standards;

• we may undertake further repositioning plans that would require additional charges;

• we could be exposed to significant liability, reputational harm, loss of revenue, increased costs or other risks if we sustain cyber-attacks or other security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information about us, our employees, our customers or other third-parties;

• our business, results of operations, financial condition and prospects could be materially and adversely affected by the recent coronavirus (COVID-19) pandemic and the related effects on public health;

• our expenditures for postretirement benefit obligations could be materially higher than we have predicted if our underlying assumptions prove to be incorrect;

• concerns about the impacts of coal combustion on global climate are increasingly leading to consequences that have affected and could continue to affect demand for our products or our securities and our ability to produce, including increased governmental regulation of coal combustion and unfavorable investment decisions by electricity generators;

• numerous activist groups are devoting substantial resources to anti-coal activities to minimize or eliminate the use of coal as a source of electricity generation, domestically and internationally, thereby further reducing the demand and pricing for coal, and potentially materially and adversely impacting our future financial results, liquidity and growth prospects;

• our financial performance could be adversely affected by our indebtedness;

• despite our indebtedness, we may still be able to incur substantially more debt, including secured debt, which could further increase the risks associated with our indebtedness;

• the terms of our indenture governing our senior secured notes and the agreements and instruments governing our other indebtedness impose restrictions that may limit our operating and financial flexibility;

• the number and quantity of viable financing and insurance alternatives available to us may be significantly impacted by unfavorable lending and investment policies by financial institutions and insurance companies associated with concerns about environmental impacts of coal combustion, and negative views around our efforts with respect to environmental and social matters and related governance considerations could harm the perception of our company by certain investors or result in the exclusion of our securities from consideration by those investors;

• the price of our securities may be volatile;

• our Common Stock is subject to dilution and may be subject to further dilution in the future;

This report includes statements of Peabody’s expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and are intended to come within the safe harbor protection provided by those sections.

These statements relate to future events or Peabody’s future financial performance, including, without limitation, the section captioned “Outlook” in this Item 2.

The Company uses words such as “anticipate,” “believe,” “expect,” “may,” “forecast,” “project,” “should,” “estimate,” “plan,” “outlook,” “target,” “likely,” “will,” “to be” or other similar words to identify forward-looking statements.

Without limiting the foregoing, all statements relating to Peabody’s future operating results, anticipated capital expenditures, future cash flows and borrowings, and sources of funding are forward-looking statements and speak only as of the date of this report.

These forward-looking statements are based on numerous assumptions that Peabody believes are reasonable, but are subject to a wide range of uncertainties and business risks, and actual results may differ materially from those discussed in these statements.

These factors are difficult to accurately predict and may be beyond the Company’s control.

Factors that could affect its results or an investment in its securities include, but are not limited to:

• the Company’s profitability depends upon the prices it receives for its coal;

• if a substantial number of the 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, its revenues and operating profits could suffer if the Company is unable to find alternate buyers willing to purchase its coal on comparable terms to those in its contracts;

• risks inherent to mining could increase the cost of operating the Company’s business, and events and conditions that could occur during the course of its mining operations could have a material adverse impact on the Company;

• the Company’s take-or-pay arrangements could unfavorably affect its profitability;

• the Company may not recover its investments in its mining, exploration and other assets, which may require the Company to recognize impairment charges related to those assets;

• the Company could be negatively affected if it fails to maintain satisfactory labor relations;

• the Company could be adversely affected if it fails to appropriately provide financial assurances for its obligations;

• the Company’s mining operations are extensively regulated, which imposes significant costs on it, and future regulations and developments could increase those costs or limit its ability to produce coal;

• the Company’s operations may impact the environment or cause exposure to hazardous substances, and its properties may have environmental contamination, which could result in material liabilities to the Company;

• the Company may be unable to obtain, renew or maintain permits necessary for its operations, or the Company may be unable to obtain, renew or maintain such permits without conditions on the manner in which it runs its operations, which would reduce its production, cash flows and profitability;

• 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 the Company’s products or its securities and its 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 the Company’s future financial results, liquidity and growth prospects;

• 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 its funded indebtedness (Indebtedness);

• despite the Company’s Indebtedness, it may still be able to incur more debt, which could further increase the risks associated with its Indebtedness;

• the terms of the indentures governing the Company’s senior secured notes and the agreements and instruments governing its other Indebtedness and surety bonding obligations impose restrictions that may limit its operating and financial flexibility;

• the number and quantity of viable financing and insurance alternatives available to the 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 its efforts with respect to environmental and social matters and related governance considerations could harm the perception of the Company by a significant number of investors or result in the exclusion of its securities from consideration by those investors;

• the price of Peabody’s securities may be volatile and could fall below the minimum allowed by New York Stock Exchange listing requirements;

• 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 our stock or repurchases of our stock is dependent on a number of factors, and future payments and repurchases cannot be assured;

• we may not be able to fully utilize our deferred tax assets;

• acquisitions and divestitures are a potentially important part of our long-term strategy, subject to our investment criteria, and involve a number of risks, any of which could cause us not to realize the anticipated benefits;

• our certificate of incorporation and by-laws include provisions that may discourage a takeover attempt;

• diversity in interpretation and application of accounting literature in the mining industry may impact our reported financial results;

• the payment of dividends on Peabody’s stock or repurchase of its stock is dependent on a number of factors, and future payments and repurchases cannot be assured;

• the Company may not be able to fully utilize its deferred tax assets;

• acquisitions and divestitures are a potentially important part of the Company’s long-term strategy, subject to its investment criteria, and involve a number of risks, any of which could cause the Company not to realize the anticipated benefits;

• 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 the Company’s reported financial results;

• other risks and factors detailed in this report, including, but not limited to, those discussed in “Legal Proceedings,” set forth in Part II, Item 1 and in “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q.

When considering these forward-looking statements, you should keep in mind the cautionary statements in this document and in our 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 our results contained in Item 1A.

When considering these forward-looking statements, you should keep in mind the cautionary statements in this document and in the 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 its results contained in Item 1A.

“Risk Factors” and Item 3.

“Legal Proceedings” of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020.

These forward-looking statements speak only as of the date on which such statements were made, and we undertake no obligation to update these statements except as required by federal securities laws.

We are a leading coal producer.

In 2019, we produced and sold 164.7 million and 165.5 million tons of coal, respectively, from continuing operations.

Since December 31, 2019, the Millennium Mine in the Seaborne Metallurgical Mining segment and the Wildcat Hills Underground Mine in the Other U.S.

Thermal Mining segment shipped their final tons.

As a result, we owned interests in 18 active coal mining operations located in the United States (U.S.) and Australia at September 30, 2020.

Included in that count is our 50% equity interest in Middlemount Coal Pty Ltd.

“Legal Proceedings” of its Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 23, 2021.

These forward-looking statements speak only as of the date on which such statements were made, and the Company undertakes no obligation to update these statements except as required by federal securities laws.

