Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As used in this report, the terms “Peabody” or “the Company” refer to Peabody Energy Corporation or its applicable subsidiary or subsidiaries. Unless otherwise noted herein, disclosures in this Quarterly Report on Form 10-Q relate only to the Company’s continuing operations.
When used in this filing, the term “ton” refers to short or net tons, equal to 2,000 pounds (907.18 kilograms), while “tonne” refers to metric tons, equal to 2,204.62 pounds (1,000 kilograms).
Cautionary Notice Regarding Forward-Looking Statements
This report includes statements of Peabody’s expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and are intended to come within the safe harbor protection provided by those sections. These statements relate to future events or Peabody’s future financial performance. The Company uses words such as “anticipate,” “believe,” “expect,” “may,” “forecast,” “project,” “should,” “estimate,” “plan,” “outlook,” “target,” “likely,” “will,” “to be” or other similar words to identify forward-looking statements.
Without limiting the foregoing, all statements relating to Peabody’s future operating results, anticipated capital expenditures, future cash flows and borrowings, and sources of funding are forward-looking statements and speak only as of the date of this report. These forward-looking statements are based on numerous assumptions that Peabody believes are reasonable, but are subject to a wide range of uncertainties and business risks, and actual results may differ materially from those discussed in these statements. These factors are difficult to accurately predict and may be beyond the Company’s control.
When considering these forward-looking statements, you should keep in mind the cautionary statements in this document and in the Company’s other Securities and Exchange Commission (SEC) filings, including, but not limited to, the more detailed discussion of these factors and other factors that could affect its results contained in Item 1A. “Risk Factors” of Part II of this Quarterly Report on Form 10-Q, Item 1A. “Risk Factors” of Part II of its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 filed with the SEC on May 4, 2023 and Item 1A. “Risk Factors” and Item 3. “Legal Proceedings” of Part I of its Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 24, 2023. These forward-looking statements speak only as of the date on which such statements were made, and the Company undertakes no obligation to update these statements except as required by federal securities laws.
Non-GAAP Financial Measures
The following discussion of the Company’s results of operations includes references to and analysis of Adjusted EBITDA and Total Reporting Segment Costs, which are financial measures not recognized in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Adjusted EBITDA is used by management as the primary metric to measure each of its segments’ operating performance and allocate resources. Total Reporting Segment Costs is also used by management as a component of a metric to measure each of its segments’ operating performance.
Also included in the following discussion of the Company’s results of operations are references to Revenue per Ton, Costs per Ton and Adjusted EBITDA Margin per Ton for each reporting segment. These metrics are used by management to measure each of its reporting segments’ operating performance. Management believes Costs per Ton and Adjusted EBITDA Margin per Ton best reflect controllable costs and operating results at the reporting segment level. The Company considers all measures reported on a per ton basis to be operating/statistical measures; however, the Company includes reconciliations of the related non-GAAP financial measures (Adjusted EBITDA and Total Reporting Segment Costs) in the “Reconciliation of Non-GAAP Financial Measures” section contained within this Item 2.
In its discussion of liquidity and capital resources, the Company includes references to Available Free Cash Flow (AFCF) which is also a non-GAAP measure. AFCF is used by management as a measure of its ability to generate excess cash flow from its business operations.
The Company believes non-GAAP performance measures are used by investors to measure its operating performance. These measures are not intended to serve as alternatives to U.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies. Refer to the “Reconciliation of Non-GAAP Financial Measures” section contained within this Item 2 for definitions and reconciliations to the most comparable measures under U.S. GAAP.
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Overview
Peabody is a leading producer of metallurgical and thermal coal. In 2022, the Company produced and sold 122.9 million and 123.7 million tons of coal, respectively, from continuing operations. At June 30, 2023, the Company owned interests in 17 active coal mining operations located in the United States (U.S.) and Australia. Included in that count is Peabody’s 50% equity interest in Middlemount Coal Pty Ltd (Middlemount), which owns the Middlemount Mine in Queensland, Australia. In addition to its mining operations, the Company markets and brokers coal from other coal producers; trades coal and freight-related contracts; and during 2022, partnered in a joint venture with the intent of developing various sites, including certain reclaimed mining land held by the Company in the U.S., for utility-scale photovoltaic solar generation and battery storage.
The Company reports its results of operations primarily through the following reportable segments: Seaborne Thermal, Seaborne Metallurgical, Powder River Basin, Other U.S. Thermal and Corporate and Other. Refer to Note 13. “Segment Information” to the accompanying unaudited condensed consolidated financial statements for further information regarding those segments and the components of its Corporate and Other segment.
Spot pricing for premium low-vol hard coking coal (Premium HCC), premium low-vol pulverized coal injection (Premium PCI) coal, Newcastle index thermal coal and API 5 index thermal coal, and prompt month pricing for PRB 8,880 Btu/Lb coal and Illinois Basin 11,500 Btu/Lb coal during the three months ended June 30, 2023 is set forth in the table below.
The seaborne pricing included in the table below is not necessarily indicative of the pricing the Company realized during the three months ended June 30, 2023 due to quality differentials and a portion of its seaborne sales being executed through annual and multi-year international coal supply agreements that contain provisions requiring both parties to renegotiate pricing periodically, with spot, index and quarterly sales arrangements also utilized. The Company’s typical practice is to negotiate pricing for seaborne metallurgical coal contracts on a quarterly, spot or index basis and seaborne thermal coal contracts on an annual, spot or index basis.
In the U.S., the pricing included in the table below is also not necessarily indicative of the pricing the Company realized during the three months ended June 30, 2023 since the Company generally sells coal under long-term contracts where pricing is determined based on various factors. Such long-term contracts in the U.S. may vary significantly in many respects, including price adjustment features, price reopener terms, coal quality requirements, quantity parameters, permitted sources of supply, treatment of environmental constraints, extension options, force majeure and termination and assignment provisions. Competition from alternative fuels such as natural gas and other fuel sources may also impact the Company’s realized pricing.
High Low Average June 30, 2023 July 28, 2023
Premium HCC (1)
$ 300.00 $ 222.00 $ 242.84 $ 233.00 $ 237.00
Premium PCI coal (1)
262.50 187.00 208.73 189.00 163.00
Newcastle index thermal coal (1)
199.58 120.23 158.30 137.94 140.33
API 5 index thermal coal (1)
120.24 84.17 102.33 85.93 86.66
PRB 8,800 Btu/Lb coal (2)
14.60 14.30 14.44 14.30 14.30
Illinois Basin 11,500 Btu/Lb coal (2)
73.00 51.00 59.42 51.00 50.00
(1) Prices expressed per metric tonne.
(2) Prices expressed per short ton.
Within the global coal industry, supply and demand for its products and the supplies used for mining have been impacted by the ongoing Russian-Ukrainian conflict. Furthermore, inflationary pressures and supply chain constraints have contributed to rising costs and may continue to impact future periods. As future developments related to the Russian-Ukrainian conflict and rising inflation are unknown, the global coal industry data for the six months ended June 30, 2023 presented herein may not be indicative of their ultimate impacts.
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Within the seaborne metallurgical coal market, the six months ended June 30, 2023 were characterized by ongoing volatility as global macroeconomic turbulence combined with seasonal demand and supply fluctuations. The steel sector showed positive signs in early 2023 with several steelmakers announcing blast furnace capacity restarts; however ongoing economic uncertainty and multi-year high steel exports from China have dampened the revival and impacted metallurgical coal demand in key markets. Russian coal remains banned in the European Union, Japan and elsewhere, disrupting natural trade flows and resulting in low priced Russian products being made available to countries, such as China and India, which can continue procurement. Combined with abundant domestic and Mongolian supply, this is further enabling China to readily compete in the international steel market. Further economic stimulus in China, India and elsewhere, combined with seasonal demand growth is fueling positive sentiment in the market outlook to the end of the year.
