Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 1-16463
____________________________________________
PEABODY ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
13-4004153
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
701 Market Street, St. Louis, Missouri
 
63101-1826
(Address of principal executive offices)
 
(Zip Code)
(314) 342-3400
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ   No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer þ
 
 
 
 
 
Accelerated filer ¨
 
 
Non-accelerated filer ¨
 
 
 
 
 
Smaller reporting company ¨
 
 
(Do not check if a smaller reporting company)
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
There were 18.5 million shares of the registrant's common stock (par value of $0.01 per share) outstanding at August 1, 2016.



TABLE OF CONTENTS
 
Page
 
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015

Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2016 and 2015

Condensed Consolidated Balance Sheets as of June 30, 2016 (Unaudited) and December 31, 2015


 
 EX-31.1
 
 EX-31.2
 
 EX-32.1
 
 EX-32.2
 
 EX-95
 
 EX-101 INSTANCE DOCUMENT
 
 EX-101 SCHEMA DOCUMENT
 
 EX-101 CALCULATION LINKBASE DOCUMENT
 
 EX-101 LABELS LINKBASE DOCUMENT
 
 EX-101 PRESENTATION LINKBASE DOCUMENT
 
 EX-101 DEFINITION LINKBASE DOCUMENT
 


Table of Contents

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(Dollars in millions, except per share data)
Revenues
 
 

 
 
 
 
 
 
Sales
 
$
905.3

 
$
1,226.8

 
$
1,785.1

 
$
2,645.5

Other revenues
 
134.9

 
112.5

 
282.3

 
231.7

Total revenues
 
1,040.2

 
1,339.3

 
2,067.4

 
2,877.2

Costs and expenses
 
 
 
 
 

 
 
Operating costs and expenses (exclusive of items shown separately below)
 
996.2

 
1,198.8

 
1,916.4

 
2,520.4

Depreciation, depletion and amortization
 
115.9

 
147.1

 
227.7

 
294.6

Asset retirement obligation expenses
 
11.5

 
13.9

 
24.6

 
28.1

Selling and administrative expenses
 
34.2

 
41.6

 
82.5

 
91.0

Restructuring charges
 
3.1

 
21.2

 
15.2

 
21.2

Other operating (income) loss:
 
 
 
 
 
 
 
 
Net gain on disposal of assets
 
(13.7
)
 
(12.2
)
 
(15.5
)
 
(12.3
)
Asset impairment
 
—

 
900.8

 
17.2

 
900.8

Loss from equity affiliates
 
0.7

 
3.9

 
9.7

 
7.0

Operating loss

(107.7
)
 
(975.8
)

(210.4
)
 
(973.6
)
Interest expense
 
59.0

 
118.9

 
185.2

 
225.5

Loss on early debt extinguishment
 
—

 
8.3

 
—

 
67.8

Interest income
 
(1.3
)
 
(2.7
)
 
(2.7
)
 
(5.2
)
Reorganization items, net
 
95.4

 
—

 
95.4

 
—

Loss from continuing operations before income taxes
 
(260.8
)
 
(1,100.3
)
 
(488.3
)
 
(1,261.7
)
Income tax benefit
 
(30.0
)
 
(93.1
)
 
(95.8
)
 
(90.1
)
Loss from continuing operations, net of income taxes
 
(230.8
)
 
(1,007.2
)
 
(392.5
)
 
(1,171.6
)
Loss from discontinued operations, net of income taxes
 
(3.0
)
 
(36.3
)
 
(6.4
)
 
(45.2
)
Net loss
 
(233.8
)
 
(1,043.5
)
 
(398.9
)
 
(1,216.8
)
Less: Net income attributable to noncontrolling interests
 
1.7

 
1.8

 
1.7

 
5.1

Net loss attributable to common stockholders
 
$
(235.5
)
 
$
(1,045.3
)
 
$
(400.6
)
 
$
(1,221.9
)
 
 
 
 
 
 
 
 
 
Loss from continuing operations:
 
 
 
 
 
 
 
 
Basic loss per share
 
$
(12.71
)
 
$
(55.59
)
 
$
(21.56
)
 
$
(65.09
)
Diluted loss per share
 
$
(12.71
)
 
$
(55.59
)
 
$
(21.56
)
 
$
(65.09
)
 
 
 
 
 
 
 
 
 
Net loss attributable to common stockholders:
 
 
 
 
 
 
 
 
Basic loss per share
 
$
(12.87
)
 
$
(57.59
)
 
$
(21.91
)
 
$
(67.59
)
Diluted loss per share
 
$
(12.87
)
 
$
(57.59
)
 
$
(21.91
)
 
$
(67.59
)
 
 
 
 
 
 
 
 
 
Dividends declared per share
 
$
—

 
$
0.0375

 
$
—

 
$
0.0750

See accompanying notes to unaudited condensed consolidated financial statements.


1

Table of Contents

PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
(Dollars in millions)
Net loss
$
(233.8
)
 
$
(1,043.5
)
 
$
(398.9
)
 
$
(1,216.8
)
Other comprehensive income, net of income taxes:
 
 
 
 
 
 
 
Net change in unrealized gains on available-for-sale securities (net of respective net tax provision (benefit) of $0.0, $0.0, $0.0 and ($0.1))
—

 
0.2

 
—

 
—

Net unrealized gains on cash flow hedges (net of respective net tax provision of $23.1, $81.0, $52.3 and $79.8)
 
 
 
 
 
 
 
Increase in fair value of cash flow hedges
—

 
164.9

 
—

 
15.2

Reclassification for realized losses included in net loss
39.4

 
21.0

 
89.1

 
115.0

Net unrealized gains on cash flow hedges
39.4

 
185.9

 
89.1

 
130.2

Postretirement plans and workers' compensation obligations (net of respective net tax provision of $2.1, $9.4, $4.2 and $9.4)

3.6

 
3.4

 
7.2

 
16.0

Foreign currency translation adjustment
(1.8
)
 
1.2

 
0.9

 
(26.2
)
Other comprehensive income, net of income taxes
41.2

 
190.7

 
97.2

 
120.0

Comprehensive loss
(192.6
)
 
(852.8
)
 
(301.7
)
 
(1,096.8
)
Less: Comprehensive income attributable to noncontrolling interests
1.7

 
1.8

 
1.7

 
5.1

Comprehensive loss attributable to common stockholders
$
(194.3
)
 
$
(854.6
)
 
$
(303.4
)
 
$
(1,101.9
)
See accompanying notes to unaudited condensed consolidated financial statements.


2

Table of Contents

PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
(Unaudited)
 
 
 
 
June 30, 2016
 
December 31, 2015
 
 
(Amounts in millions, except per share data)
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
1,274.3

 
$
261.3

Restricted cash
 
47.1

 
—

Accounts receivable, net of allowance for doubtful accounts of $14.2 at June 30, 2016 and $6.6 at December 31, 2015
 
350.6

 
228.8

Inventories
 
303.7

 
307.8

Assets from coal trading activities, net
 
17.3

 
23.5

Deferred income taxes
 
53.5

 
53.5

Other current assets
 
335.4

 
447.6

Total current assets
 
2,381.9

 
1,322.5

Property, plant, equipment and mine development, net
 
9,061.9

 
9,258.5

Deferred income taxes
 
2.2

 
2.2

Investments and other assets
 
619.2

 
363.7

Total assets
 
$
12,065.2

 
$
10,946.9

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Current portion of long-term debt
 
$
482.3

 
$
5,874.9

Liabilities from coal trading activities, net
 
15.7

 
15.6

Accounts payable and accrued expenses
 
758.3

 
1,446.3

Total current liabilities
 
1,256.3

 
7,336.8

Long-term debt, less current portion
 
—

 
366.3

Deferred income taxes
 
58.8

 
69.1

Asset retirement obligations
 
700.5

 
686.6

Accrued postretirement benefit costs
 
717.8

 
722.9

Other noncurrent liabilities
 
505.5

 
846.7

Total liabilities not subject to compromise
 
3,238.9

 
10,028.4

Liabilities subject to compromise
 
8,205.8

 
—

Total liabilities
 
11,444.7

 
10,028.4

Stockholders’ equity
 
 
 
 
Preferred Stock — $0.01 per share par value; 10.0 shares authorized, no shares issued or outstanding as of June 30, 2016 or December 31, 2015
 
—

 
—

Perpetual Preferred Stock — 0.8 shares authorized, no shares issued or outstanding as of June 30, 2016 or December 31, 2015
 
—

 
—

Series Common Stock — $0.01 per share par value; 40.0 shares authorized, no shares issued or outstanding as of June 30, 2016 or December 31, 2015
 
—

 
—

Common Stock — $0.01 per share par value; 53.3 shares authorized,19.3 shares issued and 18.5 shares outstanding as of June 30, 2016 and December 31, 2015
 
0.2

 
0.2

Additional paid-in capital
 
2,414.9

 
2,410.7

Treasury stock, at cost — 0.8 shares as of June 30, 2016 and December 31, 2015
 
(371.8
)
 
(371.7
)
Accumulated deficit
 
(904.0
)
 
(503.4
)
Accumulated other comprehensive loss
 
(521.7
)
 
(618.9
)
Peabody Energy Corporation stockholders’ equity
 
617.6

 
916.9

Noncontrolling interests
 
2.9

 
1.6

Total stockholders’ equity
 
620.5

 
918.5

Total liabilities and stockholders’ equity
 
$
12,065.2

 
$
10,946.9

See accompanying notes to unaudited condensed consolidated financial statements.


3

Table of Contents

PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Six Months Ended June 30,
 
 
2016
 
2015
 
 
(Dollars in millions)
Cash Flows From Operating Activities
 
 
 
 
Net loss
 
$
(398.9
)
 
$
(1,216.8
)
Loss from discontinued operations, net of income taxes
 
6.4

 
45.2

Loss from continuing operations, net of income taxes
 
(392.5
)
 
(1,171.6
)
Adjustments to reconcile loss from continuing operations, net of income taxes to net cash used in operating activities:
 
 
 
 
Depreciation, depletion and amortization
 
227.7

 
294.6

Noncash interest expense
 
16.3

 
15.2

Deferred income taxes
 
(66.9
)
 
(89.6
)
Noncash share-based compensation
 
5.1

 
13.6

Asset impairment
 
17.2

 
900.8

Net gain on disposal of assets
 
(15.5
)
 
(12.3
)
Loss from equity affiliates
 
9.7

 
7.0

Gain on VEBA settlement
 
(68.1
)
 
—

Settlement of hedge positions
 
(25.0
)
 
—

Gain on previously monetized foreign currency hedge positions
 
—

 
(14.8
)
Noncash reorganization items, net
 
96.8

 
—

Changes in current assets and liabilities:
 
 
 
 
Accounts receivable
 
34.4

 
178.1

Change in receivable from accounts receivable securitization program
 
(168.5
)
 
80.0

Inventories
 
3.7

 
7.5

Net assets from coal trading activities
 
6.3

 
(12.9
)
Other current assets
 
(33.4
)
 
(3.6
)
Accounts payable and accrued expenses
 
(16.7
)
 
(277.9
)
Restricted cash
 
(79.7
)
 
