UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ý☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172022 or
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¨☐ | 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 001-35243
SUNCOKE ENERGY, INC.
(Exact name of Registrant as specified in its charter)
| | 90-0640593 | | | | | | |
Delaware | | 90-0640593 |
| (State of or other jurisdiction of
incorporation or organization)
| | (I.R.S. Employer
Identification No.)
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1011 Warrenville Road, Suite 600
Lisle, Illinois
| | 60532 |
(Address of principal executive offices) | | (zip code) |
1011 Warrenville Road, Suite 600
Lisle, Illinois 60532
(Address of principal executive offices, including zip code)
(630) 824-1000
(Registrant’s telephone number, including area code: (630) 824-1000code)
____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act: |
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| Title of Each Class | | Trading symbol(s) | | Name of Each Exchange on which Registered |
| Common Stock, $0.01 par value | | SXC | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No ý
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 ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
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.
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| Large accelerated filer | | ¨ | | Accelerated filer | | ý |
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| Non-accelerated filer | | ¨ | | Smaller reporting company | | ☐ |
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Large accelerated filer | | ¨ | | Accelerated filer | | ý |
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Non-accelerated filer | | ¨ (Do not check if a smaller reporting company)
| | Smaller reporting company | | ¨ |
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| | | | Emerging growth company | | ¨☐ |
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒No ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý
The aggregate market value of the registrant's common stock on June 30, 2022 (based upon the June 30, 2017 closing price of $10.90$6.81 on June 30, 2022, the last trading day of the registrant's most recently completed second fiscal quarter, on the New York Stock Exchange) held by non-affiliates was approximately $694,796,596.$563,318,889.
The number of shares of common stock outstanding as of February 9, 201817, 2023 was 64,542,973.83,412,818
Portions of the SunCoke Energy, Inc. 20182023 definitive Proxy Statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2017,2022, are incorporated by reference in Part III of this Annual Report on Form 10-K.
SUNCOKE ENERGY, INC.
TABLE OF CONTENTS
PART I
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this Annual Report on Form 10-K, including, among others, in the sections entitled “Business,” “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 Annual Report on Form 10-K 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 Annual Report on Form 10-K, except as required by applicable law.
The risk factors discussed in “Risk Factors” could cause our results to differ materially from those expressed in the forward-looking statements made in this Annual Report on Form 10-K. 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 Annual Report on Form 10-K are expressly qualified in their entirety by the foregoing cautionary statements.
PART I
Item 1.Business
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 approximately 55more than 60 years of coke production experience. Coke is a principal raw material in the blast furnace steelmaking process and is produced by heating metallurgical coal in a refractory oven, which releases certain volatile components from the coal, thus transforming the coal into coke. Our coke is primarily used as a principal raw material in the blast furnace steelmaking process as well as in the foundry production of casted iron, and the majority of our sales are derived from blast furnace coke sales made under long-term, take-or-pay agreements. We also provideexport coke to international customers seeking high-quality product for their blast furnaces. We have designed, developed and built, and we currently own and operate five cokemaking facilities in the United States (“U.S.”) with collective nameplate capacity to produce approximately 4.2 million tons of blast furnace coke per year. Additionally, we 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.
We also own and operate a logistics business that provides export and domestic material 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 consolidated financial statements include SunCoke Energy Partners, L.P. (the "Partnership"), a publicly-traded master limited partnership. Aslogistics terminals, which are strategically located to reach Gulf Coast, East Coast, Great Lakes and international ports, have the collective capacity to mix and/or transload more than 40 million tons of December 31, 2017, we owned the general partnerproduct annually and have storage capacity of the Partnership, which owns a 2.0 percent general partner interest and incentive distribution rights ("IDRs") in the Partnership, and owned a 59.9 percent limited partner interest in the Partnership. The remaining 38.1 percent interest in the Partnership was held by public unitholders.
Incorporated in Delaware since 2010 and headquartered in Lisle, Illinois, we became a publicly-traded company in 2011 and our stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “SXC.”
Business Segmentsapproximately 3 million tons.
We report our business results through three segments:
Domestic Coke, Brazil Coke and Logistics.
Domestic Coke
Our Domestic Coke segment consists of our Jewell Coke Company, L.P. ("Jewell"), Indiana Harbor Coke Company ("Indiana Harbor"), Haverhill Coke Company LLC ("Haverhill"), Gateway Energy and Coke Company, LLC ("Granite City") and Middletown Coke Company, LLC ("Middletown") cokemaking facilities and heat recovery operations located in Vansant, Virginia; East Chicago, Indiana; Franklin Furnace, Ohio;at our Jewell, Indiana Harbor, Haverhill, Granite City Illinois; and Middletown Ohio, respectively.
Brazil Coke consistsplants. Our core business model is predicated on providing steelmakers an alternative to investing capital in their own captive coke production facilities and to serve as the long-term supplier of high quality coke by investing in our operations in Vitória, Brazil, where we operate a cokemaking facility, ArcelorMittal Brasil S.A. ("ArcelorMittal Brazil”), for a Brazilian subsidiary of ArcelorMittal S.A.;
Logistics consists of our Convent Marine Terminal ("CMT"), Kanawha River Terminals, LLC ("KRT"), SunCoke Lake Terminal, LLC ("Lake Terminal"),facilities with leading technology, as well as safety and Dismal River Terminal, LLC ("DRT") providing handling and/or mixing services in Convent, Louisiana; Ceredo and Belle, West Virginia; East Chicago, Indiana; and Vansant, Virginia. Lake Terminal and DRT are located adjacent to our Indiana Harbor and Jewell cokemaking facilities, respectively.
For additional information regarding our business segments, see “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 18 to our consolidated financial statements.
Cokemaking Operations
The following table sets forth information about our cokemaking facilities:
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| Facility | | Location | | Customer | | Year of Start Up | | Contract Expiration | | Number of Coke Ovens | | Annual Cokemaking Nameplate Capacity (thousands of tons) | | Use of Waste Heat |
| Owned and Operated: | | | | | | | | | | | | | | |
| Jewell | | Vansant, Virginia | | AM USA | | 1962 | | December 2020 | | 142 | | 720 | | Partially used for thermal coal drying |
| Indiana Harbor | | East Chicago, Indiana | | AM USA | | 1998 | | October 2023 | | 268 | | 1,220 | | Heat for power generation |
| Haverhill Phase I | | Franklin Furnace, Ohio | | AM USA | | 2005 | | December 2020 | | 100 | | 550 | | Process steam |
| Haverhill Phase II | | Franklin Furnace, Ohio | | AK Steel | | 2008 | | December 2021 | | 100 | | 550 | | Power generation |
| Granite City | | Granite City, Illinois | | U.S. Steel | | 2009 | | December 2025 | | 120 | | 650 | | Steam for power generation |
Middletown(1) | | Middletown, Ohio | | AK Steel | | 2011 | | December 2032 | | 100 | | 550 | | Power generation |
| Total | | | | | | | | | | 830 | | 4,240 | | |
| Operated: | | | | | | | | | | | | | | |
| Vitória | | Vitória, Brazil | | ArcelorMittal Brazil | | 2007 | | January 2023 | | 320 | | 1,700 | | Steam for power generation |
| | | | | | | | | | | 1,150 | | 5,940 | | |
| Equity Method Investment: | | | | | | | | | | | | |
VISA SunCoke(2) | | Odisha, India | | Various | | 2007 | | NA | | 88 | | 440 | | Steam for power generation |
| Total | | | | | | | | | | 1,238 | | 6,380 | | |
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(1) | Cokemaking nameplate capacity represents stated capacity for production of blast furnace coke. Middletown production and sales volumes are based on “run of oven” capacity, which includes both blast furnace coke and small coke. Using the stated capacity, Middletown nameplate capacity on a “run of oven” basis is approximately 578 thousand tons per year. |
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(2) | We hold a 49 percent investment in a cokemaking joint venture with VISA Steel Limited in India ("VISA SunCoke"), which was fully impaired in 2015, and consequently, beginning in the fourth quarter of 2015, we no longer include our share of VISA SunCoke in our financial results. Cokemaking capacity represents 100 percent of VISA SunCoke. |
We are a technological leader in cokemaking. We have designed, developed, built, own and operate five cokemaking facilities in the United States (“U.S.”) with collective nameplate capacity to produce approximately 4.2 million tons of coke per year. Additionally, we have designed and operate one cokemaking facility in Brazil under licensing and operating agreements on behalf of ArcelorMittal Brazil, which has approximately 1.7 million tons of annual cokemaking capacity.environmental performance. 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 heathot flue gas to creategenerate steam orand electricity for sale.sale through steam generation facilities or cogeneration plants, respectively. This differs from by-product cokemaking, which repurposes the coal’s liberated volatile components for other uses. We have constructedSteam generated is generally sold to customers pursuant to steam supply and purchase agreements, and electricity generated is generally sold into the only greenfield cokemaking facilities in the U.S. in approximately 30 years and are the only North American coke producer that utilizes heat recovery technology in the cokemaking process.regional power market or to customers pursuant to energy sales agreements.
We believe our advanced heat recovery cokemaking process has numerous advantages over by-product cokemaking, including producing higher quality coke, using waste heat to generate derivative energy for resale, and reducing the environmental impact.footprint. The Clean Air Act Amendments of 1990 specifically directed the U.S. Environmental Protection Agency (“EPA”) to evaluate our heat recovery coke oven technologytechnology as a basis for establishing Maximum Achievable Control Technology (“MACT”) standards for new cokemaking facilities. In addition, each of the four cokemaking facilities that we have built since 1990 has either met or exceeded the applicable Best Available Control Technology (“BACT”), or Lowest Achievable Emission Rate (“LAER”) standards, as applicable, set forth by the EPA for cokemaking facilities at that time. We have constructed the only greenfield cokemaking facilities in the U.S. in over 30 years and are the only North American coke producer that utilizes heat recovery technology in the cokemaking process.