Within the seaborne thermal coal market, global thermal coal prices have remained volatile during the quarter ended June 30, 2023 with prices declining from the first quarter. China has ended its unofficial ban of Australian coal imports, providing additional demand for Australian thermal coal through the six months ended June 30, 2023. In China, domestic coal production and renewable generation have been strong through the six months ended June 30, 2023; however, import demand has been higher year-over-year, as overall coal demand has been strong. In India, strong growth in coal generation has supported increased import demand, despite elevated domestic coal production. Overall, global thermal coal markets remain turbulent amid ample supply and seasonal demand requirements in the Northern Hemisphere, as well as lower global natural gas prices.
In the United States, overall electricity demand decreased nearly 4% year-over-year, negatively impacted by weather. Through the six months ended June 30, 2023, electricity generation from thermal coal has declined year-over-year due to low natural gas prices and nearly level year-over-year renewable generation despite lower overall electricity demand. Coal’s share of electricity generation has declined to approximately 15% for the six months ended June 30, 2023, while wind and solar’s combined generation share has increased to 17% and the share of natural gas generation has increased to 40%. Coal inventories have increased during the six months ended June 30, 2023, with an increase of approximately 50%. During the six months ended June 30, 2023, utility consumption of PRB coal declined approximately 25% compared to the prior year period.
Surety Agreement Amendment and Shareholder Return Program
On April 14, 2023, the Company amended its existing agreement with the providers of its surety bond portfolio, dated November 6, 2020. Under the agreement, the Company was required to post collateral on a periodic basis. Pursuant to the amendment, the Company and its surety bond providers agreed to (i) establish a combined maximum collateral cap, (ii) remove the restrictions on shareholder returns contained in the original agreement, subject to a minimum liquidity threshold, and (iii) extend the expiration date of the existing agreement from December 31, 2025 to December 31, 2026. Peabody also terminated the letter of credit facility which was previously used primarily for surety collateral, further reducing interest costs and increasing financial flexibility.
On April 17, 2023, the Company announced that its Board of Directors (Board) approved a new shareholder return framework which includes a share repurchase plan, a fixed quarterly cash dividend and a variable quarterly cash dividend component. The Board also approved a new share repurchase program authorizing repurchases up to $1.0 billion of the Company’s common stock.
Refer to the “Liquidity and Capital Resources” section contained within this Item 2 and Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” for a further discussion of the surety agreement amendment.
Other
On March 29, 2023, the Company’s Shoal Creek Mine experienced a fire involving void fill material utilized to stabilize the roof structure of the mine. On June 20, 2023, the Company announced that the Shoal Creek Mine, in coordination with the Mine Safety and Health Administration, had safely completed localized sealing of the affected area of the mine. Development coal production has been resumed in a new area of the mine.
During the three and six months ended June 30, 2023, the Company recorded a provision for loss of $28.7 million related to the fire. The provision includes $17.8 million related to longwall development and other costs and $10.9 million for equipment deemed inoperable within the affected area of the mine.
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On June 23, 2023, the Company’s North Antelope Rochelle Mine (NARM) sustained damage from a tornado which led to a temporary suspension of operations. The mine resumed operations on June 25, 2023. During the three and six months ended June 30, 2023, the Company recorded a provision for loss of $5.0 million related to the tornado damage. The provision includes $4.0 million for materials and supplies inventories and $1.0 million for buildings and equipment. This provision represents the best estimate of potential loss based on the assessments made to date. The Company continues to assess the loss and anticipates that incremental repair costs will be recorded in future periods.
Results of Operations
Three and Six Months Ended June 30, 2023 Compared to the Three and Six Months Ended June 30, 2022
Summary
The decrease in income from continuing operations, net of income taxes for the three months ended June 30, 2023 compared to the same period in the prior year ($207.2 million), was driven by a higher tax provision ($62.9 million); lower revenue ($53.1 million) primarily due to a 42% decrease in metallurgical pricing; decreased results from equity affiliates ($46.4 million); higher operating costs and expenses ($36.4 million); and a provision of $33.7 million related to the losses at NARM and Shoal Creek. This unfavorable variance was partially offset by lower net interest expense ($46.8 million).
The increase in income from continuing operations, net of income taxes for the six months ended June 30, 2023 compared to the same period in the prior year ($196.7 million), was primarily driven by higher revenue ($619.5 million) due to net unrealized mark-to-market gains on derivative contracts related to forecasted coal sales and lower net interest expense ($97.1 million). This favorable variance was partially offset by higher operating costs and expenses ($184.0 million), which reflect increased sales price sensitive costs and inflationary pressures for materials, services, repairs and labor; a higher income tax provision ($181.9 million); decreased results from equity affiliates ($89.3 million); and a provision of $33.7 million related to the losses at NARM and Shoal Creek.
Adjusted EBITDA for the three and six months ended June 30, 2023 reflected year-over-year decreases of $219.6 million and $156.5 million, respectively.
Tons Sold
The following table presents tons sold by operating segment:
Three Months Ended June 30, Increase (Decrease)
to Volumes Six Months Ended June 30, (Decrease) Increase
to Volumes
2023 2022 Tons % 2023 2022 Tons %
(Tons in millions) (Tons in millions)
Seaborne Thermal 4.0 4.0 — — % 7.6 7.8 (0.2) (3) %
Seaborne Metallurgical 2.0 1.6 0.4 25 % 3.3 2.8 0.5 18 %
Powder River Basin 18.9 18.5 0.4 2 % 40.9 39.1 1.8 5 %
Other U.S. Thermal 3.8 4.4 (0.6) (14) % 8.3 8.6 (0.3) (3) %
Total tons sold from operating segments 28.7 28.5 0.2 1 % 60.1 58.3 1.8 3 %
Corporate and Other 0.2 0.1 0.1 100 % 0.3 0.2 0.1 50 %
Total tons sold 28.9 28.6 0.3 1 % 60.4 58.5 1.9 3 %
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Supplemental Financial Data
The following table presents supplemental financial data by operating segment:
Three Months Ended June 30, Increase
(Decrease) Six Months Ended June 30, Increase
(Decrease)
2023 2022 $ % 2023 2022 $ %
Revenue per Ton (1)
Seaborne Thermal $ 100.59 $ 87.37 $ 13.22 15 % $ 98.81 $ 77.52 $ 21.29 27 %
Seaborne Metallurgical 190.13 330.56 (140.43) (42) % 202.33 299.82 (97.49) (33) %
Powder River Basin 13.71 12.44 1.27 10 % 13.80 12.30 1.50 12 %
Other U.S. Thermal 53.63 51.40 2.23 4 % 54.23 49.96 4.27 9 %
Costs per Ton (1)(2)
Seaborne Thermal $ 50.88 $ 43.85 $ 7.03 16 % $ 50.94 $ 43.33 $ 7.61 18 %
Seaborne Metallurgical 137.78 144.91 (7.13) (5) % 143.14 131.26 11.88 9 %
Powder River Basin 12.33 12.55 (0.22) (2) % 12.28 12.16 0.12 1 %
Other U.S. Thermal 39.71 37.25 2.46 7 % 40.22 36.90 3.32 9 %
Adjusted EBITDA Margin per Ton (1)(2)
Seaborne Thermal $ 49.71 $ 43.52 $ 6.19 14 % $ 47.87 $ 34.19 $ 13.68 40 %
Seaborne Metallurgical 52.35 185.65 (133.30) (72) % 59.19 168.56 (109.37) (65) %
Powder River Basin 1.38 (0.11) 1.49 1,355 % 1.52 0.14 1.38 986 %
Other U.S. Thermal 13.92 14.15 (0.23) (2) % 14.01 13.06 0.95 7 %
(1) This is an operating/statistical measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for definitions and reconciliations to the most comparable measures under U.S. GAAP.
(2) Includes revenue-based production taxes and royalties; excludes depreciation, depletion and amortization; asset retirement obligation expenses; selling and administrative expenses; restructuring charges; asset impairment; amortization of take-or-pay contract-based intangibles; and certain other costs related to post-mining activities.
