PEABODY ENERGY CORP 10-Q

Item 1. Financial Statements. PEABODY ENERGY CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in millions, except per share data) Revenue $ 1,321.9 $ 723.4 $ 2,013.3 $ 1,374.7 Costs and expenses Operating costs and expenses (exclusive of items shown separately below) 825.6 611.4 1,524.6 1,194.0 Depreciation, depletion and amortization 73.8 77.1 146.7 145.4 Asset retirement obligation expenses 12.7 15.1 27.7 31.0 Selling and administrative expenses 21.8 21.4 44.9 43.1 Restructuring charges 0.2 2.1 1.8 4.2 Other operating (income) loss: Net gain on disposals ( 12.8 ) ( 3.0 ) ( 17.7 ) ( 2.4 ) (Income) loss from equity affiliates ( 48.7 ) 3.5 ( 93.4 ) 4.4 Operating profit (loss) 449.3 ( 4.2 ) 378.7 ( 45.0 ) Interest expense 37.6 45.4 77.0 97.8 Net loss (gain) on early debt extinguishment 2.3 ( 11.8 ) 25.8 ( 15.3 ) Interest income ( 0.9 ) ( 1.3 ) ( 1.4 ) ( 2.8 ) Net periodic benefit credit, excluding service cost ( 12.3 ) ( 8.7 ) ( 24.5 ) ( 17.4 ) Income (loss) from continuing operations before income taxes 422.6 ( 27.8 ) 301.8 ( 107.3 ) Income tax provision (benefit) 11.3 ( 4.8 ) 10.3 ( 6.6 ) Income (loss) from continuing operations, net of income taxes 411.3 ( 23.0 ) 291.5 ( 100.7 ) Loss from discontinued operations, net of income taxes ( 0.7 ) ( 2.3 ) ( 1.5 ) ( 4.3 ) Net income (loss) 410.6 ( 25.3 ) 290.0 ( 105.0 ) Less: Net income attributable to noncontrolling interests 1.1 3.3 — 3.7 Net income (loss) attributable to common stockholders $ 409.5 $ ( 28.6 ) $ 290.0 $ ( 108.7 ) Income (loss) from continuing operations: Basic income (loss) per share $ 2.85 $ ( 0.26 ) $ 2.08 $ ( 1.05 ) Diluted income (loss) per share $ 2.55 $ ( 0.26 ) $ 1.93 $ ( 1.05 ) Net income (loss) attributable to common stockholders: Basic income (loss) per share $ 2.84 $ ( 0.28 ) $ 2.07 $ ( 1.09 ) Diluted income (loss) per share $ 2.54 $ ( 0.28 ) $ 1.93 $ ( 1.09 ) See accompanying notes to unaudited condensed consolidated financial statements. 1 Table of Contents PEABODY ENERGY CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in millions) Net income (loss) $ 410.6 $ ( 25.3 ) $ 290.0 $ ( 105.0 ) Postretirement plans (net of $ 0.0 tax provisions in each period) ( 13.5 ) ( 11.0 ) ( 26.9 ) ( 22.0 ) Foreign currency translation adjustment ( 3.4 ) ( 0.2 ) ( 1.5 ) ( 0.4 ) Other comprehensive loss, net of income taxes ( 16.9 ) ( 11.2 ) ( 28.4 ) ( 22.4 ) Comprehensive income (loss) 393.7 ( 36.5 ) 261.6 ( 127.4 ) Less: Net income attributable to noncontrolling interests 1.1 3.3 — 3.7 Comprehensive income (loss) attributable to common stockholders $ 392.6 $ ( 39.8 ) $ 261.6 $ ( 131.1 ) See accompanying notes to unaudited condensed consolidated financial statements. 2 Table of Contents PEABODY ENERGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, 2022 December 31, 2021 (Amounts in millions, except per share data) ASSETS Current assets Cash and cash equivalents $ 1,120.7 $ 954.3 Accounts receivable, net of allowance for credit losses of $ 0.0 at June 30, 2022 and December 31, 2021 530.4 350.5 Inventories, net 252.9 226.7 Other current assets 346.0 270.2 Total current assets 2,250.0 1,801.7 Property, plant, equipment and mine development, net 2,856.6 2,950.6 Operating lease right-of-use assets 36.3 35.5 Investments and other assets 157.0 162.0 Total assets $ 5,299.9 $ 4,949.8 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Current portion of long-term debt $ 177.7 $ 59.6 Accounts payable and accrued expenses 811.2 872.1 Total current liabilities 988.9 931.7 Long-term debt, less current portion 869.2 1,078.2 Deferred income taxes 25.9 27.3 Asset retirement obligations 660.0 654.8 Accrued postretirement benefit costs 206.8 212.1 Operating lease liabilities, less current portion 24.4 27.2 Other noncurrent liabilities 231.3 197.7 Total liabilities 3,006.5 3,129.0 Stockholders’ equity Preferred Stock — $ 0.01 per share par value; 100.0 shares authorized, no shares issued or outstanding as of June 30, 2022 and December 31, 2021 — — Series Common Stock — $ 0.01 per share par value; 50.0 shares authorized, no shares issued or outstanding as of June 30, 2022 and December 31, 2021 — — Common Stock — $ 0.01 per share par value; 450.0 shares authorized, 187.1 shares issued and 143.9 shares outstanding as of June 30, 2022 and 176.3 shares issued and 133.3 shares outstanding as of December 31, 2021 1.9 1.8 Additional paid-in capital 3,972.9 3,745.6 Treasury stock, at cost — 43.2 and 43.0 common shares as of June 30, 2022 and December 31, 2021 ( 1,372.9 ) ( 1,370.3 ) Accumulated deficit ( 623.2 ) ( 913.2 ) Accumulated other comprehensive income 269.5 297.9 Peabody Energy Corporation stockholders’ equity 2,248.2 1,761.8 Noncontrolling interests 45.2 59.0 Total stockholders’ equity 2,293.4 1,820.8 Total liabilities and stockholders’ equity $ 5,299.9 $ 4,949.8 See accompanying notes to unaudited condensed consolidated financial statements. 3 Table of Contents PEABODY ENERGY CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2022 2021 (Dollars in millions) Cash Flows From Operating Activities Net income (loss) $ 290.0 $ ( 105.0 ) Loss from discontinued operations, net of income taxes 1.5 4.3 Income (loss) from continuing operations, net of income taxes 291.5 ( 100.7 ) Adjustments to reconcile income (loss) from continuing operations, net of income taxes to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 146.7 145.4 Noncash interest expense, net 9.0 10.8 Deferred income taxes ( 1.4 ) ( 0.8 ) Noncash share-based compensation 5.4 3.9 Net gain on disposals ( 17.7 ) ( 2.4 ) Net loss (gain) on early debt extinguishment 25.8 ( 15.3 ) (Income) loss from equity affiliates ( 93.4 ) 4.4 Foreign currency option contracts 3.0 4.3 Changes in current assets and liabilities: Accounts receivable ( 179.9 ) ( 5.9 ) Inventories ( 26.2 ) 29.2 Other current assets ( 82.9 ) ( 19.5 ) Accounts payable and accrued expenses ( 13.1 ) ( 50.2 ) Collateral arrangements ( 28.2 ) ( 5.3 ) Asset retirement obligations 5.2 14.0 Workers’ compensation obligations ( 1.6 ) 0.6 Postretirement benefit obligations ( 32.2 ) ( 29.3 ) Pension obligations ( 1.2 ) ( 1.2 ) Other, net 3.3 — Net cash provided by (used in) continuing operations 12.1 ( 18.0 ) Net cash used in discontinued operations ( 2.7 ) ( 4.8 ) Net cash provided by (used in) operating activities 9.4 ( 22.8 ) 4 Table of Contents PEABODY ENERGY CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) Six Months Ended June 30, 2022 2021 (Dollars in millions) Cash Flows From Investing Activities Additions to property, plant, equipment and mine development ( 63.1 ) ( 93.9 ) Changes in accrued expenses related to capital expenditures ( 9.7 ) ( 4.1 ) Proceeds from disposal of assets, net of receivables 23.4 4.9 Contributions to joint ventures ( 276.0 ) ( 244.5 ) Distributions from joint ventures 280.8 252.6 Advances to related parties ( 1.2 ) ( 0.2 ) Cash receipts from Middlemount Coal Pty Ltd and other related parties 143.9 2.6 Other, net ( 3.6 ) — Net cash provided by (used in) investing activities 94.5 ( 82.6 ) Cash Flows From Financing Activities Proceeds from long-term debt 545.0 — Repayments of long-term debt ( 654.8 ) ( 83.1 ) Payment of debt issuance and other deferred financing costs ( 20.7 ) ( 22.5 ) Proceeds from common stock issuances, net of costs 222.0 65.1 Repurchase of employee common stock relinquished for tax withholding ( 2.6 ) ( 1.3 ) Distributions to noncontrolling interests ( 13.8 ) ( 0.1 ) Net cash provided by (used in) financing activities 75.1 ( 41.9 ) Net change in cash, cash equivalents and restricted cash 179.0 ( 147.3 ) Cash, cash equivalents and restricted cash at beginning of period 954.3 709.2 Cash, cash equivalents and restricted cash at end of period (1) $ 1,133.3 $ 561.9 (1) The following table provides a reconciliation of “Cash, cash equivalents and restricted cash at end of period” at June 30, 2022 Cash and cash equivalents $ 1,120.7 Restricted cash included in “Investments and other assets” 12.6 Cash, cash equivalents and restricted cash at end of period $ 1,133.3 See accompanying notes to unaudited condensed consolidated financial statements. 5 Table of Contents PEABODY ENERGY CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in millions) Common Stock Balance, beginning of period $ 1.9 $ 1.4 $ 1.8 $ 1.4 Common stock issuances, net of costs — 0.1 0.1 0.1 Balance, end of period 1.9 1.5 1.9 1.5 Additional paid-in capital Balance, beginning of period 3,969.5 3,366.4 3,745.6 3,364.6 Share-based compensation for equity-classified awards 3.4 2.1 5.4 3.9 Common stock issued in exchange for debt retirement — 30.5 — 30.5 Common stock issuances, net of costs — 64.8 221.9 64.8 Balance, end of period 3,972.9 3,463.8 3,972.9 3,463.8 Treasury stock Balance, beginning of period ( 1,372.3 ) ( 1,369.5 ) ( 1,370.3 ) ( 1,368.9 ) Repurchase of employee common stock relinquished for tax withholding ( 0.6 ) ( 0.7 ) ( 2.6 ) ( 1.3 ) Balance, end of period ( 1,372.9 ) ( 1,370.2 ) ( 1,372.9 ) ( 1,370.2 ) Accumulated deficit Balance, beginning of period ( 1,032.7 ) ( 1,353.4 ) ( 913.2 ) ( 1,273.3 ) Net income (loss) attributable to common stockholders 409.5 ( 28.6 ) 290.0 ( 108.7 ) Balance, end of period ( 623.2 ) ( 1,382.0 ) ( 623.2 ) ( 1,382.0 ) Accumulated other comprehensive income Balance, beginning of period 286.4 194.6 297.9 205.8 Postretirement plans (net of $ 0.0 tax provisions in each period) ( 13.5 ) ( 11.0 ) ( 26.9 ) ( 22.0 ) Foreign currency translation adjustment ( 3.4 ) ( 0.2 ) ( 1.5 ) ( 0.4 ) Balance, end of period 269.5 183.4 269.5 183.4 Noncontrolling interests Balance, beginning of period 44.1 52.0 59.0 51.7 Net income attributable to noncontrolling interests 1.1 3.3 — 3.7 Distributions to noncontrolling interests — — ( 13.8 ) ( 0.1 ) Balance, end of period 45.2 55.3 45.2 55.3 Total stockholders’ equity $ 2,293.4 $ 951.8 $ 2,293.4 $ 951.8 See accompanying notes to unaudited condensed consolidated financial statements. 