Peabody is a leading coal producer.

In 2020, the Company produced and sold 128.8 million and 132.6 million tons of coal, respectively, from continuing operations.

At March 31, 2021, the Company owned interests in 17 active coal mining operations located in the United States (U.S.) and Australia.

Included in that count is Peabody’s 50% equity interest in Middlemount Coal Pty Ltd.

(Middlemount), which owns the Middlemount Mine in Queensland, Australia.

In addition to our mining operations, we market and broker coal from other coal producers, both as principal and agent, and trade coal and freight-related contracts.

We conduct business through four operating segments:

Seaborne Thermal Mining, Seaborne Metallurgical Mining, Powder River Basin Mining and Other U.S.

Thermal Mining.

In addition to its mining operations, the Company markets and brokers coal from other coal producers, both as principal and agent, and trades coal and freight-related contracts.

The Company reports its results of operations primarily through the following reportable segments:

Seaborne Thermal Mining, Seaborne Metallurgical Mining, Powder River Basin Mining, Other U.S.

Thermal Mining and Corporate and Other.

Refer to Note 18.

“Segment Information” to the accompanying unaudited condensed consolidated financial statements for further information regarding those segments and the components of our Corporate and Other segment.

From time to time, we initiate restructuring activities in connection with our repositioning efforts to appropriately align our cost structure or optimize our coal production relative to prevailing market conditions.

As further described in the “Results of Operations” section contained within this Item 2, we incurred restructuring charges of $8.1 million and $31.1 million during the three and nine months ended September 30, 2020, respectively, related to workforce reductions made across the organization through the use of both involuntary and voluntary reductions.

On October 5, 2020, we announced that we are temporarily idling our Shoal Creek Mine in Alabama over the next several months.

While steelmaking fundamentals, particularly in traditional markets, appear to be in the early stages of recovery from the COVID-19 pandemic, customer demand has been and continues to be impacted.

These market factors, combined with a currently elevated cost structure at the mine, have led to the decision to temporarily suspend production.

We will seek to implement productivity improvements during the idle period.

Liquidity and Going Concern

As more fully described within “Liquidity and Capital Resources” of this Item 2 and subsequently within Part II, Item 1A.

“Risk Factors,” the combined risks associated with our recent financial results, market conditions, additional collateral demands and potential Credit Agreement noncompliance raise substantial doubt about whether we will meet our obligations as they become due within one year from the date of issuance of these unaudited condensed consolidated financial statements and our ability to continue as a going concern.

We have experienced negative cash flows from operations during the nine months ended September 30, 2020.

Results from continuing operations, net of income taxes and Adjusted EBITDA for the nine months ended September 30, 2020 declined by $1,841.3 million and $487.7 million, respectively, compared to the corresponding prior year period.

The Company’s available liquidity declined from $1,275.8 million as of December 31, 2019 to $860.1 million as of September 30, 2020.

We are also facing substantial recent collateral demands from our surety bond providers.

While we were compliant with the restrictions and covenants under our debt agreements at September 30, 2020, noncompliance with the first lien leverage ratio covenant under our Credit Agreement is probable as of December 31, 2020, if we do not successfully take mitigating actions.

Such potential actions include the execution of agreements among Peabody, our surety bond providers, the revolving lenders under our credit agreement, and holders of certain of our senior secured notes with the objective of improving our liquidity risk, providing covenant relief, and extending relevant debt maturities.

These actions are more fully described within “Liquidity and Capital Resources” of this Item 2 and subsequently within Part II, Item 1A.

“Risk Factors.”

Coronavirus (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 stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures and other measures.

In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of the COVID-19 pandemic.

Coal mining in the U.S.

and Australia has been designated as an essential business to support coal-fueled electric power generation and critical steelmaking needs.

As part of Peabody’s commitment to the ongoing health and safety of our employees, vendors and communities, we are following advice from government authorities and taking precautions to manage the spread of COVID-19.

Peabody operations have implemented rigorous protocols, control and prevention measures, including mandatory temperature and health checks;

paid leave for recommended self-isolation periods;

enhanced cleaning and sterilization practices;

expanded use of personal protective equipment;

social distancing;

and working remotely when circumstances warrant.

While our operations have been designated as essential, each operation will only continue to operate when it is safe and economic to do so.

The global impact on economic activity has severely curtailed demand for numerous commodities.

Within the global coal industry, supply and demand disruptions have been widespread.

The global economy is showing improvement in industrial production, even as the timing of a recovery varies across countries and sectors.

However, in the seaborne metallurgical and thermal markets, demand remains below pre-pandemic levels.

In the U.S., the impacts of COVID-19 have accelerated a multi-year decline in coal demand.

During the nine months ended September 30, 2020, coal-fueled generation declined 24% compared to the prior year period and now represents 19% of the overall generation mix.

Additionally, we have faced disruption to supply chain and distribution channels and adverse effects to our workforce.

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 on our business are unknown, we expect continued interference with general commercial activity, which may negatively affect both demand and prices for our products.

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, results of operations or cash flows at this time.

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 income tax provisions, including a provision that provides for the acceleration of refunds of previously generated alternative minimum tax credits.

Pursuant to the CARES Act, we have received approximately $24 million of accelerated refunds from the Internal Revenue Service and have adjusted our current and deferred tax asset balances accordingly.

The CARES Act also contains a provision for deferred payment of 2020 employer payroll taxes after the date of enactment to future years.

We will defer a portion of our remaining 2020 employer payroll taxes to subsequent years.

United Wambo Joint Venture with Glencore

In December 2019, after receiving the requisite regulatory and permitting approvals, we formed an unincorporated joint venture with Glencore plc (Glencore), in which we hold a 50% interest, to combine the existing operations of 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.

During the nine months ended September 30, 2020, the Company contributed and capitalized approximately $45 million towards construction and development.

The joint venture agreement specifies that we will continue to fully own and operate the existing Wambo Open-Cut Mine through the date that development of the combined operations is completed, which is currently expected to be during the fourth quarter of 2020.

The parties will then contribute mining equipment and other assets, and joint operations will commence.

Glencore is responsible for construction and development activities and will manage the mining operations of the joint venture.

PRB Colorado Joint Venture with Arch

On June 18, 2019, we entered into a definitive implementation agreement with Arch Resources, Inc.

(Arch), known as Arch Coal, Inc.

prior to May 15, 2020, to establish a joint venture that would have combined the respective Powder River Basin (PRB) and Colorado operations of Peabody and Arch.

On February 26, 2020, the U.S.

Federal Trade Commission (FTC) sought a preliminary injunction to challenge our proposed joint venture.

On September 29, 2020, the United States District Court for the Eastern District of Missouri granted the FTC’s request for a preliminary injunction.

Effective September 30, 2020, we terminated our agreement with Arch to establish the joint venture.

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.