Revenue
The following table presents revenue by reporting segment:
Three Months Ended June 30, Increase (Decrease) to Revenue Six Months Ended June 30, Increase (Decrease) to Revenue
2023 2022 $ % 2023 2022 $ %
(Dollars in millions) (Dollars in millions)
Seaborne Thermal $ 399.5 $ 354.9 $ 44.6 13 % $ 746.0 $ 606.1 $ 139.9 23 %
Seaborne Metallurgical 372.5 533.8 (161.3) (30) % 660.9 855.1 (194.2) (23) %
Powder River Basin 259.7 229.7 30.0 13 % 565.0 480.9 84.1 17 %
Other U.S. Thermal 199.9 224.9 (25.0) (11) % 449.3 428.0 21.3 5 %
Corporate and Other 37.2 (21.4) 58.6 274 % 211.6 (356.8) 568.4 159 %
Revenue $ 1,268.8 $ 1,321.9 $ (53.1) (4) % $ 2,632.8 $ 2,013.3 $ 619.5 31 %
Seaborne Thermal. Segment revenue increased during the three and six months ended June 30, 2023 compared to the same periods in the prior year due to favorable mix variances ($35.5 million and $66.3 million, respectively) which offset unfavorable volumes and favorable realized prices ($9.1 million and $73.6 million, respectively).
Seaborne Metallurgical. Segment revenue decreased during the three and six months ended June 30, 2023 compared to the same periods in the prior year due to unfavorable realized prices ($204.0 million and $226.8 million, respectively) and unfavorable volumes from the Shoal Creek Mine resulting from the fire in the first quarter of 2023 ($121.3 million and $124.6 million, respectively), offset by favorable volumes from the Australian operations ($164.0 million and $157.2 million, respectively).
Powder River Basin. Segment revenue increased during the three and six months ended June 30, 2023 compared to the same periods in the prior year due to favorable realized prices ($25.9 million and $65.2 million, respectively) and favorable volumes ($4.1 million and $18.9 million, respectively) resulting from improved rail performance.
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Other U.S. Thermal. Segment revenue decreased during the three months ended June 30, 2023 compared to the same period in the prior year due to unfavorable volumes ($41.4 million) resulting from decreased demand, offset by favorable realized prices ($16.4 million). Segment revenue increased during the six months ended June 30, 2023 compared to the same period in the prior year due to favorable realized prices ($43.5 million), offset by unfavorable volumes ($22.2 million) resulting from decreased demand.
Corporate and Other. Segment revenue increased during the three months ended June 30, 2023 compared to the same period in the prior year due to net unrealized mark-to-market gains on derivative contracts related to forecasted coal sales in the current year compared to net unrealized mark-to-market losses in the prior year ($64.8 million), partially offset by lower results from trading activities ($6.6 million). Segment revenue increased during the six months ended June 30, 2023 compared to the same period in the prior year due to net unrealized mark-to-market gains on derivative contracts related to forecasted coal sales in the current year compared to net unrealized mark-to-market losses in the prior year ($484.5 million); higher results from trading activities ($63.9 million) primarily due to lower net realized losses on derivative contracts related to forecasted coal sales; and revenue related to the Company’s assignment of rights to its excess port and rail capacity ($19.2 million) as discussed in Note 14. “Other Events” to the accompanying unaudited condensed consolidated financial statements.
Adjusted EBITDA
The following table presents Adjusted EBITDA for each of the Company’s reporting segments:
Three Months Ended June 30, Increase (Decrease) to Segment Adjusted EBITDA Six Months Ended June 30, Increase (Decrease) to Segment Adjusted EBITDA
2023 2022 $ % 2023 2022 $ %
(Dollars in millions) (Dollars in millions)
Seaborne Thermal $ 197.5 $ 176.8 $ 20.7 12 % $ 361.5 $ 267.3 $ 94.2 35 %
Seaborne Metallurgical 102.5 299.7 (197.2) (66) % 193.3 480.7 (287.4) (60) %
Powder River Basin 26.2 (2.0) 28.2 1,410 % 62.0 5.6 56.4 1,007 %
Other U.S. Thermal 51.9 61.9 (10.0) (16) % 116.1 111.9 4.2 4 %
Corporate and Other (19.9) 41.4 (61.3) (148) % 15.9 39.8 (23.9) (60) %
Adjusted EBITDA (1)
$ 358.2 $ 577.8 $ (219.6) (38) % $ 748.8 $ 905.3 $ (156.5) (17) %
(1) This is a financial measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for definitions and reconciliations to the most comparable measures under U.S. GAAP.
Seaborne Thermal. Segment Adjusted EBITDA increased during the three and six months ended June 30, 2023 compared to the same periods in the prior year as a result of favorable mix variances ($23.8 million and $53.6 million, respectively) and higher realized prices net of sales sensitive costs ($8.6 million and $68.8 million, respectively), partially offset by unfavorable operational costs ($11.5 million and $19.8 million, respectively) resulting from higher costs for repairs, maintenance and labor.
Seaborne Metallurgical. Segment Adjusted EBITDA decreased during the three and six months ended June 30, 2023 compared to the same periods in the prior year due to lower realized prices net of sales sensitive costs ($199.8 million and $229.7 million, respectively) and unfavorable operational costs ($87.6 million and $137.4 million, respectively) resulting from the fire at the Shoal Creek Mine in the first quarter of 2023 and increased repair and maintenance spend at the Australian metallurgical operations, partially offset by favorable volumes ($92.0 million and $87.8 million, respectively).
Powder River Basin. Segment Adjusted EBITDA increased during the three and six months ended June 30, 2023 compared to the same periods in the prior year due to favorable commodity pricing ($13.3 million and $11.3 million, respectively); higher realized prices net of sales sensitive costs ($13.2 million and $34.8 million, respectively); and decreased overburden removal costs (six months, $14.4 million). The increases were partially offset by higher costs for materials, services, repairs and labor ($0.5 million and $10.0 million, respectively) due in part to timing, increased repairs for an aging equipment fleet and inflationary pressures on materials and services.
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Other U.S. Thermal. Segment Adjusted EBITDA decreased during the three months ended June 30, 2023 compared to the same period in the prior year due to higher costs for materials, services, repairs and labor ($17.0 million) due in part to timing, increased repairs for an aging equipment fleet and inflationary pressures on materials and services and unfavorable volumes ($16.1 million). These decreases were offset by higher realized prices net of sales sensitive costs ($14.3 million) and favorable commodity pricing ($10.5 million). Segment Adjusted EBITDA increased during the six months ended June 30, 2023 compared to the same period in the prior year due to higher realized prices net of sales sensitive costs ($37.1 million) and favorable commodity pricing ($10.6 million), offset by higher costs for materials, services, repairs and labor ($32.6 million) due in part to increased equipment repairs and headcount and inflationary pressures on materials and services and unfavorable volumes ($7.1 million).
Corporate and Other Adjusted EBITDA. The following table presents a summary of the components of Corporate and Other Adjusted EBITDA:
Three Months Ended June 30, (Decrease) Increase to Adjusted EBITDA Six Months Ended June 30, (Decrease) Increase to Adjusted EBITDA
2023 2022 $ % 2023 2022 $ %
(Dollars in millions) (Dollars in millions)
Middlemount (1)
$ 3.7 $ 48.9 $ (45.2) (92) % $ 6.0 $ 94.0 $ (88.0) (94) %
Resource management activities (2)
6.0 13.8 (7.8) (57) % 8.3 17.3 (9.0) (52) %
Selling and administrative expenses
(21.7) (21.8) 0.1 — % (44.5) (44.9) 0.4 1 %
Other items, net (3)
(7.9) 0.5 (8.4) (1,680) % 46.1 (26.6) 72.7 273 %
Corporate and Other Adjusted EBITDA
$ (19.9) $ 41.4 $ (61.3) (148) % $ 15.9 $ 39.8 $ (23.9) (60) %
(1) Middlemount’s results are before the impact of related changes in amortization of basis difference. Middlemount’s standalone results included (on a 50% attributable basis) aggregate amounts of depreciation, depletion and amortization, asset retirement obligation expenses, net interest expense and income taxes of $3.3 million and $23.3 million during the three months ended June 30, 2023 and 2022, respectively, and $5.9 million and $43.5 million during the six months ended June 30, 2023 and 2022, respectively.