The following table sets forth information about our cokemaking facilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Facility | | Location | | Year of
Start Up | | Use of Waste Heat | | Number of
Coke Ovens | | Annual Cokemaking Nameplate Capacity(1) (thousands of tons) | | Customer(3) | | Contract Expiration | | | Contract Volume
(thousands of tons) | | |
| Owned and Operated: | | | | | | | | | | | | | | | | | | | |
Middletown(2) | | Middletown, Ohio | | 2011 | | Power generation | | 100 | | 550 | | Cliffs Steel | | December 2032 | | | Capacity | | |
| Haverhill II | | Franklin Furnace, Ohio | | 2008 | | Power generation | | 100 | | 550 | | Cliffs Steel | | June 2025 | | | Capacity | | |
| Granite City | | Granite City, Illinois | | 2009 | | Steam for power generation | | 120 | | 650 | | U.S. Steel | | December 2024 | | | Capacity | | |
| Indiana Harbor | | East Chicago, Indiana | | 1998 | | Heat for power generation | | 268 | | 1,220 | | Cliffs Steel | | October 2023 | | | Capacity | | |
| Jewell | | Vansant, Virginia | | 1962 | | Partially used for thermal coal drying | | 142 | | 720 | | Cliffs Steel/ Algoma Steel(4) | | December 2025/
December 2026 | | | 400 / 165 | | |
| Haverhill I | | Franklin Furnace, Ohio | | 2005 | | Process steam | | 100 | | 550 | | | | | | |
| Total | | | | | | | | 830 | | 4,240 | | | | | | | | | |
| Operated: | | | | | | | | | | | | | | | | | | | |
| Vitória | | Vitória, Brazil | | 2007 | | Steam for power generation | | 320 | | 1,700 | | ArcelorMittal Brazil | | January 2028 | | | Capacity | | |
| Total | | | | | | | | 1,150 | | 5,940 | | | | | | | | | |
Our Granite City facility(1)Cokemaking nameplate capacity represents stated capacity for production of blast furnace coke equivalent production. 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.
(2)The Middletown coke sales agreement provides for coke sales on a “run of oven” basis, which includes both blast furnace coke and the first phasesmall coke. Middletown nameplate capacity on a “run of our Haverhill facility, or Haverhill I, have steam generation facilities, which use hot flue gas from the cokemaking processoven” basis is 578 thousand tons per year.
(3)Customers under long-term, take-or-pay agreements include Cleveland-Cliffs Steel Holding Corporation and Cleveland-Cliffs Steel LLC, both subsidiaries of Cleveland-Cliffs Inc. and collectively referred to produce steam for sale to customers pursuant to steam supply and purchase agreements. Granite City sells steam toas "Cliffs Steel," United States Steel Corporation ("U.S. Steel"), and Algoma Steel Inc. ("Algoma Steel").
(4)Under the long-term, take-or-pay agreement with Cliffs Steel, Jewell and Haverhill I supplies a combined 400 thousand tons annually for 2022 through 2025. Additionally, the long-term, take-or-pay agreement between Haverhill I and Algoma Steel provides steam,for coke supply to shift to Jewell. Tonnage produced in excess of those contracted under our long-term, take-or-pay agreements at minimal cost, to Altivia Petrochemicals, LLC. Our Middletown facilityJewell and the second phase of our Haverhill facility, or Haverhill II, have cogeneration plants that use the hot flue gas created by the cokemaking process to generate electricity, which eitherI is generally sold into the regional power market or to AK Steel Holding Corporation ("AK Steel") pursuant to energy sales agreements.foundry and export coke markets.
Blast Furnace Coke
Our core business model is predicated on providing steelmakers an alternative to investing capital in their own captive coke production facilities. We direct our marketing efforts principally towards steelmaking customers that require coke for use in their blast furnaces. Substantially all ourfurnace coke sales are primarily made pursuant to long-term, take-or-pay agreements with ArcelorMittal USA LLC and/or its affiliates (“AM USA”), AK Steel and U.S. Steel, who are three of the largest blast furnace steelmakerscustomers noted in North America, each of which individually accounts for greater than ten percent of our consolidated revenues. The take-or-pay provisionsthe table above. These agreements require us to produce the contracted volumes of coke and require our customers to purchase such volumes of coke up to a specified tonnage or pay the contract price for any tonnage they elect not to take. As a result, our ability to produce the contracted coke volume is a key determinant of our profitability. We generally do not have significant spot coke sales since ourOur domestic capacity is largely consumed by these long-term contracts; accordingly,agreements, therefore, we have limited exposure to the domestic spot prices for coke do not generally affect our revenues. To date, our coke customers have satisfied their obligations under these agreements.blast furnace coke.
Our long-term, take-or-pay coke sales agreements have an average remaining term of approximately seven years and contain pass-through provisions for costs we incur in the cokemaking process, including coal and coal procurement costs, subject to meeting contractual coal-to-coke yields, operating and maintenance expenses, costs related to the transportation of coke to our customers, taxes (other than income taxes) and costs associated with changes in regulation. When targeted coal-to-coke yields are achieved, the price of coal is not a significant determining factor in the profitability of these facilities, although it does affect our revenue and cost of sales for
these facilities in approximately equal amounts. However, to the extent that the actual coal-to-coke yields are less than the contractual standard, we are responsible for the cost of the excess coal used in the cokemaking process. Conversely, to the extent our actual coal-to-coke yields are higher than the contractual standard, we realize gains. As coal prices increase, the benefits associated with favorable coal-to-coke yields also increase. These features of our long-term, take-or-pay coke sales agreements reduce our exposure to variability in coal price changes and inflationary costs over the remaining terms of these agreements. The coal component of the Jewell coke price is fixed annually for each calendar year based on the weighted-average contract price of third-party coal purchases at
Coke prices in our Haverhill facility applicable to AM USA coke sales.
Our coke priceslong-term, take-or-pay agreements also include both an operating cost component and a fixed fee component. OperatingDuring 2022, operating costs under three of our coke sales agreements are fixed subject to an annual adjustment based on an inflation index. Under our other threefour coke sales agreements, operating costs are passed through to the respective customers subject to an annually negotiated budget, in some cases subject to a cap annually adjusted for inflation, and we share any difference in costs from the budgeted amounts with our customers. Beginning in 2015, the operating and maintenance cost recovery mechanism in our Indiana Harbor coke sales agreement shifted from an annually negotiated budget amount with a cap to a fixed recovery per ton. Accordingly, actual operating costs in excess of caps or budgets can have a significant impact on the profitability of all of our domestic cokemaking facilities. In 2018, the operating cost component of our contract at Indiana Harbor reverts to an annually negotiated budget, which is expected to have a favorable impact on our future results. The fixed fee component for each ton of coke sold to the customer is determined at the time the coke sales agreement is signed and is effective for the term of each sales agreement. The fixed fee is intended to provide an adequate return on invested capital and may differ based on investment levels and other considerations. The actual return on invested capital at any facility is based on the fixed fee per ton and favorable or unfavorable performance on pass-through cost items.
TheWe also sell blast furnace coke into the export coke market, utilizing capacity in excess of that reserved for our long-term, take-or-pay agreements. Export coke sales agreementare generally made on a spot basis at the current market price and energy sales agreement with AK Steel atdo not contain the same provisions as our Haverhill facilitylong-term, take-or-pay agreements discussed above.
Foundry Coke
While the revenues in our Domestic Coke segment are subjectprimarily tied to early termination by AK Steel only if AK Steel meets both of the following two criteria: (1) AK Steel permanently shuts down operation of the iron producing portion of its Ashland Plant and (2) AK Steel has not acquired or begun construction of a new blast furnace in the U.S. to replace, in whole or in part, the Ashland Plant iron production capacity. AK Steel must give at least two years prior notice of its intention to terminate the agreement. The Company finds that neither of the criteria have been met. No other coke sales contract has an early termination clause.
While our steelmaking customers continue to operate in an environmentJewell cokemaking facility. Foundry coke is a high-quality grade of coke that is challenged by global overcapacity, they have benefited from improved steel pricing, favorable trade rulings,used at foundries to melt iron and solid end market demandvarious metals in 2017. Despite recent trade actions, imported steel continues to becupola furnaces, which is further processed via casting or molding into products used in various industries such as construction, transportation and industrial products. Foundry coke sales are generally made under annual agreements with our customers for an issue acrossagreed upon price and do not contain take-or-pay volume commitments.
Brazil
Our Brazil segment consists of our cokemaking operations located in Vitória, Brazil, where we operate the industry as finished steel imports remain elevated at approximately 27 percentArcelorMittal Brazil cokemaking facility for a Brazilian subsidiary of U.S. steel consumption. Despite the improving macro environment, AK Steel has kept its Ashland Kentucky Works facility idled and U.S. Steel has kept portions of its Granite City Works facility idled, both since 2015.
ArcelorMittal S.A. Revenues from ourthe Brazilian cokemaking facility are derived from licensing and operating fees, which include a fixed annual licensing fee, a licensing feeare based upon the level of production required by our customer and full pass-through of the operating costs of the facility.
Logistics Operations
Our Logistics segment consists of CMT, KRT,Convent Marine Terminal ("CMT"), Kanawha River Terminal ("KRT"), Lake Terminal and DRT. CMT is one of the largest export terminals on the U.S. Gulf Coast. CMT provides strategic access to seaborne markets for coal and other industrial materials. Supporting low-cost Illinois basin coal producers, the terminal provides loading and unloading services and has direct rail access and the current capability to transload 15 million tons annually due to its new ship loader, placed in service during the fourth quarter of 2016. The facility is supported by long-term contracts with volume commitments covering 10 million tons of its current capacity as well as 350 thousand liquid tons. The facility recently secured additional merchant business including aggregates (crushed stone) and petroleum coke. Additionally, we secured barge unloading capabilities to efficiently unload coal, petroleum coke and other materials from barges at CMT’s dock. The addition of barge unloading capabilities complements CMT's existing rail and truck offerings and provides the terminal with the ability to transload and mix a significantly broader variety of materials. KRT is a leading metallurgical and thermal coal mixing and handling terminal service provider with collective capacity to mix and transload 25 million tons annually through its two operations in West Virginia. LakeDismal River Terminal is located in East Chicago, Indiana and provides coal handling and mixing services to SunCoke's Indiana Harbor cokemaking operations. DRT was formed in 2016 to accommodate our Jewell cokemaking facility in its direct procurement of third-party coal.
