10-Q 1 a19-12612_110q.htm 10-Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

x               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

OR

 

o                  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 1-16247

 


 

Coronado Global Resources Inc.

(Exact name of registrant as specified in its charter)

 


 

Delaware

 

83-1780608

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

100 Bill Baker Way

Beckley, West Virginia 25801

(Address of principal executive offices) (Zip Code)

 

(681) 207-7263

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 


 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading
Symbol(s)

 

Name of each exchange on which registered

None

 

None

 

None

 

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  o    No  x

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes  x    No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

o

Accelerated filer

o

 

 

 

 

Non-accelerated filer

x

Smaller reporting company

o

 

 

 

 

 

 

Emerging growth company

o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o    No x

 

The registrant’s common stock is publicly traded on the Australian Securities Exchange in the form of CHESS Depositary Interests, or CDIs, convertible at the option of the holders into shares of the registrant’s common stock on a 10-for-1 basis.  The total number of shares of the registrant’s common stock, par value $0.01 per share, outstanding on July 31, 2019, including shares of common stock underlying CDIs, was 96,651,692.

 

 

 


Table of Contents

 

TABLE OF CONTENTS

 

 

Page

PART I — FINANCIAL INFORMATION

 

 

 

Item 1. Financial statements

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

1

 

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2019 and 2018

2

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity/Members’ Capital for the six months ended June 30, 2019 and 2018

3

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

4

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

 

 

Report of Independent Registered Public Accounting Firm

20

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

45

 

 

Item 4. Controls and Procedures

47

 

 

PART II — OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

48

 

 

Item 1A. Risk Factors

49

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

50

 

 

Item 3. Defaults Upon Senior Securities

50

 

 

Item 4. Mine Safety Disclosures

50

 

 

Item 5. Other Information

50

 

 

Item 6. Exhibits

51

 

 

SIGNATURE

54

 

i


Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Condensed Consolidated Balance Sheets

(In US$ thousands, except share data)

 

Assets

 

Note

 

(Unaudited)
June 30,
2019

 

December 31,
2018

 

Current assets:

 

 

 

 

 

 

 

Cash and restricted cash

 

 

 

$

46,251

 

$

124,881

 

Trade receivables

 

 

 

204,248

 

206,127

 

Related party receivables

 

18

 

59,665

 

36,716

 

Income tax receivable

 

 

 

 

12,017

 

Inventories

 

6

 

129,424

 

95,103

 

Other current assets

 

 

 

40,722

 

40,914

 

Total current assets

 

 

 

480,310

 

515,758

 

Non-current assets:

 

 

 

 

 

 

 

Property, plant and equipment, net

 

7

 

1,603,087

 

1,618,558

 

Right of use asset — operating leases, net

 

10

 

64,343

 

 

Goodwill

 

8

 

28,008

 

28,008

 

Intangible assets, net

 

8

 

5,221

 

5,402

 

Deposits and reclamation bonds

 

 

 

12,541

 

11,635

 

Deferred income tax assets

 

 

 

7,779

 

11,848

 

Other non-current assets

 

 

 

17,194

 

18,355

 

Total assets

 

 

 

$

2,218,483

 

$

2,209,564

 

Liabilities and Stockholders’ Equity/Members’ Capital

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

 

 

$

41,084

 

$

42,962

 

Accrued expenses and other current liabilities

 

9

 

252,351

 

243,496

 

Income tax payable

 

 

 

33,024

 

9,241

 

Asset retirement obligations

 

 

 

7,719

 

7,719

 

Contingent royalty consideration

 

16

 

7,293

 

26,832

 

Contract obligations

 

13

 

35,066

 

39,116

 

Lease liabilities

 

10

 

28,128

 

1,308

 

Other current financial liabilities

 

 

 

13,126

 

7,727

 

Total current liabilities

 

 

 

417,791

 

378,401

 

Non-current liabilities:

 

 

 

 

 

 

 

Asset retirement obligations

 

 

 

122,864

 

118,072

 

Contract obligations

 

13

 

224,433

 

253,578

 

Deferred consideration liability

 

14

 

164,148

 

155,332

 

Other financial liabilities

 

 

 

2,697

 

4,073

 

Lease liabilities

 

10

 

52,902

 

2,481

 

Contingent royalty consideration

 

16

 

3,131

 

3,371

 

Deferred income tax liabilities

 

 

 

54,885

 

38,838

 

Other non-current liabilities

 

 

 

1,680

 

1,610

 

Total liabilities

 

 

 

1,044,531

 

955,756

 

Common stock $0.01 par value; 1,000,000,000 shares authorized, 96,651,692 shares are issued and outstanding as of June 30, 2019 and December 31, 2018

 

 

 

967

 

967

 

Series A Preferred stock $0.01 par value; 100,000,000 shares authorized, 1 Share issued and outstanding as of June 30, 2019 and December 31, 2018

 

 

 

 

 

Additional paid-in capital

 

 

 

1,108,041

 

1,107,948

 

Accumulated other comprehensive loss

 

 

 

(44,202

)

(49,609

)

Retained earnings

 

 

 

108,868

 

194,220

 

Noncontrolling interest

 

 

 

278

 

282

 

Total stockholders’ equity

 

 

 

1,173,952

 

1,253,808

 

Total liabilities and stockholders’ equity

 

 

 

$

2,218,483

 

$

2,209,564

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

1


Table of Contents

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income

(In US$ thousands, except share data)

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

Note

 

2019

 

2018

 

2019

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Coal revenues

 

4

 

$

495,385

 

$

479,021

 

$

919,329

 

$

571,343

 

Coal revenues from related parties

 

4, 18

 

135,305

 

98,489

 

293,158

 

213,003

 

Other revenues

 

4

 

11,767

 

14,020

 

21,848

 

15,337

 

Total revenues

 

 

 

642,457

 

591,530

 

1,234,335

 

799,683

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of coal revenues (exclusive of items shown separately below)

 

 

 

264,137

 

305,309

 

533,696

 

424,620

 

Depreciation, depletion and amortization

 

 

 

45,508

 

42,594

 

85,279

 

64,402

 

Freight expenses

 

 

 

52,035

 

40,912

 

89,362

 

45,155

 

Stanwell rebate

 

 

 

