# PEABODY ENERGY CORP (BTU) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from PEABODY ENERGY CORP's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1064728/000106472822000008/btu-20211231.htm Accession: 0001064728-22-000008 Filing date: 2022-02-18 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/BTU/ All MD&A years: /company/BTU/mda/ Next year: /company/BTU/mda/fy2022/ (FY 2022) Item 7.      Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company’s discussion and analysis of the year ended December 31, 2021 compared to the year ended December 31, 2020 is included herein. For discussion and analysis of the year ended December 31, 2020 compared to the year ended December 31, 2019, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Peabody’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 23, 2021 and is incorporated by reference herein. Non-GAAP Financial Measures The following discussion of Peabody’s results of operations includes references to and analysis of Adjusted EBITDA, which is a financial measure not recognized in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Adjusted EBITDA is used by management as the primary metric to measure each of its segments’ operating performance. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","57"]] [[/GREPCENT_TABLE]] Table of Contents Also included in the following discussion of Peabody’s results of operations are references to Revenues per Ton, Costs per Ton and Adjusted EBITDA Margin per Ton for each mining segment. These metrics are used by management to measure each of its mining segments’ operating performance. Management believes Costs per Ton and Adjusted EBITDA Margin per Ton best reflect controllable costs and operating results at the mining segment level. The Company considers all measures reported on a per ton basis to be operating/statistical measures; however, the Company includes reconciliations of the related non-GAAP financial measures (Adjusted EBITDA and Total Reporting Segment Costs) in the “Reconciliation of Non-GAAP Financial Measures” section contained within this Item 7. In its discussion of liquidity and capital resources, Peabody includes references to Free Cash Flow which is also a non-GAAP measure. Free Cash Flow is used by management as a measure of its financial performance and its ability to generate excess cash flow from its business operations. Peabody believes non-GAAP performance measures are used by investors to measure its operating performance and lenders to measure its ability to incur and service debt. These measures are not intended to serve as alternatives to U.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies. Refer to the “Reconciliation of Non-GAAP Financial Measures” section contained within this Item 7 for definitions and reconciliations to the most comparable measures under U.S. GAAP. Overview In 2021, Peabody produced and sold 126.9 million and 130.1 million tons of coal, respectively, from continuing operations. As of December 31, 2021, the Company reports its results of operations primarily through the following reportable segments: Seaborne Thermal Mining, Seaborne Metallurgical Mining, Powder River Basin Mining, Other U.S. Thermal Mining and Corporate and Other. The business of the Company’s seaborne operating platform is primarily export focused with customers spread across several countries, with a portion of its thermal and metallurgical coal sold within Australia. Generally, revenues from individual countries vary year by year based on electricity and steel demand, the strength of the global economy, governmental policies and several other factors, including those specific to each country. The Company classifies its seaborne mines within the Seaborne Thermal Mining or Seaborne Metallurgical Mining segments based on the primary customer base and coal reserve type of each mining operation. A small portion of the coal mined by the Seaborne Thermal Mining segment is of a metallurgical grade. Similarly, a small portion of the coal mined by the Seaborne Metallurgical Mining segment is of a thermal grade. Additionally, the Company may market some of its metallurgical coal products as a thermal coal product from time to time depending on market conditions. The Company’s Seaborne Thermal Mining operations consist of mines in New South Wales, Australia. The mines in that segment utilize both surface and underground extraction processes to mine low-sulfur, high Btu thermal coal. The Company’s Seaborne Metallurgical Mining operations consist of mines in Queensland, Australia, one in New South Wales, Australia and one in Alabama, USA. The mines in that segment utilize both surface and underground extraction processes to mine various qualities of metallurgical coal. The metallurgical coal qualities include hard coking coal, semi-hard coking coal, semi-soft coking coal and pulverized coal injection coal. The principal business of the Company’s thermal mining segments in the U.S. is the mining, preparation and sale of thermal coal, sold primarily to electric utilities in the U.S. under long-term contracts, with a relatively small portion sold as international exports as conditions warrant. The Company’s Powder River Basin Mining operations consist of its mines in Wyoming. The mines in that segment are characterized by surface mining extraction processes, coal with a lower sulfur content and Btu and higher customer transportation costs (due to longer shipping distances). The Company’s Other U.S. Thermal Mining operations historically reflect the aggregation of its Illinois, Indiana, New Mexico and Colorado mining operations. The mines in that segment are characterized by a mix of surface and underground mining extraction processes, coal with a higher sulfur content and Btu and lower customer transportation costs (due to shorter shipping distances). Geologically, the Company’s Powder River Basin Mining operations mine sub-bituminous coal deposits and its Other U.S. Thermal Mining operations mine both bituminous and sub-bituminous coal deposits. The Company’s Corporate and Other segment includes selling and administrative expenses, results from equity affiliates, corporate hedging activities, trading and brokerage activities, minimum charges on certain transportation-related contracts, the closure of inactive mining sites and certain commercial matters. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","58"]] [[/GREPCENT_TABLE]] Table of Contents Resource Management. As of December 31, 2021, Peabody controlled approximately 2.5 billion tons of proven and probable coal reserves, 2.4 billion tons of resources and approximately 400,000 acres of surface property through ownership and lease agreements. The Company has an ongoing asset optimization program whereby its property management group regularly reviews these reserves, resources and surface properties for opportunities to generate earnings and cash flow through the sale or exchange of non-strategic coal reserves, resources and surface lands. These surface lands include acres where Peabody has completed post-mining reclamation. In addition, the Company generates revenue through royalties from coal reserves and oil and gas rights leased to third parties and farm income from surface lands under third-party contracts. Middlemount Mine. Peabody owns a 50% equity interest in Middlemount, which owns the Middlemount Mine in Queensland, Australia. The mine predominantly produces semi-hard coking coal and low-volatile pulverized coal injection (LV PCI) coal for sale into seaborne coal markets through Abbot Point Coal Terminal, with some capacity also secured at Dalrymple Bay Coal Terminal. Mining operations first commenced at the Middlemount Mine in late 2011. During the years ended December 31, 2021 and 2020, the mine sold 2.0 million and 1.6 million tons of coal, respectively (on a 50% basis). Summary Spot pricing for premium low-vol hard coking coal (Premium HCC), premium low-vol pulverized coal injection (Premium PCI) coal, Newcastle index thermal coal and API 5 thermal coal, and prompt month pricing for PRB 8,880 Btu/Lb coal and Illinois Basin 11,500 Btu/Lb coal during the year ended December 31, 2021 is set forth in the table below. The seaborne pricing included in the table below is not necessarily indicative of the pricing the Company realized during the year ended December 31, 2021 due to quality differentials and the majority of its seaborne sales being executed through annual and multi-year international coal supply agreements that contain provisions requiring both parties to renegotiate pricing periodically. The Company’s typical practice is to negotiate pricing for seaborne metallurgical coal contracts on a bi-annual, quarterly, spot or index basis and seaborne thermal coal contracts on an annual, spot or index basis. In the U.S., the pricing included in the table below is also not necessarily indicative of the pricing the Company realized during the year ended December 31, 2021 since the Company generally sells coal under long-term contracts where pricing is determined based on various factors. Such long-term contracts in the U.S. may vary significantly in many respects, including price adjustment features, price reopener terms, coal quality requirements, quantity parameters, permitted sources of supply, treatment of environmental constraints, extension options, force majeure and termination and assignment provisions. Competition from alternative fuels such as natural gas and other fuel sources may also impact the Company’s realized pricing. [[GREPCENT_TABLE]] [["","","High","","Low","","Average","","December 31, 2021"],["Premium HCC (1)","","$","408.50","","","$","99.50","","","$","226.24","","","$","357.25"],["Premium PCI coal (1)","","$","290.00","","","$","91.50","","","$","164.34","","","$","244.00"],["Newcastle index thermal coal (1)","","$","253.55","","","$","80.78","","","$","137.95","","","$","165.86"],["API 5 thermal coal (1)","","$","170.90","","","$","50.75","","","$","82.59","","","$","101.68"],["PRB 8,800 Btu/Lb coal (2)","","$","37.00","","","$","11.85","","","$","17.70","","","$","29.00"],["Illinois Basin 11,500 Btu/Lb coal (2)","","$","92.00","","","$","29.75","","","$","51.95","","","$","88.00"]] [[/GREPCENT_TABLE]] (1)    Prices expressed per metric tonne. (2)    Prices expressed per short ton. Within the global coal industry, supply and demand disruptions were widespread as the coronavirus (COVID-19) pandemic forced country-wide lockdowns and regional restrictions. Future COVID-19-related developments are unknown, including the duration, severity, scope and the necessary government actions to limit the spread of COVID-19. The global coal industry data for the year ended December 31, 2021 presented herein may not be indicative of the ultimate impacts of the COVID-19 pandemic given the various levels of response and unknown duration. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","59"]] [[/GREPCENT_TABLE]] Table of Contents Within the seaborne metallurgical coal market, a combination of robust steel production, decade-high steel margins and tight coal availability have driven Australian spot prices to record levels. The year ended December 31, 2021 saw China’s unofficial ban on Australian coal remain in place and several countries such as India, Brazil and Vietnam achieve record annual import volumes of seaborne metallurgical coal. China’s unofficial ban on Australian coal has caused a redistribution of trade flows with Australian suppliers increasing market share in Europe, South America, India and North Asia while other suppliers targeted China, incentivized by a significant price advantage. However, recent measures introduced by China to reduce steel production and increase domestic coal output have temporarily dampened seaborne demand and driven delivered China prices in line with or below the rest of the market. Despite this, supply availability remains exceedingly tight with the spread of COVID-19 and weather impacts in Australia, Canada, Mongolia and Russia. The Company believes energy shortages in some markets present a risk to industrial activity but the underlying market fundamentals remain constructive. Within the seaborne thermal coal market, Newcastle thermal coal prices remained elevated for the year ended December 31, 2021, compared to the prior year, driven by a combination of tight supplies and elevated demand. China’s domestic thermal coal supply was hampered by heightened safety inspections and mine suspensions through much of the year. Thermal electricity generation in China was strong for the year ended December 31, 2021, and the relaxation of China’s import controls combined with tight domestic supply pushed import demand higher for the year. In Europe, gas supply constraints have pushed standby coal plants to resume operation to help supply strong electricity demand. Despite the strong demand, the supply response has been muted from key exporters such as Australia, Colombia and South Africa, keeping thermal coal prices elevated. In the United States, overall electricity demand increased 3% year-over-year, positively impacted by weather and the prior year economic impacts of the COVID-19 pandemic. Electricity generation from thermal coal has notably improved year-over-year as a result of higher natural gas prices and stronger overall electricity demand. This has positively impacted coal’s share of electricity generation for the year ended December 31, 2021, with a rise to approximately 22% compared to approximately 19% in the prior year, while causing natural gas’s share to decline to approximately 38% compared to approximately 40% in the prior year. Stronger coal use and a limited supply response in coal production has contributed to decreasing coal stockpile levels. Since December 2020, coal inventories have fallen by approximately 38 million tons, a 29% decline. Through the year ended December 31, 2021, utility consumption of PRB coal rose approximately 22% compared to the prior year period. Other Peabody’s North Goonyella Mine in Queensland, Australia experienced a fire in 2018 which resulted in the suspension of mining operations. In 2020, the Company commenced a review of strategic alternatives for North Goonyella which is currently ongoing. During the years ended December 31, 2019 and 2018, Peabody recorded provisions for equipment losses of $83.2 million and $66.4 million, respectively, related to the fire. The Company has also incurred containment and idling costs subsequent to the mine’s suspension which amounted to $13.0 million, $32.3 million and $111.5 million during the years ended December 31, 2021, 2020 and 2019, respectively. In March 2019, Peabody entered into an insurance claim settlement agreement with its insurers and various re-insurers under a combined property damage and business interruption policy and recorded a $125 million insurance recovery, the maximum amount available under the policy above a $50 million deductible. The Company collected the settlement in 2019. Results of Operations Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Peabody’s revenues for the year ended December 31, 2021 increased compared to the same period in 2020 ($437.2 million) primarily due to the impacts of higher seaborne thermal and metallurgical pricing, partially offset by lower seaborne volumes and net unrealized mark-to-market losses on derivative contracts related to forecasted sales and other financial trading. Results from continuing operations, net of income taxes for the year ended December 31, 2021 increased compared to the same period in the prior year ($2,207.2 million) primarily due to the asset impairment charges recorded in the prior year ($1,487.4 million), the favorable revenue variance described above and improved results from equity affiliates ($142.2 million). Adjusted EBITDA for the year ended December 31, 2021 reflected a year-over-year increase of $657.9 million. As of December 31, 2021, Peabody’s available liquidity was approximately $996 million. Refer to the “Liquidity and Capital Resources” section contained within this Item 7 for a further discussion of factors affecting the Company’s available liquidity. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","60"]] [[/GREPCENT_TABLE]] Table of Contents Tons Sold The following table presents tons sold by operating segment: [[GREPCENT_TABLE]] [["","","","(Decrease) Increase"],["","Year Ended December 31,","","to Volumes"],["","2021","","2020","","Tons","","%"],["","(Tons in millions)"],["Seaborne Thermal Mining","17.3","","","19.0","","","(1.7)","","","(8.9)","%"],["Seaborne Metallurgical Mining","5.5","","","5.6","","","(0.1)","","","(1.8)","%"],["Powder River Basin Mining","88.4","","","87.2","","","1.2","","","1.4","%"],["Other U.S. Thermal Mining","16.9","","","18.3","","","(1.4)","","","(7.7)","%"],["Total tons sold from mining segments","128.1","","","130.1","","","(2.0)","","","(1.5)","%"],["Corporate and Other","2.0","","","2.5","","","(0.5)","","","(20.0)","%"],["Total tons sold","130.1","","","132.6","","","(2.5)","","","(1.9)","%"]] [[/GREPCENT_TABLE]] Supplemental Financial Data The following table presents supplemental financial data by operating segment: [[GREPCENT_TABLE]] [["","Year Ended December 31,","","Increase (Decrease)"],["","2021","","2020","","$","","%"],["Revenues per Ton - Mining Operations (1)"],["Seaborne Thermal","$","54.09","","","$","37.46","","","$","16.63","","","44.4","%"],["Seaborne Metallurgical","131.83","","","86.33","","","45.50","","","52.7","%"],["Powder River Basin","10.99","","","11.37","","","(0.38)","","","(3.3)","%"],["Other U.S. Thermal","40.75","","","38.73","","","2.02","","","5.2","%"],["Costs per Ton - Mining Operations (1) (2)"],["Seaborne Thermal","$","33.64","","","$","28.87","","","$","4.77","","","16.5","%"],["Seaborne Metallurgical","99.55","","","109.44","","","(9.89)","","","(9.0)","%"],["Powder River Basin","9.46","","","9.14","","","0.32","","","3.5","%"],["Other U.S. Thermal","31.04","","","29.51","","","1.53","","","5.2","%"],["Adjusted EBITDA Margin per Ton - Mining Operations (1) (2)"],["Seaborne Thermal","$","20.45","","","$","8.59","","","$","11.86","","","138.1","%"],["Seaborne Metallurgical","32.28","","","(23.11)","","","55.39","","","239.7","%"],["Powder River Basin","1.53","","","2.23","","","(0.70)","","","(31.4)","%"],["Other U.S. Thermal","9.71","","","9.22","","","0.49","","","5.3","%"]] [[/GREPCENT_TABLE]] (1)This is an operating/statistical measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for definitions and reconciliations to the most comparable measures under U.S. GAAP. (2)Includes revenue-based production taxes and royalties; excludes depreciation, depletion and amortization; asset retirement obligation expenses; selling and administrative expenses; restructuring charges; asset impairment; amortization of take-or-pay contract-based intangibles; and certain other costs related to post-mining activities. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","61"]] [[/GREPCENT_TABLE]] Table of Contents Revenues The following table presents revenues by reporting segment: [[GREPCENT_TABLE]] [["","","","Increase (Decrease)"],["","Year Ended December 31,","","to Revenues"],["","2021","","2020","","$","","%"],["","(Dollars in millions)"],["Seaborne Thermal Mining","$","934.0","","","$","711.8","","","$","222.2","","","31.2","%"],["Seaborne Metallurgical Mining","727.7","","","486.5","","","241.2","","","49.6","%"],["Powder River Basin Mining","971.2","","","991.1","","","(19.9)","","","(2.0)","%"],["Other U.S. Thermal Mining","689.1","","","707.3","","","(18.2)","","","(2.6)","%"],["Corporate and Other","(3.7)","","","(15.6)","","","11.9","","","76.3","%"],["Revenues","$","3,318.3","","","$","2,881.1","","","$","437.2","","","15.2","%"]] [[/GREPCENT_TABLE]] Seaborne Thermal Mining. The increase in segment revenues during the year ended December 31, 2021 compared to the prior year was due to favorable realized coal pricing ($280.8 million), partially offset by unfavorable volume and mix variances ($58.6 million). Seaborne Metallurgical Mining. Segment revenues increased during the year ended December 31, 2021 compared to the prior year due to favorable realized coal pricing ($257.7 million), partially offset by unfavorable volume and mix variances ($16.5 million). Powder River Basin Mining. Segment revenues decreased during the year ended December 31, 2021 compared to the prior year primarily due to unfavorable realized coal pricing ($27.6 million), offset by increased demand ($7.7 million). Other U.S. Thermal Mining. The decrease in segment revenues during the year ended December 31, 2021 compared to the prior year was primarily due to lower volumes ($64.3 million), offset by favorable realized pricing ($46.1 million). Corporate and Other. Segment revenues increased during the year ended December 31, 2021 compared to the prior year due to primarily due to higher results from trading activities ($88.9 million), partially offset by net unrealized mark-to-market losses on derivative contracts related to forecasted coal sales and other financial trading ($79.2 million). Adjusted EBITDA The following table presents Adjusted EBITDA for each of the Company’s reporting segments: [[GREPCENT_TABLE]] [["","","","Increase (Decrease) to"],["","Year Ended December 31,","","Adjusted EBITDA"],["","2021","","2020","","$","","%"],["","(Dollars in millions)"],["Seaborne Thermal Mining","$","353.1","","","$","163.2","","","$","189.9","","","116.4","%"],["Seaborne Metallurgical Mining","178.2","","","(130.2)","","","308.4","","","236.9","%"],["Powder River Basin Mining","134.9","","","194.8","","","(59.9)","","","(30.7)","%"],["Other U.S. Thermal Mining","164.2","","","168.4","","","(4.2)","","","(2.5)","%"],["Corporate and Other","86.3","","","(137.4)","","","223.7","","","162.8","%"],["Adjusted EBITDA (1)","$","916.7","","","$","258.8","","","$","657.9","","","254.2","%"]] [[/GREPCENT_TABLE]] (1)This is a financial measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for definitions and reconciliations to the most comparable measures under U.S. GAAP. Seaborne Thermal Mining. Segment Adjusted EBITDA increased