PEABODY ENERGY CORP 10-K

Item 1A. Risk Factors. The Company operates in a rapidly changing environment that involves a number of risks. The following discussion highlights some of these risks and others are discussed elsewhere in this report. These and other risks could materially and adversely affect the Company’s business, financial condition, prospects, operating results or cash flows. The following risk factors are not an exhaustive list of the risks associated with the Company’s business. New factors may emerge or changes to these risks could occur that could materially affect its business. Peabody Energy Corporation 2021 Form 10-K 24 Table of Contents Risks Associated with Peabody’s Operations The Company’s profitability depends upon the prices it receives for its coal. The Company operates in a competitive and highly regulated industry that has at times experienced strong headwinds. Current pricing levels of both seaborne and domestic coal products may not be sustainable in the future. Declines in coal prices could materially and adversely affect the Company’s operating results and profitability and the value of its coal reserves and resources. Coal prices are dependent upon factors beyond the Company’s control, including: • the demand for electricity and capacity utilization of electricity generating units (whether coal or non-coal); • changes in the fuel consumption and dispatch patterns of electric power generators, whether based on economic or non-economic factors; • the proximity, capacity and cost of transportation and terminal facilities; • competition with and the availability, quality and price of coal and alternative fuels, including natural gas, fuel oil, nuclear, hydroelectric, wind, biomass and solar power; • governmental regulations and taxes, including tariffs or other trade restrictions as well as those establishing air emission standards for coal-fueled power plants or mandating or subsidizing increased use of electricity from renewable energy sources; • the strength of the global economy; • the global supply and production costs of thermal and metallurgical coal; • the demand for steel, which may lead to price fluctuations in the monthly and quarterly repricing of the Company’s metallurgical coal contracts; • weather patterns, severe weather and natural disasters; • regulatory, administrative and judicial decisions, including those affecting future mining permits and leases; • competing technologies used to make steel, some of which do not use coal as a manufacturing input, such as electric arc furnaces; and • technological developments, including those related to alternative energy sources, those intended to convert coal-to-liquids or gas and those aimed at capturing, using and storing carbon dioxide. Thermal coal accounted for the majority of the Company’s coal sales by volume during 2021 and 2020, with the vast majority of these sales to electric power generators. The demand for coal consumed for electric power generation is affected by many of the factors described above, but primarily by (i) the overall demand for electricity; (ii) the availability, quality and price of competing fuels, such as natural gas, nuclear fuel, oil and alternative energy sources; (iii) utilization of all electricity generating units (whether using coal or not), including the relative cost of producing electricity from multiple fuels, including coal; (iv) stringent environmental and other governmental regulations; (v) other sociopolitical views on coal; and (vi) the coal inventories of utilities. Gas-fueled generation has displaced and could continue to displace coal-fueled generation (particularly from older, less efficient coal-fueled generation units) as current and potentially increasing regulatory costs and other factors impact the operating decisions of electric power generators. In addition, some electric power generators have made decisions to close coal-fueled generation units given ongoing pressure to shift away from coal generation. Many of the new power plants in the U.S. may be fueled by natural gas because gas-fired plants have been less expensive to construct, permits to construct these plants are easier to obtain based on emissions profiles and electric power generators may face public and governmental pressure to generate a larger portion of their electricity from natural gas-fueled units and alternative energy sources. Increasingly stringent regulations along with stagnant electricity demand in recent years have also reduced the number of new power plants being built. In recent years, these trends have reduced demand for the Company’s coal and the related prices. Lower demand for coal consumed by electric power generators could reduce the volume of thermal coal that the Company sells and the prices that it receives for the thermal coal, thereby reducing its revenues and adversely impacting its earnings and the value of its coal reserves and resources. The Company produces metallurgical coal that is used in the global steel industry. Metallurgical coal accounted for approximately 22% and 17% of its revenues in 2021 and 2020, respectively. Changes in governmental policies and regulations and changes in the steel industry, including the demand for steel, could reduce the demand for the Company’s metallurgical coal. Lower demand for metallurgical coal in international markets could reduce the amount of metallurgical coal that the Company sells and the prices that it receives for the metallurgical coal, thereby reducing its revenues and adversely impacting its earnings and the value of its coal reserves and resources. Peabody Energy Corporation 2021 Form 10-K 25 Table of Contents The balance between coal demand and supply, factoring in demand and supply of closely related and competing fuel sources, both domestically and internationally, could materially reduce coal prices and therefore materially reduce the Company’s revenues and profitability. The Company competes with other fuel sources used for electricity generation, such as natural gas and renewables. The Company’s seaborne products compete with other producers as well as other fuel sources. Declines in the price of natural gas could cause demand for coal to decrease and adversely affect the price of coal. Sustained periods of low natural gas prices or low prices for other fuels may also cause utilities to phase out or close existing coal-fueled power plants or reduce construction of new coal-fueled power plants. In the U.S., no new coal-fueled power plants are being constructed or reopened after closure. These closures could have a material adverse effect on demand and prices for the Company’s coal, thereby reducing its revenues and materially and adversely affecting its business and results of operations. 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. Most of the Company’s sales are made under coal supply agreements, which are important to the stability and profitability of its operations. The execution of a satisfactory coal supply agreement is frequently the basis on which the Company undertakes the development of coal reserves and resources required to be supplied under the contract, particularly in the U.S. For the year ended December 31, 2021, the Company derived 26% of its revenues from coal supply agreements from its five largest customers. Those five customers were supplied primarily from 17 coal supply agreements (excluding trading and brokerage transactions) expiring at various times from 2022 to 2026. Many of the Company’s coal supply agreements contain provisions that permit the parties to adjust the contract price upward or downward at specified times. The Company may adjust these contract prices based on inflation or deflation, price indices and/or changes in the factors affecting the cost of producing coal, such as taxes, fees, royalties and changes in the laws regulating the mining, production, sale or use of coal. In a limited number of contracts, failure of the parties to agree