45,847

 

32,812

 

94,674

 

32,812

 

Other royalties

 

 

 

49,073

 

67,695

 

93,422

 

82,987

 

Selling, general, and administrative expenses

 

 

 

9,242

 

8,513

 

18,311

 

52,283

 

Total costs and expenses

 

 

 

465,842

 

497,835

 

914,744

 

702,259

 

Operating income

 

 

 

176,615

 

93,695

 

319,591

 

97,424

 

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(9,087

)

(18,987

)

(17,264

)

(25,488

)

Loss on debt extinguishment

 

 

 

 

 

 

(3,905

)

Other, net

 

5

 

(2,989

)

(2,391

)

1,042

 

(26,846

)

Total other income (expense), net

 

 

 

(12,076

)

(21,378

)

(16,222

)

(56,239

)

Income before tax

 

 

 

164,539

 

72,317

 

303,369

 

41,185

 

Income tax expense

 

11

 

(47,033

)

(12,995

)

(89,043

)

(5,534

)

Net income

 

 

 

117,506

 

59,322

 

214,326

 

35,651

 

Less: Net loss attributable to noncontrolling interest

 

 

 

(4

)

(2

)

(4

)

(4

)

Net income attributable to Coronado Global Resources Inc.

 

 

 

$

117,510

 

59,324

 

$

214,330

 

$

35,655

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of income taxes:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

(508

)

(18,695

)

(1,066

)

(18,695

)

Net gain on cash flow hedges, net of tax

 

 

 

894

 

 

6,473

 

 

Total comprehensive income

 

 

 

$

117,892

 

40,627

 

219,733

 

$

16,956

 

Less: Net loss attributable to noncontrolling interest

 

 

 

(4

)

(2

)

(4

)

(4

)

Total comprehensive income attributable to Coronado Global Resources Inc.

 

 

 

$

117,896

 

$

40,629

 

$

219,737

 

$

16,960

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share of common stock

 

 

 

 

 

 

 

 

 

 

 

Basic

 

15

 

1.22

 

 

 

2.22

 

 

 

Diluted

 

15

 

1.22

 

 

 

2.22

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

2


Table of Contents

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity/Members’ Capital

(In US$ thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Non-

 

Total

 

 

 

Members’

 

Common Stock

 

Preferred Stock

 

Paid in

 

Comprehensive

 

Retained

 

controlling

 

Stockholders’

 

 

 

Capital

 

Shares

 

Amount

 

Series A

 

Amount

 

Capital

 

Income / (Loss)

 

Earnings

 

Interest

 

Equity

 

Balance December 31, 2018

 

$

 

96,651,692

 

967

 

1

 

 

1,107,948

 

(49,609

)

194,220

 

282

 

1,253,808

 

Net income

 

 

 

 

 

 

 

 

96,820

 

 

96,820

 

Other comprehensive income (net of $ 2,391 tax)

 

 

 

 

 

 

 

5,021

 

 

 

5,021

 

Total comprehensive income

 

$

 

 

 

 

 

 

5,021

 

96,820

 

 

101,841

 

Dividends paid

 

 

 

 

 

 

 

 

(299,682

)

 

(299,682

)

Balance March 31, 2019

 

$

 

96,651,692

 

967

 

1

 

 

1,107,948

 

(44,588

)

(8,642

)

282

 

1,055,967

 

Net income

 

 

 

 

 

 

 

 

117,510

 

(4

)

117,506

 

Other comprehensive income (net of $ 383 tax)

 

 

 

 

 

 

 

386

 

 

 

386

 

Total comprehensive income

 

$

 

 

 

 

 

 

386

 

117,510

 

(4

)

117,892

 

Share-based compensation for equity classified awards

 

 

 

 

 

 

93

 

 

 

 

93

 

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2019

 

$

 

96,651,692

 

967

 

1

 

 

1,108,041

 

(44,202

)

108,868

 

278

 

1,173,952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Non-

 

Total

 

 

 

Members’

 

Common Stock

 

Preferred Stock

 

Paid in

 

Comprehensive

 

Retained

 

controlling

 

Members’

 

 

 

Capital

 

Shares

 

Amount

 

Series A

 

Amount

 

Capital

 

Income / (Loss)

 

Earnings

 

Interest

 

Capital

 

Balance December 31, 2017

 

$

553,524

 

 

 

 

 

 

 

79,539

 

237

 

633,300

 

Net (loss)

 

 

 

 

 

 

 

 

(23,669

)

(2

)

(23,671

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

 

 

 

 

 

 

 

(23,669

)

(2

)

(23,671

)

Members’ contributions

 

181,610

 

 

 

 

 

 

 

 

62

 

181,672

 

Balance March 31, 2018

 

735,134

 

 

 

 

 

 

 

55,870

 

297

 

791,301

 

Net income

 

 

 

 

 

 

 

 

59,324

 

(2

)

59,322

 

Other comprehensive income

 

 

 

 

 

 

 

(18,695

)

 

 

(18,695

)

Total comprehensive income

 

$

 

 

 

 

 

 

(18,695

)

59,324

 

(2

)

40,627

 

Members’ distributions

 

(30,274

)

 

 

 

 

 

 

 

 

(30,274

)

Balance June 30, 2018

 

704,860

 

 

 

 

 

 

(18,695

)

115,194

 

295

 

801,654

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

3


Table of Contents

 

Unaudited Condensed Consolidated Statements of Cash Flows

(In US$ thousands)

 

 

 

Six Months Ended
June 30,

 

 

 

2019

 

2018

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net income

 

214,326

 

35,651

 

Adjustments to reconcile net income to cash and restricted cash provided by operating activities:

 

 

 

 

 

Depreciation, depletion and amortization

 

85,404

 

64,354

 

Amortization of right of use asset - operating leases

 

10,394

 

 

Amortization of deferred financing costs

 

2,060

 

2,406

 

Non-cash interest expense

 

9,711

 

1,886

 

Amortization of contract obligations

 

(17,550

)

(14,390

)

Loss on disposal of property, plant and equipment

 

39

 

 

Increase (decrease) in contingent royalty consideration

 

(7,143

)

10,973

 

Loss on interest rate swap

 

 

4,871

 

Equity-based compensation expense

 

93

 

 

