Peabody Energy Corporation — 2009 Form 10-K Summary
Business context and reporting period
This annual report covers the fiscal year ended December 31, 2009; it is not a standalone fourth-quarter filing. Peabody mined coal in the United States and Australia and operated a coal trading and brokerage business. The filing reports continuing operations separately from Patriot Coal and other discontinued operations. Peabody sold 243.6 million tons in 2009 and held approximately 9.0 billion tons of proven and probable reserves.
Financial performance and liquidity
| Metric | 2009 | 2008 |
|---|---|---|
| Revenue | $6,012.4 million | $6,561.0 million |
| Operating profit | $844.8 million | $1,396.3 million |
| Income from continuing operations, net of tax | $457.9 million | $987.9 million |
| Net income attributable to common stockholders | $448.2 million | $952.9 million |
| Diluted EPS from continuing operations | $1.64 | $3.60 |
| Adjusted EBITDA | $1,290.1 million | $1,846.9 million |
| Continuing-operations operating cash flow | $1,053.5 million | $1,409.8 million |
Revenue declined 8.4%, operating profit declined 39.5%, and income from continuing operations declined 53.6%. Adjusted EBITDA margin was approximately 21.5%, versus 28.2% in 2008; operating margin was approximately 14.1%, versus 21.3%.
At year-end, cash and equivalents were $988.8 million, current assets were $2,189.0 million, and current liabilities were $1,312.4 million. Total debt, including capital leases, was $2,752.3 million, compared with $2,793.6 million a year earlier; stockholders’ equity was $3,755.9 million. The company reported approximately $1.5 billion of available capacity under its revolving credit facility, net of letters of credit, and said it was in compliance with debt covenants. The facility matures September 15, 2011.
Fourth-quarter 2009 revenue was $1,554.2 million, operating profit $189.4 million, income from continuing operations $113.5 million, and net income $95.0 million. Comparable fourth-quarter 2008 figures were $1,893.9 million, $368.7 million, $280.3 million, and $293.6 million, respectively.
Material changes versus 2008
- Total tons sold fell 4.5% to 243.6 million. Lower U.S. demand reflected weaker industrial output, low natural-gas prices and elevated utility stockpiles; Australian metallurgical coal sales also fell.
- Australian Mining revenue fell 25.2% to $1,678.0 million, and segment Adjusted EBITDA fell 56.9% to $437.8 million. Lower annual export contract prices, lower volume, higher stripping costs, difficult geology and additional longwall moves weighed on results.
- Trading and Brokerage revenue declined 35.0% to $391.0 million, primarily because lower coal-price volatility reduced trading margins.
- U.S. mining revenue increased: Western U.S. rose 3.1% and Midwestern U.S. rose 12.9%, supported by higher average prices. Segment Adjusted EBITDA rose 5.9% in the West and 59.0% in the Midwest.
- Operating cash flow from continuing operations declined $356.3 million, reflecting lower Australian cash generation and working-capital timing, including cash taxes paid on prior-year earnings. Year-end cash nevertheless increased to $988.8 million.
Outlook, risks, contingencies and unusual items
Management’s 2010 targets, as of January 26, 2010, were U.S. production of approximately 185–195 million tons, Australian production of 26–28 million tons, and total sales of 240–260 million tons. U.S. production was fully contracted at planned levels; 4.5–5.5 million tons of Australian metallurgical coal and 6.5–7.0 million tons of Australian thermal coal remained unpriced. Expected 2010 capital expenditures were $600–650 million. Management cited cost control, productivity, disciplined capital allocation and a favorable long-term global coal-demand outlook, while noting that production could be adjusted to market demand.
Key risks include coal-price and demand volatility, customer and counterparty credit, contract renewals and price reopeners, mine and geological conditions, transport capacity and costs, concentrated suppliers for some explosives and underground equipment, labor relations, and changes in environmental rules that could reduce coal use or raise costs. Climate regulation and its potential impact on customer demand remained uncertain. Australian labor negotiations, including at Metropolitan, were also pending or approaching.
- Unusual items included a $34.7 million impairment of the Venezuelan Carbones del Guasare investment, a $10.0 million loss on the sale of the Chain Valley Mine, and approximately $35 million after tax from a coal excise tax refund recorded in discontinued operations.
- Postretirement benefit obligations were $982.2 million and net pension liabilities were $215.3 million at year-end. Pension plans were approximately 77% funded; management estimated a 2011 minimum funding requirement of approximately $98 million.
- Reclamation security included $821.9 million of self-bonding and $1,270.3 million of surety bonds and letters of credit described in the risk disclosure. The filing also reports $2,092.2 million of total self-bonding, surety and letter-of-credit support in its off-balance-sheet table.
- Material litigation included Navajo Nation and Hopi lease-related claims, Gulf Power’s coal-supply dispute (liability summary judgment had been granted and damages remained undecided), and legacy environmental and greenhouse-gas lawsuits. The company said certain potential losses could not be reasonably estimated and stated that it did not expect the matters to have a material adverse effect.
- Total contractual cash obligations were $9,268.1 million, including $1,864.4 million of rail and port take-or-pay commitments, some extending to 2040. Management said it did not expect off-balance-sheet arrangements to have a material adverse effect.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether 2010 unpriced Australian coal volumes were sold and at what prices, and whether the production and sales targets were achieved.
- Whether demand recovery, utility inventories, natural-gas prices and Australian metallurgical pricing supported margins after 2009.
- Liquidity and refinancing plans ahead of the September 2011 credit-facility maturity, covenant headroom, and renewal of letters of credit and surety bonds.
- Progress and cost exposure for the Bear Run Mine, Prairie State, Australian export infrastructure and planned 2010 capital spending.
- Developments in pension funding, reclamation obligations, environmental regulation, and the Navajo/Hopi and Gulf Power litigation.