While the ultimate impacts of the COVID-19 pandemic on our business are unknown, we expect continued interference with general commercial activity, which may further negatively affect both demand and prices for our products. We also face potential disruption to supply chain and distribution channels, potentially increasing costs of production, storage and distribution, and potential adverse effects to our workforce, each of which could have a material adverse effect on our business, financial condition or results of operations. In addition, the COVID-19 pandemic could continue to have an adverse impact on the timing of key events, including the timing of our litigation in the U.S. federal court system as we pursue the completion of the proposed joint venture with Arch. Given the uncertainties with respect to future COVID-19 developments, including the duration, severity and scope, as well as the necessary government actions to limit the spread, we are unable to estimate the full impact of the pandemic on our business, financial condition or results of operations at this time.
We have taken actions to mitigate our financial risk given the uncertainty in global markets caused by the COVID-19 pandemic, and we also made the decision during the first quarter to pause debt reduction activities. In early AprilWe are continuing to advance our program to reposition the cost structure of the corporate functions and mines to counter the impacts of reduced demand and low pricing. These initiatives include temporarily idling production at some mines; adjusting shift schedules to match demand; reducing the number of units in operation; offloading take-or-pay commitments; and eliminating additional positions, among other items. During the second quarter of 2020, we borrowed $300.0 million under our revolving credit facility. The borrowing was made as part of our ongoing efforts to preserve financial flexibility in light of the current uncertainty in the global markets and related effects on our business resulting from the COVID-19 pandemic. WhileAs described below in the “Liquidity and Capital Resources” section contained within this Item 2, we do not currently expect to useanticipate significant risk of noncompliance with the proceedsleverage ratio limitations under our credit agreement during the second half of 2020 unless we successfully take mitigating action. This risk is driven by unfavorable trends in our results from these borrowings for any near-term liquidity needs, we may usecontinuing operations, net of income taxes, and our Adjusted EBITDA, as further described within the proceeds for working capital and other general corporate purposes.“Results of Operations” section below.
On March 27, 2020, the President of the United States signed and enacted into law the Coronavirus Aid, Relief and Economic Security Act (the CARES Act), a $2 trillion economic relief bill. The CARES Act contains numerousan income tax provisions including a provision that provides for the acceleration of refunds of previously generated alternative minimum tax credits. We have requested accelerated refunds of approximately $24 million from the Internal Revenue Service and have adjusted our current and deferred tax asset balances accordingly. The CARES Act also contains a provision for deferred payment of 2020 employer payroll taxes after the date of enactment to future years. We expect towill defer a portion of our remaining 2020 employer payroll taxes to subsequent years. We continue to evaluate the implications of the remaining provisions of the CARES Act.
United Wambo Joint Venture with Glencore
In December 2019, after receiving the requisite regulatory and permitting approvals, we formed an unincorporated joint venture with Glencore plc (Glencore), in which we hold a 50% interest, to combine the existing operations of our Wambo Open-Cut Mine in Australia with the adjacent coal reserves of Glencore’s United Mine. We proportionally consolidate the entity based upon our economic interest.
Both parties contributed mining tenements upon formation of the joint venture. Construction and development efforts are currently underway to combine operations. The joint venture agreement specifies that we will continue to fully own and operate the existing Wambo Open-Cut Mine through December 1, 2020, at which point the date that development of the combined operations is completed, which is currently expected to be completed,during the second half of 2020. The parties will then contribute mining equipment and other assets, and joint operations will commence. Glencore is responsible for construction and development activities and will manage the mining operations of the joint venture.
PRB Colorado Joint Venture with Arch
On June 18, 2019, we entered into a definitive implementation agreement (the Implementation Agreement) with Arch, to establish a joint venture that will combine the respective Powder River Basin (PRB) and Colorado operations of Peabody and Arch. We expect the joint venture to result in several operational synergies, including improved mining productivity and lower per-unit operating costs. Pursuant to the terms of the Implementation Agreement, we will hold a 66.5% economic interest in the joint venture and Arch will hold a 33.5% economic interest. We expect to proportionally consolidate the entity based upon our economic interest. Governance of the joint venture will be overseen by the joint venture’s board of managers, which will be comprised of Peabody and Arch representatives with voting powers proportionate with the companies’ economic interests, with the exception of certain specified matters which will require supermajority approval. We will manage the operations of the joint venture, subject to the supervision of the joint venture’s board of managers.
On February 26, 2020, the U.S. Federal Trade Commission (FTC) sought a preliminary injunction to challenge our proposed joint venture. We and Arch intend to continue to pursue creation of the joint venture and will litigateare litigating the FTC’s decision withinin the U.S. federal court system. Court proceedingsin the Eastern District of Missouri. Related hearings took place July 14, 2020 through July 24, 2020 and closing arguments are currently scheduled to begin on July 13,for August 10, 2020, with a ruling expected shortly thereafter, subject to any potential changes toduring the court’s schedule as a resultthird quarter of the COVID-19 pandemic or other exigent circumstances.2020. The FTC has also initiated an administrative proceeding on the merits, which is currently scheduled for hearing on October 27, 2020.
If the court denies the preliminary injunction, we plan to proceed with the joint venture.
Formation of the joint venture is subject to favorable resolution of the FTC’s challenge noted above and customary closing conditions, including the termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the receipt of certain other required regulatory approvals and the absence of injunctions or other legal restraints preventing the formation of the joint venture. In September 2019, we amended our credit agreement to expressly permit formation of the joint venture and we are currently addressingintend to address such formation under the indenture governing our senior secured notes. At such time as control over the existing operations is exchanged, we will account for our interest in the combined operations at fair value.
North Goonyella
Our North Goonyella Mine in Queensland, Australia experienced a fire in a portion of the mine during September 2018 and mining operations have been suspended since then. During 2019, we completed segmenting of the mine into multiple zones to facilitate a phased re-ventilation and re-entry of the mine, re-ventilation of the first zone of the mine and subsequently re-entered the area. Following these activities and a detailed review and assessment, we determined that due to the time, cost and required regulatory approach to ventilate and re-enter the rest of the mine, we will not pursue attempts to access certain portions of the mine through existing mine workings, but instead will move to the southern panels. We are in ongoing discussions with the Queensland Mines Inspectorate (QMI) regarding ventilation and re-entry of the second zone of the current mine configuration. Based on the planned approach, we expect no meaningful production from North Goonyella for three or more years. In 2020, we commenced a commercial process for North Goonyella in conjunction with the existing mine development. The process comes in response to expressions of interest from potential strategic partners and other producers. Commercial outcomes could include a strategic financial partner, a joint venture structure or the complete sale of North Goonyella. Alternatively, the commercial process could be abandoned in the absence of an acceptable outcome. Based on the success of discussions with QMI and/or progression of the commercial process being launched, we will determine the appropriate level, if any, and timing of capital expenditures. We have entered into commercial agreements to reduce the rail and port commitments related to North Goonyella for the second half of 2020 through the first half of 2023, while maintaining sufficient capacity for future production. As a result, we anticipate that ongoing holding costs will decrease to approximately $5 million per quarter by the second half of 2020.
During the three months ended March 31, 20202018 and 2019, we recorded $10.1provisions for equipment losses amounting to $149.6 million related to the fire, representing the best estimate of losses to date. Of that amount, $24.7 million was recorded during the six months ended June 30, 2019. No additional provisions for equipment losses were recorded during the three and $36.9 million, respectively, insix months ended June 30, 2020. We have also incurred containment and idling costs. An additional provision of $24.7costs subsequent to the mine’s suspension which amounted to $11.3 million related to equipment losses was recordedand $28.4 million during the three months ended March 31,June 30, 2020 and 2019, which was incremental to amounts recorded in prior periodsrespectively, and represented the best estimate of loss based on the assessments made as of that date. No provision for equipment losses was recorded$21.4 million and $65.3 million during the threesix months ended March 31, 2020.June 30, 2020 and 2019, respectively.
In March 2019, we entered into an insurance claim settlement agreement with our insurers and various re-insurers under a combined property damage and business interruption policy and recorded a $125 million insurance recovery, the maximum amount available under the policy above a $50 million deductible. We have collected the full amount of the recovery.
Results of Operations
Non-GAAP Financial Measures
The following discussion of our results of operations includes references to and analysis of Adjusted EBITDA, which is a financial measure not recognized in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Adjusted EBITDA is used by management as the primary metric to measure each of our segments’ operating performance. We have retrospectively modified our calculation of Adjusted EBITDA to exclude restructuring charges and transaction costs related to joint ventures as management does not view these items as part of our normal operations.
Also included in the following discussion of our results of operations are references to Revenues per Ton, Costs per Ton and Adjusted EBITDA Margin per Ton for each mining segment. These metrics are used by management to measure each of our mining segments’ operating performance. Management believes Costs per Ton and Adjusted EBITDA Margin per Ton best reflect controllable costs and operating results at the mining segment level. We consider all measures reported on a per ton basis to be operating/statistical measures; however, we include reconciliations of the related non-GAAP financial measures (Adjusted EBITDA and Total Reporting Segment Costs) in the “Reconciliation of Non-GAAP Financial Measures” section contained within this Item 2.
In our discussion of liquidity and capital resources, we include references to Free Cash Flow which is also a non-GAAP measure. Free Cash Flow is used by management as a measure of our financial performance and our ability to generate excess cash flow from our business operations.
We believe non-GAAP performance measures are used by investors to measure our operating performance and lenders to measure our ability to incur and service debt. These measures are not intended to serve as alternatives to U.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies. Refer to the “Reconciliation of Non-GAAP Financial Measures” section contained within this Item 2 for definitions and reconciliations to the most comparable measures under U.S. GAAP.
Three and Six Months Ended March 31,June 30, 2020 Compared to the Three and Six Months Ended March 31,June 30, 2019
Summary
Spot pricing for premium low-vol hard coking coal (Premium HCC), premium low-vol pulverized coal injection (Premium PCI) coal, Newcastle index thermal coal and API 5 thermal coal, and prompt month pricing for PRB 8,880 Btu/Lb coal and Illinois Basin 11,500 Btu/Lb coal during the three months ended March 31,June 30, 2020 is set forth in the table below.
The seaborne pricing included in the table below is not necessarily indicative of the pricing we realized during the three months ended March 31,June 30, 2020 due to quality differentials and the majority of our seaborne sales being executed through annual and multi-year international coal supply agreements that contain provisions requiring both parties to renegotiate pricing periodically. Our typical practice is to negotiate pricing for seaborne metallurgical coal contracts on a quarterly, spot or index basis and seaborne thermal coal contracts on an annual, spot or index basis.
In the U.S., the pricing included in the table below is also not necessarily indicative of the pricing we realized during the three months ended March 31,June 30, 2020 since we generally sell coal under long-term contracts where pricing is determined based on various factors. Such long-term contracts in the U.S. may vary significantly in many respects, including price adjustment features, price reopener terms, coal quality requirements, quantity parameters, permitted sources of supply, treatment of environmental constraints, extension options, force majeure and termination and assignment provisions. Competition from alternative fuels such as natural gas and other coal producersfuel sources may also impact our realized pricing. Subsequent to March 31, 2020, seaborne pricing decreased as a result of economic and industry conditions related to the COVID-19 pandemic as evidenced by the April 30, 2020 pricing provided in the table and as further discussed below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | High | | Low | | Average | | June 30, 2020 | | | |
Premium HCC (1) | | $ | 143.80 | | | $ | 108.30 | | | $ | 118.47 | | | $ | 113.70 | | | | |
Premium PCI coal (1) | | 84.75 | | | 66.60 | | | 71.22 | | | 70.15 | | | | |
Newcastle index thermal coal (1) | | 68.33 | | | 50.48 | | | 55.08 | | | 51.17 | | | | |
API 5 thermal coal (1) | | 52.80 | | | 37.70 | | | 43.44 | | | 37.70 | | | | |
PRB 8,800 Btu/Lb coal (2) | | 12.00 | | | 11.90 | | | 11.97 | | | 11.90 | | | | |
Illinois Basin 11,500 Btu/Lb coal (2) | | 31.15 | | | 28.00 | | | 30.41 | | | 28.00 | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | High | | Low | | Average | | March 31, 2020 | | April 30, 2020 |
Premium HCC (1) | | $ | 163.40 |
| | $ | 139.00 |
| | $ | 154.88 |
| | $ | 145.50 |
| | $ | 108.80 |
|
Premium PCI coal (1) | | $ | 102.80 |
| | $ | 85.75 |
| | $ | 94.53 |
| | $ | 85.75 |
| | $ | 67.20 |
|
Newcastle index thermal coal (1) | | $ | 73.78 |
| | $ | 64.80 |
| | $ | 67.70 |
| | $ | 69.41 |
| | $ | 50.76 |
|
API 5 thermal coal (1) | | $ | 57.90 |
| | $ | 52.49 |
| | $ | 54.83 |
| | $ | 54.30 |
| | $ | 40.50 |
|
PRB 8,800 Btu/Lb coal (2) | | $ | 12.10 |
| | $ | 12.00 |
| | $ | 12.02 |
| | $ | 12.00 |
| | $ | 12.00 |
|
Illinois Basin 11,500 Btu/Lb coal (2) | | $ | 33.80 |
| | $ | 31.15 |
| | $ | 32.62 |
| | $ | 31.15 |
| | $ | 31.15 |
|
(1) Prices expressed per tonne. | |
(1)(2) Prices expressed per ton. | Prices expressed per tonne. |
| |
(2)
| Prices expressed per ton. |
Within the global coal industry, supply and demand disruptions have been widespread as the COVID-19 pandemic has forced country-wide lockdowns and regional restrictions, some of which occurred after March 31, 2020.restrictions. Future COVID-19COVID-19-related developments are unknown, including the duration, severity, scope and the necessary government actions to limit the spread. The global coal industry data for the threesix months ended March 31,June 30, 2020 presented herein, is not indicative of the ultimate impacts of the COVID-19 pandemic given the various levels of response and unknown duration, the significant decline in prices for our products at the start of the second quarter and continued weak demand for our products.
With respect to seaborne metallurgical coal, global steel production decreased 1%approximately 6% through the threesix months ended March 31,June 30, 2020 as compared to the prior year period, and declined 6% year-over-year in the month of March as the impacts of the COVID-19 pandemic were beginningcontinued to materialize.have significant impacts on steel demand. Steel production in China increased approximately 1%3% through the threesix months ended March 31,June 30, 2020 as compared to the prior year, and was down 2% year-over-yearincluding a new monthly production record achieved in May as the month of March.country attempts to recover from the COVID-19 pandemic. Despite a strong start to the year, China’s coking coal imports have been pressured recently by reduced marginsintensified import restrictions, which are likely to be a factor for steel producers and high steel inventories. the remainder of 2020.
Steel production, excluding China, was down 4%approximately 14% through the threesix months ended March 31,June 30, 2020 and declined 11% year-over-year incompared to the month of Marchprior year due to COVID-19 related lockdowns.lockdowns and economic weakness. Steel demand deterioration has caused producers, including Peabody customers, to idle capacity and restrict output, while steel prices continue to fall. There is weakness inwhich has pressured seaborne metallurgical coal demand whichdemand. This deterioration could continue given ongoing lockdownseffects from the COVID-19 pandemic on economic conditions in key demand centers, includingcenters. The recovery in India is underway with the restart of steel mills and Japan.
improving blast furnace utilization rates, but is threatened by the increasing spread of COVID-19, and will likely be delayed by elevated inventories and the pending monsoon season. European steel and metallurgical coal demand recovery is also underway, but is likely to lag behind the full reopening of the automotive sector.