Deferred income taxes

 

17,026

 

5,448

 

Reclamation of asset retirement obligations

 

(2,552

)

(1,415

)

Change in estimate of asset retirement obligation

 

(125

)

48

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable - including related party receivables

 

(23,105

)

(32,097

)

Inventories

 

(34,562

)

1,287

 

Other current assets

 

(2,287

)

(8,154

)

Accounts payable

 

(1,832

)

10,736

 

Accrued expenses and other current liabilities

 

15,585

 

60,106

 

Operating lease liabilities

 

(11,073

)

 

Change in other liabilities

 

46,807

 

(98

)

Net cash provided by operating activities

 

301,216

 

141,612

 

Cash Flows From Investing Activities:

 

 

 

 

 

Capital expenditures

 

(66,430

)

(46,776

)

Purchase of deposits and reclamation bonds

 

(906

)

(523

)

Redemption of deposits and reclamation bonds

 

 

171

 

Acquisition of Curragh, net of cash acquired

 

 

(537,207

)

Net cash used in investing activities

 

(67,336

)

(584,335

)

Cash Flows From Financing Activities:

 

 

 

 

 

Proceeds from interest bearing liabilities and other financial liabilities, net of debt discount

 

109,008

 

720,083

 

Proceeds from interest rate swap

 

 

28,251

 

Debt issuance costs and other financing costs

 

 

(41,951

)

Principal payments on interest bearing liabilities and other financial liabilities

 

(108,073

)

(155,636

)

Principal payments on finance and capital lease obligations

 

(686

)

(1,052

)

Payment of contingent purchase consideration

 

(12,712

)

 

Dividends paid

 

(299,682

)

 

Members’ contributions (distributions), net

 

 

151,336

 

NCI member’s contributions

 

 

62

 

Net cash provided by (used in) financing activities

 

(312,145

)

701,093

 

Net increase (decrease) in cash and restricted cash

 

(78,265

)

258,370

 

Effect of exchange rate changes on cash and restricted cash

 

(365

)

(2,384

)

Cash and restricted cash at beginning of period

 

124,881

 

28,069

 

Cash and restricted cash at end of period

 

46,251

 

284,055

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash payments for interest

 

1,148

 

38,665

 

Cash paid for taxes

 

35,873

 

4,417

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

4


Table of Contents

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.              Description of Business, Basis of Presentation

 

(a)         Description of the Business

 

Coronado Global Resources Inc. (together with its subsidiaries, the “Company” or “Coronado”) is a global producer, marketer, and exporter of a full range of metallurgical coals, an essential element in the production of steel.  The Company has a portfolio of operating mines and development projects in Queensland, Australia and in the states of Pennsylvania, Virginia and West Virginia in the USA.

 

(b)         Basis of Presentation

 

The interim unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of the U.S. Generally Accepted Accounting Principles, or U.S. GAAP, and with the instructions to Form 10-Q and Article 10 of Regulation S-X related to interim financial reporting issued by the Securities and Exchange Commission, or the SEC.  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 audited consolidated financial statements and notes thereto included in the Company’s registration statement on Form 10, as amended, filed with the SEC and the Australian Securities Exchange, or the ASX, on June 28, 2019.

 

During the year ended December 31, 2018, Coronado Group LLC and Coronado Global Resources Inc. completed a common control reorganization, or the Reorganization Transaction, of their legal entity structure. Prior to the Reorganization Transaction in August 2018, Coronado Group HoldCo LLC, the holding company of our operations in Australia, or the Australian Operations, was a wholly-owned subsidiary of Coronado Group LLC. In connection with the Reorganization Transaction, (i) Coronado Group HoldCo LLC was converted into Coronado Global Resources Inc. in August 2018 and (ii) Coronado Group LLC contributed all of the equity ownership in our operations in the United States, or the U.S. Operations, to Coronado Coal Corporation, a wholly-owned subsidiary of Coronado Global Resources Inc. Immediately following the Reorganization Transaction, Coronado Global Resources Inc. remained a wholly-owned subsidiary of Coronado Group LLC, which is currently owned by The Energy & Minerals Group, or EMG Group, and certain members of our management.

 

The Reorganization Transaction was treated as a combination of entities under common control in line with Accounting Standards Codification, or ASC, 805, Business Combinations, whereby the receiving entity (the Company) recorded the contributed assets and liabilities at the carrying value of Coronado Group LLC. Prior to the Reorganization Transaction, the consolidated financial statements of the Company reflect the net assets and operations of Coronado Group LLC. The financial statements presented following the Reorganization Transaction are those of the receiving entity (the Company) and are retrospectively adjusted to present that entity as if it always held the net assets or equity interests previously held by the seller, Coronado Group LLC. As such, financial information (including comparatives) of the Company has been presented as a continuation of the pre-existing accounting values of assets and liabilities in Coronado Group LLC’s financial statements.

 

The interim unaudited condensed consolidated financial statements are presented in U.S. dollars, unless otherwise stated. They include the accounts of Coronado Global Resources Inc. and its affiliates. References to “US$” or “USD” are references to U.S. dollars. References to “A$” or “AUD” are references to Australian dollars, the lawful currency of the Commonwealth of Australia. The Company, or Coronado, are used interchangeably to refer to Coronado Global Resources Inc. and its subsidiaries, or to Coronado Group LLC, as appropriate to the context.  Interests in subsidiaries controlled by the Company are consolidated with any outside stockholder interests reflected as noncontrolling interests.  All intercompany balances and transactions have been eliminated in consolidation.

 

In the opinion of management, these interim financial statements reflect all normal, recurring adjustments necessary for the fair presentation of the Company’s financial position, results of operations, comprehensive income, cash flows and changes in equity for the periods presented.  Balance sheet information presented herein as of December 31, 2018 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, 2019 are not necessarily indicative of the results that may be expected for future quarters or for the year ending December 31, 2019.

 

2.              Summary of Significant Accounting Policies

 

Please see Note 2 “Summary of Significant Accounting Policies” contained in the audited consolidated financial statements for the year ended December 31, 2018 included in Coronado Global Resources Inc.’s registration statement on Form 10, as amended, filed with the SEC and ASX on June 28, 2019.