In 2020, we commenced a commercial process and review of strategic alternatives for North Goonyella which is currently ongoing.

During 2018 and 2019, we recorded provisions for equipment losses amounting to $149.6 million related to the fire, representing the best estimate of losses to date.

Of that amount, $24.7 million was recorded during the nine months ended September 30, 2019.

No additional provisions for equipment losses were recorded during the three and nine months ended September 30, 2020.

We have also incurred containment and idling costs subsequent to the mine’s suspension which amounted to $3.8 million and $29.3 million during the three months ended September 30, 2020 and 2019, respectively, and $25.2 million and $94.6 million during the nine months ended September 30, 2020 and 2019, respectively.

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.

“Segment Information” to the accompanying unaudited condensed consolidated financial statements for further information regarding those segments and the components of its Corporate and Other segment.

From time to time, the Company initiates restructuring activities in connection with its repositioning efforts to appropriately align its cost structure or optimize its coal production relative to prevailing market conditions.

As further described in the “Results of Operations” section contained within this Item 2, the Company incurred restructuring charges of $2.1 million and $6.5 million during the three months ended March 31, 2021 and 2020, respectively, related to workforce reductions made across the organization through the use of both involuntary and voluntary reductions.

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 2021, with ramp up to full production in the third quarter of 2021.

Results of Operations

Non-GAAP Financial Measures

The following discussion of our results of operations includes references to and analysis of Adjusted EBITDA, which is a financial measure not recognized in accordance with U.S.

The following discussion of the Company’s results of operations includes references to and analysis of Adjusted EBITDA, which is a financial measure not recognized in accordance with U.S.

generally accepted accounting principles (U.S.

Adjusted EBITDA is used by management as the primary metric to measure each of our segments’ operating performance.

We have retrospectively modified our calculation of Adjusted EBITDA to exclude restructuring charges and transaction costs related to joint ventures as management does not view these items as part of our normal operations.

Also included in the following discussion of our results of operations are references to Revenues per Ton, Costs per Ton and Adjusted EBITDA Margin per Ton for each mining segment.

These metrics are used by management to measure each of our mining segments’ operating performance.

Adjusted EBITDA is used by management as the primary metric to measure each of its segments’ operating performance.

Also included in the following discussion of the 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 its mining segments’ operating performance.

Management believes Costs per Ton and Adjusted EBITDA Margin per Ton best reflect controllable costs and operating results at the mining segment level.

We consider all measures reported on a per ton basis to be operating/statistical measures;

however, we include reconciliations of the related non-GAAP financial measures (Adjusted EBITDA and Total Reporting Segment Costs) in the “Reconciliation of Non-GAAP Financial Measures” section contained within this Item 2.

In our discussion of liquidity and capital resources, we include references to Free Cash Flow which is also a non-GAAP measure.

Free Cash Flow is used by management as a measure of our financial performance and our ability to generate excess cash flow from our business operations.

We believe non-GAAP performance measures are used by investors to measure our operating performance and lenders to measure our ability to incur and service debt.

The Company considers all measures reported on a per ton basis to be operating/statistical measures;

however, the Company includes reconciliations of the related non-GAAP financial measures (Adjusted EBITDA and Total Reporting Segment Costs) in the “Reconciliation of Non-GAAP Financial Measures” section contained within this Item 2.

In its discussion of liquidity and capital resources, the Company includes references to Free Cash Flow which is also a non-GAAP measure.

Free Cash Flow is used by management as a measure of its financial performance and its ability to generate excess cash flow from its business operations.

The Company believes non-GAAP performance measures are used by investors to measure its operating performance and lenders to measure its ability to incur and service debt.

These measures are not intended to serve as alternatives to U.S.

1 unchanged sentence

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.

Three and Nine Months Ended September 30, 2020 Compared to the Three and Nine Months Ended September 30, 2019

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 September 30, 2020 is set forth in the table below.

The seaborne pricing included in the table below is not necessarily indicative of the pricing we realized during the three months ended September 30, 2020 due to quality differentials and the majority of our seaborne sales being executed through annual and multi-year international coal supply agreements that contain provisions requiring both parties to renegotiate pricing periodically.

Our typical practice is to negotiate pricing for seaborne metallurgical coal contracts on a quarterly, spot or index basis and seaborne thermal coal contracts on an annual, spot or index basis.

In the U.S., the pricing included in the table below is also not necessarily indicative of the pricing we realized during the three months ended September 30, 2020 since we generally sell coal under long-term contracts where pricing is determined based on various factors.

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020

The seaborne pricing included in the table below is not necessarily indicative of the pricing the Company realized during the three months ended March 31, 2021 due to quality differentials and the majority of its seaborne sales being executed through annual and multi-year international coal supply agreements that contain provisions requiring both parties to renegotiate pricing periodically.

The Company’s typical practice is to negotiate pricing for seaborne metallurgical coal contracts on a 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 the Company realized during the three months ended March 31, 2021 since the Company generally sells 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 fuel sources may also impact our realized pricing.

High Low Average September 30, 2020

Competition from alternative fuels such as natural gas and other fuel sources may also impact the Company’s realized pricing.

High Low Average March 31, 2021

Premium HCC (1)

13 unchanged sentences

Within the global coal industry, supply and demand disruptions have been widespread as the COVID-19 pandemic has forced country-wide lockdowns and regional restrictions.

Future COVID-19-related developments are unknown, including the duration, severity, scope and the necessary government actions to limit the spread.

The global coal industry data for the nine months ended September 30, 2020 presented herein is not indicative of the ultimate impacts of the COVID-19 pandemic given the various levels of response and unknown duration, the significant decline in prices from pre-pandemic levels for our products and continued weak demand for our products.

With respect to seaborne metallurgical coal, global steel production decreased approximately 3% through the nine months ended September 30, 2020 compared to the prior year period, as the COVID-19 pandemic has significantly impacted steel demand.

Excluding China, steel production was down approximately 13% due to COVID-19, while Chinese steel production increased approximately 6% during this same period.

While global steel production has remained lower year-over-year, there has been consistent improvement in steel production since July 2020 as COVID-19 related lockdown restrictions have eased in key countries.

In August, China set a new monthly steel production record as the country continues to stimulate the economy through construction and infrastructure projects.

Improved steel demand has caused steelmakers, including Peabody customers, to restart capacity and increase output, resulting in improvements in seaborne metallurgical coal demand.

However, India and Japan, in particular, remain challenged.

Industrial activity in India is recovering, but is threatened by the continued worsening spread of COVID-19.

The recovery in Europe remains challenged amid automotive sector weakness and increasing COVID-19 cases.

In addition, China’s metallurgical coal imports have been limited recently by intensified import restrictions, which are likely to remain a key factor for the remainder of 2020.

Within the seaborne thermal coal market, demand remains below pre-pandemic levels in many key countries, and headwinds such as COVID-19, China import restrictions and competition from alternative fuel sources, including natural gas persist.