on a price under those provisions may allow either party to terminate the contract. The Company may experience reductions in coal prices in new long-term coal supply agreements replacing some of its expiring contracts. Coal supply agreements also typically contain force majeure provisions allowing temporary suspension of performance by the Company or the customer during the duration of specified events beyond the control of the affected party. Some coal supply agreements allow customers to vary the volumes of coal that they are required to purchase during a particular period, and where coal supply agreements do not explicitly allow such variation, customers sometimes request that the Company amend the agreements to allow for such variation. Most of its coal supply agreements contain provisions requiring the Company to deliver coal meeting quality thresholds for certain characteristics such as Btu, sulfur content, ash content, volatile matter, coking properties, grindability and ash fusion temperature. Failure to meet these specifications could result in economic penalties, including price adjustments, the rejection of deliveries or termination of the contracts. Moreover, some of these agreements allow the Company’s customers to terminate their contracts in the event of changes in regulations affecting the coal industry that restrict the use or type of coal permissible at the customer’s plant or increase the price of coal beyond specified limits. On an ongoing basis, the Company discusses the extension of existing agreements or entering into new long-term agreements with various customers, but these negotiations may not be successful and these customers may not continue to purchase coal from the Company under long-term supply agreements. The operating profits the Company realizes from coal sold under supply agreements depend on a variety of factors. In addition, price adjustment and other contract provisions may increase its exposure to short-term coal price volatility. If a substantial portion of the Company’s coal supply agreements were modified or terminated, it could be materially adversely affected to the extent that it is unable to find alternate buyers for its coal at the same level of profitability. Prices for coal vary by mining region and country. As a result, the Company cannot predict the future strength of the coal industry overall or by mining region and cannot provide assurance that it will be able to replace existing long-term coal supply agreements at the same prices or with similar profit margins when they expire. In addition, the Company’s revenue could be adversely affected by a decline in customer purchases (including contractually obligated purchases) due to lack of demand and oversupply, cost of competing fuels and environmental and other governmental regulations. Peabody Energy Corporation 2021 Form 10-K 26 Table of Contents 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 mining operations are subject to conditions that can impact the safety of its workforce, delay coal deliveries or increase the cost of mining at particular mines for varying lengths of time. These conditions include: • elevated gas levels; • fires and explosions, including from methane gas or coal dust; • accidental mine water discharges; • weather, flooding and natural disasters; • hazardous events such as roof falls and high wall or tailings dam failures; • seismic activities, ground failures, rock bursts or structural cave-ins or slides; • key equipment failures; • unavailability of equipment or parts; • variations in coal seam thickness, coal quality, the amount of rock and soil overlying coal deposits and geologic conditions impacting mine sequencing; • delays in moving its longwall equipment; • unexpected maintenance problems; and • unforeseen delays in implementation of mining technologies that are new to its operations. The Company maintains insurance policies that provide limited coverage for some of the risks referenced above, which may lessen the impact associated with these risks. However, there can be no assurance as to the amount or timing of recovery under its insurance policies in connection with losses associated with these risks. The Company’s take-or-pay arrangements could unfavorably affect its profitability. The Company has substantial take-or-pay arrangements with its port access and rail transportation providers, predominately in Australia, totaling $1.2 billion, with terms ranging up to 21 years, that commit the Company to pay a minimum amount for the delivery of coal even if those commitments go unused. The take-or-pay provisions in these contracts sometimes allow the Company to apply amounts paid for subsequent deliveries, but these provisions have limitations and the Company may not be able to apply all such amounts so paid in all cases. Also, the Company may not be able to utilize the amount of capacity for which it has previously paid. Additionally, the Company may continue to deliver coal during times when it might otherwise be optimal to suspend operations because these take-or-pay provisions effectively convert a variable cost of selling coal to a fixed operating cost. 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 value of the Company’s assets have from time to time been adversely affected by numerous uncertain factors, some of which are beyond its control, including unfavorable changes in the economic environments in which it operates; declining coal-fired electricity generation; lower-than-expected coal pricing; technical and geological operating difficulties; an inability to economically extract its coal reserves and resources; and unanticipated increases in operating costs. During the year ended December 31, 2020, the Company recorded $1,487.4 million of impairment charges related to such factors, as further described in Note 3. “Asset Impairment” to the accompanying consolidated financial statements. These factors may trigger the recognition of additional impairment charges in the future, which could have a substantial impact on the Company’s results of operations. Because of the volatile and cyclical nature of coal markets, it is reasonably possible that the Company’s current estimates of projected future cash flows from its mining assets may change in the near term, which may result in the need for adjustments to the carrying value of its assets. Peabody Energy Corporation 2021 Form 10-K 27 Table of Contents The Company could be negatively affected if it fails to maintain satisfactory labor relations. As of December 31, 2021, the Company had approximately 4,900 employees (excluding employees that were employed at operations classified as discontinued), which included approximately 3,900 hourly employees. The Company is party to labor agreements with various labor unions that represent certain of its employees. Such labor agreements are negotiated periodically, and, therefore, the Company is subject to the risk that these agreements may not be able to be renewed on reasonably satisfactory terms. Approximately 34% of its hourly employees were represented by organized labor unions and generated approximately 16% of its coal production for the year ended December 31, 2021. Relations with its employees and, where applicable, organized labor are important to the Company’s success. If some or all of its current non-union operations were to become unionized, the Company could incur an increased risk of work stoppages, reduced productivity and higher labor costs. Also, if the Company fails to maintain good relations or successfully negotiate contracts with its employees who are represented by unions, the Company could potentially experience labor disputes, strikes, work stoppages, slowdowns or other disruptions in production that could negatively impact its profitability. The Company could be adversely affected if it fails to appropriately provide financial assurances for its obligations. U.S. federal and state laws and Australian laws require the