(2) Includes gains (losses) on certain surplus coal reserve, resource and surface land sales and property management costs and revenue.
(3) Includes trading and brokerage activities, costs associated with post-mining activities, gains (losses) on certain asset disposals, minimum charges on certain transportation-related contracts, costs associated with suspended operations including the North Goonyella Mine and expenses related to the Company’s other commercial activities.
Corporate and Other Adjusted EBITDA decreased during the three months ended June 30, 2023 compared to the same period in the prior year primarily due to unfavorable variances in Middlemount’s results driven by a 40% decrease in sales pricing and lower sales volumes.
Corporate and Other Adjusted EBITDA decreased during the six months ended June 30, 2023 compared to the same period in the prior year due to unfavorable variances in Middlemount’s results driven by a 29% decrease in sales pricing and lower sales volumes, offset by favorable trading results ($68.6 million) and revenue related to the Company’s assignment of rights to its excess port and rail capacity ($19.2 million) as discussed in Note 14. “Other Events” to the accompanying unaudited condensed consolidated financial statements.
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Income From Continuing Operations, Net of Income Taxes
The following table presents income from continuing operations, net of income taxes:
Three Months Ended June 30, (Decrease) Increase to Income Six Months Ended June 30, (Decrease) Increase to Income
2023 2022 $ % 2023 2022 $ %
(Dollars in millions) (Dollars in millions)
Adjusted EBITDA (1)
$ 358.2 $ 577.8 $ (219.6) (38) % $ 748.8 $ 905.3 $ (156.5) (17) %
Depreciation, depletion and amortization (80.6) (73.8) (6.8) (9) % (156.9) (146.7) (10.2) (7) %
Asset retirement obligation expenses (15.5) (12.7) (2.8) (22) % (30.9) (27.7) (3.2) (12) %
Restructuring charges (2.0) (0.2) (1.8) (900) % (2.1) (1.8) (0.3) (17) %
Asset impairment — — — n.m. (2.0) — (2.0) n.m.
Provision for NARM and Shoal Creek loss (33.7) — (33.7) n.m. (33.7) — (33.7) n.m.
Changes in amortization of basis difference related to equity affiliates 0.4 0.6 (0.2) (33) % 0.7 1.2 (0.5) (42) %
Interest expense (13.3) (37.6) 24.3 65 % (31.7) (77.0) 45.3 59 %
Net loss on early debt extinguishment (2.0) (2.3) 0.3 13 % (8.8) (25.8) 17.0 66 %
Interest income 23.1 0.9 22.2 2,467 % 36.2 1.4 34.8 2,486 %
Unrealized gains (losses) on derivative contracts related to forecasted sales
40.3 (24.5) 64.8 264 % 159.0 (325.5) 484.5 149 %
Unrealized gains (losses) on foreign currency option contracts 2.8 (6.3) 9.1 144 % 0.6 (3.0) 3.6 120 %
Take-or-pay contract-based intangible recognition 0.6 0.7 (0.1) (14) % 1.2 1.4 (0.2) (14) %
Income tax provision (74.2) (11.3) (62.9) (557) % (192.2) (10.3) (181.9) (1,766) %
Income from continuing operations, net of income taxes $ 204.1 $ 411.3 $ (207.2) (50) % $ 488.2 $ 291.5 $ 196.7 67 %
(1) This is a financial measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for definitions and reconciliations to the most comparable measures under U.S. GAAP.
Depreciation, Depletion and Amortization. The following table presents a summary of depreciation, depletion and amortization expense by reporting segment:
Three Months Ended June 30, (Decrease) Increase to Income Six Months Ended June 30, (Decrease) Increase to Income
2023 2022 $ % 2023 2022 $ %
(Dollars in millions) (Dollars in millions)
Seaborne Thermal $ (27.6) $ (26.2) $ (1.4) (5) % $ (51.4) $ (50.2) $ (1.2) (2) %
Seaborne Metallurgical (22.9) (22.0) (0.9) (4) % (44.0) (41.9) (2.1) (5) %
Powder River Basin (10.6) (9.3) (1.3) (14) % (22.3) (19.8) (2.5) (13) %
Other U.S. Thermal (17.1) (13.7) (3.4) (25) % (34.8) (29.4) (5.4) (18) %
Corporate and Other
(2.4) (2.6) 0.2 8 % (4.4) (5.4) 1.0 19 %
Total $ (80.6) $ (73.8) $ (6.8) (9) % $ (156.9) $ (146.7) $ (10.2) (7) %
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Additionally, the following table presents a summary of the Company’s weighted-average depletion rate per ton for active mines in each of its operating segments:
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Seaborne Thermal $ 2.09 $ 2.46 $ 2.13 $ 2.47
Seaborne Metallurgical 1.82 3.42 1.96 2.85
Powder River Basin 0.30 0.32 0.30 0.32
Other U.S. Thermal 1.33 1.24 1.26 1.21
The decrease in the weighted-average depletion rate per ton for the Seaborne Thermal segment during the three and six months ended June 30, 2023 compared to the same periods in the prior year reflects the impact of volume and mix variances across the segment. The decrease in the weighted-average depletion rate per ton for the Seaborne Metallurgical segment during the three and six months ended June 30, 2023 compared to the same periods in the prior year reflects the impact of the fire at the Shoal Creek Mine.
Provision for NARM and Shoal Creek Loss. A provision of $33.7 million million was recorded during the three and six months ended June 30, 2023 for losses related to the events at NARM and the Shoal Creek Mine, as discussed in Note 14. “Other Events” in the accompanying unaudited condensed consolidated financial statements. The current period provision represents the best estimate of potential loss associated with these events based on assessments made to date.
Interest Expense. The decrease in interest expense during the three and six months ended June 30, 2023 primarily reflects the impacts of debt retirements completed by the Company during 2022 as further described in Note 8. “Long-term Debt” to the accompanying unaudited condensed consolidated financial statements and Note 10. “Long-term Debt” to the Annual Report on Form 10-K for the year ended December 31, 2022.
Net Loss on Early Debt Extinguishment. The losses recognized during the three and six months ended June 30, 2023 were primarily related to the Company’s terminated letter of credit facility as further discussed in Note 11. “Financial Instruments and Other Guarantees” to the accompanying unaudited condensed consolidated financial statements. The losses recognized during the prior year periods were primarily related to the redemption of existing notes during the periods as further described in Note 8. “Long-term Debt” to the accompanying unaudited condensed consolidated financial statements and Note 10. “Long-term Debt” to the Annual Report on Form 10-K for the year ended December 31, 2022.
Interest Income. The increase in interest income during the three and six months ended June 30, 2023 was primarily due to higher cash balances, including restricted cash balances on which the Company earns interest, and higher interest rates in the current year. Based upon projected cash balances and interest rates, the Company anticipates significantly higher interest income throughout 2023 as compared to the prior year.
Unrealized Gains (Losses) on Derivative Contracts Related to Forecasted Sales. Unrealized gains (losses) primarily relate to mark-to-market activity on derivative contracts related to forecasted coal sales. For additional information, refer to Note 5. “Derivatives and Fair Value Measurements” to the accompanying unaudited condensed consolidated financial statements.
Unrealized Gains (Losses) on Foreign Currency Option Contracts. Unrealized gains (losses) primarily relate to mark-to-market activity on foreign currency option contracts. For additional information, refer to Note 5. “Derivatives and Fair Value Measurements” to the accompanying unaudited condensed consolidated financial statements.
Income Tax Provision. The increase in the income tax provision during the three and six months ended June 30, 2023 compared to the same periods in the prior year was primarily due to an increase in pretax income and the release of valuation allowance related to Australian net operating losses during the fourth quarter of 2022. Refer to Note 7. “Income Taxes” to the accompanying unaudited condensed consolidated financial statements for additional information.
