Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.56M
2: EX-10.1 Material Contract HTML 127K
3: EX-22.1 Published Report re: Matters Submitted to a Vote HTML 26K
of Security Holders
8: EX-95.1 Mine-Safety Disclosure HTML 49K
4: EX-31.1 Certification -- §302 - SOA'02 HTML 22K
5: EX-31.2 Certification -- §302 - SOA'02 HTML 22K
6: EX-32.1 Certification -- §906 - SOA'02 HTML 20K
7: EX-32.2 Certification -- §906 - SOA'02 HTML 20K
14: R1 Cover HTML 73K
15: R2 Consolidated Statements of Operations HTML 101K
16: R3 Consolidated Statements of Comprehensive Income HTML 51K
(Loss)
17: R4 Consolidated Balance Sheets HTML 138K
18: R5 Consolidated Balance Sheets (Parenthetical) HTML 36K
19: R6 Consolidated Statements of Cash Flows HTML 105K
20: R7 Consolidated Statements of Cash Flows HTML 23K
(Parenthetical)
21: R8 Consolidated Statements of Equity HTML 94K
22: R9 General HTML 24K
23: R10 Inventories HTML 27K
24: R11 Intangible Assets HTML 40K
25: R12 Income Taxes HTML 24K
26: R13 Accrued Liabilities HTML 30K
27: R14 Debt and Financing Obligation HTML 39K
28: R15 Commitments and Contingent Liabilities HTML 27K
29: R16 Share-Based Compensation HTML 60K
30: R17 Earnings per Share HTML 43K
31: R18 Fair Value Measurement HTML 27K
32: R19 Revenue from Contracts with Customers HTML 60K
33: R20 Business Segment Information HTML 121K
34: R21 General (Policies) HTML 21K
35: R22 Inventories (Tables) HTML 28K
36: R23 Intangible Assets (Tables) HTML 40K
37: R24 Accrued Liabilities (Tables) HTML 30K
38: R25 Debt and Financing Obligation (Tables) HTML 36K
39: R26 Share-Based Compensation (Tables) HTML 82K
40: R27 Earnings per Share (Tables) HTML 45K
41: R28 Revenue from Contracts with Customers (Tables) HTML 52K
42: R29 Business Segment Information (Tables) HTML 116K
43: R30 General (Details) HTML 33K
44: R31 Inventories (Details) HTML 26K
45: R32 Intangible Assets - Goodwill Narrative (Details) HTML 29K
46: R33 Intangible Assets - Gross and Net Intangible HTML 37K
Assets (Details)
47: R34 Income Taxes (Details) HTML 27K
48: R35 Accrued Liabilities (Details) HTML 33K
49: R36 Debt and Financing Obligation - Schedule of Total HTML 47K
Debt and Financing Obligation (Details)
50: R37 Debt and Financing Obligation - Revolving Facility HTML 30K
(Details)
51: R38 Debt and Financing Obligation - Covenants HTML 26K
Narrative (Details)
52: R39 Commitments and Contingent Liabilities (Details) HTML 29K
53: R40 Share-Based Compensation -Narrative (Details) HTML 62K
54: R41 Share-Based Compensation - Performance Share Units HTML 39K
(Details)
55: R42 Share-Based Compensation - Compensation Expense HTML 49K
and Unrecognized Compensation Costs (Details)
56: R43 Earnings per Share - Computation of EPS (Details) HTML 27K
57: R44 Earnings per Share - Antidilutive Securities HTML 30K
Excluded From EPS Calculation (Details)
58: R45 Fair Value Measurement (Details) HTML 23K
59: R46 Revenue from Contracts with Customers - Narrative HTML 30K
(Details)
60: R47 Revenue from Contracts with Customers - HTML 43K
Disaggregated Sales and Other Operating Revenue
(Details)
61: R48 Business Segment Information - Narrative (Details) HTML 20K
62: R49 Business Segment Information - Segment Profit or HTML 49K
Loss (Details)
63: R50 Business Segment Information - Segment Assets HTML 37K
(Details)
64: R51 Business Segment Information - Adjusted EBITDA HTML 69K
(Details)
67: XML IDEA XML File -- Filing Summary XML 114K
65: XML XBRL Instance -- sxc-20220630_htm XML 1.63M
66: EXCEL IDEA Workbook of Financial Reports XLSX 96K
10: EX-101.CAL XBRL Calculations -- sxc-20220630_cal XML 148K
11: EX-101.DEF XBRL Definitions -- sxc-20220630_def XML 346K
12: EX-101.LAB XBRL Labels -- sxc-20220630_lab XML 1.09M
13: EX-101.PRE XBRL Presentations -- sxc-20220630_pre XML 639K
9: EX-101.SCH XBRL Schema -- sxc-20220630 XSD 119K
68: JSON XBRL Instance as JSON Data -- MetaLinks 314± 455K
69: ZIP XBRL Zipped Folder -- 0001514705-22-000012-xbrl Zip 330K
Securities registered pursuant to section 12(b) of the Act:
Title
of each class
Trading symbol(s)
Name of each exchange on which registered
iCommon Stock, par value $0.01 per share
iSXC
iNew
York Stock Exchange
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. ýiYes¨ No
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). ýiYes¨ No
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
¨
iAccelerated
filer
ý
Non-accelerated filer
¨
Smaller reporting company
i☐
Emerging
growth company
i☐
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.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes iý No
As of July 29,
2022, there were i83,391,343 shares of the Registrant’s $0.01 par value Common Stock outstanding.
Properties,
plants and equipment (net of accumulated depreciation of $i1,230.0 million and $i1,160.1
million at June 30, 2022 and December 31, 2021, respectively)
i1,253.5
i1,287.9
Intangible
assets, net
i34.2
i35.2
Deferred
charges and other assets
i18.5
i20.4
Total
assets
$
i1,677.4
$
i1,615.4
Liabilities
and Equity
Accounts payable
$
i159.4
$
i126.0
Accrued
liabilities
i51.6
i52.4
Current
portion of financing obligation
i3.2
i3.2
Income
tax payable
i1.4
i0.6
Total
current liabilities
i215.6
i182.2
Long-term
debt and financing obligation
i594.6
i610.4
Accrual
for black lung benefits
i59.4
i57.9
Retirement
benefit liabilities
i20.9
i21.8
Deferred
income taxes
i178.2
i169.0
Asset
retirement obligations
i12.2
i11.6
Other
deferred credits and liabilities
i22.4
i27.1
Total
liabilities
i1,103.3
i1,080.0
Equity
Preferred
stock, $ii0.01/ par value. Authorized
ii50,000,000/ shares; iino/
issued shares at both June 30, 2022 and December 31, 2021
i—
i—
Common
stock, $ii0.01/ par value. Authorized ii300,000,000/
shares; issued i98,795,825 and i98,496,809 shares at June 30, 2022 and December 31, 2021,
respectively
SunCoke Energy, Inc. (“SunCoke Energy,”“SunCoke,”“Company,”“we,”“our” and “us”) is the largest independent producer of high-quality coke in the Americas, as measured by tons of coke produced each year, and has more than i60 years of coke production experience. We have designed, developed and built, and we currently own and operate, ifive
cokemaking facilities in the United States (“U.S.”), which have collective nameplate capacity to produce approximately i4.2 million tons of blast furnace coke per year. Additionally, we have designed and currently operate ione
cokemaking facility in Brazil under licensing and operating agreements on behalf of ArcelorMittal Brasil S.A. (“ArcelorMittal Brazil”), which has approximately i1.7 million tons of annual cokemaking capacity. Our cokemaking ovens utilize efficient, modern heat recovery technology designed to combust the coal’s volatile components liberated during the cokemaking process and use the resulting heat to create steam or electricity for sale. The majority of our coke is used in the blast furnace production of steel and is sold under long-term, take-or-pay agreements with our steelmaking customers.