Company to provide financial assurances related to requirements to reclaim lands used for mining; to pay federal and state workers’ compensation, such as black lung liabilities; to provide financial assurances for coal lease obligations; and to satisfy other miscellaneous obligations. The primary methods the Company uses to meet those obligations are to provide a third-party surety bond or a letter of credit. As of December 31, 2021, the Company had $1,463.7 million of outstanding surety bonds and $452.6 million of letters of credit with third parties in order to provide required financial assurances for post-mining reclamation, workers’ compensation and other insurance obligations, coal lease-related and other obligations and performance guarantees, in addition to collateral for sureties. The Company’s financial assurance obligations may increase or become more costly due to a number of factors, and surety bonds and letters of credit may not be available to the Company, particularly in light of some banks and insurance companies’ announced unwillingness to support thermal coal producers and other fossil fuel companies. Alternative forms of financial assurance such as self-bonding have been severely restricted or terminated in most of the regions where its mines reside. The Company’s failure to retain, or inability to obtain, surety bonds, bank guarantees or letters of credit, or to provide a suitable alternative, could have a material adverse effect on it. That failure could result from a variety of factors including: • lack of availability, higher expense or unfavorable market terms of new surety bonds, bank guarantees or letters of credit; and • inability to provide or fund collateral for current and future third-party issuers of surety bonds, bank guarantees or letters of credit. As further described in “Liquidity and Capital Resources” of Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in November 2020, the Company entered into a surety transaction support agreement with the providers of its surety bond portfolio. The Company’s failure to provide adequate collateral, or abide by other terms in the agreement, could invalidate the agreement and materially and adversely affect its business and results of operations. The Company’s failure to maintain adequate bonding would invalidate its mining permits and prevent mining operations from continuing, which could result in its inability to continue as a going concern. Peabody Energy Corporation 2021 Form 10-K 28 Table of Contents 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 coal mining industry is subject to regulation by federal, state and local authorities with respect to matters such as: • workplace health and safety; • limitations on land use; • mine permitting and licensing requirements; • reclamation and restoration of mining properties after mining is completed; • the storage, treatment and disposal of wastes; • remediation of contaminated soil, sediment and groundwater; • air quality standards; • water pollution; • protection of human health, plant-life and wildlife, including endangered or threatened species and habitats; • protection of wetlands; • the discharge of materials into the environment; and • the effects of mining on surface water and groundwater quality and availability. Regulatory agencies have the authority under certain circumstances following significant health and safety incidents to order a mine to be temporarily or permanently closed. In the event that such agencies ordered the closing of one of the Company’s mines, its production and sale of coal would be disrupted and it may be required to incur cash outlays to re-open the mine. Any of these actions could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. New legislation, regulations or orders related to the environment or employee health and safety may be adopted and may materially adversely affect the Company’s mining operations, its cost structure or its customers’ ability to use coal. New legislation or administrative regulations (or new interpretations by the relevant government of existing laws, regulations and approvals), including proposals related to the protection of the environment or the reduction of greenhouse gas emissions that would further regulate and tax the coal industry, may also require the Company or its customers to change operations significantly or incur increased costs. Some of the Company’s coal supply agreements contain provisions that allow a purchaser to terminate its contract if legislation is passed that either restricts the use or type of coal permissible at the purchaser’s plant or results in specified increases in the cost of coal or its use. These factors and legislation, if enacted, could have a material adverse effect on the Company’s financial condition and results of operations. For additional information about the various regulations affecting the Company, see the sections entitled “Regulatory Matters —U.S.” and “Regulatory Matters — Australia.” 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’s operations currently use hazardous materials and generate limited quantities of hazardous wastes from time to time. A number of laws, including CERCLA and RCRA in the U.S. and similar laws in other countries where the Company operates, impose liability relating to contamination by hazardous substances. Such liability may involve the costs of investigating or remediating contamination and damages to natural resources, as well as claims seeking to recover for property damage or personal injury caused by hazardous substances. Such liability may arise from conditions at formerly, as well as currently, owned or operated properties, and at properties to which hazardous substances have been sent for treatment, disposal or other handling. Liability under RCRA, CERCLA and similar state statutes is without regard to fault, and typically is joint and several, meaning that a person may be held responsible for more than its share, or even all, of the liability involved. Peabody Energy Corporation 2021 Form 10-K 29 Table of Contents 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. Numerous governmental permits and approvals are required for mining operations. The permitting rules, and the interpretations of these rules, are complex, change frequently and are often subject to discretionary interpretations by regulators, all of which may make compliance more difficult or impractical. As part of this permitting process, when the Company applies for permits and approvals, it is required to prepare and present to governmental authorities data pertaining to the potential impact or effect that any proposed exploration for or production of coal may have upon the environment. The public, including non-governmental organizations, opposition groups and individuals, have statutory rights to comment upon and submit objections to requested permits and approvals (including modifications and renewals of certain permits and approvals) and otherwise engage in the permitting process, including bringing citizens’ lawsuits to challenge the issuance of permits, the validity of environmental impact statements or the performance of mining activities. In recent years, the permitting required for coal mining has been the subject of increasingly stringent regulatory and administrative requirements and extensive litigation by environmental groups. Additionally, the Company’s operations may be affected by sites within or near mining areas that have cultural heritage significance to indigenous peoples, and its mining permits may be rescinded or modified, or its mining plans may be voluntarily adjusted, to mitigate against adverse impacts to such sites. The costs, liabilities and requirements associated with these permitting requirements and any related opposition may be extensive and time-consuming and may delay commencement or continuation of exploration or production which would adversely affect the Company’s coal production, cash flows and profitability. Further, required permits may not be issued or renewed in a timely fashion or at all, or permits issued or renewed may be conditioned in a manner that may restrict the Company’s ability to efficiently and economically conduct its mining activities, any of which would materially reduce its production, cash flows and profitability. Concerns about the impacts of coal combustion on global climate are increasingly leading to conditions 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. Global climate issues continue to attract public and scientific attention. Numerous reports, including the Fourth and the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, have also engendered concern about the impacts of human activity, especially fossil fuel combustion, on global climate issues. In turn, increasing government attention is being paid to global climate issues and to emissions of greenhouse gases, including emissions of carbon dioxide from coal combustion by power plants. 