 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

(a)         Newly Adopted Accounting Standards

 

Leases. In February 2016, the Financial Accounting Standards Board, or FASB, established Topic 842, Leases, by issuing Accounting Standards Update, or ASU, No. 2016-02, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use, or ROU, model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

 

On January 1, 2019, the Company adopted ASU No. 2016-02 using the modified retrospective transition approach and elected the package of practical expedients that allows it to forgo reassessment of lease classification for leases that have already commenced.  The Company also elected the practical expedients to the new standard without restating comparative prior period financial information, to not recognize ROU assets and liabilities for operating leases with shorter than 12-month terms and to include both lease and non-lease components with lease payments.

 

In addition to existing finance leases and other financing obligations, the adoption of the new standard resulted in the recognition of ROU assets of $66.8 million and lease liabilities of $81.1 million related to operating leases. On adoption, the lease liability included reclassification of a terminal services contract liability of $14.3 million, which is classified as a lease under the newly adopted standard. There was no material impact to the Consolidated Statements of Operations and Comprehensive Income, the Consolidated Statements of Cash Flows, or the Company’s debt covenant calculations as a result of the adoption of ASU 2016-02.

 

ASU No. 2016-02 also requires entities to disclose certain qualitative and quantitative information regarding the amount, timing, and uncertainty of cash flows arising from leases.  Such disclosures are included in Note 10 “Leases”.

 

(b)         Accounting Standards Not Yet Implemented

 

Financial Instruments - Credit Losses. In June 2016, the FASB issued ASU 2016-13 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 beginning after December 15, 2019 (January 1, 2020 for the Company) and interim periods therein. The Company expects to adopt ASU 2016-13 as of January 1, 2020 and is in the process of evaluating the impacts of adoption.

 

Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, which amended the fair value measurement guidance by removing and modifying certain disclosure requirements, while also adding new disclosure requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all companies for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company plans to adopt all disclosure requirements effective January 1, 2020.

 

(c)          Reclassification

 

Certain amounts in the prior period Condensed Consolidated Balance Sheet have been reclassified to conform to the presentation of the current period financial statements. These related to the reclassification of capital lease liabilities included within “other financial liabilities and capital leases” and “other financial liabilities, excluding current instalments” as at December 31, 2018 to “Lease liabilities” current and non-current, respectively. These reclassifications had no effect on the previously reported net income.

 

3.              Acquisition of Curragh Complex

 

On December 22, 2017, a Membership Interest and Asset Purchase Agreement, or the Agreement, was entered by Coronado Australia Holdings Pty Ltd and Coronado Group LLC in order to acquire Wesfarmers Curragh Pty Ltd from Wesfarmers Limited (since renamed Coronado Curragh Pty Ltd), which we refer to as the Curragh acquisition.  The Agreement was executed on March 29, 2018.

 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The aggregate base purchase price for the Membership Interest in Curragh was A$700 million and was subject to adjustments pursuant to the terms of the Agreement. The Company acquired 100% of the Membership Interest.  The operating results related to the Curragh acquisition have been included in the consolidated financial statements since March 29, 2018.

 

The aggregate consideration on the date of the Curragh acquisition totaled $563.8 million.

 

Contingent consideration recognized on the date of the Curragh acquisition, specifically the Value Share Mechanism, or VSM, of $26.6 million associated with the Curragh acquisition represents the fair value of a two-year, 25% royalty on sales from metallurgical coal mined at Curragh.  The royalty only applies to the realized price on metallurgical coal sales above $145 per metric ton.  The VSM liability is marked-to-market at each reporting date, with any fluctuations included as an operating expense in the Consolidated Statement of Operations.  The payout structure of the royalty can be replicated through a probability weighted discounted cash flow approach using a Monte Carlo simulation over a 24-month period from acquisition date.  As such, the Company developed a fair value of the royalty using a Monte Carlo simulation.

 

In connection with the acquisition, Coronado Australia Holdings Pty Ltd incurred acquisition related costs for the six months ended June 30, 2018 of $53.8 million, $38.5 million of which is recorded in selling, general, and administrative expenses.  The remainder, relating to foreign currency swap losses, is recorded in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income under “Other, net”.

 

The Curragh acquisition has been accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.  The following table summarizes total consideration transferred and the allocation of the purchase price to the acquired assets and liabilities:

 

 

 

Amount

 

 

 

(US$ thousands)

 

Fair value of total consideration transferred:

 

 

 

Cash consideration

 

$

537,207

 

Contingent consideration (Value Share Mechanism)

 

26,552

 

Total consideration transferred

 

563,759

 

 

 

 

 

Recognized amounts of identifiable assets acquired, and liabilities assumed:

 

 

 

Current assets

 

$

240,966

 

Property, plant and equipment

 

851,981

 

Deferred income tax assets

 

24,432

 

Other long-term assets

 

1,831

 

Current liabilities

 

(141,611

)

Contract obligations

 

(306,960

)

Asset retirement obligations

 

(104,305

)

Other long-term liabilities

 

(2,575

)

Total identifiable net assets acquired

 

$

563,759

 

 

No goodwill has been recorded in connection with this acquisition as the purchase consideration equaled the fair value of the net assets acquired.

 

The following pro forma summary reflects consolidated results of operation as if the Curragh acquisition had occurred on January 1, 2018 (unaudited).

 

 

 

Six Months Ended
June 30, 2018

 

 

 

(US$ thousands)

 

Revenue

 

1,116,183

 

Net Income

 

111,178

 

 

The pro forma financial information was prepared based on historical financial information and has been adjusted to give effect to pro forma adjustments that are (i) directly attributable to the Curragh acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results.

 

These pro forma results are based on estimates and assumptions, which the Company believes are reasonable.  They are not the results that would have been realized had the acquisition actually occurred on January 1, 2018 and are not necessarily indicative of the Company’s consolidated results of operations in future periods.  The pro forma results include adjustments related to purchase accounting, depreciation of property and equipment, and do not include any anticipated synergies or other expected benefits that may be realized from the Curragh acquisition.

 

The pro forma results for the six months ended June 30, 2018 exclude non-recurring adjustments of $53.8 million of transaction costs.