Seaborne thermal coal demand wascontinues to be impacted by the COVID-19 pandemic which further exacerbated the weak fundamentalsinduced reduction in overall electric generation, along with competition from alternative fuel sources and low gas prices in Europe, while significantly dampening Asian demand as major importers entered into lockdown.prices. Chinese thermal coal imports increased by approximately 1718 million tonnes through the threesix months ended March 31,June 30, 2020 as compared to the prior year, mainly reflecting carryover tonnes from port restrictions in 2019.2019 and China’s domestic production, which had been constrained by COVID-19 lockdowns, declined 6%is flat through the twosix months ended February 29,June 30, 2020 but increased 10% year-over-year in the month of March.due to COVID-19 related disruption and safety checks. Meanwhile, Chinese thermal power generation declined 8%approximately 2% year-over-year during the threesix months ended March 31,June 30, 2020 year-over-year leading to above average stockpilesabove-average inventory at utilities, dampening the outlook for seaborne imports.utilities. Seaborne demand outside of China remains pressured as economies are at various phases of reopening. India has also been pressuredseen domestic power demand recover, but thermal imports are down by reduced industrial activity relatedapproximately 20 million tonnes through the six months ended June 30, 2020 compared to the COVID-19 pandemic, impacting global electric generationprior year and coal consumption.are likely to remain under pressure given inventory overhang, domestic production growth and subdued demand.
In the United States, overall electricity demand was downhas been negatively impacted year-over-year throughdue to COVID-19 induced economic shutdowns during the threesix months ended March 31, 2020June 30, 2020. The reduction in thermal coal demand during that period has outpaced the reduction in overall electricity demand as a result of milder weather. Lower demand, continued coal plant retirements, growth in natural gas and renewable generation and weak natural gas prices continue to negatively impacted coalimpact coal’s share of electricity generation. COVID-19 related curtailments reduced total electricity demand in the second quarter, which has resulted in coal’s share of generation declining to approximately 17% for the six months ended June 30, 2020, while natural gas and renewables continue to gain. Through the threesix months ended March 31,June 30, 2020 utility consumption of PRB coal fell over 30% compared to the prior year period. Demand pressures related to COVID-19 related curtailments have reduced total electricity demand in April to the lowest levels in over 15 years, which has resulted in coal’s share of generation declining to 18% for the three months ended March 31, 2020, while gas, nuclear and renewables continue to gain. Moreover, reduced coal consumption year-to-date has resulted in elevated coal inventories, pressuring the required coal shipments needed to meet demand. Our U.S. customers’ 2020 volume nominations have declined approximately 8% from the beginning of the year.
Our revenues for the three and six months ended March 31,June 30, 2020 decreased as compared to the same periodperiods in 2019 ($404.4 million)522.3 million and $926.7 million, respectively) primarily due to lower sales volumes which were affected by the COVID-19 pandemic and lower realized prices. Results from continuing operations, net of income taxes for the three and six months ended March 31,June 30, 2020 decreased as compared to the same periodperiods in the prior year ($262.6 million)1,588.2 million and $1,850.8 million, respectively). The decrease was driven by the asset impairment charges recorded in the current period (three and six months, $1,418.1 million), the unfavorable revenue variancevariances described above and a prior year insurance recovery related to the events at our North Goonyella Mine ($125.0(six months, $125.0 million). These unfavorable variances were partially offset by lower operating costs and expenses due largely to the sales volume decline as well as production efficiencies and other cost improvements ($168.7 million)301.5 million and $470.2 million, respectively), lower depreciation, depletion and amortization ($66.5 million)77.1 million and a prior year provision for equipment losses at our North Goonyella Mine$143.6 million, respectively) and lower selling and administrative expenses ($24.7 million)13.7 million and $25.5 million, respectively).
Adjusted EBITDA for the three and six months ended March 31,June 30, 2020 reflected a year-over-year decrease of $217.3 million.$206.6 million and $423.9 million, respectively.
As of March 31,June 30, 2020, our available liquidity was approximately $1.19 billion.$926 million. Refer to the “Liquidity and Capital Resources” section contained within this Item 2 for a further discussion of factors affecting our available liquidity.
Tons Sold
The following table presents tons sold by operating segment:
|
| | | | | | | | | | | |
| Three Months Ended | | Increase (Decrease) |
| March 31, | | to Volumes |
| 2020 | | 2019 | | Tons | | % |
| (Tons in millions) | | |
Seaborne Thermal Mining | 4.6 |
| | 4.5 |
| | 0.1 |
| | 2 | % |
Seaborne Metallurgical Mining | 2.0 |
| | 2.3 |
| | (0.3 | ) | | (13 | )% |
Powder River Basin Mining | 23.5 |
| | 25.3 |
| | (1.8 | ) | | (7 | )% |
Other U.S. Thermal Mining | 4.9 |
| | 7.9 |
| | (3.0 | ) | | (38 | )% |
Total tons sold from mining segments | 35.0 |
| | 40.0 |
| | (5.0 | ) | | (13 | )% |
Corporate and Other | 0.6 |
| | 0.5 |
| | 0.1 |
| | 20 | % |
Total tons sold | 35.6 |
| | 40.5 |
| | (4.9 | ) | | (12 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | (Decrease) Increase | | | | Six Months Ended | | | | (Decrease) Increase | | |
| June 30, | | | | to Volumes | | | | June 30, | | | | to Volumes | | |
| 2020 | | 2019 | | Tons | | % | | 2020 | | 2019 | | Tons | | % |
| (Tons in millions) | | | | | | | | (Tons in millions) | | | | | | |
Seaborne Thermal Mining | 4.6 | | | 4.7 | | | (0.1) | | | (2) | % | | 9.2 | | | 9.2 | | | — | | | — | % |
Seaborne Metallurgical Mining | 1.1 | | | 2.1 | | | (1.0) | | | (48) | % | | 3.1 | | | 4.4 | | | (1.3) | | | (30) | % |
Powder River Basin Mining | 17.9 | | | 25.0 | | | (7.1) | | | (28) | % | | 41.4 | | | 50.3 | | | (8.9) | | | (18) | % |
Other U.S. Thermal Mining | 3.8 | | | 7.2 | | | (3.4) | | | (47) | % | | 8.7 | | | 15.1 | | | (6.4) | | | (42) | % |
Total tons sold from mining segments | 27.4 | | | 39.0 | | | (11.6) | | | (30) | % | | 62.4 | | | 79.0 | | | (16.6) | | | (21) | % |
Corporate and Other | 0.9 | | | 0.4 | | | 0.5 | | | 125 | % | | 1.5 | | | 0.9 | | | 0.6 | | | 67 | % |
Total tons sold | 28.3 | | | 39.4 | | | (11.1) | | | (28) | % | | 63.9 | | | 79.9 | | | (16.0) | | | (20) | % |
Supplemental Financial Data
The following table presents supplemental financial data by operating segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | (Decrease) | | | | Six Months Ended | | | | (Decrease) | | |
| June 30, | | | | Increase | | | | June 30, | | | | Increase | | |
| 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % |
Revenues per Ton - Mining Operations (1) | | | | | | | | | | | | | | | |
Seaborne Thermal | $ | 35.10 | | | $ | 46.41 | | | $ | (11.31) | | | (24) | % | | $ | 39.58 | | | $ | 51.18 | | | $ | (11.60) | | | (23) | % |
Seaborne Metallurgical | 86.80 | | | 138.42 | | | (51.62) | | | (37) | % | | 92.61 | | | 140.45 | | | (47.84) | | | (34) | % |
Powder River Basin | 11.45 | | | 11.33 | | | 0.12 | | | 1 | % | | 11.40 | | | 11.34 | | | 0.06 | | | 1 | % |
Other U.S. Thermal | 39.81 | | | 43.04 | | | (3.23) | | | (8) | % | | 39.49 | | | 42.60 | | | (3.11) | | | (7) | % |
Costs per Ton - Mining Operations (1)(2) | | | | | | | | | | | | | | | |
Seaborne Thermal | $ | 29.19 | | | $ | 30.73 | | | $ | (1.54) | | | (5) | % | | $ | 30.56 | | | $ | 32.82 | | | $ | (2.26) | | | (7) | % |
Seaborne Metallurgical (3) | 120.72 | | | 111.12 | | | 9.60 | | | 9 | % | | 115.00 | | | 107.77 | | | 7.23 | | | 7 | % |
Powder River Basin | 9.26 | | | 9.72 | | | (0.46) | | | (5) | % | | 9.84 | | | 9.82 | | | 0.02 | | | — | % |
Other U.S. Thermal | 31.22 | | | 31.47 | | | (0.25) | | | (1) | % | | 31.31 | | | 32.08 | | | (0.77) | | | (2) | % |
Adjusted EBITDA Margin per Ton - Mining Operations (1)(2) | | | | | | | | | | | | | | | |
Seaborne Thermal | $ | 5.91 | | | $ | 15.68 | | | $ | (9.77) | | | (62) | % | | $ | 9.02 | | | $ | 18.36 | | | $ | (9.34) | | | (51) | % |
Seaborne Metallurgical (3) | (33.92) | | | 27.30 | | | (61.22) | | | (224) | % | | (22.39) | | | 32.68 | | | (55.07) | | | (169) | % |
Powder River Basin | 2.19 | | | 1.61 | | | 0.58 | | | 36 | % | | 1.56 | | | 1.52 | | | 0.04 | | | 3 | % |
Other U.S. Thermal | 8.59 | | | 11.57 | | | (2.98) | | | (26) | % | | 8.18 | | | 10.52 | | | (2.34) | | | (22) | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended | | (Decrease) |
| March 31, | | Increase |
| 2020 | | 2019 | | $ | | % |
Revenues per Ton - Mining Operations (1) | | | | | | | |
Seaborne Thermal | $ | 44.10 |
| | $ | 56.24 |
| | $ | (12.14 | ) | | (22 | )% |
Seaborne Metallurgical | 95.65 |
| | 142.33 |
| | (46.68 | ) | | (33 | )% |
Powder River Basin | 11.36 |
| | 11.35 |
| | 0.01 |
| | — | % |
Other U.S. Thermal | 39.25 |
| | 42.21 |
| | (2.96 | ) | | (7 | )% |
Costs per Ton - Mining Operations (1)(2) | | | | | | | |
Seaborne Thermal | $ | 32.03 |
| | $ | 35.03 |
| | $ | (3.00 | ) | | (9 | )% |
Seaborne Metallurgical (3) | 111.82 |
| | 104.69 |
| | 7.13 |
| | 7 | % |
Powder River Basin | 10.28 |
| | 9.91 |
| | 0.37 |
| | 4 | % |
Other U.S. Thermal | 31.39 |
| | 32.65 |
| | (1.26 | ) | | (4 | )% |
Adjusted EBITDA Margin per Ton - Mining Operations (1)(2) | | | | | | | |
Seaborne Thermal | $ | 12.07 |
| | $ | 21.21 |
| | $ | (9.14 | ) | | (43 | )% |
Seaborne Metallurgical (3) | (16.17 | ) | | 37.64 |
| | (53.81 | ) | | (143 | )% |
Powder River Basin | 1.08 |
| | 1.44 |
| | (0.36 | ) | | (25 | )% |
Other U.S. Thermal | 7.86 |
| | 9.56 |
| | (1.70 | ) | | (18 | )% |
(1)This is an operating/statistical measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for definitions and reconciliations to the most comparable measures under U.S. GAAP. | |
(1)(2)Includes revenue-based production taxes and royalties; excludes depreciation, depletion and amortization; asset retirement obligation expenses; selling and administrative expenses; restructuring charges; asset impairment; provision for North Goonyella equipment loss and related insurance recovery; amortization of take-or-pay contract-based intangibles; and certain other costs related to post-mining activities. (3)Costs incurred at the North Goonyella Mine from January 1, 2020 forward are included within the Corporate and Other segment. Costs incurred at the North Goonyella Mine during the three and six months ended June 30, 2019 remain within the Seaborne Metallurgical Mining segment and resulted in additional Costs per Ton and lower Adjusted EBITDA Margin per Ton of $13.51 and $7.17, respectively. | This is an operating/statistical measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for definitions and reconciliations to the most comparable measures under U.S. GAAP. |
| |
(2)
| Includes revenue-based production taxes and royalties; excludes depreciation, depletion and amortization; asset retirement obligation expenses; selling and administrative expenses; restructuring charges; asset impairment; provision for North Goonyella equipment loss and related insurance recovery; amortization of take-or-pay contract-based intangibles; and certain other costs related to post-mining activities. |
| |
(3)
| Costs incurred at the North Goonyella Mine from January 1, 2020 forward are included within the Corporate and Other segment. Costs incurred at the North Goonyella Mine during the three months ended March 31, 2019 remain within the Seaborne Metallurgical segment and resulted in additional Costs per Ton and lower Adjusted EBITDA Margin per Ton of $1.32. |
Revenues
The following table presents revenues by reporting segment:
| | | Three Months Ended | | Decrease | | Three Months Ended | | | Decrease | | | Six Months Ended | | | Decrease | |
| March 31, | | to Revenues | | June 30, | | | to Revenues | | | June 30, | | | to Revenues | |
| 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | | | (Dollars in millions) | | | | | (Dollars in millions) | | | |
Seaborne Thermal Mining | $ | 201.1 |
| | $ | 251.0 |
| | $ | (49.9 | ) | | (20 | )% | Seaborne Thermal Mining | $ | 162.0 | | | $ | 220.2 | | | $ | (58.2) | | | (26) | % | | $ | 363.1 | | | $ | 471.2 | | | $ | (108.1) | | | (23) | % |
Seaborne Metallurgical Mining | 193.2 |
| | 324.5 |
| | (131.3 | ) | | (40 | )% | Seaborne Metallurgical Mining | 91.6 | | | 290.9 | | | (199.3) | | | (69) | % | | 284.8 | | | 615.4 | | | (330.6) | | | (54) | % |
Powder River Basin Mining | 266.6 |
| | 287.3 |
| | (20.7 | ) | | (7 | )% | Powder River Basin Mining | 205.8 | | | 282.6 | | | (76.8) | | | (27) | % | | 472.4 | | | 569.9 | | | (97.5) | | | (17) | % |
Other U.S. Thermal Mining | 192.3 |
| | 334.8 |
| | (142.5 | ) | | (43 | )% | Other U.S. Thermal Mining | 152.0 | | | 309.6 | | | (157.6) | | | (51) | % | | 344.3 | | | 644.4 | | | (300.1) | | | (47) | % |
Corporate and Other | (7.0 | ) | | 53.0 |
| | (60.0 | ) | | (113 | )% | Corporate and Other | 15.3 | | | 45.7 | | | (30.4) | | | (67) | % | | 8.3 | | | 98.7 | | | (90.4) | | | (92) | % |
Revenues | $ | 846.2 |
| | $ | 1,250.6 |
| | $ | (404.4 | ) | | (32 | )% | Revenues | $ | 626.7 | | | $ | 1,149.0 | | | $ | (522.3) | | | (45) | % | | $ | 1,472.9 | | | $ | 2,399.6 | | | $ | (926.7) | | | (39) | % |
Seaborne Metallurgical Mining. Segment revenues decreased during the three and six months ended March 31,June 30, 2020 compared to the same periodperiods in the prior year due to unfavorable realized coal pricing ($80.7 million) and unfavorable volume and mix variances (0.3 million tons; $50.6(three months, $153.8 million; six months, $203.7 million) and unfavorable realized coal pricing (three months, $45.5 million; six months, $126.9 million). The unfavorable volume variance resultingvariances primarily resulted from demand-based volume decreases across our mines and the beginningimpact of the upgrade project for the main line conveyor systemupgrade at our Shoal Creek Mine (0.3 million tons) and an extended longwall move at our Metropolitan Mine (0.1 million tons) was partially offset by favorable volumes at our surface operations (0.2 million tons) due to sales deferrals from the previous quarter.Mine.
Powder River Basin Mining. Segment revenues decreased during the three and six months ended March 31,June 30, 2020 compared to the same periodperiods in the prior year primarily due to demand-based volume decreases ($24.6(three months, $79.4 million; six months, $104.1 million), partially offset by favorable realized pricing..
Other U.S. Thermal Mining. Segment revenues decreased during the three and six months ended March 31,June 30, 2020 compared to the same periodperiods in the prior year primarily due to demand-based volume decreases ($135.4(three months, $153.2 million; six months, $289.6 million) which were driven by the closure of the Kayenta and Cottage Grove Mines during the third quarter of 2019 and the Wildcat Hills Underground Mine during the second quarter of 2020 and unfavorable realized pricing ($7.1(three months, $4.4 million; six months, $10.5 million).