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.(“DRT”). Our terminals act as intermediaries between our customers and end users by providing transloading and mixing services. Materials are transported in numerous ways, including rail, truck, barge or ship. We do not take possession of materials handled but instead derive our revenues by providing handling and/or mixing services to our customers on a per ton basis. RevenuesCMT is located in Convent, Louisiana, with strategic access to seaborne markets for coal and other industrial materials. The terminal provides loading and unloading services and has direct rail access and the current capability to transload 15 million tons annually with its top of the line ship loader. The facility serves coal mining customers as well as other merchant business, including aggregates (crushed stone), petroleum coke and iron ore. CMT's efficient barge unloading capabilities complement its rail and truck offerings and provide the terminal with the ability to transload and mix a significantly broader variety of materials, including coal, petroleum coke and other materials from barges at its dock. KRT is a leading metallurgical and thermal coal mixing and handling terminal service provider with collective capacity to mix and transload 25 million tons annually through its operations in Ceredo and Belle, West Virginia. Lake Terminal and DRT provide coal handling and mixing services to SunCoke's Indiana Harbor and Jewell cokemaking operations, respectively.
Market Discussion and Competition
Cokemaking
The majority of our current production from our cokemaking business is committed under long-term, take-or-pay agreements. As a result, competition mainly affects our ability to obtain new contracts supporting development of additional cokemaking capacity, including foundry coke, re-contracting existing facilities, as well as the sale of coke in the export market. We direct our marketing efforts principally towards these areas.
The cokemaking market is highly competitive. Competitors include merchant coke producers as well as the cokemaking facilities owned and operated by blast furnace steel companies. The principal competitive factors affecting our cokemaking business include coke quality and price, reliability of supply, proximity to market, access to metallurgical coals and environmental performance. Most of the world’s coke production capacity is owned by blast furnace steel companies. The international merchant coke market is largely supplied by Chinese, Colombian and Ukrainian producers, among others, but it can be challenging to maintain high quality coke in the export market, and when coupled with transportation costs, coke imports into the U.S. are recognized when services are provided as defined by customer contracts. For CMT, cash receivedoften not economical. However, the supply of coke from customers for take-or-pay billings based on pro-rata volume commitments under take-or-pay contracts that isinternational merchants does impact our ability to sell tons in excess of cash earnedthose contracted under out long-term, take-or-pay agreements into the coke export market.
We believe we are well-positioned to compete with other coke producers. In recent years, our Domestic Coke segment has accounted for services provided is recordedapproximately 35 percent of the U.S. blast furnace coke market capacity. We are the only coke producer who has built new cokemaking facilities in the U.S. in over 30 years, which will allow us to absorb additional market share from aging by-product coke batteries owned by other coke producers. Additionally, our facilities and ovens were constructed using proven, industry-leading technology with many proprietary features allowing us to produce consistently higher quality coke than our competitors produce. Our technology also allows us to produce heat that can be converted into steam or electrical power.
We monitor the development of competing technologies carefully. In recent years, steelmakers have begun to explore alternatives to blast furnace technology that require less or alternatives to coke, such as deferred revenue. Deferred revenueelectric arc furnaces. We also monitor ferrous technologies, such as direct reduced iron production, as these could indirectly impact our blast furnace customers.
During the first half of 2022, the price of and demand for export coke out of the U.S. increased as a result of the ongoing global coke trade imbalance, which was driven by a decrease in global coke supply and geopolitical events including the Russian invasion of Ukraine and the related sanctions imposed on take-or-pay contracts is recognized into income atRussia in 2022, benefiting our export coke sales. During the earliersecond half of when service is provided or annually based2022, the export coke market declined as compared to the first half of the year due to economic uncertainty, inflation, volatility in commodity pricing and lower Chinese coke prices, resulting in a decrease in price of global export coke.
Logistics
Our principal competitors of CMT are located on the termsU.S. Gulf Coast or U.S. East Coast. CMT is one of the contract. Our handling and/or mixing services are providedlargest export terminals on the U.S. Gulf Coast and provides strategic access to steel, coke (including some of our domestic cokemaking facilities), electric utility,seaborne markets for coal producing and other manufacturing based customers. Services providedbulk materials. Additionally, CMT is the largest bulk material terminal in the lower U.S. with direct rail access on the Canadian National Railway. In 2022, CMT accounted for approximately 42.5 percent of U.S. thermal coal exports from the U.S. Gulf Coast and approximately 19.5 percent of total U.S. thermal coal exports. CMT has a state-of-the-art ship loader, the largest of its kind in the world. We believe this ship loader has the fastest loading rate available in the Gulf Region, which should allow our customers to our domestic cokemaking facilities are provided under contractsbenefit from lower shipping costs. Additionally, CMT has a strategic alliance with terms equivalenta company that performs barge unloading services for the terminal, which provides CMT with the ability to thosetransload and mix a significantly broader variety of an arm's-length transactions.materials.
The financial performance of our logistics business is substantially dependent upon a limited number of customers. OurCertain CMT customers are impacted by seaborne export market dynamics. Fluctuations in the benchmark price for coal delivery into northwest Europe, as referenced in the Argus/McCloskey's Coal Price Index reportReport ("API2 index price"), as well as Newcastle index coal prices, as referenced in the Argus/McCloskey's Coal Price Index report ("API5API6 index price"), which reflect high-ashlow-ash coal prices shipped from Australia, contribute to our customers' decisions to place tons into the export market and thus impact transloading volumes through our terminal facility. CMT. During 2022, high natural gas prices resulted in increased global demand for coal to meet European energy needs. Additionally, geopolitical events discussed above further contributed to the increased coal demand in Europe. The API2 index price remained high throughout 2022 as a result of this higher global demand for coal, which has benefited certain CMT customers and resulted in a positive impact on CMT's results in 2022.
Our KRT terminals serve two primary domestic markets, metallurgical coal trade and thermal coal trade. Metallurgical markets are primarily impacted by steel prices and blast furnace operating levels whereas thermal markets are impacted by natural gas prices and electricity demand.
In 2017, global thermal coal prices continued to rise to nearly $100 per ton from previous lows during early 2016, resulting in improved export economics forOur KRT competitors are generally located within 100 miles of our CMT customers. On a spot basis, average API2 and API5 index prices in 2017 have improved 40 percent and 36 percent, respectively, as compared to 2016. In 2017, metallurgical market conditions and volumes were generally favorable, but thermal market demand was low due to weak natural gas prices and suppressed, weather-related electricity demand.
operations. KRT has fully automated and computer-controlled mixing capabilities that mix coal to within two percent accuracy of customer specifications. KRT also has the ability to provide pad storage and has access to both CSX and Norfolk Southern rail lines as well as the Ohio River system.
Lake Terminal and DRT provide coal handling and/or mixing services to our Indiana Harbor and Jewell cokemaking facilities, respectively, and therefore, do not have any competitors.
Seasonality
Our revenues in our cokemaking business and much of our logistics businessDomestic Coke segment are largely tied to long-term, take-or-pay contractsagreements and as such, are not seasonal. However, our cokemaking profitability is tied to coal-to-coke yields, which improve in drier weather. Accordingly, the coal-to-coke yield component of our profitability tends to be more favorable in the third quarter. Extreme weather may also challenge our operating costs and production in the winter months for our domestic coke business.Domestic Coke segment. KRT service demand fluctuates due to changes in the domestic electricity markets. Excessively hot summer weather or cold winter weather may increase commercial and residential needs for heat or air conditioning, which in turn may increase electricity usage and the demand for thermal coal and, therefore, may favorably impact our logistics business. Additionally, operating costs at CMT service fluctuates with global thermal coal prices and end market demand. Activity is generally lowerare impacted by water levels on the Mississippi River, which are often higher in the third quarter, typically due to lower European demand for heat.spring months.
Raw Materials
Metallurgical coal is the principal raw material for our cokemaking operations. All of the metallurgical coal used to produce coke at our domestic cokemaking facilities is purchased from third-parties. We believe there is an adequate supply of metallurgical coal available in the U.S. and worldwide, and we have been able to supply coal to our domestic cokemaking facilities without any significant disruption in coke production.
Each ton of blast furnace coke produced at our facilities requires approximately 1.4 tons of metallurgical coal. We purchased 5.66.0 million tons of metallurgical coal in 2017. Coal2022. Metallurgical coal is generally purchased on an annual basis via one-year contracts with costs primarily passed through to our customers in accordance with the applicable long-term, take-or-pay coke sales agreements. Occasionally, shortfalls in deliveries by metallurgical coal suppliers require us to procure supplemental coal volumes. As with typical annual purchases, the cost of these supplemental purchases is also generally passed through to our customers. In 2018, certain of our coal contracts contain an option to reduce our commitment by up to 15 percent at the Company's discretion. Most metallurgical coal procurement decisions are made through a coal committee structure with customer participation. The customer can generally exercise an overriding vote on most coal procurement decisions. In 2023, our metallurgical coal contracts are generally based on coke production requirements. Refer to our Management's Discussion and Analysis for further detail on our coal contractual obligations.
Transportation and Freight
For inbound transportation of metallurgical coal purchases, our facilities that access a single rail provider have long-term transportation agreements, and where necessary, coal-mixing agreements that run concurrently with the associated long-term, take-or-pay coke sales agreementagreements for the facility. At facilities with multiple transportation options, including rail and barge, we enter into short-term transportation contracts from year to year. Delivery costs, and annual volume commitments included in certain agreements, are generally passed through to the customers.
For coke sales, the point of delivery varies by agreement and facility. The point of deliverydestination for coke sales under long-term, take-or-pay agreements from our Jewell and Haverhill cokemaking facilities is generally designated by the customer and shipments are made by railcar under long-term transportation agreements, held by us. All delivery costswhich may include annual volume commitments, and are generally passed through to theour customers. At our Middletown, Indiana Harbor and Granite City cokemaking facilities, coke is delivered primarily by a conveyor belt leading to the customer’s blast furnace, with the customer responsible for additional transportation costs, if any. Most transportation and freight costs in our Logistics segment are paid by the customer directly to the transportation provider.
Research and Development and Intellectual Property and Proprietary Rights
Our research and development program seeks to improve existing and develop promising new cokemaking technologies, including new product development, and enhance our heat recovery processes. Over the years, this program has produced numerous patents related to our heat recovery coking design and operation, including patents for pollution control systems, oven pushing and charging mechanisms, oven flue gas control mechanisms and various others. Additionally, we have continued to successfully utilize our existing coke ovens to produce foundry coke in addition to our primary product of blast furnace coke.