 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

4.              Segment Information

 

The Company has a portfolio of operating mines and development projects in Queensland, Australia and in the states of Pennsylvania, Virginia and West Virginia in the USA.  The Company operates its business along four reportable segments:  Curragh, Buchanan, Logan and Greenbrier.  These segments are grouped based on geography.  Factors affecting and differentiating the financial performance of each of these four reportable segments generally include coal quality, geology, and coal marketing opportunities, mining and transportation methods and regulatory issues.  The Company believes this method of segment reporting reflects both the way its business segments are currently managed and the way the performance of each segment is evaluated.  The four segments consist of similar operating activities as each segment produces similar products.

 

The organization of the four reportable segments reflects how Coronado’s chief operating decision maker, or CODM, manages and allocates resources to the various components.  The CODM uses Adjusted EBITDA as the primary metric to measure each segment’s operating performance.

 

Adjusted EBITDA is defined as earnings before interest, tax, depreciation, depletion and amortization, other foreign exchange losses and loss on debt extinguishment. “Other and corporate” relates to additional financial information for the corporate function such as accounting, treasury, legal, human resources, compliance, and tax.  As such, the corporate function is not determined to be a reportable segment but is discretely disclosed for purposes of reconciliation to the Company’s consolidated financials.

 

Reportable segment results as of and for the three and six months ended June 30, 2019 and 2018 are presented below.

 

 

 

Curragh (1)

 

Buchanan

 

Logan

 

Greenbrier

 

Other and
Corporate

 

Total

 

 

 

($ thousands)

 

Three months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

412,810

 

128,713

 

81,610

 

19,324

 

 

642,457

 

Adjusted EBITDA

 

151,561

 

60,289

 

18,126

 

1,227

 

(8,912

)

222,291

 

Net income/(loss)

 

91,024

 

34,600

 

7,968

 

(1,959

)

(14,127

)

117,506

 

Total assets

 

1,182,652

 

511,095

 

315,252

 

145,846

 

63,638

 

2,218,483

 

Capital expenditures (2)

 

9,341

 

13,476

 

12,671

 

1,279

 

 

36,767

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

387,379

 

126,292

 

59,230

 

18,294

 

335

 

591,530

 

Adjusted EBITDA

 

99,979

 

35,257

 

10,710

 

(188

)

(6,570

)

139,188

 

Net income/(loss)

 

54,217

 

24,755

 

3,989

 

3,845

 

(27,484

)

59,322

 

Total assets

 

1,287,848

 

500,502

 

259,963

 

145,454

 

115,076

 

2,308,843

 

Capital expenditures (2)

 

17,838

 

7,973

 

4,623

 

381

 

160

 

30,975

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

794,182

 

251,437

 

155,919

 

32,797

 

 

1,234,335

 

Adjusted EBITDA

 

271,709

 

116,401

 

35,291

 

(81

)

(17,965

)

405,355

 

Net income/(loss)

 

159,758

 

66,919

 

15,523

 

(5,033

)

(22,841

)

214,326

 

Total assets

 

1,182,652

 

511,095

 

315,252

 

145,846

 

63,638

 

2,218,483

 

Capital expenditures (2)

 

15,431

 

28,200

 

20,318

 

2,478

 

3

 

66,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

387,379

 

260,501

 

112,655

 

38,188

 

960

 

799,683

 

Adjusted EBITDA

 

99,979

 

99,701

 

15,501

 

983

 

(74,336

)

141,828

 

Net income/(loss)

 

54,217

 

76,843

 

2,748

 

(6,176

)

(91,981

)

35,651

 

Total assets

 

1,287,848

 

500,502

 

259,963

 

145,454

 

115,076

 

2,308,843

 

Capital expenditures (2)

 

17,838

 

15,628

 

13,191

 

559

 

430

 

47,646

 

 


(1)         On March 29, 2018, Coronado acquired the Curragh Mining business from Wesfarmers Limited.  Curragh is a separate reportable segment due to having separate management, location, assets, and operations.  Curragh is located in central Queensland, Australia and the reportable segment produces a wide variety of metallurgical coal.

(2)         Capital expenditures includes financing fees incurred through other financial liabilities for the purchase of certain equipment.

 

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Table of Contents

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The reconciliation of Adjusted EBITDA to net income attributable to the Company for the three and six months ended June 30, 2019 and 2018 are as follows:

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

(US$ thousands)

 

(US$ thousands)

 

Net income

 

$

117,506

 

59,322

 

$

214,326

 

35,651

 

Depreciation, depletion and amortization

 

45,508

 

42,594

 

85,279

 

64,402

 

Interest expense (net of income)

 

9,087

 

18,987

 

17,264

 

25,488

 

Other foreign exchange (gains) losses

 

3,157

 

5,290

 

(557

)

6,848

 

Loss on retirement of debt

 

 

 

 

3,905

 

Income tax expense

 

47,033

 

12,995

 

89,043

 

5,534

 

Consolidated Adjusted EBITDA

 

$

222,291

 

139,188

 

$

405,355

 

141,828

 

 

Disaggregation of Revenue

 

The Company disaggregates the revenue from contracts with customers by major product group for each of the Company’s segments, as the company believes it best depicts the nature, amount, timing and uncertainty of revenues and cash flows.  All revenue is recognized at point in time.

 

 

 

Three months ended June 30, 2019

 

 

 

Curragh

 

Buchanan

 

Logan

 

Greenbrier

 

Other and
Corporate

 

Total

 

 

 

(US $ thousands)

 

Product Groups

 

 

 

 

 

 

 

 

 

 

 

 

 

Metallurgical coal

 

$

377,016

 

125,837

 

68,053

 

17,766

 

 

588,672

 

Thermal coal

 

26,687

 

2,827

 

12,058

 

446

 

 

42,018

 

Total coal revenue

 

403,703

 

128,664

 

80,111

 

18,212

 

 

630,690

 

Other(1)

 

9,107

 

49

 

1,499

 

1,112

 

 

11,767

 

Total

 

$

412,810

 

128,713

 

81,610

 

19,324

 

 

642,457

 

 

 

 

Three months ended June 30, 2018

 

 

 

Curragh

 

Buchanan

 

Logan

 

Greenbrier

 

Other and
Corporate

 

Total

 

 

 

(US$ thousands)

 

Product Groups

 

 

 

 

 

 

 

 

 

 

 

 

 