6 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation The condensed consolidated financial statements include the accounts of Peabody Energy Corporation (PEC) and its consolidated subsidiaries and affiliates (along with PEC, the Company or Peabody). Interests in subsidiaries controlled by the Company are consolidated with any outside stockholder interests reflected as noncontrolling interests, except when the Company has an undivided interest in a joint venture. In those cases, the Company includes its proportionate share in the assets, liabilities, revenue and expenses of the jointly controlled entities within each applicable line item of the unaudited condensed consolidated financial statements. All intercompany transactions, profits and balances have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. In the opinion of management, these financial statements reflect all normal, recurring adjustments necessary for a fair presentation. Balance sheet information presented herein as of December 31, 2021 has been derived from the Company’s audited consolidated balance sheet at that date. The Company’s results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for future quarters or for the year ending December 31, 2022. (2) Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented Newly Adopted Accounting Standards Convertible Debt. In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2020-06, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Among other changes, ASU 2020-06 removes from U.S. GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under Accounting Standards Codification Topic 815, Derivatives and Hedging or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and can be adopted on either a fully retrospective or modified retrospective basis. The Company adopted ASU 2020-06, effective January 1, 2022. In the Company’s accompanying condensed consolidated balance sheets, the adoption of the new standard impacted the accounting for the Company’s $ 320.0 million of convertible debt issued in March 2022, as further described in Note 9. “Long-term Debt.” In particular, because the related senior notes have cash conversion features, bifurcation of the principal balance between debt and equity is no longer applicable. Additionally, this guidance requires the application of the “if-converted” method to calculate the impact of convertible instruments on diluted earnings per share, as reflected in the Company’s calculations within Note 11. “Earnings per Share (EPS).” Accounting Standards Not Yet Implemented Reference Rate Reform. In March 2020, ASU 2020-04 was issued, which provides temporary optional expedients to applying the reference rate reform guidance to contracts that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued. Under this update, contract modifications resulting in a new reference rate may be accounted for as a continuation of the existing contract. This guidance is effective upon issuance of the update and applies to contract modifications made through December 31, 2022. The Company has certain debt which utilizes a U.S. Dollar one-month LIBOR rate, which is expected to be published until June 2023. The LIBOR rate is likely to be replaced by a similar secured or unsecured overnight financing rate. The Company cannot estimate the impact of such variable rates on its consolidated financial statements. 7 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (3) Revenue Recognition Refer to Note 1. “Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, for the Company’s policies regarding “Revenue” and “Accounts receivable, net.” Disaggregation of Revenue Revenue by product type and market is set forth in the following tables. With respect to its seaborne mining segments, the Company classifies as “Export” certain revenue from domestically-delivered coal under contracts in which the price is derived on a basis similar to export contracts. Three Months Ended June 30, 2022 Seaborne Thermal Mining Seaborne Metallurgical Mining Powder River Basin Mining Other U.S. Thermal Mining Corporate and Other (1) Consolidated (Dollars in millions) Thermal coal Domestic $ 39.8 $ — $ 229.9 $ 222.8 $ — $ 492.5 Export 314.9 — — 1.0 — 315.9 Total thermal 354.7 — 229.9 223.8 — 808.4 Metallurgical coal Export — 533.3 — — — 533.3 Total metallurgical — 533.3 — — — 533.3 Other (2) 0.2 0.5 ( 0.2 ) 1.1 ( 21.4 ) ( 19.8 ) Revenue $ 354.9 $ 533.8 $ 229.7 $ 224.9 $ ( 21.4 ) $ 1,321.9 Three Months Ended June 30, 2021 Seaborne Thermal Mining Seaborne Metallurgical Mining Powder River Basin Mining Other U.S. Thermal Mining Corporate and Other (1) Consolidated (Dollars in millions) Thermal coal Domestic $ 47.5 $ — $ 248.8 $ 160.0 $ — $ 456.3 Export 146.4 — — 1.2 — 147.6 Total thermal 193.9 — 248.8 161.2 — 603.9 Metallurgical coal Export — 120.4 — — — 120.4 Total metallurgical — 120.4 — — — 120.4 Other (2) 0.2 0.6 ( 0.2 ) 0.9 ( 2.4 ) ( 0.9 ) Revenue $ 194.1 $ 121.0 $ 248.6 $ 162.1 $ ( 2.4 ) $ 723.4 8 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Six Months Ended June 30, 2022 Seaborne Thermal Mining Seaborne Metallurgical Mining Powder River Basin Mining Other U.S. Thermal Mining Corporate and Other (1) Consolidated (Dollars in millions) Thermal coal Domestic $ 80.2 $ — $ 481.4 $ 422.7 $ — $ 984.3 Export 525.4 — — 1.0 — 526.4 Total thermal 605.6 — 481.4 423.7 — 1,510.7 Metallurgical coal Export — 851.3 — — — 851.3 Total metallurgical — 851.3 — — — 851.3 Other (2) 0.5 3.8 ( 0.5 ) 4.3 ( 356.8 ) ( 348.7 ) Revenue $ 606.1 $ 855.1 $ 480.9 $ 428.0 $ ( 356.8 ) $ 2,013.3 Six Months Ended June 30, 2021 Seaborne Thermal Mining Seaborne Metallurgical Mining Powder River Basin Mining Other U.S. Thermal Mining Corporate and Other (1) Consolidated (Dollars in millions) Thermal coal Domestic $ 91.6 $ — $ 477.2 $ 306.8 $ — $ 875.6 Export 278.3 — — 1.2 — 279.5 Total thermal 369.9 — 477.2 308.0 — 1,155.1 Metallurgical coal Export — 207.0 — — — 207.0 Total metallurgical — 207.0 — — — 207.0 Other (2) 0.6 1.5 ( 0.2 ) 3.4 7.3 12.6 Revenue $ 370.5 $ 208.5 $ 477.0 $ 311.4 $ 7.3 $ 1,374.7 (1) Corporate and Other includes the following: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in millions) Unrealized loss on derivative contracts related to forecasted sales $ ( 24.5 ) $ ( 23.7 ) $ ( 325.5 ) $ ( 25.6 ) Realized loss on derivative contracts related to forecasted sales ( 122.6 ) ( 7.1 ) ( 190.6 ) ( 15.0 ) Revenue from physical sale of coal (3) 122.0 23.2 143.3 41.1 Trading revenue 0.3 1.4 10.4 0.7 Other (2) 3.4 3.8 5.6 6.1 Total Corporate and Other $ ( 21.4 ) $ ( 2.4 ) $ ( 356.8 ) $ 7.3 (2) Other includes revenue from arrangements such as customer contract-related payments associated with volume shortfalls, royalties related to coal lease agreements, sales agency commissions, farm income and property and facility rentals. (3) Includes revenues recognized upon the physical sale of coal purchased from the Company’s operating segments, and sold to customers through the Company’s coal trading business as part of settling certain derivative contracts. Primarily represents the difference between the price contracted with the customer and the price allocated to the operating segment. 9 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Accounts Receivable “Accounts receivable, net” at June 30, 2022 and December 31, 2021 consisted of the following: June 30, 2022 December 31, 2021 (Dollars in millions) Trade receivables, net $ 491.0 $ 307.0 Miscellaneous receivables, net 39.4 43.5 Accounts receivable, net $ 530.4 $ 350.5 None of the above receivables included allowances for credit losses at June 30, 2022 or December 31, 2021. No charges for credit losses were recognized during the three and six months ended June 30, 2022 or 2021. (4) Inventories “ Inventories, net” as of June 30, 2022 and December 31, 2021 consisted of the following: June 30, 2022 December 31, 2021 (Dollars in millions) Materials and supplies, net $ 116.9 $ 102.1 Raw coal 63.4 54.6 Saleable coal 72.6 70.0 Inventories, net $ 252.9 $ 226.7 Materials and supplies inventories, net presented above have been shown net of reserves of $ 8.2 million and $ 9.0 million as of June 30, 2022 and December 31, 2021. (5) Equity Method Investments The Company had total equity method investments and financing receivables of $ 12.3 million and $ 62.2 million reflected in “Investments and other assets” in the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively, related to Middlemount Coal Pty Ltd (Middlemount). Included in “(Income) loss from equity affiliates” in the unaudited condensed consolidated statements of operations was income related to Middlemount of $ 49.5 million and $ 95.2 million during the three and six months ended June 30, 2022, respectively, and losses of $ 3.5 million and $ 4.4 million during the three and six months ended June 30, 2021, respectively. The Company received cash payments from Middlemount of $ 143.2 million and $ 2.3 million during the six months ended June 30, 2022 and 2021, respectively. One of the Company’s Australian subsidiaries is party to an agreement to provide a revolving loan to Middlemount. The Company’s participation in the revolving loan will not, at any time, exceed its 50 % equity interest of the revolving loan limit, which was $ 50 million Australian dolla rs at June 30, 2022. The revolving loan bears interest at 10 % per annum and expires on December 31, 2023. T here was no outstanding revolving loan at June 30, 2022 or December 31, 2021. (6) Derivatives and Fair Value Measurements Derivatives From time to time, the Company may utilize various types of derivative instruments to manage its exposure to risks in the normal course of business, including (1) foreign currency exchange rate risk and the variability of cash flows associated with forecasted Australian dollar expenditures made in its Australian mining platform, (2) price risk of fluctuating coal prices related to forecasted sales or purchases of coal, or changes in the fair value of a fixed price physical sales contract, (3) price risk and the variability of cash flows related to forecasted diesel fuel purchased for use in its operations and (4) interest rate risk on long-term debt. These risk management activities are actively monitored for compliance with the Company’s risk management policies. On a limited basis, the Company engages in the direct and brokered trading of coal and freight-related contracts. Except those contracts for which the Company has elected to apply a normal purchases and normal sales exception, all derivative coal trading contracts are accounted for at fair value. The Company had no diesel fuel or interest rate derivatives in place as of June 30, 2022. 