At Vitória, Brazil, where we operate one cokemaking facility on behalf of ArcelorMittal Brazil, we have intellectual property and licensing agreements in place for the entity’s use of our technology, under whichtechnology.
Human Capital Management
Our human capital strategy is focused on attracting, developing and retaining diverse talent. At SunCoke we receivefoster an inclusive work environment where our employees are respected, trusted and feel empowered to provide value as individuals and as a per ton licensing feecollaborative team. Our employees offer a fresh perspective on SunCoke operations. We welcome their ideas on process improvement and value each employee’s contribution across the business. Company leadership and our Board of Directors are actively involved in overseeing the Company’s human capital management programs. The leadership of our Human Resources department, in partnership with local Human Resources and General Managers, as well as an annual licensing feeour Legal department, including our Chief Compliance Officer, sponsor the development and oversight of $5.1 million.
We are party to an omnibus agreement with the Partnership, which grants the Partnership a royalty-free license to use the name “SunCoke” and related trademarks. Additionally, the omnibus agreement grants the Partnership a non-exclusive right to use all of our current and future cokemaking and related technology necessary for their operations.
Competition
Cokemaking
The cokemaking business is highly competitive. Most of the world’s coke production capacity is owned by blast furnace steel companies utilizing by-product coke oven technology. The international merchant coke market is largely supplied by Chinese, Colombian and Ukrainian producers, among others, though it is difficult to maintain high quality cokehuman capital programs in the export market,organization including: (i) safety, (ii) workforce composition, recruitment and when coupled with transportation costs, coke imports intoretention, (iii) culture and our commitment to diversity, equity and inclusion, (iv) workforce stability, (v) employee development and training, (vi) benefits, (vii) talent management and total compensation, and (viii) ethics and compliance.
Workforce Culture
Our culture at SunCoke is driven by our core values. SunCoke’s values of excellence, innovation, commitment, integrity and stewardship are at the U.S. are often not economical.
The principal competitive factors affecting our cokemaking business include coke quality and price, reliabilityheart of supply, proximity to market, access to metallurgical coals and environmental performance. Our oven design and heat recovery technology play a role in all of these factors. Competitors include merchant coke producers as well as the cokemaking facilities owned and operated by blast furnace steel companies.
In the past, there have been technologies which have sought to produce carbonaceous substitutes for coke in the blast furnace. While none have proven commercially viable thus far, we monitor the development of competing technologies carefully. We also monitor ferrous technologies, such as direct reduced iron production ("DRI"), as these could indirectly impact our blast furnace customers.
We believewho we are well-positionedand how we work every day. They guide our actions and decisions so we can always strive to competedo the right thing for our stakeholders, our business and each other.
•Excellence: expect the best from yourself, remove obstacles, inspire and support others, embrace diversity and celebrate success.
•Innovation: master the science and process, create a better way, find a better solution and push the envelope.
•Commitment: deliver results, be accountable, work as a team, continuously improve and grow and always communicate effectively.
•Integrity: do what is right, say what you mean, do what you say, earn trust and treat others with other coke producers. In 2017,respect.
•Stewardship: providesafe, reliable and environmentally sound operations for our Domestic Coke segment accounted for approximately 25 percent of coke market capacity in the U.S. Current production from our cokemaking business is largely committed under long-term take-or-pay contracts. As a result, competition mainly affects our ability to obtain new contracts supporting development of additional cokemaking capacity, re-contracting existing facilities, as well as the sale of coke in the spot market. Our facilities were constructed using proven, industry-leading technology with many proprietary features allowing us to produce consistently higher quality coke than our competitors produce. Additionally, our technology allows us to produce heat that can be converted into steam or electrical power.
Logistics
The principal competitors of CMT are located on the U.S. Gulf Coast or U.S. East Coast. CMT is one of the largest export terminals on the U.S. Gulf Coastpeople and provides strategic access to seaborne markets for coal and other industrial materials. CMT is the only bulk material terminal in the lower U.S. with direct rail access on the Canadian National Railway. In 2017, CMT accounted for approximately 52 percent of U.S. thermal coal exports from the U.S. Gulf Coast and approximately 18 percent of total U.S. thermal coal exports. In late 2016, CMT commissioned a new state-of-the-art ship loader, the largest of its kind in the world. We believe this ship loader has the fastest loading rate available in the Gulf Region and should allowtheir families, our customers and the communities where we do business.
Workforce Composition, Recruitment and Our Commitment to benefit from lower shipping costs. Additionally, CMT has a strategic alliance with a company that performs barge unloading services for the terminal, which provides CMT with the ability to transloadDiversity, Equity and mix a significantly broader variety of materials.
Our KRT competitors are generally located within 100 miles of our operations. KRT has fully automated and computer-controlled mixing capabilities that mix coal to within two percent accuracy of customer specifications. KRT also has the ability to provide pad storage and has access to both CSX and Norfolk Southern rail lines as well as the Ohio River system.
Lake Terminal and DRT provide coal handling and/or mixing services to our Indiana Harbor and Jewell cokemaking facilities, respectively, and therefore, do not have any competitors.
EmployeesInclusion (“DEI”)
As of December 31, 2017,2022, we have approximately 909887 employees in the U.S. Approximately 3940 percent of our domestic employees, principally at our cokemaking operations, are represented by the United Steelworkers union under various contracts.local collective bargaining agreements. Additionally, approximately 3 percent of our domestic employees are represented by the International Union of Operating Engineers. While the labor agreement at our Indiana Harbor cokemaking facility expired on August 31, 2015, the parties mutually agreed to extend the terms of this agreement through August 2018, at which time the collective bargaining process will resume. We do not anticipate any work stoppages during the extended period of the agreement. In 2017, we reached a new three-year agreement for our Granite City location, which will expire on August 31, 2020.
As of December 31, 2017,2022, we have approximately 270285 employees at the cokemaking facility in Vitória, Brazil, all of whom are represented by a union under a labor agreement.agreement.
We recognize that our commitment to advance a diverse, equitable and inclusive environment starts with how we put that vision into practice inside our company. We incorporate diversity into recruiting, training, developing and retaining our employees. We partner with reputable recruitment firms to fill key positions. Through those partnerships, we have a commitment to fill our candidate slates with a diverse group of qualified candidates. Hiring managers then focus on ensuring a qualified diverse pool of candidates are interviewed and considered for job openings. In 2017,2022, we reachedrequired all frontline leaders and all SunCoke management to attend a new one-year labor agreement at our Vitoria, Brazil facility which will expire on October 31, 2018. We will negotiatediversity and inclusion training. The training was conducted by an outside firm to further develop the renewalability to foster diversity and inclusion and create an environment where everyone feels valued and has the opportunity to succeed.
Approximately 9 percent of this agreement in 2018the Company's global workforce is female, and do not anticipate any work stoppages.
minorities represent approximately 17 percent of the Company's U.S. workforce. The tables below provide breakdowns of gender representation globally and racial/ethnic group representation for U.S. employees.
| | | | | | | | | | | | | | | | | | | | | | | |
| Gender Representation for Global Employees |
| Female | | Male |
| Number of employees | | Percent of employee level | | Number of employees | | Percent of employee level |
Executive(1) | 5 | | 36 | % | | 9 | | 64 | % |
Non-Executive Management(2) | 28 | | 27 | % | | 77 | | 73 | % |
Senior Leaders(3) | 33 | | 28 | % | | 86 | | 72 | % |
Professionals(4) | 31 | | 31 | % | | 68 | | 69 | % |
All Other Employees(5) | 47 | | 5 | % | | 907 | | 95 | % |
| Grand Total | 111 | | 9 | % | | 1061 | | 91 | % |
Safety | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Racial/Ethnic Representation of US Employees |
| Asian | | Black or African American | | Hispanic or Latino | | White | | Other |
| Number of employees | | Percent of employee level | | Number of employees | | Percent of employee level | | Number of employees | | Percent of employee level | | Number of employees | | Percent of employee level | | Number of employees | | Percent of employee level |
Executive(1) | 1 | | 7 | % | | 0 | | — | % | | 0 | | — | % | | 13 | | 93 | % | | 0 | | — | % |
Non-Executive Management(2) | 3 | | 3 | % | | 3 | | 3 | % | | 5 | | 5 | % | | 83 | | 88 | % | | 1 | | 1 | % |
Senior Leaders(3) | 4 | | 4 | % | | 3 | | 3 | % | | 5 | | 4 | % | | 96 | | 88 | % | | 1 | | 1 | % |
Professionals(4) | 4 | | 5 | % | | 2 | | 3 | % | | 2 | | 3 | % | | 66 | | 89 | % | | 0 | | — | % |
All Other Employees(5) | 0 | | — | % | | 72 | | 10 | % | | 52 | | 7 | % | | 571 | | 82 | % | | 9 | | 1 | % |
| Grand Total | 8 | | 1 | % | | 77 | | 9 | % | | 59 | | 7 | % | | 733 | | 82 | % | | 10 | | 1 | % |
(1)Represents Executives/Senior Officers and Managers as defined by the EEO-1 Job Classification Guide
(2)Represents First/Mid Officers and Managers as defined by the EEO-1 Job Classification Guide
(3)Represents a weighted average of Executive Management and Non-Executive Management
(4)Represents Professionals and Administrative Support Workers as defined by the EEO-1 Job Classification Guide
(5)Represents all other classified employees as defined by the EEO-1 Job Classification Guide
Workforce Stability & Leadership Experience
Our commitment to employee retention through our talent management, benefits, performance management and total compensation programs is shown through our low turnover rate of less than 1 percent in 2022. The stability of our workforce is anchored by our experienced corporate leadership team along with our General Managers that lead the day-to-day operations at our facilities. Our leaders each have an average of nearly 20 years of leadership experience and an average tenure (or length of service) of over 10 years with SunCoke.
Employee Development & Training
SunCoke provides a robust training program that meets or exceeds all applicable regulatory requirements. In addition to the annual interactive video-based SunCoke Code of Business Conduct and Ethics training we provide to all employees, we also provide specialized trainings on an as-needed basis for current topics throughout the year. Over the past several years, special training topics have included Active Shooter Preparedness, Harassment, Worker’s Compensation, Diversity and Inclusion, Conducting Effective Investigations, Retirement Planning, and Substance Abuse Awareness.