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 countries, or other actions to limit such emissions, could result in electricity generators switching from coal to other fuel sources. Further, policies limiting available financing for the development of new coal-fueled power stations could adversely impact the global demand for coal in the future. The potential financial impact on Peabody of such future laws, regulations or other policies will depend upon the degree to which any such laws or regulations force electricity generators to diminish their reliance on coal as a fuel source. That, in turn, will depend on a number of factors, including the specific requirements imposed by any such laws, regulations or other policies, the time periods over which those laws, regulations or other policies would be phased in, the state of development and deployment of CCUS technologies as well as acceptance of CCUS technologies to meet regulations and the alternative uses for coal. Higher-efficiency coal-fired power plants may also be an option for meeting laws or regulations related to emissions from coal use. Several countries, including major coal users such as China, India and Japan, included using higher-efficiency coal-fueled power plants in their plans under the Paris Agreement. From time to time, the Company’s board of directors and management attempt to analyze the potential impact on the Company of as-yet-unadopted, potential laws, regulations and policies. Such analyses require significant assumptions as to the specific provisions of such potential laws, regulations and policies which sometimes show that if implemented in the manner assumed by the analyses, the potential laws, regulations and policies could result in material adverse impacts on the Company’s operations, financial condition or cash flows. Such analyses cannot be relied upon to reasonably predict the quantitative impact that future laws, regulations or other policies may have on the Company’s results of operations, financial condition or cash flows. Peabody Energy Corporation 2021 Form 10-K 30 Table of Contents 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. Several non-governmental organizations have undertaken campaigns to minimize or eliminate the use of coal as a source of electricity generation in the U.S. and across the globe. In an effort to stop or delay coal mining activities, activist groups have brought lawsuits challenging the issuance of individual coal leases, and challenging the federal coal leasing program more broadly. Other lawsuits challenge historical and pending regulatory approvals, permits and processes that are necessary to conduct coal mining operations or to operate coal-fueled power plants, including so-called “sue and settle” lawsuits where regulatory authorities in the past have reached private agreements with environmental activists that often involve additional regulatory restrictions or processes being implemented without formal rulemaking. The effect of these and other similar developments has made it more costly and difficult to maintain the Company’s business. These cost increases and/or substantial or extended declines in the prices the Company receives for its coal due to these or other factors could reduce its revenue and profitability, cash flows, liquidity, and value of its coal reserves and resources, and could result in material losses. The Company’s trading and hedging activities do not cover certain risks and may expose it to earnings volatility and other risks. In addition to coal price volatility, the Company is currently subject to price volatility on diesel fuel utilized in its mining operations and the Australian dollar. The Company may in the future enter into hedging arrangements, including economic hedging arrangements, to manage these risks or other exposures. Some of these hedging arrangements may require the Company to post margin based on the value of the related instruments and other credit factors. If the fair value of its hedge portfolio moves significantly, or if laws, regulations or exchange rules are passed requiring all hedge arrangements to be exchange-traded or exchange-cleared, the Company could be required to post additional margin, which could negatively impact its liquidity. 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 asset retirement obligations primarily consist of spending estimates for surface land reclamation and support facilities at both surface and underground mines in accordance with federal and state reclamation laws in the U.S. and Australia as defined by each mining permit. These obligations are determined for each mine using various estimates and assumptions including, among other items, estimates of disturbed acreage as determined from engineering data, estimates of future costs to reclaim the disturbed acreage and the timing of these cash flows, which is driven by the estimated economic life of the mine and the applicable reclamation laws. These cash flows are discounted using a credit-adjusted, risk-free rate. The Company’s management and engineers periodically review these estimates. If its assumptions do not materialize as expected, actual cash expenditures and costs that the Company incurs could be materially different than currently estimated. Moreover, regulatory changes could increase the Company’s obligation to perform reclamation, mine closing and post-closure activities. The resulting estimated asset retirement obligation could change significantly if actual amounts change significantly from its assumptions, which could have a material adverse effect on its results of operations and financial condition. The Company’s future success depends upon its ability to continue acquiring and developing coal reserves and resources that are economically recoverable. The Company’s recoverable reserves and resources decline as it produces coal. The Company has not yet applied for the permits required or developed the mines necessary to use all of its reserves and resources. Moreover, the amount of coal reserves and resources described in Part I, Item 2. “Properties” involves the use of certain estimates and those estimates could be inaccurate. Actual production, revenues and expenditures with respect to its coal reserves and resources may vary materially from estimates. Peabody Energy Corporation 2021 Form 10-K 31 Table of Contents The Company’s future success depends upon it conducting successful exploration and development activities or acquiring properties containing economically recoverable reserves and resources. The Company’s current strategy includes increasing its reserves and resources through acquisitions of government and other leases and producing properties and continuing to use its existing properties and infrastructure. In certain locations, leases for oil, natural gas and coalbed methane reserves are located on, or adjacent to, some of the Company’s reserves and resources, potentially creating conflicting interests