Our coke is also used in the foundry production of casted iron, as well as exported to international customers seeking high-quality products for their blast furnaces.
We also own and operate a logistics business that provides handling and/or mixing services to steel, coke (including some of our domestic cokemaking facilities), electric utility, coal producing and other manufacturing based customers. Our logistics business has the collective capacity to mix and/or transload more than i40 million tons of coal and other aggregates annually and has
storage capacity of approximately i3 million tons.
iBasis of Presentation
/
The
accompanying unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim reporting. Certain information and disclosures normally included in financial statements have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. The results of operations for the period ended June 30, 2022 are not necessarily indicative of the operating results expected for the entire year. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included
in our Annual Report on Form 10-K for the year ended December 31, 2021.
Intangible assets, net, include Goodwill allocated to our Domestic Coke segment of $ii3.4/
million at both June 30, 2022 and December 31, 2021, and other intangibles detailed in the table below, excluding fully amortized intangible assets.
Total
amortization expense for intangible assets subject to amortization was $ii0.5/
million and $ii1.0/
million for the three and six months ended June 30, 2022, and June 30, 2021, respectively.
/i
4. Income Taxes
At the end of each interim period,
we make our best estimate of the effective tax rate and the impact of discrete items, if any, and adjust the rate as necessary.
The Company recorded income tax expense of $i7.2 million and $i17.2
million during the three and six months ended June 30, 2022, respectively, resulting in an effective tax rate of i27.5 percent and i25.7
percent, respectively, and an income tax benefit of $i4.7 million for the three months ended June 30, 2021 and income tax expense of $i2.6
million for the six months ended June 30, 2021 resulting in an effective tax rate of i38.5 percent and i19.5
percent, respectively. During both the three and six months ended June 30, 2022 and 2021, the difference between the Company's effective tax rate and the federal statutory rate of 21.0 percent primarily reflects the impact of state taxes as well as compensation deduction limitations under Section 162(m) of the Internal Revenue Code.
/
The impact of state taxes during the six months ended June 30, 2022 included the revaluation of certain deferred tax liabilities due to changes in apportioned state tax rates, which resulted in an income tax benefit of $i1.0 million
recorded during the first quarter of 2022. The impact of state taxes during the six months ended June 30, 2021 included changes in state tax laws, which resulted in a state tax benefit of $i1.3 million recorded during the second quarter of 2021.
i4.875
percent senior notes, due 2029 ("2029 Senior Notes")
$
i500.0
$
i500.0
$i350.0
revolving credit facility, due 2026 ("Revolving Facility")
i100.0
i115.0
i5.346
percent financing obligation, due 2024
i10.4
i12.0
Total
borrowings
i610.4
i627.0
Debt
issuance costs
(i12.6)
(i13.4)
Total
debt and financing obligation
$
i597.8
$
i613.6
Less:
current portion of financing obligation
i3.2
i3.2
Total
long-term debt and financing obligation
$
i594.6
$
i610.4
/
Revolving
Facility
As of June 30, 2022, the Revolving Facility had a $i100.0 million outstanding balance, leaving $i250.0
million available. Additionally, the Company has certain letters of credit totaling $i23.6 million, which do not reduce the Revolving Facility's available balance.
Covenants
Under the terms of the Revolving Facility, the Company is subject to a maximum consolidated net leverage ratio of i4.50:1.00
and a minimum consolidated interest coverage ratio of i2.50:1.00. The Company's debt agreements contain other covenants and events of default that are customary for similar agreements and may limit our ability to take various actions including our ability to pay a dividend or repurchase our stock.
If we fail to perform our obligations under these and other covenants, the lenders' credit commitment could be terminated and any outstanding
borrowings, together with accrued interest, under the Revolving Facility could be declared immediately due and payable. The Company has a cross default provision that applies to our indebtedness having a principal amount in excess of $i35.0 million.
/
As of June 30,
2022, the Company was in compliance with all applicable debt covenants. We do not anticipate a violation of these covenants nor do we anticipate that any of these covenants will restrict our operations or our ability to obtain additional financing.
i
7. Commitments and Contingent Liabilities
Legal
Matters
The Company is a party to certain pending and threatened claims, including matters related to commercial disputes, employment claims, personal injury claims, common law tort claims and environmental claims. Although the ultimate outcome of these claims cannot be ascertained at this time, it is reasonably possible that some portion of these claims could be resolved unfavorably to the Company. Management of the Company believes that any liability which may arise from these claims would not have a material adverse impact on our consolidated financial statements. SunCoke's threshold for disclosing material environmental legal proceedings involving a government
authority where potential monetary sanctions are involved is $i1.0 million.
Black Lung Benefit Liabilities
The Company has obligations related to coal workers’ pneumoconiosis, or black lung, benefits to certain of its former coal miners and their dependents. Such benefits are provided for under Title IV of the Federal Coal Mine and Safety
Act of 1969 and subsequent amendments, as well as for black lung benefits provided in the states of Virginia, Kentucky and West Virginia pursuant to workers’ compensation legislation. The Patient Protection and Affordable Care Act (“PPACA”), which was implemented in 2010, amended previous legislation related to coal workers’ black lung obligations. PPACA provides for the automatic extension of awarded lifetime benefits to surviving spouses and changes the legal criteria used to assess and award claims.
We adjust our liability each year based upon actuarial calculations of our expected future payments for these benefits. Our independent actuarial consultants calculate the present value of the estimated black lung liability annually based on
actuarial models utilizing our population of former coal miners, historical payout patterns of both the Company and the industry, actuarial mortality rates, disability incidence, medical costs, death benefits, dependents, discount rates and the current federally mandated payout rates. The estimated liability may be impacted by future changes in the statutory mechanisms, modifications by court decisions and changes in filing patterns driven by perceptions of success by claimants and their advisors, the impact of which cannot be estimated. The estimated liability was $i64.8 million
and $i63.3 million at June 30, 2022 and December 31, 2021, respectively, of which the current portion of $ii5.4/
million was included in accrued liabilities on the Consolidated Balance Sheets in both periods.
On February 1, 2013, SunCoke obtained commercial insurance for black lung claims in excess of a deductible for employees with a last date of employment after that date. Also during 2013, we were reauthorized to continue to self-insure black lung liabilities incurred prior to February 1, 2013 by the U.S. Department of Labor's Division of Coal Mine Workers' Compensation ("DCMWC") in exchange for $i8.4 million
of collateral. In July 2019, the DCMWC required that SunCoke, along with a number of other companies, file an application and supporting documentation for reauthorization to self-insure our legacy black lung obligations incurred prior to February 1, 2013. The Company provided the requested information in the fourth quarter of 2019. The DCMWC subsequently notified the Company in a letter dated February 21, 2020 that the Company was reauthorized to self-insure certain of its black lung obligations; however, the reauthorization is contingent upon the
Company providing collateral of $i40.4 million to secure certain of its black lung obligations. This proposed collateral requirement is a substantial increase from the $i8.4 million in
collateral that the Company currently provides to secure these self-insured black lung obligations. The reauthorization process provided the Company with the right to appeal the security determination. SunCoke exercised its right to appeal the DCMWC’s security determination and provided additional information supporting the Company’s position in May 2020 and February 2021. If the Company’s appeal is unsuccessful, the Company may be required to provide additional collateral to receive the self-insurance reauthorization from the DCMWC, which
could potentially reduce the Company’s liquidity.
i
8. Share-Based Compensation
Equity Classified Awards
During the six months ended June
30, 2022, the Company granted share-based compensation to eligible participants under the SunCoke Energy, Inc. Long-Term Performance Enhancement Plan (“SunCoke LTPEP”). All awards vest immediately upon a qualifying termination of employment, as defined by the SunCoke LTPEP, following a change in control.