Corporate and Other. Segment revenues decreased during the three and six months ended March 31,June 30, 2020 compared to the same periodperiods in the prior year primarily due to lower results on economic hedge activities.
Adjusted EBITDA
The following table presents Adjusted EBITDA for each of our reporting segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Decrease | | | | Six Months Ended | | | | Decrease | | |
| June 30, | | | | to Segment Adjusted EBITDA | | | | June 30, | | | | to Segment Adjusted EBITDA | | |
| 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | | | | | | | (Dollars in millions) | | | | | | |
Seaborne Thermal Mining | $ | 27.7 | | | $ | 74.4 | | | $ | (46.7) | | | (63) | % | | $ | 82.8 | | | $ | 169.1 | | | $ | (86.3) | | | (51) | % |
Seaborne Metallurgical Mining | (36.1) | | | 57.4 | | | (93.5) | | | (163) | % | | (68.8) | | | 143.2 | | | (212.0) | | | (148) | % |
Powder River Basin Mining | 39.3 | | | 40.2 | | | (0.9) | | | (2) | % | | 64.7 | | | 76.6 | | | (11.9) | | | (16) | % |
Other U.S. Thermal Mining | 32.9 | | | 83.1 | | | (50.2) | | | (60) | % | | 71.4 | | | 159.0 | | | (87.6) | | | (55) | % |
Corporate and Other | (40.4) | | | (25.1) | | | (15.3) | | | (61) | % | | (89.9) | | | (63.8) | | | (26.1) | | | (41) | % |
Adjusted EBITDA (1) | $ | 23.4 | | | $ | 230.0 | | | $ | (206.6) | | | (90) | % | | $ | 60.2 | | | $ | 484.1 | | | $ | (423.9) | | | (88) | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended | | Decrease |
| March 31, | | to Segment Adjusted EBITDA |
| 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | |
Seaborne Thermal Mining | $ | 55.1 |
| | $ | 94.7 |
| | $ | (39.6 | ) | | (42 | )% |
Seaborne Metallurgical Mining | (32.7 | ) | | 85.8 |
| | (118.5 | ) | | (138 | )% |
Powder River Basin Mining | 25.4 |
| | 36.4 |
| | (11.0 | ) | | (30 | )% |
Other U.S. Thermal Mining | 38.5 |
| | 75.9 |
| | (37.4 | ) | | (49 | )% |
Corporate and Other | (49.5 | ) | | (38.7 | ) | | (10.8 | ) | | (28 | )% |
Adjusted EBITDA (1) | $ | 36.8 |
| | $ | 254.1 |
| | $ | (217.3 | ) | | (86 | )% |
| |
(1)(1)This is a financial measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for definitions and reconciliations to the most comparable measures under U.S. GAAP.
| This is a financial measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for definitions and reconciliations to the most comparable measures under U.S. GAAP. |
Seaborne Thermal Mining. Segment Adjusted EBITDA decreased during the three months ended March 31,June 30, 2020 compared to the same period in the prior year as a result of lower realized net coal pricing ($46.643.2 million), unfavorable mine sequencing impacts and higher costs for materials, services and repairs at our thermal surface mines ($6.1 million) and unfavorable volume variances as described above ($6.0 million); the decrease was partially offset by lower pricing for fuel ($5.9 million). Segment Adjusted EBITDA decreased during the six months ended June 30, 2020 compared to the same period in the prior year as a result of lower realized net coal pricing ($89.2 million), longwall performance issues at our Wambo Underground Mine ($16.316.6 million). The and unfavorable volume variances as described above ($7.3 million); the decrease in Segment Adjusted EBITDA was partially offset by favorable foreign currency impacts ($12.1 million), favorable mine sequencing impacts and lower costs for materials, services and repairs at our thermal surface mines ($11.36.9 million) and favorable foreign currency impactslower pricing for fuel ($9.05.6 million).
Seaborne Metallurgical Mining. Segment Adjusted EBITDA decreased during the three and six months ended March 31,June 30, 2020 compared to the same periodperiods in the prior year due to unfavorable volume variances which included non-cash charges to record certain mines’ coal inventories to their net realizable values (three months, $65.1 million; six months, $91.4 million), lower realized net coal pricing ($76.3(three months, $42.9 million; six months, $118.8 million), unfavorable volume variances as described above ($39.2higher costs associated with the conveyor upgrade at our Shoal Creek Mine (three months, $18.4 million; six months, $31.5 million), and the impact of a longwall move at our Metropolitan Mine during the current quarter ($25.6year (six months, $21.9 million). These negative variances were partially offset by the exclusion of the current year containment and holding costs for our North Goonyella Mine (three months, $28.4 million; six months, $31.4 million) and favorable foreign currency impacts ($12.9(three months, $10.4 million; six months, $22.3 million).
Powder River Basin Mining. Segment Adjusted EBITDA decreased during the three and six months ended March 31,June 30, 2020 compared to the same periodperiods in the prior year as the result of unfavorable mine sequencing impacts ($11.2(three months, $29.6 million; six months, $36.8 million), and the impact of lower volumes ($3.5(three months, $12.5 million; six months, $17.0 million) as described above, and lower realized net coal pricing ($2.4 million), partially offset by lower costs for materials, services, repairs and labor (three months, $27.5 million; six months, $26.8 million) and lower pricing for fuel and explosives ($4.1 million) and lower costs for materials, services and repairs ($1.9(three months, $9.2 million; six months, $13.2 million).
Other U.S. Thermal Mining. Segment Adjusted EBITDA decreased during the three and six months ended March 31,June 30, 2020 compared to the same periodperiods in the prior year due to the impact of lower volume ($45.2(three months, $52.2 million; six months, $93.8 million) which was primarily driven by the closure of the Kayenta Mine during the third quarter of 2019, unfavorable mine sequencing impacts (three months, $13.2 million; six months, $15.4 million) and lower realized net coal pricing ($7.0(three months, $5.6 million; six months, $11.8 million), partially offset by lower costs for materials, services and repairs ($6.6(three months, $12.5 million; six months, $19.9 million) and lower pricing for fuel and explosives ($2.8(three months, $6.5 million; six months, $9.3 million).
Corporate and Other Adjusted EBITDA. The following table presents a summary of the components of Corporate and Other Adjusted EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | (Decrease) Increase | | | | Six Months Ended | | | | (Decrease) Increase | | |
| June 30, | | | | to Adjusted EBITDA | | | | June 30, | | | | to Adjusted EBITDA | | |
| 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | | | | | | | (Dollars in millions) | | | | | | |
Middlemount (1) | $ | (6.4) | | | $ | 10.0 | | | $ | (16.4) | | | (164) | % | | $ | (16.1) | | | $ | 13.9 | | | $ | (30.0) | | | (216) | % |
Resource management activities (2) | 0.8 | | | 1.7 | | | (0.9) | | | (53) | % | | 8.8 | | | 3.7 | | | 5.1 | | | 138 | % |
Selling and administrative expenses | (25.2) | | | (38.9) | | | 13.7 | | | 35 | % | | (50.1) | | | (75.6) | | | 25.5 | | | 34 | % |
Other items, net (3)(4) | (9.6) | | | 2.1 | | | (11.7) | | | (557) | % | | (32.5) | | | (5.8) | | | (26.7) | | | (460) | % |
Corporate and Other Adjusted EBITDA | $ | (40.4) | | | $ | (25.1) | | | $ | (15.3) | | | (61) | % | | $ | (89.9) | | | $ | (63.8) | | | $ | (26.1) | | | (41) | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended | | (Decrease) Increase |
| March 31, | | to Adjusted EBITDA |
| 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | |
Middlemount (1) | $ | (9.7 | ) | | $ | 3.9 |
| | $ | (13.6 | ) | | (349 | )% |
Resource management activities (2) | 8.0 |
| | 2.0 |
| | 6.0 |
| | 300 | % |
Selling and administrative expenses | (24.9 | ) | | (36.7 | ) | | 11.8 |
| | 32 | % |
Other items, net (3)(4) | (22.9 | ) | | (7.9 | ) | | (15.0 | ) | | (190 | )% |
Corporate and Other Adjusted EBITDA | $ | (49.5 | ) | | $ | (38.7 | ) | | $ | (10.8 | ) | | (28 | )% |
(1)Middlemount’s results are before the impact of related changes in deferred tax asset valuation allowance and reserves and amortization of basis difference. Middlemount’s standalone results included (on a 50% attributable basis) aggregate amounts of depreciation, depletion and amortization, asset retirement obligation expenses, net interest expense and income taxes of $8.8 million and $9.5 million during the three months ended June 30, 2020 and 2019, respectively, and $13.2 million and $17.0 million during the six months ended June 30, 2020 and 2019, respectively. | |
(1)(2)Includes gains (losses) on certain surplus coal reserve and surface land sales and property management costs and revenues. (3)Includes trading and brokerage activities, costs associated with post-mining activities, gains (losses) on certain asset disposals, minimum charges on certain transportation-related contracts, costs associated with suspended operations including the North Goonyella Mine and expenses related to our other commercial activities. (4)North Goonyella costs incurred from January 1, 2020 forward are included within the Corporate and Other segment. Costs incurred prior to January 1, 2020 remain within the Seaborne Metallurgical Mining segment. | Middlemount’s results are before the impact of related changes in deferred tax asset valuation allowance and reserves and amortization of basis difference. Middlemount’s standalone results included (on a 50% attributable basis) aggregate amounts of depreciation, depletion and amortization, asset retirement obligation expenses, net interest expense and income taxes of $4.4 million and $7.5 million during the three months ended March 31, 2020 and 2019, respectively. |
| |
(2)
| Includes gains (losses) on certain surplus coal reserve and surface land sales and property management costs and revenues. |
| |
(3)
| Includes trading and brokerage activities, costs associated with post-mining activities, gains (losses) on certain asset disposals, minimum charges on certain transportation-related contracts, costs associated with suspended operations including the North Goonyella Mine and expenses related to our other commercial activities. |
| |
(4)
| North Goonyella costs incurred from January 1, 2020 forward are included within the Corporate and Other segment. Costs incurred prior to January 1, 2020 remain within the Seaborne Metallurgical segment. |
The decrease in Corporate and Other Adjusted EBITDA during the three and six months ended March 31,June 30, 2020 compared to the same periodperiods in the prior year was primarily driven by an unfavorable variance in Middlemount’s results due to the impacts of wet weather and lower sales pricing, current year containment and holding costs for our North Goonyella Mine ($10.1(three months, $11.3 million; six months, $21.4 million) and unfavorable results from trading and brokerage activities ($8.8(three months, $2.3 million; six months, $11.1 million). These unfavorable variances results were partially offset by lower selling and administrative expenses ($11.8 million) driven by lower personnel costs and reduced expense associated with our share-based incentive plans and a gain on the sale of undeveloped Australian land tenements in the Bowen Basin ($7.5(six months, $7.5 million).
(Loss) Income From Continuing Operations, Net of Income Taxes
The following table presents (loss) income from continuing operations, net of income taxes:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | (Decrease) Increase | | | | Six Months Ended | | | | (Decrease) Increase | | |
| June 30, | | | | to Income | | | | June 30, | | | | to Income | | |
| 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | | | | | | | (Dollars in millions) | | | | | | |
Adjusted EBITDA (1) | $ | 23.4 | | | $ | 230.0 | | | $ | (206.6) | | | (90) | % | | $ | 60.2 | | | $ | 484.1 | | | $ | (423.9) | | | (88) | % |
Depreciation, depletion and amortization | (88.3) | | | (165.4) | | | 77.1 | | | 47 | % | | (194.3) | | | (337.9) | | | 143.6 | | | 42 | % |
Asset retirement obligation expenses | (14.1) | | | (15.3) | | | 1.2 | | | 8 | % | | (31.7) | | | (29.1) | | | (2.6) | | | (9) | % |
Restructuring charges | (16.5) | | | (0.4) | | | (16.1) | | | (4,025) | % | | (23.0) | | | (0.6) | | | (22.4) | | | (3,733) | % |
Transaction costs related to joint ventures | (12.9) | | | (1.6) | | | (11.3) | | | (706) | % | | (17.1) | | | (1.6) | | | (15.5) | | | (969) | % |
Asset impairment | (1,418.1) | | | — | | | (1,418.1) | | | n.m. | | (1,418.1) | | | — | | | (1,418.1) | | | n.m. |
Provision for North Goonyella equipment loss | — | | | — | | | — | | | n.m. | | — | | | (24.7) | | | 24.7 | | | 100 | % |
North Goonyella insurance recovery - equipment | — | | | — | | | — | | | n.m. | | — | | | 91.1 | | | (91.1) | | | (100) | % |
Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates | 0.4 | | | (0.3) | | | 0.7 | | | 233 | % | | 1.1 | | | (0.3) | | | 1.4 | | | 467 | % |
Interest expense | (34.3) | | | (36.0) | | | 1.7 | | | 5 | % | | (67.4) | | | (71.8) | | | 4.4 | | | 6 | % |
| | | | | | | | | | | | | | | |
Interest income | 2.4 | | | 7.2 | | | (4.8) | | | (67) | % | | 5.5 | | | 15.5 | | | (10.0) | | | (65) | % |
Unrealized gains on economic hedges | 7.0 | | | 22.4 | | | (15.4) | | | (69) | % | | 4.8 | | | 62.2 | | | (57.4) | | | (92) | % |
Unrealized gains (losses) on non-coal trading derivative contracts | 2.8 | | | (0.3) | | | 3.1 | | | 1,033 | % | | 2.9 | | | (0.1) | | | 3.0 | | | 3,000 | % |
Take-or-pay contract-based intangible recognition | 2.7 | | | 5.6 | | | (2.9) | | | (52) | % | | 5.3 | | | 11.2 | | | (5.9) | | | (53) | % |
Income tax benefit (provision) | 0.2 | | | (3.0) | | | 3.2 | | | 107 | % | | (2.8) | | | (21.8) | | | 19.0 | | | 87 | % |
(Loss) income from continuing operations, net of income taxes | $ | (1,545.3) | | | $ | 42.9 | | | $ | (1,588.2) | | | (3,702) | % | | $ | (1,674.6) | | | $ | 176.2 | | | $ | (1,850.8) | | | (1,050) | % |
(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.