SunCoke’s Personal Information & Privacy Policy outlines specific procedures to ensure that employees handle sensitive information in a secure and responsible manner. The Personal Information & Privacy Policy is updated to remain consistent with data security best practices. SunCoke utilizes a variety of information security training methods, including
training segments on data security best practices and periodic security awareness communications that remind employees to stay vigilant with respect to data security.
We believe in developing our employees both within their daily roles and to be ready for their next assignment at SunCoke. Development occurs in the form of leadership training, cross training, stretch assignments, and on the job training. For example, in 2022, through partnership with a global leadership consulting firm, SunCoke Human Resources leaders delivered frontline leadership training courses to field new leaders and supervisors. The courses focus on a number of areas that are committedessential for frontline leadership development, including training on high-quality decision making, communication, coaching, and improving workplace performance.
We pride ourselves on being a lean workforce that focuses on developing and promoting talent internally. We engage in succession planning to maintaining a safe work environmentensure that development and ensuring strict environmental compliance across all oftraining opportunities are identified for high performing talent, preparing potential successors for our operations asmost critical roles.
Benefits
We offer comprehensive benefits to our employees and their families, including health care coverage, retirement benefits, life and disability insurance, competitive vacation and leave policies. We also offer supplemental benefits programs designed to enhance the healthdaily life and safetywell-being of our employees, including: supplemental life insurance for all eligible family members, supplemental short-term disability, a legal services plan, a weight-loss program, an identity theft and device protection program, financial retirement planning education and coaching, paid-time off (including time for community service), tuition reimbursement, health management for chronic conditions, a 24/7 employee assistance program, and telemedicine.
Talent Management and Total Compensation
Our full-year performance management process begins with setting annual goals for the Company, which guide the development of functional, local and individual employee goals. Employees and their managers are accountable for the goals and must review their performance against the goals on an ongoing basis. We provide employee base wages that are competitive and consistent with employees' positions, skill levels, experience, and geographic location. We use an annual review process to evaluate employees' performance and assist in their development. We believe that individual performance and the communities inresults of the Company are directly linked, which we operateis why a significant portion of employee compensation is performance-based. Our short-term incentives include both financial metrics as well as performance-based environmental and safety metrics. The level of pay at risk increases progressively with positions of greater responsibility, with long-term cash and equity incentives with multi-year vesting periods granted at the Director, Vice President and Senior Vice President levels. Further, below the Director level, top performers may be granted long-term cash and equity incentives with multi-year vesting for retention. This helps the Company to retain those identified as having the top skills and abilities that are critical to our success. business.
Safety
We believelive by the ethos: Think Safe. Act Safe. Be Safe.
Our top priority has always been the safety and health of our employees, contractors and visitors.
Safety is so important to SunCoke that we employ bestinclude safety in our core values and also incorporate safety as a metric in our short-term incentive program. We have an ambition of zero incidents and injuries in the workplace. To reach our goal, we follow our Safety Vision, which is comprised of five core components including:
•Visible safety leadership - Site and corporate leadership have made a commitment to safety as the paramount value within the Company and our site leadership practices visible safety leadership on a daily basis.
•Communication and conduct continual training programs- All team members and contractors take responsibility for their own safety and the safety of those around them, and we train to ensure proper safety knowledge.
•Safe work practices - All team members and contractors take the time necessary to properly identify and mitigate all hazards and safely do each job.
•Incident investigation – We comply with all applicable laws and regulations and perform root cause analysis on all incidents.
•Continuous improvement – We are always focused on preventing safety incidents and Thinking Safe, Acting Safe and Being Safe.
Our target for Total Recordable Incident Rate ("TRIR") at SunCoke for 2022 was 0.80 company-wide, which includes both employees and contractors. We improved our safety performance in 2022 (0.69 TRIR).
Our excellent safety record is best understood in comparison to industry-wide safety performance. According to the Bureau of Labor Statistics, the TRIR of Other Petroleum and Coal Products (Coke) Manufacturing was 4.3 for 2021 and 2.8 for the Iron and Steel Mills sector, based on the most recent data available. Our year-over-year safety performance is consistently significantly lower than average industry-wide rates, demonstrating our strong commitment to safety.
| | | | | |
| Year | Total TRIR |
| 2020 | 0.81 |
| 2021 | 0.76 |
| 2022 | 0.69 |
Ethics & Compliance
We have adopted a Code of Business Conduct and Ethics that applies to all of our officers, directors and employees, including senior financial officers and executives. Our Code of Business Conduct and Ethics, along with our Core Values, establish the principles that guide our daily actions to uphold the highest standards of ethical and legal behavior. Whether working with customers, vendors, business partners or neighbors, we always strive to act with integrity. All employees must complete annual training on our Code of Business Conduct and Ethics, which we review and update as needed. We educate all employees to avoid potential conflicts of interest. Our Prohibited Payments and Political Contributions Policy addresses payments made to U.S. officials, including campaign contributions. Our Gifts, Entertainment and Sponsored Travel Policy provides guidance regarding business courtesies, including reporting obligations and value limitations. We also have a Human Rights Policy, which affirms our commitment to a fair living wage for all employees.
Guidance & Reporting Without Fear of Retaliation
All employees, officers and directors must report suspected policy violations of our Code of Business Conduct and Ethics to the Compliance Team, which is led by our Chief Compliance Officer and includes representatives from our Human Resources and Legal departments. They can do so through a variety of channels, including, but not limited to, directly reporting to a supervisor, providing email or verbal reports directly to the Compliance Team and using our confidential, third-party 24/7 reporting hotline or website. Calls and online submissions are focusedanonymous, unless the notifying party discloses his or her identity. We take the anonymity of these communications seriously and SunCoke’s Compliance Team follows up on safety. Furthermore, we employeach submission. In addition to the anonymous hotline, hourly employees represented by a structured safety and environmental process that providescollective bargaining unit can also file a robust framework for managing and monitoring safety and environmental performance.report using the applicable union grievance process.
We have consistently operated within the top quartilefor the U.S. Occupational Safety and Health Administration’s recordable injury rates as measured and reported by the American Coke and Coal Chemicals Institute.
Legal and Regulatory Requirements
Our operations are subject to extensive governmental regulation, including environmental laws, which are a significant factor in our business. The following discussion summarizes the principal legal and regulatory requirements that we believe may significantly affect us.
Permitting and Bonding
•Permitting Process for Cokemaking Facilities. The permitting process for our cokemaking facilities is administered by the individual states.each state individually. However, the main requirements for obtaining environmental construction and operating permits are found in the federal regulations. Once all requirements are satisfied, a state or local agency produces an initial draft permit. Generally, the facility reviews and comments on the initial draft. After accepting or rejecting the facility’s comments, the agency typically publishes a notice regarding the issuance of the draft permit and makes the permit and supporting documents available for public review and comment. A public hearing may be scheduled, and the U.S. Environmental Protection Agency ("EPA") also has the opportunity to comment on the draft permit. The state or local agency responds to comments on the draft permit and may make revisions before a final construction permit is issued. A construction permit allows construction and commencement of operations ofat the facility and is generally valid for at least 18 months. Generally, construction commences during this period, while many states allow this period to be extended in certain situations.
A facility's operating permit may be a state operating permit or a Title V operating permit.•Air Quality. Our cokemaking facilities employ Maximum Available Control Technology (“MACT”)MACT standards designed to limit emissions of certain hazardous air pollutants. Specific MACT standards apply to oven door leaks, charging, oven pressure, pushing and quenching. Certain MACT standards for new cokemaking facilities were developed using test data from SunCoke's Jewell cokemaking facility located in Vansant, Virginia. UnderAdditionally, under applicable federal air quality regulations, permitting requirements may differ among facilities, depending upon whether the cokemaking facility will be located in an “attainment” area—i.e., one that meets the national ambient air quality standards (“NAAQS”) for certain pollutants, or in a “non-attainment” or "unclassifiable" area. The status of an area may change over time as new NAAQS standards are adopted, resulting in an area changechanging from one status or classification to another. In an attainment area, the facility must install air pollution control equipment or employ Best Available Control Technology (“BACT”).BACT. In a non-attainment area, the facility must install air pollution control equipment or employ procedures that meet Lowest Achievable Emission Rate (“LAER”)LAER standards. LAER standards are the most stringent emission limitation achieved in practice by existing facilities. Unlike the BACT analysis, cost is generally not considered as part of a LAER analysis, and emissions in a non-attainment area must be offset by emission reductions obtained from other sources.
Any changes in attainment status for areas where our facilities are located presents a risk that we may be required to install additional pollution controls, which may require us to incur greater operating costs at those facilities.Stringent•More stringent NAAQS for ambient nitrogen dioxide ("NO2") and sulfur dioxide ("SO2") went into effect in 2010. In July 2013, the EPA identified or "designated" as non-attainment 29 areas in 16 states where monitored air quality showed violations of the 2010 1-hour SO2 NAAQS. In August 2015, the EPA finalized a new rulemaking to assist in implementation of the primary 1-hour SO2 NAAQS that requires either additional monitoring, or modeling of ambient air SO2 levels in various areas including where certain of our facilities are located. By July 2016, states subject to this rulemaking were required to provide EPA with either a modeling approach using existing emissions data, or a plan to undertake ambient air monitoring for SO2 to begin in 2017. For states that choose to install ambient air SO2 monitoring stations, after three years of data has been collected, or sometime in 2020, the EPA will evaluate this data relative to the appropriate attainment designation for the areas under the 1-hour SO2 NAAQS. For states that chose to model, designations were made by December 2017. This rulemaking required certain of our facilities to undertake this ambient air monitoring or modeling. In December 2017, EPA issued a final designation of attainment or unclassifiable for all areas where our facilities are located. These designations mean that no future action is required for the facilities with respect to SO2 emissions at this time. However, legal
challengesit is possible for these areas to these designations are possible.be redesignated in the future as non-attainment areas. If redesignated, we may be required to install additional pollution controls and incur greater costs of operating at those of our facilities located in areas that EPA determines to be non-attainment with the 1-hour SO2 NAAQS based on its evaluation of this data. NAAQS.