On May 12, 2022, the Company adopted the SunCoke Energy, Inc. Omnibus Long-Term Incentive Plan (the "Omnibus Plan"). The Omnibus Plan provides for the grant of equity-based awards including stock options and share units, or restricted stock, to the Company’s Board of Directors and certain employees
selected for participation in the plan. The total number of shares of common stock authorized for issuance under the Omnibus Plan consists of i2,700,000 new shares in addition to shares previously authorized for issuance under the SunCoke Energy Inc. Retainer Stock Plan for Outside Directors ("the Retainer Stock Plan") and the SunCoke LTPEP. As of the effective date, new awards will no longer be granted under the Retainer Stock Plan or
SunCoke LTPEP. The awards previously granted under these two plans were not modified or impacted by the adoption of the Omnibus Plan.
Restricted Stock Units Settled in Shares
During the six months ended June 30, 2022, the Company issued i322,453
restricted stock units (“RSUs”) to certain employees and members of the Board of Directors, to be settled in shares of the Company’s common stock. The weighted average grant date fair value was $i7.63 per unit, based on the closing price of our common
stock on the date of grant. RSUs granted to employees vest and become payable in ithree annual installments beginning ione
year from the date of grant. RSUs granted to the Company's Board of Directors vest upon grant, but are paid out upon termination of board service.
Performance Share Units
i
Performance share units (“PSUs”) were granted to certain employees to be settled in shares of the
Company's common stock during the six months ended June 30, 2022, for which the service period will end on December 31, 2024, and will vest and become payable during the first quarter of 2025. The service period for certain retiree eligible participants is accelerated. The Company granted the following PSUs:
(1)Performance measures for the PSU awards are split i50/50 between the Company's ithree-year
cumulative Adjusted EBITDA (as defined in Note 12) and the Company's ithree-year average pre-tax return on capital for its coke and logistics businesses and unallocated corporate expenses.
(2)The number of PSUs ultimately awarded will be determined by the above performance measures versus targets and the
Company's ithree-year total shareholder return (“TSR”) as compared to the TSR of the companies making up the Nasdaq Iron & Steel Index (“TSR Modifier”). The TSR Modifier can impact the payout between i80
percent and i120 percent of the Company's final performance measure results.
Each PSU award may vest between i25
and i200 percent of the original units granted. The fair value of the PSUs granted during the six months ended June 30, 2022 is based on the closing price of our common stock on the date of grant as well as a Monte Carlo simulation for the valuation of the TSR Modifier. The valuation
of the TSR Modifier is adjusted during the period if the Company's performance measure results drive the calculation of final vested units granted above the maximum percentage.
Liability Classified Awards
Restricted Stock Units Settled in Cash
During the six months ended June 30, 2022, the Company issued i250,615
restricted stock units to certain employees to be settled in cash (“Cash RSUs”), which vest and become payable in ithree annual installments beginning ione
year from the grant date. The weighted average grant date fair value of the Cash RSUs granted during the six months ended June 30, 2022 was $i7.56 per unit, based on the closing price of our common stock on the date of grant.
The Cash RSUs liability
is adjusted based on the closing price of our common stock at the end of each quarterly period and was $i1.1 million at June 30, 2022 and $i1.9
million at December 31, 2021.
Cash Incentive Awards
The Company also granted long-term cash compensation to eligible participants under the SunCoke Energy, Inc. Long-Term Cash Incentive Plan (“SunCoke LTCIP”), which became effective January 1, 2016. The SunCoke LTCIP is designed to provide for performance-based, cash-settled awards. All awards vest immediately upon a qualifying termination of employment, as defined by the SunCoke LTCIP, following a change in control. As of May 12, 2022, performance-based, cash-settled awards will be granted under the new Omnibus Plan. The awards previously granted under the SunCoke LTCIP were not modified
or impacted by the adoption of the Omnibus Plan. The cash incentive award liability will continue to be included in accrued liabilities and other deferred credits and liabilities on the Consolidated Balance Sheets under the Omnibus Plan.
The Company issued awards with an aggregate grant date fair value of approximately $i2.0
million during the six months ended June 30, 2022, for which the service period will end on December 31, 2024 and will vest and become payable during the first quarter of 2025. The service period for certain retiree eligible participants is accelerated. The performance measures for these awards are split i50/50 between the
Company's ithree-year cumulative Adjusted EBITDA and the Company's ithree-year
average pre-tax return on capital for its coke and logistics businesses and unallocated corporate expenses.
The cash incentive award liability at June 30, 2022 was adjusted based on the Company's ithree-year cumulative Adjusted EBITDA and adjusted average pre-tax return on capital for the
Company's coke and logistics businesses and unallocated corporate expenses. The cash incentive award liability was $i6.1 million at June 30, 2022 and $i4.1
million at December 31, 2021.
Below
is a summary of the compensation expense, unrecognized compensation costs, and the period for which the unrecognized compensation cost is expected to be recognized over:
(1)Compensation
expense recognized by the Company is included in selling, general and administrative expenses on the Consolidated Statements of Operations.
//
The Company issued $i0.2
million and $i0.1 million of share-based compensation to the Company's Board of Directors during the six months ended June 30, 2022 and 2021, respectively.
i
9.
Earnings per Share
Basic earnings per share (“EPS”) has been computed by dividing net income attributable to SunCoke Energy, Inc. by the weighted average number of shares outstanding during the period. Except where the result would be anti-dilutive, diluted EPS has been computed to give effect to share-based compensation awards using the treasury stock method.
i
The following table sets forth the reconciliation of the weighted-average number of common shares used to compute basic EPS to those
used to compute diluted EPS:
Weighted-average number of common shares outstanding-basic
i83.9
i83.0
i83.7
i82.9
Add:
Effect of dilutive share-based compensation awards
i0.7
i—
i0.7
i0.6
Weighted-average
number of shares-diluted
i84.6
i83.0
i84.4
i83.5
/
i
The
following table shows equity awards that are excluded from the computation of diluted earnings per share as the shares would have been anti-dilutive:
The Company measures certain financial and non-financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. Fair value disclosures are reflected in a three-level hierarchy, maximizing
the use of observable inputs and minimizing the use of unobservable inputs.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:
•Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market.
•Level 2 - inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.
•Level 3 - inputs to the valuation methodology are unobservable and significant to the fair
value measurement of the asset or liability.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Certain assets and liabilities are measured at fair value on a recurring basis. The Company's cash and cash equivalents were measured at fair value at June 30, 2022 and December 31, 2021 based on quoted prices in active markets for identical assets. These inputs are classified as Level 1 within the valuation hierarchy.
Certain Financial Assets and Liabilities not Measured at Fair Value
At June 30, 2022 and December 31,
2021, the fair value of the Company’s total debt was estimated to be $i511.7 million and $i625.1
million, respectively, compared to a carrying amount of $i610.4 million and $i627.0 million, respectively. The fair value
was estimated by management based upon estimates of debt pricing provided by financial institutions, which are considered Level 2 inputs.