|
| | | | | | | | | | | | | | |
| Three Months Ended | | (Decrease) Increase |
| March 31, | | to Income |
| 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | |
Adjusted EBITDA (1) | $ | 36.8 |
| | $ | 254.1 |
| | $ | (217.3 | ) | | (86 | )% |
Depreciation, depletion and amortization | (106.0 | ) | | (172.5 | ) | | 66.5 |
| | 39 | % |
Asset retirement obligation expenses | (17.6 | ) | | (13.8 | ) | | (3.8 | ) | | (28 | )% |
Restructuring charges | (6.5 | ) | | (0.2 | ) | | (6.3 | ) | | (3,150 | )% |
Transaction costs related to joint ventures | (4.2 | ) | | — |
| | (4.2 | ) | | n.m. |
|
Provision for North Goonyella equipment loss | — |
| | (24.7 | ) | | 24.7 |
| | 100 | % |
North Goonyella insurance recovery - equipment | — |
| | 91.1 |
| | (91.1 | ) | | (100 | )% |
Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates | 0.7 |
| | — |
| | 0.7 |
| | n.m. |
|
Interest expense | (33.1 | ) | | (35.8 | ) | | 2.7 |
| | 8 | % |
Interest income | 3.1 |
| | 8.3 |
| | (5.2 | ) | | (63 | )% |
Unrealized (losses) gains on economic hedges | (2.2 | ) | | 39.8 |
| | (42.0 | ) | | (106 | )% |
Unrealized gains on non-coal trading derivative contracts | 0.1 |
| | 0.2 |
| | (0.1 | ) | | (50 | )% |
Take-or-pay contract-based intangible recognition | 2.6 |
| | 5.6 |
| | (3.0 | ) | | (54 | )% |
Income tax provision | (3.0 | ) | | (18.8 | ) | | 15.8 |
| | 84 | % |
(Loss) income from continuing operations, net of income taxes | $ | (129.3 | ) | | $ | 133.3 |
| | $ | (262.6 | ) | | (197 | )% |
| |
| This is a financial measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for definitions and reconciliations to the most comparable measures under U.S. GAAP. |
Depreciation, Depletion and Amortization. The following table presents a summary of depreciation, depletion and amortization expense by segment:
| | | Three Months Ended | | Increase (Decrease) | | Three Months Ended | | | Increase (Decrease) | | | Six Months Ended | | | Increase (Decrease) | |
| March 31, | | to Income | | June 30, | | | to Income | | | June 30, | | | to Income | |
| 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | | | (Dollars in millions) | | | | | (Dollars in millions) | | | |
Seaborne Thermal Mining | $ | (22.2 | ) | | $ | (23.2 | ) | | $ | 1.0 |
| | 4 | % | Seaborne Thermal Mining | $ | (20.5) | | | $ | (22.0) | | | $ | 1.5 | | | 7 | % | | $ | (42.7) | | | $ | (45.2) | | | $ | 2.5 | | | 6 | % |
Seaborne Metallurgical Mining | (24.8 | ) | | (40.1 | ) | | 15.3 |
| | 38 | % | Seaborne Metallurgical Mining | (20.5) | | | (31.1) | | | 10.6 | | | 34 | % | | (45.3) | | | (71.2) | | | 25.9 | | | 36 | % |
Powder River Basin Mining | (35.2 | ) | | (36.6 | ) | | 1.4 |
| | 4 | % | Powder River Basin Mining | (28.3) | | | (36.0) | | | 7.7 | | | 21 | % | | (63.5) | | | (72.6) | | | 9.1 | | | 13 | % |
Other U.S. Thermal Mining | (21.4 | ) | | (70.8 | ) | | 49.4 |
| | 70 | % | Other U.S. Thermal Mining | (15.6) | | | (73.7) | | | 58.1 | | | 79 | % | | (37.0) | | | (144.5) | | | 107.5 | | | 74 | % |
Corporate and Other | (2.4 | ) | | (1.8 | ) | | (0.6 | ) | | (33 | )% | Corporate and Other | (3.4) | | | (2.6) | | | (0.8) | | | (31) | % | | (5.8) | | | (4.4) | | | (1.4) | | | (32) | % |
Total | $ | (106.0 | ) | | $ | (172.5 | ) | | $ | 66.5 |
| | 39 | % | Total | $ | (88.3) | | | $ | (165.4) | | | $ | 77.1 | | | 47 | % | | $ | (194.3) | | | $ | (337.9) | | | $ | 143.6 | | | 42 | % |
Additionally, the following table presents a summary of our weighted-average depletion rate per ton for active mines in each of our mining segments:
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
Seaborne Thermal Mining | $ | 1.90 |
| | $ | 1.80 |
|
Seaborne Metallurgical Mining | 2.68 |
| | 2.58 |
|
Powder River Basin Mining | 0.79 |
| | 0.81 |
|
Other U.S. Thermal Mining | 1.06 |
| | 1.53 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| June 30, | | | | June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Seaborne Thermal Mining | $ | 2.08 | | | $ | 1.97 | | | $ | 1.99 | | | $ | 1.89 | |
Seaborne Metallurgical Mining | 1.81 | | | 3.47 | | | 2.38 | | | 3.01 | |
Powder River Basin Mining | 0.80 | | | 0.80 | | | 0.79 | | | 0.81 | |
Other U.S. Thermal Mining | 0.96 | | | 1.50 | | | 1.02 | | | 1.51 | |
Depreciation, depletion and amortization expense decreased during the three and six months ended March 31,June 30, 2020 compared to the same periodperiods in the prior year primarily due to the closure of the Kayenta and Cottage Grove Mines during the third quarter of 2019 ($40.9and the Millennium and Wildcat Hills Underground Mines during the second quarter of 2020 (three months, $47.9 million; six months, $95.0 million), decreased depletion driven by lower sales volumes (three months, $11.5 million; six months, $13.3 million) and lower amortization of the fair value of certain U.S. coal supply agreements ($6.0(three months, $5.4 million; six months, $11.4 million). The decrease in the weighted-average depletion rate per ton for the Seaborne Metallurgical Mining segment during the three and decreased expense relatedsix months ended June 30, 2020 compared to the upcoming closure ofsame periods in the Millennium Mine ($5.4 million).prior year reflects the volume and mix variances which impacted our revenues as described above.
Restructuring Charges. Restructuring charges increased during the three and six months ended March 31,June 30, 2020 compared to the same periodperiods in the prior year as the result of involuntary workforce reductions made across the organization through the use of involuntary and voluntary reductions, as discussed in Note 15. “Other Events” to the accompanying unaudited condensed consolidated financial statements.
Transaction Costs Related to Joint Ventures. The charges recorded during the three and six months ended March 31,June 30, 2020 related to the proposed PRB Colorado joint venture with Arch as further described in Note 15. “Other Events” to the accompanying unaudited condensed consolidated financial statements.
Asset Impairment. During the three and six months ended June 30, 2020, we recognized $1,418.1 million in aggregate asset impairment charges related to the fair value of our North Antelope Rochelle Mine as discussed in Note 9. “Property, Plant, Equipment and Mine Development” to the accompanying unaudited condensed consolidated financial statements.
Provision for North Goonyella Equipment Loss. A provision for expected equipment losses related to the events at our North Goonyella Mine was recorded during the prior year as discussed in Note 15. “Other Events” to the accompanying unaudited condensed consolidated financial statements.
North Goonyella Insurance Recovery - Equipment. During the threesix months ended March 31,June 30, 2019, we entered into an insurance claim settlement agreement with our insurance providers related to North Goonyella equipment losses and recorded a $125.0 million insurance recovery, as discussed in Note 15. “Other Events” to the accompanying unaudited condensed consolidated financial statements. Of this amount, Adjusted EBITDA excludes an allocated amount applicable to total equipment losses recognized at the time of the insurance recovery settlement, which consisted of $24.7 million and $66.4 million recognized during the threesix months ended March 31,June 30, 2019 and the year ended December 31, 2018, respectively. The remaining $33.9 million, applicable to incremental costs and business interruption losses, is included in Adjusted EBITDA for the threesix months ended March 31,June 30, 2019.
Interest Income. The decrease in interest income during the three and six months ended March 31,June 30, 2020 compared to the same periodperiods in the prior year was driven by the conclusion of a contract during the fourth quarter of 2019 which contained an embedded financing element and by lower cash balances.
Unrealized (Losses) Gains on Economic Hedges. Unrealized (losses) gains primarily relate to mark-to-market activity from economic hedge activities intended to hedge future coal sales. For additional information, refer to Note 7. “Derivatives and Fair Value Measurements” to the accompanying unaudited condensed consolidated financial statements.
Take-or-Pay Contract-Based Intangible Recognition. During the three and six months ended March 31,June 30, 2020 and 2019, we ratably recognized contract-based intangible liabilities for port and rail take-or-pay contracts. For additional details, refer to Note 8. “Intangible Contract Assets and Liabilities” to the accompanying unaudited condensed consolidated financial statements.
Income Tax ProvisionBenefit (Provision). The decrease in the income tax provision for the three and six months ended March 31,June 30, 2020 compared to the same periodperiods in the prior year was primarily due to changes in forecasted taxable income, andpartially offset by an increase in the benefitprovision related to the remeasurement of foreign income tax accounts. Refer to Note 11. “Income Taxes” to the accompanying unaudited condensed consolidated financial statements for additional information.
Net (Loss) Income Attributable to Common Stockholders
The following table presents net (loss) income attributable to common stockholders:
|
| | | | | | | | | | | | | | |
| Three Months Ended | | (Decrease) Increase |
| March 31, | | to Income |
| 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | |
(Loss) income from continuing operations, net of income taxes | $ | (129.3 | ) | | $ | 133.3 |
| | $ | (262.6 | ) | | (197 | )% |
Loss from discontinued operations, net of income taxes | (2.2 | ) | | (3.4 | ) | | 1.2 |
| | 35 | % |
Net (loss) income | (131.5 | ) | | 129.9 |
| | (261.4 | ) | | (201 | )% |
Less: Net (loss) income attributable to noncontrolling interests | (1.8 | ) | | 5.7 |
| | (7.5 | ) | | (132 | )% |
Net (loss) income attributable to common stockholders | $ | (129.7 | ) | | $ | 124.2 |
| | $ | (253.9 | ) | | (204 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | (Decrease) Increase | | | | Six Months Ended | | | | (Decrease) Increase | | |
| June 30, | | | | to Income | | | | June 30, | | | | to Income | | |
| 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % |
| (Dollars in millions) | | | | | | | | (Dollars in millions) | | | | | | |
(Loss) income from continuing operations, net of income taxes | $ | (1,545.3) | | | $ | 42.9 | | | $ | (1,588.2) | | | (3,702) | % | | $ | (1,674.6) | | | $ | 176.2 | | | $ | (1,850.8) | | | (1,050) | % |
Loss from discontinued operations, net of income taxes | (2.3) | | | (3.4) | | | 1.1 | | | 32 | % | | (4.5) | | | (6.8) | | | 2.3 | | | 34 | % |
Net (loss) income | (1,547.6) | | | 39.5 | | | (1,587.1) | | | (4,018) | % | | (1,679.1) | | | 169.4 | | | (1,848.5) | | | (1,091) | % |
Less: Net (loss) income attributable to noncontrolling interests | (3.4) | | | 2.4 | | | (5.8) | | | (242) | % | | (5.2) | | | 8.1 | | | (13.3) | | | (164) | % |
Net (loss) income attributable to common stockholders | $ | (1,544.2) | | | $ | 37.1 | | | $ | (1,581.3) | | | (4,262) | % | | $ | (1,673.9) | | | $ | 161.3 | | | $ | (1,835.2) | | | (1,138) | % |
Net (Loss) Income Attributable to Noncontrolling Interests. The decrease in net results attributable to noncontrolling interests during the three and six months ended March 31,June 30, 2020 compared to the prior year periodperiods was primarily due to lower results of our majority-owned mines in which there is an outside non-controlling interest.
Diluted Earnings per Share (EPS)
The following table presents diluted EPS:
| | | Three Months Ended | | (Decrease) Increase | | Three Months Ended | | | (Decrease) Increase | | | Six Months Ended | | | (Decrease) Increase | |
| March 31, | | to EPS | | June 30, | | | to EPS | | | June 30, | | | to EPS | |
| 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % |
Diluted EPS attributable to common stockholders: | | | | | | | | Diluted EPS attributable to common stockholders: | | | | | | | | | | | | | | | |
(Loss) income from continuing operations | $ | (1.31 | ) | | $ | 1.15 |
| | $ | (2.46 | ) | | (214 | )% | (Loss) income from continuing operations | $ | (15.76) | | | $ | 0.37 | | | $ | (16.13) | | | (4,359) | % | | $ | (17.12) | | | $ | 1.54 | | | $ | (18.66) | | | (1,212) | % |
Loss from discontinued operations | (0.02 | ) | | (0.03 | ) | | 0.01 |
| | 33 | % | Loss from discontinued operations | (0.02) | | | (0.03) | | | 0.01 | | | 33 | % | | (0.04) | | | (0.06) | | | 0.02 | | | 33 | % |
Net (loss) income attributable to common stockholders | $ | (1.33 | ) | | $ | 1.12 |
| | $ | (2.45 | ) | | (219 | )% | Net (loss) income attributable to common stockholders | $ | (15.78) | | | $ | 0.34 | | | $ | (16.12) | | | (4,741) | % | | $ | (17.16) | | | $ | 1.48 | | | $ | (18.64) | | | (1,259) | % |
Diluted EPS is commensurate with the changes in results from continuing operations and discontinued operations during that period. Diluted EPS reflects weighted average diluted common shares outstanding of 97.297.9 million and 110.5108.1 million for the three months ended March 31,June 30, 2020 and 2019, respectively, and 97.5 million and 109.3 million for the six months ended June 30, 2020 and 2019, respectively.
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA is defined as (loss) income from continuing operations before deducting net interest expense, income taxes, asset retirement obligation expenses and depreciation, depletion and amortization. Adjusted EBITDA is also adjusted for the discrete items that management excluded in analyzing each of our segment’s operating performance, as displayed in the reconciliations below. We have retrospectively modified our calculation of Adjusted EBITDA to exclude restructuring charges and transaction costs related to joint ventures as management does not view these items as part of our normal operations.