Metallurgical coal

 

$

349,486

 

122,771

 

47,443

 

17,427

 

 

537,127

 

Thermal coal

 

25,048

 

3,521

 

11,787

 

27

 

 

40,383

 

Total coal revenue

 

374,534

 

126,292

 

59,230

 

17,454

 

 

577,510

 

Other(1)

 

12,845

 

 

 

840

 

335

 

14,020

 

Total

 

$

387,379

 

126,292

 

59,230

 

18,294

 

335

 

591,530

 

 

 

 

Six months ended June 30, 2019

 

 

 

Curragh

 

Buchanan

 

Logan

 

Greenbrier

 

Other and
Corporate

 

Total

 

 

 

(US $ thousands)

 

Product Groups

 

 

 

 

 

 

 

 

 

 

 

 

 

Metallurgical coal

 

$

727,964

 

245,047

 

131,421

 

31,067

 

 

1,135,499

 

Thermal coal

 

47,978

 

6,306

 

22,208

 

496

 

 

76,988

 

Total coal revenue

 

775,942

 

251,353

 

153,629

 

31,563

 

 

1,212,487

 

Other(1)

 

18,240

 

84

 

2,290

 

1,234

 

 

21,848

 

Total

 

$

794,182

 

251,437

 

155,919

 

32,797

 

 

1,234,335

 

 

 

 

Six months ended June 30, 2018

 

 

 

Curragh

 

Buchanan

 

Logan

 

Greenbrier

 

Other and
Corporate

 

Total

 

 

 

(US$ thousands)

 

Product Groups

 

 

 

 

 

 

 

 

 

 

 

 

 

Metallurgical coal

 

$

349,486

 

253,335

 

93,201

 

35,982

 

 

732,004

 

Thermal coal

 

25,048

 

7,127

 

19,454

 

713

 

 

52,342

 

Total coal revenue

 

374,534

 

260,462

 

112,655

 

36,695

 

 

784,346

 

Other(1)

 

12,845

 

39

 

 

1,493

 

960

 

15,337

 

Total

 

$

387,379

 

260,501

 

112,655

 

38,188

 

960

 

799,683

 

 


(1)         Other revenue for Curragh includes the amortization of the Stanwell non-market coal supply contract obligation liability.

 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

5.              Expenses

 

Other, net

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

(US$ thousands)

 

(US$ thousands)

 

Loss on foreign exchange swap

 

$

 

 

$

 

(15,695

)

Other foreign exchange (losses) gains

 

(3,157

)

(5,290

)

557

 

(6,848

)

Other (expenses) income

 

168

 

2,899

 

485

 

(4,303

)

Total Other, net

 

$

(2,989

)

(2,391

)

$

1,042

 

(26,846

)

 

6.              Inventories

 

(US$ thousands)

 

June 30, 2019

 

December 31,
2018

 

Raw coal

 

$

54,407

 

$

20,106

 

Saleable coal

 

23,051

 

26,374

 

Total coal inventories

 

77,458

 

46,480

 

Supplies inventory

 

51,966

 

48,623

 

Total inventories

 

$

129,424

 

$

95,103

 

 

7.              Property, Plant and Equipment

 

(US$ thousands)

 

June 30, 2019

 

December 31,
2018

 

Land

 

$

27,035

 

$

26,845

 

Buildings and improvements

 

83,831

 

89,027

 

Plant, machinery, mining equipment and transportation vehicles

 

794,619

 

765,432

 

Mineral rights and reserves

 

464,680

 

464,680

 

Office and computer equipment

 

3,752

 

3,700

 

Mine development

 

487,156

 

479,152

 

Asset retirement obligation asset

 

83,894

 

80,993

 

Construction in process

 

81,423

 

43,691

 

 

 

2,026,390

 

1,953,520

 

Less accumulated depreciation, depletion and amortization

 

423,303

 

334,962

 

Net property, plant and equipment

 

$

1,603,087

 

$

1,618,558

 

 

8.              Goodwill and Other Intangible Assets

 

(a)         Acquired Intangible Assets

 

 

 

June 30, 2019

 

(US$ thousands)

 

Weighted average
amortization period
(years)

 

Gross carrying
amount

 

Accumulated
amortization

 

Net carrying
amount

 

Intangible assets:

 

 

 

 

 

 

 

 

 

Amortizing intangible assets:

 

 

 

 

 

 

 

 

 

Mining permits - Greenbrier

 

14

 

$

1,500

 

800

 

700

 

Mining permits - Logan

 

15

 

1,642

 

717

 

925

 

Mining permits - Buchanan

 

28

 

4,000

 

404

 

3,596

 

Total intangible assets

 

 

 

$

7,142

 

1,921

 

5,221

 

 

 

 

December 31, 2018

 

(US$ thousands)

 

Weighted average
amortization period
(years)

 

Gross carrying
amount

 

Accumulated
amortization

 

Net carrying
amount

 

Intangible assets:

 

 

 

 

 

 

 

 

 

Amortizing intangible assets:

 

 

 

 

 

 

 

 

 

Mining permits - Greenbrier

 

14

 

$

1,500

 

760

 

740

 

Mining permits - Logan

 

15

 

1,642

 

638

 

1,004

 

Mining permits - Buchanan

 

28

 

4,000

 

342

 

3,658

 

Total intangible assets

 

 

 

$

7,142

 

1,740

 

5,402

 

 

Amortization expense is charged using the straight-line method over the useful lives of the respective intangible asset.  The aggregate amount of amortization expense for amortizing intangible assets for the three months ended June 30, 2019 and 2018 was $0.1 million and $0.1 million, respectively. The aggregate amount of amortization expense for amortizing intangible assets for the six months ended June 30, 2019 and 2018 was $0.2 million and $0.2 million, respectively.

 

10


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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

(b)         Goodwill

 

In connection with the Buchanan acquisition on March 31, 2016, the Company recorded goodwill in the amount of $28.0 million.  The balance of goodwill as at both June 30, 2019 and December 31, 2018 was $28.0 million.