Our blast furnace coke sales are largely made pursuant to long-term, take-or-pay coke sales agreements primarily with Cleveland-Cliffs Steel Holding Corporation and Cleveland-Cliffs Steel LLC, both subsidiaries of Cleveland Cliffs Inc. and collectively referred to as "Cliffs Steel", United States Steel Corporation ("U.S. Steel"), and Algoma Steel Inc. The take-or-pay provisions in our agreements require our customers to purchase coke volumes as specified in the agreements or pay the contract price for any tonnage they do not purchase. The take-or-pay provisions of our agreements also require us to deliver minimum annual tonnage. As of June 30,
2022, our coke sales agreements have approximately i13.3 million tons of unsatisfied or partially unsatisfied performance obligations, which are expected to be delivered over a weighted average remaining contract term of approximately isix
years.
Foundry coke sales are generally made under annual agreements with our customers for an agreed upon price and do not contain take-or-pay volume commitments. Export coke sales are generally made on a spot basis at the current market price.
Revenues on all coke sales are recognized when performance obligations to our customers are satisfied in an amount that reflects the consideration that we expect to receive in exchange for the coke.
Logistics
In our logistics business, handling and/or mixing services are provided to steel, coke (including some of our domestic cokemaking facilities), electric utility, coal producing and other manufacturing based customers. Materials are transported in numerous ways, including rail, truck, barge or ship. We do not take
possession of materials handled, but rather act as intermediaries between our customers and end users, deriving our revenues from services provided on a per ton basis. The handling and mixing services consist primarily of two performance obligations, unloading and loading of materials. Revenues are recognized when the customer receives the benefits of the services provided, in an amount that reflects the consideration that we will receive in exchange for those services.
The long-term, take-or-pay agreement between Convent Marine Terminal ("CMT") and Javelin Global Commodities (UK) Ltd. ("Javelin") for coal handling and storage was extended during the first quarter of 2022, which includes i4 million take-or-pay
tons in both 2023 and 2024. Estimated take-or-pay revenue of approximately $i37.8 million from all of our multi-
year logistics contracts is expected to be recognized over the next ithree years for unsatisfied or partially unsatisfied performance obligations as of June 30, 2022.
Disaggregated Sales and Other Operating Revenue
i
The
following table provides disaggregated sales and other operating revenue by product or service, excluding intersegment revenues:
The Company reports its business through ithree segments: Domestic Coke, Brazil Coke and Logistics. The Domestic Coke segment includes the Jewell, Indiana Harbor, Haverhill, Granite City and Middletown cokemaking facilities. Each of these facilities produces coke, and all facilities except Jewell recover waste heat, which is converted to steam or electricity.
The
Brazil Coke segment includes the licensing and operating fees payable to us under long-term contracts with ArcelorMittal Brazil, under which we operate a cokemaking facility located in Vitória, Brazil through at least 2023.
Logistics operations are comprised of CMT, Kanawha River Terminal ("KRT"), Lake Terminal, which provides services to our Indiana Harbor cokemaking facility, and Dismal River Terminal ("DRT"), which provides services to our Jewell cokemaking facility. Handling and mixing results are presented in the Logistics segment.
Corporate expenses that can be identified with a segment have been included in determining segment results. The remainder is included in Corporate and Other, which also includes activity from our legacy coal mining business.
Segment
assets are those assets utilized within a specific segment and exclude taxes.
The following table
includes Adjusted EBITDA, as defined below, which is the measure of segment profit or loss reported to the chief operating decision maker for purposes of allocating resources to the segments and assessing their performance:
The
Company evaluates the performance of its segments based on segment Adjusted EBITDA, which is defined as earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted for any impairments, restructuring costs, gains or losses on extinguishment of debt and transaction costs. EBITDA and Adjusted EBITDA do not represent and should not be considered alternatives to net income or operating income under GAAP and may not be comparable to other similarly titled measures in other businesses.
Management believes Adjusted EBITDA is an important measure in assessing operating performance. Adjusted EBITDA provides useful information to investors because it highlights trends in our business that may not otherwise be apparent when relying solely on GAAP measures and because it eliminates items that have less bearing on our operating performance. EBITDA and Adjusted EBITDA are not measures calculated in accordance
with GAAP, and they should not be
considered a substitute for net income or any other measure of financial performance presented in accordance with GAAP. Additionally, other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Reconciliation of Non-GAAP Financial Measures
i
Below
is a reconciliation of Adjusted EBITDA to net income, which is its most directly comparable financial measure calculated and presented in accordance with GAAP:
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q for the
quarter ended June 30, 2022 (the "Quarterly Report on Form 10-Q") contains certain forward-looking statements of expected future developments, as defined in the Private Securities Litigation Reform Act of 1995. This discussion contains forward-looking statements about our business, operations and industry that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations and intentions, and they involve known and unknown risks that are difficult to predict. As a result, our future results and financial condition may differ materially from those we currently anticipate as a result of the factors we describe in our filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2021 (the "Annual Report on Form 10-K"), and as updated in this Quarterly Report on Form 10-Q, and other quarterly
and current reports, which are on file with the SEC and are available at the SEC's website (www.sec.gov). Additionally, please see our “Cautionary Statement Concerning Forward-Looking Statements” located elsewhere in this Quarterly Report on Form 10-Q.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is based on financial data derived from the financial statements prepared in accordance with the United States generally accepted accounting principles (“GAAP”) and certain other financial data that is prepared using a
non-GAAP measure. For a reconciliation of the non-GAAP measure to its most comparable GAAP component, see “Non-GAAP Financial Measures” at the end of this Item and Note 12 to our consolidated financial statements.
Our MD&A is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flow.
Overview
SunCoke Energy, Inc. (“SunCoke Energy,”“SunCoke,”“Company,”“we,”“our” and “us”) is the largest independent producer of high-quality coke in the Americas, as measured
by tons of coke produced each year, and has more than 60 years of coke production experience. We have designed, developed and built, and we currently own and operate, five cokemaking facilities in the United States (“U.S.”), which have collective nameplate capacity to produce approximately 4.2 million tons of blast furnace coke per year. Additionally, we have designed and currently operate one cokemaking facility in Brazil under licensing and operating agreements on behalf of ArcelorMittal Brasil S.A. (“ArcelorMittal Brazil”), which has approximately 1.7 million tons of annual cokemaking capacity. Our cokemaking ovens utilize efficient, modern heat recovery technology designed to combust the coal’s volatile components liberated during the cokemaking process and use the resulting heat to create steam or electricity for sale. The majority of our coke is used in the blast furnace production of steel and is sold under long-term, take-or-pay agreements with
our steelmaking customers. Our coke is also used in the foundry production of casted iron, as well as exported to international customers seeking high-quality products for their blast furnaces.
We also own and operate a logistics business that provides handling and/or mixing services to steel, coke (including some of our domestic cokemaking facilities), electric utility, coal producing and other manufacturing based customers. Our logistics business has the collective capacity to mix and/or transload more than 40 million tons of coal and other aggregates annually and has storage capacity of approximately 3 million tons.
Market Discussion
The global coke trade imbalance, driven by a decrease in global coke supply and certain geopolitical events, including the Russian invasion of Ukraine and the related sanctions imposed on Russia in 2022,
increased demand for and pricing of export coke out of the U.S. during the first half of 2022, which benefited our export coke sales. Global export coke demand is expected to diminish during the second half of 2022 as a result of economic uncertainty driven by inflation, commodity pricing volatility and the continuing impacts of the Russian invasion of Ukraine. Export coke tonnage is produced utilizing capacity in excess of tons contracted in our long-term, take-or-pay Domestic Coke sales agreements, which are not impacted by global coke trade imbalance and the fluctuation of coke prices.