during the year ended December 31, 2021 compared to the same period in the prior year as a result of higher realized net coal pricing ($258.7 million) and product mix ($27.7 million). The increases were partially offset by unfavorable volume variances ($51.8 million), unfavorable foreign currency impacts ($31.5 million) and higher commodity pricing ($10.5 million). Seaborne Metallurgical Mining. Segment Adjusted EBITDA increased during the year ended December 31, 2021 compared to the same period in the prior year due to higher realized net coal pricing ($238.7 million), cost improvements across the operations ($80.7 million) and favorable volume variances ($26.8 million), offset by unfavorable foreign currency impacts ($41.8 million). [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","62"]] [[/GREPCENT_TABLE]] Table of Contents Powder River Basin Mining. Segment Adjusted EBITDA decreased during the year ended December 31, 2021 compared to the same period in the prior year due to the unfavorable impacts of higher commodity pricing ($28.4 million), lower realized net coal pricing ($23.0 million), higher costs for materials, services and repairs ($14.1 million) and unfavorable volume and mix variances ($12.6 million). The decreases were partially offset by favorable mine sequencing impacts ($11.9 million) and lower leasing costs ($6.3 million). Other U.S. Thermal Mining. Segment Adjusted EBITDA decreased during the year ended December 31, 2021 compared to the same period in the prior year due to higher costs for materials, services and repairs ($28.9 million) and higher commodity pricing ($23.7 million), offset by higher realized net coal pricing ($43.9 million) and favorable mine sequencing impacts ($7.5 million). Corporate and Other Adjusted EBITDA. The following table presents a summary of the components of Corporate and Other Adjusted EBITDA: [[GREPCENT_TABLE]] [["","","","Increase (Decrease)"],["","Year Ended December 31,","","to Income"],["","2021","","2020","","$","","%"],["","(Dollars in millions)"],["Middlemount (1)","$","48.2","","","$","(29.2)","","","$","77.4","","","265.1","%"],["Resource management activities (2)","6.9","","","15.3","","","(8.4)","","","(54.9)","%"],["Selling and administrative expenses","(84.9)","","","(99.5)","","","14.6","","","14.7","%"],["Other items, net (3)","116.1","","","(24.0)","","","140.1","","","583.8","%"],["Corporate and Other Adjusted EBITDA","$","86.3","","","$","(137.4)","","","$","223.7","","","162.8","%"]] [[/GREPCENT_TABLE]] (1)Middlemount’s results are before the impact of related changes in deferred tax asset valuation allowance and reserves and amortization of basis difference. Middlemount’s standalone results included (on a 50% attributable basis) aggregate amounts of depreciation, depletion and amortization, asset retirement obligation expenses, net interest expense and income taxes of $73.8 million and $29.9 million during the years ended December 31, 2021 and 2020, respectively. (2)Includes gains (losses) on certain surplus coal reserve, resource and surface land sales and property management costs and revenues. (3)Includes trading and brokerage activities, costs associated with post-mining activities, gains (losses) on certain asset disposals, minimum charges on certain transportation-related contracts, costs associated with suspended operations including the North Goonyella Mine and expenses related to other commercial activities. The increase in Corporate and Other Adjusted EBITDA during the year ended December 31, 2021 compared to the same period in the prior year was due to favorable trading results ($63.7 million); the gain recognized in the current year on the sale of the Company’s Millennium Mine ($26.1 million) as discussed in Note 19. “Other Events”; a favorable variance in Middlemount’s results due to the combined impacts of higher sales pricing, improved production, cost improvements and the insurance settlement attributable to a business interruption and property damage claim from 2019; lower postretirement health care costs ($38.5 million) primarily due to changes made to the Company’s postretirement health care benefit plans announced in 2021 and 2020; and lower containment and holding costs for the Company’s North Goonyella Mine ($19.3 million). [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","63"]] [[/GREPCENT_TABLE]] Table of Contents Income (Loss) From Continuing Operations, Net of Income Taxes The following table presents income (loss) from continuing operations, net of income taxes: [[GREPCENT_TABLE]] [["","","","Increase (Decrease) to Income"],["","Year Ended December 31,"],["","2021","","2020","","$","","%"],["","(Dollars in millions)"],["Adjusted EBITDA (1)","$","916.7","","","$","258.8","","","$","657.9","","","254.2","%"],["Depreciation, depletion and amortization","(308.7)","","","(346.0)","","","37.3","","","10.8","%"],["Asset retirement obligation expenses","(44.7)","","","(45.7)","","","1.0","","","2.2","%"],["Restructuring charges","(8.3)","","","(37.9)","","","29.6","","","78.1","%"],["Transaction costs related to joint ventures","\u2014","","","(23.1)","","","23.1","","","100.0","%"],["Asset impairment","\u2014","","","(1,487.4)","","","1,487.4","","","100.0","%"],["Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates","33.8","","","(30.9)","","","64.7","","","209.4","%"],["Interest expense","(183.4)","","","(139.8)","","","(43.6)","","","(31.2)","%"],["Net gain on early debt extinguishment","33.2","","","\u2014","","","33.2","","","n.m."],["Interest income","6.5","","","9.4","","","(2.9)","","","(30.9)","%"],["Net mark-to-market adjustment on actuarially determined liabilities","43.4","","","5.1","","","38.3","","","751.0","%"],["Unrealized losses on derivative contracts related to forecasted sales","(115.1)","","","(29.6)","","","(85.5)","","","(288.9)","%"],["Unrealized (losses) gains on foreign currency option contracts","(7.5)","","","7.1","","","(14.6)","","","(205.6)","%"],["Take-or-pay contract-based intangible recognition","4.3","","","8.2","","","(3.9)","","","(47.6)","%"],["Income tax provision","(22.8)","","","(8.0)","","","(14.8)","","","(185.0)","%"],["Income (loss) from continuing operations, net of income taxes","$","347.4","","","$","(1,859.8)","","","$","2,207.2","","","118.7","%"]] [[/GREPCENT_TABLE]] (1)This is a financial measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for definitions and reconciliations to the most comparable measures under U.S. GAAP. Depreciation, Depletion and Amortization. The following table presents a summary of depreciation, depletion and amortization expense by segment: [[GREPCENT_TABLE]] [["","","","(Decrease) Increase"],["","Year Ended December 31,","","to Income"],["","2021","","2020","$","","%"],["","(Dollars in millions)"],["Seaborne Thermal Mining","$","(107.7)","","","$","(88.0)","","","$","(19.7)","","","(22.4)","%"],["Seaborne Metallurgical Mining","(73.3)","","","(85.4)","","","12.1","","","14.2","%"],["Powder River Basin Mining","(41.5)","","","(85.3)","","","43.8","","","51.3","%"],["Other U.S. Thermal Mining","(67.4)","","","(72.1)","","","4.7","","","6.5","%"],["Corporate and Other","(18.8)","","","(15.2)","","","(3.6)","","","(23.7)","%"],["Total","$","(308.7)","","","$","(346.0)","","","$","37.3","","","10.8","%"]] [[/GREPCENT_TABLE]] Additionally, the following table presents a summary of the Company’s weighted-average depletion rate per ton for active mines in each of its mining segments: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020"],["Seaborne Thermal Mining","$","2.19","","","$","1.90"],["Seaborne Metallurgical Mining","1.18","","","2.30"],["Powder River Basin Mining","0.25","","","0.50"],["Other U.S. Thermal Mining","1.15","","","1.04"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","64"]] [[/GREPCENT_TABLE]] Table of Contents Depreciation, depletion and amortization expense decreased during the year ended December 31, 2021 compared to the same period in the prior year primarily due to the impact of the asset impairment recorded at the North Antelope Rochelle Mine during the second quarter of 2020 ($46.2 million). The increase in the weighted-average depletion rate per ton for the Seaborne Thermal Mining segment during the year ended December 31, 2021 compared to the same period in the prior year reflects the impact of the transition to the United Wambo Joint Venture. The decrease in the weighted-average depletion rate per ton for the Seaborne Metallurgical Mining segment during the year ended December 31, 2021 compared to the same period in the prior year reflects the volume and mix variances which impacted the Company’s revenues as described above. The decrease in the weighted-average depletion rate per ton for the Powder River Basin Mining segment during the year ended December 31, 2021 compared to the same period in the prior year reflects the asset impairment recorded during the second quarter of 2020. Restructuring Charges. Restructuring charges decreased during the year ended December 31, 2021 compared to the same period in the prior year as the result of workforce reductions made across the organization during the prior year. Transaction Costs Related to Joint Ventures. The charges recorded during the prior year period related to the proposed PRB Colorado joint venture with Arch Resources, Inc. which was terminated during the third quarter of 2020. Asset Impairment. The Company recognized $1,487.4 million in aggregate asset impairment charges during the year ended December 31, 2020, primarily related to the fair value of its North Antelope Rochelle Mine in its Powder River Basin Mining segment. Refer to Note 3. “Asset Impairment” to the accompanying consolidated financial statements for further information regarding the nature and composition of those charges, which information is incorporated herein by reference. Changes in Deferred Tax Asset Valuation Allowance and Reserves and Amortization of Basis Difference Related to Equity Affiliates. During the year ended December 31, 2021, the Company reversed a valuation allowance of approximately $33 million that had been established in the prior year on Middlemount’s net deferred tax position. The Company reversed the valuation allowance due to the realization of deferred tax assets as a result of pricing improvements. Refer to Note 6. “Equity Method Investments” to the accompanying consolidated financial statements for further information regarding these changes, which information is incorporated herein by reference. Interest Expense. The increase in interest expense during the year ended December 31, 2021 compared to the prior year was the result of a series of refinancing transactions completed by the Company during the first quarter of 2021, partially offset by the impacts of debt reductions made throughout 2021 as described in Note 11. “Long-term Debt” to the accompanying consolidated financial statements. Net Gain on Early Debt Extinguishment. The gain recognized during the year ended December 31, 2021 was primarily related to debt retirements made through various open market purchases