—

Asset retirement obligations
 
14.2

 
20.5

Accrued postretirement benefit costs
 
(0.6
)
 
11.1

Accrued pension costs
 
11.5

 
14.9

Take-or-pay obligation settlement
 
(15.5
)
 
—

Other, net
 
11.9

 
(13.0
)
Net cash used in continuing operations
 
(427.6
)
 
(52.4
)
Net cash used in discontinued operations
 
(4.2
)
 
(4.0
)
Net cash used in operating activities
 
(431.8
)
 
(56.4
)
Cash Flows From Investing Activities
 
 
 
 
Additions to property, plant, equipment and mine development
 
(38.1
)
 
(50.9
)
Changes in accrued expenses related to capital expenditures
 
(7.1
)
 
(13.2
)
Proceeds from disposal of assets, net of notes receivable
 
116.0

 
23.9

Purchases of debt and equity securities
 
—

 
(17.9
)
Proceeds from sales and maturities of debt and equity securities
 
—

 
27.1

Contributions to joint ventures
 
(159.7
)
 
(239.8
)
Distributions from joint ventures
 
163.5

 
236.7

Other, net
 
(8.9
)
 
(2.0
)
Net cash provided by (used in) investing activities
 
65.7

 
(36.1
)
Cash Flows From Financing Activities
 
 
 
 
Proceeds from long-term debt
 
1,422.0

 
975.7

Repayments of long-term debt
 
(9.0
)
 
(660.7
)
Payment of deferred financing costs
 
(29.5
)
 
(28.7
)
Dividends paid
 
—

 
(1.4
)
Distributions to noncontrolling interests
 
(2.5
)
 
(1.8
)
Other, net
 
(1.9
)
 
(1.5
)
Net cash provided by financing activities
 
1,379.1

 
281.6

Net change in cash and cash equivalents
 
1,013.0

 
189.1

Cash and cash equivalents at beginning of period
 
261.3

 
298.0

Cash and cash equivalents at end of period
 
$
1,274.3

 
$
487.1

See accompanying notes to unaudited condensed consolidated financial statements.


4

Table of Contents

PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

 
Peabody Energy Corporation Stockholders’ Equity
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury Stock
 
Accumulated Deficit
 
Accumulated
Other Comprehensive
Loss
 
Noncontrolling
Interests
 
Total
Stockholders’
Equity
 
(Dollars in millions)
December 31, 2015
$
0.2

 
$
2,410.7

 
$
(371.7
)
 
$
(503.4
)
 
$
(618.9
)
 
$
1.6

 
$
918.5

Net loss
—

 
—

 
—

 
(400.6
)
 
—

 
1.7

 
(398.9
)
Net realized losses on cash flow hedges (net of $52.3 net tax provision)
—

 
—

 
—

 
—

 
89.1

 
—

 
89.1

Postretirement plans and workers’ compensation obligations (net of $4.2 net tax provision)
—

 
—

 
—

 
—

 
7.2

 
—

 
7.2

Foreign currency translation adjustment
—

 
—

 
—

 
—

 
0.9

 
—

 
0.9

Share-based compensation for equity-classified awards
—

 
4.2

 
—

 
—

 
—

 
—

 
4.2

Repurchase of employee common stock relinquished for tax withholding
—

 
—

 
(0.1
)
 
—

 
—

 
—

 
(0.1
)
Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(0.4
)
 
(0.4
)
June 30, 2016
$
0.2

 
$
2,414.9

 
$
(371.8
)
 
$
(904.0
)
 
$
(521.7
)
 
$
2.9

 
$
620.5

See accompanying notes to unaudited condensed consolidated financial statements.



5

Table of Contents

PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The condensed consolidated financial statements include the accounts of Peabody Energy Corporation and its affiliates (the Company or Peabody). Interests in subsidiaries controlled by the Company are consolidated with any outside shareholder interests reflected as noncontrolling interests, except when the Company has an undivided interest in an unincorporated joint venture. In those cases, the Company includes its proportionate share in the assets, liabilities, revenues and expenses of the jointly controlled entities within each applicable line item of the unaudited condensed consolidated financial statements.  All intercompany transactions, profits and balances have been eliminated in consolidation. As discussed below in Note 2. "Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented," prior year amounts of deferred financing costs have been reclassified to conform with the new standard.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015. In the opinion of management, these financial statements reflect all normal, recurring adjustments necessary for a fair presentation. Balance sheet information presented herein as of December 31, 2015 has been derived from the Company’s audited consolidated balance sheet at that date. The Company's results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for future quarters or for the year ending December 31, 2016.
Pursuant to the authorization provided at a special meeting of the Company's stockholders held on September 16, 2015, the Company completed a 1-for-15 reverse stock split of the shares of the Company’s common stock on September 30, 2015 (the Reverse Stock Split). As a result of the Reverse Stock Split, every 15 shares of issued and outstanding common stock were combined into one issued and outstanding share of Common Stock, without any change in the par value per share. No fractional shares were issued as a result of the Reverse Stock Split and any fractional shares that would otherwise have resulted from the Reverse Stock Split were paid in cash. The Reverse Stock Split reduced the number of shares of common stock outstanding from approximately 278 million shares to approximately 19 million shares. The number of authorized shares of common stock was also decreased from 800 million shares to 53.3 million shares. The Company's common stock began trading on a reverse stock split-adjusted basis on the New York Stock Exchange (NYSE) on October 1, 2015. All share and per share data included in this report has been retroactively restated to reflect the Reverse Stock Split. Since the par value of the common stock remained at $0.01 per share, the value for "Common stock" recorded to the Company's condensed consolidated balance sheets has been retroactively reduced to reflect the par value of restated outstanding shares, with a corresponding increase to "Additional paid-in capital."
The Company has classified items within discontinued operations in the unaudited condensed consolidated financial statements for disposals (by sale or otherwise) that have occurred prior to January 1, 2015 when the operations and cash flows of a disposed component of the Company were eliminated from the ongoing operations of the Company as a result of the disposal and the Company no longer had any significant continuing involvement in the operation of that component.
Filing Under Chapter 11 of the United States Bankruptcy Code
On April 13, 2016 (the Petition Date), Peabody and a majority of its wholly owned domestic subsidiaries as well as one international subsidiary in Gibraltar (the Filing Subsidiaries and together with Peabody, the Debtors) filed voluntary petitions for reorganization (the petitions collectively, the Bankruptcy Petitions) under Chapter 11 of Title 11 of the U.S. Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Eastern District of Missouri (the Bankruptcy Court). The Company’s Australian Operations and other international subsidiaries are not included in the filings. The Debtors' Chapter 11 cases (collectively, the Chapter 11 Cases) are being jointly administered under the caption In re Peabody Energy Corporation, et al., Case No. 16-42529 (Bankr. E.D. Mo.). The Debtors continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.


6

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The filings of the Bankruptcy Petitions constituted an event of default under the Company’s prepretition credit agreement as well as the indentures governing certain of the Company’s debt instruments, as further described in Note 13. "Current and Long-term Debt" to the condensed consolidated financial statements, and all unpaid principal and accrued and unpaid interest due thereunder became immediately due and payable. Any efforts to enforce such payment obligations are automatically stayed as a result of the Bankruptcy Petitions and the creditors' rights of enforcement are subject to the applicable provisions of the Bankruptcy Code.
Additionally, on the Petition Date, the NYSE determined that Peabody’s common stock was no longer suitable for listing pursuant to Section 8.02.01D of the NYSE’s Listed Company Manual, and trading in the Company’s common stock was suspended. The Company's common stock began trading on the OTC Pink Sheets marketplace under the symbol BTUUQ on April 14, 2016. Following the Petition Date, the NYSE formally de-listed the Company's common stock.
On the Petition Date, the Bankruptcy Court approved several motions (First Day Motions), including motions (i) authorizing the Debtors to pay prepetition wages and benefits for its workforce (Employee Motion), in part, (ii) prohibiting utilities from discontinuing service and authorizing the Debtors to provide adequate assurance deposits, (iii) authorizing the Debtors to pay prepetition obligations to certain critical vendors on an interim basis (Critical Vendor Motion), (iv) authorizing the Debtors to maintain their existing cash management system on an interim basis (Cash Management Motion), (v)  authorizing certain Debtors to continue selling and contributing receivables and related rights pursuant to a securitization facility on an interim basis (Securitization Motion) and (vi) authorizing the Debtors to enter into an $800 million debtor-in-possession financing facility (DIP Credit Agreement) on an interim basis (DIP Motion).
Pursuant to Section 362 of the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically stayed most actions against the Debtors, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Debtors’ property. Subject to certain exceptions under the Bankruptcy Code, the filing of the Debtors’ Chapter 11 Cases also automatically stayed the continuation of most legal proceedings, including certain of the third party litigation matters described in Note 19. "Commitments and Contingencies" of this report or the filing of other actions against or on behalf of the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Debtors’ bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim. Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers.
The U.S. Trustee for the Eastern District of Missouri filed a notice appointing an official committee of unsecured creditors (the Creditors’ Committee) on April 29, 2016. The Creditors’ Committee represents all unsecured creditors of the Debtors and has a right to be heard on all matters that come before the Bankruptcy Court.
On May 17, 2016, the Bankruptcy Court approved various of the First Day Motions on a final basis, including the Employee Motion, Critical Vendor Motion, Cash Management Motion, Securitization Motion and DIP Motion. At the May 17 hearing, the Bankruptcy Court also approved various motions (i) authorizing the Debtors’ retention of various professionals, (ii) establishing procedures for the retention of ordinary course professionals, (iii) establishing procedures for the sale of de minimis assets and (iv)  authorizing the Debtors to consummate the sale of the Debtors’ equity interests in Lively Grove Energy Partners, LLC, a Debtor, and dismissing Lively Grove Energy Partners, LLC’s current chapter 11 case.
On May 20, 2016, the Debtors filed a complaint and request for declaratory judgment, as required by the terms of the DIP Credit Agreement, against Citibank, N.A. (in its capacity as Administrative Agent under the Debtors' prepetition secured credit agreement), among others, regarding the extent of certain collateral and secured claims of certain prepetition creditors.
On June 13, 2016, Citibank, N.A. filed an answer and counter-claim for declaratory judgment.  On June 14, 2016, two motions to intervene were filed, one from the official Unsecured Creditors Committee and another from a group of creditors holding $1.65 billion in face value of the Company's Senior Notes. The intervention motions were granted on July 7, 2016.
On June 15, 2016, the Bankruptcy Court approved several motions, including motions that (i)  established deadlines for the filing of certain proofs of claim, approved the form and manner of notice thereof, and (ii)  established a key employee retention program. At this hearing, the Bankruptcy Court also approved the Debtors' retention of various professionals, and the Official Committee of Unsecured Creditors’ retention of various professionals.
On July 20, 2016, the Bankruptcy Court approved several motions, including motions that (i) granted certain entities limited relief from the automatic stay; (ii) established procedures governing the Official Committee of Unsecured Creditors' obligation to provide information to unsecured creditors; (iii) authorized the retention of the Debtors' tax advisors; (iv) extended certain time periods, including the time period in which the Debtors' have the exclusive right to file a plan of reorganization; (v) authorized the rejection of certain executory contracts; and (vi) authorized the payment of certain secured and priority prepetition property taxes.