China thermal imports were down 9 million tonnes through the nine months ended September 30, 2020.

India has seen domestic power demand recover, but thermal imports are down by approximately 24 million tonnes through the nine months ended September 30, 2020 compared to the prior year and are likely to remain under pressure given existing stockpiles and domestic production growth.

In the United States, overall electricity demand has been negatively impacted year-over-year due to COVID-19 induced economic shutdowns during the nine months ended September 30, 2020.

The reduction in thermal coal demand during that period has outpaced the reduction in overall electricity demand as continued coal plant retirements, growth in natural gas and renewable generation and weak natural gas prices continue to negatively impact coal’s share of electricity generation.

Lower total electricity demand driven by COVID-19 related curtailments has resulted in coal’s share of generation declining to approximately 19% for the nine months ended September 30, 2020, while natural gas and renewables continue to gain.

Through the nine months ended September 30, 2020 utility consumption of PRB coal fell approximately 25% compared to the prior year period.

Our revenues for the three and nine months ended September 30, 2020 decreased compared to the same periods in 2019 ($435.4 million and $1,362.1 million, respectively) primarily due to lower sales volumes which were affected by the COVID-19 pandemic and lower realized prices.

Results from continuing operations, net of income taxes for the three months ended September 30, 2020 increased compared to the same period in the prior year ($9.5 million) as the result of lower operating costs and expenses due largely to the sales volume decline as well as production efficiencies and other cost improvements ($354.6 million) and lower depreciation, depletion and amortization ($69.3 million).

These favorable variances were offset by the unfavorable revenue variance described above.

Results from continuing operations, net of income taxes for the nine months ended September 30, 2020 decreased compared to the same period in the prior year ($1,841.3 million) primarily due to higher asset impairment charges recorded in the current year ($1,398.1 million), 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 by lower operating costs and expenses as described above ($824.8 million) and lower depreciation, depletion and amortization ($212.9 million).

Adjusted EBITDA for the three and nine months ended September 30, 2020 reflected a year-over-year decrease of $63.8 million and $487.7 million, respectively.

As of September 30, 2020, our available liquidity was approximately $860 million.

Refer to the “Liquidity and Capital Resources” section contained within this Item 2 for a further discussion of factors affecting our available liquidity.

Future COVID-19-related developments are unknown, including the duration, severity, scope and the necessary government actions to limit the spread of COVID-19.

The global coal industry data for the three months ended March 31, 2021 presented herein may not be indicative of the ultimate impacts of the COVID-19 pandemic given the various levels of response and unknown duration, and the potential for continued weak demand for the Company’s products.

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, positively 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 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.

The Company’s revenues for the three months ended March 31, 2021 decreased compared to the same periods in 2020 ($194.9 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, 2021 increased compared to the same period in the prior year ($51.6 million) as the result of lower operating costs and expenses due largely to the sales volume decline as well as production efficiencies and other cost improvements ($196.9 million) and lower depreciation, depletion and amortization ($37.7 million).

These favorable variances were offset by the unfavorable revenue variance described above and increased interest expense ($19.3 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, 2021 reflected a year-over-year increase of $24.3 million.

As of March 31, 2021, the Company’s available liquidity was approximately $604 million.

Refer to the “Liquidity and Capital Resources” section contained within this Item 2 for a further discussion of factors affecting the Company’s available liquidity.

The following table presents tons sold by operating segment:

Three Months Ended Decrease Nine Months Ended (Decrease) Increase

September 30, to Volumes September 30, to Volumes

2020 2019 Tons % 2020 2019 Tons %

(Tons in millions) (Tons in millions)

Three Months Ended Decrease

March 31, to Volumes

2021 2020 Tons %

(Tons in millions)

Seaborne Thermal Mining 4.1 4.6 (0.5) (11) %

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The following table presents supplemental financial data by operating segment:

Three Months Ended (Decrease) Nine Months Ended (Decrease)

September 30, Increase September 30, Increase

Three Months Ended (Decrease)

March 31, Increase

2021 2020 $ %

7 unchanged sentences

Seaborne Metallurgical 109.89 111.82 (1.93) (2) %

96.87 130.01 (33.14) (25) % 110.20 114.22 (4.02) (4) %

Powder River Basin 9.56 10.28 (0.72) (7) %

3 unchanged sentences

Seaborne Metallurgical (22.42) (16.17) (6.25) (39) %

(24.99) (9.07) (15.92) (176) % (23.04) 20.58 (43.62) (212) %

Powder River Basin 1.45 1.08 0.37 34 %

8 unchanged sentences

asset impairment;

provision for North Goonyella equipment loss and related insurance recovery;

amortization of take-or-pay contract-based intangibles;

and certain other costs related to post-mining activities.

(3) Costs incurred at the North Goonyella Mine from January 1, 2020 forward are included within the Corporate and Other segment.

Costs incurred at the North Goonyella Mine during the three and nine months ended September 30, 2019 remain within the Seaborne Metallurgical Mining segment and resulted in additional Costs per Ton and lower Adjusted EBITDA Margin per Ton of $16.38 and $9.84, respectively.

The following table presents revenues by reporting segment:

Three Months Ended (Decrease) Increase Nine Months Ended Decrease

September 30, to Revenues September 30, to Revenues

Three Months Ended (Decrease) Increase

March 31, to Revenues

2021 2020 $ %

(Dollars in millions) (Dollars in millions)

(Dollars in millions)

Seaborne Thermal Mining $ 176.4 $ 201.1 $ (24.7) (12) %

6 unchanged sentences

Seaborne Thermal Mining.

Segment revenues decreased during the three and nine months ended September 30, 2020 compared to the same periods in the prior year due to unfavorable realized coal pricing (three months, $69.7 million;

nine months, $164.7 million) and unfavorable volume and mix variances (three months, $16.8 million;

nine months, $29.9 million).

Segment revenues decreased during the three months ended March 31, 2021 compared to the same period in the prior year due to unfavorable volume and mix variances ($18.6 million) and unfavorable realized coal pricing ($6.1 million).

Seaborne Metallurgical Mining.

Segment revenues decreased during the three and nine months ended September 30, 2020 compared to the same periods in the prior year due to unfavorable volume and mix variances (three months, $87.2 million;

nine months, $294.0 million) and unfavorable realized coal pricing (three months, $50.3 million;

nine months, $174.1 million).

The unfavorable volume variances primarily resulted from demand-based volume decreases across our mines.

Segment revenues decreased during the three months ended March 31, 2021 compared to the same period in the prior year due to unfavorable volume and mix variances ($101.3 million) and unfavorable realized coal pricing ($4.4 million).

The unfavorable volume variances resulted from the idling of the Shoal Creek and Metropolitan Mines during the fourth quarter of 2020, lower demand and the closure of the Millennium Mine during the second quarter of 2020.

Powder River Basin Mining.