10 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Foreign Currency Option Contracts As of June 30, 2022, the Company had currency options outstanding with an aggregate notional amount of $ 758.0 million Australian dollars to hedge currency risk associated with anticipated Australian dollar expenditures over the nine-month period ending March 31, 2023. The instruments are quarterly average rate options which entitle the Company to receive payment on the notional amount should the quarterly average Australian dollar-to-U.S. dollar exchange rate exceed amounts ranging from $ 0.74 to $ 0.80 over the nine-month period ending March 31, 2023. Derivative Contracts Related to Forecasted Sales As of June 30, 2022, the Company held coal derivative contracts related to a portion of its forecasted sales with an aggregate notional volume of 1.0 million tonnes. Such financial contracts may include futures, forwards and options. Included in this total are 0.9 million tonnes related to financial derivatives entered to support the profitability of the Wambo Underground Mine as part of a strategy to extend the mine life through mid-2023. Of this total, 0.4 million tonnes will settle in 2022 and 0.5 million tonnes will settle in 2023 at expected average pricing of approximately $ 84 per tonne (Newcastle index). The remaining 0.1 million tonnes aggregate notional volume related to other coal financial contracts will settle in 2022. Additionally, the Company classifies certain physical forward sales contracts as derivatives for which the normal purchase, normal sales exception does not apply. During the three months ended June 30, 2022, the Company recorded a net unrealized mark-to-market loss of $ 24.5 million on these coal derivative contracts, which includes approximately $ 40 million of unrealized mark-to-market losses on financial derivatives and approximately $ 15 million of unrealized mark-to-market gains on physical forward sales contracts. During the six months ended June 30, 2022, the Company recorded a net unrealized mark-to-market loss of $ 325.5 million on these coal derivative contracts, which includes approximately $ 306 million of unrealized mark-to-market losses on financial derivatives and approximately $ 20 million of unrealized mark-to-market losses on physical forward sales contracts. Financial Trading Contracts On a limited basis, the Company may enter coal or freight derivative contracts for trading purposes. Such financial contracts may include futures, forwards and options. The Company held nominal financial trading contracts as of June 30, 2022. Tabular Derivatives Disclosures The Company has master netting agreements with certain of its counterparties which allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. Such netting arrangements reduce the Company’s credit exposure related to these counterparties. For classification purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or liability in the condensed consolidated balance sheets. The fair value of derivatives reflected in the accompanying condensed consolidated balance sheets are set forth in the table below. June 30, 2022 December 31, 2021 Asset Derivative Liability Derivative Asset Derivative Liability Derivative (Dollars in millions) Foreign currency option contracts $ 1.6 $ — $ 1.4 $ — Derivative contracts related to forecasted sales 167.6 ( 656.9 ) 59.5 ( 184.2 ) Financial trading contracts 12.7 — 3.4 — Total derivatives 181.9 ( 656.9 ) 64.3 ( 184.2 ) Effect of counterparty netting ( 167.6 ) 167.6 ( 59.5 ) 59.5 Variation margin (received) posted ( 12.7 ) 440.1 ( 3.4 ) 95.2 Net derivatives and variation margin as classified in the balance sheets $ 1.6 $ ( 49.2 ) $ 1.4 $ ( 29.5 ) The Company generally posts or receives variation margin cash with its clearing broker on the majority of its financial derivatives as market values of the financial derivatives fluctuate. As of June 30, 2022, the Company had posted $ 544.2 million aggregate margin cash, consisting of $ 427.4 million variation margin cash and $ 116.8 million initial margin. As of December 31, 2021, the Company had posted $ 130.1 million aggregate margin cash, consisting of $ 91.8 million variation margin cash and $ 38.3 million initial margin. 11 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) The net amount of asset derivatives, net of variation margin, is included in “Other current assets” and the net amount of liability derivatives, net of variation margin, is included in “Accounts payable and accrued expenses” in the accompanying condensed consolidated balance sheets. The amounts of initial margin are not included with the derivatives presented in the tabular disclosures above and are included in “Other current assets” in the accompanying condensed consolidated balance sheets. Currently, the Company does not seek cash flow hedge accounting treatment for its derivative financial instruments and thus changes in fair value are reflected in current earnings. The tables below show the amounts of pre-tax gains and losses related to the Company’s derivatives and their classification within the accompanying unaudited condensed consolidated statements of operations. Three Months Ended June 30, 2022 Total (loss) gain recognized in income (Loss) gain realized in income on derivatives Unrealized loss recognized in income on derivatives Derivative Instrument Classification (Dollars in millions) Foreign currency option contracts Operating costs and expenses $ ( 7.5 ) $ ( 1.2 ) $ ( 6.3 ) Derivative contracts related to forecasted sales Revenue ( 147.1 ) ( 122.6 ) ( 24.5 ) Financial trading contracts Revenue 0.3 0.9 ( 0.6 ) Total $ ( 154.3 ) $ ( 122.9 ) $ ( 31.4 ) Three Months Ended June 30, 2021 (1) Total (loss) gain recognized in income Loss realized in income on derivatives Unrealized (loss) gain recognized in income on derivatives Derivative Instrument Classification (Dollars in millions) Foreign currency option contracts Operating costs and expenses $ ( 1.2 ) $ — $ ( 1.2 ) Derivative contracts related to forecasted sales Revenue ( 30.8 ) ( 7.1 ) ( 23.7 ) Financial trading contracts Revenue 1.4 ( 2.4 ) 3.8 Total $ ( 30.6 ) $ ( 9.5 ) $ ( 21.1 ) 12 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Six Months Ended June 30, 2022 Total (loss) gain recognized in income (Loss) gain realized in income on derivatives Unrealized (loss) gain recognized in income on derivatives Derivative Instrument Classification (Dollars in millions) Foreign currency option contracts Operating costs and expenses $ ( 5.2 ) $ ( 2.2 ) $ ( 3.0 ) Derivative contracts related to forecasted sales Revenue ( 516.1 ) ( 190.6 ) ( 325.5 ) Financial trading contracts Revenue 10.4 0.2 10.2 Total $ ( 510.9 ) $ ( 192.6 ) $ ( 318.3 ) Six Months Ended June 30, 2021 (1) Total (loss) gain recognized in income Gain (loss) realized in income on derivatives Unrealized (loss) gain recognized in income on derivatives Derivative Instrument Classification (Dollars in millions) Foreign currency option contracts Operating costs and expenses $ ( 4.2 ) $ 4.6 $ ( 8.8 ) Derivative contracts related to forecasted sales Revenue ( 40.6 ) ( 15.0 ) ( 25.6 ) Financial trading contracts Revenue 0.7 ( 0.1 ) 0.8 Total $ ( 44.1 ) $ ( 10.5 ) $ ( 33.6 ) (1) ‘Results realized in income on derivatives’ has been revised to exclude revenue from the physical sale of coal by the Company’s trading and brokerage function of $ 23.2 million and $ 41.1 million for the three and six months ended June 30, 2021, respectively, to be comparable to the presentation of the 2022 amounts. The Company classifies the cash effects of its derivatives within the “Cash Flows From Operating Activities” section of the unaudited condensed consolidated statements of cash flows. Fair Value Measurements The Company uses a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. These levels include: Level 1 - inputs are quoted prices in active markets for the identical assets or liabilities; Level 2 - inputs are other than quoted prices included in Level 1 that are directly or indirectly observable through market-corroborated inputs; and Level 3 - inputs are unobservable, or observable but cannot be market-corroborated, requiring the Company to make assumptions about pricing by market participants. 