Peabody Energy Corporation — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This is an annual filing, not a standalone Q4 report; quarterly data are summarized below. Peabody operated coal mines in the U.S. and Australia and conducted coal trading and brokerage. Results include Macarthur Coal (PEA-PCI) from its October 2011 acquisition, so year-over-year comparisons are affected by the acquisition.
Financial performance and condition
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Total revenue | $8.08 billion | $7.90 billion |
| Operating profit | $172.5 million | $1.60 billion |
| Continuing-operations net income (loss) | ($470.9 million) | $1.01 billion |
| Net income (loss) attributable to common stockholders | ($585.7 million) | $957.7 million |
| Diluted EPS | ($2.19) | $3.52 |
| Adjusted EBITDA, non-GAAP | $1.84 billion | $2.12 billion |
| Operating cash flow | $1.52 billion | $1.63 billion |
| Cash and cash equivalents, year-end | $558.8 million | $799.1 million |
| Total debt, including capital leases | $6.25 billion | $6.66 billion |
| Available liquidity, year-end | Approximately $2.2 billion | Approximately $2.3 billion |
FY 2012 included $929.0 million of asset impairment and mine-closure costs, including an $806.7 million impairment of three Australian surface mines. Adjusted income from continuing operations was $238.7 million and adjusted diluted EPS was $0.84; both are non-GAAP measures. The reported operating margin fell sharply alongside operating profit; the filing does not present a single headline margin percentage.
Fourth-quarter revenue was $2.02 billion, while operating loss was $722.0 million and continuing-operations net loss was $991.3 million, reflecting $921.3 million of impairment and mine-closure costs. Full-year production from continuing operations was 225.7 million tons; total tons sold, including trading, were 248.5 million.
Material changes versus prior year
- Revenue rose 2.3%, but total Segment Adjusted EBITDA fell 9.4% to $2.32 billion. The Australian segment’s Adjusted EBITDA declined 21.4%, principally due to lower seaborne coal prices and operating challenges; U.S. segments recorded higher Adjusted EBITDA despite lower U.S. sales volumes.
- Australian Mining revenue increased with a full year of PEA-PCI contribution and higher volumes, partly offset by lower realized seaborne prices. Western U.S. tons sold fell 4.8% and Midwestern U.S. tons sold fell 5.8%.
- Interest expense rose to $405.6 million from $238.6 million, and depreciation, depletion and amortization increased to $663.4 million from $474.3 million, reflecting acquisition-related debt and assets.
- Operating cash flow declined 7.2%. Investing cash outflow narrowed substantially from 2011, when the PEA-PCI acquisition was funded; 2012 capital additions were $986.0 million, with $276.5 million of federal coal lease expenditures separately reported.
- Peabody closed Willow Lake in November 2012 for safety, compliance and operating-performance reasons, and ceased production at Air Quality Mine in September due to uneconomic market conditions. Air Quality Mine results are reported as discontinued operations.
Outlook, risks and unusual items
- 2013 targets: U.S. sales volumes of 180–190 million tons, with 90%–95% committed and priced; Australian production of 33–36 million tons; metallurgical coal sales of approximately 15–16 million tons; and Australian thermal exports of 11–12 million tons. Management expected U.S. realized prices per ton to decline 5%–10% from 2012.
- Planned 2013 capital spending was $450–$550 million, about half of 2012 levels, mainly for maintenance and selected late-stage Australian projects. Management stated available liquidity and operating cash flows were expected to cover anticipated capital requirements.
- Management described near-term coal markets as challenging, while maintaining a positive long-term view, particularly for Asia-Pacific demand. Australian costs were expected to increase in 2013 due to mine-operator transitions, production mix and timing, carbon pricing, and higher Queensland royalties.
- Key risks include coal-price and demand volatility, low-cost natural gas competition in the U.S., steel-market weakness, environmental and mine-safety regulation, permitting and operating disruptions, transport constraints, customer and trading-counterparty credit, currency movements, and substantial fixed rail and port take-or-pay commitments.
- Liquidity and obligations warrant attention: the company reported $4.36 billion of take-or-pay obligations, $6.25 billion of debt, $1.03 billion of accumulated postretirement benefit obligations, and $244.9 million of net pension liabilities. The revolving credit facility matures in June 2015; the receivables securitization program was due for renewal in May 2013. Debt covenant limits were amended in November 2012, and Peabody reported compliance at year-end.
- Contingencies include potential exposure of up to $150 million for Patriot-related black-lung liabilities; a Queensland joint-venture lawsuit seeking at least A$1.19 billion, for which the company said a potential loss could not be reasonably estimated; and a $27.4 million Gulf Power award, which Peabody appealed and for which it recorded no liability. The SEC staff subpoenaed the company in January 2013 for information about Prairie State development; Peabody said it was cooperating.
Important facts for investors to verify
- How the $806.7 million Australian mine impairment, its assumptions and any further impairment exposure affect asset values and future results.
- Whether the 2013 volume, pricing and capital-spending targets were achieved, and how much of the planned U.S. and Australian production was actually priced and contracted.
- Liquidity availability after facility and securitization renewals, compliance with amended debt covenants, debt maturities and the capacity to meet take-or-pay commitments.
- Recoverability of tax assets and carryforwards: the filing reports a $521.5 million valuation-allowance increase in 2012 and substantial Australian loss carryforwards.
- Developments in the Patriot, Monto and Gulf Power matters, the SEC Prairie State inquiry, and the company’s reclamation, pension and postretirement obligations.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.