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
| (Dollars in millions) |
(Loss) income from continuing operations, net of income taxes | $ | (129.3 | ) | | $ | 133.3 |
|
Depreciation, depletion and amortization | 106.0 |
| | 172.5 |
|
Asset retirement obligation expenses | 17.6 |
| | 13.8 |
|
Restructuring charges | 6.5 |
| | 0.2 |
|
Transaction costs related to joint ventures | 4.2 |
| | — |
|
Provision for North Goonyella equipment loss | — |
| | 24.7 |
|
North Goonyella insurance recovery - equipment | — |
| | (91.1 | ) |
Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates | (0.7 | ) | | — |
|
Interest expense | 33.1 |
| | 35.8 |
|
Interest income | (3.1 | ) | | (8.3 | ) |
Unrealized losses (gains) on economic hedges | 2.2 |
| | (39.8 | ) |
Unrealized gains on non-coal trading derivative contracts | (0.1 | ) | | (0.2 | ) |
Take-or-pay contract-based intangible recognition | (2.6 | ) | | (5.6 | ) |
Income tax provision | 3.0 |
| | 18.8 |
|
Total Adjusted EBITDA | $ | 36.8 |
| | $ | 254.1 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| June 30, | | | | June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (Dollars in millions) | | | | | | |
(Loss) income from continuing operations, net of income taxes | $ | (1,545.3) | | | $ | 42.9 | | | $ | (1,674.6) | | | $ | 176.2 | |
Depreciation, depletion and amortization | 88.3 | | | 165.4 | | | 194.3 | | | 337.9 | |
Asset retirement obligation expenses | 14.1 | | | 15.3 | | | 31.7 | | | 29.1 | |
Restructuring charges | 16.5 | | | 0.4 | | | 23.0 | | | 0.6 | |
Transaction costs related to joint ventures | 12.9 | | | 1.6 | | | 17.1 | | | 1.6 | |
Asset impairment | 1,418.1 | | | — | | | 1,418.1 | | | — | |
Provision for North Goonyella equipment loss | — | | | — | | | — | | | 24.7 | |
North Goonyella insurance recovery - equipment | — | | | — | | | — | | | (91.1) | |
Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates | (0.4) | | | 0.3 | | | (1.1) | | | 0.3 | |
Interest expense | 34.3 | | | 36.0 | | | 67.4 | | | 71.8 | |
| | | | | | | |
Interest income | (2.4) | | | (7.2) | | | (5.5) | | | (15.5) | |
Unrealized gains on economic hedges | (7.0) | | | (22.4) | | | (4.8) | | | (62.2) | |
Unrealized (gains) losses on non-coal trading derivative contracts | (2.8) | | | 0.3 | | | (2.9) | | | 0.1 | |
Take-or-pay contract-based intangible recognition | (2.7) | | | (5.6) | | | (5.3) | | | (11.2) | |
Income tax (benefit) provision | (0.2) | | | 3.0 | | | 2.8 | | | 21.8 | |
Total Adjusted EBITDA | $ | 23.4 | | | $ | 230.0 | | | $ | 60.2 | | | $ | 484.1 | |
Revenues per Ton and Adjusted EBITDA Margin per Ton are equal to revenues by segment and Adjusted EBITDA by segment, respectively, divided by segment tons sold. Costs per Ton is equal to Revenues per Ton less Adjusted EBITDA Margin per Ton, and are reconciled to operating costs and expenses as follows:
| | | Three Months Ended | | Three Months Ended | | | Six Months Ended | |
| March 31, | | June 30, | | | June 30, | |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| (Dollars in millions) | | (Dollars in millions) | |
Operating costs and expenses | $ | 779.5 |
| | $ | 948.2 |
| Operating costs and expenses | $ | 556.3 | | | $ | 857.8 | | | $ | 1,335.8 | | | $ | 1,806.0 | |
Unrealized gains on non-coal trading derivative contracts | 0.1 |
| | 0.2 |
| |
Unrealized gains (losses) on non-coal trading derivative contracts | | Unrealized gains (losses) on non-coal trading derivative contracts | 2.8 | | | (0.3) | | | 2.9 | | | (0.1) | |
Take-or-pay contract-based intangible recognition | 2.6 |
| | 5.6 |
| Take-or-pay contract-based intangible recognition | 2.7 | | | 5.6 | | | 5.3 | | | 11.2 | |
North Goonyella insurance recovery - cost recovery and business interruption | — |
| | (33.9 | ) | North Goonyella insurance recovery - cost recovery and business interruption | — | | | — | | | — | | | (33.9) | |
Net periodic benefit costs, excluding service cost | 2.8 |
| | 4.9 |
| Net periodic benefit costs, excluding service cost | 2.7 | | | 4.8 | | | 5.5 | | | 9.7 | |
Total Reporting Segment Costs | $ | 785.0 |
| | $ | 925.0 |
| Total Reporting Segment Costs | $ | 564.5 | | | $ | 867.9 | | | $ | 1,349.5 | | | $ | 1,792.9 | |
The following table presents Reporting Segment Costs by reporting segment:
| | | Three Months Ended | | Three Months Ended | | | Six Months Ended | |
| March 31, | | June 30, | | | June 30, | |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| (Dollars in millions) | | (Dollars in millions) | |
Seaborne Thermal Mining | $ | 146.0 |
| | $ | 156.3 |
| Seaborne Thermal Mining | $ | 134.3 | | | $ | 145.8 | | | $ | 280.3 | | | $ | 302.1 | |
Seaborne Metallurgical Mining | 225.9 |
| | 238.7 |
| Seaborne Metallurgical Mining | 127.7 | | | 233.5 | | | 353.6 | | | 472.2 | |
Powder River Basin Mining | 241.2 |
| | 250.9 |
| Powder River Basin Mining | 166.5 | | | 242.4 | | | 407.7 | | | 493.3 | |
Other U.S. Thermal Mining | 153.8 |
| | 258.9 |
| Other U.S. Thermal Mining | 119.1 | | | 226.5 | | | 272.9 | | | 485.4 | |
Corporate and Other | 18.1 |
| | 20.2 |
| Corporate and Other | 16.9 | | | 19.7 | | | 35.0 | | | 39.9 | |
Total Reporting Segment Costs | $ | 785.0 |
| | $ | 925.0 |
| Total Reporting Segment Costs | $ | 564.5 | | | $ | 867.9 | | | $ | 1,349.5 | | | $ | 1,792.9 | |
The following tables present tons sold, revenues, Reporting Segment Costs and Adjusted EBITDA by mining segment:
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
| Seaborne Thermal Mining | | Seaborne Metallurgical Mining | | Powder River Basin Mining | | Other U.S. Thermal Mining |
| (Amounts in millions, except per ton data) |
Tons sold | 4.6 |
| | 2.0 |
| | 23.5 |
| | 4.9 |
|
| | | | | | | |
Revenues | $ | 201.1 |
| | $ | 193.2 |
| | $ | 266.6 |
| | $ | 192.3 |
|
Reporting Segment Costs | 146.0 |
| | 225.9 |
| | 241.2 |
| | 153.8 |
|
Adjusted EBITDA | 55.1 |
| | (32.7 | ) | | 25.4 |
| | 38.5 |
|
| | | | | | | |
Revenues per Ton | $ | 44.10 |
| | $ | 95.65 |
| | $ | 11.36 |
| | $ | 39.25 |
|
Costs per Ton | 32.03 |
| | 111.82 |
| | 10.28 |
| | 31.39 |
|
Adjusted EBITDA Margin per Ton | 12.07 |
| | (16.17 | ) | | 1.08 |
| | 7.86 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | | |
| Seaborne Thermal Mining | | Seaborne Metallurgical Mining | | Powder River Basin Mining | | Other U.S. Thermal Mining |
| (Amounts in millions, except per ton data) | | | | | | |
Tons sold | 4.6 | | | 1.1 | | | 17.9 | | | 3.8 | |
| | | | | | | |
Revenues | $ | 162.0 | | | $ | 91.6 | | | $ | 205.8 | | | $ | 152.0 | |
Reporting Segment Costs | 134.3 | | | 127.7 | | | 166.5 | | | 119.1 | |
Adjusted EBITDA | 27.7 | | | (36.1) | | | 39.3 | | | 32.9 | |
| | | | | | | |
Revenues per Ton | $ | 35.10 | | | $ | 86.80 | | | $ | 11.45 | | | $ | 39.81 | |
Costs per Ton | 29.19 | | | 120.72 | | | 9.26 | | | 31.22 | |
Adjusted EBITDA Margin per Ton | 5.91 | | | (33.92) | | | 2.19 | | | 8.59 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | | | | | |
| Seaborne Thermal Mining | | Seaborne Metallurgical Mining | | Powder River Basin Mining | | Other U.S. Thermal Mining |
| (Amounts in millions, except per ton data) | | | | | | |
Tons sold | 4.7 | | | 2.1 | | | 25.0 | | | 7.2 | |
| | | | | | | |
Revenues | $ | 220.2 | | | $ | 290.9 | | | $ | 282.6 | | | $ | 309.6 | |
Reporting Segment Costs | 145.8 | | | 233.5 | | | 242.4 | | | 226.5 | |
Adjusted EBITDA | 74.4 | | | 57.4 | | | 40.2 | | | 83.1 | |
| | | | | | | |
Revenues per Ton | $ | 46.41 | | | $ | 138.42 | | | $ | 11.33 | | | $ | 43.04 | |
Costs per Ton | 30.73 | | | 111.12 | | | 9.72 | | | 31.47 | |
Adjusted EBITDA Margin per Ton | 15.68 | | | 27.30 | | | 1.61 | | | 11.57 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | |
| Seaborne Thermal Mining | | Seaborne Metallurgical Mining | | Powder River Basin Mining | | Other U.S. Thermal Mining |
| (Amounts in millions, except per ton data) | | | | | | |
Tons sold | 9.2 | | | 3.1 | | | 41.4 | | | 8.7 | |
| | | | | | | |
Revenues | $ | 363.1 | | | $ | 284.8 | | | $ | 472.4 | | | $ | 344.3 | |
Reporting Segment Costs | 280.3 | | | 353.6 | | | 407.7 | | | 272.9 | |
Adjusted EBITDA | 82.8 | | | (68.8) | | | 64.7 | | | 71.4 | |
| | | | | | | |
Revenues per Ton | $ | 39.58 | | | $ | 92.61 | | | $ | 11.40 | | | $ | 39.49 | |
Costs per Ton | 30.56 | | | 115.00 | | | 9.84 | | | 31.31 | |
Adjusted EBITDA Margin per Ton | 9.02 | | | (22.39) | | | 1.56 | | | 8.18 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | | | | | |
| Seaborne Thermal Mining | | Seaborne Metallurgical Mining | | Powder River Basin Mining | | Other U.S. Thermal Mining |
| (Amounts in millions, except per ton data) | | | | | | |
Tons sold | 9.2 | | | 4.4 | | | 50.3 | | | 15.1 | |
| | | | | | | |
Revenues | $ | 471.2 | | | $ | 615.4 | | | $ | 569.9 | | | $ | 644.4 | |
Reporting Segment Costs | 302.1 | | | 472.2 | | | 493.3 | | | 485.4 | |
Adjusted EBITDA | 169.1 | | | 143.2 | | | 76.6 | | | 159.0 | |
| | | | | | | |
Revenues per Ton | $ | 51.18 | | | $ | 140.45 | | | $ | 11.34 | | | $ | 42.60 | |
Costs per Ton | 32.82 | | | 107.77 | | | 9.82 | | | 32.08 | |
Adjusted EBITDA Margin per Ton | 18.36 | | | 32.68 | | | 1.52 | | | 10.52 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 |
| Seaborne Thermal Mining | | Seaborne Metallurgical Mining | | Powder River Basin Mining | | Other U.S. Thermal Mining |
| (Amounts in millions, except per ton data) |
Tons sold | 4.5 |
| | 2.3 |
| | 25.3 |
| | 7.9 |
|
| | | | | | | |
Revenues | $ | 251.0 |
| | $ | 324.5 |
| | $ | 287.3 |
| | $ | 334.8 |
|
Reporting Segment Costs | 156.3 |
| | 238.7 |
| | 250.9 |
| | 258.9 |
|
Adjusted EBITDA | 94.7 |
| | 85.8 |
| | 36.4 |
| | 75.9 |
|
| | | | | | | |
Revenues per Ton | $ | 56.24 |
| | $ | 142.33 |
| | $ | 11.35 |
| | $ | 42.21 |
|
Costs per Ton | 35.03 |
| | 104.69 |
| | 9.91 |
| | 32.65 |
|
Adjusted EBITDA Margin per Ton | 21.21 |
| | 37.64 |
| | 1.44 |
| | 9.56 |
|
Free Cash Flow is defined as net cash (used in) provided by operating activities less net cash used in investing activities and excludes cash outflows related to business combinations. See the table below for a reconciliation of Free Cash Flow to its most comparable measure under U.S. GAAP.
| | | | | | | | | | | |
| Six Months Ended | | |
| June 30, | | |
| 2020 | | 2019 |
| (Dollars in millions) | | |
Net cash (used in) provided by operating activities | $ | (53.1) | | | $ | 377.0 | |
Net cash used in investing activities | (115.6) | | | (64.0) | |
Add back: Amount attributable to acquisition of Shoal Creek Mine | — | | | 2.4 | |
Free Cash Flow | $ | (168.7) | | | $ | 315.4 | |
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
| (Dollars in millions) |
Net cash (used in) provided by operating activities | $ | (4.7 | ) | | $ | 197.6 |
|
Net cash used in investing activities | (37.1 | ) | | (38.1 | ) |
Add back: Amount attributable to acquisition of Shoal Creek Mine | — |
| | 2.4 |
|
Free Cash Flow | $ | (41.8 | ) | | $ | 161.9 |
|
Outlook
As part of its normal planning and forecasting process, Peabody utilizes a broad approach to develop macroeconomic assumptions for key variables, including country-level gross domestic product, industrial production, fixed asset investment and third-party inputs, driving detailed supply and demand projections for key demand centers for coal, electricity generation and steel. Specific to the U.S., the Company evaluates individual plant needs, including expected retirements, on a plant by plant basis in developing its demand models. Supply models and cost curves concentrate on major supply regions/countries that impact the regions in which the Company operates.
Our estimates involve risks and uncertainties and are subject to change based on various factors as described more fully in the “Cautionary Notice Regarding Forward-Looking Statements” section contained within this Item 2.
Our near-term outlook is intended to coincide with the next 12 to 24 months, with subsequent periods addressed in our long-term outlook. Peabody is continuing to monitor the rapidly evolving COVID-19 pandemic and any impacts related to both our near-term and long-term outlook.
Near-Term Outlook
Seaborne Thermal and Metallurgical Coal. CoalWithin. While the global economy continues to navigate through the COVID-19 pandemic, the scope and scale of the recovery remains uncertain. Ongoing demand uncertainty driven by idled steel capacity in Europe and the Asia-Pacific, weak overall electricity generation and the implementation of Chinese import restrictions have all contributed to low seaborne coal prices. In addition, based on current economic data, the Company would expect near-term seaborne coal demand to decline from prior-year levels. The ultimate quantum of demand will be highly dependent upon the scope and scale of the eventual COVID-19 pandemic recovery.
U.S. Thermal Coal. U.S. thermal coal conditions remain especially challenging given weak overall electricity demand, high customer inventory levels and continued low natural gas prices. These factors have accelerated the secular decline already underway in the industry. Total U.S. electricity generation year-to-date through June 30, 2020, was down approximately 4%, with coal generation falling 31% to 17% of the generation mix as natural gas and wind took market share, rising to 39% and 9%, respectively, of the generation mix.
Long-Term Outlook
Given widespread industry supply and demand disruptions have been widespreadchanges, in part due to the ongoing impacts ofprolonged COVID-19 pandemic, we have updated our long-term outlook. Current projections indicate a slow seaborne market recovery over the next 12 to 15 months. Future demand will be impacted by economic conditions and public policy related to the COVID-19 pandemic which has resulted in country-wide lockdowns and regional restrictions across the globe. While outcomes remain highly uncertain,key demand centers. Further, we believe that significant year-over-year demand declines are possible. While recovery in China is occurring as major infrastructure projects recommence, thermal demand from non-power sectors remains weak. At the same time, Japan and India - hubs for seaborne coal demand - have shut down non-essential services and slowed steel production.use will be adversely impacted by the policy decisions of various governments, regulatory bodies, financial institutions and others with respect to concerns over the environmental and social impacts of coal combustion.
In additionSeaborne Fundamentals. Longer-term, Peabody continues to anticipate that seaborne metallurgical coal demand impacts, supply riskswill continue to emerge. A numbergrow as India increases steel production and lacks the quantity and quality of globaldomestic metallurgical coal to meet its anticipated needs. China will continue to have a significant influence on seaborne demand, which will be highly dependent on the scope and scale of the recovery from the COVID-19 pandemic and use and availability of domestic producers have curtailed or suspended production due to precautionary measures and high levels of workforce absenteeism.
coal.
For seaborne thermal, Peabody expects longer-term demand growth from the Association of Southeast Asian Nations to continue, which is anticipated to help offset demand decline elsewhere, most notably, in the Atlantic markets. The vast majority of seaborne thermal coal demand is projected to come from the Asia-Pacific region as Europe’s coal generation continues its secular decline. Seaborne thermal coal will continue to be sourced primarily from seaborne exporters Indonesia and Australia, along with Russia, Colombia, South Africa and the U.S., among others.
U.S. Thermal Coal.Fundamentals Within the. U.S., thermal coal demand has been further challenged bydramatically reduced in the effectsfirst half of 2020, accelerating the COVID-19 pandemic. The combination of weak total electric power sector consumption, depressed power prices, reduced industrial activity, as well as lowsecular demand decline already underway. Future demand will be highly dependent on natural gas prices, growth in renewable generation and high utility stockpiles continues to pressure demand.
Long-Term Outlook
There were no significant changes to our Long-Term Outlook subsequent to December 31, 2019. Information regarding our Long-Term Outlook is outlined in Part II. Item 7. “Management’s Discussionother competing fuels, and Analysis of Financial Conditionpolicy and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019.regulations, among other things.
Regulatory Update
Other than as described in the following section, there were no significant changes to our regulatory matters subsequent to December 31, 2019. Information regarding our regulatory matters is outlined in Part I, Item 1. “Business” in our Annual Report on Form 10-K for the year ended December 31, 2019.
Regulatory Matters - U.S.
Temporary Enforcement Policy. On March 26, 2020, the United States Environmental Protection Agency (EPA) announced a temporary policy regarding EPA enforcement of environmental legal obligations as a result of the COVID-19 pandemic. (COVID-19 Implications for EPA’s Enforcement and Compliance Assurance Program). Under the temporary policy, the EPA will exercise the enforcement discretion for certain noncompliance events covered by the temporary policy. For noncompliance that occursoccur during the period of time that the temporary policy is in effect and that resultsresult from the COVID-19 pandemic, the EPA’s temporary policy will apply to such noncompliance in lieu of an otherwise applicable EPA enforcement response policy.pandemic. The EPA’s temporary policy does not provide leniency for intentional criminal violations of law and imposes conditions on any violation that may result in “acute risk or an imminent threat to human health or the environment.” The policy also does not apply to activities that are carried out under Superfund and Resource Conservation and Recovery Act (RCRA) Corrective Action enforcement instruments. The EPA will address these matters in separate communications. The EPA's temporary policy became retroactively effective on March 13, 2020 and is in effect until August 31, 2020. The EPA will assess the continued need(COVID-19 Implications for EPA’s Enforcement and scope of this temporary policyCompliance Assurance Program: Addendum on a regular basis and will update it if the EPA determines modifications are necessary.Termination, June 29, 2020).