13 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables set forth the hierarchy of the Company’s net (liability) asset positions for which fair value is measured on a recurring basis. Variation margin cash associated with the derivative balances is excluded from this table. June 30, 2022 Level 1 Level 2 Level 3 Total (Dollars in millions) Foreign currency option contracts $ — $ 1.6 $ — $ 1.6 Derivative contracts related to forecasted sales — ( 489.3 ) — ( 489.3 ) Financial trading contracts — 12.7 — 12.7 Equity securities — — 4.0 4.0 Total net (liabilities) assets $ — $ ( 475.0 ) $ 4.0 $ ( 471.0 ) December 31, 2021 Level 1 Level 2 Level 3 Total (Dollars in millions) Foreign currency option contracts $ — $ 1.4 $ — $ 1.4 Derivative contracts related to forecasted sales — ( 124.7 ) — ( 124.7 ) Financial trading contracts — 3.4 — 3.4 Equity securities — — 4.0 4.0 Total net (liabilities) assets $ — $ ( 119.9 ) $ 4.0 $ ( 115.9 ) For Level 1 and 2 financial assets and liabilities, the Company utilizes both direct and indirect observable price quotes, including interest rate yield curves, exchange indices, broker/dealer quotes, published indices, issuer spreads, benchmark securities and other market quotes. In the case of certain debt securities, fair value is provided by a third-party pricing service. Below is a summary of the Company’s valuation techniques for Level 1 and 2 financial assets and liabilities: • Foreign currency option contracts are valued utilizing inputs obtained in quoted public markets (Level 2) except when credit and non-performance risk is considered to be a significant input, then the Company classifies such contracts as Level 3. • Derivative contracts related to forecasted sales and financial trading contracts are generally valued based on unadjusted quoted prices in active markets (Level 1) or a valuation that is corroborated by the use of market-based pricing (Level 2) except when credit and non-performance risk is considered to be a significant input (greater than 10 % of fair value), then the Company classifies as Level 3. • Investments in equity securities are based on observed prices in an inactive market (Level 3). Other Financial Instruments . The following methods and assumptions were used by the Company in estimating fair values for other financial instruments as of June 30, 2022 and December 31, 2021: • Cash and cash equivalents, restricted cash, accounts receivable, including those within the Company’s accounts receivable securitization program, margining cash, notes receivable and accounts payable have carrying values which approximate fair value due to the short maturity or the liquid nature of these instruments. • Long-term debt fair value estimates are based on observed prices for securities when available (Level 2), and otherwise on estimated borrowing rates to discount the cash flows to their present value (Level 3). 14 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Market risk associated with the Company’s fixed- and variable-rate long-term debt relates to the potential reduction in the fair value and negative impact to future earnings, respectively, from an increase in interest rates. The fair value of debt, shown below, is principally based on reported market values and estimates based on interest rates, maturities, credit risk, underlying collateral and completed market transactions. June 30, 2022 December 31, 2021 (Dollars in millions) Total debt at par value $ 1,075.4 $ 1,173.2 Less: Unamortized debt issuance costs and original issue discount ( 28.5 ) ( 35.4 ) Net carrying amount $ 1,046.9 $ 1,137.8 Estimated fair value $ 1,189.9 $ 1,136.5 Generally, the Company’s Level 3 instruments or contracts are valued using bid/ask price quotations and other market assessments obtained from multiple, independent third-party brokers or other transactional data incorporated into internally-generated discounted cash flow models. Decreases in the number of third-party brokers or market liquidity could erode the quality of market information and therefore the valuation of the Company’s market positions. The Company’s valuation techniques include basis adjustments to the foregoing price inputs for quality, such as sulfur and ash content, location differentials, expressed as port and freight costs, and credit risk. The Company’s risk management function independently validates the Company’s valuation inputs, including unobservable inputs, with third-party information and settlement prices from other sources where available. A daily process is performed to analyze market price changes and changes to the portfolio. Further periodic validation occurs at the time contracts are settled with the counterparty. These valuation techniques have been consistently applied in all periods presented, and the Company believes it has obtained the most accurate information available for the types of derivative contracts held. Significant increases or decreases in the inputs in isolation could result in a significantly higher or lower fair value measurement. The unobservable inputs do not have a direct interrelationship; therefore, a change in one unobservable input would not necessarily correspond with a change in another unobservable input. The Company had no transfers between Levels 1, 2 and 3 during the three and six months ended June 30, 2022 and 2021. The Company’s policy is to value all transfers between levels using the beginning of period valuation. (7) Property, Plant, Equipment and Mine Development The composition of property, plant, equipment and mine development, net, as of June 30, 2022 and December 31, 2021 is set forth in the table below: June 30, 2022 December 31, 2021 (Dollars in millions) Land and coal interests $ 2,488.8 $ 2,494.1 Buildings and improvements 593.2 550.8 Machinery and equipment 1,400.4 1,386.2 Less: Accumulated depreciation, depletion and amortization ( 1,625.8 ) ( 1,480.5 ) Property, plant, equipment and mine development, net $ 2,856.6 $ 2,950.6 Asset Impairment and Other At-Risk Assets The Company has identified certain assets with an aggregate carrying value of approximately $ 0.5 billion at June 30, 2022 in its Other U.S. Thermal Mining and Corporate and Other segments whose recoverability is most sensitive to customer demand, customer concentration risk and future economic viability. The Company conducted a review of those assets as of June 30, 2022 and determined that no impairment charges were necessary as of that date. 15 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (8) Income Taxes The Company's effective tax rate before remeasurement for the six months ended June 30, 2022 is based on the Company’s estimated full year effective tax rate, comprised of expected statutory tax provision, offset by foreign rate differential and changes in valuation allowance. The Company is expecting to utilize substantial net operating losses in Australia and the U.S. in 2022 based on estimated pretax income. The Company’s income tax provision of $ 11.3 million and income tax benefit of $ 4.8 million for the three months ended June 30, 2022 and 2021, respectively, included tax benefits of $ 3.5 million and $ 0.3 million, respectively, related to the remeasurement of foreign income tax accounts. The Company’s income tax provision of $ 10.3 million and income tax benefit of $ 6.6 million for the six months ended June 30, 2022 and 2021, respectively, included tax benefits of $ 1.9 million and $ 0.5 million, respectively, related to the remeasurement of foreign income tax accounts. (9) Long-term Debt The Company’s total indebtedness as of June 30, 2022 and December 31, 2021 consisted of the following: Debt Instrument (defined below, as applicable) June 30, 2022 December 31, 2021 (Dollars in millions) 6.000 % Senior Secured Notes due March 2022 (2022 Notes) $ — $ 23.1 8.500 % Senior Secured Notes due December 2024 (2024 Peabody Notes) — 62.6 10.000 % Senior Secured Notes due December 2024 (2024 Co-Issuer Notes) 193.6 193.9 Senior Secured Term Loan due 2024 (Co-Issuer Term Loans) 138.8 206.0 6.375 % Senior Secured Notes due March 2025 (2025 Notes) 77.5 334.9 Senior Secured Term Loan due 2025, net of original issue discount (Senior Secured Term Loan) 320.9 322.8 3.250 % Convertible Senior Notes due March 2028 (2028 Convertible Notes) 320.0 — Finance lease obligations 24.1 29.3 Less: Debt issuance costs ( 28.0 ) ( 34.8 ) 1,046.9 1,137.8 Less: Current portion of long-term debt 177.7 59.6 Long-term debt $ 869.2 $ 1,078.2 2021 Financing Activity and Subsequent Repurchases During the first quarter of 2021, the Company completed a series of financing transactions to provide the Company with maturity extensions and covenant relief, while allowing it to maintain near-term operating liquidity. These transactions included a senior notes exchange, a revolving credit facility exchange, various amendments to the Company’s existing debt agreements, and a support agreement with the Company’s surety bond providers. Subsequent to these transactions, the Company completed additional financing transactions which included the implementation of an at-the-market equity offering program pursuant to which the Company sold approximately 24.8 million shares of common stock for net cash proceeds of $ 269.8 million, the retirement of $ 270.9 million principal amount of existing debt through various open market purchases at an aggregate cost of $ 232.4 million, and the issuance of an aggregate 10.0 million shares of common stock in exchange for an additional $ 106.1 million principal amount of existing debt through multiple bilateral transactions with debt holders. 