7

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



On July 26, 2016, the Debtors filed motions to approve settlement agreements that the Debtors have reached with regulators in Wyoming, New Mexico and Indiana concerning the Debtors' reclamation bonding in those states. On August 3, 2016, the Debtors filed additional motions, including (i) a motion for approval of (a) a key employee incentive plan, (b) an executive leadership team short-term incentive plan and (c) modifications to the current director compensation program; and (ii) a motion to extend (a) the period during which the Debtors have the exclusive right to file a plan of reorganization through and including November 9, 2016 and (b) the period during which the Debtors have the exclusive right to solicit acceptances thereof through and including January 9, 2017. These motions are scheduled to be heard at a hearing before the Bankruptcy Court on August 17, 2016.
As a result of the Bankruptcy Petitions, the realization of the Debtors’ assets and the satisfaction of liabilities are subject to significant uncertainty. For the Debtors to emerge successfully from Chapter 11, they must obtain the Bankruptcy Court’s approval of a plan of reorganization, which will enable them to transition from Chapter 11 into ordinary course operations as reorganized entities outside of bankruptcy. A plan of reorganization determines the rights and treatment of claims of various creditors and equity security holders, and is subject to the ultimate outcome of negotiations and Bankruptcy Court decisions ongoing through the date on which the plan of reorganization is confirmed.
The Debtors intend to propose a plan of reorganization on or prior to the applicable date required under the Bankruptcy Code and in accordance with milestones set forth in the DIP Credit Agreement (as defined below in Note 13. "Current and Long-term Debt"), as the same may be extended with approval of the Bankruptcy Court. The Debtors presently expect that any proposed plan of reorganization will provide, among other things, for mechanisms for the settlement of claims against the Debtors’ estates, treatment of the Debtors' existing equity and debt holders, and certain corporate governance and administrative matters pertaining to the reorganized Debtors. A proposed plan of reorganization filed with the Bankruptcy Court likely will incorporate provisions arising out of the Debtors' discussions with their creditors and other interested parties, and likely will be further revised thereafter. There can be no assurance that the Debtors will be able to secure approval for their proposed plan of reorganization from the Bankruptcy Court or execute its restructuring plan. Further, a plan of reorganization is likely to materially change the amounts and classifications of assets and liabilities reported in the Company’s condensed consolidated financial statements.
The Company believes it will require a significant restructuring of its balance sheet in order to continue as a going concern in the long term. The Company’s ability to continue as a going concern is dependent upon, among other things, its ability to become profitable and maintain profitability, its ability to access sufficient liquidity and its ability to successfully implement its Chapter 11 plan of reorganization. The accompanying condensed consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might be required if the Company were unable to continue as a going concern.
(2)    Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented
Newly Adopted Accounting Standards
Going Concern. In August 2014, the Financial Accounting Standards Board (FASB) issued disclosure guidance that requires management to evaluate, at each annual and interim reporting period, whether substantial doubt exists about an entity's ability to continue as a going concern and, if applicable, to provide related disclosures. As outlined by that guidance, substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or are available to be issued). The new guidance is effective for annual reporting periods ending after December 15, 2016 (the year ending December 31, 2016 for the Company) and interim periods thereafter, with early adoption permitted.
Deferred Financing Costs. On April 7, 2015, the FASB issued accounting guidance that requires deferred financing costs to be presented as a direct reduction from the related debt liability in the financial statements rather than as a separately recognized asset. Under the new guidance, amortization of such costs will continue to be reported as interest expense. In August 2015, an update was issued that clarified that debt issuance costs associated with line-of-credit arrangements may continue to be reported as an asset. The new guidance became effective retrospectively for interim and annual periods beginning after December 15, 2015 (January 1, 2016 for the Company). There was no material impact to the Company's results of operations or cash flows in connection with the adoption of the guidance.


8

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The impact to the Company's condensed consolidated balance sheets as of December 31, 2015 was as follows:
 
 
Before Application of Accounting Guidance
 
Adjustment
 
After Application of Accounting Guidance
 
 
(Dollars in millions)
Other current assets
 
$
503.1

 
$
(55.5
)
 
$
447.6

Investments and other assets
 
382.6

 
(18.9
)
 
363.7

Total assets
 
11,021.3

 
(74.4
)
 
10,946.9

Current portion of long-term debt
 
5,930.4

 
(55.5
)
 
5,874.9

Long-term debt, less current portion
 
385.2

 
(18.9
)
 
366.3

Total liabilities
 
10,102.8

 
(74.4
)
 
10,028.4

Accounting Standards Not Yet Implemented
Revenue Recognition. In May 2014, the FASB issued a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The new standard provides a single principles-based, five-step model to be applied to all contracts with customers, which steps are to (1) identify the contract(s) with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when each performance obligation is satisfied. More specifically, revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. The standard also requires entities to disclose sufficient qualitative and quantitative information to enable financial statement users to understand the nature, amount, timing and uncertainty of revenues and cash flows arising from contracts with customers.
Under the originally issued standard, the new guidance would have been effective for interim and annual periods beginning after December 15, 2016 (January 1, 2017 for the Company). On July 9, 2015, the FASB decided to delay the effective date of the new revenue recognition standard by one year with early adoption permitted, but not before the original effective date. The standard allows for either a full retrospective adoption or a modified retrospective adoption. The Company is in the process of evaluating the impact that the adoption of this guidance will have on its results of operations, financial condition, cash flows and financial statement presentation.
Inventory. In July 2015, the FASB issued guidance which requires entities to measure most inventory "at the lower of cost and net realizable value", thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures, one of which is net realizable value). The guidance does not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. The new guidance will be effective prospectively for annual periods beginning after December 15, 2016 (January 1, 2017 for the Company), and interim periods therein, with early adoption permitted. The Company is in the process of evaluating the impact that the adoption of this guidance will have on its results of operations, financial condition, cash flows and financial statement presentation.
Income Taxes. In November 2015, the FASB issued accounting guidance that requires entities to classify all deferred tax assets and liabilities, along with any related valuation allowance as noncurrent on the balance sheet. Under the new guidance, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that only permits offsetting within a jurisdiction. The new guidance will be effective prospectively or retrospectively for annual periods beginning after December 15, 2016 (January 1, 2017 for the Company)and interim periods therein, with early adoption permitted. While the Company does not anticipate an impact to its results of operations or cash flows in connection with the adoption of this guidance, there will be an impact on the presentation of the Company's condensed consolidated balance sheets. The impact to the condensed consolidated balance sheets will depend upon the facts and circumstances at the time of adoption.


9

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Lease Accounting. In February 2016, the FASB issued accounting guidance that will require a lessee to recognize in its balance sheet a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for leases with lease terms of more than 12 months.  Consistent with current U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. Additional qualitative disclosures along with specific quantitative disclosures will also be required.  The new guidance will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (January 1, 2019 for the Company), with early adoption permitted.  Upon adoption, the Company will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is in the process of evaluating the impact that the adoption of this guidance will have on its results of operations, financial condition, cash flows and financial statement presentation. 
Compensation - Stock Compensation. In March 2016, the FASB issued accounting guidance which identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The new guidance will be effective prospectively for annual periods beginning after December 15, 2016 (January 1, 2017 for the Company) and interim periods therein, with early adoption permitted. The Company is in the process of evaluating the impact that the adoption of this guidance will have on its results of operations, financial condition, cash flows and financial statement presentation.
Financial Instruments - Credit Losses. In June 2016, the FASB issued accounting guidance related to the measurement of credit losses on financial instruments. The pronouncement replaces the incurred loss methodology to record credit losses with a methodology that reflects the expected credit losses for financial assets not accounted for at fair value with gains and losses recognized through net income. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is in the process of evaluating the impact that the adoption of this guidance will have on its results of operations, financial condition, cash flows and financial statement presentation.
(3)    Reorganization Items, Net
In accordance with Accounting Standard Codification 852, "Reorganizations," the statement of operations shall portray the results of operations of the reporting entity during the pendency of the Chapter 11 Cases. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses resulting from reorganization and restructuring of the business shall be reported separately as reorganization items.
The Company's reorganization items for the three and six months ended June 30, 2016 consisted of the following:
 
 
June 30, 2016
 
 
(Dollars in millions)
Loss on termination of derivative contracts
 
$
75.2

Professional fees
 
21.6

Accounts payable settlement gains
 
(0.2
)
Interest income
 
(0.2
)
Other
 
(1.0
)
Reorganization items, net
 
$
95.4

As a result of filing the Bankruptcy Petitions, counterparties to certain derivative contracts terminated the agreements shortly thereafter in accordance with contractual terms and the Company adjusted the corresponding liabilities to be equivalent to the termination value, and allowed claim amount, of each contract. Such liabilities are considered first lien debt and are included within the "Liabilities subject to compromise" in the accompanying condensed consolidated balance sheet at June 30, 2016.
Professional fees are only those that are directly related to the reorganization including, but not limited to, fees associated with advisors to the Debtors, the statutory committee of unsecured creditors and certain secured and unsecured creditors.
During the three months ended June 30, 2016, no cash payments were made for "Reorganization items, net".


10

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



(4)    Liabilities Subject to Compromise
Liabilities subject to compromise include unsecured or under-secured liabilities incurred prior to the Petition Date. These liabilities represent the amounts expected to be allowed on known or potential claims to be resolved through the Chapter 11 Cases and remain subject to future adjustments based on negotiated settlements with claimants, actions of the Bankruptcy Court, rejection of executory contracts, proofs of claims or other events. Additionally, liabilities subject to compromise also include certain items that may be assumed under a plan of reorganization, and as such, may be subsequently reclassified to liabilities not subject to compromise. Generally, actions to enforce or otherwise effect payment of prepetition liabilities are subject to the automatic stay, as discussed in Note 1. "Basis of Presentation".
Liabilities subject to compromise consists of the following:
Previously Reported Balance Sheet Line
 
June 30, 2016
 
 
(Dollars in millions)
Debt (1)
 
$
7,804.7

Interest payable
 
172.6

Trade payables
 
86.9

Postretirement benefit obligations (2)
 
33.7

Property taxes
 
10.8

Other accrued liabilities
 
97.1

Liabilities subject to compromise
 
$
8,205.8

(1) 
Includes $7,423.5 million of debt, $257.3 million of derivative contract terminations, and $123.9 million of liabilities secured by prepetition letters of credit.
(2) 
Includes liabilities for unfunded non-qualified pension plans, all the participants of which are former employees.
(5)    Asset Impairment
Three and Six Months Ended June 30, 2016
The Company's mining and exploration assets and mining-related investments may be adversely affected by numerous uncertain factors that may cause the Company to be unable to recover all or a portion of the carrying value of those assets. As a result of various unfavorable conditions, including but not limited to sustained trends of weakness in U.S. and international seaborne coal pricing and certain asset-specific factors, the Company recognized aggregate impairment charges of $1,277.8 million, $154.4 million and $528.3 million during the years ended December 31, 2015, 2014 and 2013, respectively. For additional information surrounding those charges, refer to Note 2. "Asset Impairment" to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.
The Company generally does not view short-term declines subsequent to previous impairment assessments in thermal and metallurgical coal prices in the regions in which it sells its products as an indicator of impairment. However, the Company generally views a sustained trend (for example, over periods exceeding one year) of adverse coal pricing or unfavorable changes thereto as a potential indicator of impairment. Because of the volatile and cyclical nature of U.S. and international seaborne coal demand, it is reasonably possible that prices in those segments 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 the Company's long-lived mining assets and mining-related investments.
The Company's assets whose recoverability and values are most sensitive to near-term pricing and other market factors include certain Australian metallurgical and thermal assets for which impairment charges were recorded in 2015 and certain U.S. coal properties being leased to unrelated mining companies under agreements that require royalties to be paid as the coal is mined. Such assets had an aggregate carrying value of $576.0 million as of June 30, 2016. The Company conducted a review of those assets for recoverability as of June 30, 2016 and determined that no impairment charge was necessary as of that date.
The Company also reviewed its portfolio of mining tenements and surface lands that were classified as held-for-sale. As a result of that review, the Company recognized an aggregate impairment charge of $17.2 million during the six months ended June 30, 2016 to write down certain targeted divestiture assets from their carrying value to their estimated fair value.