EPA Regulation of Greenhouse Gas Emissions from Existing Fossil Fuel-Fired Electricity Utility Generating Units (EGUs). On October 23, 2015, the EPA published a final rule in the Federal Register regulating greenhouse gas emissions from existing fossil fuel-fired EGUs under Section 111(d) of the Clean Air Act (CAA) (80 Fed. Reg. 64,662 (Oct. 23, 2015)). The rule (known as the Clean Power Plan or CPP) established emission guidelines for states to follow in developing plans to reduce greenhouse gas emissions from existing fossil fuel-fired EGUs. The CPP required that the states individually or collectively create systems that would reduce carbon emissions from any EGU located within their borders by 28% in 2025 and 32% in 2030 (compared with a 2005 baseline).
Following Federal Register publication, 39 separate petitions for review of the CPP by approximately 157 entities were filed in the United States Court of Appeals for the D.C. Circuit (D.C. Circuit). The petitions reflected challenges by 27 states and governmental entities, as well as by utilities, industry groups, trade associations, coal companies and other entities. The lawsuits were consolidated with the case filed by West Virginia and Texas (in which other states also joined) (D.C. Cir. No. 15-1363). On October 29, 2015, we filed a motion to intervene in the case filed by West Virginia and Texas, in support of the petitioning states. The motion was granted on January 11, 2016. Numerous states and other entities also intervened in support of the EPA.
On February 9, 2016, the U.S. Supreme Court granted a motion to stay implementation of the CPP until the legal challenges were resolved. Thereafter, oral arguments in the case were heard in the D.C. Circuit sitting en banc. On April 28, 2017, the D.C. Circuit granted the EPA’s motion to hold the case in abeyance while the agency reconsidered the rule. The D.C. Circuit case has been in abeyance since, so no opinion has been issued.
In October 2017, the EPA proposed to repeal the CPP (82 Fed. Reg. 48,035 (Oct. 16, 2017)). In August 2018, the EPA issued a proposed rule to replace the CPP with the Affordable Clean Energy (ACE) Rule. (83 Fed. Reg. 44,746 (August 31, 2018)). On June 19, 2019, the EPA issued a combined package that finalizesfinalized the CPP repeal rule as well as the replacement rule, ACE. Repeal(Repeal of the Clean Power Plan; Emission Guidelines for Greenhouse Gas Emissions from Existing Electric Utility Generating Units; Revisions to Emission Guidelines Implementing Regulations, EPA-HQ-OAR-2017-0355.84 Fed. Reg. 32,520 (July 8, 2019)).
The final ACE rule sets emissions guidelines for greenhouse gas emissions from existing EGUs based on usinga determination that efficiency heat rate improvements as “Bestconstitute the Best System of Emission Reduction” measures.Reduction. The EPA’s final rule also revises the CAA Section 111(d) regulations to give the states greater flexibility on the content and timing of their state plans. Proposed revisions to the regulations under the New Source Review (NSR) program that were part of the ACE proposal were separated, and the EPA indicated that it intends to take final action on the proposed NSR program reforms at a later date.
Based on the EPA’s final rules repealing and replacing the CPP, petitioners in the D.C. Circuit matter seeking review of CPP, including Peabody, filed a motion to dismiss, which the court granted in September 2019. Meanwhile, challengers to the ACE Rule filed petitions for judicial review; briefing in this case (No. 19-1140 (D.C. Cir.)) ishas concluded and oral argument has been scheduled to conclude at the end of Julyfor October 2020.
New Source Review (NSR). The Clean Air Act imposes permitting requirements when a new source undergoes construction or when an existing source is reconstructed or undergoes a major modification. These requirements are contained in the Clean Air Act’s Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NNSR) programs, generally referred to as NSR. On March 25, 2020, the EPA released a draft guidance document that would allow power plants, refineries and other sources of emissions to begin certain construction activities while still awaiting a permit under the NSR program. Under the EPA’s revised interpretation, a source owner or operator may, prior to obtaining a NSR permit, undertake physical on-site activities- including activities that may significantly alter the site, and/or are permanent in nature- provided that those activities do not constitute physical construction on an emissions unit. The EPA will take comment period on the draft memo untilended May 11, 2020.
The EPA has also taken action on a number of different rules and guidance affecting the interpretation and application of NSR. In a final rule (83 Fed. Reg. 57,324 (Nov. 15, 2018), the EPA completed reconsideration of a 2009 petition to clarify when certain actions must be “aggregated” for purposes of determining whether these actions are part of a single project to which NSR applies. The EPA has additionally published guidance on the definition of “ambient air” (Revised Policy on Exclusions from “Ambient Air,” Dec. 2, 2019) and guidance concerning when multiple air pollution-emitting activities may be considered to be “adjacent” so that they should be considered to be a single source (Interpreting “Adjacent” for New Source Review and Title V Source Determinations in All Industries Other Than Oil and Gas, Nov. 26, 2019). Additional memorandum and applicability determinations have also been made that address other NSR issues. These rules, guidance and memorandum may therefore affect the construction, reconstruction and modification of sources and the level of pollution control requirements that will be necessary on a case-by-case basis.
Clean Water Act (CWA) Definition of “Waters of the United States”. A final rule defining the scope of waters protected under the CWA (commonly called the Waters of the United States, or WOTUS) (WOTUS Rule), was published by the EPA and the U.S. Army Corps of Engineers (Corps) in June 2015. Several states and others subsequently filed lawsuits challenging the 2015 WOTUS Rule, and eventually that rule was preliminarily enjoined in over half of the country. On October 22, 2019, the EPA and the Corps jointly published a final rule, which became effective on December 23, 2019, repealing the 2015 WOTUS Rule and recodifying the regulatory definitions of WOTUS that existed prior to the implementation of the WOTUS Rule. On January 23, 2020, the EPA and the Corps finalized the Navigable Waters Protection Rule to revise the definition of “Waters of the United States” and thereby establish the scope of federal regulatory authority under the CWA. A federal district judge in Colorado preliminarily enjoined the Navigable Waters Protection Rule in the State of Colorado on June 19, 2020. The new rule took effect in all other states on June 22, 2020, but the pre-2015 definitions apply in Colorado.
National Environmental Policy Act (NEPA). NEPA, signed into law in 1970, requires federal agencies to review the environmental impacts of their decisions and issue either an environmental assessment or an environmental impact statement. We must provide information to agencies when we propose actions that will be under the authority of the federal government. The NEPA process involves public participation and can involve lengthy timeframes. The White House Council on Environmental Quality (CEQ) issued a proposed rule that would comprehensively update and modernize its longstanding NEPA regulations on January 10, 2020. The comment period closed on March 10, 2020. As proposed, the rule seeks to reduce unnecessary paperwork, burdens and delays, promote better coordination among agency decision makers, and clarify scope of NEPA reviews, among other things.
Proposed Rule for Disposal of Coal Combustion Residuals (CCR) from Electric Utilities; Federal CCR Permit Program. On February 20, 2020, as required by the Water Infrastructure Improvements for the Nation Act, the EPA proposed a federal permitting program for the disposal of CCR in surface impoundments and landfills. Under the proposal, the EPA would directly implement the permit program in Indian Country, and at CCR units located in states that have not submitted their own CCR permit program for approval. The proposal includes requirements for federal CCR permit applications, content and modification, as well as procedural requirements. The comment period for EPA’s proposal ended on April 20, 2020.
Regulatory Matters - Australia
Occupational Health and Safety. State legislation requires us to provide and maintain a safe workplace by providing safe systems of work, safety equipment and appropriate information, instruction, training and supervision. In recognition of the specialized nature of mining and mining activities, specific occupational health and safety obligations have been mandated under state legislation specific to the coal mining industry. There are some differences in the application and detail of the laws, and mining operators, directors, officers and certain other employees are all subject to the obligations under this legislation.
Beginning in 2015, a small number of coal mine workers in Queensland and New South Wales were diagnosed with coal workers’ pneumoconiosis (CWP, also known as black lung) following decades of assumed eradication of the disease. The Queensland government held a Parliamentary inquiry into the re-emergence of CWP in the state, which included public hearings with appearances by representatives of the coal mining industry, coal mine workers, the regulator and others. The Queensland Parliamentary Committee conducting the inquiry issued its final report on May 29, 2017. In finding that it is highly unlikely CWP was ever eradicated in Queensland, the Committee made 68 recommendations to ensure the safety and health of coal mine workers. These include an immediate reduction to the occupational exposure limit for respirable coal dust equivalent to 1.5 mg/m3 for coal dust and 0.05 mg/m3 for silica and the establishment of a new and independent Mine Safety Authority to be funded by a dedicated proportion of coal and mineral royalties and overseeing the Mines Safety Inspectorate. The Queensland government has instituted increased reporting requirements for dust monitoring results, broader coal mine worker health assessment requirements and voluntary retirement examinations for coal mine workers to be arranged by the relevant employer and further reform may follow.
Safe Work Australia (SWA) is currently reviewing the Workplace Exposure Standards (WES) for all airborne contaminants including welding fumes and diesel particulate matter and giving priority to the WES for coal dust and silica. TheIn March 2020, SWA paused the release and public consultation for the WES review is expected to continue until June 2020.further notice. SWA’s draft evaluation reports will include recommendations for exposure limits. The exposure limits recommended by SWA are based on toxicological information and other monitoring data. SWA have recommended exposure limits of 1.5 mg/m3 for coal dust and 0.05 mg/m3 for silica.
Since August 2017, the Workers’ Compensation and Rehabilitation Act 2003 provides for a medical examination process for retired or former coal workers with suspected CWP and an additional lump sum compensation for workers with CWP, and additionally clarifies that a worker with CWP can access further workers’ compensation entitlements if they experience disease progression.
In October 2018 the Queensland government passed the Mines Legislation (Resources Safety) Amendment Act 2018, which introduces significant changes to the Coal Mining Safety and Health Act 1999 concerning, among other things, duties of officers, reporting requirements for coal mine worker diseases, reporting defects and hazards affecting plant and substances, contractor and service provider safety and health management plans, new powers to suspend or cancel an individual’s statutory certificate of competency and increasing penalties and inspector powers.
Following the re-identification of coal workers’ pneumoconiosis and six mining and quarrying fatalities that occurred over a 12-month period, the Resources Safety and Health Queensland Bill 2019 was introduced into Queensland Parliament in September 2019, was passed into law in March 2020 and will take effectbecame effective on July 1, 2020. It establishes Resources Safety and Health Queensland (RSHQ) as a statutory body designed to ensure independence of the mining safety and health regulator. RSHQ will include inspectorates for coal mines, mineral mines and quarries, explosives and petroleum and gas. The new laws seek to enhance the role of advisory committees to identify, quantify and prioritize safety and health issues in the mining and quarrying industries. It also provides for an independent Work Health and Safety Prosecutor to prosecute serious offenses under resources safety legislation.
In FebruaryOn May 20, 2020, the Queensland government introduced into Parliament passed a bill to introduceinto law that introduces the criminal offense of ‘industrial manslaughter’ for executive officers, individuals who are “senior officers” and companies in the mining industry. Individuals wouldnow face a maximum prison sentence of 20 years and companies could be fined up to approximately $13 million Australian dollars. The billnew law also introduces the requirement for statutory role holders to be employees of the coal mine operator entity with a 12-monthan 18-month transition period.period ending November 25, 2021. The bill is currently under review by a Parliamentary Committee.new law became effective July 1, 2020.
On June 19, 2020, the Environmental Protection and Other Legislation Amendment Bill 2020 (EPOLA Bill) was introduced into Queensland Parliament. The EPOLA Bill includes the establishment of the Rehabilitation Commissioner as an independent statutory position, which will be responsible for monitoring and reporting on rehabilitation performance and trends across Queensland, as well as amendments to the residual risk framework that aim to ensure that any remaining risks on former resource sites are appropriately identified, costed and managed.
Sydney Water Catchment Areas. In November 2017, the New South Wales government established an independent expert panel (Panel) to advise the Department of Planning, Industry and Environment (DPIE) on the impact of underground mining activities in Sydney’s water catchment areas, including at our Metropolitan Mine. The Panel issued an initial report to DPIE in November 2018, which was publicly released in December 2018 and only concerned mining activities at two mines, our Metropolitan Mine and a competitor’s Dendrobium Mine. After consultation with stakeholders, including Peabody, aits final report was released in October 2019. The final report updates and finalizes the initial report and also makes findings and recommendations concerning mining activities and effects across the catchment as a whole.
The Panel’s reports acknowledge the major effort at the Metropolitan and Dendrobium Mines over the last decade to employ best practice modeling and assessment methods undertaken by suitable specialists, with expert peer review while recommending continued rigorous monitoring and impact assessment in order to build on the knowledge base regarding mining-induced subsidence and its impacts on groundwater and surface water. The reports endorse the government taking an incremental approach to mining approvals that provides for considering existing and emerging information and knowledge gaps. The Panel concluded in the final report that the average daily water inflow over the last three years at the Metropolitan Mine is generally less than 0.2 megaliters per day and shows no evidence of connected fracture regime to surface or correlation with rainfall. It also concluded that the potential for water to be diverted out of Woronora Reservoir and into other catchments through valley closure shear planes and geological structures will require careful assessment in the future because it is planned that most of the remaining longwall panels in the approved mining area will pass beneath the reservoir. A range of matters remain to beDPIE considered by the Panel, including the cumulative impacts of flow losses and the relative significance of these for water supplies as well as the practicalities associated with establishing a robust regional water balance model.
The DPIE will now consider the recommendations in the Panel’s final report and has saidin April 2020 announced that it had accepted all 50 recommendations in the meantime noPanel’s report, and that it has established an interagency taskforce to implement a detailed action plan during 2020. The action plan includes: ensuring there is a net gain for the metropolitan water supply by requiring more offsetting from mining companies; establishing a new developmentindependent expert panel to advise on future mining applications forin the catchment; strengthening surface and groundwater monitoring; improving access to and transparency of environmental data; adopting a more stringent approach to the assessment and conditioning of future mining proposals to minimize subsidence impacts; reviewing and updating current and potential future water losses from mining in the catchment will be determined. We do not currently have any such applications awaiting determination. In March 2020 the DPIE approved the extraction plans for longwalls 305-307. We continue to conduct robust monitoring, data collection and reporting and have been actively consultingline with the governmentbest available science; introducing a licensing regime to properly account for any water losses; and undertaking further research into mine closure planning to reduce potential long-term impacts.
Queensland Royalties. As part of the Queensland Government’s 2019-20 Budget, the Government committed to freeze royalty rates on Metropolitan’s approval processescoal and mine designminerals for three years, provided companies voluntarily contribute to ensure that operational impacts are appropriately manageda Resource Community Infrastructure Fund (the Fund) over this three-year period. The Government contributes $30 million Australian dollars towards the Fund, with companies voluntarily contributing $70 million Australian dollars. Peabody’s contribution to the Fund is approximately $750,000 Australian dollars for the first year and minimized as far as possible.is expected to decrease in years two and three based on an expected reduction in production at our Queensland mines.
Liquidity and Capital Resources
Overview
Our primary source of cash is proceeds from the sale of our coal production to customers. We have also generated cash from the sale of non-strategic assets, including coal reserves and surface lands, borrowings under our credit facilities and, from time to time, the issuance of securities. Our primary uses of cash include the cash costs of coal production, capital expenditures, coal reserve lease and royalty payments, debt service costs, capital and operating lease payments, postretirement plans, take-or-pay obligations, post-mining reclamation obligations, and selling and administrative expenses. We have also used cash for dividends, share repurchases and early debt retirements. We believe that our capital structure allows us to satisfy our working capital requirements and fund capital expenditures and debt-service obligations with cash generated from operations and cash on hand.