During the first half of 2022, natural gas prices have remained high, continuing to increase global demand for coal to meet European energy needs. Additionally, geopolitical events discussed above have further contributed to the increased coal demand in Europe. Higher demand has driven up the benchmark price for coal delivery into northwest
Europe. The increase in global demand for coal has benefited certain CMT customers and is expected to continue to favorably impact export coal volumes through CMT as well as our handling rates.
Our consolidated results of operations were as follows:
Three
Months Ended June 30,
Increase
Six Months Ended June 30,
Increase (Decrease)
2022
2021
2022
2021
(Dollars in millions)
Net
income (loss)
$
19.0
$
(7.5)
$
26.5
$
49.6
$
10.7
$
38.9
Net
cash provided by operating activities
$
43.5
$
39.8
$
3.7
$
66.2
$
104.6
$
(38.4)
Adjusted EBITDA
$
71.3
$
68.0
$
3.3
$
155.1
$
138.6
$
16.5
Results
in the first half of 2022 reflect strong operating performance, primarily driven by favorable pricing on our export coke sales. This was partially offset by lower Domestic Coke volumes resulting from timing of maintenance outages and oven repairs. Operating cash flows during the current year period primarily reflect higher coal prices and timing of payments.See detailed analysis of the quarter's results throughout the MD&A. See Note 12 to our consolidated financial statements for the definition and reconciliation of Adjusted EBITDA, a non-GAAP measure.
Recent Developments
•Granulated Pig Iron Project. On June
28, 2022, the Company entered into a non-binding letter of intent with U.S. Steel. The letter of intent sets out the principal terms and conditions upon which SunCoke would acquire two blast furnaces from U.S. Steel's Granite City Works facility and construct a granulated pig iron facility with an annual capacity of 2 million tons to be sold to U.S. Steel for a ten year initial term.
Items Impacting Comparability
•2021 Debt Refinancing. During the second quarter of 2021, the Company refinanced its debt obligations. The Company issued $500.0 million of 4.875 percent 2029 Senior
Notes, amended and extended the maturity of its Revolving Facility to June 2026 and reduced the Revolving Facility capacity by $50.0 million to $350.0 million. The Company used the proceeds of the 2029 Senior Notes along with borrowings under the Company's Revolving Facility to purchase and redeem all of the 7.500 percent senior notes due in 2025. As a result of the debt refinancing and revolver amendment, the year ended December 31, 2021 included a loss on extinguishment of debt on the Consolidated Statement of Operations of $31.9 million, which consisted of the premium paid of $22.0 million and the write-off of unamortized debt issuance costs of $6.9 million and the remaining original issue discount of $3.0 million.
The following table sets forth amounts from the Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021, respectively:
Three
Months Ended June 30,
Increase (Decrease)
Six Months Ended June 30,
Increase (Decrease)
2022
2021
2022
2021
(Dollars
in millions)
Revenues
Sales and other operating revenue
$
501.9
$
364.3
$
137.6
$
941.7
$
724.2
$
217.5
Costs
and operating expenses
Cost of products sold and operating expenses
411.8
278.6
133.2
749.8
552.6
197.2
Selling,
general and administrative expenses
19.8
17.7
2.1
37.8
33.0
4.8
Depreciation and amortization expense
35.8
34.1
1.7
71.0
66.5
4.5
Total
costs and operating expenses
467.4
330.4
137.0
858.6
652.1
206.5
Operating income
34.5
33.9
0.6
83.1
72.1
11.0
Interest
expense, net
8.3
14.2
(5.9)
16.3
26.9
(10.6)
Loss on extinguishment of debt
—
31.9
(31.9)
—
31.9
(31.9)
Income
(loss) before income tax expense (benefit)
26.2
(12.2)
38.4
66.8
13.3
53.5
Income tax expense (benefit)
7.2
(4.7)
11.9
17.2
2.6
14.6
Net
income (loss)
19.0
(7.5)
26.5
49.6
10.7
38.9
Less: Net income attributable to noncontrolling interests
1.0
1.3
(0.3)
2.1
3.0
(0.9)
Net
income (loss) attributable to SunCoke Energy, Inc.
$
18.0
$
(8.8)
$
26.8
$
47.5
$
7.7
$
39.8
Sales
and Other Operating Revenue and Costs of Products Sold and Operating Expenses.Sales and other operating revenue and costs of products sold and operating expenses increased for the three and six months ended June 30, 2022 compared to the same prior year periods, primarily driven by the pass through of higher coal prices in our Domestic Coke segment, the impact of which was partially offset by lower volumes and timing of maintenance outages and oven repairs, which also resulted in decreased margins. Revenues further benefited from favorable pricing on export coke sales in our Domestic Coke segment.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased during the three and six months ended
June 30, 2022 as compared to the same prior year periods, driven by higher employee related expenses, higher cost of professional services and transaction costs incurred as part of the granulated pig iron project. During the six months ended June 30, 2022, these costs were partially offset by a $1.2 million favorable change in period-over-period, mark-to-market adjustments on deferred compensation as compared to the same prior year period.
Depreciation and Amortization Expense. Depreciation and amortization expense increased during the three and six months ended June 30, 2022 as a result of depreciable assets placed into service since the prior year period.
Interest Expense, Net.
Interest expense, net benefited during the three and six months ended June 30, 2022 from a lower interest rate on the outstanding senior notes, which decreased to 4.875 percent from 7.500 percent as a result of the debt refinancing during the second quarter of 2021, as well as lower average debt balances during the current year period.
Income Tax Expense (Benefit). Income tax expense during the six months ended June 30, 2022 reflects the revaluation of certain deferred tax liabilities due to changes in the apportioned state tax rates, resulting in a benefit of approximately $1.0 million. Income tax expense (benefit) during the three and six months ended June 30, 2021 reflects the impacts of certain changes in state tax laws, resulting in a state tax benefit
of $1.3 million. See Note 4 to our consolidated financial statements for further detail.
Noncontrolling Interest. Net income attributable to noncontrolling interest represents a 14.8 percent third-party interest in our Indiana Harbor cokemaking facility and fluctuates with the financial performance of that facility.
We
report our business results through three segments:
•Domestic Coke consists of our Jewell facility, located in Vansant, Virginia, our Indiana Harbor facility, located in East Chicago, Indiana, our Haverhill facility, located in Franklin Furnace, Ohio, our Granite City facility located in Granite City, Illinois, and our Middletown facility located in Middletown, Ohio.
•Brazil Coke consists of operations in Vitória, Brazil, where we operate the ArcelorMittal Brazil cokemaking facility.
•Logistics consists of CMT, located in Convent, Louisiana, KRT, located in Ceredo and Belle, West Virginia, Lake Terminal, located in East Chicago, Indiana, and DRT, located in Vansant, Virginia. Lake Terminal and DRT are located adjacent to our Indiana Harbor and Jewell cokemaking
facilities, respectively.
Corporate expenses that can be identified with a segment have been included in determining segment results. The remainder is included in Corporate and Other, including activity from our legacy coal mining business.
Management believes Adjusted EBITDA is an important measure of operating performance, which is used as the primary basis for the chief operating decision maker to evaluate the performance of each of our reportable segments. Adjusted EBITDA should not be considered a substitute for the reported results prepared in accordance with GAAP. See Note 12 to our consolidated financial statements.