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Net Income Attributable to Common Stockholders
The following table presents net income attributable to common stockholders:
Three Months Ended June 30, (Decrease) Increase
to Income Six Months Ended June 30, Increase (Decrease)
to Income
2023 2022 $ % 2023 2022 $ %
(Dollars in millions) (Dollars in millions)
Income from continuing operations, net of income taxes $ 204.1 $ 411.3 $ (207.2) (50) % $ 488.2 $ 291.5 $ 196.7 67 %
Loss from discontinued operations, net of income taxes (1.3) (0.7) (0.6) (86) % (2.6) (1.5) (1.1) (73) %
Net income 202.8 410.6 (207.8) (51) % 485.6 290.0 195.6 67 %
Less: Net income attributable to noncontrolling interests 23.6 1.1 22.5 2,045 % 37.9 — 37.9 n.m.
Net income attributable to common stockholders $ 179.2 $ 409.5 $ (230.3) (56) % $ 447.7 $ 290.0 $ 157.7 54 %
Net Income Attributable to Noncontrolling Interests. The increase in the results attributable to noncontrolling interests during the three and six months ended June 30, 2023 compared to the same periods in the prior year was primarily due to stronger financial results of Peabody’s majority-owned Wambo operations in which there is an outside non-controlling interest.
Diluted Earnings per Share (EPS)
The following table presents diluted EPS:
Three Months Ended June 30, Decrease
to EPS Six Months Ended June 30, Increase (Decrease)
to EPS
2023 2022 $ % 2023 2022 $ %
Diluted EPS attributable to common stockholders:
Income from continuing operations $ 1.16 $ 2.55 $ (1.39) (55) % $ 2.85 $ 1.93 $ 0.92 48 %
Loss from discontinued operations (0.01) (0.01) — — % (0.02) — (0.02) n.m.
Net income attributable to common stockholders $ 1.15 $ 2.54 $ (1.39) (55) % $ 2.83 $ 1.93 $ 0.90 47 %
Diluted EPS is commensurate with the changes in results from continuing operations and discontinued operations during that period. Diluted EPS reflects weighted average diluted common shares outstanding of 159.0 million and 161.9 million for the three months ended June 30, 2023 and 2022, respectively, and 160.2 million and 152.5 million for the six months ended June 30, 2023 and 2022, respectively.
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Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA is defined as income from continuing operations before deducting net interest expense, income taxes, asset retirement obligation expenses and depreciation, depletion and amortization. Adjusted EBITDA is also adjusted for the discrete items that management excluded in analyzing each of its segment’s operating performance, as displayed in the reconciliations below.
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
(Dollars in millions)
Income from continuing operations, net of income taxes $ 204.1 $ 411.3 $ 488.2 $ 291.5
Depreciation, depletion and amortization
80.6 73.8 156.9 146.7
Asset retirement obligation expenses
15.5 12.7 30.9 27.7
Restructuring charges
2.0 0.2 2.1 1.8
Asset impairment
— — 2.0 —
Provision for NARM and Shoal Creek loss 33.7 — 33.7 —
Changes in amortization of basis difference related to equity affiliates (0.4) (0.6) (0.7) (1.2)
Interest expense
13.3 37.6 31.7 77.0
Net loss on early debt extinguishment 2.0 2.3 8.8 25.8
Interest income
(23.1) (0.9) (36.2) (1.4)
Unrealized (gains) losses on derivative contracts related to forecasted sales (40.3) 24.5 (159.0) 325.5
Unrealized (gains) losses on foreign currency option contracts (2.8) 6.3 (0.6) 3.0
Take-or-pay contract-based intangible recognition
(0.6) (0.7) (1.2) (1.4)
Income tax provision 74.2 11.3 192.2 10.3
Total Adjusted EBITDA
$ 358.2 $ 577.8 $ 748.8 $ 905.3
Total Reporting Segment Costs is defined as operating costs and expenses adjusted for the discrete items that management excluded in analyzing each of its segments’ operating performance, as displayed in the reconciliations below.
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
(Dollars in millions)
Operating costs and expenses
$ 862.0 $ 825.6 $ 1,708.6 $ 1,524.6
Unrealized gains (losses) on foreign currency option contracts 2.8 (6.3) 0.6 (3.0)
Take-or-pay contract-based intangible recognition
0.6 0.7 1.2 1.4
Net periodic benefit credit, excluding service cost (9.7) (12.3) (19.4) (24.5)
Total Reporting Segment Costs $ 855.7 $ 807.7 $ 1,691.0 $ 1,498.5
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The following table presents Total Reporting Segment Costs by reporting segment:
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
(Dollars in millions)
Seaborne Thermal $ 202.0 $ 178.1 $ 384.5 $ 338.8
Seaborne Metallurgical 270.0 234.1 467.6 374.4
Powder River Basin 233.5 231.7 503.0 475.3
Other U.S. Thermal 148.0 163.0 333.2 316.1
Corporate and Other 2.2 0.8 2.7 (6.1)
Total Reporting Segment Costs $ 855.7 $ 807.7 $ 1,691.0 $ 1,498.5
Revenue per Ton and Adjusted EBITDA Margin per Ton are equal to revenue by segment and Adjusted EBITDA by segment, respectively, divided by segment tons sold. Costs per Ton is equal to Revenue per Ton less Adjusted EBITDA Margin per Ton.
The following tables present tons sold, revenue, Total Reporting Segment Costs and Adjusted EBITDA by operating segment:
Three Months Ended June 30, 2023
Seaborne Thermal Seaborne Metallurgical Powder River Basin Other U.S. Thermal
(Amounts in millions, except per ton data)
Tons sold 4.0 2.0 18.9 3.8
Revenue $ 399.5 $ 372.5 $ 259.7 $ 199.9
Total Reporting Segment Costs 202.0 270.0 233.5 148.0
Adjusted EBITDA $ 197.5 $ 102.5 $ 26.2 $ 51.9
Revenue per Ton $ 100.59 $ 190.13 $ 13.71 $ 53.63
Costs per Ton 50.88 137.78 12.33 39.71
Adjusted EBITDA Margin per Ton $ 49.71 $ 52.35 $ 1.38 $ 13.92
Three Months Ended June 30, 2022
Seaborne Thermal Seaborne Metallurgical Powder River Basin Other U.S. Thermal
(Amounts in millions, except per ton data)
Tons sold 4.0 1.6 18.5 4.4
Revenue $ 354.9 $ 533.8 $ 229.7 $ 224.9
Total Reporting Segment Costs 178.1 234.1 231.7 163.0
Adjusted EBITDA $ 176.8 $ 299.7 $ (2.0) $ 61.9
Revenue per Ton $ 87.37 $ 330.56 $ 12.44 $ 51.40
Costs per Ton 43.85 144.91 12.55 37.25
Adjusted EBITDA Margin per Ton $ 43.52 $ 185.65 $ (0.11) $ 14.15
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Six Months Ended June 30, 2023
Seaborne Thermal Seaborne Metallurgical Powder River Basin Other U.S. Thermal
(Amounts in millions, except per ton data)
Tons sold 7.6 3.3 40.9 8.3
Revenue $ 746.0 $ 660.9 $ 565.0 $ 449.3
Total Reporting Segment Costs 384.5 467.6 503.0 333.2
Adjusted EBITDA $ 361.5 $ 193.3 $ 62.0 $ 116.1
Revenue per Ton $ 98.81 $ 202.33 $ 13.80 $ 54.23
Costs per Ton 50.94 143.14 12.28 40.22
Adjusted EBITDA Margin per Ton $ 47.87 $ 59.19 $ 1.52 $ 14.01
Six Months Ended June 30, 2022
Seaborne Thermal Seaborne Metallurgical Powder River Basin Other U.S. Thermal
(Amounts in millions, except per ton data)
Tons sold 7.8 2.8 39.1 8.6
Revenue $ 606.1 $ 855.1 $ 480.9 $ 428.0
Total Reporting Segment Costs 338.8 374.4 475.3 316.1
Adjusted EBITDA $ 267.3 $ 480.7 $ 5.6 $ 111.9
Revenue per Ton $ 77.52 $ 299.82 $ 12.30 $ 49.96
Costs per Ton 43.33 131.26 12.16 36.90
Adjusted EBITDA Margin per Ton $ 34.19 $ 168.56 $ 0.14 $ 13.06
Available Free Cash Flow is defined as operating cash flow minus investing cash flow and distributions to noncontrolling interests; plus/minus changes to restricted cash and collateral (excluding one-time effects of the recent surety agreement amendment) and other anticipated expenditures. See the table below for a reconciliation of Available Free Cash Flow to its most comparable measure under U.S. GAAP.
