Peabody Energy Corporation (10-K): FY 2015 summary
Business and reporting period. This annual report covers the fiscal year ended December 31, 2015; fourth-quarter figures are unaudited. Peabody mined and marketed thermal and metallurgical coal in the U.S. and Australia, with additional coal and freight trading and brokerage operations. Continuing-operations production was 208.7 million tons and total tons sold, including trading, were 228.8 million.
Key financial results
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $5.609 billion | $6.792 billion |
| Operating loss | $1.465 billion | $135.1 million |
| Net loss attributable to common stockholders | $1.996 billion | $787.0 million |
| Adjusted EBITDA (non-GAAP) | $434.6 million | $814.0 million |
| Net cash from operating activities | $(14.4) million | $336.6 million |
| Capital expenditures | $126.8 million | $194.4 million |
| Total debt at year-end | $6.316 billion | $5.987 billion |
Revenue fell 17.4%, while total tons sold declined 8.4%. The company recorded $1.278 billion in asset impairment charges, compared with $154.4 million in 2014. FY 2015 loss from continuing operations was $1.814 billion; diluted net loss per share was $109.98, with share data restated for the 1-for-15 reverse split. No profit margin was reported; operating loss was approximately 26% of revenue.
At December 31, cash and cash equivalents were $261.3 million, total current assets $1.378 billion and current liabilities $7.392 billion. Most debt was classified as current because of going-concern and potential covenant-default concerns. Stockholders’ equity fell to $918.5 million from $2.727 billion. The filing reported year-end available liquidity of approximately $1.2 billion, including $940 million of revolver capacity; after the revolver was fully drawn in February 2016, available liquidity was reported at $0.9 billion as of March 11, 2016, primarily cash.
Fourth quarter: revenue was $1.313 billion, operating loss $470.8 million, loss from continuing operations $497.9 million and net loss attributable to common stockholders $469.4 million. Fourth-quarter operating loss included $377.0 million of impairment charges.
Material changes and management commentary
- Revenue declined by $1.183 billion year over year, mainly from lower realized coal prices and lower sales volumes amid weak U.S. and seaborne demand. Lower natural-gas prices, mild winter weather, Chinese import reductions and excess coal supply were cited as pressures.
- Adjusted EBITDA declined by $379.4 million. U.S. mining volumes were affected by market demand and, in the Powder River Basin, heavy rain and pit flooding. Australian metallurgical revenue and thermal revenue also declined materially.
- Cost controls reduced operating costs and expenses by $709.2 million and selling and administrative expenses by $50.7 million. Capital spending was reduced 35% to $126.8 million.
- Peabody issued $1.0 billion of 10% second-lien notes in 2015 and used proceeds partly to retire its 2016 notes; the transaction generated a $67.8 million early-extinguishment loss. Debt rose year over year, and interest expense increased.
- The quarterly dividend was suspended beginning in Q3 2015. The filing reports $1.4 million of dividends paid during 2015.
Liquidity, outlook and significant risks
- Going concern: Management and the auditor identified substantial doubt about the company’s ability to continue as a going concern. The auditor’s opinion was unqualified but included a going-concern explanatory paragraph. Management expected continued operating losses and negative operating cash flows.
- Debt and payment risks: Peabody exercised the 30-day grace period for $21.1 million of interest due March 15, 2016 on its 6.50% notes and $50.0 million due on its 10% second-lien notes. The filing does not establish whether these payments were subsequently made. Management anticipated covenant noncompliance as of March 31, 2016 absent asset-sale proceeds, waivers or other remedies; default could trigger acceleration and cross-defaults. The company also warned that Chapter 11 protection might be necessary if its liquidity plans failed.
- Funding actions and commitments: Management was pursuing cost reductions, alternative financing, debt exchanges or buybacks, creditor-payment changes, lender waivers and asset sales. A sale of the New Mexico and Colorado mines was agreed for $358 million cash plus assumption of approximately $105 million of liabilities, subject to closing conditions. A planned Prairie State interest sale was for approximately $57 million. These were transactions in progress at the filing date, not completed proceeds.
- Contractual cash obligations totaled $16.035 billion, including $2.236 billion of take-or-pay commitments, primarily for Australian rail and port capacity. Reclamation assurances included $1.431 billion of self-bonding; the company reported a $429.2 million increase in posted letters of credit during 2015. Its accounts-receivable securitization program, with no remaining capacity at year-end, was due to expire in April 2016 and was being renewed.
- Patriot-related exposure included an $83.1 million remaining credit-support liability, a $114.4 million charge for probable black-lung obligations, and a contested $644.2 million UMWA pension withdrawal-liability assessment. The assessment was being challenged through administrative review and arbitration; the ultimate outcome was uncertain.
- Management’s 2016 targets were U.S. sales volumes of 150–160 million tons, U.S. realized pricing of $19.65–$19.95 per ton, Australian coal sales of 34–36 million tons, including 14–15 million tons of metallurgical coal, and capital spending of $120–$140 million. The company targeted 12–13 million tons of Australian thermal exports. These targets were subject to severe market and liquidity uncertainty.
- Other risks include depressed coal prices and demand, competition from natural gas and renewables, environmental rules and permitting, inability to maintain self-bonding or secure replacement collateral, customer and counterparty credit risk, transportation commitments, further impairments and unresolved litigation. Hedge relationships no longer qualified as highly effective at year-end, potentially increasing earnings volatility.
Investor verification priorities
- Verify the status of the two March 2016 interest payments, lender waivers and covenant compliance, including consequences of the going-concern opinion and current classification of debt.
- Reconcile liquidity after the February revolver draw, and confirm renewal and capacity of the receivables securitization program and any new financing.
- Confirm closing and net cash proceeds from the mine and Prairie State sales, and whether proceeds satisfy debt covenants or provide lasting liquidity.
- Assess the $644.2 million UMWA withdrawal-liability claim, Patriot credit support and black-lung obligations, including potential cash timing and exposure beyond recorded amounts.
- Review the assumptions behind the $1.278 billion impairment charge, remaining asset carrying values, reserve reduction of 1.2 billion tons and the feasibility of 2016 volume, price and capital targets.