The following tables set forth financial and operating data:
Three
Months Ended June 30,
Increase (Decrease)
Six Months Ended June 30,
Increase (Decrease)
2022
2021
2022
2021
(Dollars
in millions)
Sales and other operating revenues:
Domestic Coke
$
472.5
$
338.6
$
133.9
$
884.1
$
673.9
$
210.2
Brazil
Coke
9.6
9.0
0.6
19.0
17.5
1.5
Logistics
19.8
16.7
3.1
38.6
32.8
5.8
Logistics
intersegment sales
7.3
7.4
(0.1)
14.8
14.0
0.8
Elimination of intersegment sales
(7.3)
(7.4)
0.1
(14.8)
(14.0)
(0.8)
Total
sales and other operating revenues
$
501.9
$
364.3
$
137.6
$
941.7
$
724.2
$
217.5
Adjusted EBITDA(1):
Domestic
Coke
$
64.3
$
61.4
$
2.9
$
140.3
$
124.9
$
15.4
Brazil Coke
3.9
4.0
(0.1)
8.1
8.5
(0.4)
Logistics
12.5
11.4
1.1
25.1
22.3
2.8
Corporate
and Other, net
(9.4)
(8.8)
(0.6)
(18.4)
(17.1)
(1.3)
Total Adjusted EBITDA
$
71.3
$
68.0
$
3.3
$
155.1
$
138.6
$
16.5
Coke
Operating Data:
Domestic Coke capacity utilization(2)
100
%
100
%
—
%
99
%
101
%
(2)
%
Domestic
Coke production volumes (thousands of tons)
997
1,054
(57)
1,972
2,090
(118)
Domestic Coke sales volumes (thousands of tons)
1,007
1,063
(56)
1,969
2,101
(132)
Domestic
Coke Adjusted EBITDA per ton(3)
$
63.85
$
57.76
$
6.09
$
71.25
$
59.45
$
11.80
Brazilian
Coke production—operated facility (thousands of tons)
406
425
(19)
825
842
(17)
Logistics Operating Data:
Tons
handled (thousands of tons)
5,809
5,104
705
11,045
10,404
641
(1)See
Note 12 in our consolidated financial statements for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement for the three and six months ended June 30, 2022 and 2021.
(2)The production of foundry coke tons does not replace blast furnace coke tons on a ton for ton basis, as foundry coke requires longer coking time. The Domestic Coke capacity utilization is calculated assuming a single ton of foundry coke replaces approximately two tons of blast furnace coke.
(1)Volumes
decreased primarily as a result of timing of maintenance outages and oven repairs during the three months ended June 30, 2022. Volumes during the six months ended June 30, 2022 were further impacted by changes in the mix of production and unfavorable weather conditions which impacted coal-to-coke yields, reducing production volumes.
(2)Favorable pricing on export coke sales increased both revenues and Adjusted EBITDA during the three and six months ended June 30, 2022. Revenues also increased during the three and six months ended June 30, 2022, as a result of the pass through of higher coal prices on our long-term, take-or-pay agreements.
(3)Operating
and maintenance costs increased as a result of timing of maintenance outages and oven repairs.
Logistics
During the three and six months ended June 30, 2022, sales and other operating revenues, inclusive of intersegment sales were $27.1 million and $53.4 million, respectively, compared to $24.1 million and $46.8 million, respectively, in the corresponding prior year period. Adjusted EBITDA during the three and six months ended June 30, 2022 was $12.5 million and $25.1 million, respectively, compared to $11.4 million and $22.3 million, respectively, in the corresponding prior year period. Increases in Logistics results as compared to the same prior year periods reflect favorable pricing at CMT, driven by the strong export coal market.
Brazil
During the three and six months ended June 30, 2022, revenues were $9.6 million and $19.0 million, respectively, and Adjusted EBITDA was $3.9 million and $8.1 million, respectively, which were comparable to results in the prior year period.
Corporate and Other
Corporate and Other Adjusted EBITDA was a loss of $9.4 million and $18.4 million for the three and six months ended June 30, 2022, respectively, and $8.8 million and $17.1 million, respectively, in the corresponding prior year periods. The three and six months ended June 30, 2022 were primarily impacted by higher employee related expenses as compared to the same prior year periods, and higher cost of professional services. During
the six months ended June 30, 2022, these costs were partially offset by a $1.2 million favorable change in period-over-period, mark-to-market adjustments on deferred compensation as compared to the same prior year period.
Liquidity and Capital Resources
Our primary liquidity needs are to fund working capital, fund investments, service our debt, maintain cash reserves and replace partially or fully depreciated assets and other capital expenditures. Our sources of liquidity include cash generated from operations, borrowings under our Revolving Facility and, from time to time, debt and equity offerings. We believe our current resources are sufficient to meet our working capital requirements for our current business
for at least the next 12 months and thereafter for the foreseeable future. As of June 30, 2022, we had $63.4 million of cash and cash equivalents and $250.0 million of borrowing availability under our Revolving Facility.
We may, from time to time, seek to retire or purchase additional amounts of our outstanding equity and/or debt securities through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions
and other factors. The amounts involved may be material. Refer to "Part II Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds."
During the first quarter of 2020, the U.S. Department of Labor's Division of Coal Mine Workers' Compensation (“DCMWC”) requested SunCoke to provide additional collateral of approximately $32 million to secure certain of its black lung obligations. SunCoke exercised its right to appeal the DCMWC’s determination and provided additional information supporting the Company’s position in May 2020 and February 2021. If the Company’s appeal is unsuccessful, the Company may be required to provide additional collateral
to receive its self-insurance reauthorization from the DCMWC, which could potentially reduce the Company’s liquidity. See further discussion in Note 7 to our consolidated financial statements.
Cash Flow Summary
The following table sets forth a summary of the net cash provided by (used in) operating, investing and financing activities for the six months ended June 30, 2022 and 2021:
Net (decrease) increase in cash and cash equivalents
$
(0.4)
$
3.3
Cash
Flows from Operating Activities
Net cash provided by operating activities decreased by $38.4 million to $66.2 million for the six months ended June 30, 2022 as compared to the corresponding prior year period. The decrease primarily reflects an unfavorable year-over-year change in primary working capital, which is comprised of accounts receivable, inventories and accounts payable, driven by higher coal prices and timing of payments as compared to the same prior year period, as well as the timing of export coke shipments. The current year period was further impacted by higher income tax payments of $8.0 million, primarily due to higher earnings as compared to the corresponding prior year period. These decreases were partially offset by higher operating results in both our coke and logistics businesses and lower interest payments of $11.4 million, driven
by lower interest rates as a result of the debt refinancing that took place during the second quarter of 2021.
Cash Flows from Investing Activities
Net cash used in investing activities increased slightly by $0.3 million to $34.0 million for the six months ended June 30, 2022 as compared to the corresponding prior year period. Both periods primarily reflect ongoing capital expenditures.
Cash Flows from Financing Activities
Net cash used in financing activities decreased by $35.0 million to $32.6 million for the six months ended June 30, 2022 as compared to the corresponding prior year period. This decrease was primarily driven by the absence of costs associated with the
debt refinancing that took place during the second quarter of 2021, which consisted of a $22.0 million premium and $10.5 million of debt issuance costs. The current period was further impacted by lower net repayments of $7.6 million made on the Revolving Facility, partially offset by $4.4 million of cash distributions made to noncontrolling interests. Dividend payments of approximately $10 million were made by the Company during both the six months ended June 30, 2022 and 2021.