•In 2012, amore stringent NAAQS for fine particulate matter ("PM"), or PM 2.5, went into effect. In NovemberJanuary 2015, the areas where the Granite City and Indiana Harbor facilities are located were designated unclassifiable for PM 2.5, and the areas where the Haverhill and Jewell facilities are located were designated unclassifiable/attainment for PM 2.5. In April 2015, the area where the Middletown facility is located was designated unclassifiable/attainment for PM 2.5. These designations mean that no action is required for the facilities with respect to PM 2.5 emissions at this time. However, it is possible for these areas to be redesignated in the future as non-attainment areas. If redesignated, we may be required to install additional pollution controls and incur greater costs of operating at those of our facilities located in areas that EPA determines to be non-attainment with the annual PM 2.5 NAAQS.
•In 2015, the EPA revised the existing NAAQS for ground level ozone to make the standard more stringent. In November 2017,January 2018, EPA designated the areaareas where the Haverhill and Jewell facilities are located as attainment/unclassifiable.unclassifiable for ozone. In December 2017, various related litigants filed a lawsuit againstJune 2018, EPA designated the EPA claiming the agency failed to designate those areas that are not in compliance with the standard for ground-based ozone. EPA subsequently announced its intent to designate various areas of the country as nonattainment, including where the Granite City, Indiana Harbor, Granite City, and Middletown facilities are located but invited the states to submit updated air quality data to potentially change that designation. In January 2018, EPA announced its intent to designate all remaining areasas marginal nonattainment for ozone. The status of the countryarea where the Indiana Harbor facility is located was challenged in litigation and upheld in July 2020. As a result of the same litigation, the status of the area where the Granite City facility is located was remanded to EPA, which finalized the area as nonattainment in January 2021. On June 9, 2022, the U.S. EPA redesignated the area where the Middletown facility is located as an attainment area for the 2015 ozone NAAQS based on a request for redesignation by April 30, 2018, but there remains a possibility of further legal action that could affect this date. Thesethe Ohio Environmental Protection Agency on December 21, 2021. Nonattainment designations whenever issued, under the new standardsstandard and any future more stringent standard for ozone have two impacts on permitting:potential impacts: (1) demonstrating compliance with the standard using dispersion modeling from afor permitting new facility willfacilities or significant new projects may be more difficult; and (2) facilities operating in areas that becomeare classified as moderate non-attainment areas due to the application of new standards may be required to install
Reasonably Available Control Technology (“RACT”). A number of states have also filed or joined suits to challenge the EPA’s new standard in court.demonstrate that they already meet RACT standards. While we are not able to determine the extent to which this newthe 2015 ozone standard will impact our business at this time, it does have thepresents a potential to have a materialrisk of having an impact on our operations and cost structure.operations.
•The EPA adopted a rule in 2010 requiring a new facility that is a major source of greenhouse gases (“GHGs”) to install equipment or employ BACT procedures. Currently, there is little information on what may be acceptable as BACT to control GHGs (primarily carbon dioxide from our facilities), but the database and additional guidance may be enhanced in the future.
•Several states have additional requirements and standards other than those in the federal statutes and regulations. Many states have lists of “air toxics” with emission limitations determined by dispersion modeling. States also often have specific regulations that deal with visible emissions, odors and nuisance. In some cases, the state delegates some or all of these functions to local agencies.
•Wastewater and Stormwater. Our heat recovery cokemaking technology does not producedischarge process wastewater as is typically associated with by-product cokemaking. Our cokemaking facilities, in some cases, have non-process wastewater and/or stormwater discharge and stormwater permits.
•Waste. The primary solid waste product from our heat recovery cokemaking technology is calcium sulfate from flue gas desulfurization, which is generally taken to a solid waste landfill. The material from periodic cleaning of heat recovery steam generators has been disposed of off-site as hazardous waste. On the whole, our heat recovery cokemaking process doesOur facilities only generate wastes and do not generate substantial quantities of hazardous waste.
have permits for waste transportation, storage or disposal.•U.S. Endangered Species Act. The U.S. Endangered Species Act of 1973 and certain counterpart state regulations are intended to protect species whose populations allow for categorization as either endangered or threatened. With respect to permitting additional cokemaking facilities, protection of endangered or threatened species may have the effect of prohibiting, limiting the extent of or placing permitting conditions on soil removal, road building and other activities in areas containing the affected species. Based on the species that have been designated as endangered or threatened on our properties and the current application of these laws and regulations, we do not believe that they are likely to have a material adverse effect on our operations.
•Permitting Processand Bonding for Former Coal Mining Operations. The U.S. coal mining permit application process is initiated by collecting baseline data to adequately assess and model the pre-mine environmental condition of the permit area, including geologic data, soil and rock structures, cultural resources, soils, surface and ground water hydrology, and coal that we intend to mine. We use this data to develop a mine and reclamation plan, which incorporate provisions of the Surface Mining Control and Reclamation Act of 1977 (“SMCRA”), and applicable state programs and complementary environmental programs that impact coal mining. The permit application includes the mineequivalents govern mining permits and reclamation plan,plans, documents defining ownership and agreements pertaining to coal, minerals, oil and gas, water rights, rights of way and surface land and documents required by the Office of Surface Mining Reclamation and Enforcement’s (“OSM’s”) Applicant Violator System. Once a permit application
We currently have no applications pending for new SMCRA permits, but hold several permits for which reclamation is submittedincomplete.
Our reclamation obligations under applicable environmental laws could be substantial. Under accounting principles generally accepted in the U.S. ("GAAP"), we are required to account for the costs related to the regulatory agency, it goes through a completenessclosure of mines and technical review before a public notice and comment period. Some SMCRA mine permits take over a year to prepare, depending on the size and complexityreclamation of the land upon exhaustion of coal reserves. The fair value of an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. At which time, the present value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset. At December 31, 2022, we had an asset retirement obligation of $2.9 million related to estimated mine reclamation costs. The amounts recorded are dependent upon a number of variables, including the estimated future retirement costs, inflation rates, and often take six months to two yearsthe assumed credit-adjusted interest rates. Our future operating results would be adversely affected if these accruals were determined to be issued. Regulatory
insufficient. These obligations are unfunded. Failure to comply with the regulatory requirements can result in sanctions.
authorities have considerable discretion in the timing of the permit issuance and the public has the right to comment on and otherwise engage in the permitting process, including through public hearings and intervention in the courts. SMCRA mine permits also take a significant period of time to be transferred.
•Bonding Requirements for Permits Related to Former Coal Mining Operations and Coal Terminals with Surface Mining Permits. Before a SMCRA permit or a surface mining permit is issued, in West Virginia, a mine operator must submit a bond or other form of financial security to guarantee the payment and performance of certain long-term mine closure and reclamation obligations. The costs of these bonds or other forms of financial security have fluctuated in recent years and the market terms of surety bonds generally have become less favorable to those entities with legacy mining obligations or terminal operators and others with such permits. These changes in the terms of such bonds have been accompanied, at times, by a decrease in the number of companies willing to issue surety bonds. As of December 31, 2017,2022, we have posted $10.4 $9.6 million in surety bonds or other forms of financial security for reclamation purposes.future reclamation.
Regulation of Operations
•Clean Air Act. The Clean Air Act ("CAA") and similar state laws and regulations affect our cokemaking operations, primarily through permitting and/or emissions control requirements relating to particulate matter (“PM”) and sulfur dioxide (“SO2”)criteria pollutants and MACT standards. The Clean Air ActCAA air emissions programs that may affect our operations, directly or indirectly, include, but are not limited to: the Acid Rain Program; NAAQS implementation for SO2, PM, and nitrogen oxides (“NOx”),NO2, lead, ozone, and carbon monoxide; GHG rules; the CleanCross-State Air InterstatePollution Rule; MACT emissions limitsstandards for hazardous air pollutants; the Regional Haze Program; New Source Performance Standards (“NSPS”); and New Source Review.
◦The Clean Air ActCAA requires, among other things, the regulation of hazardous air pollutants through the development and promulgation of various industry-specific MACT standards. Our cokemaking facilities are subject to two categories of MACT standards. The first category applies to pushing and quenching. The second category applies to emissions from charging and coke oven doors. The EPA is required to make a risk-based determination for pushing and quenching emissions and determine whether additional emissions reductions are necessary. In 2016, EPA issued a request for information and testing to our cokemaking facilities and other companies as part of its residual risk and technology review of the MACT standard for pushing and quenching, and a technology review of the MACT standard for coke ovens and charging emissions. Testing was conducted by our cokemaking facilities in 2017, but2017. EPA was required to finalize any changes to these MACT standards by December 26, 2022 pursuant to a settlement agreement with environmental groups. However, in June 2022, EPA petitioned the court to extend the deadline, which the Court decided in November 2022 to extend to a May 23, 2024 deadline. EPA has yetissued a new information request to publish or proposeour cokemaking facilities and other companies in 2022 associated with this rulemaking. While we are not able to determine the extent to which any residualnew standards would impact our business at this time, it presents a potential risk standards; therefore,of having an impact on our operations and costs.
◦The Regional Haze program under the impactCAA requires that states submit State Implementation Plans that demonstrate reasonable progress towards achieving natural visibility conditions in Class I areas. On November 5, 2020, the Virginia Department of Environmental Quality (“VDEQ”) requested that the Jewell facility conduct an analysis of potential additionalcontrols for SO2 under the Regional Haze program. VDEQ is currently reviewing Jewell’s determination that the installation of new controls is not feasible and any new requirements should be limited to operating pollution controls already present at the facility. While we are not able to determine the extent to which a different determination by VDEQ or EPA regulation in this area cannot be estimatedwould impact our business at this time.
time, it presents a potential risk of having an impact on our operations and costs at the Jewell facility.◦On April 6, 2022, EPA proposed a Federal Implementation Plan Addressing Regional Ozone Transport for the 2015 Ozone NAAQS, which includes requirements applicable to certain coke plant operations. SunCoke submitted comments on the proposed rule requesting clarification that the rule does not apply to our facilities. While we are not able to determine the extent to which a different determination by EPA would impact our business at this time, it presents a potential risk of having an impact on our operations and costs at certain of our facilities.