11

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Three and Six Months Ended June 30, 2015
The following costs are reflected in "Asset impairment" in the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2015:
 
 
Reportable Segment
 
 
 
 
Australian Metallurgical
Mining
 
Australian Thermal Mining
 
Corporate
and Other
 
Consolidated
 
 
(Dollars in millions)
Asset impairment charges:
 
 
 
 
 
 
 
 
Long-lived assets
 
$
527.0

 
$
8.2

 
$
182.2

 
$
717.4

Equity method investments
 
—

 
—

 
183.4

 
183.4

Total
 
$
527.0

 
$
8.2

 
$
365.6

 
$
900.8

Australian Metallurgical and Thermal Mining
Due to the severity of the decline in seaborne metallurgical and thermal coal pricing observed during the six months ended June 30, 2015 and other adverse conditions noted during that period that drove an unfavorable change in the expected timing of eventual seaborne supply and demand rebalancing, the Company concluded that indicators of impairment existed surrounding its Australian mining platform as of June 30, 2015. Accordingly, the Company reviewed its Australian mining assets for recoverability as of June 30, 2015. Based on that review, the Company determined that the carrying values of the assets at three of its active mines that produce metallurgical coal were not recoverable and correspondingly recognized an aggregate impairment charge of $230.5 million to write those assets down from their carrying value to their estimated fair value.
Also during the three months ended June 30, 2015, the Company reviewed its portfolio of mining tenements and surface lands to identify non-strategic assets that could be monetized. In connection with that review, certain of such assets were deemed to meet held-for-sale accounting criteria as of June 30, 2015 or are now otherwise considered more likely to generate cash flows through divestiture rather than development, with the long-term plans for certain adjacent assets also consequently affected. Accordingly, the Company recognized an aggregate impairment charge of $304.7 million to write down the targeted divestiture assets and abandoned assets from their carrying value to their estimated fair value.
Corporate and Other
Long-lived Assets. In connection with a similar review of the Company's asset portfolio conducted during the three months ended June 30, 2015 to identify non-strategic domestic assets that could be monetized, the Company identified non-strategic, non-coal-supplying assets as held-for-sale rather than held-for-use as of June 30, 2015. Accordingly, the Company recognized an impairment charge of $182.2 million to write the assets down from their carrying value to estimated fair value.
Equity Method Investments. Due to the impairment indicators noted above surrounding the Company's Australian platform, the Company reviewed its total investment in Middlemount Coal Pty Ltd. (Middlemount), which owns the Middlemount Mine in Queensland, Australia. As a result of that review, the Company determined that the carrying value of its equity investment in Middlemount was other-than-temporarily impaired and recorded a charge of $46.6 million to write-off the investment.
The Company, along with the other equity interest holder, also periodically makes loans to Middlemount pursuant to the related shareholders’ agreement for purposes of funding capital expenditures and working capital requirements. Prior to an impairment adjustment, the aggregate carrying value of such loans totaled $299.3 million. Of that amount, a total of $65.5 million (the Priority Loans) have seniority over the remainder (the Subordinated Loans). The Subordinated Loans are provided on an equal and shared basis with the other equity interest holder, and the Company's and the other equity interest holder's claims under the Subordinated Loans are on equal footing. The Company also reviewed the loans for impairment and recorded a charge of $136.8 million to write down the carrying value of the Subordinated Loans.
The fair value estimates made during the Company's impairment assessments were determined in accordance with the methods outlined in Note 1. "Summary of Significant Accounting Policies" to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, except in certain instances where indicative bids were received related to non-strategic assets being marketed for divestiture. In those instances, the indicative bids were also considered in estimating fair value.


12

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



(6)    Discontinued Operations
Discontinued operations include certain former Australian Thermal Mining and Midwestern U.S. Mining segment assets that have ceased production and other previously divested legacy operations, including Patriot Coal Corporation and certain of its wholly-owned subsidiaries (Patriot).
Summarized Results of Discontinued Operations
Results from discontinued operations were as follows during the three and six months ended June 30, 2016 and 2015:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(Dollars in millions)
Loss from discontinued operations, net of income taxes
 
$
(3.0
)
 
$
(36.3
)
 
$
(6.4
)
 
$
(45.2
)
Assets and Liabilities of Discontinued Operations
Assets and liabilities classified as discontinued operations included in the Company's condensed consolidated balance sheets were as follows:
 
 
June 30, 2016
 
December 31, 2015
 
 
(Dollars in millions)
Assets:
 
 
 
 
Other current assets
 
$
2.9

 
$
3.1

Investments and other assets
 
13.2

 
13.2

Total assets classified as discontinued operations
 
$
16.1

 
$
16.3

 
 
 
 
 
Liabilities:
 
 
 
 
Accounts payable and accrued expenses
 
$
20.4

 
$
60.0

Other noncurrent liabilities
 
207.4

 
203.7

Total liabilities classified as discontinued operations
 
$
227.8

 
$
263.7

Patriot-Related Matters. Refer to Note 20. "Matters Related to the Bankruptcy of Patriot Coal Corporation" for information surrounding charges recorded during the three and six months ended June 30, 2016 and 2015 associated with the bankruptcy of Patriot.
Wilkie Creek Mine. In December 2013, the Company ceased production and started reclamation of the Wilkie Creek Mine in Queensland, Australia. On June 30, 2014, Queensland Bulk Handling Pty Ltd (QBH) commenced litigation against Peabody (Wilkie Creek) Pty Limited, the indirect wholly-owned subsidiary of the company that owns the Wilkie Creek Mine, alleging breach of a Coal Port Services Agreement (CPSA) between the parties. Included in "Loss from discontinued operations, net of income taxes" for the year ended December 31, 2015 is a charge of $9.7 million related to that litigation, of which $7.6 million was recorded in the six months ended June 30, 2015. Refer to Note 19. "Commitments and Contingencies" for additional information surrounding the QBH matter.
In June 2015, the Company entered into a conditional agreement to sell the Wilkie Creek Mine.  The agreement was subsequently terminated in October 2015 in conjunction with entering into a new agreement with similar terms. The second agreement was terminated in March 2016. 


13

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



(7)     Inventories
Inventories as of June 30, 2016 and December 31, 2015 consisted of the following:
 
June 30, 2016
 
December 31, 2015
 
(Dollars in millions)
Materials and supplies
$
110.9

 
$
115.9

Raw coal
72.2

 
75.9

Saleable coal
120.6

 
116.0

Total
$
303.7

 
$
307.8

Materials and supplies inventories presented above have been shown net of reserves of $5.7 million and $4.7 million as of June 30, 2016 and December 31, 2015, respectively.
(8)     Derivatives and Fair Value Measurements
Risk Management — Non-Coal Trading Activities
The Company is exposed to several risks in the normal course of business, including (1) foreign currency exchange rate risk for non-U.S. dollar expenditures and balances, (2) price risk on coal produced by, and diesel fuel utilized, in the Company's mining operations and (3) interest rate risk that has been partially mitigated by fixed rates on long-term debt. The Company manages a portion of its price risk related to the sale of coal (excluding coal trading activities) using long-term coal supply agreements (those with terms longer than one year), rather than using derivative instruments. Derivative financial instruments have historically been used to manage the Company's risk exposure to foreign currency exchange rate risk, primarily on Australian dollar expenditures made in its Australian mining platform. This risk has historically been managed using forward contracts and options designated as cash flow hedges, with the objective of reducing the variability of cash flows associated with forecasted foreign currency expenditures. The Company has also used derivative instruments to manage its exposure to the variability of diesel fuel prices used in production in the U.S. and Australia with swaps or options, which it has also designated as cash flow hedges, with the objective of reducing the variability of cash flows associated with forecasted diesel fuel purchases. These risk management activities are collectively referred to as "Corporate Hedging" and are actively monitored for compliance with the Company's risk management policies.
During the fourth quarter of 2015, the Company performed an assessment of its risk of nonperformance with respect to derivative financial instruments designated as cash flow hedges in light of three rating agencies downgrading the Company's corporate credit rating during 2015 and declining financial results. The Company determined its hedging relationships were expected to be "highly effective" throughout 2015 based on its quarterly assessments. However, as a result of a deterioration in the Company's credit profile, the Company could no longer conclude, as of December 31, 2015, that its hedging relationships were expected to be "highly effective" at offseting the changes in the anticipated exposure of the hedged item. Therefore, the Company discontinued the application of cash flow hedge accounting subsequent to December 31, 2015 and changes in the fair value of derivative instruments have been recorded as operating costs and expenses in the accompanying unaudited condensed consolidated statements of operations. Previous fair value adjustments recorded in "Accumulated other comprehensive loss" will be frozen until the underlying transactions impact the Company's earnings.
The Company's Bankruptcy Petitions constituted an event of default under the Company's derivative financial instrument contracts and the counterparties terminated the agreements shortly thereafter in accordance with contractual terms. The terminated positions are first-lien obligations under the Company's secured credit agreement dated September 24, 2013 (as amended, the 2013 Credit Facility). The net settlement liability was accounted for as a prepetition liability subject to compromise without credit valuation adjustments. As of June 30, 2016, the Company had no derivative financial instruments in place in relation to diesel fuel or foreign currency exchange rate.
Based on the previous fair value adjustments of the Company's foreign currency hedge contract portfolio recorded in "Accumulated other comprehensive loss", the net loss expected to be reclassified from comprehensive income to earnings over the next 12 months associated with that hedge program is approximately $85 million. Based on the previous fair value adjustments of the Company’s diesel fuel hedge contract portfolio recorded in “Accumulated other comprehensive loss”, the net loss expected to be reclassified from comprehensive income to earnings over the next 12 months associated with that hedge program is approximately $60 million.