Dividends
On May 2, 2022, SunCoke's Board of Directors declared a cash dividend of $0.06 per share of the
Company's common stock. This dividend was paid on June 1, 2022, to stockholders of record on May 18, 2022.
Additionally, on August 2, 2022, SunCoke's Board of Directors declared a cash dividend of $0.08 per share of the Company's common stock. This dividend will be paid on September 1, 2022, to stockholders of record on August 18, 2022.
Covenants
As of June 30, 2022, we were in compliance with all applicable debt covenants. We do not anticipate a violation
of these covenants nor do we anticipate that any of these covenants will restrict our operations or our ability to obtain additional financing. See Note 6 to the consolidated financial statements for details on debt covenants.
In May 2022, S&P Global Ratings reaffirmed our corporate credit rating of BB- and stable outlook. In June 2022, Moody’s Investors Service reaffirmed our corporate credit rating of B1 and upgraded the outlook from stable to positive.
Capital
Requirements and Expenditures
Our operations are capital intensive, requiring significant investment to upgrade or enhance existing operations and to meet environmental and operational regulations. The level of future capital expenditures will depend on various factors, including market conditions and customer requirements, and may differ from current or anticipated levels. Material changes in capital expenditure levels may impact financial results, including but not limited to the amount of depreciation, interest expense and repair and maintenance expense.
Our capital requirements have consisted, and are expected to consist, primarily of:
•Ongoing capital expenditures required to maintain equipment reliability, the integrity and safety of our coke ovens and steam generators and to comply with environmental
regulations. Ongoing capital expenditures are made to replace partially or fully depreciated assets in order to maintain the existing operating capacity of the assets and/or to extend their useful lives and also include new equipment that improves the efficiency, reliability or effectiveness of existing assets. Ongoing capital expenditures do not include normal repairs and maintenance expenses, which are expensed as incurred;
•Expansion capital expenditures to acquire and/or construct complementary assets to grow our business and to expand existing facilities as well as capital expenditures made to grow our business through new markets or enable the renewal of a coke sales agreement and/or logistics service agreement and on which we expect to earn a reasonable return; and
•Environmental remediation project expenditures required to
implement design changes to ensure that our existing facilities operate in accordance with existing environmental permits; and
The following table summarizes our capital expenditures:
(1)Includes
capital spending in connection with the foundry cokemaking growth project.
(2)Reflects actual cash payments during the periods presented for our capital requirements.
Critical Accounting Policies
There have been no significant changes to our accounting policies during the three and six months ended June 30, 2022. Please refer to our Annual Report on Form 10-K filed on February 24, 2022 for a summary of these policies.
Recent Accounting
Standards
There have been no new accounting standards material to SunCoke Energy, Inc. that have been adopted during the three and six months ended June 30, 2022.
Non-GAAP Financial Measures
In addition to the GAAP results provided in this Quarterly Report on Form 10-Q, we have provided a non-GAAP financial measure, Adjusted EBITDA. Our management, as well as certain investors, use this non-GAAP measure to analyze our current and expected future financial performance. This measure is not in accordance with, or a substitute for, GAAP and may be different from, or inconsistent with, non-GAAP financial measures used by other companies. See Note 12 in our consolidated financial
statements for both the definition of Adjusted EBITDA and its reconciliation from GAAP to the non-GAAP measurement for the three and six months ended June 30, 2022 and 2021, respectively.
The Company has an existing shelf registration statement, which was filed
on November 8, 2019, upon the expiration of the prior shelf registration statement, for the offering of debt and/or securities on a delayed or continuous basis and is presenting these guarantor financial and non-financial disclosures in connection therewith. The following information has been prepared and presented pursuant to amended SEC Rule 3-10 of Regulation S-X and new SEC Rule 13-01 of Regulation S-X.
For purposes of the following information, SunCoke Energy, Inc. is referred to as “Issuer.” All 100 percent owned subsidiaries of the Company are expected to serve as guarantors of obligations (“Guarantor Subsidiaries”)
included in the shelf registration statement, other than the Indiana Harbor partnership and certain of the Company’s corporate financing, international and legacy coal mining subsidiaries ("Non-Guarantors"). These guarantees will be full and unconditional (subject, in the case of the Guarantor Subsidiaries, to customary release provisions as described below) and joint and several.
The guarantee of a Guarantor Subsidiary will terminate upon:
•a sale or other disposition of the Guarantor Subsidiary or of all or substantially all of its assets;
•a
sale of the majority of the capital stock of a Guarantor Subsidiary to a third-party, after which the Guarantor Subsidiary is no longer a “Restricted Subsidiary” in accordance with the indenture governing the notes;
•the liquidation or dissolution of a Guarantor Subsidiary so long as no “Default” or "Event of Default”, as defined under the indenture governing the notes, has occurred as a result thereof;
•the designation of a Guarantor Subsidiary as an “unrestricted subsidiary” in accordance with the indenture governing the notes;
•the
requirements for defeasance or discharge of the indenture governing the notes having been satisfied; or
•the release, other than the discharge through payments by a Guarantor Subsidiary, from other indebtedness that resulted in the obligation of the Guarantor Subsidiary under the indenture governing the notes.
The following tables present summarized financial information for the Issuer and the Guarantor Subsidiaries
on a combined basis after intercompany balances and transactions between the Issuer and Guarantor Subsidiaries have been eliminated and excluding investment in and equity in earnings from the Non-Guarantor Subsidiaries:
We have made forward-looking statements in this Quarterly Report on Form 10-Q, including, among others, in the sections entitled “Risk Factors,”“Quantitative and Qualitative Disclosures About Market Risk” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include all statements that are not historical facts and may be identified by the use of forward-looking terminology such as the words “believe,”“expect,”“plan,”“intend,”“anticipate,”“estimate,”“predict,”“potential,”“continue,”“may,”“will,”“should” or the negative of these terms or similar expressions. Such forward-looking statements are based on management’s beliefs, expectations and assumptions based upon information currently available, and include, but are not limited to, statements concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities (including, among other things, anticipated
expansion into the foundry coke market), the influence of competition, and the effects of future legislation or regulations. Forward-looking statements also include statements regarding the potential, assumed, or expected future impacts of COVID-19 and related economic conditions on our business, financial condition and results of operations, and/or potential operating performance. In addition, statements in this Quarterly Report on Form 10-Q concerning future dividend declarations are subject to approval by our Board of Directors and will be based upon circumstances then existing. Forward-looking statements are not guarantees of future performance, but are based upon the current knowledge, beliefs and expectations of SunCoke management, and upon assumptions by SunCoke concerning future conditions, any or all of which ultimately may prove to be inaccurate.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements. We do not have any intention or obligation to update any forward-looking statement (or its associated cautionary language), whether as a result of new information or future events, after the date of this Quarterly Report on Form 10-Q, except as required by applicable law.