Segment revenues decreased during the three and nine months ended September 30, 2020 compared to the same periods in the prior year primarily due to demand-based volume decreases (three months, $79.8 million;

nine months, $184.1 million), partially offset by favorable realized coal pricing (three months, $11.0 million;

nine months, $17.8 million).

Segment revenues decreased during the three months ended March 31, 2021 compared to the same period in the prior year primarily due to lower demand ($31.6 million) and unfavorable realized coal pricing ($6.6 million).

Thermal Mining.

Segment revenues decreased during the three and nine months ended September 30, 2020 compared to the same periods in the prior year primarily due to volume decreases (three months, $127.6 million;

nine months, $418.4 million) which were driven by the closure of the Kayenta and Cottage Grove Mines during the third quarter of 2019 and the Wildcat Hills Underground Mine during the second quarter of 2020 and unfavorable realized pricing (three months, $19.0 million;

nine months, $28.3 million).

Segment revenues decreased during the three months ended March 31, 2021 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 September 30, 2020 compared to the same period in the prior year primarily due to higher results on economic hedge activities.

Segment revenues decreased during the nine months ended September 30, 2020 compared to the same period in the prior year primarily due to lower results on economic hedge activities.

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 from trading activities.

Adjusted EBITDA

The following table presents Adjusted EBITDA for each of our reporting segments:

Three Months Ended (Decrease) Increase Nine Months Ended Decrease

September 30, to Segment Adjusted EBITDA September 30, to Segment Adjusted EBITDA

The following table presents Adjusted EBITDA for each of the Company’s reporting segments:

Three Months Ended (Decrease) Increase

March 31, to Segment Adjusted EBITDA

2021 2020 $ %

(Dollars in millions) (Dollars in millions)

(Dollars in millions)

Seaborne Thermal Mining

10 unchanged sentences

Seaborne Thermal Mining.

Segment Adjusted EBITDA decreased during the three months ended September 30, 2020 compared to the same period in the prior year as a result of lower realized net coal pricing ($64.0 million) and unfavorable volume variances ($8.3 million).

The decrease was partially offset by favorable mine sequencing impacts and cost improvements at our thermal surface mines ($31.4 million).

Segment Adjusted EBITDA decreased during the nine months ended September 30, 2020 compared to the same period in the prior year as a result of lower realized net coal pricing ($151.4 million), a temporary shutdown at our Wambo Underground Mine ($18.5 million) and unfavorable volume variances ($17.9 million).

The decrease was partially offset by favorable mine sequencing impacts and lower costs for materials, services and repairs at our thermal surface mines ($36.0 million), favorable foreign currency impacts ($10.5 million) and lower pricing for fuel ($9.5 million).

Segment Adjusted EBITDA decreased during the three months ended March 31, 2021 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 ($5.6 million).

The decrease was partially offset by various cost improvements ($7.5 million).

Seaborne Metallurgical Mining.

Segment Adjusted EBITDA decreased during the three and nine months ended September 30, 2020 compared to the same periods in the prior year due to lower realized net coal pricing (three months, $47.0 million;

nine months, $162.7 million), unfavorable volume variances (three months, $24.3 million;

nine months, $88.7 million), higher costs associated with the conveyor upgrade at our Shoal Creek Mine (three months, $18.7 million;

nine months, $47.8 million) and non-cash charges to record certain mines’ coal inventories to their net realizable values (nine months, $20.7 million).

These negative variances were partially offset by the exclusion of the current year containment and holding costs for our North Goonyella Mine (three months, $29.3 million;

nine months, $60.7 million), lower costs for materials, services and repairs at our Coppabella and Moorvale Mines (three months, $23.5 million;

nine months, $12.8 million), favorable costs at our Metropolitan Mine due to initiatives implemented earlier in the year (three months, $19.1 million) and favorable foreign currency impacts (nine months, $19.2 million).

Segment Adjusted EBITDA increased 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 September 30, 2020 compared to the same period in the prior year due to lower costs for materials, services, repairs and labor ($13.1 million), higher realized net coal pricing ($6.5 million), lower pricing for fuel and explosives ($4.6 million) and reduced commodity usage ($3.0 million).

The increase was partially offset by the impact of lower volumes ($17.4 million).

Segment Adjusted EBITDA decreased during the nine months ended September 30, 2020 compared to the same period in the prior year as the result of unfavorable mine sequencing impacts ($43.4 million) and the impact of lower volumes ($33.5 million), offset by lower costs for materials, services, repairs and labor ($44.4 million), lower pricing for fuel and explosives ($17.5 million) and reduced commodity usage ($5.2 million).

Segment Adjusted EBITDA increased during the three months ended March 31, 2021 compared to the same period in the prior year due to lower costs for materials, services, repairs and labor ($7.4 million) and favorable mine sequencing impacts ($3.8 million).

The increase was partially offset by the impact of lower volumes ($4.9 million) and lower realized net coal pricing ($3.8 million).

Thermal Mining.

Segment Adjusted EBITDA decreased during the three and nine months ended September 30, 2020 compared to the same periods in the prior year due to the impact of lower volume (three months, $42.6 million;

nine months, $136.7 million) which was primarily driven by the closure of the Kayenta Mine during the third quarter of 2019, lower realized net coal pricing (three months, $17.4 million;

nine months, $28.3 million) and unfavorable mine sequencing impacts (nine months, $12.8 million);

partially offset by lower costs for materials, services, repairs and labor (three months, $19.0 million;

nine months, $39.8 million) and lower pricing for fuel and explosives (three months, $3.8 million;

nine months, $13.1 million).

Segment Adjusted EBITDA decreased during the three months ended March 31, 2021 compared to the same period in the prior year due to unfavorable volume and mix variances ($21.5 million), offset by lower costs for materials, services, repairs and labor ($21.3 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) Nine Months Ended (Decrease) Increase

September 30, to Adjusted EBITDA September 30, to Adjusted EBITDA

Three Months Ended Increase (Decrease)

March 31, to Adjusted EBITDA

2021 2020 $ %

(Dollars in millions) (Dollars in millions)

(Dollars in millions)

Middlemount (1)

9 unchanged sentences

(1) Middlemount’s results are before the impact of related changes in deferred tax asset valuation allowance and reserves and amortization of basis difference.

Middlemount’s standalone results included (on a 50% attributable basis) aggregate amounts of depreciation, depletion and amortization, asset retirement obligation expenses, net interest expense and income taxes of $8.6 million and $3.1 million during the three months ended September 30, 2020 and 2019, respectively, and $21.8 million and $20.1 million during the nine months ended September 30, 2020 and 2019, respectively.

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.

(2) Includes gains (losses) on certain surplus coal reserve and surface land sales and property management costs and revenues.

(3) Includes trading and brokerage activities, costs associated with post-mining activities, gains (losses) on certain asset disposals, minimum charges on certain transportation-related contracts, costs associated with suspended operations including the North Goonyella Mine and expenses related to our other commercial activities.

