Peabody Energy Corporation (NYSE: BTU) — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. Although the request references 2019 Q4, this filing reports full-year results; quarterly data are noted where relevant. Peabody is a U.S. and Australian coal producer, marketer and trader. The company reported 21 mining operations at year-end, including a 50% interest in Middlemount. Its financial statements use fresh-start accounting following its 2017 Chapter 11 emergence, so periods before emergence are not directly comparable.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $4.623 billion | $5.582 billion | Down $958.4 million (17.2%) |
| Operating profit | $61.7 million | $661.6 million | Down $599.9 million |
| Continuing-operations net income (loss) | $(188.3) million | $645.7 million | Down $834.0 million |
| Net income (loss) attributable to common stockholders | $(211.3) million | $544.4 million | Down $755.7 million |
| Adjusted EBITDA | $837.1 million | $1.379 billion | Down $542.2 million (39.3%) |
| Operating cash flow | $677.4 million | $1.490 billion | Down $812.3 million |
| Free cash flow (company-defined) | $418.5 million | $1.360 billion | Down $941.3 million |
| Cash and cash equivalents at year-end | $732.2 million | $981.9 million | Down $249.7 million |
| Total indebtedness, including finance leases and net of debt issuance costs | $1.311 billion | $1.367 billion | Down $56.2 million |
| Total stockholders’ equity | $2.673 billion | $3.452 billion | Down $779.1 million |
Adjusted EBITDA as a share of revenue was approximately 18.1% in 2019, compared with 24.7% in 2018. These are calculated ratios using the company’s non-GAAP Adjusted EBITDA. Current assets were $1.614 billion and current liabilities were $975.3 million at year-end. Available liquidity was reported as $1.276 billion, including cash and available revolving-credit and receivables-program capacity. The company reported compliance with debt covenants at December 31, 2019.
- Coal production fell to 164.7 million tons from 182.1 million; sales fell to 165.5 million tons from 186.7 million.
- Revenue declines reflected lower volumes and realized prices. Seaborne Metallurgical Adjusted EBITDA fell 68.2% to $140.2 million; Powder River Basin Adjusted EBITDA fell 22.2% to $221.2 million. Western U.S. Adjusted EBITDA increased to $230.7 million, primarily reflecting Kayenta-related commercial negotiations.
- Net income included $270.2 million of asset impairment charges, an $83.2 million North Goonyella equipment-loss provision, a $125.0 million North Goonyella insurance recovery, a $48.1 million United Wambo formation gain, and a $67.4 million net mark-to-market expense on actuarially determined liabilities.
Material changes and business developments
- Revenue and Adjusted EBITDA declined materially year over year, with lower coal prices and sales volumes, weaker U.S. thermal demand, and operational disruption among the principal factors. Severe flooding and rail delays reduced Powder River Basin shipments; North Goonyella remained suspended after its 2018 fire.
- Cottage Grove and Kayenta shipped their final tons in 2019. Wildcat Hills Underground ceased production in December, and Peabody expected final shipments in 2020 from that mine and Somerville Central. Millennium was also scheduled to close in 2020.
- In December 2019, Peabody formed the 50%-owned United Wambo joint venture with Glencore and recognized a $48.1 million gain. The proposed joint venture with Arch to combine Powder River Basin and Colorado operations remained subject to regulatory review and other closing conditions.
- Peabody’s five largest customers represented 33% of coal-supply-agreement revenue. Its sales backlog declined to approximately 327 million tons from 401 million tons a year earlier.
Outlook, risks and contingencies
- 2020 operating outlook: Peabody estimated 2020 Seaborne Thermal sales of 19.2 million tons, including 11.5 million export and 7.7 million domestic tons, and Seaborne Metallurgical sales of 8.3 million tons. Approximately 116 million tons of U.S. thermal coal were priced and committed for 2020, including 96 million tons of Powder River Basin coal. These are estimates, not guarantees.
- Capital spending and shareholder returns: 2020 capital expenditures were targeted at approximately $250 million, including $100 million for Seaborne Thermal extension projects and $150 million of sustaining capital. Peabody said it was suspending dividends in 2020 and had no additional share repurchases planned.
- North Goonyella: The company expected no meaningful production for three or more years and anticipated annual holding costs of about $24 million, excluding $16 million of take-or-pay commitments. It disclosed potential additional charges of up to approximately $300 million if mining does not resume and no acceptable commercial alternative is found. A strategic partner, joint venture or sale were possible outcomes.
- Structural and market risks: Management cited coal-price volatility, competition from natural gas and renewables, U.S. coal-plant retirements, changing steel and electricity demand, customer concentration, shorter contract durations, and climate-related regulation and financing restrictions. The company had $1.067 billion of contractual take-or-pay obligations, with terms extending as long as 23 years.
- Other exposures: Reclamation bonding requirements, permits, environmental and mine-safety regulation, benefit liabilities, litigation, and access to surety bonds and letters of credit could affect costs and liquidity. Total asset retirement obligations were $752.3 million; outstanding surety bonds and letters of credit were $1.610 billion and $200.5 million, respectively.
- The company settled the Monto litigation in 2019; it said the settlement was not expected to materially affect its accounts. A separate climate-related lawsuit brought by California municipalities remained in litigation. The filing also describes ongoing regulatory and permitting uncertainties.
Most important facts for investors to verify
- Whether 2020 sales volumes, realized coal prices and mine-level costs support a recovery in cash flow and Adjusted EBITDA.
- Progress, regulatory clearance and final terms of the proposed Arch joint venture, including any required noteholder consent and any fair-value gain or loss upon formation.
- North Goonyella’s re-entry and development prospects, expected holding and take-or-pay costs, potential further impairment, and outcome of the commercial process.
- Liquidity available after operating needs, capital expenditures, debt service and reclamation assurance requirements; also review the timing and terms of debt maturities and covenants.
- Whether the lower backlog, customer concentration, planned mine closures and long-term transport commitments affect future utilization and margins.
- Material impairment, benefit-liability, reclamation, tax-asset and litigation assumptions. The auditor issued an unqualified opinion, and management reported effective internal control over financial reporting as of year-end.