Six Months Ended June 30, 2023
(Dollars in millions)
Net cash provided by operating activities $ 739.7
- Net cash used in investing activities (120.0)
- Distributions to noncontrolling interests (22.8)
+/- Changes to restricted cash and collateral 39.7
- Anticipated expenditures or other requirements —
Available Free Cash Flow $ 636.6
Regulatory Update
Other than as described in the following section, there were no significant changes to the Company’s regulatory or global climate matters subsequent to December 31, 2022. This section should be considered in connection with the Company’s regulatory and global climate matters as outlined in Part I, Item 1. “Business” in its Annual Report on Form 10-K for the year ended December 31, 2022.
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Regulatory Matters - U.S.
National Ambient Air Quality Standards (NAAQS). The Clean Air Act (CAA) requires the United States Environmental Protection Agency (EPA) to review national ambient air quality standards every five years to determine whether revision to current standards are appropriate. On January 6, 2023, the EPA proposed to lower the allowable level of average annual primary particulate matter (PM). If enacted as proposed, this rule would require fossil fuel generating units to install additional nitrogen oxide (NO x ) reducing technologies, ultimately increasing the cost of fossil fuel generated energy or causing potential unit retirements.
Cross State Air Pollution Rule (CSAPR) and CSAPR Update Rule . The CSAPR and related updates require numerous U.S. states and the District of Columbia to reduce power plant emissions that cross state lines and significantly contribute to ozone and/or fine PM pollution in other states.
On March 15, 2023, the EPA issued a final rule to address regional ozone transport by imposing new federal ozone season emission budgets for NO x in 23 states, including California, Nevada, Oklahoma and Texas, as well as some Indian reservation areas. The rule includes emission limits for NO x for fossil fuel-fired power plants and a “backstop daily emissions rate” for large coal-fired power plants if they exceed specified limits. The rule also sets first-time limits on certain industrial sources that will apply starting with the 2026 ozone season in 20 states. The EPA estimates that annual compliance costs (for 2023 through 2042) will be $770 million to $910 million. These emission limitations would apply in addition to requirements contained in State Implementation Plans to control ozone precursors in affected states, although states have the option to replace these limits with equally strict or more stringent limitations. When implemented, this rule could influence the closure of some coal generating units that have not installed selective catalytic reduction technologies. The rule has been challenged in several U.S. Courts of Appeal, including the U. S. Court of Appeals for the D.C. Circuit (D.C. Circuit).
EPA Regulation of Greenhouse Gas Emissions from New and Existing Fossil Fuel-Fired Electricity Utility Generating Units (EGUs) . On May 23, 2023, the EPA proposed a rule that includes five separate actions regarding the control of greenhouse gas (GHG) emissions from fossil fuel-fired power plants. The EPA proposed to revise New Source Performance Standards (NSPS) to address carbon dioxide (CO 2 ) emissions from both new fossil fuel-fired steam generating units and new fossil fuel-fired stationary combustion turbines. The EPA also proposed emission guidelines for existing coal- and oil/gas-fired steam generating units and for existing stationary combustion turbines. Finally, in the same proposed rule, the EPA proposed to repeal the Affordable Clean Energy Rule, promulgated by the EPA in 2019 and vacated by the D.C. Circuit in 2021.
If finalized in the form proposed, the regulations would require existing fossil fuel-fired steam generating units (primarily coal units) to use carbon capture and sequestration (CCS) with 90% capture of CO 2 if they plan to operate after December 31, 2039. These units, however, may also pursue a different compliance pathway that is based on making a commitment to cease operations. The proposed rule also would require existing stationary combustion turbines over 300 megawatts with a capacity factor greater than 50% (primarily units using natural gas) to either utilize CCS by 2035 or pursue a pathway that would require co-firing with 30% low-GHG hydrogen by 2032, followed by co-firing with 96% low-GHG hydrogen by 2038. The EPA is also taking comments with regard to imposing standards for stationary combustion turbines under 300 megawatts.
All requirements related to existing affected units – whether fired by coal, oil or natural gas – will be imposed through state plans that can additionally take into account the remaining useful life of a generating unit when determining appropriate controls. The EPA, however, proposes that such plans generally be no less stringent than the emission reductions that would be obtained under the EPA’s guidelines. Existing steam generating units must start complying with the EPA’s proposed standards by January 1, 2030 and existing stationary combustion turbines by either January 1, 2032 or January 1, 2035 depending on what option for compliance is chosen.
Finally, as part of the proposed rule, any newly constructed steam generating unit or newly constructed stationary combustion turbine would be subject to GHG standards as of May 23, 2023, the date of the proposed rule. As proposed, any new fossil-fuel steam generating unit will need to comply with partial CCS upon startup as well as a requirement for 90% CO 2 reduction through CCS by 2040. Any new or reconstructed stationary combustion turbine will be subject to different standards based on whether it is considered low load, intermediate load or a base load unit.
If finalized as proposed, the GHG NSPS could have substantial impacts on the use of coal, oil and natural gas for the generation of electricity.
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Mercury and Air Toxic Standards (MATS) . In 2012, the EPA published the final MATS rule, which revised the NSPS for NO x , sulfur dioxide and PM for new and modified coal-fueled electricity generating plants, and imposed maximum achievable control technology (MACT) emission limits on hazardous air pollutants (HAPs) from new and existing coal-fueled and oil-fueled electric generating plants. MACT standards limit emissions of mercury, acid gas HAPs, non-mercury HAP metals and organic HAPs.
On March 6, 2023, the EPA issued a final rule which reaffirmed its determination to regulate coal- and oil-fired EGUs under CAA section 112, including the regulation of HAPs from EGUs after considering cost. On April 3, 2023, the EPA proposed to amend the 2012 MATS rule and require an additional two-thirds reduction in the filterable PM emission of non-mercury HAP metals from existing coal-fired power plants as well as the usage of continuous emissions monitoring systems, among other proposals. Under the proposed rule, the EPA estimated that approximately 500 megawatts of coal-fired capacity would retire by 2028. The public comment period on the proposals ended on June 23, 2023.
Effluent Limitations Guidelines for the Steam Electric Power Generating Industry. In 2015, the EPA published a final rule setting requirements for wastewater discharge from EGUs. On March 29, 2023, the EPA proposed a rule that would establish more stringent standards for flue gas desulfurization wastewater, bottom ash transport water and combustion residual leachate. If the proposed rule is finalized in substantially the same form, the revised effluent limitations guidelines would significantly increase costs for many coal-fueled steam electric power plants. Concurrently, the EPA issued a direct final rule which extended the deadline through June 2023 for steam electric power plants to commit to the permanent cessation of coal combustion by December 31, 2028 in exchange for less stringent wastewater discharge requirements during the interim. The direct final rule could influence fuel switching or additional coal generating unit retirements by the end of 2028.
Clean Water Act (CWA) Definition of “Waters of the United States”. On January 18, 2023, the EPA and the U.S. Army Corp of Engineers finalized a revised definition of “Waters of the United States” to clarify the scope of federal regulatory authority under the CWA. Several courts preliminarily enjoined that rule in 27 states. In addition, on May 25, 2023, the Supreme Court of the United States issued its decision in Sackett v. EPA , No. 21-454, which significantly narrowed the scope of federal regulatory authority over wetlands and non-navigable waters. The agencies have indicated that they are implementing the CWA consistent with the Sackett decision, and they may issue additional guidance or initiate another rulemaking proceeding to revise the 2023 rule.
