Derivatives and Fair Value Measurements

6 Months Ended

Jun. 30, 2025

Derivatives

From time to time, the Company may utilize various types of derivative instruments to manage its exposure to risks in the normal course of business, including (1) foreign currency exchange rate risk and the variability of cash flows associated with forecasted Australian dollar expenditures made in its Australian mining platform and (2) price risk of fluctuating coal prices related to forecasted sales or purchases of coal, or changes in the fair value of a fixed price physical sales contract. These risk management activities are actively monitored for compliance with the Company’s risk management policies.

On a limited basis, the Company engages in the direct and brokered trading of coal and freight-related contracts. Except those contracts 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.

Foreign Currency

The Company utilizes options and collars to hedge currency risk associated with anticipated Australian dollar operating expenditures. As of June 30, 2025, the Company held average rate options with an aggregate notional amount of $490.0 million Australian dollars to hedge currency risk associated with anticipated Australian dollar operating expenditures over the nine-month period ending March 31, 2026. The instruments entitle the Company to receive payment on the notional amount should the quarterly average Australian dollar-to-U.S. dollar exchange rate exceed amounts ranging from $0.67 to $0.70 over the nine-month period ending March 31, 2026. As of June 30, 2025, the Company also held purchased collars with an aggregate notional amount of $506.0 million Australian dollars related to anticipated Australian dollar operating expenditures during the nine-month period ending March 31, 2026. The purchased collars have a floor ranging from approximately $0.57 to $0.61 and a ceiling ranging from $0.66 to $0.71, whereby the Company will incur a loss on the instruments for quarterly average Australian dollar-to-U.S. dollar exchange rates below the floor and a gain for quarterly average rates above the ceiling.

Derivative Contracts Related to Forecasted Sales

As of June 30, 2025, the Company had no coal derivative contracts related to its forecasted sales. Historically, such financial contracts have included futures and forwards.

Financial Trading Contracts

On a limited basis, the Company may enter coal or freight derivative contracts for trading purposes. Such financial contracts may include futures, forwards and options. The Company held no financial trading contracts as of June 30, 2025.

Tabular Derivatives Disclosures

The Company has master netting agreements with certain of its counterparties which allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. Such netting arrangements reduce the Company’s credit exposure related to these counterparties. For classification purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or liability in the condensed consolidated balance sheets. As of June 30, 2025, the Company had an asset derivative comprised of foreign currency option contracts with a fair value of $5.2 million. As of December 31, 2024, the Company had a liability derivative comprised of foreign currency option contracts with a fair value of $3.6 million. The net amount of asset derivatives is included in “Other current assets” and the net amount of liability derivatives is included in “Accounts payable and accrued expenses” in the accompanying condensed consolidated balance sheets.

Currently, the Company does not seek cash flow hedge accounting treatment for its derivative financial instruments and, thus, changes in fair value are reflected in current earnings. The tables below show the amounts of pretax gains and losses related to the Company’s derivatives and their classification within the accompanying unaudited condensed consolidated statements of operations.


		Three Months Ended June 30, 2025
		Total gain recognized in income		Loss realized in income on derivatives		Unrealized gain recognized in income on derivatives
Derivative Instrument	Classification
		(Dollars in millions)
Foreign currency option contracts	Operating costs and expenses	$	3.6	$	(0.5)	$	4.1


Total		$	3.6	$	(0.5)	$	4.1

		Three Months Ended June 30, 2024
		Total gain recognized in income		Loss realized in income on derivatives		Unrealized gain recognized in income on derivatives
Derivative Instrument	Classification
		(Dollars in millions)
Foreign currency option contracts	Operating costs and expenses	$	0.8	$	(1.6)	$	2.4


Total		$	0.8	$	(1.6)	$	2.4

		Six Months Ended June 30, 2025
		Total gain recognized in income		Loss realized in income on derivatives		Unrealized gain recognized in income on derivatives
Derivative Instrument	Classification
		(Dollars in millions)
Foreign currency option contracts	Operating costs and expenses	$	7.2	$	(1.2)	$	8.4


Total		$	7.2	$	(1.2)	$	8.4

		Six Months Ended June 30, 2024
		Total loss recognized in income		Loss realized in income on derivatives		Unrealized loss recognized in income on derivatives
Derivative Instrument	Classification
		(Dollars in millions)
Foreign currency option contracts	Operating costs and expenses	$	(5.7)	$	(2.4)	$	(3.3)


Total		$	(5.7)	$	(2.4)	$	(3.3)

The Company classifies derivative-related activity within the “Cash Flows From Operating Activities” section of the unaudited condensed consolidated statements of cash flows.

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.

The following tables set forth the hierarchy of the Company’s net asset (liability) positions for which fair value is measured on a recurring basis.


	June 30, 2025
	Level 1		Level 2		Level 3		Total
	(Dollars in millions)
Foreign currency option contracts	$	—	$	5.2	$	—	$	5.2



Total net assets	$	—	$	5.2	$	—	$	5.2

	December 31, 2024
	Level 1		Level 2		Level 3		Total
	(Dollars in millions)
Foreign currency option contracts	$	—	$	(3.6)	$	—	$	(3.6)


Equity securities	1.0		—		—		1.0
Total net assets (liabilities)	$	1.0	$	(3.6)	$	—	$	(2.6)

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:

•Foreign currency option contracts are 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.

•Investments in equity securities are based on unadjusted quoted prices in active markets (Level 1).

Other Financial Instruments. The following methods and assumptions were used by the Company in estimating fair values for other financial instruments as of June 30, 2025 and December 31, 2024:

•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 when available (Level 2), and otherwise on estimated borrowing rates to discount the cash flows to their present value (Level 3).

Market risk associated with the Company’s fixed-rate long-term debt relates to the potential reduction in the fair value from an increase in interest rates. The fair value of debt, shown below, is principally based on reported market values and estimates based on interest rates, maturities, credit risk, underlying collateral and completed market transactions.


	June 30, 2025		December 31, 2024
	(Dollars in millions)
Total debt at par value	$	349.1	$	354.4
Less: Unamortized debt issuance costs	(5.3)		(6.3)
Net carrying amount	$	343.8	$	348.1

Estimated fair value	$	363.6	$	438.0

The Company had no transfers between Levels 1, 2 and 3 during the three and six months ended June 30, 2025 and 2024. The Company’s policy is to value all transfers between levels using the beginning of period valuation.

PEABODY ENERGY CORP 10-Q