between it and lessees of those interests. Other lessees’ rights relating to these mineral interests could prevent, delay or increase the cost of developing the Company’s coal reserves and resources. These lessees may also seek damages from the Company based on claims that its coal mining operations impair their interests. Additionally, the U.S. federal government limits the amount of federal land that may be leased by any company to 75,000 acres in any one state and 150,000 acres nationwide. As of December 31, 2021, the Company leased a total of 44,287 acres from the federal government subject to those limitations. The Company’s planned mine development projects and acquisition activities may not result in significant additional reserves and resources, and it may not have success developing additional mines. Most of its mining operations are conducted on properties owned or leased by the Company. Its right to mine some of its reserves and resources may be materially adversely affected if defects in title or boundaries exist. In order to conduct its mining operations on properties where these defects exist, the Company may incur unanticipated costs. In addition, in order to develop its reserves and resources, the Company must also own the rights to the related surface property and receive various governmental permits. The Company cannot predict whether it will continue to receive the permits or appropriate land access necessary for it to operate profitably in the future. The Company may not be able to negotiate or secure new leases from the government or from private parties, obtain mining contracts for properties containing additional reserves and resources or maintain its leasehold interest in properties on which mining operations have not commenced or have not met minimum quantity or product royalty requirements. From time to time, the Company has experienced litigation with lessors of its coal properties and with royalty holders. In addition, from time to time, its permit applications and federal and state coal leases have been challenged, causing production delays. To the extent that the Company’s existing sources of liquidity are not sufficient to fund its planned mine development projects or reserve and resource acquisition activities, it may require access to capital markets, which may not be available to it or, if available, may not be available on satisfactory terms. If the Company is unable to fund these activities, it may not be able to maintain or increase its existing production rates and could be forced to change its business strategy, which could have a material adverse effect on its financial condition, results of operations and cash flows. The Company faces numerous uncertainties in estimating its coal reserves and resources and inaccuracies in its estimates could result in lower than expected revenues, higher than expected costs and decreased profitability. Coal is economically recoverable when the price at which the Company’s coal can be sold exceeds the costs and expenses of mining and selling the coal. The costs and expenses of mining and selling the coal are determined on a mine-by-mine basis, and as a result, the price at which its coal is economically recoverable varies based on the mine. Forecasts of the Company’s future performance are based on, among other things, estimates of its recoverable coal reserves and resources. The Company bases its reserve and resource information on engineering, economic and geological data assembled and analyzed by its staff and third parties, which includes various engineers and geologists. The Company's estimates are also subject to SEC regulations regarding classification of reserves and resources, including the recently adopted subpart 1300 of Regulation S-K. The reserve and resource estimates as to both quantity and quality are updated from time to time to reflect production of coal from the reserves and resources and new drilling or other data received. There are numerous uncertainties inherent in estimating quantities and qualities of coal and costs to mine recoverable reserves and resources, including many factors beyond the Company’s control. Peabody Energy Corporation 2021 Form 10-K 32 Table of Contents Estimates of economically recoverable coal reserves and resources necessarily depend upon a number of variable factors and assumptions, any one of which may, if incorrect, result in an estimate that varies considerably from actual results. These factors and assumptions include: • geologic and mining conditions, which may not be fully identified by available exploration data and may differ from the Company’s experience in areas it currently mines; • demand for coal; • current and future market prices for coal, contractual arrangements, operating costs and capital expenditures; • severance and excise taxes, royalties and development and reclamation costs; • future mining technology improvements; • the effects of regulation by governmental agencies; • the ability to obtain, maintain and renew all required permits; • employee health and safety; and • historical production from the area compared with production from other producing areas. The conversion of reported mineral resources to mineral reserves should not be assumed, and the reclassification of reported mineral resources from lower to higher levels of geological confidence should not be assumed. As such, actual coal tonnage recovered from identified reserve and resource areas or properties and revenues and expenditures with respect to the Company’s reserves and resources may vary materially from estimates. Thus, these estimates may not accurately reflect its actual reserves and resources. Any material inaccuracy in the Company’s estimates related to its reserves and resources could result in lower than expected revenues, higher than expected costs or decreased profitability which could materially and adversely affect its business, results of operations, financial position and cash flows. Joint ventures, partnerships or non-managed operations may not be successful and may not comply with the Company’s operating standards. The Company participates in several joint venture and partnership arrangements and may enter into others, all of which necessarily involve risk. Whether or not the Company holds majority interests or maintains operational control in its joint ventures, its partners may, among other things, (1) have economic or business interests or goals that are inconsistent with, or opposed to, the Company’s; (2) seek to block actions that the Company believes are in its or the joint venture’s best interests; or (3) be unable or unwilling to fulfill their obligations under the joint venture or other agreements, such as contributing capital, each of which may adversely impact the Company’s results of operations and its liquidity or impair its ability to recover its investments. Where the Company’s joint ventures are jointly controlled or not managed by it, the Company may provide expertise and advice but have limited control over compliance with its operational standards. The Company also utilizes contractors across its mining platform, and may be similarly limited in its ability to control their operational practices. Failure by non-controlled joint venture partners or contractors to adhere to operational standards that are equivalent to the Company’s could unfavorably affect safety results, operating costs and productivity and adversely impact its results of operations and reputation. The Company’s business, results of operations, financial condition and prospects could be materially and adversely affected by pandemic or other widespread illnesses and the related effects on public health. The Company’s operations are susceptible to widespread outbreaks of illness or other public health issues, such as the continuing global COVID-19 pandemic. Pandemic illnesses could have a material adverse effect on the Company’s business, results of operations, financial condition