Peabody Energy Corporation — Q3 2015 Form 10-Q
Business context and period. The filing covers the three and nine months ended September 30, 2015, compared with the same 2014 periods. Peabody mines and sells thermal and metallurgical coal in the United States and Australia, and also conducts coal trading and brokerage. All financial amounts below are in U.S. dollars unless noted.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $1,418.9 million | $1,722.9 million | $4,296.1 million | $5,107.7 million |
| Operating profit (loss) | ($20.4 million) | $36.2 million | ($994.0 million) | $71.9 million |
| Loss from continuing operations, after tax | ($144.4 million) | ($154.0 million) | ($1,316.0 million) | ($270.3 million) |
| Net loss attributable to common stockholders | ($304.7 million) | ($150.6 million) | ($1,526.6 million) | ($272.4 million) |
| Adjusted EBITDA | $129.0 million | $216.3 million | $381.6 million | $606.3 million |
| Net loss per share attributable to common stockholders | ($16.73) | ($8.44) | ($84.23) | ($15.29) |
For the nine months, operating cash flow was negative $90.6 million, versus positive $250.1 million in 2014. Investing cash outflow was $146.3 million; financing provided $273.2 million. Cash was $334.3 million at September 30, 2015, compared with $298.0 million at year-end 2014.
Total debt was $6.302 billion, up from $5.987 billion at December 31, 2014. Current assets were $1.554 billion and current liabilities $1.516 billion. Management reported available liquidity of approximately $1.8 billion at September 30, comprising $1.4 billion of revolver capacity, $334.3 million cash and $48.2 million securitization capacity. By November 5, available liquidity had fallen to $1.4 billion, principally following federal coal lease expenditures and additional letters of credit.
Material changes and operating trends
- Revenue declined 18% in Q3 and 16% for the nine months, reflecting lower realized coal prices and reduced sales volumes. Total tons sold fell 7% in Q3 and 8% year to date.
- Management cited weak global coal demand, excess seaborne supply, declining steel production and Chinese import reductions. In the U.S., coal-fired generation fell 6% in Q3 and 12% year to date, with low natural-gas prices, mild weather and production disruptions contributing.
- Nine-month Adjusted EBITDA decreased $224.7 million year over year. Segment Adjusted EBITDA increased 4% to $903.1 million, but Corporate and Other Adjusted EBITDA worsened to negative $521.5 million, including adverse corporate hedging results.
- The company recorded $900.8 million of impairment charges in the first half of 2015, including impairments of Australian mining assets and equity-method investments. It also recorded $67.8 million of debt-extinguishment losses related to refinancing its 2016 notes.
- A 1-for-15 reverse stock split took effect September 30, 2015; share and per-share figures in the filing are restated. The quarterly dividend was suspended beginning in Q3 to preserve cash.
Outlook, risks and unusual items
- 2015 targets: U.S. sales volumes of 175–185 million tons, fully priced as of September 30; Australian sales of 35–36 million tons. Management expected 2015 U.S. realized pricing per ton to decrease 5%–7% year over year. 2016 production was expected to be modestly below 2015 targets, with approximately 15% unpriced.
- 2015 capital spending guidance was reduced to $140–$150 million from $160–$170 million. Federal coal lease expenditures were expected to total approximately $280 million for 2015. Management expected per-ton operating costs to decline in both the U.S. and Australia.
- Management said cash and other available liquidity should meet anticipated capital requirements through the remainder of 2015 and 2016, conditional in part on retaining substantial access to the revolver. It warned that weak markets could cause further operating cash outflows and that collateral demands, self-bonding constraints, refinancing access and the April 2016 expiration of the receivables securitization program could pressure liquidity.
- Patriot bankruptcy exposure: Peabody recorded charges for Patriot-related black-lung and Combined Fund obligations, credit support and other matters. It recorded $126.0 million for black-lung liabilities and $29.1 million for Combined Fund liabilities; management estimated related annual cash costs of $10–$15 million and $2–$3 million, respectively. The company disputed a $644.2 million withdrawal-liability assessment issued October 29, 2015, and stated it expected the matter to proceed through review and arbitration. It also disputed whether it must make the remaining $145 million of planned VEBA payments.
- Other contingencies: An Australian court upheld a ruling requiring a potential Wilkie Creek port-services agreement, which could entail annual minimum payments of about A$11.8 million through 2026; the company had recorded a $7.6 million charge and said further exposure was reasonably possible. The amount and timing of any additional loss were uncertain.
- Risks include sustained low coal prices and demand, customer and counterparty credit, high leverage and covenant headroom, increased collateral requirements, reclamation and pension obligations, and changes in environmental regulation. Management noted that the U.S. Clean Power Plan could materially affect future coal demand and company results; legal challenges were pending.
Important facts for investors to verify
- Updated liquidity, revolver availability, letters of credit and collateral requirements after the reported November 5 liquidity figure.
- Progress and potential payment timing for the $644.2 million UMWA Pension Plan assessment, Patriot-related credit support, black-lung and Combined Fund obligations, and the disputed VEBA payments.
- Coal-price and demand trends, sales volumes, realized pricing, and whether cost reductions can offset continued market weakness.
- Compliance with credit-facility covenants and the company’s ability to renew or replace the receivables securitization program before April 2016.
- Outcome and potential financial impact of the Wilkie Creek port-services dispute and other material legal or regulatory proceedings.