16 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) In the event of open market purchases of its debt, the terms of the 2024 Peabody Notes - now redeemed as described below - required, and the letter of credit facility entered into by the Company in connection with the 2021 financing activity (Company LC Agreement) requires the Company to make repurchase offers to those debt and lien holders. In general, the repurchase offers equate to 25 % of the principal amount of priority lien debt repurchased in the preceding quarter at a price equal to the weighted average repurchase price paid over that quarter. The open market debt repurchases completed during the three months ended December 31, 2021 necessitated a mandatory repurchase offer of up to $ 38.6 million of 2024 Peabody Notes, at 94.940 % of their aggregate accreted value, plus accrued and unpaid interest, and a concurrent repurchase offer of priority lien obligations under the Company LC Agreement. The offer resulted in the valid tender and purchase of $ 0.1 million aggregate accreted value of 2024 Peabody Notes and $ 30.0 million aggregate principal and commitment amounts under the Company LC Agreement during the three months ended March 31, 2022. The Company’s purchase of the principal and commitment amounts under the Company LC Agreement was effected by the posting of $ 28.5 million of collateral with the administrative agent and did not reduce the availability under the facility. The 2024 Co-Issuer Notes and the Co-Issuer Term Loans are also subject to mandatory prepayment offers at the end of each six-month period, beginning with June 30, 2021, whereby the Excess Cash Flow (as defined in the 2024 Co-Issuer Notes indenture) generated by the Wilpinjong Mine during each such period will be applied to the principal of such notes and loans on a pro rata basis, provided that the liquidity attributable to the Wilpinjong Mine would not fall below $ 60.0 million. Such prepayments may be accepted or declined at the option of the debt holders. Based upon the Wilpinjong Mine’s results for the six-month period ended December 31, 2021, a required offer to prepay $ 105.6 million of total principal resulted in the prepayment of $ 17.2 million of Co-Issuer Term Loans principal, $ 0.3 million of 2024 Co-Issuer Notes principal, and a related loss on early debt extinguishment of $ 0.5 million during the three months ended March 31, 2022. Based upon the Wilpinjong Mine’s results for the six-month period ended June 30, 2022, the Company was required to offer to prepay $ 65.1 million of total principal subsequent to June 30, 2022. The holders of the Co-Issuer Term Loans unanimously declined their $ 37.9 million pro rata portion of the offer and the $ 27.2 million pro rata portion of the offer to the holders of the 2024 Co-Issuer Notes will expire on August 29, 2022. Voluntary repurchases of Co-Issuer Term Loans are permissible through a modified Dutch auction process. During the three months ended June 30, 2022, the Company solicited bids under such process from all holders of Co-Issuer Term Loans for the repurchase of up to $ 50.0 million principal amount at prices acceptable to the Company. The auction process resulted in the repurchase of $ 50.0 million principal amount at a weighted average price of 103.91 %, or $ 52.0 million. The Company recorded a related loss on early debt extinguishment of $ 3.3 million during the three months ended June 30, 2022. Additionally, the indenture which governs the 2024 Co-Issuer Notes requires that, within 30 business days following a repurchase of the Co-Issuer Term Loans such as that undertaken through the auction process described above, the Company must also offer to repurchase an equivalent principal amount of the 2024 Co-Issuer Notes at the equivalent purchase price. As such, the required offer for $ 50.0 million aggregate principal amount was made by the Company on May 26, 2022 and subsequently increased to $ 93.9 million, at the Company’s discretion, subsequent to June 30, 2022. Prior to expiration of the offer, an excess aggregate principal amount of 2024 Co-Issuer Notes had been validly tendered, but the terms of the offer limited the repurchase to $ 93.9 million. Such amount was classified within “Current portion of long-term debt” in the accompanying condensed consolidated balance sheets at June 30, 2022. The Company completed the repurchase on July 25, 2022 for $ 97.5 million. The credit agreement which governs the Co-Issuer Term Loans requires parity between the holders of Co-Issuer Term Loans and holders of the 2024 Co-Issuer Notes with respect to repurchase offers. Accordingly, the discretionary increase to the 2024 Co-Issuer Notes repurchase offer compelled the Company to offer to repurchase an additional $ 43.9 million of aggregate principal amount of Co-Issuer Term Loans at 103.91 % subsequent to June 30, 2022. The offer will expire August 22, 2022. Such amount was classified within “Current portion of long-term debt” in the accompanying condensed consolidated balance sheets at June 30, 2022. Prior to June 30, 2022, the Company reached agreements to repurchase $ 22.6 million aggregate principal amount of its Senior Secured Term Loan for $ 21.3 million in open market transactions. The repurchases settled subsequent to June 30, 2022, and the aggregate principal amount was classified within “Current portion of long-term debt” in the accompanying condensed consolidated balance sheets at June 30, 2022. As a result of these repurchases, the Company will offer to repurchase $ 5.7 million of priority lien obligations under the Company LC Agreement at approximately 94% during the three months ending December 31, 2022. 17 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3.250 % Convertible Senior Notes due 2028 On March 1, 2022, through a private offering, the Company issued $ 320.0 million in aggregate principal amount of 3.250 % Convertible Senior Notes due 2028 (the 2028 Convertible Notes). The 2028 Convertible Notes are senior unsecured obligations of the Company and are governed under an indenture. The Company used the proceeds of the offering of the 2028 Convertible Notes to redeem the remaining $ 62.6 million of its outstanding 2024 Peabody Notes and, together with available cash, approximately $ 257.4 million of its outstanding 2025 Notes, and to pay related premiums, fees and expenses relating to the offering of the 2028 Convertible Notes and the redemptions. The Company capitalized $ 11.2 million of debt issuance costs related to the offering and recognized a loss on early debt extinguishment of $ 23.0 million during the three months ended March 31, 2022. The 2028 Convertible Notes will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in accordance with their terms. The 2028 Convertible Notes will bear interest from March 1, 2022 at a rate of 3.250 % per year payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2022. The 2028 Convertible Notes will be convertible at the option of the holders only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ended June 30, 2022, if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the Measurement Period) in which the trading price per $ 1,000 principal amount of 2028 Convertible Notes for each trading day of the Measurement Period was less than 98 % of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company’s common stock; (4) if the Company calls any 2028 Convertible Notes for redemption; and (5) at any time from, and including, September 1, 2027 until the close of business on the second scheduled trading day immediately before the maturity date. Upon conversion, the Company may satisfy its conversion obligation by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the indenture. The initial conversion rate for the 2028 Convertible Notes will be 50.3816 shares of the Company’s common stock per $ 1,000 principal amount of 2028 Convertible Notes, which represents an initial conversion price of approximately $ 19.85 per share of the Company’s common stock. The initial conversion price represents a premium of approximately 32.5 % to the $ 14.98 per share closing price of the Company’s common stock on February 24, 2022. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the indenture. If certain corporate events described in the indenture occur prior to the maturity date, or the Company delivers a notice of redemption (as described below), the conversion rate will be increased for a holder who elects to convert its 2028 Convertible Notes in connection with such corporate event or notice of redemption, as the case may be, in certain circumstances. The Company may not redeem the 2028 Convertible Notes prior to March 1, 2025. The Company may redeem for cash all or any portion of the 2028 Convertible Notes, at its option, on or after March 1, 2025 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to 100 % of the principal amount of the 2028 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price on (1) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (2) the trading day immediately before the date the Company sends such notice. However, the Company may not redeem less than all of the outstanding 2028 Convertible Notes unless at least $ 75 million aggregate principal amount of 2028 Convertible Notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice. No sinking fund is provided for the 2028 Convertible Notes. If the Company undergoes a fundamental change (as defined in the indenture), noteholders may require the Company to repurchase their 2028 Convertible Notes at a cash repurchase price equal to 100 % of the principal amount of the 2028 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. 18 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Margin Financing Arrangement On March 7, 2022, the Company entered into a credit agreement, by and among the Company, as borrower, Goldman Sachs Lending Partners LLC, as administrative agent, and the lenders party thereto (the Credit Agreement). The Credit Agreement provides for a $ 150 million unsecured revolving credit facility (the Revolving Facility), which will mature on April 1, 2025 and bears interest at a rate of 10.0 % per annum on drawn amounts. The Revolving Facility is intended to support the Company’s near-term liquidity requirements, particularly with respect to the cash margin requirements associated with the Company’s coal derivative contracts, which fluctuate depending upon underlying market coal prices. Concurrently with the Credit Agreement, the Company entered into an agreement with Goldman Sachs & Company LLC to act as sales agent for at-the-market equity offerings of up to $ 225.0 million of the Company’s common stock. During the three months ended March 31, 2022, the Company borrowed and repaid $ 225.0 million under the Revolving Facility using net proceeds of $ 222.0 million from at-the-market issuances of 10.1 million shares of common stock and available cash. The Company had no outstanding borrowings and no availability under the Revolving Facility at June 30, 2022. The Company issued a notice to terminate the facility on August 1, 2022 with an effective date of August 4, 2022. The Credit Agreement contains customary covenants that, among other things, limit the Company’s and its subsidiaries’ ability to incur additional indebtedness, pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments, enter into agreements that restrict distributions from subsidiaries, sell or otherwise dispose of assets, enter into transactions with affiliates, create or incur liens, and merge, consolidate or sell all or substantially all of their assets. Borrowings under the Revolving Facility are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by substantially all of the Company’s material domestic subsidiaries (excluding any unrestricted subsidiaries). Retirement of 2022 Notes On March 31, 2022, the Company retired the remaining principal balance of 2022 Notes upon maturity for $ 23.1 million. Interest Charges The following table presents the components of the Company’s interest expense related to its indebtedness and financial assurance instruments such as surety bonds and letters of credit. Additionally, the table sets forth the amount of cash paid for interest and the amount of non-cash interest expense primarily related to the amortization of debt issuance costs. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in millions) Indebtedness $ 24.0 $ 31.5 $ 49.9 $ 73.1 Financial assurance instruments 13.6 13.9 27.1 24.7 Interest expense $ 37.6 $ 45.4 $ 77.0 $ 97.8 Cash paid for interest $ 40.6 $ 48.0 $ 77.8 $ 104.3 Non-cash interest expense $ 5.2 $ 5.9 $ 9.0 $ 10.8 The Senior Secured Term Loan is the Company’s only outstanding variable rate debt, which bore interest at LIBOR plus 2.75 % per annum ( 4.37 %) at June 30, 2022. Covenant Compliance The Company was compliant with all relevant covenants under its debt agreements at June 30, 2022, including the minimum aggregate liquidity requirement under the Company LC Agreement which requires the Company’s restricted subsidiaries to maintain minimum aggregate liquidity of $ 125.0 million at the end of each quarter through December 31, 2024. 19 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (10) Pension and Postretirement Benefit Costs The components of net periodic pension and postretirement benefit costs, excluding the service cost for benefits earned, are included in “Net periodic benefit credit, excluding service cost” in the unaudited condensed consolidated statements of operations. Net periodic pension credit included the following components: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in millions) Service cost for benefits earned $ — $ 0.1 $ — $ 0.1 Interest cost on projected benefit obligation 5.4 5.1 10.7 10.2 Expected return on plan assets ( 6.0 ) ( 5.7 ) ( 11.9 ) ( 11.4 ) Net periodic pension credit $ ( 0.6 ) $ ( 0.5 ) $ ( 1.2 ) $ ( 1.1 ) Annual contributions to the qualified plans are made in accordance with minimum funding standards and the Company’s agreement with the Pension Benefit Guaranty Corporation. Funding decisions also consider certain funded status thresholds defined by the Pension Protection Act of 2006 (generally 80 %). As of June 30, 2022, the Company’s qualified plans were expected to be at or above the Pension Protection Act thresholds. The Company is not required to make any contributions to its qualified pension plans in 2022 based on minimum funding requirements and does not expect to make any discretionary contributions in 2022 at this time. In March 2022, Peabody Investments Corp., a wholly owned subsidiary of the Company, entered into a commitment agreement relating to the Peabody Investments Corp. Retirement Plan (the Plan) with The Prudential Insurance Company of America (Prudential) and Fiduciary Counselors Inc., as independent fiduciary to the Plan. Under the commitment agreement, the Plan purchased a group annuity contract (Group Annuity Contract) from Prudential for approximately $ 500 million and Prudential will reimburse the Plan for future benefit payments to be made to the Plan’s participants. Under the terms of this transaction, the Plan will continue to administer and pay the retirement benefits of Plan participants but will be reimbursed by Prudential for the payment of all benefits covered by the Group Annuity Contract. The purchase of the Group Annuity Contract was funded directly by the Plan’s assets. There will be no impact on the monthly retirement benefits paid to Plan participants. In addition, there will be no material impact on discretionary contributions for the Plan in 2022 or on the Company’s earnings in 2022 as a result of this transaction. In May 2022, the Board of Directors of Peabody Investments Corp. approved commencing a standard Employee Retirement Income Security Act plan termination with an effective date of plan termination of July 31, 2022. In June 2022, the Plan’s participants were notified of the plan termination. Net periodic postretirement benefit credit included the following components: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in millions) Service cost for benefits earned $ 0.2 $ 0.3 $ 0.4 $ 0.5 Interest cost on accumulated postretirement benefit obligation 1.8 2.9 3.5 5.8 Expected return on plan assets ( 0.2 ) ( 0.2 ) ( 0.4 ) ( 0.4 ) Amortization of prior service credit ( 13.5 ) ( 11.0 ) ( 26.9 ) ( 22.0 ) Net periodic postretirement benefit credit $ ( 11.7 ) $ ( 8.0 ) $ ( 23.4 ) $ ( 16.1 ) In October 2021, the Company announced changes to its postretirement health care benefit plan for certain represented retirees which reduced its accumulated postretirement benefit obligation, as further described in Note 14. “Postretirement Health Care and Life Insurance Benefits” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The reduction in liability was recorded with an offsetting balance in “Accumulated other comprehensive income” and is being amortized to earnings. The Company has established a Voluntary Employees Beneficiary Association (VEBA) trust to pre-fund a portion of benefits for non-represented retirees. The Company does not expect to make any discretionary contributions to the VEBA trust in 2022 and plans to utilize a portion of VEBA assets to make certain benefit payments. 20 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (11) Earnings per Share (EPS) Basic EPS is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding. As such, the Company includes the 2028 Convertible Notes and share-based compensation awards in its potentially dilutive securities. Generally, dilutive securities are not included in the computation of loss per share when a company reports a net loss from continuing operations as the impact would be anti-dilutive. For all but performance units, the potentially dilutive impact of the Company’s share-based compensation awards is determined using the treasury stock method. Under the treasury stock method, awards are treated as if they had been exercised with any proceeds used to repurchase common stock at the average market price during the period. Any incremental difference between the assumed number of shares issued and purchased is included in the diluted share computation. For performance units, their contingent features result in an assessment for any potentially dilutive common stock by using the end of the reporting period as if it were the end of the contingency period for all units granted. A conversion of the 2028 Convertible Notes may result in payment in the Company’s common stock. For diluted EPS purposes, the potentially dilutive common stock is assumed to have been converted at the beginning of the period (or at the time of issuance, if later). In periods where the potentially dilutive common stock is included in the computation of diluted EPS, the numerator will be adjusted to add back tax adjusted interest expense related to the convertible debt. The computation of diluted EPS excluded aggregate share-based compensation awards of less than 0.1 million for both the three and six months ended June 30, 2022, and approximately 1.2 million for both the three and six months ended June 30, 2021, because to do so would have been anti-dilutive for those periods. Because the potential dilutive impact of such share-based compensation awards is calculated under the treasury stock method, anti-dilution generally occurs when the exercise prices or unrecognized compensation cost per share of such awards are higher than the Company’s average stock price during the applicable period. Anti-dilution also occurs when a company reports a net loss from continuing operations, and the dilutive impact of all share-based compensation awards are excluded accordingly. 21 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following illustrates the earnings allocation method utilized in the calculation of basic and diluted EPS. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In millions, except per share data) Basic EPS numerator: Income (loss) from continuing operations, net of income taxes $ 411.3 $ ( 23.0 ) $ 291.5 $ ( 100.7 ) Less: Net income attributable to noncontrolling interests 1.1 3.3 — 3.7 Income (loss) from continuing operations attributable to common stockholders 410.2 ( 26.3 ) 291.5 ( 104.4 ) Loss from discontinued operations, net of income taxes ( 0.7 ) ( 2.3 ) ( 1.5 ) ( 4.3 ) Net income (loss) attributable to common stockholders $ 409.5 $ ( 28.6 ) $ 290.0 $ ( 108.7 ) Diluted EPS numerator: Income (loss) from continuing operations, net of income taxes $ 411.3 $ ( 23.0 ) $ 291.5 $ ( 100.7 ) Add: Tax adjusted interest expense related to 2028 Convertible Notes 2.5 — 3.5 — Less: Net income attributable to noncontrolling interests 1.1 3.3 — 3.7 Income (loss) from continuing operations attributable to common stockholders 412.7 ( 26.3 ) 295.0 ( 104.4 ) Loss from discontinued operations, net of income taxes ( 0.7 ) ( 2.3 ) ( 1.5 ) ( 4.3 ) Net income (loss) attributable to common stockholders $ 412.0 $ ( 28.6 ) $ 293.5 $ ( 108.7 ) EPS denominator: Weighted average shares outstanding — basic 144.0 101.2 140.1 99.8 Dilutive impact of share-based compensation awards 1.8 — 1.5 — Dilutive impact of 2028 Convertible Notes 16.1 — 10.9 — Weighted average shares outstanding — diluted 161.9 101.2 152.5 99.8 Basic EPS attributable to common stockholders: Income (loss) from continuing operations $ 2.85 $ ( 0.26 ) $ 2.08 $ ( 1.05 ) Loss from discontinued operations ( 0.01 ) ( 0.02 ) ( 0.01 ) ( 0.04 ) Net income (loss) attributable to common stockholders $ 2.84 $ ( 0.28 ) $ 2.07 $ ( 1.09 ) Diluted EPS attributable to common stockholders: Income (loss) from continuing operations $ 2.55 $ ( 0.26 ) $ 1.93 $ ( 1.05 ) Loss from discontinued operations ( 0.01 ) ( 0.02 ) — ( 0.04 ) Net income (loss) attributable to common stockholders $ 2.54 $ ( 0.28 ) $ 1.93 $ ( 1.09 ) (12) Financial Instruments and Other Guarantees The Company is a party to various guarantees and financial instruments that carry off-balance-she et risk and are not reflected in the accompanying condensed consolidated balance sheets. At June 30, 2022, such instruments included $ 1,453.5 million of surety bonds and $ 475.1 million of letters of credit. Such financial instruments provide support for the Company’s reclamation bonding requirements, lease obligations, insurance policies and various other performance guarantees. The Company periodically evaluates the instruments for on-balance sheet treatment based on the amount of exposure under the instrument and the likelihood of required performance. The Company does not expect any material losses to result from these guarantees or off-balance-sheet instruments in excess of liabilities provided for in the accompanying condensed consolidated balance sheets. 22 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Reclamation Bonding The Company is required to provide various forms of financial assurance in support of its mining reclamation obligations in the jurisdictions in which it operates. Such requirements are typically established by statute or under mining permits. In November 2020, the Company entered into an agreement with the providers of its surety bond portfolio to resolve previous collateral demands. In accordance with the agreement, the Company initially provided $ 75.0 million of collateral, in the form of letters of credit. The Company subsequently granted second liens on $ 200.0 million of certain mining equipment and is further required to post an additional $ 25.0 million of collateral per year from 2021 through 2024 for the benefit of the surety providers. The collateral postings further increase to the extent the Company generates more than $ 100.0 million of free cash flow (as defined in the surety agreement) in any twelve-month period or has cumulative asset sales in excess of $ 10.0 million, as of the last quarter end during the term of the agreement. Based upon the Company’s free cash flow through June 30, 2022, additional collateral of $ 13.0 million was posted during the three months ended March 31, 2022 and $ 25.7 million was posted subsequent to June 30, 2022, in the form of cash-collateralized letters of credit. At June 30, 2022, the Company’s asset retirement obligations of $ 725.1 million were supported by surety bonds of $ 1,276.9 million, as well as letters of credit issued under the Company’s receivables securitization program and the Company LC Agreement. Letters of credit issued at June 30, 2022 which served as collateral for surety bonds in support of asset retirement obligations amounted to $ 346.4 million. Accounts Receivable Securitization The Company entered into the Sixth Amended and Restated Receivables Purchase Agreement, as amended, dated as of April 3, 2017 (the Receivables Purchase Agreement) to extend the Company’s receivables securitization facility previously in place and expand that facility to include certain receivables from the Company’s Australian operations. The receivables securitization program (Securitization Program) is subject to customary events of default set forth in the Receivables Purchase Agreement. The Receivables Purchase Agreement was amended in January 2022 to extend the Securitization Program to January 2025, reduce the available funding capacity from $ 250.0 million to $ 175.0 million, and amend the relevant borrowing rate from a LIBOR-based rate to one based on Bloomberg’s Short-Term Bank Yield Index (BSBY). Such funding is accounted for as a secured borrowing, limited to the availability of eligible receivables, and may be secured by a combination of collateral and the trade receivables underlying the program, from time to time. Funding capacity under the Securitization Program may also be utilized for letters of credit in support of other obligations. Borrowings under the Securitization Program bear interest at BSBY plus 2.1 % per annum and remain outstanding throughout the term of the agreement, subject to the Company maintaining sufficient eligible receivables. At June 30, 2022, the Com pany had no outstanding borrowings and $ 161.5 million o f letters of credit outstanding under the Securitization Program. The letters of credit were primarily in support of reclamation obligations. Availability under the Securitizatio n Program, which is adjusted for certain ineligible receivables, was $ 13.5 million at June 30, 2022. The Company was not required to post cash collateral under the Securitization Program at June 30, 2022. The Company incurred interest and fees associated with the Securitization Program of $ 0.9 million and $ 0.7 million during the three months ended June 30, 2022 and 2021, respectively, and $ 1.8 million and $ 1.4 million during the six months ended June 30, 2022 and 2021, respectively, which have been recorded as “Interest expense” in the accompanying unaudited condensed consolidated statements of operations. Collateralized Letter of Credit Agreement In February 2022, the Company entered into a new agreement, which provides up to $ 250.0 million of capacity for irrevocable standby letters of credit, expected to primarily support reclamation bonding requirements. The agreement requires the Company to provide cash collateral at a level of 103 % of the aggregate amount of letters of credit outstanding under the arrangement (limited to $ 5.0 million total excess collateralization.) Outstanding letters of credit bear a fixed fee in the amount of 0.75 % per annum. The Company receives a deposit rate of 0.35 % per annum on the amount of cash collateral posted in support of letters of credit, with the rate subject to variation over time. The agreement has an initial expiration date of December 31, 2025. At June 30, 2022, collateralized letters of credit of $ 12.3 million were outstanding under the agreement . 23 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (13) Commitments and Contingencies Commitments Unconditional Purchase Obligations As of June 30, 2022, purchase commitments for capital expenditures were $ 42.3 million, all of which is obligated within the next three years, with $ 35.4 million obligated within the next 12 months. There were no other material changes to the Company’s commitments from the information provided in Note 23. “Commitments and Contingencies” to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Contingencies From time to time, the Company or its subsidiaries are involved in legal proceedings arising in the ordinary course of business or related to indemnities or historical operations. The Company believes it has recorded adequate reserves for these liabilities. The Company discusses its significant legal proceedings below, including ongoing proceedings and those that impacted the Company’s results of operations for the periods presented. Litigation Relating to Continuing Operations Securities Class Action. On September 28, 2020, the Oklahoma Firefighters Pension and Retirement System brought a lawsuit, styled In Re Peabody Energy Corporation Securities Litigation No. 1:20-cv-08024 (PKC), against the Company and certain of its officers in the U.S. District Court for the Southern District of New York (the Court) on behalf of a putative class of shareholders (Plaintiffs) who held Company stock between April 3, 2017 and October 28, 2019, for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder (Securities Class Action). Plaintiffs allege that the defendants made false or misleading statements and/or failed to disclose certain adverse facts pertaining to safety practices at the Company’s North Goonyella Mine and the events leading up to a fire at the mine, and that, after a September 28, 2018 fire at the mine, made false or misleading statements and/or failed to disclose certain adverse facts pertaining to the feasibility of the Company’s plan to restart the mine after the fire. On January 12, 2021, the Court appointed the Oregon Public Employees Retirement Fund as lead plaintiff. On January 25, 2021, the Court entered a scheduling order for this matter. Plaintiffs filed their amended complaint on March 19, 2021. The defendants filed a pre-motion letter on April 30, 2021 while the Plaintiffs’ response letter was filed on May 6, 2021. The defendants filed their motion to dismiss on June 7, 2021. The Plaintiffs’ opposition brief to the motion to dismiss was filed on July 22, 2021. The defendants filed their reply to Plaintiffs’ opposition on August 23, 2021, completing briefing at this phase of the litigation. On March 7, 2022, the Court granted in part and denied in part the defendants’ motion to dismiss. As a result of this decision, only Plaintiffs’ allegations relating to the Company’s September 25, 2018 statements remain in the case. On May 13, 2022, the Court entered a Case Management and Scheduling Order. On August 2, 2022, Peabody and Plaintiffs agreed to settle all claims brought on behalf of all persons who purchased or otherwise acquired the Company’s shares between April 3, 2017 and October 28, 2019 in exchange for $ 4.6 million, to be paid by Peabody’s insurers. The parties further agreed to negotiate in good faith and execute a