throughout the year as further discussed in Note 11. “Long-term Debt” to the accompanying consolidated financial statements. Net Mark-to-Market Adjustment on Actuarially Determined Liabilities. The gain recorded during the year ended December 31, 2021 was driven by increases to the discount rates for actuarially determined liabilities ($37.6 million); the favorable impacts of changes for the postretirement benefit plans related to updated claims experience ($22.0 million) and a mortality update ($16.6 million); and the favorable impact of an update to the Company’s census data for actuarially determined liabilities ($10.3 million). These increases were offset by mark-to-market losses on pension and postretirement benefit plan assets ($43.1 million). The gain recorded during the year ended December 31, 2020 was driven by gains on pension and postretirement benefit plan assets ($73.7 million), the favorable impacts of a mortality update for actuarially determined liabilities ($39.5 million) and changes related to claims for the postretirement benefit plans ($21.2 million). These increases were offset by decreases to the discount rates for actuarially determined liabilities ($116.5 million). Unrealized Losses on Derivative Contracts Related to Forecasted Sales. Unrealized losses primarily relate to mark-to-market activity on derivatives related to forecasted sales. For additional information, refer to Note 7. “Derivatives and Fair Value Measurements” to the accompanying consolidated financial statements. Unrealized (Losses) Gains on Foreign Currency Option Contracts. Unrealized (losses) gains primarily relate to mark-to-market activity on foreign currency option contracts. For additional information, refer to Note 7. “Derivatives and Fair Value Measurements” to the accompanying consolidated financial statements. Income Tax Provision. The increase in the income tax provision during the year ended December 31, 2021 compared to the prior year period was primarily due to year-over-year increases in taxable income, partially offset by a decrease in the provision related to the remeasurement of foreign income tax accounts. Refer to Note 9. “Income Taxes” to the accompanying consolidated financial statements for additional information. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","65"]] [[/GREPCENT_TABLE]] Table of Contents Net Income (Loss) Attributable to Common Stockholders The following table presents net income (loss) attributable to common stockholders: [[GREPCENT_TABLE]] [["","","","Increase to"],["","Year Ended December 31,","","to Income"],["","2021","","2020","","$","","%"],["","(Dollars in millions)"],["Income (loss) from continuing operations, net of income taxes","$","347.4","","","$","(1,859.8)","","","$","2,207.2","","","118.7","%"],["Income (loss) from discontinued operations, net of income taxes","24.0","","","(14.0)","","","38.0","","","271.4","%"],["Net income (loss)","371.4","","","(1,873.8)","","","2,245.2","","","119.8","%"],["Less: Net income (loss) attributable to noncontrolling interests","11.3","","","(3.5)","","","14.8","","","422.9","%"],["Net income (loss) attributable to common stockholders","$","360.1","","","$","(1,870.3)","","","$","2,230.4","","","119.3","%"]] [[/GREPCENT_TABLE]] Income (Loss) from Discontinued Operations, Net of Income Taxes. The increase in results from discontinued operations, net of income taxes during the year ended December 31, 2021 compared to the prior year period was primarily due to the gain of $24.6 million recognized on the sale of the Wilkie Creek Mine as discussed in Note 19. “Other Events” and increases to the discount rates for black lung liabilities. Net Income (Loss) Attributable to Noncontrolling Interests. The increase in net results attributable to noncontrolling interests during the year ended December 31, 2021 compared to the prior year period was primarily due to higher results of Peabody’s majority-owned mines in which there is an outside non-controlling interest. Diluted EPS The following table presents diluted EPS: [[GREPCENT_TABLE]] [["","","","Increase to"],["","Year Ended December 31,","","EPS"],["","2021","","2020","","$","","%"],["Diluted EPS attributable to common stockholders:"],["Income (loss) from continuing operations","$","3.00","","","$","(18.99)","","","$","21.99","","","115.8","%"],["Income (loss) from discontinued operations","0.22","","","(0.15)","","","0.37","","","246.7","%"],["Net income (loss) attributable to common stockholders","$","3.22","","","$","(19.14)","","","$","22.36","","","116.8","%"]] [[/GREPCENT_TABLE]] Diluted EPS is commensurate with the changes in results from continuing operations and discontinued operations during that period. Diluted EPS reflects weighted average diluted common shares outstanding of 112.0 million and 97.7 million for the years ended December 31, 2021 and 2020, respectively. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","66"]] [[/GREPCENT_TABLE]] Table of Contents Reconciliation of Non-GAAP Financial Measures Adjusted EBITDA is defined as income (loss) from continuing operations before deducting net interest expense, income taxes, asset retirement obligation expenses and depreciation, depletion and amortization. Adjusted EBITDA is also adjusted for the discrete items that management excluded in analyzing each of its segment’s operating performance, as displayed in the reconciliations below. [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020"],["","(Dollars in millions)"],["Income (loss) from continuing operations, net of income taxes","$","347.4","","","$","(1,859.8)"],["Depreciation, depletion and amortization","308.7","","","346.0"],["Asset retirement obligation expenses","44.7","","","45.7"],["Restructuring charges","8.3","","","37.9"],["Transaction costs related to joint ventures","\u2014","","","23.1"],["Asset impairment","\u2014","","","1,487.4"],["Changes in deferred tax asset valuation allowance and reserves and amortization of basis difference related to equity affiliates","(33.8)","","","30.9"],["Interest expense","183.4","","","139.8"],["Net gain on early debt extinguishment","(33.2)","","","\u2014"],["Interest income","(6.5)","","","(9.4)"],["Net mark-to-market adjustment on actuarially determined liabilities","(43.4)","","","(5.1)"],["Unrealized losses on derivative contracts related to forecasted sales","115.1","","","29.6"],["Unrealized losses (gains) on foreign currency option contracts","7.5","","","(7.1)"],["Take-or-pay contract-based intangible recognition","(4.3)","","","(8.2)"],["Income tax provision","22.8","","","8.0"],["Adjusted EBITDA","$","916.7","","","$","258.8"]] [[/GREPCENT_TABLE]] Revenues per Ton and Adjusted EBITDA Margin per Ton are equal to revenues by segment and Adjusted EBITDA by segment, respectively, divided by segment tons sold. Costs per Ton is equal to Revenues per Ton less Adjusted EBITDA Margin per Ton, and are reconciled to operating costs and expenses as follows: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020"],["","(Dollars in millions)"],["Operating costs and expenses","$","2,553.1","","","$","2,524.9"],["Unrealized (losses) gains on foreign currency option contracts","(7.5)","","","7.1"],["Take-or-pay contract-based intangible recognition","4.3","","","8.2"],["Net periodic benefit credit, excluding service cost","(38.3)","","","(1.8)"],["Total Reporting Segment Costs","$","2,511.6","","","$","2,538.4"]] [[/GREPCENT_TABLE]] The following table presents Reporting Segment Costs by reporting segment: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020"],["","(Dollars in millions)"],["Seaborne Thermal Mining","$","580.9","","","$","548.6"],["Seaborne Metallurgical Mining","549.5","","","616.7"],["Powder River Basin Mining","836.3","","","796.3"],["Other U.S. Thermal Mining","524.9","","","538.9"],["Corporate and Other","20.0","","","37.9"],["Total Reporting Segment Costs","$","2,511.6","","","$","2,538.4"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","67"]] [[/GREPCENT_TABLE]] Table of Contents The following tables present tons sold, revenues, Reporting Segment Costs and Adjusted EBITDA by mining segment: [[GREPCENT_TABLE]] [["","Year Ended December 31, 2021"],["","Seaborne Thermal Mining","","Seaborne Metallurgical Mining","","Powder River Basin Mining","","Other U.S. Thermal Mining"],["","(Amounts in millions, except per ton data)"],["Tons sold","17.3","","","5.5","","","88.4","","","16.9"],["Revenues","$","934.0","","","$","727.7","","","$","971.2","","","$","689.1"],["Reporting Segment Costs","580.9","","","549.5","","","836.3","","","524.9"],["Adjusted EBITDA","$","353.1","","","$","178.2","","","$","134.9","","","$","164.2"],["Revenues per Ton","$","54.09","","","$","131.83","","","$","10.99","","","$","40.75"],["Costs per Ton","33.64","","","99.55","","","9.46","","","31.04"],["Adjusted EBITDA Margin per Ton","$","20.45","","","$","32.28","","","$","1.53","","","$","9.71"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","Year Ended December 31, 2020"],["","Seaborne Thermal Mining","","Seaborne Metallurgical Mining","","Powder River Basin Mining","","Other U.S. Thermal Mining"],["","(Amounts in millions, except per ton data)"],["Tons sold","19.0","","","5.6","","","87.2","","","18.3"],["Revenues","$","711.8","","","$","486.5","","","$","991.1","","","$","707.3"],["Reporting Segment Costs","548.6","","","616.7","","","796.3","","","538.9"],["Adjusted EBITDA","$","163.2","","","$","(130.2)","","","$","194.8","","","$","168.4"],["Revenues per Ton","$","37.46","","","$","86.33","","","$","11.37","","","$","38.73"],["Costs per Ton","28.87","","","109.44","","","9.14","","","29.51"],["Adjusted EBITDA Margin per Ton","$","8.59","","","$","(23.11)","","","$","2.23","","","$","9.22"]] [[/GREPCENT_TABLE]] Free Cash Flow is defined as net cash provided by (used in) operating activities less net cash used in investing activities and excludes cash outflows related to business combinations. See the table below for a reconciliation of Free Cash Flow to its most comparable measure under U.S. GAAP. [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020"],["","(Dollars in millions)"],["Net cash provided by (used in) operating activities","$","420.0","","","$","(9.7)"],["Net cash used in investing activities","(131.5)","","","(206.7)"],["Free Cash Flow","$","288.5","","","$","(216.4)"]] [[/GREPCENT_TABLE]] Liquidity and Capital Resources Overview The Company’s primary source of cash is proceeds from the sale of its coal production to customers. The Company has also generated cash from the sale of non-strategic assets, including coal reserves, resources and surface lands, and, from time to time, borrowings under its credit facilities and the issuance of securities. The Company’s primary uses of cash include the cash costs of coal production, capital expenditures, coal reserve lease and royalty payments, debt service costs, capital and operating lease payments, postretirement plans, take-or-pay obligations, post-mining reclamation obligations, collateral and margining requirements, and selling and administrative expenses. Recently, the Company has also used cash for early debt retirements, and historically it has also used cash for dividends and share repurchases. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","68"]] [[/GREPCENT_TABLE]] Table of Contents Any future determinations to return capital to stockholders, such as dividends or share repurchases will depend on a variety of factors, including the restrictions set forth under the Company’s debt and surety agreements, its net income or other sources of cash, liquidity position and potential alternative uses of cash, such as internal development projects or acquisitions, as well as economic conditions and expected future financial results. The Company’s ability to early retire debt, declare dividends or repurchase shares in the future will depend on its future financial performance, which in turn depends on the successful implementation of its strategy and on financial, competitive, regulatory, technical and other factors, general economic conditions, demand for and selling prices of coal and other factors specific to its industry, many of which are beyond the Company’s control. The Company has presently suspended the payment of dividends and share repurchases, as discussed in Part II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.” Liquidity As of December 31, 2021, the Company’s cash balances totaled $954.3 million, including approximately $542 million held by Australian subsidiaries, approximately $368 million held by U.S. subsidiaries, and the remainder held by other foreign subsidiaries in accounts predominantly domiciled in the U.S. The subsidiaries that conduct the operations of the Wilpinjong Mine held cash of approximately $207 million at December 31, 2021. A significant majority of the cash held by the Company’s foreign subsidiaries is denominated in U.S. dollars. This cash is generally used to support non-U.S. liquidity needs, including capital and operating expenditures in Australia. The Company’s available liquidity increased from $728.7 million as of December 31, 2020 to $995.9 million as of December 31, 2021. Available liquidity was comprised of the following: [[GREPCENT_TABLE]] [["","","","December 31,"],["","","","2021","","2020"],["","","","(Dollars in millions)"],["Cash and cash equivalents","","","$","954.3","","","$","709.2"],["Credit facility availability","","","15.3","","","0.2"],["Accounts receivable securitization program availability","","","26.3","","","19.3"],["Total liquidity","","","$","995.9","","","$","728.7"]] [[/GREPCENT_TABLE]] Indebtedness The Company’s total funded indebtedness (Indebtedness) as of December 31, 2021 and 2020 is presented in the table below. [[GREPCENT_TABLE]] [["","December 31,"],["Debt Instrument (defined below, as applicable)","2021","","2020"],["","(Dollars in millions)"],["6.000% Senior Secured Notes due March 2022 (2022 Notes)","$","23.1","","","$","459.0"],["8.500% Senior Secured Notes due December 2024 (2024 Peabody Notes)","62.6","","","\u2014"],["10.000% Senior Secured Notes due December 2024 (2024 Co-Issuer Notes)","193.9","","","\u2014"],["Senior Secured Term Loan due 2024 (Co-Issuer Term Loans)","206.0","","","\u2014"],["6.375% Senior Secured Notes due March 2025 (2025 Notes)","334.9","","","500.0"],["Senior Secured Term Loan due 2025, net of original issue discount (Senior Secured Term Loan)","322.8","","","388.2"],["Revolving credit facility","\u2014","","","216.0"],["Finance lease obligations","29.3","","","27.3"],["Less: Debt issuance costs","(34.8)","","","(42.7)"],["","1,137.8","","","1,547.8"],["Less: Current portion of long-term debt","59.6","","","44.9"],["Long-term debt","$","1,078.2","","","$","1,502.9"]] [[/GREPCENT_TABLE]] The Company’s Indebtedness will require estimated principal and interest payments, assuming interest rates in effect at December 31, 2021, of approximately $110 million in 2022, $85 million in 2023, $545 million in 2024, $660 million in 2025, and $10 million thereafter. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","69"]] [[/GREPCENT_TABLE]] Table of Contents Refinancing and Related Transactions During the fourth quarter of 2020 and the first quarter of 2021, the Company entered into a series of interrelated agreements with its surety bond providers, the revolving lenders under its credit agreement and certain holders of its senior secured notes to extend a significant portion of its near-term debt maturities to December 2024 and to stabilize collateral requirements for its existing surety bond portfolio. Such agreements and related activities are described below. Organizational Realignment In July and August 2020, the Company effected certain changes to its corporate structure in contemplation of a debt-for-debt exchange, which included, among other steps, the formation of certain wholly-owned subsidiaries (the Co-Issuers). In connection with the change in structure, the Company’s subsidiary which owns and operates its Wilpinjong Mine in Australia became a subsidiary of the Co-Issuers. The Co-Issuers and the Wilpinjong subsidiary were designated as unrestricted subsidiaries under the Company’s credit agreement (Credit Agreement) and its senior notes’ indenture (the Existing Indenture). Surety Agreement In November 2020, the Company entered into a surety transaction support agreement (Surety Agreement) with the providers of its surety bond portfolio (Participating Sureties) to resolve previous collateral demands made by the Participating Sureties. In accordance with the Surety Agreement, the Company initially provided $75.0 million of collateral, in the form of letters of credit. Upon completion of the Refinancing Transactions, as defined below, other provisions of the Surety Agreement became effective. In particular, the Company granted second liens on $200.0 million of certain mining equipment and will post an additional $25.0 million of collateral per year from 2021 through 2024 for the benefit of the Participating Sureties, plus other amounts in accordance with the Surety Agreement. Further, the Participating Sureties have agreed to a standstill through the earlier of December 31, 2025, or the maturity of the Credit Agreement (currently March 31, 2025), during which time, the Participating Sureties will not demand any additional collateral, draw on letters of credit posted for the benefit of themselves or cancel any existing surety bond. The Company will not pay dividends or make share repurchases during the standstill period, unless otherwise agreed between parties. Under the Surety Agreement, additional collateral postings are required if the Company generates more than $100.0 million of free cash flow in any twelve-month period. As calculated in accordance with the agreement, the Company posted an additional $13 million of collateral in January 2022 in the form of letters of credit. Refinancing Transactions On January 29, 2021 (the Settlement Date), the Company completed a series of transactions (collectively, the Refinancing Transactions) to, among other things, provide it with maturity extensions and covenant relief, while allowing it to maintain near-term operating liquidity and financial flexibility. The Refinancing Transactions included a senior notes exchange and related consent solicitation, a revolving credit facility exchange and various amendments to its existing debt agreements, as summarized below. Exchange Offer On the Settlement Date, the Company settled an exchange offer (Exchange Offer) pursuant to which $398.7 million aggregate principal amount of its 6.000% Senior Secured Notes due March 2022 (2022 Notes) were validly tendered, accepted by the Company and exchanged for aggregate consideration consisting of (a) $193.9 million aggregate principal amount of new 10.000% Senior Secured Notes due 2024 issued by the Co-Issuers (2024 Co-Issuer Notes), (b) $195.1 million aggregate principal amount of new 8.500% Senior Secured Notes due 2024 issued by Peabody (Peabody Notes), and (c) a cash payment of approximately $9.4 million. Concurrently with the exchange, the requisite number of holders of the 2022 Notes consented to amend the notes’ underlying indenture to render them unsecured and not subject to substantially all of the restrictive covenants. The holders of $60.3 million of the 2022 Notes did not participate in the exchange offer. In connection with the exchange requirements, the Company purchased $22.4 million of the 2024 Peabody Notes at 80% of their accreted value, plus accrued and unpaid interest, during the first quarter of 2021. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","70"]] [[/GREPCENT_TABLE]] Table of Contents The 2024 Co-Issuer Notes and Co-Issuer Term Loans are subject to mandatory prepayment offers at the end of each six-month period whereby the Excess Cash Flow (as defined in the 2024 Co-Issuer Notes Indenture) generated by the Wilpinjong Mine during each such period may be applied to the principal of the 2024 Co-Issuer Notes and the Co-Issuer Term Loans on a pro rata basis, provided that the liquidity attributable to the Co-Issuers would not fall below $60.0 million. Such prepayments may be accepted or declined at the option of the debt holders. Based upon the Wilpinjong Mine’s results for the six-month period ended December 31, 2021, a total offer to prepay $105.6 million of principal was made on a pro rata basis in February 2022, including $51.2 million of the Co-Issuer Notes and $54.4 million of the Co-Issuer Term Loan. The offer for the Co-Issuer Notes expires March 14, 2022. The Company expects to prepay $17.2 million of principal under the now-expired Co-Issuer Term Loan offer, which is reflected within the current portion of long-term debt in the accompanying consolidated balance sheet as of December 31, 2021. There was no prepayment offer made with respect to the six-month period ended June 30, 2021. Revolver Transactions In connection with the Refinancing Transactions, the Company restructured the revolving loans under the Credit Agreement by (i) making a pay down of revolving loans thereunder in the aggregate amount of $10.0 million, (ii) the Co-Issuers incurring $206.0 million of term loans under a credit agreement, dated as of the Settlement Date (Co-Issuer Term Loans, Co-Issuer Term Loan Agreement), (iii) Peabody entering into a letter of credit facility (the Company LC Agreement), and (iv) amending the Credit Agreement (collectively, the Revolver Transactions). On the Settlement Date, the Company entered into the Company LC Agreement with the revolving lenders party to the Credit Agreement, pursuant to which the Company obtained a $324.0 million letter of credit facility under which its existing letters of credit under the Credit Agreement were deemed to be issued. The commitments under the Company LC Agreement mature on December 31, 2024. Undrawn letters of credit under the Company LC Agreement bear interest at 6.00% per annum and unused commitments are subject to a 0.50% per annum commitment fee. In connection with the Revolver Transactions, the Company amended the Credit Agreement to make certain changes in consideration of the Company LC