and prospects, including its ability to comply with covenants under its debt agreements. Governmental mandates and the Company’s efforts to act in the best interests of its employees, customers, suppliers, vendors and joint venture and other business partners, could affect its business and operations, causing the Company to modify a number of its normal business practices. Governmental mandates could require forced shutdowns of its mines and other facilities for extended or indefinite periods and widespread outbreaks in locations significant to its operations could adversely affect its workforce, resulting in serious health issues and absenteeism. In addition, pandemic illnesses could cause supply chains and distribution channels to be interrupted, slowed or rendered inoperable. If the Company’s operations were curtailed, it 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 its customers. Further, if the Company’s customers’ businesses were similarly affected, they might delay, reduce or cancel purchases from the Company. Adverse changes in the general domestic and global economic conditions and disrupted domestic and international credit markets, could negatively affect its customers’ ability to pay the Company as well as its ability to access capital that could negatively affect its liquidity. Peabody Energy Corporation 2021 Form 10-K 33 Table of Contents Despite its efforts to manage these potential impacts, their ultimate impact would also depend on factors beyond the Company’s knowledge or control, including the duration and severity of the pandemic as well as third-party actions taken to contain its spread and mitigate its public health effects. The Company could also face disruption to supply chain and distribution channels, potentially increasing costs of production, storage and distribution, and potential adverse effects to its workforce, each of which could have a material adverse effect on its business, financial condition, results of operations and prospects. 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 pays postretirement health and life insurance benefits to eligible retirees. Its total accumulated postretirement benefit obligation related to such benefits was a liability of $232.6 million as of December 31, 2021, of which $20.5 million was classified as a current liability. These liabilities are actuarially determined. The Company uses various actuarial assumptions, including the discount rate, future cost trends, mortality tables and rates of return on plan assets to estimate the costs and obligations for these items. Its discount rate is determined by utilizing a hypothetical bond portfolio model which approximates the future cash flows necessary to service its liabilities. A decrease in the discount rate used to determine its postretirement benefit and defined benefit pension obligations could result in an increase in the valuation of these obligations, thereby increasing the cost in subsequent fiscal years. The Company has made assumptions related to future trends for medical care costs in the estimates of retiree health care obligations. Its medical trend assumption is developed by annually examining the historical trend of its cost per claim data. If the Company’s assumptions do not materialize as expected, actual cash expenditures and costs that it incurs could differ materially from its current estimates. Moreover, regulatory changes or changes in healthcare benefits provided by the government could increase its obligation to satisfy these or additional obligations. The Company develops its actuarial determinations of liabilities using actuarial mortality tables it believes best fit its population’s actual results. In deciding which mortality tables to use, the Company periodically reviews its population’s actual mortality experience and evaluates results against its current assumptions as well as consider recent mortality tables published by the Society of Actuaries Retirement Plans Experience Committee in order to select mortality tables for use in its year end valuations. If the Company’s mortality tables do not anticipate its population’s mortality experience as accurately as expected, actual cash expenditures and costs that the Company incurs could differ materially from its current estimates. Additionally, the Company’s reported defined benefit pension funding status may be affected, and it may be required to increase employer contributions, due to increases in its defined benefit pension obligation or poor financial performance in asset markets in future years. The Company is subject to various general operating risks which may be fully or partially outside of its control. The Company’s results of operations, financial position or cash flows could be adversely impacted by various general operating risks which may be fully or partially outside of its control. Such risks stem from internal and external sources and include: • global economic recessions and/or credit market disruptions; • deterioration of the creditworthiness of its customers or counterparties to financial instruments, and their ability to perform under contracts; • inability of suppliers and other counterparties, including those related to transportation, contract mining, service provision, and coal trading and brokerage, to fulfil the terms of their contracts with the Company; • decreases in the availability or increases in costs of key supplies, capital equipment or commodities such as diesel fuel, steel, explosives and tires; • disruption to, or increased costs within, the transportation chain for coal, including rail, barge, trucking, overland conveyor, ports and ocean-going vessels; • failure to attract and retain skilled and qualified personnel, or increases in the costs required to attract and retain skilled and qualified personnel, particularly as the prevalence of coal-fired electricity generation declines; • new or increased forms of taxation imposed by federal, state, provincial or local governmental authorities, including production taxes, sales-related taxes, royalties, environmental taxes, mining profits taxes and income taxes; • uncertainties associated with the Company’s global operating platform, including country and political risks, international regulatory requirements, and foreign currency rates; and • cyber-attacks or other cybersecurity incidents that disrupt the operations of the Company or third-parties with which the Company does business, including cloud-based software service providers, or result in the dissemination of proprietary or confidential information about it, its employees, its customers or other third-parties. Peabody Energy Corporation 2021 Form 10-K 34 Table of Contents Risks Related to Peabody’s Indebtedness and Capital Structure The Company’s financial performance could be adversely affected by its funded indebtedness (Indebtedness). As of December 31, 2021, the Company had approximately $1.1 billion of Indebtedness outstanding, excluding finance leases and debt issuance costs. The degree to which the Company is leveraged could have important consequences, including, but not limited to: • making it more difficult for the Company to pay interest and satisfy its debt obligations; • increasing the cost of borrowing; • increasing the Company’s vulnerability to general adverse economic and industry or regulatory conditions; • requiring the dedication of a substantial portion of the Company’s cash flow from operations to the payment of principal and interest on its Indebtedness, thereby reducing the availability of its cash flow to fund working capital, capital expenditures, business development or other general corporate requirements; • limiting its ability to obtain additional financing to fund future working capital, capital expenditures, business development or other general corporate requirements; • limiting its ability to make certain investments; • limiting the Company’s ability to refinance or otherwise exchange existing debt at