14

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The tables below show the classification and amounts of pre-tax gains and losses related to the Company’s Corporate Hedging derivatives during the three and six months ended June 30, 2016 and 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2016
Financial Instrument
 
Income Statement
Classification of (Losses) Gains
 
Total realized loss recognized in income
 
Loss reclassified from other comprehensive loss into income (1)
 
(Loss) gain recognized in income on derivatives
 
Unrealized gain (loss)recognized in income on non- designated derivatives
 
 
 
 
(Dollars in millions)
Commodity swap contracts
 
Operating costs and expenses
 
$
(18.6
)
 
$
(22.2
)
 
$
(1.8
)
 
$
5.4

Commodity swap contracts
 
Reorganization items
 
(38.8
)
 
—

 
(38.8
)
 
—

Foreign currency forward contracts
 
Operating costs and expenses
 
(45.7
)
 
(40.2
)
 
24.9

 
(30.4
)
Foreign currency forward contracts
 
Reorganization items
 
(36.4
)
 
—

 
(36.4
)
 
—

Total
 
 
 
$
(139.5
)
 
$
(62.4
)
 
$
(52.1
)
 
$
(25.0
)
(1)  
Includes the reclassification from "Accumulated other comprehensive loss" into earnings of $13.6 million and $9.0 million of previously unrecognized losses on foreign currency and fuel contracts, respectively, monetized in the first quarter of 2016.
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2015

Financial Instrument
 
Income Statement
Classification of (Losses) Gains
 
Gain recognized in other comprehensive income on derivatives
(effective portion)
 
Loss reclassified from other comprehensive income into income
(effective portion)(1)
 
Gain reclassified from other comprehensive income into income
(ineffective portion)
 
 
 
(Dollars in millions)

Commodity swap contracts
 
Operating costs and expenses
 
$
54.1

 
$
(25.4
)
 
$
0.3

Foreign currency forward contracts
 
Operating costs and expenses
 
117.1

 
(80.8
)
 
—

Total
 
 
 
$
171.2

 
$
(106.2
)
 
$
0.3

(1)  
Includes the reclassification from "Accumulated other comprehensive loss" into earnings of $4.1 million of previously unrecognized gains on foreign currency cash flow hedge contracts monetized in the fourth quarter of 2012.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2016
Financial Instrument
 
Income Statement
Classification of (Losses) Gains
 
Total realized loss recognized in income
 
Loss reclassified from other comprehensive income into income (1)
 
(Loss) gain recognized in income on derivatives
 
Unrealized (loss) gain recognized in income on non- designated derivatives
 
 
 
 
(Dollars in millions)

Commodity swap contracts
 
Operating costs and expenses
 
$
(58.9
)
 
$
(47.0
)
 
$
(11.9
)
 
$
—

Commodity swap contracts
 
Reorganization items
 
(38.8
)
 
—

 
(38.8
)
 
—

Foreign currency forward contracts
 
Operating costs and expenses
 
(91.4
)
 
(94.1
)
 
2.7

 
—

Foreign currency forward contracts
 
Reorganization items
 
(36.4
)
 
—

 
(36.4
)
 
—

Total
 
 
 
$
(225.5
)
 
$
(141.1
)
 
$
(84.4
)
 
$
—

(1)  
Includes the reclassification from "Accumulated other comprehensive loss" into earnings of $13.6 million and $9.0 million of previously unrecognized losses on foreign currency and fuel contracts, respectively, monetized in the first quarter of 2016.



15

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2015

Financial Instrument
 
Income Statement
Classification of (Losses) Gains
 
Gain (loss) recognized in other comprehensive income on derivatives
(effective portion)
 
Loss reclassified from other comprehensive income into income
(effective portion)(1)
 
Gain reclassified from other comprehensive income into income
(ineffective portion)
 
 
 
(Dollars in millions)

Commodity swap contracts
 
Operating costs and expenses
 
$
35.8

 
$
(57.1
)
 
$
1.8

Foreign currency forward contracts
 
Operating costs and expenses
 
(19.0
)
 
(154.4
)
 
—

Total
 
 
 
$
16.8

 
$
(211.5
)
 
$
1.8

(1)  
Includes the reclassification from "Accumulated other comprehensive loss" into earnings of $14.8 million of previously unrecognized gains on foreign currency cash flow hedge contracts monetized in the fourth quarter of 2012.
Cash Flow Presentation. The Company classifies the cash effects of its Corporate Hedging derivatives within the "Cash Flows From Operating Activities" section of the unaudited condensed consolidated statements of cash flows.
Offsetting and Balance Sheet Presentation
The Company's Corporate Hedging derivative financial instruments were transacted in over-the-counter (OTC) markets with financial institutions under International Swaps and Derivatives Association (ISDA) Master Agreements. Those agreements contain symmetrical default provisions which allow for the net settlement of amounts owed by either counterparty in the event of default or contract termination. The Company offsets its Corporate Hedging asset and liability derivative positions on a counterparty-by-counterparty basis in the condensed consolidated balance sheets, with the fair values of those respective derivatives reflected in “Other current assets,” “Investments and other assets,” “Accounts payable and accrued expenses” and “Other noncurrent liabilities." Though the symmetrical default provisions associated with the Company's Corporate Hedging derivatives exist at the overall counterparty level across its foreign currency and diesel fuel hedging strategy derivative contract portfolios, the Company's accounting policy is to apply counterparty offsetting separately within those derivative contract portfolios for presentation in the condensed consolidated balance sheets because that application is more consistent with the fact that the Company generally net settles its Corporate Hedging derivatives with each counterparty by derivative contract portfolio on a routine basis.
The classification and amount of Corporate Hedging derivative financial instruments presented on a gross and net basis as of December 31, 2015 are presented in the table that follows.
Financial Instrument
Fair Value of Liabilities Presented in the Condensed Consolidated Balance Sheet as of December 31, 2015 (1)
 
(Dollars in millions)
Current Liabilities:
 
Commodity swap contracts
$
86.1

Foreign currency forward contracts
145.6

Total
$
231.7

 
 
Noncurrent Liabilities:
 
Commodity swap contracts
$
37.6

Foreign currency forward contracts
55.1

Total
$
92.7

(1)  
All commodity swap contracts and foreign currency forward contracts were in a liability position as of December 31, 2015.
See Note 9. "Coal Trading" for information on balance sheet offsetting related to the Company’s coal trading activities.


16

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Fair Value Measurements
The Company uses a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. These levels include: Level 1 - inputs are quoted prices in active markets for the identical assets or liabilities; Level 2 - inputs are other than quoted prices included in Level 1 that are directly or indirectly observable through market-corroborated inputs; and Level 3 - inputs are unobservable, or observable but cannot be market-corroborated, requiring the Company to make assumptions about pricing by market participants.
Financial Instruments Measured on a Recurring Basis. The following tables set forth the hierarchy of the Company’s net financial liability positions for which fair value is measured on a recurring basis:
 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(Dollars in millions)
Commodity swap contracts
—

 
—

 
(123.7
)
 
(123.7
)
Foreign currency contracts
—

 
—

 
(200.7
)
 
(200.7
)
Total net financial liabilities
$
—

 
$
—

 
$
(324.4
)
 
$
(324.4
)
As of June 30, 2016, the Company no longer had any outstanding financial positions.
For Level 1 and 2 financial assets and liabilities, the Company utilizes both direct and indirect observable price quotes, including interest rate yield curves, exchange indices, broker/dealer quotes, published indices, issuer spreads, benchmark securities and other market quotes. In the case of certain debt securities, fair value is provided by a third-party pricing service. Below is a summary of the Company’s valuation techniques for Level 1 and 2 financial assets and liabilities:
•
Commodity swap contracts — diesel fuel and explosives: valued based on a valuation that is corroborated by the use of market-based pricing (Level 2) except when credit and non-performance risk is considered to be a significant input, then the Company classifies such contracts as Level 3.
•
Foreign currency forward and option contracts: valued utilizing inputs obtained in quoted public markets (Level 2) except when credit and non-performance risk is considered to be a significant input, then the Company classifies such contracts as Level 3.
The following table summarizes the changes related to the Company’s Corporate Hedging derivative financial instruments recurring Level 3 financial liabilities:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2016
 
June 30, 2016
 
 
Commodity Contracts
 
Foreign Currency Contracts
 
Total
 
Commodity Contracts
 
Foreign Currency Contracts
 
Total
 
 
(Dollars in millions)
Beginning of period
 
$
91.6

 
$
112.8

 
$
204.4

 
$
123.7

 
$
200.7

 
$
324.4

Total net losses realized/unrealized:
 
 
 
 
 
 
 
 
 
 
 
 
Included in earnings (1)
 
35.1

 
36.3

 
71.4

 
15.7

 
(48.0
)
 
(32.3
)
Settlements / terminations
 
(126.7
)
 
(149.1
)
 
(275.8
)
 
(139.4
)
 
(152.7
)
 
(292.1
)
End of period
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

(1)
Includes reorganization items and realized gains (losses)
The Company had no transfers between Levels 1, 2 and 3 during the three and six months ended June 30, 2016 or 2015. Transfers into Level 3 of liabilities previously classified in Level 2 during the year ended December 31, 2015 were due to the relative value of unobservable inputs to the total fair value measurement of certain derivative contracts rising above the 10% threshold. The Company’s policy is to value all transfers between levels using the beginning of period valuation.


17

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Other Financial Instruments. The Company used the following methods and assumptions in estimating fair values for other financial instruments as of June 30, 2016 and December 31, 2015:
•
Cash and cash equivalents, restricted cash, accounts receivable, including those within the Company’s accounts receivable securitization program, notes receivable and accounts payable have carrying values which approximate fair value due to the short maturity or the liquid nature of these instruments.
•
Long-term debt fair value estimates are based on observed prices for securities with an active trading market when available (Level 2), and otherwise on estimated borrowing rates to discount the cash flows to their present value (Level 3).
The estimated fair value of the Company’s current and long-term debt as of June 30, 2016 is subject to compromise in connection with the Company's plan of reorganization and as such has been excluded from the table below. The carrying amount and estimated fair value of the Company's current and long-term debt as of December 31, 2015 are summarized as follows:
 
December 31, 2015
 
Carrying
Amount
 
Estimated
Fair Value
 
(Dollars in millions)
Current and Long-term debt
$
6,241.2

 
$
1,372.7

(9)     Coal Trading
The Company engages in the direct and brokered trading of coal and freight-related contracts (coal trading). Except those for which the Company has elected to apply a normal purchases and normal sales exception, all derivative coal trading contracts are accounted for at fair value.
The Company includes instruments associated with coal trading transactions as a part of its trading book. Trading revenues from such transactions are recorded in “Other revenues” in the unaudited condensed consolidated statements of operations and include realized and unrealized gains and losses on derivative instruments, including those that arise from coal deliveries related to contracts accounted for on an accrual basis under the normal purchases and normal sales exception. Therefore, the Company has elected the trading exemption surrounding disclosure of its coal trading activities.
Trading (losses) revenues recognized during the three and six months ended June 30, 2016 and 2015 were as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Trading Revenues by Type of Instrument
 
2016
 
2015
 
2016
 
2015
 
 
(Dollars in millions)
Futures, swaps and options
 
$
(32.3
)
 
$
3.0

 
$
(36.3
)
 
$
41.6

Physical purchase/sale contracts
 
27.7

 
(1.5
)
 
22.9

 
(23.4
)
Total trading (losses) revenues
 
$
(4.6
)
 
$
1.5

 
$
(13.4
)
 
$
18.2

Risk Management
Hedge Ineffectiveness. In some instances, the Company has designated an existing coal trading derivative as a hedge and, thus, the derivative has a non-zero fair value at hedge inception. The “off-market” nature of these derivatives, which is best described as an embedded financing element within the derivative, is a source of ineffectiveness. In other instances, the Company uses a coal trading derivative that settles at a different time, has different quality specifications or has a different location basis than the occurrence of the cash flow being hedged. These collectively yield ineffectiveness to the extent that the derivative hedge contract does not exactly offset changes in the fair value or expected cash flows of the hedged item.
The Company had no coal trading positions designated as cash flow hedges as of June 30, 2016 and December 31, 2015.