Agreement. After giving effect to the Revolver Transactions, there remain no revolving commitments or revolving loans under the Credit Agreement and the first lien net leverage ratio covenant was eliminated. The Company LC Agreement requires that the Company’s restricted subsidiaries maintain minimum aggregate liquidity of $125.0 million at the end of each quarter through December 31, 2024. As such, liquidity attributable to the Co-Issuers, its subsidiaries and other unrestricted subsidiaries is excluded from the calculation. Liquidity calculated in this manner amounted to $771.9 million at December 31, 2021. The indenture which governs the Peabody Notes and the Company LC Agreement allow the Company to make open market debt repurchases, subject to certain limitations, including, but not limited to: (i) the Company’s unrestricted subsidiaries’ liquidity must be greater than or equal to $200.0 million after giving effect to such repurchases and (ii) for every $4 of principal repurchased in any fiscal quarter, the Company must make an offer on a pro rata basis to purchase $1 of principal amount of debt from holders of the Peabody Notes and the priority lien obligations under the Company LC Agreement within 30 days of the end of such fiscal quarter at a price equal to the weighted average repurchase price paid over that quarter (Mandatory Repurchase Offer). Other Debt Financing The Refinancing Transactions did not significantly impact the Company’s existing senior secured term loan under the Credit Facility (Senior Secured Term Loan), or its $500.0 million of 6.375% senior secured notes due March 2025 (2025 Notes), but these debt instruments were impacted by subsequent financing transactions described below. The term loan requires quarterly principal payments of $1.0 million and periodic interest payments, currently at LIBOR plus 2.75%, through December 2024 with the remaining balance due in March 2025. The senior secured notes require semi-annual interest payments each March 31 and September 30 until maturity. The Company’s debt agreements impose various restrictions and limits on certain categories of payments that the Company may make, such as those for dividends, investments, and stock repurchases. The Company is also subject to customary affirmative and negative covenants. The Company was compliant with all covenants under its debt agreements including the minimum liquidity covenant under the Company LC Agreement at December 31, 2021. Subsequent Financing Transactions Subsequent to the Refinancing Transactions, the Company completed a series of financing transactions intended to improve its capital structure. During 2021, the Company announced an at-the-market equity offering program pursuant to which, as amended, the Company could offer and sell up to 32.5 million shares of its common stock. Through December 31, 2021, the Company sold approximately 24.8 million shares for net cash proceeds of $269.8 million. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","71"]] [[/GREPCENT_TABLE]] Table of Contents Through December 31, 2021, the Company retired $91.4 million of 2024 Peabody Notes, $117.8 million of 2025 Notes and $61.7 million of its Senior Secured Term Loan primarily through various open market purchases at an aggregate cost of $232.4 million. During the year ended December 31, 2021, the Company recorded net gains on early debt extinguishment of $28.8 million related to these retirements. Through December 31, 2021, the Company also completed multiple bilateral transactions with holders of the 2022 Notes, the 2025 Notes and the 2024 Peabody Notes in which the Company issued an aggregate 10.0 million shares of its common stock in exchange for $37.3 million aggregate principal amount of the 2022 Notes, $47.2 million aggregate principal amount of the 2025 Notes and $21.6 million aggregate principal amount of the 2024 Peabody Notes. As a result of the Company’s open market purchases of its debt during the three months ended December 31, 2021, on January 14, 2022, the Company announced a Mandatory Repurchase Offer of up to $38.6 million of 2024 Peabody Notes, at 94.940% of their aggregate accreted value, plus accrued and unpaid interest, and a concurrent repurchase offer of priority lien obligations under the Company LC Agreement. The offers expire on March 4, 2022, unless extended by the Company. Considering the Refinancing Transactions and the subsequent financing transactions described above, the Company expects to incur approximately $157 million of interest expense, including approximately $17 million of non-cash interest expense, during the year ended December 31, 2022. Approximately $80 million of the total cash interest expense expected to be incurred in 2022 is related to the Company’s Indebtedness, and the remainder relates primarily to its surety bonding and securitization programs. Refer to Note 11. “Long-term Debt” of the accompanying consolidated financial statements for additional information related to the subsequent financing transactions described above. Accounts Receivable Securitization Program As described in Note 22. “Financial Instruments, Guarantees With Off-Balance-Sheet Risk and Other Guarantees” of the accompanying consolidated financial statements, the Company entered into an accounts receivable securitization program during 2017. The securitization program was amended in January 2022 to extend its maturity to January 2025 and reduce the available funding capacity from $250.0 million to $175.0 million, which better aligns with the current average borrowing base. Funding capacity is limited to the availability of eligible receivables and is accounted for as a secured borrowing. Funding capacity under the program may also be utilized for letters of credit in support of other obligations. At December 31, 2021, the Company had no outstanding borrowings and $143.9 million of letters of credit issued under the program, which were primarily in support of portions of the Company’s reclamation obligations. The Company was not required to post cash collateral under the Securitization Program at December 31, 2021. Collateralized Letter of Credit Agreement In February 2022, the Company entered into a new agreement, which provides up to $250.0 million of capacity for irrevocable standby letters of credit in support of reclamation bonding. The agreement requires the Company to provide cash collateral at a level of 103% of the aggregate amount of letters of credit outstanding under the arrangement (limited to $5.0 million total excess collateralization.) Outstanding letters of credit bear a fixed fee in the amount of 0.75% per annum. The Company receives a deposit rate of 0.25% per annum on the amount of cash collateral posted in support of letters of credit, with the rate subject to increases over time. The agreement has an initial expiration date of December 31, 2025. Capital Expenditures For 2022, the Company is targeting total capital expenditures of approximately $190 million, which includes approximately $80 million of major project and growth capital expenditures. Other Requirements The Company will incur significant future cash outflows for certain liabilities related to its prior mining activities and former employees. Such cash flows pertain to postretirement benefit plans, work-related injuries and illnesses, defined benefit pension plans, mine reclamation and end-of-mine closure costs and exploration obligations and are estimated to amount to approximately $205 million in 2022, $155 million in 2023, $150 million in 2024, $145 million in 2025, $135 million in 2026, and $1,640 million thereafter. The Company has various short- and long-term take-or-pay arrangements in Australia and the U.S. associated with rail and port commitments for the delivery of coal, including amounts relating to export facilities. The estimated future cash flows associated with such arrangements are approximately $85 million in 2022, $90 million in 2023, $95 million in 2024, $90 million in 2025, $85 million in 2026, and $710 million thereafter. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","72"]] [[/GREPCENT_TABLE]] Table of Contents The Company’s operating lease commitments, excluding potential contingent rental amounts, will require cash payments of approximately $19 million in 2022, $17 million in 2023, and $13 million thereafter. Cash Flows and Free Cash Flow The following table summarizes the Company’s cash flows for the years ended December 31, 2021 and 2020, as reported in the accompanying consolidated financial statements. Free Cash Flow is a financial measure not recognized in accordance with U.S. GAAP. Refer to the “Reconciliation of Non-GAAP Financial Measures” section above for definitions and reconciliations to the most comparable measures under U.S. GAAP. [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020"],["","(Dollars in millions)"],["Net cash provided by (used in) operating activities","$","420.0","","","$","(9.7)"],["Net cash used in investing activities","(131.5)","","","(206.7)"],["Net cash (used in) provided by financing activities","(43.4)","","","193.4"],["Net change in cash, cash equivalents and restricted cash","245.1","","","(23.0)"],["Cash, cash equivalents and restricted cash at beginning of period","709.2","","","732.2"],["Cash, cash equivalents and restricted cash at end of period","$","954.3","","","$","709.2"],["Net cash provided by (used in) operating activities","$","420.0","","","$","(9.7)"],["Net cash used in investing activities","(131.5)","","","(206.7)"],["Free Cash Flow","$","288.5","","","$","(216.4)"]] [[/GREPCENT_TABLE]] Operating Activities. The net increase in net cash provided by (used in) operating activities for the year ended December 31, 2021 compared to the prior year was driven by a year-over-year increase in cash from the Company’s mining operations ($526.6 million) partially offset by increased cash utilized to satisfy the margin requirements associated with derivative financial instruments ($96.9 million). Investing Activities. The decrease in net cash used in investing activities for the year ended December 31, 2021 compared to the prior year was compared to the same period in the prior year was driven by cash receipts from the Company’s equity method investee, Middlemount ($44.7 million), and lower advances to related parties ($22.7 million). Financing Activities. The decrease in net cash provided by financing activities for the year ended December 31, 2021 compared to the prior year was driven by $375.0 million of revolving loan and securitization borrowings in the prior year, higher repayments of debt principal ($115.9 million) and payments for deferred financing costs ($15.5 million) in the current year, partially offset by $269.8 million proceeds from the issuance of common stock in the current year. Financial Assurances In the normal course of business, the Company is a party to various guarantees and financial instruments that carry off-balance-sheet risk and are not reflected in the accompanying consolidated balance sheets. At December 31, 2021, such instruments included $1,463.7 million of surety bonds and $452.6 million of letters of credit. Such financial instruments provide support for its reclamation bonding requirements, lease obligations, insurance policies and various other performance guarantees. The Company periodically evaluates the instruments for on-balance-sheet treatment based on the amount of exposure under the instrument and the likelihood of required performance. The Company does not expect any material losses to result from these guarantees or off-balance-sheet instruments in excess of liabilities provided for in its consolidated balance sheets. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","73"]] [[/GREPCENT_TABLE]] Table of Contents As of December 31, 2021, the Company was party to financial instruments with off-balance sheet risk in support of the following obligations: [[GREPCENT_TABLE]] [["","Reclamation","","Health and welfare (1)","","Contract performance (2)","","Leased property and equipment","","Other (3)","","Total"],["","(Dollars in millions)"],["Surety bonds and bank guarantees","$","1,294.7","","","$","42.1","","","$","79.9","","","$","30.9","","","$","16.1","","","$","1,463.7"],["Letters of credit outstanding under letter of credit facility","205.8","","","90.9","","","7.1","","","5.0","","","\u2014","","","308.8"],["Letters of credit outstanding under accounts receivable securitization program","117.2","","","18.9","","","7.7","","","\u2014","","","\u2014","","","143.8"],["","1,617.7","","","151.9","","","94.7","","","35.9","","","16.1","","","1,916.3"],["Less: Letters of credit in support of surety bonds (4)","(315.9)","","","(29.9)","","","\u2014","","","(1.2)","","","\u2014","","","(347.0)"],["Less: Cash collateral in support of surety bonds (4)","(15.0)","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(15.0)"],["Obligations supported, net","$","1,286.8","","","$","122.0","","","$","94.7","","","$","34.7","","","$","16.1","","","$","1,554.3"]] [[/GREPCENT_TABLE]] (1)    Obligations include pension and health care plans, workers’ compensation, and property and casualty insurance. (2)    Obligations pertain to customer and vendor contracts. (3)    Obligations primarily pertain to the disturbance or alteration of public roadways in connection with the Company’s mining activities that is subject to future restoration. (4)    Serve as collateral for certain surety bonds at the request of surety bond providers. The Company has also posted $8.8 million in incremental collateral directly with the beneficiary that is not supported by a surety bond. Financial assurances associated with new reclamation bonding requirements, surety bonds or other obligations may require additional collateral in the form of cash or letters of credit causing a decline in the Company’s liquidity. As described in Note 22. “Financial Instruments, Guarantees With Off-Balance-Sheet Risk and Other Guarantees” to the accompanying consolidated financial statements, the Company is required to provide various forms of financial assurance in support of its mining reclamation obligations in the jurisdictions in which it operates. Such requirements are typically established by statute or under mining permits. Historically, such assurances have taken the form of third-party instruments such as surety bonds, bank guarantees and letters of credit, as well as self-bonding arrangements in the U.S. Self-bonding in the U.S. has become increasingly restricted in recent years, leading to the Company’s increased usage of surety bonds and similar third-party instruments. This change in practice has had an unfavorable impact on its liquidity due to increased collateral requirements and surety and related fees. At December 31, 2021, the Company had total asset retirement obligations of $719.8 million which were backed by a combination of surety bonds, bank guarantees and letters of credit. Bonding requirement amounts may differ significantly from the related asset retirement obligation because such requirements are calculated under the assumption that reclamation begins currently, whereas the Company’s accounting liabilities are discounted from the end of a mine’s economic life (when final reclamation work would begin) to the balance sheet date. Guarantees and Other Financial Instruments with Off-Balance Sheet Risk. See Note 22. “Financial Instruments, Guarantees With Off-Balance-Sheet Risk and Other Guarantees” to the accompanying consolidated financial statements for a discussion of the Company’s accounts receivable securitization program and guarantees and other financial instruments with off-balance sheet risk. Critical Accounting Policies and Estimates The Company’s discussion and analysis of its financial condition, results of operations, liquidity and capital resources is based upon its financial statements, which have been prepared in accordance with U.S. GAAP. The Company is also required under U.S. GAAP to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","74"]] [[/GREPCENT_TABLE]] Table of Contents Impairment of Long-Lived Assets. The Company evaluates its long-lived assets held and used in operations for impairment as events and changes in circumstances indicate that the carrying amount of such assets might not be recoverable. Factors that would indicate potential impairment to be present include, but are not limited to, a sustained history of operating or cash flow losses, an unfavorable change in earnings and cash flow outlook, prolonged adverse industry or economic trends and a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition. The Company generally does not view short-term declines in thermal and metallurgical coal prices as a triggering event for conducting impairment tests because of historic price volatility. However, the Company generally views a sustained trend of depressed coal pricing (for example, over periods exceeding one year) as an indicator of potential impairment. Because of the volatile and cyclical nature of coal prices and demand, it is reasonably possible that coal prices may decrease and/or fail to improve in the near term, which, absent sufficient mitigation such as an offsetting reduction in the Company’s operating costs, may result in the need for future adjustments to the carrying value of its long-lived mining assets and mining-related investments. Assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. For its active mining operations, the Company generally groups such assets at the mine level, or the mining complex level for mines that share infrastructure, with the exception of impairment evaluations triggered by mine closures. In those cases involving mine closures, the related assets are evaluated at the individual asset level for remaining economic life based on transferability to ongoing operating sites or for expected salvage. For its development and exploration properties and portfolio of surface land and coal reserve and resource holdings, the Company considers several factors to determine whether to evaluate those assets individually or on a grouped basis for purposes of impairment testing. Such factors include geographic proximity to one another, the expectation of shared infrastructure upon development based on future mining plans and whether it would be most advantageous to bundle such assets in the event of a sale to a third party. When indicators of impairment are present, the Company evaluates its long-lived assets for recoverability by comparing the estimated undiscounted cash flows in the LOM plan expected to be generated by those assets under various assumptions to their carrying amounts. If such undiscounted cash flows indicate that the carrying value of the asset group is not recoverable, impairment losses are measured by comparing the estimated fair value of the asset group to its carrying amount. As quoted market prices are unavailable for the Company’s individual mining operations, fair value is determined through the use of an expected present value technique based on the income approach, except for non-strategic coal reserves and resources, surface lands and undeveloped coal properties excluded from its long-range mine planning. In those cases, a market approach is utilized based on the most comparable market multiples available. The estimated future cash flows and underlying assumptions used to assess recoverability and, if necessary, measure the fair value of the Company’s long-lived mining assets are derived from those developed in connection with its planning and budgeting process. The Company believes its assumptions to be consistent with those a market participant would use for valuation purposes. The most critical assumptions underlying its projections and fair value estimates include those surrounding future tons sold, coal prices for unpriced coal, production costs (including costs for labor, commodity supplies and contractors), transportation costs, foreign currency exchange rates and a risk-adjusted, cost of capital (all of which generally constitute unobservable Level 3 inputs under the fair value hierarchy), in addition to market multiples for non-strategic coal reserves and resources, surface lands and undeveloped coal properties excluded from the Company’s long-range mine planning (which generally constitute Level 2 inputs under the fair value hierarchy). There were no impairment charges of long-lived assets recorded for the year ended December 31, 2021. Impairment charges of $1,487.4 million of long-lived assets were recorded for the year ended December 31, 2020. The assumptions used are based on the Company’s best knowledge at the time it prepare its analysis but can vary significantly due to the volatile and cyclical nature of coal prices and demand, regulatory issues, unforeseen mining conditions, commodity prices and cost of labor. Additionally, the decline of coal-fired electricity generation in the U.S., driven by the reduced utilization of plants and plant retirements, sustained low natural gas pricing and the increased use of renewable energy sources, was a significant consideration in the Company’s analysis. These factors may cause the Company to be unable to recover all or a portion of the carrying value of its long-lived assets. The Company has identified certain assets with an aggregate carrying value of approximately $0.5 billion at December 31, 2021 in its Other U.S. Thermal Mining and Corporate and Other segments whose recoverability is most sensitive to coal pricing, cost pressures, customer demand, customer concentration risk and future economic viability. The Company conducted a review of those assets as of December 31, 2021 and determined that no further impairment charges were necessary as of that date. See Note 3. “Asset Impairment” to the accompanying consolidated financial statements for additional information regarding impairment charges. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","75"]] [[/GREPCENT_TABLE]] Table of Contents Income Taxes. Peabody accounts for income taxes in accordance with accounting guidance which requires deferred tax assets and liabilities to be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. The guidance also requires that deferred tax assets be reduced by a valuation allowance if it is “more likely than not” that some portion or all of the deferred tax asset will not be realized. In its evaluation of the need for a valuation allowance, Peabody takes into account various factors, including the expected level of future taxable income, available tax planning strategies, reversals of existing taxable temporary differences and taxable income in carryback years. As of December 31, 2021, the Company had valuation allowances for income taxes totaling $2,120.8 million. If actual results differ from the assumptions made in the annual evaluation of its valuation allowance, Peabody may record a change in valuation allowance through income tax expense in the period such determination is made. Peabody’s liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with its various filing positions. Peabody recognizes the tax benefit from an uncertain tax position only if it is “more likely than not” that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position must be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of December 31, 2021, the Company had net unrecognized tax benefits of $11.0 million included in recorded liabilities in the consolidated balance sheet. Peabody believes that its judgments and estimates are reasonable; however, to the extent it prevails in matters for which liabilities have been established, or are required to pay amounts in excess of its recorded liabilities, the Company’s effective tax rate in a given period could be materially affected. See Note 9. “Income Taxes” to the accompanying consolidated financial statements for additional information regarding valuation allowances and unrecognized tax benefits. Postretirement Benefit and Pension Liabilities. Peabody has long-term liabilities for its employees’ postretirement benefit costs and defined benefit pension plans. Its pension obligations are funded in accordance with the provisions of applicable laws and the Company’s policies. Liabilities for postretirement benefit costs are funded at its discretion. For the year ended December 31, 2021 Peabody recorded a total benefit related to postretirement benefit costs and pension of $38.2 million, while employer contributions were $26.8 million. An actuarial gain of $41.8 million was recorded for the year ended December 31, 2021. Each of these liabilities is actuarially determined and Peabody uses various actuarial assumptions, including the discount rate, future cost trends, mortality tables, demographic assumptions and expected asset returns to estimate the costs and obligations for these items. Peabody’s discount rate is determined by utilizing a hypothetical bond portfolio model which approximates the future cash flows necessary to service its liabilities. The Company makes assumptions related to future trends for medical care costs in the estimates of postretirement benefit costs. Its medical trend assumption is developed by annually examining the historical trend of cost per claim data. In deciding which mortality tables to use, the Company periodically reviews its population’s actual mortality experience and evaluates results against its current assumptions as well as consider recent mortality tables published by the Society of Actuaries Retirement Plans Experience Committee in order to select mortality tables for use in its year end valuations. In addition, the Company makes assumptions related to rates of return on plan assets. If its assumptions do not materialize as expected, actual cash expenditures and costs that Peabody incurs could differ materially from its current estimates. Moreover, regulatory changes could affect Peabody’s obligation to satisfy these or additional obligations. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","76"]] [[/GREPCENT_TABLE]] Table of Contents For the Company’s postretirement benefit obligation, assumed discount rates and health care cost trend rates have a significant effect on the expense and liability amounts reported for its health care plans. Below the Company has provided two separate sensitivity analyses to demonstrate the significance of these assumptions in relation to reported amounts. [[GREPCENT_TABLE]] [["","For Year Ended December 31, 2021"],["","One-Percentage- Point Increase","","One-Percentage- Point Decrease"],["","(Dollars in millions)"],["Health care cost trend rate:"],["Effect on total net periodic postretirement benefit cost","$","1.0","","","$","(0.9)"],["Effect on total postretirement benefit obligation","$","16.6","","","$","(14.3)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","For Year Ended December 31, 2021"],["","One-Half Percentage- Point Increase","","One-Half Percentage- Point Decrease"],["","(Dollars in millions)"],["Discount rate:"],["Effect on total net periodic postretirement benefit cost","$","1.4","","","$","(1.5)"],["Effect on total postretirement benefit obligation","$","(9.6)","","","$","10.8"],["Expected return on assets:"],["Effect on total net periodic postretirement benefit cost","$","(0.1)","","","$","0.1"]] [[/GREPCENT_TABLE]] For the Company’s pension obligation, assumed discount rates and expected returns on assets have a significant effect on the expense and funded status amounts reported for its defined benefit pension plans. Below the Company has provided two separate sensitivity analyses to demonstrate the significance of these assumptions in relation to reported amounts. [[GREPCENT_TABLE]] [["","For Year Ended December 31, 2021"],["","One-Half Percentage- Point Increase","","One-Half Percentage- Point Decrease"],["","(Dollars in millions)"],["Discount rate:"],["Effect on total net periodic pension cost","$","2.7","","","$","(3.0)"],["Effect on defined benefit pension plans\u2019 projected benefit obligation","$","(34.4)","","","$","37.4"],["Expected return on assets:"],["Effect on total net periodic pension cost","$","(4.1)","","","$","4.1"]] [[/GREPCENT_TABLE]] As a result of discretionary contributions made in recent years, its defined benefit pension plans have become nearly fully funded. As a result of the funding level, the asset allocation mix reflected Peabody’s target asset mix of 100% fixed income investments and the pensions plans’ assets provide a significant hedge to the funded status against interest rate movements. If the discount rate moves, Peabody’s actual results would be different than those shown above as substantially all of the change in the discount rate should be offset by changes to the expected return on plan assets. See Note 14. “Postretirement Health Care and Life Insurance Benefits” and Note 15. “Pension and Savings Plans” to the accompanying consolidated financial statements for additional information regarding postretirement benefit and pension plans. [[GREPCENT_TABLE]] [["Peabody Energy Corporation","2021 Form 10-K","77"]] [[/GREPCENT_TABLE]] Table of Contents Asset Retirement Obligations. The Company’s asset retirement obligations primarily consist of spending estimates for surface land reclamation and support facilities at both surface and underground mines in accordance with applicable reclamation laws and regulations in the U.S. and Australia as defined by each mining permit. Asset retirement obligations are determined for each mine using various estimates and assumptions including, among other items, estimates of disturbed acreage as determined from engineering data, estimates of future costs to reclaim the disturbed acreage and the timing of these cash flows, discounted using a credit-adjusted, risk-free rate. As changes in estimates occur (such as mine plan revisions, changes in estimated costs or changes in timing of the performance of reclamation activities), the revisions to the obligation and asset are recognized at the appropriate credit-adjusted, risk-free rate. If the Company’s assumptions do not materialize as expected, actual cash expenditures and costs that it incurs could be materially different than currently estimated. Moreover, regulatory changes could increase its obligation to perform reclamation and mine closing activities. Amortization associated with the Company’s asset retirement obligation assets of $27.1 million for the year ended December 31, 2021 was included in “Depreciation, depletion and amortization” in the Company’s consolidated statements of operations. Asset retirement obligation expense, consisting of both accretion expense and expense related to reclamation activities at the Company’s active locations, for the year ended December 31, 2021 was $44.7 million and payments totaled $39.3 million. See Note 13. “Asset Retirement Obligations” to the accompanying consolidated financial statements for additional information regarding the Company’s asset retirement obligations. Contingent liabilities. From time to time, Peabody is subject to legal and environmental matters related to its continuing and discontinued operations and certain historical, non-coal producing operations. In connection with such matters, the Company is required to assess the likelihood of any adverse judgments or outcomes, as well as potential ranges of probable losses. A determination of the amount of reserves required for these matters is made after considerable analysis of each individual issue. Peabody accrues for legal and environmental matters within “Operating costs and expenses” when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Peabody provides disclosure surrounding loss contingencies when it believes that it is at least reasonably possible that a material loss may be incurred or an exposure to loss in excess of amounts already accrued may exist. Adjustments to contingent liabilities are made when additional information becomes available that affects the amount of estimated loss, which information may include changes in facts and circumstances, changes in interpretations of law in the relevant courts, the results of new or updated environmental remediation cost studies and the ongoing consideration of trends in environmental remediation costs. Accrued contingent liabilities exclude claims against third parties and are not discounted. The current portion of these accruals is included in “Accounts payables and accrued expenses” and the long-term portion is included in “Other noncurrent liabilities” in the Company’s consolidated balance sheets. In general, legal fees related to environmental remediation and litigation are charged to expense. The Company includes the interest component of any litigation-related penalties within “Interest expense” in its consolidated statements of operations. See Note 23. “Commitments and Contingencies” to the accompanying consolidated financial statements for further discussion of the Company’s contingent liabilities. Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented See Note 1. “Summary of Significant Accounting Policies” to the accompanying consolidated financial statements for a discussion of newly adopted accounting standards and accounting standards not yet implemented.