Peabody Energy Corporation — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; filed March 21, 2017. Peabody mines and markets thermal and metallurgical coal in the U.S. and Australia. Its U.S. domestic subsidiaries and a Gibraltar subsidiary filed for Chapter 11 on April 13, 2016; Australian operations were not included. The Bankruptcy Court confirmed the reorganization plan on March 17, 2017, after year-end.
Financial results and key metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Total revenue | $4.715 billion | $5.609 billion |
| Operating loss | $276.9 million | $1.465 billion |
| Net loss attributable to common stockholders | $739.8 million | $1.996 billion |
| Adjusted EBITDA (non-GAAP) | $492.2 million | $434.6 million |
| Cash from continuing operating activities | $(22.9) million | $18.9 million |
| Cash and cash equivalents at year-end | $872.3 million | $261.3 million |
| Total indebtedness, including capital leases | $7.791 billion | $6.241 billion |
| Total assets / stockholders’ equity | $11.778 billion / $337.8 million | $10.947 billion / $918.5 million |
| Production / sales | 175.6 / 186.8 million tons | 208.7 / 228.8 million tons |
2016 revenue fell 15.9%, while sales volume declined 18.4%. The filing reports an operating loss, so the operating margin was negative; it does not present a consolidated gross-margin percentage. Mining gross margin per ton varied materially: Australian Metallurgical $(1.22), Australian Thermal $10.23, Powder River Basin $3.36, Western U.S. $7.40 and Midwestern U.S. $11.90.
Cash from operating activities including discontinued operations was $(52.8) million in 2016, versus $(14.4) million in 2015. Investing activities used $244.1 million; financing activities provided $907.9 million, reflecting borrowing and bankruptcy-related financing activity. Capital additions were $126.6 million. Year-end cash included $394.5 million held by debtor entities, with court-ordered restrictions limiting some intercompany transfers. Reported debt was substantially classified as liabilities subject to compromise; the filing states $8.440 billion of such liabilities overall, including debt and other claims.
Material changes versus 2015
- Revenue decreased $893.9 million, mainly from lower realized prices and lower sales volumes. U.S. coal demand was pressured by low natural-gas prices and mild weather; Australian volumes also faced weather, mining and geological issues.
- Adjusted EBITDA increased $57.6 million, despite weaker results in the Powder River Basin, Western U.S., Midwestern U.S. and Trading and Brokerage segments. Cost reductions, stronger fourth-quarter Australian metallurgical pricing, improved Australian thermal performance and lower corporate costs helped offset declines.
- Net loss narrowed by $1.256 billion, substantially reflecting 2015 impairment charges of $1.278 billion versus $247.9 million in 2016, as well as reduced interest expense. 2016 results included $159.0 million of reorganization items.
- Coal production fell 15.9%; total sales fell 18.4%. Powder River Basin sales were down 18.5%, and Trading and Brokerage sales were down 53.6%.
- Cash rose by $611.0 million, but operating cash flow remained negative; the increase principally reflected financing cash flows, not positive operating cash generation.
Outlook, restructuring and significant risks
- Restructuring and equity: The confirmed plan anticipates reducing debt by more than $6.6 billion. The filing expected approximately $1.95 billion of post-emergence debt, excluding capital leases, funded through a $950 million term loan and $1 billion of secured notes. The plan also provides for a $750 million rights offering and $750 million private placement of mandatory convertible preferred stock. Current common stockholders are to receive no distribution; existing equity is to be canceled if the plan becomes effective. At filing, emergence was targeted for early April 2017 and remained subject to conditions precedent.
- Outlook: Management projected U.S. utility coal consumption would rise approximately 50–70 million tons in 2017 versus 2016, subject to natural-gas prices, weather and other factors. It estimated 2017 U.S. production of approximately 145–155 million tons, with about 95% of projected U.S. production already priced at planned levels. Australian 2017 sales estimates were 21–22 million tons of thermal coal and 10–11 million tons of metallurgical coal. Management expected U.S. coal consumption to decline 5–15 million tons from 2016 to 2021, while projecting modest growth in seaborne thermal demand and stronger seaborne metallurgical demand. These are management estimates, not guarantees.
- Liquidity and financing: Access to cash, working capital and supplier credit remained exposed to bankruptcy-related restrictions and counterparties’ willingness to transact. A new receivables securitization facility of up to $250 million and exit financing were conditional on plan effectiveness and other conditions. The filing identifies substantial uncertainty if emergence or financing were delayed or failed.
- Collateral and reclamation: U.S. reclamation bonding requirements were $1.414 billion, including $1.094 billion of self-bonding; the company said it planned to secure reclamation obligations with approximately $1.3 billion of surety bonds for emergence. Collateral demands, surety availability and bonding costs could constrain liquidity or mining permits. Australian reclamation bonds were A$379.4 million.
- Other commitments and contingencies: Take-or-pay rail and port obligations totaled approximately $1.597 billion, with terms up to 26 years. The company reported $812.1 million of postretirement benefit obligations and $186.3 million of net pension liabilities. Environmental claims filed in bankruptcy exceeded $2.7 billion and were disputed as duplicative or overstated; recorded environmental cleanup liabilities were $62.8 million. Thousands of bankruptcy claims remained subject to review and resolution.
- Assets, contracts and operations: The proposed $200 million sale of the Metropolitan Mine remained subject to Australian competition approval, which had not been resolved by the filing date. A geological event affected North Goonyella operations; Burton entered care and maintenance. Low natural-gas prices, coal-price volatility, customer concentration, permitting and environmental regulation, mine hazards, transportation disruption and foreign-exchange exposure were material risks. Bankruptcy terminated foreign-currency and diesel hedges, leaving the company exposed to those costs.
- Going concern and comparability: Management disclosed that historical losses and bankruptcy raised substantial doubt about continuation as a going concern, but concluded the confirmed plan and projected liquidity probably alleviated that doubt, contingent on successful consummation and sufficient liquidity. Fresh-start accounting after emergence was expected to make future financial statements not directly comparable with historical results.
Most important facts for investors to verify
- Whether and when the confirmed plan became effective, and the final creditor distributions, new capital structure and debt terms.
- That existing common stock is canceled for no recovery under the plan; do not infer recovery from pre-emergence trading prices.
- Actual available and transferable liquidity, completion and capacity of exit financing and the receivables facility, and the cash required for collateral and reclamation bonds.
- Whether coal prices, volumes and segment margins sustain improvement, particularly after the sharp but volatile fourth-quarter 2016 seaborne price increase.
- Resolution of the Metropolitan Mine sale, material bankruptcy claims and environmental litigation, including potential effects beyond recorded liabilities.
- Performance against 2017 production, sales and capital-spending estimates, and whether take-or-pay commitments and pension, retiree-benefit and reclamation costs remain manageable.