 

9.              Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consist of the following:

 

(US$ thousands)

 

June 30, 2019

 

December 31,
2018

 

Wages and employee benefits

 

$

64,520

 

$

50,819

 

Taxes other than income taxes

 

8,221

 

6,512

 

Accrued royalties

 

50,648

 

49,129

 

Accrued freight costs

 

29,118

 

26,509

 

Accrued mining fees

 

52,187

 

45,615

 

Cash flow hedge derivative liability

 

 

5,311

 

Acquisition related accruals

 

30,186

 

30,349

 

Other liabilities

 

17,471

 

29,252

 

Total accrued expenses and other current liabilities

 

$

252,351

 

$

243,496

 

 

Included within acquisition related accruals is an amount outstanding for stamp duty payable on the Curragh acquisition of $30.2 million. This amount was outstanding as at June 30, 2019 and December 31, 2018 pending financial assessment to be made by the Office of State Revenue in Queensland, Australia.

 

10.       Leases

 

On January 1, 2019, the Company adopted ASC 842, Leases. Changes to the Company’s accounting policy as a result of adoption are discussed below.

 

From time to time, the Company enters into mining services contracts which may include embedded leases of mining equipment and other contractual agreements to lease mining equipment and facilities. Based upon the Company’s assessment of the terms of a specific lease agreement, the Company classifies a lease as either finance or operating.

 

(a)         Finance Leases

 

ROU assets related to finance leases are presented in property, “Property, plant and equipment, net” on the unaudited Condensed Consolidated Balance Sheet. Lease liabilities related to finance leases are presented in “Lease Liabilities” (current) and “Lease Liabilities” (non-current) on the unaudited Condensed Consolidated Balance Sheet.

 

Finance lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. The discount rate used to determine the present value of the lease payments is the rate implicit in the lease unless that rate cannot be readily determined, in which case, the Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

 

(b)         Operating Leases

 

ROU assets related to operating leases are presented as “Right of use asset — operating leases, net”, on the unaudited Condensed Consolidated Balance Sheet. Lease liabilities related to operating leases that are subject to the ASC 842 measurement requirements such as operating leases with lease terms greater than twelve months are presented in “Lease Liabilities” (current) and “Lease Liabilities” (non-current) on the unaudited Condensed Consolidated Balance Sheet.

 

Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. The discount rate used to determine the present value of the lease payments is the rate implicit in the lease unless that rate cannot be readily determined, in which case, the Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Operating lease ROU assets may also include any cumulative prepaid or accrued rent when the lease payments are uneven throughout the lease term. The ROU assets and lease liabilities may also include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The ROU asset includes any lease payments made and lease incentives received prior to the commencement date. The Company has lease arrangements with lease and non-lease components which are accounted for separately. Non-lease components of the lease payments are expensed as incurred and are not included in determining the present value. As at June 30, 2019 the unaudited Condensed Consolidated Balance Sheet included $41.5 million of operating lease liabilities relating to equipment embedded within mining service contracts.

 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Information related to Company’s right-of use assets and related lease liabilities are as follows:

 

(US$ thousands)

 

Three month ended
June 30,
2019

 

Six months ended
June 30, 2019

 

Operating lease costs

 

$

6,378

 

12,861

 

Cash paid for operating lease liabilities

 

4,049

 

11,073

 

 

 

 

 

 

 

Finance lease costs:

 

 

 

 

 

Amortization of right of use assets

 

628

 

1,221

 

Interest on lease liabilities

 

52

 

108

 

Total finance lease costs

 

$

680

 

1,329

 

 

(US$ thousands)

 

June 30,
2019

 

December 31, 2018

 

Operating leases:

 

 

 

 

 

Operating lease right-of-use assets

 

$

64,343

 

 

 

 

 

 

 

 

Finance leases:

 

 

 

 

 

Property and equipment

 

7,881

 

7,074

 

Accumulated depreciation

 

(4,135

)

(2,914

)

Property and equipment, net

 

3,746

 

4,160

 

 

 

 

 

 

 

Current operating lease obligations

 

26,863

 

 

Operating lease liabilities, less current portion

 

51,064

 

 

Total operating lease liabilities

 

77,927

 

 

 

 

 

 

 

 

Current finance lease obligations

 

1,265

 

1,308

 

Finance lease liabilities, less current portion

 

1,838

 

2,481

 

Total Finance lease liabilities

 

3,103

 

3,789

 

 

 

 

 

 

 

Total Lease liability

 

$

81,030

 

3,789

 

 

 

 

June 30,
2019

 

Weighted Average Remaining Lease Term (Years)

 

 

 

Weighted average remaining lease term — finance leases

 

1.18

 

Weighted average remaining lease term — operating leases

 

3.24

 

 

 

 

 

Weighted Average Discount Rate

 

 

 

Weighted discount rate — finance lease

 

6.25

%

Weighted discount rate — operating lease

 

7.94

%

 

The Company’s operating leases have remaining lease terms of 1 year to 5 years, some of which include options to extend the terms deemed reasonable to exercise. Maturities of lease liabilities are as follows:

 

(US$ thousands)

 

Operating lease

 

Finance lease

 

Year ending December 31,

 

 

 

 

 

2019

 

$

16,013

 

712

 

2020

 

30,436

 

2,568

 

2021

 

22,362

 

 

2022

 

8,434

 

 

2023

 

8,427

 

 

Thereafter

 

2,103

 

 

Total lease payments

 

87,775

 

3,280

 

Less imputed interest

 

(9,848

)

(177

)

Total lease liability

 

$

77,927

 

3,103

 

 

12


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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

11.       Income Taxes

 

The Company is a corporation for U.S. federal and state income tax purposes. The Company’s accounting predecessor, Coronado Group LLC, was and is treated as a flow-through entity for U.S. federal income tax purposes and as such, has generally not been subject to U.S. federal income tax at the entity level. Accordingly, unless otherwise specified, the historical results of operations and other financial information set forth in the Company’s registration statement on Form 10, as amended, filed with the SEC and ASX on June 28, 2019, for periods prior to the incorporation of the Company and the Reorganization Transaction do not include any provision for U.S. income taxes.

 

For the three and six months ended June 30, 2019 and 2018, the Company estimated its annual effective tax rate and applied this effective tax rate to its year-to-date pretax income at the end of the interim reporting period. The tax effect of unusual or infrequently occurring items, including effects of changes in tax laws or rates and changes in judgment about the realizability of deferred tax assets, are reported in the interim period in which they occur. The Company’s 2019 estimated annual effective tax rate, including discrete items, is 29.4%. The Company had income tax expense of $47.0 million and $89.0 million for the three and six months ended June 30, 2019 respectively.