definitive stipulation of settlement and related documents, which are subject to the Court’s approval. The stipulation of settlement will not contain any admission of liability, wrongdoing, or responsibility by any of the parties and will provide that upon final approval of the settlement, the case will be dismissed with prejudice, with mutual releases by all parties. Derivative Actions. On December 22, 2020, a plaintiff (Phelps), putatively on behalf of the Company, brought a shareholder derivative lawsuit, styled Phelps v. Samantha Algaze, et al. , Case No. 1:20-cv-01747-UNA (D. Del. filed Dec. 22, 2020), in the U.S. District Court for the District of Delaware against certain directors and former officers of the Company, as defendants. The Company was also named as a nominal defendant. The plaintiff did not make a demand on the Company’s board before instituting the lawsuit and alleges such demand would have been futile. In the complaint, the plaintiff alleges that the defendants failed to disclose adverse facts relating to the safety practices at the Company’s North Goonyella Mine, thereby leading to a September 28, 2018 fire, and allegedly failed to disclose adverse facts pertaining to the feasibility of reopening the mine. The derivative complaint alleges (i) contribution against certain current and former officers for securities fraud based on the Securities Class Action, and against all defendants, (ii) breach of fiduciary duties, (iii) waste of corporate assets for causing the Company to incur legal liability and (iv) unjust enrichment. 24 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) On February 10, 2021, a second plaintiff (Di Fusco), putatively on behalf of the Company, filed a similar shareholder derivative lawsuit, styled Di Fusco v. Glenn Kellow, et al. , Case No. 1:21-cv-00183-UNA (D. Del. filed Feb. 10, 2021), in the U.S. District Court for the District of Delaware against the directors and current and former officers of the Company, as defendants. The Company was named as a nominal defendant. This suit makes claims similar to those made in the Phelps matter, but asserts a claim for alleged misstatements in a proxy statement under Section 14(a) of the Securities and Exchange Act of 1934. In late March 2021, the parties filed a stipulation agreeing to consolidate and stay both derivative actions for judicial efficiency and cost until the Court rules on the motion to dismiss in the Securities Class Action. In light of the March 7, 2022 decision on the motion to dismiss in the Securities Class Action, the parties are discussing how to proceed with the derivative actions, which currently remained stayed. The Company also believes that the derivative actions lack merit and intends to vigorously defend against the allegations. Other At times, the Company becomes a party to other disputes, including those related to contract miner performance, claims, lawsuits, arbitration proceedings, regulatory investigations and administrative procedures in the ordinary course of business in the U.S., Australia and other countries where the Company does business. Based on current information, the Company believes that such other pending or threatened proceedings are likely to be resolved without a material adverse effect on its financial condition, results of operations or cash flows. The Company reassesses the probability and estimability of contingent losses as new information becomes available. Claims, Litigation and Settlements Relating to Indemnities or Historical Operations Patriot-Related Matters. Included in the Company’s discontinued operations are the previously divested legacy operations of Patriot Coal Corporation and certain of its wholly-owned subsidiaries (Patriot). In 2012, Patriot filed voluntary petitions for relief under Chapter 11 of Title 11 of the U.S. Code (the Bankruptcy Code). In 2013, the Company entered into a definitive settlement agreement (2013 Agreement) with Patriot and the United Mine Workers of America, on behalf of itself, its represented Patriot employees and its represented Patriot retirees, to resolve all then-disputed issues related to Patriot’s bankruptcy. In May 2015, Patriot again filed voluntary petitions for relief under the Bankruptcy Code in the U.S. District Court for the Eastern District of Virginia and subsequently initiated a process to sell substantially all of its assets to qualified bidders. On October 9, 2015, Patriot’s bankruptcy court entered an order confirming Patriot’s plan of reorganization, which provided, among other things, for the sale of substantially all of Patriot’s assets to two different buyers. Patriot had federal and state black lung occupational disease liabilities related to workers employed in periods prior to Patriot’s spin-off from the Company in 2007. Upon spin-off, Patriot indemnified the Company against any claim relating to these liabilities, which amounted to approximately $ 150 million at that time. The indemnification included any claim made by the U.S. Department of Labor (DOL) against the Company with respect to these obligations as a potentially liable operator under the Federal Coal Mine Health and Safety Act of 1969. The 2013 Agreement included Patriot’s affirmance of indemnities provided in the spin-off agreements, including the indemnity relating to such black lung liabilities; however, Patriot rejected this indemnity in its May 2015 bankruptcy. By statute, the Company had secondary liability for the black lung liabilities related to Patriot’s workers employed by former subsidiaries of the Company. The Company’s accounting for the black lung liabilities related to Patriot is based on an interpretation of applicable statutes. Management believes that inconsistencies exist among the applicable statutes, regulations promulgated under those statutes and the DOL’s interpretative guidance. The Company has sought clarification from the DOL regarding these inconsistencies. The amount of these liabilities could be reduced in the future. Whether the Company will ultimately be required to fund certain of those obligations in the future as a result of Patriot’s May 2015 bankruptcy remains uncertain. The amount of the liability, which was determined on an actuarial basis based on the best information available to the Company, was $ 86.6 million and $ 87.2 million at June 30, 2022 and December 31, 2021, respectively. The liability, which is classifed as discontinued operations, is included in the Company’s condensed consolidated balance sheet within “Accounts payable and accrued expenses” and “Other noncurrent liabilties.” While the Company has recorded a liability, it intends to review each claim on a case-by-case basis and contest liability estimates as appropriate. The amount of the Company’s recorded liability reflects only Patriot workers employed by former subsidiaries of the Company that are presently retired, disabled or otherwise not actively employed. The Company cannot reliably estimate the potential liabilities for Patriot’s workers employed by former subsidiaries of the Company that are presently active in the workforce because of the potential for such workers to continue to work for another coal operator that is a going concern. 25 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (14) Segment Information 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. The Company’s chief operating decision maker, defined as its Chief Executive Officer, uses Adjusted EBITDA as the primary metric to measure the segments’ operating performance and allocate resources. Adjusted EBITDA is a non-GAAP financial measure defined as income (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 the segments’ operating performance, as displayed in the reconciliation below. Management believes non-GAAP performance measures are used by investors to measure the Company’s operating performance and lenders to measure the Company’s ability to incur and service debt. Adjusted EBITDA is not intended to serve as an alternative to U.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies. Reportable segment results were as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in millions) Revenue: Seaborne Thermal Mining $ 354.9 $ 194.1 $ 606.1 $ 370.5 Seaborne Metallurgical Mining 533.8 121.0 855.1 208.5 Powder River Basin Mining 229.7 248.6 480.9 477.0 Other U.S. Thermal Mining 224.9 162.1 428.0 311.4 Corporate and Other ( 21.4 ) ( 2.4 ) ( 356.8 ) 7.3 Total $ 1,321.9 $ 723.4 $ 2,013.3 $ 1,374.7 Adjusted EBITDA: Seaborne Thermal Mining $ 176.8 $ 71.4 $ 267.3 $ 99.9 Seaborne Metallurgical Mining 299.7 ( 26.4 ) 480.7 ( 48.8 ) Powder River Basin Mining ( 2.0 ) 45.5 5.6 75.6 Other U.S. Thermal Mining 61.9 44.3 111.9 80.5 Corporate and Other 41.4 ( 12.7 ) 39.8 ( 24.0 ) Total $ 577.8 $ 122.1 $ 905.3 $ 183.2 26 Table of Contents PEABODY ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) A reconciliation of consolidated income (loss) from continuing operations, net of income taxes to Adjusted EBITDA follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in millions) Income (loss) from continuing operations, net of income taxes $ 411.3 $ ( 23.0 ) $ 291.5 $ ( 100.7 ) Depreciation, depletion and amortization 73.8 77.1 146.7 145.4 Asset retirement obligation expenses 12.7 15.1 27.7 31.0 Restructuring charges 0.2 2.1 1.8 4.2 Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates ( 0.6 ) ( 0.5 ) ( 1.2 ) ( 2.0 ) Interest expense 37.6 45.4 77.0 97.8 Net loss (gain) on early debt extinguishment 2.3 ( 11.8 ) 25.8 ( 15.3 ) Interest income ( 0.9 ) ( 1.3 ) ( 1.4 ) ( 2.8 ) Unrealized losses on derivative contracts related to forecasted sales 24.5 23.7 325.5 25.6 Unrealized losses on foreign currency option contracts 6.3 1.2 3.0 8.8 Take-or-pay contract-based intangible recognition ( 0.7 ) ( 1.1 ) ( 1.4 ) ( 2.2 ) Income tax provision (benefit) 11.3 ( 4.8 ) 10.3 ( 6.6 ) Adjusted EBITDA $ 577.8 $ 122.1 $ 905.3 $ 183.2 27 Table of Contents