(4) North Goonyella costs incurred from January 1, 2020 forward are included within the Corporate and Other segment.

Costs incurred prior to January 1, 2020 remain within the Seaborne Metallurgical Mining segment.

The increase in Corporate and Other Adjusted EBITDA during the three months ended September 30, 2020 compared to the same period in the prior year was primarily driven by a favorable variance in Middlemount’s results due to increased sales volumes.

The increase was also driven by lower selling and administrative expenses due to lower personnel costs and reduced expense associated with our share-based incentive plans.

The decrease in Corporate and Other Adjusted EBITDA during the nine months ended September 30, 2020 compared to the same period in the prior year was primarily driven by current year containment and holding costs for our North Goonyella Mine ($25.2 million) and an unfavorable variance in Middlemount’s results due to the continuing impacts of a significant change to the mine plan following a highwall failure in mid-2019.

These unfavorable variances were partially offset by lower selling and administrative expenses driven by lower personnel costs and reduced expense associated with our share-based incentive plans.

(Loss) Income From Continuing Operations, Net of Income Taxes

The following table presents (loss) income from continuing operations, net of income taxes:

Three Months Ended (Decrease) Increase Nine Months Ended (Decrease) Increase

September 30, to Income September 30, to Income

The increase in Corporate and Other Adjusted EBITDA during the three months ended March 31, 2021 compared to the same period in the prior year was primarily driven by favorable 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 combined impact of improved production and cost improvements;

lower containment and holding costs for the Company’s North Goonyella Mine ($6.1 million);

and favorable corporate hedging results ($5.7 million).

These favorable results were partially offset by resource management gains recorded in the prior year period ($7.5 million).

Loss From Continuing Operations, Net of Income Taxes

The following table presents loss from continuing operations, net of income taxes:

Three Months Ended Increase (Decrease)

March 31, to Income

2021 2020 $ %

(Dollars in millions) (Dollars in millions)

(Dollars in millions)

Adjusted EBITDA (1)

1 unchanged sentence

Depreciation, depletion and amortization (68.3) (106.0) 37.7 36 %

(72.2) (141.5) 69.3 49 % (266.5) (479.4) 212.9 44 %

Asset retirement obligation expenses (15.9) (17.6) 1.7 10 %

(14.3) (15.5) 1.2 8 % (46.0) (44.6) (1.4) (3) %

Restructuring charges (2.1) (6.5) 4.4 68 %

(8.1) (0.7) (7.4) (1,057) % (31.1) (1.3) (29.8) (2,292) %

Transaction costs related to joint ventures — (4.2) 4.2 100 %

(6.0) (8.2) 2.2 27 % (23.1) (9.8) (13.3) (136) %

Asset impairment

— (20.0) 20.0 100 % (1,418.1) (20.0) (1,398.1) (6,991) %

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 1.5 0.7 0.8 114 %

0.5 — 0.5 n.m.

1.6 (0.3) 1.9 633 %

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) %

Net mark-to-market adjustment on actuarially determined liabilities (13.0) — (13.0) n.m.

(13.0) — (13.0) n.m.

Unrealized (losses) gains on economic hedges (16.1) (18.0) 1.9 11 % (11.3) 44.2 (55.5) (126) %

Unrealized gains on non-coal trading derivative contracts 0.7 0.3 0.4 133 % 3.6 0.2 3.4 1,700 %

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) %

1.5 2.7 (1.2) (44) % 6.8 13.9 (7.1) (51) %

Income tax benefit (provision) 1.8 (3.0) 4.8 160 %

(Loss) income from continuing operations, net of income taxes

$ (64.8) $ (74.3) $ 9.5 13 % $ (1,739.4) $ 101.9 $ (1,841.3) (1,807) %

Loss from continuing operations, net of income taxes $ (77.7) $ (129.3) $ 51.6 40 %

(1) This is a financial measure not recognized in accordance with U.S.

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The following table presents a summary of depreciation, depletion and amortization expense by segment:

Three Months Ended Increase (Decrease) Nine Months Ended Increase (Decrease)

September 30, to Income September 30, to Income

Three Months Ended Increase (Decrease)

March 31, to Income

2021 2020 $ %

(Dollars in millions) (Dollars in millions)

(Dollars in millions)

Seaborne Thermal Mining

9 unchanged sentences

Total $ (68.3) $ (106.0) $ 37.7 36 %

Additionally, the following table presents a summary of our weighted-average depletion rate per ton for active mines in each of our mining segments:

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Additionally, the following table presents a summary of the Company’s weighted-average depletion rate per ton for active mines in each of its mining segments:

Three Months Ended

Seaborne Thermal Mining $ 1.87 $ 1.90

Seaborne Metallurgical Mining

1.83 3.97 2.24 3.29

Powder River Basin Mining 0.23 0.79

Thermal Mining

1.11 1.15 1.05 1.40

Depreciation, depletion and amortization expense decreased during the three and nine months ended September 30, 2020 compared to the same periods in the prior year primarily due to the closure of the Kayenta and Cottage Grove Mines during the third quarter of 2019 and the Millennium and Wildcat Hills Underground Mines during the second quarter of 2020 (three months, $26.6 million;

nine months, $121.6 million), the impact of the asset impairment recorded at the North Antelope Rochelle Mine during the second quarter of 2020 (three and nine months, $26.3 million), decreased depletion driven by lower sales volumes (three months, $6.4 million;

nine months, $19.7 million) and lower amortization of the fair value of certain U.S.

coal supply agreements (three months, $5.5 million;

nine months, $16.9 million).

The decrease in the weighted-average depletion rate per ton for the Seaborne Metallurgical Mining segment during the three and nine months ended September 30, 2020 compared to the same periods in the prior year reflects the volume and mix variances which impacted our revenues as described above.

The decrease in the weighted-average depletion rate per ton for the Powder River Basin Mining segment during the three and nine months ended September 30, 2020 compared to the same periods in the prior year reflects the asset impairment recorded during the second quarter of 2020.

Depreciation, depletion and amortization expense decreased during the three months ended March 31, 2021 compared to the same period in the prior year primarily due to the impact of the asset impairment recorded at the North Antelope Rochelle Mine during the second quarter of 2020 ($25.2 million) and decreased depletion driven by lower sales volumes ($6.6 million).

The decrease in the weighted-average depletion rate per ton for the Seaborne Metallurgical Mining segment during the three months ended March 31, 2021 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 increased during the three and nine months ended September 30, 2020 compared to the same periods in the prior year as the result of workforce reductions made across the organization through the use of involuntary and voluntary reductions, as discussed in Note 15.

Restructuring charges decreased during the three months ended March 31, 2021 compared to the same period in the prior year as the result of workforce reductions made across the organization during the prior year through the use of involuntary and voluntary reductions, as discussed in Note 14.

“Other Events” to the accompanying unaudited condensed consolidated financial statements.