18

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Offsetting and Balance Sheet Presentation
The Company's coal trading assets and liabilities include financial instruments, such as swaps, futures and options, cleared through various exchanges, which involve the daily net settlement of closed positions. The Company must post cash collateral, known as variation margin, on exchange-cleared positions that are in a net liability position and receives variation margin when in a net asset position. The Company also transacts in coal trading financial swaps and options through OTC markets with financial institutions and other non-financial trading entities under ISDA Master Agreements, which contain symmetrical default provisions. Certain of the Company's coal trading agreements with OTC counterparties also contain credit support provisions that may periodically require the Company to post, or entitle the Company to receive, initial and variation margin. Physical coal and freight-related purchase and sale contracts included in the Company's coal trading assets and liabilities are executed pursuant to master purchase and sale agreements that also contain symmetrical default provisions and allow for the netting and setoff of receivables and payables that arise during the same time period. The Company offsets its coal trading asset and liability derivative positions, and variation margin related to those positions, on a counterparty-by-counterparty basis in the condensed consolidated balance sheets, with the fair values of those respective derivatives reflected in “Assets from coal trading activities, net” and “Liabilities from coal trading activities, net."
The fair value of assets and liabilities from coal trading activities presented on a gross and net basis as of June 30, 2016 and December 31, 2015 is set forth below:
Affected line item in the condensed consolidated balance sheets
 
Gross Amounts of Recognized Assets (Liabilities)
 
Gross Amounts Offset in the Condensed Consolidated Balance Sheets
 
Variation margin (held) posted (1)
 
Net Amounts of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheets
 
 
(Dollars in millions)
 
 
Fair Value as of June 30, 2016
Assets from coal trading activities, net
 
$
112.4

 
$
(92.2
)
 
$
(2.9
)
 
$
17.3

Liabilities from coal trading activities, net
 
(143.6
)
 
92.2

 
35.7

 
(15.7
)
Total, net
 
$
(31.2
)
 
$
—

 
$
32.8

 
$
1.6

 
 
 
 
 
 
 
 
 
 
 
Fair Value as of December 31, 2015
Assets from coal trading activities, net
 
$
128.6

 
$
(87.3
)
 
$
(17.8
)
 
$
23.5

Liabilities from coal trading activities, net
 
(110.0
)
 
87.3

 
7.1

 
(15.6
)
Total, net
 
$
18.6

 
$
—

 
$
(10.7
)
 
$
7.9

(1) 
None of the net variation margin held at June 30, 2016 and December 31, 2015, respectively, related to cash flow hedges.
See Note 8. "Derivatives and Fair Value Measurements" for information on balance sheet offsetting related to the Company’s Corporate Hedging activities.


19

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Fair Value Measurements
The following tables set forth the hierarchy of the Company’s net financial asset (liability) coal trading positions for which fair value is measured on a recurring basis as of June 30, 2016 and December 31, 2015:
 
June 30, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(Dollars in millions)
Futures, swaps and options
$
—

 
$
0.6

 
$
—

 
$
0.6

Physical purchase/sale contracts
—

 
2.1

 
(1.1
)
 
1.0

Total net financial assets (liabilities)
$
—

 
$
2.7

 
$
(1.1
)
 
$
1.6

 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(Dollars in millions)
Futures, swaps and options
$
—

 
$
3.3

 
$
—

 
$
3.3

Physical purchase/sale contracts
—

 
20.2

 
(15.6
)
 
4.6

Total net financial assets (liabilities)
$
—

 
$
23.5

 
$
(15.6
)
 
$
7.9

For Level 1 and 2 financial assets and liabilities, the Company utilizes both direct and indirect observable price quotes, including U.S. interest rate curves; LIBOR yield curves; Chicago Mercantile Exchange (CME) Group, Intercontinental Exchange (ICE), LCH.Clearnet (formerly known as the London Clearing House), NOS Clearing ASA and Singapore Exchange (SGX) contract prices; broker quotes; published indices and other market quotes. Below is a summary of the Company’s valuation techniques for Level 1 and 2 financial assets and liabilities:
•
Futures, swaps and options: generally valued based on unadjusted quoted prices in active markets (Level 1) or a valuation that is corroborated by the use of market-based pricing (Level 2).
•
Physical purchase/sale contracts: purchases and sales at locations with significant market activity corroborated by market-based information (Level 2) except when credit and non-performance risk is considered to be a significant input (greater than 10% of fair value), then the company classifies as Level 3.
Physical purchase/sale contracts include a credit valuation adjustment based on credit and non-performance risk (Level 3). The credit valuation adjustment has not historically had a material impact on the valuation of the contracts resulting in Level 2 classification. However, due to the Company's corporate credit rating downgrades in 2015, the credit valuation adjustments as of June 30, 2016 and December 31, 2015 are considered to be significant unobservable inputs in the valuation of the contracts resulting in Level 3 classification.
The Company's risk management function, which is independent of the Company's commercial trading function, is responsible for valuation policies and procedures, with oversight from executive management. Generally, the Company's Level 3 instruments or contracts are valued using bid/ask price quotations and other market assessments obtained from multiple, independent third-party brokers or other transactional data incorporated into internally-generated discounted cash flow models. Decreases in the number of third-party brokers or market liquidity could erode the quality of market information and therefore the valuation of the Company's market positions. The Company's valuation techniques include basis adjustments to the foregoing price inputs for quality, such as heat rate and sulfur and ash content, location differentials, expressed as port and freight costs, and credit risk. The Company's risk management function independently validates the Company's valuation inputs, including unobservable inputs, with third-party information and settlement prices from other sources where available. A daily process is performed to analyze market price changes and changes to the portfolio. Further periodic validation occurs at the time contracts are settled with the counterparty. These valuation techniques have been consistently applied in all periods presented, and the Company believes it has obtained the most accurate information available for the types of derivative contracts held.


20

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The following table summarizes the quantitative unobservable inputs utilized in the Company's internally-developed valuation models for physical commodity purchase/sale contracts classified as Level 3 as of June 30, 2016:
 
 
Range
 
Weighted
Input
 
Low
 
High
 
Average
Quality adjustments
 
—
%
 
3
%
 
2
%
Location differentials
 
11
%
 
11
%
 
11
%
Credit and non-performance risk
 
27
%
 
27
%
 
27
%
Significant increases or decreases in the inputs in isolation could result in a significantly higher or lower fair value measurement. The unobservable inputs do not have a direct interrelationship; therefore, a change in one unobservable input would not necessarily correspond with a change in another unobservable input.
The following table summarizes the changes in the Company’s recurring Level 3 net financial assets:
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(Dollars in millions)
Beginning of period
$
(3.9
)
 
$
2.2

 
$
(15.6
)
 
$
2.1

Transfers into Level 3
0.4

 
—

 
0.4

 
—

Transfers out of Level 3
—

 
—

 
10.7

 
—

Total (losses) gains realized/unrealized:
 

 
 

 
 

 
 

Included in earnings
(1.3
)
 
—

 
(1.4
)
 
0.5

Sales
—

 
—

 
(0.1
)
 
—

Settlements
3.7

 
(0.4
)
 
4.9

 
(0.8
)
End of period
$
(1.1
)
 
$
1.8

 
$
(1.1
)
 
$
1.8

The Company had no transfers between Levels 1 and 2 during the three and six months ended June 30, 2016 and 2015. Transfers of liabilities into/out of Level 3 from/to Level 2 during the three and six months ended June 30, 2016 were due to the relative value of unobservable inputs to the total fair value measurement of certain derivative contracts falling below, or in the case of transfers in rising above, the 10% threshold. The Company’s policy is to value all transfers between levels using the beginning of period valuation.
The following table summarizes the changes in net unrealized (losses) gains relating to Level 3 net financial assets held both as of the beginning and the end of the period:
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(Dollars in millions)
Changes in unrealized (losses) gains (1)
$
(0.1
)
 
$
0.1

 
$
(0.2
)
 
$
0.3

(1) 
Within the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of comprehensive income for the periods presented, unrealized gains and losses from Level 3 items are combined with unrealized gains and losses on positions classified in Level 1 or 2, as well as other positions that have been realized during the applicable periods.
As of June 30, 2016, the Company's trading portfolio was expected to have negative net cash realizations in 2016, reaching substantial maturity in 2017 on a fair value basis.


21

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



As of June 30, 2016, the timing of the estimated future realization of the value of the Company’s trading portfolio, on a cumulative cash basis, was as follows:
 
 
Percentage of
Year of Expiration
 
Portfolio Total
 
 
 
2016
 
19
 %
2017
 
83
 %
2018
 
(2
)%
 
 
100
 %
Credit and Nonperformance Risk. The fair value of the Company’s coal derivative assets and liabilities reflects adjustments for credit risk. The Company’s exposure is substantially with electric utilities, energy marketers, steel producers and nonfinancial trading houses. The Company’s policy is to independently evaluate each customer’s creditworthiness prior to entering into transactions and to regularly monitor the credit extended. If the Company engages in a transaction with a counterparty that does not meet its credit standards, the Company seeks to protect its position by requiring the counterparty to provide an appropriate credit enhancement. Also, when appropriate (as determined by its credit management function), the Company has taken steps to reduce its exposure to customers or counterparties whose credit has deteriorated and who may pose a higher risk of failure to perform under their contractual obligations. These steps include obtaining letters of credit or cash collateral (margin), requiring prepayments for shipments or the creation of customer trust accounts held for the Company’s benefit to serve as collateral in the event of a failure to pay or perform. To reduce its credit exposure related to trading and brokerage activities, the Company seeks to enter into netting agreements with counterparties that permit the Company to offset asset and liability positions with such counterparties and, to the extent required, the Company will post or receive margin amounts associated with exchange-cleared and certain OTC positions. The Company also continually monitors counterparty and contract nonperformance risk, if present, on a case-by-case basis.
At June 30, 2016, 57% of the Company’s credit exposure related to coal trading activities with investment grade counterparties, while 20% was with non-investment grade counterparties and 23% was with counterparties that are not rated.
Performance Assurances and Collateral
Certain of the Company’s derivative trading instruments require the parties to provide additional performance assurances whenever a material adverse event jeopardizes one party’s ability to perform under the instrument. If the Company was to sustain a material adverse event (using commercially reasonable standards), its counterparties could request collateralization on derivative trading instruments in net liability positions which, based on an aggregate fair value at June 30, 2016 and December 31, 2015, would have amounted to collateral postings to counterparties of approximately $5 million and $21 million, respectively. As of June 30, 2016, the Company was required to post approximately $6 million in collateral to counterparties for such positions. No collateral was required to be posted to counterparties as of December 31, 2015.
Certain of the Company’s other derivative trading instruments require the parties to provide additional performance assurances whenever a credit downgrade occurs below a certain level, as specified in each underlying contract. The terms of such derivative trading instruments typically require additional collateralization, which is commensurate with the severity of the credit downgrade. During the second quarter of 2016, each of the three rating agencies downgraded the Company's corporate credit rating due to the Bankruptcy Petitions. Despite the rating agencies downgrades, the Company’s additional collateral requirement owed to its counterparties for these ratings based derivative trading instruments would have been zero at June 30, 2016 and December 31, 2015 based on the aggregate fair value of all derivative trading instruments with such features. As of June 30, 2016 and December 31, 2015, no collateral was posted to counterparties to support such derivative trading instruments.
The Company is required to post variation margin on positions that are in a net liability position and is entitled to receive and hold variation margin on positions that are in a net asset position with an exchange and certain of its OTC derivative contract counterparties. At June 30, 2016 and December 31, 2015, the Company posted a net variation margin of $32.8 million and held a net variation margin of $10.7 million, respectively.