Regulatory Matters - Australia
New South Wales Coal Directions. The State of New South Wales (NSW) enacted the Energy and Utilities Administration Amendment Act 2022 granting the State Premier and Minister for Energy the ability to issue directions in the event of a coal market price emergency (among other powers). On December 22, 2022, the State Premier declared such an emergency, intended to control coal and electricity pricing. Subsequently, directions were issued to Peabody Energy Australia Pty Ltd and other coal producers with operations in NSW, which have been amended at various dates. The most recent directions require Peabody Energy Australia Pty Ltd to reserve a portion of coal produced by Wambo Coal Pty Ltd and Wilpinjong Coal Pty Ltd for sale to NSW power generators at a capped price until June 30, 2024 and impose additional reporting obligations to demonstrate compliance. While these directions are currently not anticipated to significantly impact the Wambo Mines or the Wilpinjong Mine, the nature and extent of those obligations and associated reporting requirements may continue to evolve if further directions are issued.
National Greenhouse and Energy Reporting Act 2007 (NGER Act) . The NGER Act imposes requirements for corporations meeting a certain threshold to register and report greenhouse gas emissions and abatement actions, as well as energy production and consumption as part of a single, national reporting system.
On March 27, 2023, the Australian Federal Government announced several additional measures in the Safeguard Mechanism (Crediting) Amendments Bill 2023 which was introduced and passed both Houses of Parliament on March 30, 2023. The legislation introduces a cap on overall net emissions from facilities covered by the scheme through 2030. The legislation also sets a cap of net zero tonnes carbon dioxide equivalent for any financial year beginning after June 30, 2049. In addition, if the Minister for Environment and Water grants an approval under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) to a new or expanded facility covered by the scheme, the Minister will be required to give an estimate of the facility's Scope 1 emissions to the Minister for Climate Change, the Climate Change Secretary and the Climate Change Authority for assessment against scheme targets. The legislation went into effect on July 1, 2023. The potential impact of these reforms to Peabody’s Australian operations is under review.
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Risks Related to Global Climate Change
There have been no significant changes to the Company’s global climate matters subsequent to December 31, 2022. Refer to Part I, Item 1. “Business” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for information regarding the Company’s global climate matters.
Liquidity and Capital Resources
Overview
The Company’s primary source of cash is proceeds from the sale of its coal production to customers. The Company has also generated cash from the sale of non-strategic assets, including coal reserves and surface lands, and, from time to time, borrowings under its credit facilities and the issuance of securities. The Company’s primary uses of cash include the cash costs of coal production, capital expenditures, coal reserve lease and royalty payments, debt service costs, finance and operating lease payments, postretirement plans, take-or-pay obligations, post-mining reclamation obligations, collateral and margining requirements, dividends, share repurchases, and selling and administrative expenses. The Company has also used cash for early debt retirements.
Any future determinations to return capital to stockholders, such as dividends or share repurchases will depend on a variety of factors, including the Company’s net income or other sources of cash, liquidity position and potential alternative uses of cash, such as internal development projects or acquisitions, as well as economic conditions and expected future financial results. The Company’s ability to early retire debt, declare dividends or repurchase shares in the future will depend on its future financial performance, which in turn depends on the successful implementation of its strategy and on financial, competitive, regulatory, technical and other factors, general economic conditions, demand for and selling prices of coal and other factors specific to its industry, many of which are beyond the Company’s control.
Liquidity
As of June 30, 2023, the Company’s cash balances totaled $1,080.5 million, including approximately $676.4 million held by Australian subsidiaries, $380.9 million held by U.S. subsidiaries, and the remainder held by other foreign subsidiaries in accounts predominantly domiciled in the U.S. A significant majority of the cash held by the Company’s foreign subsidiaries is denominated in U.S. dollars. This cash is generally used to support non-U.S. liquidity needs, including capital and operating expenditures in Australia. From time to time, the Company may repatriate excess cash from its foreign subsidiaries to the U.S. During the six months ended June 30, 2023, the Company repatriated approximately $250 million through intercompany dividends. If additional foreign-held cash is repatriated in the future, the Company does not expect restrictions or potential taxes will have a material effect to its near-term liquidity.
The Company’s available liquidity decreased from $1,317.8 million as of December 31, 2022 to $1,115.3 million as of June 30, 2023. Available liquidity was comprised of the following:
June 30, 2023 December 31, 2022
(Dollars in millions)
Cash and cash equivalents $ 1,080.5 $ 1,307.3
Credit facility availability — 3.5
Accounts receivable securitization program availability 34.8 7.0
Total liquidity $ 1,115.3 $ 1,317.8
Capital Returns to Shareholders
The Company repurchased approximately 8.9 million shares of its common stock for $184.2 million and paid dividends of $10.8 million during the three months ended June 30, 2023. Subsequent to June 30, 2023, the Company repurchased an additional 3.1 million shares for $67.0 million.
Surety Agreement Amendment and Collateral Requirements
In April 2023, the Company amended its existing agreement with the providers of its surety bond portfolio, dated November 6, 2020. Under the agreement, the Company was required to post collateral on a periodic basis through December 31, 2025. Prior to the April 2023 amendment, the Company had posted cumulative collateral of $557.8 million, primarily in the form of letters of credit.
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Under the April 2023 amendment, the Company and surety providers agreed to a maximum aggregate collateral amount of $721.8 million based upon bonding levels at the effective date of the amendment. This maximum collateral amount represents a negotiated increase from the uncapped cumulative collateral amount prior to the amendment and may vary prospectively as future bonding levels increase or decrease. The amendment also removes restrictions on the payment of dividends and share repurchases, and extends the agreement through December 31, 2026. In order to maintain the new maximum collateral standstill, the Company must remain compliant with a minimum liquidity test and a maximum net leverage ratio, as measured each quarter. The minimum liquidity test requires the Company to maintain liquidity at the greater of $400 million or the difference between the penal sum of all surety bonds and the amount of collateral posted in favor of surety providers, which was $533.6 million at June 30, 2023. The Company must also maintain a maximum net leverage ratio of 1.5 to 1.0, where the numerator consists of its funded debt, net of cash, and the denominator consists of its Adjusted EBITDA for the trailing twelve months. For purposes of calculating the ratio, only 50% of the outstanding principal amount of the Company’s 2028 Convertible Notes is deemed to be funded debt. The Company’s ability to pay dividends and make share repurchases is also subject to the quarterly minimum liquidity test. The Company is in compliance with such requirements, which commenced for the second quarter of 2023. The Company granted second liens on $200.0 million of mining equipment under the original agreement, which remain in force under the April 2023 amendment.
To fund the maximum collateral amount, the Company deposited $566.3 million into trust accounts for the benefit of certain surety providers on March 31, 2023. The remainder was comprised of $140.5 million of existing cash-collateralized letters of credit and $15.0 million already held on behalf of a surety provider. The amendment became effective on April 14, 2023, when the Company terminated a credit agreement which, as amended, provided for $237.2 million of capacity for irrevocable standby letters of credit (LC Facility). The $223.8 million of letters of credit that were outstanding under the LC Facility at March 31, 2023 were subsequently cancelled and, in certain cases, replaced by cash-collateralized letters of credit or letters of credit issued under the Company’s accounts receivable securitization program.
Collateralized Letter of Credit Agreement
In February 2022, the Company entered into an agreement which provides up to $250.0 million of capacity for irrevocable standby letters of credit, primarily to 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 variable deposit rate on the amount of cash collateral posted in support of letters of credit. The agreement has an initial expiration date of December 31, 2025. At March 31, 2023, letters of credit of $168.2 million were outstanding under the agreement, which were collateralized by cash of $173.2 million.
Margin Requirements
From time to time, the Company enters into hedging arrangements, including economic hedging arrangements, to manage various risks, including coal price volatility. Most hedging arrangements require the Company to post margin with its clearing broker based on the value of the related instruments and other credit factors. If the fair value of its exchange-cleared hedge portfolio moves significantly, the Company could be required to post additional margin, which could negatively impact its liquidity.