Any future determinations to return capital to stockholders, such as dividends or share repurchases will be at the discretion of our Board of Directors and will depend on a variety of factors, including the restrictions set forth under our debt agreements, our 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. Our ability to declare dividends, repurchase shares or early retire debt in the future will depend on our future financial performance, which in turn depends on the successful implementation of our 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 our industry, many of which are beyond our control.
Liquidity
As of March 31, 2020, our available liquidity was $1,187.7 million, which was comprised of cash and cash equivalents and availability under our revolver and accounts receivable securitization program as described below. As of March 31,June 30, 2020, our cash balances totaled $682.5$848.5 million, including approximately $603$785 million held by U.S. subsidiaries, $68$33 million held by Australian subsidiaries and the remaining balance held by other foreign subsidiaries in accounts predominantly domiciled in the U.S. A significant majority of the cash held by our 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. On April 3,
Our available liquidity has declined from $1,275.8 million as of December 31, 2019 to $926.1 million as of June 30, 2020. Available liquidity was comprised of cash and cash equivalents of $732.2 million and $848.5 million as of December 31, 2019 and June 30, 2020, we borrowedrespectively, and combined availability under our revolving credit facility and accounts receivable securitization program of $543.6 million and $77.6 million as of December 31, 2019 and June 30, 2020, respectively. We have experienced negative cash flows from operations during the first half of 2020, and results from continuing operations, net of income taxes and Adjusted EBITDA for the six months ended June 30, 2020 declined by $1,850.8 million and $423.9 million, respectively, compared to the corresponding prior year period. During the six months ended June 30, 2020, the combined availability under our revolving credit facility and accounts receivable securitization program decreased as a result of borrowing $300.0 million under our revolving credit facility on April 3, 2020, which is further described below and in Note 12. “Long-term Debt” of the accompanying unaudited condensed consolidated financial statements. This borrowing provides usstatements, an additional $83.0 million of letters of credit issuances, and a $83.0 million decrease in available receivable balances under the accounts receivable securitization program.
While we were in compliance with additional financial flexibilitythe restrictions and covenants under our debt agreements at June 30, 2020, as further described below, there is significant risk that we will not be in lightcompliance with the first lien leverage ratio requirement under our credit agreement in the second half of 2020 without successfully taking mitigating action. Noncompliance with the ratio covenant would constitute a default under the credit agreement, and the revolving lenders could elect to accelerate the maturity of the current uncertaintyrelated indebtedness, and could potentially choose to exercise other rights and remedies under the agreement. Further, our senior secured notes and certain lease agreements contain cross-default provisions which would be activated by a default under the credit agreement, which could result in a similar acceleration of maturity under those obligations.
We believe we could seek to avoid noncompliance by taking certain mitigating actions, such as obtaining a waiver of the global marketsdefault condition, executing an amendment to the credit agreement, or completing asset sales to generate additional liquidity, but can offer no assurance as to the likelihood of success of such actions. If such actions were not successful, we could avoid noncompliance while maintaining operating liquidity beyond twelve months by repaying the amount currently outstanding under our revolving credit facility and related effectsreplacing outstanding letters of credit with cash collateral. Such actions would avoid default on the remaining indebtedness under the credit agreement and cross-default on the senior secured notes and lease agreements as described above, but would have negative impacts to our liquidity. Any of these actions could have an adverse effect on our business resulting from the COVID-19 pandemic. While we do not currently expect to use the proceeds from these borrowings for any near-term liquidity needs, we may use the proceeds for working capital and other general corporate purposes.financial condition, results of operations or cash flows.
Our ability to maintain adequate liquidity depends on the successful operation of our business and appropriate management of operating expenses and capital spending. Our anticipated liquidity needs are highly sensitive to changes in each of these and other factors, including the evolving impact of the COVID-19 pandemic.
At July 31, 2020, our available liquidity was approximately $822 million. The decrease subsequent to June 30, 2020 was driven by a reduction in cash and cash equivalent balances and changes in availability under our accounts receivable securitization program and revolving credit facility, including the issuance of an additional $53.2 million of letters of credit. Also during July 2020, we issued a bank guarantee for $50 million Australian dollars as a performance guarantee in favor of the largest customer of our Seaborne Thermal Mining segment. Under the terms of our coal supply agreement, which is sourced from our Wilpinjong Mine, that customer may unilaterally demand such a guarantee at any time. The coal supply agreement and an associated step-in deed also require us to maintain compliance with certain covenants and restrictions. In the event of noncompliance, the customer may exercise contractual step-in rights to appoint a receiver to operate the mine within the parameters of the coal supply agreement and step-in deed. As of August 7, 2020, we were in compliance with the terms of these contractual arrangements.
Debt Financing
As described in Note 12. “Long-term Debt” of the accompanying unaudited condensed consolidated financial statements, during 2017, we entered into an indenture related to the issuance of $500.0 million of 6.000% senior secured notes due March 2022 and $500.0 million of 6.375% senior secured notes due March 2025. We make semi-annual interest payments on the senior notes each March 31 and September 30 until maturity. Also during 2017, we entered into a credit agreement and related term loan under which we originally borrowed $950.0 million and have repaid $558.0$559.0 million through March 31, 2020.June 30, 2020. The term loan requires quarterly principal payments of $1.0 million and periodic interest payments, currently at LIBOR plus 2.75%, through December 2024 with the remaining balance due in March 2025.
We also entered into athe revolving credit facility allowable under our credit agreement during 2017 for an aggregate commitment of $350.0 million for general corporate purposes. In September 2019, we entered into an amendment to the credit agreement which increased the aggregate commitment amount under the revolver to $565.0 million and, beginning in 2020, made applicable interest rates and fees dependent upon our periodically-determined first lien leverage ratio, as defined in the credit agreement. To date, we have utilized this revolving credit facility for the $300.0 million borrowing described above and for letters of credit which incur combined fees of 3.125%, while unused capacity bears a commitment fee of 0.4%. As of March 31,June 30, 2020, such letters of credit amounted to $72.6$197.9 million and were primarily in support of our reclamation obligations.At June 30, 2020, the remaining availability under the revolving credit facility was $67.1 million.
Our debt agreements impose various restrictions and limits on certain categories of payments that we may make, such as those for dividends, investments, and stock repurchases. We are also subject to customary affirmative and negative covenants.covenants, such as the first lien leverage ratio requirement described above. We were in compliance with all such restrictions and covenants at March 31,June 30, 2020.
As described in the “Overview” section contained within this Item 2, the September 2019 amendment to our credit facility made the formation of the PRB Colorado joint venture with Arch expressly permissible. We are currently considering various alternatives for implementing the joint venture in accordance with the terms of the indenture governing our senior secured notes. Our ability to accomplish this objective is subject to market conditions and other factors, including financing options that may be available to us from time to time and conditions in the credit and debt capital markets generally.
Accounts Receivable Securitization Program
As described in Note 17. “Financial Instruments and Other Guarantees” of the accompanying unaudited condensed consolidated financial statements, we entered into an amended accounts receivable securitization program during 2017 which currently expires in 2022. The program provides for up to $250.0 million in funding, limited to the availability of eligible receivables, accounted for as a secured borrowing. Funding capacity under the program may also be provided for letters of credit in support of other obligations. At March 31,June 30, 2020, we had no outstanding borrowings and $132.7$84.2 million of letters of credit provided under the program. The letters of credit are primarily in support of portions of our obligations for reclamation, workers’ compensation and postretirement benefits. Availability under the program, which is adjusted for certain ineligible receivables, was $12.8$10.5 million at March 31,June 30, 2020 and there was no cash collateral requirement.
Capital Requirements
There were no material changesAs a result of the deferral of certain capital project spending to subsequent periods, we revised our targetedexpected 2020 capital expenditures fromto approximately $200 million during the information previously providedsecond quarter of 2020, as compared to approximately $250 million as disclosed in Item 2.7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019. There were no other material changes to our capital requirements.
Contractual Obligations
There were no material changes to our contractual obligations from the information previously provided in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019, with the exception of our obligations for various short- and long-term take-or-pay arrangements in Australia and the U.S. associated with rail and port commitments for the delivery of coal, including amounts relating to export facilities. Due to changes in the foreign currency exchange rates,extensions to our commercial agreements for rail and port commitments, partially offset by reductions to our near-term commitments related to our North Goonyella Mine, our estimated obligations are expected to be $11.1$5.0 million less for the remainder of 2020 than that provided in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019. For the two-year period 2021 through 2022, andsuch obligations are comparatively reduced by $27.1 million. For the two-year period 2023 through 2024, such obligations are comparatively reduced by $20.4 million and $18.2 million, respectively. For periods thereafter, such obligations are reducedcomparatively increased by $72.6 million.$10.8 million and $158.5 million, respectively.
Historical Cash Flows and Free Cash Flow
The following table summarizes our cash flows for the threesix months ended March 31,June 30, 2020 and 2019, as reported in the accompanying unaudited condensed consolidated financial statements. Free Cash Flow is a financial measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section above for definitions and reconciliations to the most comparable measures under U.S. GAAP.
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
| (Dollars in millions) |
Net cash (used in) provided by operating activities | $ | (4.7 | ) | | $ | 197.6 |
|
Net cash used in investing activities | (37.1 | ) | | (38.1 | ) |
Net cash used in financing activities | (7.9 | ) | | (337.3 | ) |
Net change in cash, cash equivalents and restricted cash | (49.7 | ) | | (177.8 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 732.2 |
| | 1,017.4 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 682.5 |
| | $ | 839.6 |
|
| | | |
Net cash (used in) provided by operating activities | $ | (4.7 | ) | | $ | 197.6 |
|
Net cash used in investing activities | (37.1 | ) | | (38.1 | ) |
Add back: Amount attributable to acquisition of Shoal Creek Mine | — |
| | 2.4 |
|
Free Cash Flow | $ | (41.8 | ) | | $ | 161.9 |
|
| | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2020 | | 2019 |
| (Dollars in millions) | | |
Net cash (used in) provided by operating activities | $ | (53.1) | | | $ | 377.0 | |
Net cash used in investing activities | (115.6) | | | (64.0) | |
Net cash provided by (used in) in financing activities | 285.0 | | | (430.3) | |
Net change in cash, cash equivalents and restricted cash | 116.3 | | | (117.3) | |
Cash, cash equivalents and restricted cash at beginning of period | 732.2 | | | 1,017.4 | |
Cash, cash equivalents and restricted cash at end of period | $ | 848.5 | | | $ | 900.1 | |
| | | |
Net cash (used in) provided by operating activities | $ | (53.1) | | | $ | 377.0 | |
Net cash used in investing activities | (115.6) | | | (64.0) | |
Add back: Amount attributable to acquisition of Shoal Creek Mine | — | | | 2.4 | |
Free Cash Flow | $ | (168.7) | | | $ | 315.4 | |
Operating Activities. The net decrease in net cash (used in) provided by operating activities for the threesix months ended March 31,June 30, 2020 compared to the same period in the prior year was driven by a year-over-year decrease in cash from our mining operations, partially offset by a favorable change in net cash flows associated with our working capital ($127.3 million).
Investing Activities. The increase in net cash used in investing activities for the six months ended June 30, 2020 compared to the same period in the prior year was driven by higher advances to related parties and joint ventures, on a net basis, ($23.0 million) and insurance proceeds attributable to North Goonyella equipment losses in the prior year period ($23.2 million).
Financing Activities. The increase in net cash provided by (used in) financing activities for the six months ended June 30, 2020 compared to the same period in the prior year was driven by the year-over-year decrease in cash from$300.0 million borrowing under our mining operationsrevolving credit facility and an unfavorable change in net cash flows associated with our working capital of $36.1 million.
Investing Activities. Net cash used in investing activities for the three months ended March 31, 2020 was comparable to the same period in the prior year and in both periods was driven by capital expenditures to sustain operations.
Financing Activities. The decrease in net cash used in financing activities for the three months ended March 31, 2020 compared to the same period in the prior year was driven the prior year period payment of dividends of $214.4$229.3 million, including a supplemental dividend of $1.85 per share of common stock, and common stock repurchases of $98.8$156.0 million. We have presently suspended such payments, as discussed in Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds.”
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to various guarantees and financial instruments that carry off-balance-sheet risk and are not reflected in the accompanying condensed consolidated balance sheets. At March 31,June 30, 2020, such instruments included $1,557.4included $1,589.4 million of surety bonds and $206.8$283.6 million of letters of credit. These financial instruments provide support for our reclamation bonding requirements, lease obligations, insuranceinsurance policies and various other performance guarantees. We periodically evaluate the instruments for on-balance-sheet treatment based on the amount of exposure under the instrument and the likelihood of required performance. We do not expect any material losses to result from these guarantees or off-balance-sheet instruments in excess of liabilities provided for in our condensed consolidated balance sheets.
We could experience a decline in our liquidity as financial assurances associated with reclamation bonding requirements, surety bonds or other obligations are required to be collateralized by cash or letters of credit. Our surety providers have the ability to demand collateral up to the full amount of each surety bond.
As described in Note 17. “Financial Instruments and Other Guarantees” in the accompanying unaudited condensed consolidated financial statements, we are required to provide various forms of financial assurance in support of our mining reclamation obligations in the jurisdictions in which we operate. Such requirements are typically established by statute or under mining permits. Historically, such assurances have taken the form of third-party instruments such as surety bonds, bank guarantees and letters of credit, as well as self-bonding arrangements in the U.S. We have shifted away from extensive self-bondingSelf-bonding in the U.S. has become increasingly restricted in favor of recent years, leading to our increased usage of surety bonds and similar third-party instruments. This change in practice has had an unfavorable impact on our liquidity due to increased collateral requirements and surety and related fees.
At March 31,June 30, 2020, we had total asset retirement obligations of $758.7$757.5 million which were backed by a combination of surety bonds and letters of credit.
Bonding requirement amounts may differ significantly from the relatedrelated asset retirement obligation because such requirements are calculated under the assumption that reclamation begins currently, whereas our accounting liabilities are discounted from the end of a mine’s economic life (when final reclamation work would begin) to the balance sheet date.
Guarantees and Other Financial Instruments with Off-Balance Sheet Risk. See Note 17. “Financial Instruments and Other Guarantees” in our unaudited condensed consolidated financial statements for a discussion of our accounts receivable securitization program and guarantees and other financial instruments with off-balance sheet risk.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based upon our financial statements, which have been prepared in accordance with U.S. GAAP. We are also required under U.S. GAAP to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that we believe 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.
We recognized an asset impairment charge of $1,418.1 million during the three and six months ended June 30, 2020 related to our North Antelope Rochelle Mine of the Powder River Basin Mining segment. The outlook for the mine has been negatively impacted by the accelerated decline of coal-fired electricity generation in the U.S., driven by the reduced utilization of plants and plant retirements, sustained low natural gas pricing, and the increased use of renewable energy sources. These factors have led to the expectation of reduced future sales volumes. The impairment charge was based upon the remaining estimated discounted cash flows of the mine. Such cash flows were based upon estimates which generally constitute unobservable Level 3 inputs under the fair value hierarchy, including, but not limited to, future tons sold, coal prices for unpriced coal, production costs (including costs for labor, commodity supplies and contractors), transportation costs, and a risk-adjusted, cost of capital.
At March 31,June 30, 2020, we havealso identified certain assets with an aggregate carrying value of approximately $2.1 billion$850 million in our Seaborne Metallurgical Mining, Powder River Basin Mining, Other U.S. Thermal Mining and Corporate and Other segments whose recoverability is most sensitive to coal pricing, cost pressures, customer demand and customer concentration risk. We conducted a review of those assets for recoverability as of March 31,June 30, 2020 and determined that no further impairment charges were necessary as of that date.
See Note 9. “Property, Plant, Equipment and Mine Development” to our accompanying unaudited condensed consolidated financial statements for additional information regarding impairment charges.