•Terminal Operations. Our terminal operations located along waterways and the Gulf of Mexico are also governed by permitting requirements under the CWA (as defined below) and CAA. These terminals are subject to U.S. Coast Guard regulations and comparable state statutes regarding design, installation, construction, and management. Many such terminals owned and operated by other entities that are also used to transport coal and petcoke, including for export, have been pursued by environmental interest groups for alleged violations of their permits’ requirements, or have seen their efforts to obtain or renew such permits contested by such groups. While we believe that our operations are in material compliance with these permits, it is possible that such challenges or claims will be made against our operations in the future. Moreover, our terminal operations may be affected by the impacts of additional regulation on petcoke or on the mining of all types of coal and use of thermal coal for fuel, which is restricting supply in some markets and may reduce the volumes of coal that our terminals manage.
•Federal Energy Regulatory Commission. The Federal Energy Regulatory Commission (“FERC”) regulates the sales of electricity from our Haverhill and Middletown facilities, including the implementation of the Federal Power Act (“FPA”) and the Public Utility Regulatory Policies Act of 1978 (“PURPA”). The nature of the operations of the Haverhill and Middletown facilities makes each facility a qualifying facility under PURPA, which exempts the facilities and the Company from certain regulatory burdens, including the Public
Utility Holding Company Act of 2005 (“PUHCA”), limited provisions of the FPA, and certain state laws and regulation. FERC has granted requests for authority to sell electricity from the Haverhill and Middletown facilities at market-based rates and the entities are subject to FERC’s market-based rate regulations, which require regular regulatory compliance filings.
•Clean Water Act of 1972. Although our cokemaking facilities generally do not have water discharge permits, the The Clean Water Act of 1972 (“CWA”) may affect our operations by requiring water quality standards generally and through the National Pollutant Discharge Elimination System (“NPDES”). program. Regular monitoring, reporting requirements and performance standards are requirements of NPDES permits that govern the discharge of pollutants into water. Discharges must either meet state water quality standards or be authorized through
available regulatory processes such as alternate standards or variances. Additionally, through the CWA Section 401 certification program, states have approval authority over federalwater discharge permits or licenses that might result in a discharge to their waters. Similarly, for permitting or any future water intake and/or discharge projects, our facilities could be subject to the Army Corps of Engineers Section 404 permitting process.
•Resource Conservation and Recovery Act. We may generate wastes, including “solid” wastes and “hazardous” wastes that are subject to the Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes, although certain mining and mineral beneficiation wastes and certain wastes derived from the combustion of coal currently are exempt from regulation as hazardous wastes under RCRA.statutes. The EPA has limited the disposal options for certain wastes that are designated as hazardous wastes under RCRA. Furthermore, it is possible that certain wastes generated by our operations that currently are exempt from regulation as hazardous wastes may in the future be designated as hazardous wastes, and therefore be subject to more rigorous and costly management, disposal and clean-up requirements. Certain of our wastes are also subject to Department of Transportation regulations for shipping of materials.
Climate Change Legislation and Regulations. Our facilities are presently subject Any changes to hazardous waste standards or the GHG reporting rule, which obligates us to report annual emissions of GHGs. The EPA also finalized a ruleconstituents in 2010 requiring a new facility that is a major source of GHGs to install equipment or employ BACT procedures. Currently there is little information as to what may constitute BACT for GHG in most industries. We may also be subject to the EPA’s “Tailoring Rule,” where certain modifications towastes generated at our facilities could subject us to the additional permitting and other obligations relative to emissions of GHGs under the New Source Review/Prevention of Significant Deterioration ("NSR/PSD") and Title V programs of the Clean Air Act based on whether the facility triggered NSR/PSD because of emissions of another pollutant such as SO2, NOx, PM, ozone or lead. The EPA has engaged in rulemaking to regulate GHG emissions from existing and new coal fired power plants, and we expect continued legal challenges to this rulemaking and any future rulemaking for other industries. For instance, in August 2015, the EPA issued its final Clean Power Plan rules establishing carbon pollution standards for power plants. In February 2016, the U.S. Supreme Court granted a stay of the implementation of the Clean Power Plan before the U.S. Court of Appeals for the District of Columbia (“D.C. Circuit”) issued a decision on the rule. By its terms, this stay will remain in effect throughout the pendency of the appeals process including at the D.C. Circuit and the Supreme Court through any certiorari petition that may be granted. In October 2017, the EPA proposed to repeal the Clean Power Plan ("CPP") although the final outcome of this proposal and the pending litigation regarding the CPP is uncertain at this time. In connection with this proposed repeal, EPA issued an Advanced Notice of Proposed Rulemaking ("ANPRM") in December 2017 regarding emission guidelines to limit GHG emissions from existing electric utility generating units. The ANPRM seeks comment regarding what the EPA should include inpresents a potential new, existing source regulationrisk of GHG emissions under the Clean Air Act that the EPA may propose. Dependinghaving an impact on whether the Clean Power Plan is ultimately upheld or if another rule is promulgated in the future, it could increase the demand for natural gas-generated electricity.
our operations and cost structure.Currently, we do not anticipate these new or existing power plan GHG rules to apply directly to our facilities. However, the impact current and future GHG-related legislation and regulations have on us will depend on a number of factors, including whether GHG sources in multiple sectors of the economy are regulated, the overall GHG emissions cap level, the degree to which GHG offsets are allowed, the allocation of emission allowances to specific sources, actions by the states in implementing these requirements and the indirect impact of carbon regulation on coal prices. We may not recover the costs related to compliance with regulatory requirements imposed on us from our customers due to limitations in our agreements. The imposition of a carbon tax or similar regulation could materially and adversely affect our revenues. Collectively, these requirements along with restrictions and requirements regarding the mining of all types of coal may reduce the volumes of coal that we manage and may ultimately adversely impact our revenues.
Mine Improvement and New Emergency Response Act of 2006. The Mine Improvement and New Emergency Response Act of 2006 (the “Miner Act”), has increased significantly the enforcement of safety and health standards and imposed safety and health standards on all aspects of mining operations. There also has been a significant increase in the dollar penalties assessed for citations issued.
Safety. Our facilities are subject to regulation by the Occupational Safety and Health Administration (OSHA) of the United States Department of Labor and equivalent state agencies under various standards designed to promote worker safety. As noted above, we have consistently operated within the top quartile for OSHA’s recordable injury rates as measured and reported by the American Coke and Coal Chemicals Institute.
Security. CMT is subject to regulation by the U.S. Coast Guard pursuant to the Maritime Transportation Security Act. We have an internal inspection program designed to monitor and ensure compliance by CMT with these requirements. We believe that we are in material compliance with all applicable laws and regulations regarding the security of the facility.
Reclamation and Remediation
Surface Mining Control and Reclamation Act of 1977. The SMCRA established comprehensive operational, environmental, reclamation and closure standards for all aspects of U.S. surface mining as well as many aspects of deep mining. Where state regulatory agencies have adopted federal mining programs under SMCRA, the state becomes the regulatory authority, and states that operate federally approved state programs may impose standards that are more stringent than the requirements of SMCRA. Permitting under SMCRA generally has become more difficult in recent years, which adversely affects the cost and availability of coal. The Abandoned Mine Land Fund, which is part of SMCRA, assesses a fee on all coal produced in the U.S. From October 1, 2007 through September 30, 2012, the fee was $0.315 per ton of surface-mined coal and $0.135 per ton of underground mined coal. From October 1, 2012 through September 30, 2021, the fee has been reduced to $0.28 per ton of surface-mined coal and $0.12 per ton of underground mined coal. Our reclamation obligations under applicable environmental laws could be substantial. Under accounting principles generally accepted in the U.S. ("GAAP"), we are required to account for the costs related to the closure of mines and the reclamation of the land upon exhaustion of coal reserves. The fair value of an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The present value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset. At December 31, 2017, we had asset retirement obligation of $4.3 million related to estimated mine reclamation costs. The amounts recorded are dependent upon a number of variables, including the estimated future retirement costs, inflation rates, and the assumed credit-adjusted interest rates. Our future operating results would be adversely affected if these accruals were determined to be insufficient. These obligations are unfunded. Further, although specific criteria varies from state to state as to what constitutes an “owner” or “controller” relationship, under SMCRA the responsibility for reclamation or remediation, unabated violations, unpaid civil penalties and unpaid reclamation fees of independent contract mine operators can be imputed to other companies which are deemed, according to the regulations, to have “owned” or “controlled” the contract mine operator. Sanctions are quite severe and can include being denied new permits, permit amendments, permit revisions and revocation or suspension of permits issued since the violation or penalty or fee due date.
Black Lung Benefits Revenue Act of 1977 and Black Lung Benefits Reform Act of 1977, as amended in 1981. Under these laws, each U.S. coal mine operator must pay federal black lung benefits and medical expenses to claimants who are current and former employees and last worked for the operator after July 1, 1973. The Patient Protection and Affordable Care Act (“PPACA”), which was implemented in 2010, amended previous legislation and provides for the automatic extension of awarded lifetime benefits to surviving spouses and changes the legal criteria used to assess and award claims. Our obligation related to black lung benefits at December 31, 2017 was $50.3 million and was estimated based on various assumptions, including actuarial estimates, discount rates, number of active claims, changes in health care costs and the impact of PPACA.
•Comprehensive Environmental Response, Compensation, and Liability Act. Under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), also known as Superfund, and similar state laws, responsibility for the entire cost of clean-up of a contaminated site, as well as natural resource damages, can be imposed upon current or former site owners or operators, or upon any party who released one or more designated “hazardous substances” at the site, regardless of the lawfulness of the original activities that led to the contamination. In the course of our operations we may have generated and may generate wastes that fall within CERCLA’s definition of hazardous substances. We also may be an owner or operator of facilities at which hazardous substances have been released by previous owners or operators. Under CERCLA, we may be responsible for all or part of the costs of cleaning up facilities at which such substances have been released and for natural resource damages. We also must comply with reporting requirements under the Emergency Planning and Community Right-to-Know Act and the Toxic Substances Control Act.
•Pursuant to a court-mandated deadline, EPA published a final rule in December 2020 that does not impose financial assurance requirements for managing hazardous substances on the coal products manufacturing sector under Section 108(b) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA 108(b)”). EPA’s final rule determined that the risks associated with these facilities’ operations are addressed by existing federal and state programs and regulations and modern industry practices.