During the six months ended June 30, 2023, the Company’s coal derivative contracts with margin requirements were settled and margin postings declined from $255.5 million at December 31, 2023 to zero at June 30, 2023.
Indebtedness
The Company’s total indebtedness as of June 30, 2023 and December 31, 2022 is presented in the table below.
Debt Instrument (defined below, as applicable) June 30, 2023 December 31, 2022
(Dollars in millions)
3.250% Convertible Senior Notes due March 2028 (2028 Convertible Notes) $ 320.0 $ 320.0
Finance lease obligations 23.5 23.6
Less: Debt issuance costs (9.0) (9.8)
334.5 333.8
Less: Current portion of long-term debt 13.0 13.2
Long-term debt $ 321.5 $ 320.6
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During 2022, the Company utilized various methods allowable or required under its then-existing debt agreements to retire all of its senior secured long-term debt, leaving only the 3.250% Convertible Senior Notes due 2028 (the 2028 Convertible Notes), which are further described below, and various finance lease obligations outstanding at December 31, 2022.
The Company’s remaining indebtedness requires estimated contractual principal and interest payments, assuming interest rates in effect at June 30, 2023, of approximately $10 million in 2023, $23 million in 2024, $16 million in 2025, $13 million in 2026, $12 million in 2027 and $325 million thereafter.
Cash payments for interest related to the Company’s indebtedness and financial assurance instruments amounted to $40.6 million and $77.8 million during the six months ended June 30, 2023 and 2022, respectively.
2028 Convertible Notes
On March 1, 2022, through a private offering, the Company issued the 2028 Convertible Notes in the aggregate principal amount of $320.0 million. 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 and available cash to redeem $62.6 million of senior secured notes maturing in 2024 and $257.4 million of senior secured notes maturing in 2025, and to pay related premiums, fees and expenses relating to the offering and redemptions.
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.
During the first and second quarters of 2023, the Company’s reported common stock prices did not prompt the conversion feature of the 2028 Convertible Notes. As a result, the 2028 Convertible Notes were not convertible at the option of the holders during the second quarter of 2023, and will not be similarly convertible during the third quarter of 2023.
LC Facility
The now-terminated LC Facility had an original capacity of $324.0 million and was subsequently amended at various dates to reduce its capacity and effect certain other changes, including in February 2023 to reduce capacity by $65.0 million, accelerate the expiration date to December 31, 2023 from December 31, 2024, and eliminate the prepayment premium due upon any reduction of commitments thereunder prior to July 29, 2023.
Accounts Receivable Securitization Program
As described in Note 11. “Financial Instruments and Other Guarantees” of the accompanying unaudited condensed consolidated financial statements, the Company entered into an accounts receivable securitization program during 2017. The securitization program was amended in February 2023 to increase the available funding capacity from $175.0 million to $225.0 million and adjust the relevant interest rate for borrowings to a secured overnight financing rate (SOFR). Funding capacity is limited to the availability of eligible receivables and is accounted for as a secured borrowing. Funding capacity under the program may also be utilized for letters of credit in support of other obligations, which has been the Company’s primary utilization. At June 30, 2023, the Company had no outstanding borrowings and $117.8 million of letters of credit outstanding under the program, which were primarily in support of portions of the Company’s reclamation obligations. The Company was not required to post cash collateral under the securitization program at June 30, 2023.
Covenant Compliance
The Company was compliant with all relevant covenants under its debt and other finance agreements at June 30, 2023. The April 2023 termination of the Company’s credit agreement and related letter of credit facility eliminated the related compliance requirements as of March 31, 2023 and prospectively.
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Cash Flows
The following table summarizes the Company’s cash flows for the six months ended June 30, 2023 and 2022, as reported in the accompanying unaudited condensed consolidated financial statements. Available Free Cash Flow is a financial measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section above for definitions and reconciliations to the most comparable measures under U.S. GAAP.
Six Months Ended June 30,
2023 2022
(Dollars in millions)
Net cash provided by operating activities $ 739.7 $ 9.4
Net cash (used in) provided by investing activities (120.0) 94.5
Net cash (used in) provided by financing activities (225.4) 75.1
Net change in cash, cash equivalents and restricted cash 394.3 179.0
Cash, cash equivalents and restricted cash at beginning of period 1,417.6 954.3
Cash, cash equivalents and restricted cash at end of period $ 1,811.9 $ 1,133.3
Available Free Cash Flow $ 636.6
Operating Activities. The increase in net cash provided by operating activities for the six months ended June 30, 2023 compared to the same period in the prior year was driven by the year-over-year increase in operating cash flow from working capital fluctuations ($450.7 million), including the return of margin associated with derivative financial instruments ($255.5 million), and from the Company’s mining operations ($279.6 million).
Investing Activities. The increase in net cash used in investing activities for the six months ended June 30, 2023 compared to the same period in the prior year was driven by lower cash receipts from Middlemount ($142.2 million), higher capital expenditures and the payment of capital accruals ($54.9 million), and lower cash receipts from the disposal of assets ($11.4 million).
Financing Activities. The increase in net cash used by financing activities for the six months ended June 30, 2023 compared to the same period in the prior year was driven by the cash proceeds from common stock and debt issuances in the prior year ($222.0 million and $545.0 million, respectively) and common stock repurchases and dividends paid in the current year ($173.0 million and $10.8 million, respectively), partially offset by lower repayments of long-term debt ($650.0 million) in the current year.
Off-Balance-Sheet Arrangements
In the normal course of business, 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. 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.
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The following table summarizes the Company’s financial instruments that carry off-balance-sheet risk.
June 30, 2023 December 31, 2022
Reclamation Support Other Support (1)
Total Reclamation Support Other Support (1)
Total
(Dollars in millions)
Surety bonds $ 1,119.0 $ 113.1 $ 1,232.1 $ 1,250.1 $ 126.7 $ 1,376.8
Letters of credit 23.8 94.0 117.8 437.8 131.8 569.6
1,142.8 207.1 1,349.9 1,687.9 258.5 1,946.4
Less: Letters of credit in support of surety
bonds (2)
(23.8) (5.9) (29.7) (431.7) (37.2) (468.9)
Obligations supported, net $ 1,119.0 $ 201.2 $ 1,320.2 $ 1,256.2 $ 221.3 $ 1,477.5
(1) Instruments support obligations related to pension and health care plans, workers’ compensation, property and casualty insurance, customer and vendor contracts and certain restoration ancillary to prior mining activities.
(2) Certain letters of credit serve as collateral for surety bonds at the request of surety bond providers.
At June 30, 2023, the Company had total asset retirement obligations of $753.5 million . Bonding requirement amounts may differ significantly from the re lated asset retirement obligation because such requirements are calculated under the assumption that reclamation begins currently, whereas the Company’s accounting liabilities are discounted from the end of a mine’s economic life (when final reclamation work would begin) to the balance sheet date.
Not presented in the above table is approximately $925.4 million of restricted cash and other balances serving as collateral which are included in the accompanying condensed consolidated balance sheets at June 30, 2023, as described in Note 11. “Financial Instruments and Other Guarantees” of the accompanying unaudited condensed consolidated financial statements. Such collateral is primarily in support of the financial instruments noted above, including in relation to the Company’s surety bond portfolio, its collateralized letter of credit agreement, mandatory repurchases of credit facility capacity, and amounts held directly with beneficiaries which are not supported by surety bonds.
Critical Accounting Policies and Estimates
The Company’s discussion and analysis of its financial condition, results of operations, liquidity and capital resources is based upon its financial statements, which have been prepared in accordance with U.S. GAAP. The Company is also required under U.S. GAAP to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The Company’s critical accounting policies and estimates are discussed in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its Annual Report on Form 10-K for the year ended December 31, 2022. The Company’s critical accounting policies remain unchanged at June 30, 2023, and there have been no material changes in the Company’s critical accounting estimates.
Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented
Although there are new accounting pronouncements issued by the Financial Accounting Standards Board that the Company will adopt, as applicable, the Company does not believe any of these accounting pronouncements will have a material impact on its unaudited condensed consolidated financial statements or disclosures.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.