Transaction Costs Related to Joint Ventures.

The charges recorded during the current and prior year periods related to the proposed PRB Colorado joint venture with Arch as further described in Note 15.

“Other Events” to the accompanying unaudited condensed consolidated financial statements.

Asset Impairment.

During the nine months ended September 30, 2020, we recognized $1,418.1 million in aggregate asset impairment charges related to the fair value of our North Antelope Rochelle Mine as discussed in Note 9.

“Property, Plant, Equipment and Mine Development” to the accompanying unaudited condensed consolidated financial statements.

During the three and nine months ended September 30, 2019, we recorded asset impairment charges related to the estimated fair value of our Wildcat Hills Underground Mine, which shipped its final tons during the second quarter of 2020.

Provision for North Goonyella Equipment Loss.

A provision for expected equipment losses related to the events at our North Goonyella Mine was recorded during the prior year as discussed in Note 15.

“Other Events” to the accompanying unaudited condensed consolidated financial statements.

North Goonyella Insurance Recovery - Equipment.

During the nine months ended September 30, 2019, we entered into an insurance claim settlement agreement with our insurance providers related to North Goonyella equipment losses and recorded a $125.0 million insurance recovery, as discussed in Note 15.

“Other Events” to the accompanying unaudited condensed consolidated financial statements.

Of this amount, Adjusted EBITDA excludes an allocated amount applicable to total equipment losses recognized at the time of the insurance recovery settlement, which consisted of $24.7 million and $66.4 million recognized during the nine months ended September 30, 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 nine months ended September 30, 2019.

Interest Income.

The decrease in interest income during the three and nine months ended September 30, 2020 compared to the same periods in the prior year was driven by the conclusion of a contract during the fourth quarter of 2019 which contained an embedded financing element and by lower cash balances.

Net Mark-to-Market Adjustment on Actuarially Determined Liabilities.

The expense recorded during the three and nine months ended September 30, 2020 related to changes to one of our postretirement health care benefit plans which triggered a remeasurement event.

For additional details, refer to Note 13.

“Pension and Postretirement Benefit Costs” to the accompanying unaudited condensed consolidated financial statements.

Unrealized (Losses) Gains on Economic Hedges.

Unrealized (losses) gains primarily relate to mark-to-market activity from economic hedge activities intended to hedge future coal sales.

The charges recorded during the prior 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 discussed in Note 11.

“Long-term Debt” to the accompanying unaudited condensed consolidated financial statements.

Gain on Early Debt Extinguishment.

The gain recognized during the three months ended March 31, 2021 related to the senior notes exchange completed during the first quarter of 2021 as further discussed in Note 11.

“Long-term Debt” to the accompanying unaudited condensed consolidated financial statements.

Unrealized (Losses) Gains on Non-Coal Trading Derivative Contracts.

Unrealized (losses) gains primarily relate to mark-to-market activity from economic hedge activities intended to hedge 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 and nine months ended September 30, 2020 and 2019, we ratably recognized contract-based intangible liabilities for port and rail take-or-pay contracts.

For additional details, refer to Note 8.

“Intangible Contract Assets and Liabilities” to the accompanying unaudited condensed consolidated financial statements.

Income Tax Benefit (Provision) .

The decrease in the income tax provision for the three and nine months ended September 30, 2020 compared to the same periods in the prior year was primarily due to changes in forecasted taxable income, partially offset by an increase in the provision related to the remeasurement of foreign income tax accounts.

The decrease in the income tax provision for the three months ended March 31, 2021 compared to the same period in the prior year was primarily due to differences in forecasted taxable income, partially offset by an increase in the provision related to the remeasurement of foreign income tax accounts.

Refer to Note 10.

“Income Taxes” to the accompanying unaudited condensed consolidated financial statements for additional information.

Net (Loss) Income Attributable to Common Stockholders

The following table presents net (loss) income attributable to common stockholders:

Three Months Ended Increase (Decrease) Nine Months Ended (Decrease) Increase

September 30, to Income September 30, to Income

2020 2019 $ % 2020 2019 $ %

(Dollars in millions) (Dollars in millions)

(Loss) income from continuing operations, net of income taxes

Net Loss Attributable to Common Stockholders

The following table presents net loss 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) income

(67.1) (78.1) 11.0 14 % (1,746.2) 91.3 (1,837.5) (2,013) %

Net income (loss) attributable to noncontrolling interests 0.1 4.7 (4.6) (98) % (5.1) 12.8 (17.9) (140) %

Net (loss) income attributable to common stockholders

$ (67.2) $ (82.8) $ 15.6 19 % $ (1,741.1) $ 78.5 $ (1,819.6) (2,318) %

Net loss (79.7) (131.5) 51.8 39 %

Net income (loss) attributable to noncontrolling interests 0.4 (1.8) 2.2 122 %

The decrease in net results attributable to noncontrolling interests during the three and nine months ended September 30, 2020 compared to the prior year periods was primarily due to lower results of our majority-owned mines in which there is an outside non-controlling interest.

Net loss attributable to common stockholders $ (80.1) $ (129.7) $ 49.6 38 %

Diluted Earnings per Share (EPS)

The following table presents diluted EPS:

Three Months Ended Increase Nine Months Ended (Decrease) Increase

September 30, to EPS September 30, to EPS

Three Months Ended Increase

March 31, to EPS

2021 2020 $ %

Diluted EPS attributable to common stockholders:

(Loss) income from continuing operations

$ (0.66) $ (0.77) $ 0.11 14 % $ (17.76) $ 0.83 $ (18.59) (2,240) %

Loss from continuing operations $ (0.79) $ (1.31) $ 0.52 40 %

Loss from discontinued operations

(0.02) (0.02) — — %

Net (loss) income attributable to common stockholders

$ (0.69) $ (0.81) $ 0.12 15 % $ (17.83) $ 0.73 $ (18.56) (2,542) %

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 97.9 million and 102.2 million for the three months ended September 30, 2020 and 2019, respectively, and 97.6 million and 107.4 million for the nine months ended September 30, 2020 and 2019, respectively.

Diluted EPS reflects weighted average diluted common shares outstanding of 98.4 million and 97.2 million for the three months ended March 31, 2021 and 2020, respectively.

Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDA is defined as (loss) income from continuing operations before deducting net interest expense, income taxes, asset retirement obligation expenses and depreciation, depletion and amortization.

Adjusted EBITDA is also adjusted for the discrete items that management excluded in analyzing each of our segment’s operating performance, as displayed in the reconciliations below.

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Adjusted EBITDA is defined as loss from continuing operations before deducting net interest expense, income taxes, asset retirement obligation expenses and depreciation, depletion and amortization.

Adjusted EBITDA is also adjusted for the discrete items that management excluded in analyzing each of its segment’s operating performance, as displayed in the reconciliations below.