22

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



In addition to the requirements surrounding variation margin, the Company is required by the exchanges upon which it transacts and by certain of its OTC arrangements to post certain additional collateral, known as initial margin, which represents an estimate of potential future adverse price movements across the Company’s portfolio under normal market conditions. During the second quarter of 2016, the Company was allowed to decrease this collateral position from a 2x initial margin calculation to a 1.5x initial margin calculation. As of June 30, 2016 and December 31, 2015, the Company had posted initial margin of $13.4 million and $9.2 million, respectively, which is reflected in “Other current assets” in the condensed consolidated balance sheets. The Company had posted $4.0 million of excess margin as of June 30, 2016, while it was in receipt of $0.7 million of margin in excess of the required variation and initial margin as of December 31, 2015.
(10) Financing Receivables
The Company's total financing receivables as of June 30, 2016 and December 31, 2015 consisted of the following:
Balance Sheet Classification
 
June 30, 2016
 
December 31, 2015
 
(Dollars in millions)
Accounts receivable, net
$
5.4

 
$
—

Other current assets
—

 
20.0

Investments and other assets
58.6

 
65.2

Total financing receivables
$
64.0

 
$
85.2

The Company periodically assesses the collectability of accounts and loans receivable by considering factors such as specific evaluation of collectability, historical collection experience, the age of the receivable and other available evidence. Below is a description of the Company's financing receivables outstanding as of June 30, 2016.
Codrilla Mine Project. In 2011, a wholly-owned subsidiary of PEA-PCI, then Macarthur Coal Limited, completed the sale of a portion of its 85% interest in the Codrilla Mine Project to the other participants of the Coppabella Moorvale Joint Venture, afterward retaining 73.3% ownership.The final outstanding installment payment of 40% of the sale price was due upon the earlier of the mine's first coal shipment or a specified date. The sales agreement was amended in the second quarter of 2013 to delay the specified date from March 31, 2015 to June 30, 2016. The remaining balance associated with these receivables was recorded in "Accounts receivable, net" and "Other current assets", respectively, in the condensed consolidated balance sheets, which totaled $5.4 million and $20.0 million at June 30, 2016 and December 31, 2015, respectively. The remaining payment was subsequently received on July 8, 2016.
Middlemount. The Company periodically makes loans (Priority Loans) to Middlemount, in which the Company owns a 50% equity interest, pursuant to the related shareholders’ agreement for purposes of funding capital expenditures and working capital requirements. The Priority Loans bear interest at a rate equal to the monthly average 30-day Australian Bank Bill Swap Reference Rate plus 3.5% and expire on December 31, 2016. Based on the existence of letters of support from related entities of the shareholders, the expected timing of repayment of these loans is projected to extend beyond the stated expiration date and so the Company considers these loans to be of a long-term nature. As a result, (i) the foreign currency impact related to the shareholder loans is included in foreign currency translation adjustment in the condensed consolidated balance sheets and the unaudited condensed consolidated statements of comprehensive income and (ii) interest income on the Priority Loans is recognized when cash is received. Refer to Note 2. "Asset Impairment" to the consolidated financial statements included in the Company's Annual Report on form 10-K for the year ended December 31, 2015 for background surrounding the impairment charge recognized in 2015 related to Middlemount. The carrying value of the loans of $58.6 million and $65.2 million was reflected in "Investments and other assets" in the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively.


23

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



(11) Property, Plant, Equipment and Mine Development
Property, plant, equipment and mine development, net, as of June 30, 2016 and December 31, 2015 consisted of the following:
 
June 30, 2016
 
December 31, 2015
 
(Dollars in millions)
Land and coal interests
$
10,501.7

 
$
10,503.7

Buildings and improvements
1,539.8

 
1,506.0

Machinery and equipment
2,256.6

 
2,280.4

Less: Accumulated depreciation, depletion and amortization
(5,236.2
)
 
(5,031.6
)
Total, net
$
9,061.9

 
$
9,258.5

(12)  Income Taxes
The Company’s income tax benefits of $95.8 million and $90.1 million for the six months ended June 30, 2016 and 2015, respectively, included a tax benefit related to the remeasurement of foreign income tax accounts of $0.3 million and $0.2 million, respectively. The Company's income tax benefits of $30.0 million and $93.1 million for the three months ended June 30, 2016 and 2015, respectively included a tax benefit related to the remeasurement of foreign income tax accounts of $0.2 million and zero, respectively. The Company's effective tax rate before remeasurement for the six months ended June 30, 2016 is based on the Company’s estimated full year effective tax rate, comprised of expected statutory tax benefit, offset by foreign rate differential and changes in valuation allowance, plus tax benefits for expected refunds for U.S. net operating loss carrybacks and a tax allocation to results from continuing operations related to the tax effects of items credited directly to “Other comprehensive income”.
(13)     Current and Long-term Debt 
The Company’s total indebtedness as of June 30, 2016 and December 31, 2015 consisted of the following:
 
June 30, 2016
 
December 31, 2015
 
(Dollars in millions)
2013 Revolver
$
1,210.3

 
$
—

2013 Term Loan Facility due September 2020
1,154.5

 
1,156.3

6.00% Senior Notes due November 2018
1,509.9

 
1,508.9

6.50% Senior Notes due September 2020
645.8

 
645.5

6.25% Senior Notes due November 2021
1,327.7

 
1,327.0

10.00% Senior Secured Second Lien Notes due March 2022
962.3

 
960.4

7.875% Senior Notes due November 2026
245.9

 
245.8

Convertible Junior Subordinated Debentures due December 2066
367.1

 
366.2

DIP Term Loan Facility
457.4

 
—

Capital lease obligations
24.4

 
30.3

Other
0.5

 
0.8

 
7,905.8

 
6,241.2

Less: Liabilities subject to compromise
7,423.5

 
—

Less: Current portion of long-term debt
482.3

 
5,874.9

Long-term debt
$
—

 
$
366.3

The carrying amounts of the 2013 Term Loan Facility due September 2020, the 6.00% Senior Notes due November 2018, the 6.50% Senior Notes due September 2020, the 6.25% Senior Notes due November 2021, the 10.00% Senior Secured Second Lien Notes due March 2022 (the Senior Secured Second Lien Notes), the 7.875% Senior Notes due November 2026, the Convertible Junior Subordinated Debentures due December 2066 (the Debentures) and the DIP Term Loan Facility (as defined below) have been presented above net of the respective unamortized debt issuance costs and original issue discounts, as applicable.


24

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The Company's consolidated financial statements as of December 31, 2015 were prepared under a going concern opinion, and as such, all of its long-term debt with the exception of the Debentures was classified as current. As of June 30, 2016, all of the Company's long-term debt with the exception of the DIP Term Loan Facility (as defined below) and certain other debt arrangements was recorded in “Liabilities subject to compromise” in the condensed consolidated balance sheets. The DIP Term Loan Facility (as defined below) and certain other debt arrangements were recorded in “Current portion of long-term debt” in the condensed consolidated balance sheets as of June 30, 2016.
During the first quarter of 2016, the Company borrowed $947.0 million under the $1.65 billion revolving credit facility (as amended, the 2013 Revolver) for general corporate purposes. As of the Petition Date, the Company had approximately $675 million letters of credit outstanding on the 2013 Revolver.  Subsequent to the Petition Date, certain counterparties drew on a portion of those letters of credit.  The letters of credit were in place to support various types of obligations, though the most significant items related to bank guarantees in place for certain reclamation obligations in Australia.  The draws required the recording of previously off-balance sheet liabilities, except in certain instances where the Company had previously recorded a liability, and as such have been reflected as additional borrowings under the 2013 Revolver.  The total of such letters of credit was $263.3 million during the three months ended June 30, 2016. "Investments and other assets" in the condensed consolidated balance sheets as of June 30, 2016 includes $229.2 million of collateral in support of certain of these obligations.
As a result of filing the Bankruptcy Petitions on April 13, 2016, as discussed in Note 1. "Basis of Presentation", the Company is in default under the 2013 Credit Facility and as such the 2013 Revolver can no longer be utilized.
Additional information regarding the Company's current and long-term debt is outlined in Note 12 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.
The filing of the Bankruptcy Petitions constituted an event of default that accelerated Peabody’s obligations under the following debt instruments (collectively, the “Debt Instruments”):
•
Indenture governing $1,000.0 million outstanding aggregate principal amount of the Company’s 10.00% Senior Secured Second Lien Notes due 2022, dated as of March 16, 2015, among the Company, U.S. Bank National Association (“U.S. Bank”), as trustee and collateral agent, and the guarantors named therein;
•
Indenture governing $650.0 million outstanding aggregate principal amount of the Company’s 6.50% Senior Notes due 2020, dated as of March 19, 2004, among the Company, U.S. Bank and the guarantors named therein, as supplemented;
•
Indenture governing $1,518.8 million outstanding aggregate principal amount of the Company’s 6.00% Senior Notes due 2018, dated as of November 15, 2011, among the Company, U.S. Bank and the guarantors named therein;
•
Indenture governing $1,339.6 million outstanding aggregate principal amount of the Company’s 6.25% Senior Notes due 2021, dated as of November 15, 2011, by and among the Company, U.S. Bank and the guarantors named therein;
•
Indenture governing $250.0 million outstanding aggregate principal amount of the Company’s 7.875% Senior Notes due 2026, dated as of March 19, 2004, among the Company, U.S. Bank and the guarantors named therein, as supplemented;
•
Subordinated Indenture governing $732.5 million outstanding aggregate principal amount of the Company’s Convertible Junior Subordinated Debentures due 2066, dated as of December 20, 2006, among the Company and U.S. Bank, as supplemented; and
•
Amended and Restated Credit Agreement, as amended and restated as of September 24, 2013 (the 2013 Credit Facility), related to $1,170.0 million outstanding aggregate principal amount of term loans under the 2013 Term Loan Facility and $1,650.0 million in the 2013 Revolver which includes approximately $675 million of posted but undrawn letters of credit and approximately $947 million in outstanding borrowings, by and among the Company, Citibank, N.A., as administrative agent, swing line lender and letter of credit (L/C) issuer, Citigroup Global Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, BNP Paribas Securities Corp., Crédit Agricole Corporate and Investment Bank, HSBC Securities (USA) Inc., Morgan Stanley Senior Funding, Inc., PNC Capital Markets LLC and RBS Securities Inc., as joint lead arrangers and joint book managers, and the lender parties thereto, as amended by that certain Omnibus Credit Agreement, dated as of February 5, 2015.
During March 2016, the Company elected to exercise the 30-day grace period with respect to a $21.1 million semi-annual interest payment due March 15, 2016 on the 6.50% Senior Notes due September 2020 and a $50.0 million semi-annual interest payment due March 15, 2016 on the Senior Secured Second Lien Notes. The Company elected to allow the grace period to lapse without making the interest payments.