commercially acceptable rates; • making it more difficult to obtain surety bonds, letters of credit, bank guarantees or other financing, particularly during periods in which credit markets are weak; • limiting the Company’s flexibility in planning for, or reacting to, changes in its business and in the coal industry; • causing a decline in its credit ratings; and • placing the Company at a competitive disadvantage compared to less leveraged competitors. A downgrade in the Company’s credit ratings or other unfavorable indicators could result in, among other matters, a requirement to post additional collateral on derivative trading instruments that it may enter into, the loss of trading counterparties for corporate hedging and trading and brokerage activities or an increase in the cost of, or a limit on its access to, various forms of credit used in operating its business. If the Company’s cash flows and capital resources are insufficient to fund its debt service obligations, it may be forced to sell assets, seek additional capital or seek to restructure or refinance its Indebtedness. These alternative measures may not be successful and may not permit the Company to meet its scheduled debt service obligations. Its Indebtedness may restrict the use of the proceeds from any such sales. The Company may not be able to complete those sales and the proceeds may not be adequate to meet any debt service obligations then due. 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 Company may be able to incur additional Indebtedness in the future. Although covenants under the indentures governing its senior secured notes and the agreements governing its other Indebtedness, including its credit facility, letter of credit facility, and finance leases, limit its ability to incur additional Indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions can be material. In addition, the indenture governing the senior secured notes and the agreements governing the Company’s other Indebtedness do not limit it from incurring obligations that do not constitute Indebtedness as defined therein. 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 indentures governing the Company’s senior secured notes and the agreements governing its other Indebtedness and surety bonding obligations contain certain restrictions and covenants which restrict its ability to incur liens and/or debt or provide guarantees in respect of obligations of any other person and other restrictions, all of which could adversely affect the Company’s ability to operate its business, as well as significantly affect its liquidity, and therefore could adversely affect its results of operations. Peabody Energy Corporation 2021 Form 10-K 35 Table of Contents These covenants limit, among other things, the Company’s ability to: • incur additional Indebtedness; • pay dividends on or make distributions in respect of stock or make certain other restricted payments, such as share repurchases; • make capital or other investments; • enter into agreements that restrict distributions from certain subsidiaries; • sell or otherwise dispose of assets; • use for general purposes the cash received from certain allowable asset sales or disposals; • enter into transactions with affiliates; • create or incur liens; • merge, consolidate or sell all or substantially all of its assets; and • receive dividends or other payments from subsidiaries in certain cases. The Company’s ability to comply with these covenants may be affected by events beyond its control and the Company may need to refinance existing debt in the future. A breach of any of these covenants together with the expiration of any cure period, if applicable, could result in a default under its senior secured notes. If any such default occurs, subject to applicable grace periods, the holders of its senior secured notes may elect to declare all outstanding senior secured notes, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. If the obligations under its senior secured notes were to be accelerated, the Company’s financial resources may be insufficient to repay the notes and any other Indebtedness becoming due in full. The terms of the Company’s Indebtedness provide that if it cannot meet its debt service obligations, the lenders could foreclose against the assets securing their borrowings and the Company could be forced into bankruptcy or liquidation. In addition, if the Company breaches the covenants in the indentures governing the senior secured notes and do not cure such breach within the applicable time periods specified therein, the Company would cause an event of default under the indenture governing the senior secured notes and a cross-default to certain of its other Indebtedness and the lenders or holders thereunder could accelerate their obligations. If the Company’s Indebtedness is accelerated, it may not be able to repay its Indebtedness or borrow sufficient funds to refinance it. Even if the Company is able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to the Company. If the Company’s Indebtedness is in default for any reason, its business, financial condition and results of operations could be materially and adversely affected. In addition, complying with these covenants may make it more difficult for the Company to successfully execute its business strategy and compete against companies who are not subject to such restrictions. 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. Certain banks, other financing sources and insurance companies have taken actions to limit available financing and insurance coverage for the development of new coal-fueled power plants and coal producers and utilities that derive a majority of their revenue from coal, and particularly from thermal coal. This may adversely impact the future global demand for coal. Increasingly, the actions of such financial institutions and insurance companies are informed by non-standardized “sustainability” scores, ratings and benchmarking studies provided by various organizations that assess environmental, social and governance matters. Further, there have been efforts in recent years by members of the general financial and investment communities, including investment advisors, sovereign wealth funds, public pension funds, universities and other institutional investors, to divest themselves and to promote the divestment of securities issued by companies involved in the fossil fuel extraction market, or that have low ratings or scores in studies and assessments of the type noted above, including coal producers. These entities also have been pressuring lenders to limit financing available to such companies. Peabody Energy Corporation 2021 Form 10-K 36 Table of Contents These efforts may have adverse consequences, including, but not limited to: • restricting the Company’s ability to access capital and financial markets in the future; • reducing the demand and price for its equity securities; • increasing the cost of borrowing; • causing a decline in the Company’s credit ratings; • reducing the availability, and/or increasing the cost of, third-party insurance; • increasing the Company’s retention of risk through self-insurance; • making it more difficult to obtain surety bonds, letters of credit, bank guarantees or other financing; and • limiting the Company’s flexibility in business development activities such as mergers, acquisitions and divestitures. Risks Related to Ownership of Peabody’s Securities The price of Peabody’s securities may be volatile and could fall below the minimum allowed by New York Stock Exchange (NYSE) listing requirements. The price of Peabody’s common stock (Common Stock) may fluctuate due to a variety of market and industry factors that may materially reduce the market price of its Common Stock regardless of its operating performance, including, among others: • actual or anticipated fluctuations in Peabody’s quarterly and annual results and those of other public companies in its industry; • industry