Three Months Ended

(Dollars in millions)

(Loss) income from continuing operations, net of income taxes

$ (64.8) $ (74.3) $ (1,739.4) $ 101.9

Loss from continuing operations, net of income taxes $ (77.7) $ (129.3)

Depreciation, depletion and amortization

72.2 141.5 266.5 479.4

Asset retirement obligation expenses

14.3 15.5 46.0 44.6

Restructuring charges

8.1 0.7 31.1 1.3

Transaction costs related to joint ventures

6.0 8.2 23.1 9.8

Asset impairment

— 20.0 1,418.1 20.0

Provision for North Goonyella equipment loss

North Goonyella insurance recovery - equipment

Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates

(0.5) — (1.6) 0.3

Interest expense

34.9 35.4 102.3 107.2

Gain on early debt extinguishment (3.5) —

Interest income

(1.6) (7.0) (7.1) (22.5)

Net mark-to-market adjustment on actuarially determined liabilities 13.0 — 13.0 —

Unrealized losses (gains) on economic hedges 16.1 18.0 11.3 (44.2)

Unrealized gains on non-coal trading derivative contracts (0.7) (0.3) (3.6) (0.2)

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

(1.5) (2.7) (6.8) (13.9)

Income tax (benefit) provision

(0.1) 4.2 2.7 26.0

Total Adjusted EBITDA

2 unchanged sentences

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 Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

(Dollars in millions)

1 unchanged sentence

$ 582.6 $ 779.5

Unrealized gains on non-coal trading derivative contracts 0.7 0.3 3.6 0.2

Unrealized (losses) gains on non-coal trading derivative contracts (7.6) 0.1

Take-or-pay contract-based intangible recognition

1.5 2.7 6.8 13.9

North Goonyella insurance recovery - cost recovery and business interruption

Net periodic benefit costs, excluding service cost

2.8 4.9 8.3 14.6

Net periodic benefit (credit) costs, excluding service cost (8.7) 2.8

Total Reporting Segment Costs

1 unchanged sentence

The following table presents Reporting Segment Costs by reporting segment:

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

(Dollars in millions)

6 unchanged sentences

The following tables present tons sold, revenues, Reporting Segment Costs and Adjusted EBITDA by mining segment:

Three Months Ended September 30, 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 1.1 23.6 4.8

Revenues $ 163.0 $ 78.8 $ 264.8 $ 179.8

Reporting Segment Costs 127.7 106.1 186.5 128.2

Adjusted EBITDA

35.3 (27.3) 78.3 51.6

Revenues per Ton

$ 35.28 $ 71.88 $ 11.26 $ 37.20

Costs per Ton

27.59 96.87 7.93 26.52

Adjusted EBITDA Margin per Ton

7.69 (24.99) 3.33 10.68

Three Months Ended September 30, 2019

Seaborne Thermal Mining Seaborne Metallurgical Mining Powder River Basin Mining Other U.S.

Thermal Mining

(Amounts in millions, except per ton data)

Tons sold 4.9 1.8 30.2 7.2

Revenues $ 249.5 $ 216.3 $ 333.6 $ 326.4

Reporting Segment Costs 172.7 232.5 262.9 244.1

Adjusted EBITDA

76.8 (16.2) 70.7 82.3

Revenues per Ton

$ 51.06 $ 120.94 $ 11.02 $ 45.45

Costs per Ton

35.33 130.01 8.69 34.00

Adjusted EBITDA Margin per Ton

15.73 (9.07) 2.33 11.45

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Seaborne Thermal Mining Seaborne Metallurgical Mining Powder River Basin Mining Other U.S.

8 unchanged sentences

Adjusted EBITDA Margin per Ton $ 7.00 $ (22.42) $ 1.45 $ 9.39

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Seaborne Thermal Mining Seaborne Metallurgical Mining Powder River Basin Mining Other U.S.

8 unchanged sentences

Adjusted EBITDA Margin per Ton $ 12.07 $ (16.17) $ 1.08 $ 7.86

Free Cash Flow is defined as net cash (used in) provided by operating activities less net cash used in investing activities and excludes cash outflows related to business combinations.

Free Cash Flow is defined as net cash provided by (used in) 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.

Nine Months Ended

September 30,

Three Months Ended

(Dollars in millions)

Net cash (used in) provided by operating activities $ (32.1) $ 552.6

Net cash provided by (used in) operating activities $ 71.0 $ (4.7)

Net cash used in investing activities (93.2) (37.1)

Amount attributable to acquisition of Shoal Creek Mine — 2.4

Free Cash Flow $ (22.2) $ (41.8)

2 unchanged sentences

Supply models and cost curves concentrate on major supply regions/countries that impact the regions in which the Company operates.

Our estimates involve risks and uncertainties and are subject to change based on various factors as described more fully in the “Cautionary Notice Regarding Forward-Looking Statements” section contained within this Item 2.

Our near-term outlook is intended to coincide with the next 12 to 24 months, with subsequent periods addressed in our long-term outlook.

Peabody is continuing to monitor the rapidly evolving COVID-19 pandemic and any impacts related to both our near-term and long-term outlook.

The Company’s estimates involve risks and uncertainties and are subject to change based on various factors as summarized in the “Cautionary Notice Regarding Forward-Looking Statements” section contained within this Item 2.

The Company’s near-term outlook is intended to coincide with the next 12 to 24 months, with subsequent periods addressed in its long-term outlook.

Peabody is continuing to monitor the rapidly evolving COVID-19 pandemic and any impacts related to both its near-term and long-term outlook.

Near-Term Outlook

While timing of recovery varies across countries and sectors, the global economy is showing improvement in industrial production.

However, seaborne coal pricing remains muted and below pre-pandemic levels and rising COVID-19 cases worldwide continue to pose a threat to commodity pricing.

Steel industry fundamentals are improving in most regions relative to COVID-driven lows earlier in the year, though seaborne metallurgical coal demand has not yet recovered to pre-pandemic levels.

While China is leading the steel production recovery, its metallurgical coal demand has been muted due to ongoing import restrictions.

In addition, year-to-date through September 30, 2020, India’s metallurgical imports fell 8 million tonnes compared to the prior year.

Within seaborne thermal, weak demand continues to pressure prices.

During the nine months ended September 30, 2020, India imports have declined 24 million tonnes due to existing stockpiles and higher domestic production, and China imports are down 9 million tonnes from the corresponding prior year period.

Countries comprising the Association of Southeast Asian Nations (ASEAN) are the only major importing regions showing sizable year-over-year growth, with imports up 9 million tonnes year-to-date through September 30, 2020.

In the U.S., the impacts of COVID-19 have accelerated a multi-year decline in coal demand.

During the nine months ended September 30, 2020, coal-fueled generation declined 24% compared to the prior year period and now represents 19% of the overall generation mix.

However, recent increases in natural gas pricing may benefit near-term coal-fueled generation, with relevant forward prices averaging above $3.00 per mmBtu for the remainder of the year and into 2021.