25

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



As a result of the filing of the Bankruptcy Petitions, all unpaid principal and accrued and unpaid interest related to the Company's Debt Instruments due thereunder became immediately due and payable.  Any efforts to enforce such payment obligations under the Debt Instruments are automatically stayed as a result of the Bankruptcy Petitions, and the creditors’ rights of enforcement in respect of the Debt Instruments are subject to the applicable provisions of the Bankruptcy Code.
The Company is also required to pay monthly adequate protection payments to the First Lien Secured Parties in accordance with the rates defined in the 2013 Credit Facility. The adequate protection payments were recorded as "Interest expense" in the unaudited condensed consolidated statement of operations, which totaled $26.8 million for the three and six months ended June 30, 2016.
The Company has not recorded interest expense on the 6.00% Senior Notes due November 2018, the 6.50% Senior Notes due September 2020, the 6.25% Senior Notes due November 2021, the Debentures, the Senior Secured Second Lien Notes or the 7.875% Senior Notes due November 2026 since the filing of the Bankruptcy Petitions on the Petition Date. The Company's contractual interest obligation was $139.5 million and $265.7 million for the three and six months ended June 30, 2016, respectively; however, $80.5 million of interest expense was automatically stayed during the three and six months ended June 30, 2016, respectively, in accordance with Section 502(b)(2) of the Bankruptcy Code.
DIP Financing
On the Petition Date, the Debtors also filed a motion (the DIP Motion) seeking authorization to use cash collateral and to approve financing (the DIP Financing) under that certain Superpriority Secured Debtor-In-Possession Credit Agreement (the DIP Credit Agreement) by and among the Company as borrower, Peabody Global Funding, LLC, formally known as the Global Center for Energy and Human Development and certain Debtors party thereto as guarantors (the Guarantors and together with the Company, the Loan Parties), the lenders party thereto (the DIP Lenders) and Citibank, N.A. as Administrative Agent (in such capacity, the DIP Agent) and L/C Issuer. The DIP Credit Agreement provides for (i) a term loan not to exceed $500 million (the DIP Term Loan Facility), of which $200 million was made available upon entry of an interim order, the remaining $300 million pending the entry of the final order approving the DIP Credit Agreement (the Final Order), secured by substantially all of the assets of the Loan Parties, subject to certain excluded assets and carve outs and guaranteed by the Loan Parties (other than the Company), which would be used for working capital and general corporate purposes, to cash collateralize letters of credit and to pay fees and expenses, (ii) a cash collateralized letter of credit facility in an amount up to $100 million (the L/C Facility), and (iii) a bonding accommodation facility in an amount up to $200 million consisting of (x) a carve-out from the collateral with superpriority claim status, subject only to the fees carve-out, entitling the authority making any bonding request to receive proceeds of collateral first in priority before distribution to any DIP Lender or other prepetition secured creditor, except for letters of credit issued under the DIP Credit Agreement and/or (y) a letter of credit facility (the Bonding L/C Facility). The aggregate face amount of all letters of credit issued under the L/C Facility and the Bonding L/C Facility shall not at any time exceed $50 million without DIP Lender consent.
The DIP Credit Agreement includes covenants that, subject to certain exceptions, require the Company to maintain certain minimum thresholds of liquidity and consolidated EBITDA and to not exceed a certain maximum capital spend, and limit the ability of the Company and the Guarantors to, among other things: (i) make dispositions of material leases and contracts, (ii) make acquisitions, loans or investments, (iii) create liens on their property, (iv) dispose of assets, (v) incur indebtedness, (vi) merge or consolidate with third parties, (vii) enter into transactions with affiliated entities, and (viii) make material changes to their business activities.


26

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



In addition to customary events of default, the DIP Credit Agreement contains the following milestones relating to the Chapter 11 Cases certain of which milestones have been modified as reflected below pursuant to amendments to the DIP Credit Agreement entered into since the Petition Date, the failure of which, if not cured, amended or waived, would result in an event of default:
•
not later than 120 days following the Petition Date, delivery of the U.S. Business Plan and the Australian Business Plan;
•
not later than the earlier to occur of (i) the date that is three business days following the entry of the Final Order and (ii) the date that is 45 days following the Petition Date, a declaratory judgment action shall be commenced by the Company (without prejudice to the rights of any party-in-interest to commence such a declaratory judgment action or any other proceeding) seeking a determination of the Principal Property Cap (including the amount thereof) and which of the U.S. Mine complexes are Principal Properties (the CNTA Issues), and not later than 181 days following the Petition Date of the Chapter 11 Cases, the Bankruptcy Court shall have entered an order determining the CNTA Issues (the CNTA Order Date);
•
not later than the later of (i) 30 days following the CNTA Order Date and (ii) 210 days following the Petition Date, the filing of an Acceptable Reorganization Plan (as defined below) and related disclosure statement;
•
not later than 270 days following the Petition Date, entry of an order approving a disclosure statement for an Acceptable Reorganization Plan; and
•
not later than 330 days following the Petition Date, the entry of an order confirming an Acceptable Reorganization Plan and not later than 360 days following the Petition Date, effectiveness of an Acceptable Reorganization Plan.
“Acceptable Reorganization Plan” means a reorganization plan that (i) provides for the termination of the commitments and the payment in full in cash of the obligations under the DIP Credit Agreement (other than contingent indemnification obligations for which no claims have been asserted) on the consummation date of such reorganization plan and (ii) provides for customary releases of the DIP Agent, the DIP Lenders and the L/C Issuer and each of their respective representatives, from any and all claims against the DIP Agent, the DIP Lenders and the DIP L/C Issuer in connection with the DIP Credit Agreement or the cases to the fullest extent permitted by the Bankruptcy Code and applicable law.
On April 15, 2016, the Bankruptcy Court issued an order approving the DIP Motion on an interim basis and authorizing the Loan Parties to, among other things, (i) enter into the DIP Credit Agreement and initially borrow up to $200 million, (ii) obtain a cash collateralized letter of credit facility in the aggregate amount of up to $100 million, and (iii) an accommodation facility for bonding requests in an aggregate stated amount of up to $200 million. On April 18, 2016, the Company entered into the DIP Credit Agreement with the DIP Lenders and borrowed $200 million under the DIP Term Loan Facility. On May 17, 2016, the Bankruptcy Court approved the DIP Financing on a final basis and entered an order to that effect on May 18, 2016. On May 19, 2016, following entry of the Final Order, the Company borrowed the remaining $300 million available under the DIP Term Loan Facility.
The scheduled maturity under the DIP Credit Agreement is the earliest of (a) the Scheduled Termination Date, (b) 45 days after the entry of the Interim Order if the Final Order has not been entered prior to the expiration of such 45-day period (as such period may be extended with the consent of certain DIP Lenders), (c) the substantial consummation of a plan of reorganization filed in the cases that is confirmed pursuant to an order entered by the Bankruptcy Court, (d) the acceleration of the loans and the termination of commitments with respect to the DIP Credit Agreement and (e) a sale of all or substantially all of the assets of the Company (or the Loan Parties) pursuant to Section 363 of the Bankruptcy Code. Borrowings under the DIP Term Loan Facility bear interest at an interest rate per annum equal to, at the Company's option (i) LIBOR plus 9.00%, subject to a 1.00% LIBOR floor or (ii) the base rate plus 8.00%.
“Scheduled Termination Date” means the date that is 12 months after the closing date; provided that such date may, at the election of the Company, be extended by up to an additional 6 months so long as, at the time such extension shall become effective, (w) there shall exist no default under the DIP Credit Agreement, (x) the representations and warranties of the Loan Parties therein shall be true and correct in all material respects, (y) the Company shall have paid or caused to be paid to the DIP Agent for the account of each DIP Lender an extension fee in an amount equal to 2.50% of such DIP Lender’s outstanding exposure under the DIP Term Loan Facility at such time and (z) the Company shall have delivered to the DIP Agent an updated DIP budget covering the additional period to be effected by such extension.
The Company paid aggregate debt issuance costs of $25.6 million during the three and six months ended June 30, 2016 related to the DIP Term Loan Facility, which will be amortized over a 12-month period.




27

Table of Contents
PEABODY ENERGY CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Intercompany Loan Facility
Prior to the Petition Date, the Company made available to its Australian platform a committed $250 million revolving intercompany loan facility (Intercompany Loan Facility). The Intercompany Loan Facility is designed to provide additional liquidity to support the ongoing operations of the Australian business during the Chapter 11 Cases, with draw amounts being tied to operating budgets and subject to certain availability restrictions. In accordance with the terms of the DIP Credit Agreement, the aggregate outstanding principal amount shall not exceed $250 million at any one time, which amount shall be subject to increase by up to $200 million with the written consent of the DIP Lenders. The consent of the DIP Lenders is also required to grant liens valued at 50% or more of the assets collateralizing the Intercompany Loan Facility. As of June 30, 2016, there were no amounts outstanding on the Intercompany Loan Facility.
Senior Secured Second Lien Notes Offering
On March 16, 2015, the Company completed the offering of $1.0 billion aggregate principal amount of the Senior Secured Second Lien Notes. The notes were offered to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the Securities Act), and to non-U.S. persons in transactions outside the U.S. under Regulation S of the Securities Act.
2016 Senior Notes Tender Offer and Redemption
Concurrently with the offering of the Senior Secured Second Lien Notes, the Company commenced a tender offer to repurchase the $650.0 million aggregate principal amount then outstanding of the 7.375% Senior Notes due November 2016 (the 2016 Senior Notes). Consequently, the Company repurchased $566.9 million aggregate principal amount of the notes that were validly tendered and not validly withdrawn during March 2015. The Company redeemed the remaining $83.1 million aggregate principal amount of the 2016 Senior Notes on April 15, 2015. In connection with those repurchases, the Company recognized an aggregate loss on early debt extinguishment of $8.3 million and $67.8 million in the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2015, respectively. The year-to-date charge was comprised of aggregate tender offer and make-whole premiums paid of $66.4 million and the non-cash write-off of associated unamortized debt issuance costs of $1.4 million.
(14) Pension and Postretirement Benefit Costs
Net periodic pension cost included the following components:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
(Dollars in millions)
Service cost for benefits earned
$
0.7

 
$
0.7

 
$
1.3

 
$
1.3

Interest cost on projected benefit obligation
10.3

 
10.1

 
20.7

 
20.2