 

Income tax expense of $13.0 million for the three months ended June 30, 2018 and $5.5 million for the six months ended June 30, 2018 related solely to the Company’s Australian Operations and was calculated based on effective tax rate for the period, before any discrete items, of 13%.

 

The Company’s U.S. entities had no income tax expense for the three and six months ended June 30, 2018 because prior to September 19, 2018 they were treated as partnerships for U.S. income tax purposes.

 

12.       Interest Bearing Liabilities

 

The Company has a Multicurrency Revolving Syndicated Facility Agreement, or SFA, dated September 15, 2018, comprising of Facility A ($350 million loan facility) and Facility B (A$370 million bank guarantee facility). The SFA provides that the Company may borrow funds from Facility A for a period of one, two, three or six months, each referred to as a Term. The interest rate is set at the commencement of each Term. At the end of each Term, the Company may elect to repay the loan or extend any loan amount outstanding for a further period of one, two, three or six months. The Term of the loan cannot extend beyond the termination date of the SFA, being February 15, 2022.

 

During the period January 1, 2019 to June 30, 2019 the Company borrowed $104.0 million under the SFA to fund the dividend payment made on March 29, 2019 of $299.7 million, and for other working capital purposes. The funds borrowed were fully repaid by June 30, 2019. There were no interest-bearing liabilities outstanding under the SFA at June 30, 2019 and at December 31, 2018.

 

13.       Contract Obligations

 

The following is a summary of the contract obligations as of June 30, 2019:

 

(US$ thousands)

 

Short-term

 

Long-term

 

Total

 

Coal leases contract liability

 

$

843

 

21,774

 

22,617

 

Stanwell below market coal supply agreement

 

34,223

 

202,659

 

236,882

 

 

 

$

35,066

 

224,433

 

259,499

 

 

The following is a summary of the contract obligations as of December 31, 2018:

 

(US$ thousands)

 

Short-term

 

Long-term

 

Total

 

Terminal services contract liability

 

$

2,717

 

11,549

 

14,266

 

Coal leases contract liability

 

844

 

22,354

 

23,198

 

Stanwell below market coal supply agreement

 

35,555

 

219,675

 

255,230

 

 

 

$

39,116

 

253,578

 

292,694

 

 

On adoption of ASC 842 — Leases the Terminal services contract liability was eliminated against the Terminal services Right of Use Asset on the unaudited Condensed Consolidated Balance Sheet.

 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

14.       Deferred Consideration Liability

 

On August 14, 2018 the Company completed the purchase of the Stanwell Reserved Area, or the SRA, adjacent to the current Curragh mining tenements. This area was acquired on a deferred consideration basis and on acquisition the Company recognized a “Right-to-mine-asset” and a corresponding deferred consideration liability of $155.2 million, calculated using a pre-tax discount rate of 13% representing fair value of the arrangements and the date of acquisition. The deferred consideration liability will reflect passage of time changes by way of an annual accretion at the pre-tax discount rate of 13% while the liability will decrease as domestic coal is supplied to Stanwell from the SRA. The accretion of deferred consideration is recognized in “Interest expense, net” in the unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.

 

 

(US$ thousands)

 

June 30, 2019

 

December 31,
2018

 

Stanwell Reserved Area deferred consideration

 

$

164,148

 

155,332

 

 

 

$

164,148

 

155,332

 

 

15.       Earnings per Share

 

Basic earnings per share of common stock is computed by dividing net income attributable to the Company for the period, by the weighted-average number of shares of common stock outstanding during the same period.  Diluted earnings per share of common stock is computed by dividing net income attributable to the Company by the weighted-average number of shares of common stock outstanding adjusted to give effect to potentially dilutive securities.  There were no traded shares of common stock outstanding prior to October 23, 2018, therefore no earnings per share information has been presented for any period prior to that date.

 

Basic and diluted earnings per share was calculated as follows (in thousands, except per share data):

 

(US$ thousands, except per share data)

 

Three months
ended June 30,
2019

 

Six months
ended June 30,
2019

 

Numerator:

 

 

 

 

 

Net Income

 

$

117,506

 

$

214,326

 

Less: Net income attributable to Non-controlling interest

 

(4

)

(4

)

Net Income attributable to Company stockholders

 

$

117,510

 

$

214,330

 

Denominator:

 

 

 

 

 

Weighted-average shares of common stock outstanding

 

96,652

 

96,652

 

Effects of dilutive shares

 

3

 

4

 

Weighted average diluted shares of common stock outstanding

 

96,655

 

96,656

 

Earnings Per Share (US$):

 

 

 

 

 

Basic

 

$

1.22

 

$

2.22

 

Dilutive

 

$

1.22

 

$

2.22

 

 

16.       Derivatives and Fair Value Measurement

 

(a)         Derivatives

 

The Company may use derivative financial instruments to manage its risk in the normal course of operations, including foreign currency risks, price risk related to forecast purchase of raw materials (such as gas or diesel) and interest rate risk. Derivatives are exclusively used for cashflow hedges purposes and hedging for speculative purposes is strictly prohibited under the Treasury Risk Management Policy approved by our Board of Directors.

 

In 2018, the Company entered into forward derivative contracts with an aggregate notional amount of $44.6 million to hedge its exposure to diesel fuel prices for diesel fuel that is used in the operations at Curragh. The aggregated notional amount of these derivative contracts at June 30, 2019 was $24.0 million. During the three months ended June 30, 2019 the Company entered into additional derivative contracts, with a notional amount of $59.1 million, to hedge its exposure to diesel fuel prices in relation to Curragh consumption of diesel fuel in 2020. The aggregate notional amount for all outstanding derivative contracts was $83.1 million at June 30, 2019.  The forward diesel fuel contracts were designated as cash flow hedges.

 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The fair value of derivatives reflected in the accompanying unaudited Condensed Consolidated Balance Sheet are set forth in the table below:

 

 

 

 

 

June 30, 2019

 

December 31, 2018

 

(US$ thousands)

 

Classification

 

Derivative
asset

 

Derivativ