cycles and trends; • mergers and strategic alliances in the coal industry; • changes in government regulation; • potential or actual military conflicts or acts of terrorism; • the failure of securities analysts to publish research about Peabody or to accurately predict the results it actually achieves; • changes in accounting principles; • announcements concerning Peabody or its competitors; • the purchase and sale of shares of its Common Stock by significant shareholders; • lack of or excess of trading liquidity; and • the general volatility of securities markets. As a result of all of these factors, investors in Peabody’s Common Stock may not be able to resell their stock at or above the price they paid or at all. In the recent past, Peabody’s closing stock price has fallen below $1.00 per share for a limited number of trading days. If Peabody’s stock were to trade below $1.00 per share for 30 consecutive trading days, NYSE could commence suspension and delisting procedures. Further, Peabody could be the subject of securities class action litigation due to any such stock price volatility, which could divert management’s attention and have a material adverse effect on its results of operation. Peabody’s Common Stock is subject to dilution and may be subject to further dilution in the future. Peabody’s Common Stock is subject to dilution from its long-term incentive plan. In addition, Peabody may continue issuing equity securities in connection with future investments, acquisitions, debt-for-equity exchanges or capital raising transactions. Such issuances or grants could constitute a significant portion of the then-outstanding Common Stock, which may result in significant dilution in ownership of Common Stock. There may be circumstances in which the interests of a significant stockholder could be in conflict with other stakeholders’ interests. Circumstances may arise in which the interests of a significant stockholder may be in conflict with the interests of the Company’s other stakeholders. A significant stockholder may exert substantial influence over the Company to cause the Company to take action that aligns with their interests, for example, to pursue or prevent acquisitions, divestitures or other transactions, including the issuance or repurchase of additional shares or debt, that, in its judgment, could enhance its investment in Peabody or another company in which it invests. Such transactions may advance the interests of the significant stockholder and not necessarily those of other stakeholders, which might adversely affect Peabody or other holders of its Common Stock or debt instruments. Peabody Energy Corporation 2021 Form 10-K 37 Table of Contents The future payment of dividends on Peabody’s stock or future repurchases of its stock is dependent on a number of factors and cannot be assured. As more fully described within “Liquidity and Capital Resources” of Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” restrictive covenants in the Company’s debt and surety agreements limit its ability to pay cash dividends and repurchase shares. Such restrictions may negatively impact the trading price of the Common Stock. The payment of future cash dividends and future repurchases will depend upon these restrictions, as well as Peabody’s earnings, economic conditions, liquidity and capital requirements, and other factors, including its leverage and other financial ratios. Accordingly, the Company cannot make any assurance that future dividends will be paid or future repurchases will be made. General Business Risks The Company may not be able to fully utilize its deferred tax assets. The Company is subject to income and other taxes in the U.S. and numerous foreign jurisdictions, most significantly Australia. As of December 31, 2021, the Company had gross deferred income tax assets, including net operating loss (NOL) carryforwards, and liabilities of $2,176.9 million and $83.4 million, respectively, as described further in Note 9. “Income Taxes” to the accompanying consolidated financial statements. At that date, the Company also had recorded a valuation allowance of $2,120.8 million. The Company’s ability to use its U.S. NOL carryforwards may be limited if it experiences an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended. An ownership change generally occurs if certain stockholders increase their aggregate percentage ownership of a corporation’s stock by more than 50 percentage points over their lowest percentage ownership at any time during the testing period, which is generally the three-year period preceding any potential ownership change. Although the Company may be able to utilize some or all of those deferred tax assets in the future if it has income of the appropriate character in those jurisdictions (subject to loss carryforward and tax credit expiry, in certain cases), there is no assurance that it will be able to do so. Further, the Company is presently unable to record tax benefits on future losses in the U.S. and Australia until such time as sufficient income is generated by its operations in those jurisdictions to support the realization of the related net deferred tax asset positions. The Company’s results of operations, financial condition and cash flows may adversely be affected in future periods by these limitations. 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. The Company may engage in acquisition or divestiture activity based on its set of investment criteria to produce outcomes that increase shareholder value or provide potential strategic benefits. If the Company fails to accurately estimate the future results and value of an acquired or divested business or assets and the related risk associated with such a transaction, or are unable to successfully integrate the businesses or assets it acquires, its business, financial condition or results of operations could be negatively affected. Moreover, any transactions the Company pursues could materially impact its liquidity and an acquisition could increase capital resource needs and may require it to incur Indebtedness, seek equity capital or both. The Company may not be able to satisfy these liquidity and capital resource needs on acceptable terms or at all. In addition, future acquisitions could result in its assuming significant long-term liabilities, including potentially unknown liabilities, relative to the value of the acquisitions. Peabody’s certificate of incorporation and by-laws include provisions that may discourage a takeover attempt. Provisions contained in Peabody’s certificate of incorporation and by-laws and Delaware law could make it more difficult for a third-party to acquire it, even if doing so might be beneficial to its stockholders. Provisions of Peabody’s by-laws and certificate of incorporation impose various procedural and other requirements that could make it more difficult for stockholders to effect certain corporate actions. These provisions could limit the price that certain investors might be willing to pay in the future for shares of its Common Stock and may have the effect of delaying or preventing a change in control. Peabody Energy Corporation 2021 Form 10-K 38 Table of Contents Diversity in interpretation and application of accounting literature in the mining industry may impact the Company’s reported financial results. The mining industry has limited industry-specific accounting literature and, as a result, the Company understands diversity in practice exists in the interpretation and application of accounting literature to mining-specific issues. As diversity in mining industry accounting is addressed, the Company may need to restate its reported results if the resulting interpretations differ from its current accounting practices. Refer to Note 1. “Summary of Significant Accounting Policies” to the accompanying consolidated financial statements for a summary of the Company’s significant accounting policies. Item 1B. Unresolved Staff Comments. None.