Our critical accounting policies are discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019. Our critical accounting policies remain unchanged at March 31,June 30, 2020.
Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented
See Note 2. “Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented” to our unaudited condensed consolidated financial statements for a discussion of newly adopted accounting standards and accounting standards not yet implemented.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Risk
We have historically utilized currency forwards and options to hedge currency risk associated with anticipated Australian dollar expenditures. The accounting for these derivatives is discussed in Note 7. “Derivatives and Fair Value Measurements” to the accompanying unaudited condensed consolidated financial statements. As of March 31,June 30, 2020, the Company had currency options outstanding with an aggregate notional amount of $550.0$613.0 million Australian dollars to hedge currency risk associated with anticipated Australian dollar expenditures over the six-month period ending September 30,December 31, 2020. Assuming we had no foreign currency hedging instruments in place, our exposure in operating costs and expenses due to a $0.10 change in the Australian dollar/U.S. dollar exchange rate is approximately $145 to $155$125 million for the next twelve months. Based upon the Australian dollar/U.S. dollar exchange rate at March 31,June 30, 2020, the currency option contracts outstanding at that date would not materially limit our net exposure to a $0.10 unfavorable change in the exchange rate to approximately $95 million for the next twelve months.
Other Non-Coal Trading Activities — Diesel Fuel Price Risk
Diesel Fuel Hedges. Previously, we managed price risk of the diesel fuel used in our mining activities through the use of derivatives, primarily swaps. As of March 31,June 30, 2020, we did not have any diesel fuel derivative instruments in place. We also manage the price risk of diesel fuel through the use of cost pass-through contacts with certain customers.
We expect to consume 10085 to 11095 million gallons of diesel fuel during the next twelve months. A $10 per barrel change in the price of crude oil (the primary component of a refined diesel fuel product) would increase or decrease our annual diesel fuel costs by approximately $25$20 million based on our expected usage.
Item 4. Controls and Procedures.
Our disclosure controls and procedures are designed to, among other things, provide reasonable assurance that material information, both financial and non-financial, and other information required under the securities laws to be disclosed is accumulated and communicated to senior management, including our principal executive and financial officers, on a timely basis. Our Chief Executive Officer and Interim Chief Financial Officer have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of March 31,June 30, 2020, and concluded that such controls and procedures are effective to provide reasonable assurance that the desired control objectives were achieved. Additionally, there have been no changes to our internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are subject to various legal and regulatory proceedings. For a description of our significant legal proceedings refer to Note 4. “Discontinued Operations” and Note 18. “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements” of this Quarterly Report, which information is incorporated by reference herein.
Item 1A. Risk Factors.
We operate in a rapidly changing environment that involves a number of risks. In addition to the risks discussed below, for information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors disclosed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020. In addition to the other information set forth in this Quarterly Report, including the information presented in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” you should carefully consider those risk factors disclosed in the aforementioned filing, which could materially affect the Company’s results of operations, financial condition and liquidity.
Our business, results of operations, financial condition and prospects could be materially and adversely affected by the recent COVID-19 pandemic and the related effects on public health, or by other global events.health.
Our operations are susceptible to a widespread outbreakoutbreaks of an illness or other public health issue,issues, such as the recent and continuing global COVID-19 pandemic. The COVID-19 pandemic resulting in confirmed cases across the United States, Australia and China, and many additional cases identified in other countries in which we conduct business, or our customers are located. We are also susceptible to other global events, including acts or threats of war or terrorism, international conflicts, political instability and natural disasters. The occurrence of any of these events could have a material adverse effect on our business, results of operations, financial condition and prospects, including our ability to comply with covenants under our debt agreements.
The COVID-19 pandemic has caused governments around the world, including in the United States and Australia, to implement quarantines, travel bans, shutdowns and “shelter in place” or “stay-at-home” orders, which have significantly restricted the movement of people and goods and have periodically necessitated teleworking by a significant portion of our workforce, including our executive leadership team.workforce. These restrictions and measures, and our efforts to act in the best interests of our employees, customers, suppliers, vendors and joint venture and other business partners, have affected and are continuing to affect our business and operations, causing us to modify a number of our normal business practices and may adversely affect our business, financial condition and results of operations in ways that may be material.
Governmental mandates also may require forced shutdowns of our mines and other facilities for extended or indefinite periods. In addition, the COVID-19 pandemic may cause supply chains to be interrupted, slowed or rendered inoperable, and widespread outbreaks in locations significant to our operations could adversely affect our workforce, resulting in serious health issues and absenteeism. If our operations are curtailed, we may need to seek alternate sources of supply for commodities, services and labor, which may be more expensive. Alternate sources may not be available or may result in delays in shipments to our customers, each of which would affect our results of operations. Further, if our customers’ businesses are similarly affected, they might delay, reduce or cancel purchases from us.
In addition, the COVID-19 pandemic has substantially interfered with general commercial activity related to the transportation of coal and our customer base, which could materially and adversely affect our business, financial condition, results of operations, business and prospects. The continuing spread of COVID-19 has contributed to adverse changes in general domestic and global economic conditions and disrupted domestic and international credit markets, which could negatively affect our customers’ ability to pay us as well as our ability to access capital that could in the future negatively affect our liquidity.
Within the global coal industry, supply and demand disruptions resulting from the COVID-19 pandemic have been widespread and have adversely impacted us and our customers. With respect to seaborne metallurgical coal, global steel production decreased approximately 6% through the six months ended June 30, 2020 compared to the prior year period, as the COVID-19 pandemic continued to have significant impacts on steel demand. Steel demand deterioration has caused producers, including Peabody customers, to idle capacity and restrict output, which has pressured seaborne metallurgical coal demand. This deterioration could continue given ongoing effects from the COVID-19 pandemic on economic conditions in key demand centers. Seaborne thermal coal demand continues to be impacted by the COVID-19 induced reduction in overall electricity generation, along with competition from alternative fuel sources and low gas prices. In the United States, overall electricity demand has been negatively impacted year-over-year due to the COVID-19 induced economic shutdowns through the six months ended June 30, 2020.
Despite our efforts to manage these realized and potential impacts, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of the COVID-19 pandemic as well as third-party actions taken to contain its spread and mitigate its public health effects. In this regard,While the ultimate impacts of the COVID-19 pandemic on our business are unknown, we expect continued interference with general commercial activity, which may further negatively affect both demand and prices for our products. We also face disruption to supply chain and distribution channels, potentially increasing costs of production, storage and distribution, and potential adverse effects to our workforce, each of which could have a material adverse effect on our business, financial condition or results of operations.
Since there are no comparable recent events that provide guidance as toregarding the effect of the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change andchange. As a result, we do not yet know the full extent of the impacts on our business, financial condition, results of operations and prospects, or the global economy as a whole. However, in addition to potentially having a material adverse effect on our business, results of operations, financial condition and prospects, the effects could heighten many of our known risks described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020.
The terms of our indenture governing our senior secured notes and the agreements and instruments governing our other indebtedness impose restrictions that may limit our operating and financial flexibility.
The indenture governing our senior secured notes and the agreements governing our other indebtedness contain certain restrictions and covenants which restrict our ability to incur liens and/or debt or provide guarantees in respect of obligations of any other person and other restrictions, all of which could adversely affect our ability to operate our business, as well as significantly affect our liquidity, and therefore could adversely affect our results of operations. Our credit facility also contains a mandatory prepayment provision providing that certain amounts of excess cash flow (as defined in the agreements governing the facility) must be utilized to make payments on the outstanding balance under that facility.
These covenants limit, among other things, our ability to:
◦incur additional indebtedness;
◦pay dividends on or make distributions in respect of stock or make certain other restricted payments or investments;
◦enter into agreements that restrict distributions from certain subsidiaries;
◦sell or otherwise dispose of assets;
◦enter into transactions with affiliates;
◦create or incur liens;
◦merge, consolidate or sell all or substantially all of our assets; and
◦place restrictions on the ability of subsidiaries to pay dividends or make other payments to us.
Our ability to comply with these covenants may be affected by events beyond our control and we may need to refinance existing debt in the future. A breach of any of these covenants together with the expiration of any cure period, if applicable, could result in a default under our senior secured notes. If any such default occurs, subject to applicable grace periods, the holder of our senior secured notes may elect to declare all outstanding senior secured notes, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. If the obligations under our senior secured notes were to be accelerated, our financial resources may be insufficient to repay the notes and any other indebtedness becoming due in full.
In addition, if we breach the covenants in the indentures governing the senior secured notes and do not cure such breach within the applicable time periods specified therein, we would cause an event of default under the indenture governing the senior secured notes and a cross-default to certain of our other indebtedness and the lenders or holders thereunder could accelerate their obligations. If our indebtedness is accelerated, we may not be able to repay our indebtedness or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. If our indebtedness is in default for any reason, our business, financial condition and results of operations could be materially and adversely affected. In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies who are not subject to such restrictions.
We have experienced negative cash flows from operations during the first half of 2020. Results from continuing operations, net of income taxes and Adjusted EBITDA for the six months ended June 30, 2020 declined by $1,850.8 million and $423.9 million, respectively, compared to the corresponding prior year period. The Company’s available liquidity declined from $1,275.8 million as of December 31, 2019 to $926.1 million as of June 30, 2020. Available liquidity was comprised of cash and cash equivalents of $732.2 million and $848.5 million as of December 31, 2019 and June 30, 2020, respectively, and combined availability under the Company’s revolving credit facility and accounts receivable securitization program of $543.6 million and $77.6 million as of December 31, 2019 and June 30, 2020, respectively. During the six months ended June 30, 2020, the combined availability under the Company’s revolving credit facility and accounts receivable securitization program decreased as a result of a $300.0 million borrowing under our revolving credit facility, an additional $83.0 million of letters of credit issuances, and a $83.0 million decrease in available receivables under the accounts receivable securitization program.
There is significant risk that we will not be in compliance with the first lien leverage ratio requirement under our credit agreement in the second half of 2020 without successfully taking mitigating action. Noncompliance with the ratio covenant would constitute a default under the credit agreement, and the revolving lenders could elect to accelerate the maturity of the related indebtedness, and could potentially choose to exercise other rights and remedies under the agreement. Further, our senior secured notes and certain lease agreements contain cross-default provisions which would be activated by a default under the credit agreement, which could result in a similar acceleration of maturity under those obligations.
We believe we could seek to avoid noncompliance by taking certain mitigating actions, such as obtaining a waiver of the default condition, executing an amendment to the credit agreement, or completing asset sales to generate additional liquidity, but can offer no assurance as to the likelihood of success of such actions. If such actions were not successful, we could avoid noncompliance while maintaining operating liquidity beyond twelve months by repaying the amount currently outstanding under our revolving credit facility and replacing outstanding letters of credit with cash collateral. Such actions would avoid default on the remaining indebtedness under the credit agreement and cross-default on the senior secured notes and lease agreements as described above, but would have negative impacts to our liquidity. Any of these actions could have an adverse effect on our financial condition, results of operations or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Share Repurchase Program
Our Board of Directors haspreviously authorized a share repurchase program, as amended, to allow repurchases of up to $1.5 billion of the outstanding shares of our common stock and/or preferred stock (Repurchase Program). RepurchasesWhile we suspended share repurchases in 2019 and no additional repurchases are planned, repurchases may be made from time to time in the future at the Company’s discretion. The specific timing, price and size of purchases will depend on the share price, general market and economic conditions and other considerations, including compliance with various debt agreements as they may be amended from time to time. The Repurchase Program does not have an expiration date and may be discontinued at any time. Through March 31,June 30, 2020, we have repurchased 41.5 million shares of our common stock for $1,340.3$1,340.3 million, which included commissions paid of $0.8$0.8 million, leaving $160.5$160.5 million available for share repurchase under the Repurchase Program. The purchases were made in compliance with our debt instruments. Limitations on share repurchases imposed by our debt instruments are discussed in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We suspended share repurchases in 2019 and no additional repurchases are planned.
Share Relinquishments
We routinely allow employees to relinquish common stock to pay estimated taxes upon the vesting of restricted stock units and the payout of performance units that are settled in common stock under our equity incentive plans. The value of common stock tendered by employees is determined based on the closing price of our common stock on the dates of the respective relinquishments.
Purchases of Equity Securities
The following table summarizes all share purchases for the three months ended March 31,June 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Dollar Value that May Yet Be Used to Repurchase Shares Under the Publicly Announced Program (In millions) |
April 1 through April 30, 2020 | | 272,157 | | | $ | 3.01 | | | — | | | $ | 160.5 | |
May 1 through May 31, 2020 | | — | | | — | | | — | | | 160.5 | |
June 1 through June 30, 2020 | | — | | | — | | | — | | | 160.5 | |
Total | | 272,157 | | | 3.01 | | | — | | | |
|
| | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Dollar Value that May Yet Be Used to Repurchase Shares Under the Publicly Announced Program (In millions) |
January 1 through January 31, 2020 | | 46,872 |
| | $ | 9.99 |
| | — |
| | $ | 160.5 |
|
February 1 through February 29, 2020 | | 34,147 |
| | 8.26 |
| | — |
| | 160.5 |
|
March 1 through March 31, 2020 | | 6,563 |
| | 2.90 |
| | — |
| | 160.5 |
|
Total | | 87,582 |
| | 8.79 |
| | — |
| | |
| |
(1)(1)Includes shares withheld to cover the withholding taxes upon the vesting of equity awards, which are not part of the Repurchase Program.
| Includes shares withheld to cover the withholding taxes upon the vesting of equity awards, which are not part of the Repurchase Program. |
Dividends
The payment of dividends is subject to certain limitations, as set forth in our debt agreements. Such limitations on dividends are discussed in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We are suspendinghave suspended dividends in 2020 and our Board of Directors will continue to evaluate the declaration and payment of dividends in the future. The amount of those dividends, if any, will depend on our results of operations, financial condition, cash requirements, future prospects, any limitations imposed by our debt covenants and other factors that our Board of Directors may deem relevant to such evaluations.
Item 4. Mine Safety Disclosures.
Our “Safety a Way of Lifeand Sustainability Management System” has been designed to set clear and consistent expectations for safety, health and healthenvironmental stewardship across our business. It aligns to the National Mining Association’s CORESafety® framework and encompasses three fundamental areas: leadership and organization, safety and health risk management and assurance. We also partner with other companies and certain governmental agencies to pursue new technologies that have the potential to improve our safety performance and provide better safety protection for employees.
We continually monitor our safety performance and regulatory compliance. The information concerning mine safety violations or other regulatory matters required by SEC regulations is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
Item 6. Exhibits.
See Exhibit Index at page 5867 of this report.
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.
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Exhibit No. | | Description of Exhibit |
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Exhibit No.10.1*† | | Description |
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10.110.2† | | Sixth Amendment to the Sixth Amended and Restated Receivables Purchase Agreement, dated as of FebruaryJune 30, 2020, by and among P&L Receivables Company, LLC, Peabody Energy Corporation, all Committed Purchasers listed on the signature pages thereto, all Purchaser Agents listed on the signature pages thereto, all LC Participants listed on the signature pages thereto, and PNC Bank, National Association, as Administrator and as LC Bank. |
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10.3† | | |
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10.4† | | |
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10.2†31.1† | | |
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10.3† | | |
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10.4† | | |
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10.5† | | |
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31.1† | | |
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31.2† | | |
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32.1† | | |
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32.2† | | |
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95† | | |
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101.INS | | Inline XBRL Instance Document - the instance document does not appear in the interactive data file because XBRL tags are embedded within the Inline XBRL document |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
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* | | These exhibits constitute all management contracts, compensatory plans and arrangements required to be filed as an exhibit to this form pursuant to Item 15(a)(3) and 15(b) of this report. |
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† | | Filed herewith. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | | | | | | | | | | |
| | | PEABODY ENERGY CORPORATION | |
Date: | May 6,August 7, 2020 | By: | By: | /s/ MARK A. SPURBECK |
| | | | Mark A. Spurbeck |
| | | | InterimExecutive Vice President and Chief Financial Officer
(On behalf of the registrant and as Principal Financial Officer)
|