The risk factors discussed in “Risk Factors” in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q could cause our results to differ materially from those expressed in the forward-looking statements made in this Quarterly Report on Form 10-Q. There also may be other risks that are currently unknown to us or that we are unable to predict at this time. Such risks and uncertainties include, without limitation:
•the
potential operating and financial impacts on our operations, or those of our customers and suppliers, and the general impact on our industry and on the U.S. and global economy, resulting from COVID-19 or any other widespread contagion;
•actual or potential impacts of the Russia-Ukrainian crisis on global commodity prices, inflationary pressures, and state sponsored cyber activity;
•the effect of inflation on wages and operating expenses;
•volatility and cyclical downturns in the steel industry and in other industries in which our customers and/or suppliers operate;
•changes in the marketplace that may affect our cokemaking business, including the supply and demand for our coke products, as well
as increased imports of coke from foreign producers;
•volatility, cyclical downturns and other change in the business climate and market for coal, affecting customers or potential customers for our logistics business;
•changes in the marketplace that may affect our logistics business, including the supply and demand for thermal and metallurgical coal;
•severe financial hardship or bankruptcy of one or more of our major customers, or the occurrence of a customer default or other event affecting our ability to collect payments from our customers;
•our ability to repair aging coke ovens to maintain operational performance;
•age of,
and changes in the reliability, efficiency and capacity of the various equipment and operating facilities used in our cokemaking operations, and in the operations of our subsidiaries major customers, business partners and/or suppliers;
•changes in the expected operating levels of our assets;
•changes in the level of capital expenditures or operating expenses, including any changes in the level of environmental capital, operating or remediation expenditures;
•changes in levels of production, production capacity, pricing and/or margins for coal and coke;
•changes in product specifications for the coke that we produce or the coals we mix, store and transport;
•our ability to meet minimum volume requirements, coal-to-coke yield standards and coke quality standards in our coke sales agreements;
•variation in availability, quality and supply of metallurgical coal used in the cokemaking process, including as a result of non-performance by our suppliers;
•effects of geologic conditions, weather, natural disasters and other inherent risks beyond our control;
•effects of adverse events relating to the operation of our facilities and to the transportation and storage
of hazardous materials or regulated media (including equipment malfunction, explosions, fires, spills, impoundment failure and the effects of severe weather conditions);
•the existence of hazardous substances or other environmental contamination on property owned or used by us;
•required permits and other regulatory approvals and compliance with contractual obligations and/or bonding requirements in connection with our cokemaking, logistics operations, and/or former coal mining activities;
•the availability of future permits authorizing the disposition of certain mining waste and the management of reclamation areas;
•risks related to environmental compliance;
•our
ability to comply with applicable federal, state or local laws and regulations, including, but not limited to, those relating to environmental matters;
•risks related to labor relations and workplace safety;
•availability of skilled employees for our cokemaking, and/or logistics operations, and other workplace factors;
•our ability to service our outstanding indebtedness;
•our indebtedness and certain covenants in our debt documents;
•our ability to comply with the covenants and restrictions imposed by our financing arrangements;
•changes in the availability
and cost of equity and debt financing;
•impacts on our liquidity and ability to raise capital as a result of changes in the credit ratings assigned to our indebtedness;
•competition from alternative steelmaking and other technologies that have the potential to reduce or eliminate the use of coke;
•our dependence on, relationships with, and other conditions affecting our customers and/or suppliers;
•consolidation of major customers
•nonperformance or force majeure by, or disputes with, or changes in contract terms with, major customers,
suppliers, dealers, distributors or other business partners;
•effects of adverse events relating to the business or commercial operations of our customers and/or suppliers;
•changes in credit terms required by our suppliers;
•our ability to secure new coal supply agreements or to renew existing coal supply agreements;
•effects of railroad, barge, truck and other transportation performance and costs, including any transportation disruptions;
•our ability to enter into new, or renew existing, long-term agreements upon favorable terms for the sale of coke, steam, or electric power, or for handling services of coal and other aggregates
(including transportation, storage and mixing);
•our ability to enter into new, or renew existing, agreements upon favorable terms for logistics services;
•our ability to successfully implement domestic and/or international growth strategies;
•our ability to identify acquisitions, execute them under favorable terms, and integrate them into our existing business operations;
•our ability to realize expected benefits from investments and acquisitions;
•our ability to enter into joint ventures and other similar arrangements under favorable terms;
•our ability to consummate assets sales, other divestitures and strategic restructuring in a timely manner upon favorable terms, and/or realize the anticipated benefits from such actions;
•our ability to consummate investments under favorable terms, including with respect to existing cokemaking facilities, which may utilize by-product technology, and integrate them into our existing businesses and have them perform at anticipated levels;
•our ability to develop, design, permit, construct, start up, or operate new cokemaking facilities in the U.S. or in foreign countries;
•disruption
in our information technology infrastructure and/or loss of our ability to securely store, maintain, or transmit data due to security breach by hackers, employee error or malfeasance, terrorist attack, power loss, telecommunications failure or other events;
•the accuracy of our estimates of reclamation and other environmental obligations;
•risks related to obligations under mineral leases retained by us in connection with the divestment of our legacy coal mining business;
•risks related to the ability of the assignee(s) to perform in compliance with applicable requirements under mineral leases assigned in connection with the divestment of our legacy coal mining business;
•proposed or final changes
in existing, or new, statutes, regulations, rules, governmental policies and taxes, or their interpretations, including those relating to environmental matters and taxes;
•proposed or final changes in accounting and/or tax methodologies, laws, regulations, rules, or policies, or their interpretations, including those affecting inventories, leases, post-employment benefits, income, or other matters;
•changes in federal, state, or local tax laws or regulations, including the interpretations thereof;
•claims of noncompliance with any statutory or regulatory requirements;
•changes in insurance markets impacting cost, level and/or types of coverage available, and the financial ability of our insurers
to meet their obligations;
•inadequate protection of our intellectual property rights;
•volatility in foreign currency exchange rates affecting the markets and geographic regions in which we conduct business; and
•historical consolidated financial data may not be reliable indicators of future results.
The factors identified above are believed to be important factors, but not necessarily all of the important factors, that could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Other factors not discussed herein also could have material adverse effects on us. All forward-looking statements included in this Quarterly Report on Form 10-Q are expressly qualified in
their entirety by the foregoing cautionary statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the Company's exposure to market risk disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures, (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives.
The Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the
Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended June 30, 2022. We have not experienced any material impact to our internal controls over financial reporting due to COVID-19.
PART
II – OTHER INFORMATION
Item 1. Legal Proceedings
The information presented in Note 7 to our consolidated financial statements within this Quarterly Report on Form 10-Q is incorporated herein by reference.
Certain legal and administrative proceedings are pending or may be brought against us arising out of our current and past operations, including matters related to commercial disputes, employment claims, personal injury claims, common law tort claims, and general environmental claims. Although the ultimate outcome of these proceedings cannot be ascertained at this time, it is reasonably possible that some of them could be resolved unfavorably to us. Our management believes
that any liabilities that may arise from such matters would not be material in relation to our business or our consolidated financial position, results of operations or cash flows at June 30, 2022.
Item 1A. Risk Factors
There have been no material changes with respect to risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On October
28, 2019, the Company's Board of Directors authorized a program to repurchase outstanding shares of the Company’s common stock, $0.01 par value, from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws, for a total aggregate cost to the Company not to exceed $100.0 million. There have been no share repurchases since the first quarter of 2020. As of June 30, 2022, $96.3 million remains available under the authorized repurchase program.
Item 3.
Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
While the Company divested substantially all of its remaining coal mining assets in April 2016, the Company continues to own certain logistics assets that are also regulated by Mine Safety and Health Administration. The information concerning mine safety violations and other regulatory matters that we are required to report in accordance with Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.014) is included
in Exhibit 95.1 to this Quarterly Report on Form 10-Q.
The
following financial statements from SunCoke Energy, Inc.'s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2022, filed with the Securities and Exchange Commission on August 2, 2022, is formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity, and (vi) the Notes to Consolidated Financial Statements.
104*
The
cover page from SunCoke Energy, Inc's Quarterly Report on Form 10-Q for the three and six months ended June 30, 2022 formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