•Climate Change Legislation and Regulations. Our facilities are presently subject to the GHG reporting rule, which obligates us to report annual emissions of GHGs. The EPA also finalized a rule in 2010 requiring a new facility that is a major source of GHGs to install equipment or employ BACT procedures. In 2014, the Supreme Court issued an opinion holding that although EPA may not treat GHGs as a pollutant for the purpose of determining whether a source must obtain a PSD or Title V permit, EPA may continue to require GHG limitations in permits for sources classified as major based on their emission of other pollutants. Currently there is little information as to what may constitute BACT for GHG in most industries. Under this rule, certain modifications to our facilities could subject us to the additional permitting and other obligations related to emissions of GHGs under the New Source Review/Prevention of Significant Deterioration ("NSR/PSD") and Title V programs of the CAA based on whether the facility triggered NSR/PSD because of emissions of another pollutant such as SO2, NOx, PM, ozone or lead.
◦The EPA has engaged in rulemakings in recent years to regulate GHG emissions from existing and new coal fired power plants. These various rules were vacated and/or determined to exceed EPA's authority by the U.S. Court of Appeals for the District of Columbia and the United States Supreme
Environmental MattersCourt. If EPA replaces these rules with a new rule that applies to our facilities, it may present a potential risk of having an impact on our operations and Compliancecost structure.
Our failure◦The impact current and future GHG-related legislation and regulations have on us will depend on a number of factors, including whether GHG sources in multiple sectors of the economy are regulated, whether an overall GHG emissions cap level is established, the degree to complywhich GHG offsets are allowed, the allocation of emission allowances to specific sources, and actions by the states in implementing these requirements. Any new GHG reduction laws or regulations that apply to us will likely require us to incur increased operating and capital costs and/or increased taxes for GHG emissions. We may not recover the costs related to compliance with the aforementionedregulatory requirements may resultimposed on us from our customers due to limitations in the assessment of administrative, civil and criminal penalties, theour agreements. The imposition of clean-upa carbon tax or similar regulation could materially and site restoration costsadversely affect our revenues. Collectively, these requirements along with restrictions and liens,requirements regarding the issuancemining of injunctionsall types of coal may reduce the volumes of coal that we manage and may adversely impact our revenues.
◦The Securities and Exchange Commission ("SEC") intends to limitfinalize new climate rules that, among other matters, will likely require disclosure of certain climate change-related information. We expect that our operations will be subject to this disclosure rule. However, we cannot predict what such rules may require, the timing of such rules and how significantly they will affect the Company.
•Occupational Safety and Health ACT (OSH Act). Our facilities are subject to regulation by OSHA or cease operations,MSHA under the suspension or revocation of permitsOSH Act and other enforcement measuresagencies with standards designed to ensure worker safety. These standards impose minimum requirements for our operations to maintain and operate sites and equipment in a safe manner. As noted above, we have consistently operated within the top quartiles for OSHA’s recordable injury rates as measured and reported by the American Coke and Coal Chemicals Institute.
•Security. CMT is subject to regulation by the U.S. Coast Guard pursuant to the Maritime Transportation Security Act. We have an internal inspection program designed to monitor and ensure compliance by CMT with these requirements. We believe that could havewe are in material compliance with all applicable laws and regulations regarding the effect of limiting production from our operations. Please see Note 13 to our consolidated financial statements for a discussionsecurity of the Noticesfacility.
•Black Lung Benefits Revenue Act of Violation ("NOVs") issued by the EPA1977 and state regulators for our Haverhill, Granite City,Black Lung Benefits Reform Act of 1977, as amended in 1981. Under these laws, U.S. coal mine operators must pay federal black lung benefits and Indiana Harbor cokemaking facilities.
Many other legal and administrative proceedingsmedical expenses to claimants who are pending or may be brought against us arising out of our current and past operations, including mattersformer employees and last worked for the operator after July 1, 1973. The Patient Protection and Affordable Care Act (“PPACA”), which was implemented in 2010, amended previous legislation and provides for the automatic extension of awarded lifetime benefits to surviving spouses and changes the legal criteria used to assess and award claims. SunCoke is not an active coal mine operator and does not perform or oversee coal mining. However, SunCoke has retained certain black lung liabilities associated with legacy coal operations. Our obligation related to commercial and tax disputes, product liability, antitrust, employment claims, natural resource damage claims, premises-liability claims, allegations of exposures of third-parties to toxic substances 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. Management of the Company believes that any liability which may arise from such matters would not be material in relation to the financial position, results of operations or cash flows of the Companyblack lung benefits at December 31, 2017.
IRS Final Regulations on Qualifying Income
Section 7704 of the Internal Revenue Code (the "Code") provides that a publicly-traded partnership will be treated as a corporation for federal income tax purposes. However, if 90 percent or more of a partnership’s gross income for every taxable year it is publicly-traded consists of “qualifying income,” the publicly-traded partnership may continue to be treated as a partnership for federal income tax purposes.
At the time of the Partnership’s initial public offering, in January 2013, the Partnership believed,2022 was $58.1 million and received a legal opinion to the effect, that income from its cokemaking operations would be treated as generating qualifying income under the Code. The Company and counsel believed at the time that this view was estimated based on the correct interpretationvarious assumptions, including actuarial estimates, discount rates, number of the Codeactive claims, changes in health care costs and the legislative historyimpact of the relevant Code section, and since that time continued to believe that income from its cokemaking operations is qualifying income. PPACA.
On January 19, 2017, the Treasury Department and the Internal Revenue Service ("IRS") issued qualifying income regulations (the "Final Regulations") on the treatment of income from natural resource activities of publicly traded partnerships as qualifying income for purposes of the Code. The Final Regulations were published in the Federal Register on January 24, 2017, and apply to taxable years beginning after January 19, 2017. Under the Final Regulations, the Partnership’s cokemaking operations have been excluded from the definition of activities that generate qualifying income.
The Final Regulations provide that if a partnership’s income from non-qualifying operations “was qualifying income under the statute as reasonably interpreted,” then that partnership will have a transition period ending on the last day of the partnership’s taxable year that included the date that is ten years after the date the Final Regulations are published in the Federal Register (i.e., December 31, 2027), during which it can treat income from such activities as qualifying income. After conferring with outside counsel, the Partnership and we are of the view that its interpretation was reasonable in concluding that the Partnership’s income from cokemaking was qualifying income, and that the Partnership will benefit from the ten-year transition period. Subsequent to the transition period, certain cokemaking entities in the Partnership will become taxable as corporations. Also see “Part I. Item 1A. Risk Factors" and Note 5 to our consolidated financial statements.
The present federal income tax treatment of publicly traded partnerships, including the Partnership, or an investment in its common units, may be modified by administrative, legislative or judicial interpretation at any time. Any
modification to the federal income tax laws and interpretations thereof may or may not be applied retroactively. Moreover, any such modification could make it more difficult or impossible for the Partnership to meet the exception which allows publicly traded partnerships that generate qualifying income to be treated as partnerships (rather than corporations) for U.S. federal income tax purposes, affect or cause us to change our business activities, or affect the tax consequences of an investment in its common units. For example, as discussed above, on January 24, 2017, Final Regulations were published in the Federal Register and apply to taxable years beginning on or after January 19, 2017. The Final Regulations will likely affect the Partnership’s ability to continue to qualify as a publicly traded partnership.
Available Information
We make available free of charge on our website, www.suncoke.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K and any amendments to such reports as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SecuritiesSEC. The SEC maintains an Internet site (www.sec.gov) that contains our electronically filed information. Our website also includes our Code of Business Conduct and Exchange Commission ("SEC").Ethics, our Governance Guidelines, our Related Persons Transaction Policy and the charters of our Board Committees.
A copy of any of these documents will be provided without charge upon written request to Investor Relations, SunCoke Energy, Inc., 1011 Warrenville Road, Suite 600, Lisle, Illinois 60532. The Company may also use its website as a channel of distribution of material company information. Investors may visit www.suncoke.com to find more information. However, the Company's website is expressly not incorporated by reference herein.
Information about our Executive Officers of the Registrant
Our executive officers and their ages as of February 15, 2018,24, 2023, were as follows:
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| | | | | | | | | | | | | |
Name | Age | Position |
| Michael G. Rippey | 6065 | President and Chief Executive Officer | | |
Fay WestKatherine T. Gates | 4846 | President | | |
| Mark W. Marinko | 61 | Senior Vice President and Chief Financial Officer | | |
Katherine T. Gates | 41 | Senior Vice President, General Counsel and Chief Compliance Officer |
| P. Michael Hardesty | 5560 | Senior Vice President, Commercial Operations, Business Development, Terminals and International Coke | | |
Allison S. LausasBonnie M. Edeus | 3839 | Vice President, Controller | | |
| Shantanu Agrawal | 36 | Vice President, Finance and ControllerTreasurer | | |
Gary P. YeawJohn F. Quanci | 6061 | Senior Vice President, of Human ResourcesChief Technology Officer | | |
| Patrick G. Nigl | 56 | Vice President, Coke Operations | | |
Michael G. Rippey. Since January 1, 2023. Mr. Rippey was appointed President andhas been Chief Executive Officer of SunCoke Energy, Inc., focusing on December 1, 2017. Also on December 1, 2017, Mr. Rippeystrategic objectives and growth initiatives for the company. Prior to that, he was named President and Chief Executive Officer and President since December 1, 2017. He has been a director of SunCoke’s Board of Directors since December 2017. At that time, he also was appointed as Chairman, of the BoardChief Executive Officer and President of SunCoke Energy Partners GP LLC.LLC, the general partner of SunCoke Energy Partners, L.P., our former sponsored master limited partnership. Prior to joining SunCoke, Energy, Inc., heMr. Rippey served as Senior Advisor to Nippon Steel & Sumitomo Metal Corporation (a leading global steelmaker), since 2015. From 2014 to 2015, he served aswas Chairman of the Board of ArcelorMittal USA LLC (a major domestic steel manufacturer), and from August 2006 through October 2014, he was ArcelorMittal USA LLC’sUSA’s President and Chief Executive Officer. Prior to that, he successfully rose through progressively responsible financial, commercial and administrative leadership roles at ArcelorMittal USA and its predecessor companies: (i) from 2005 to 2006, he was Executive Vice President, Sales and Marketing at Mittal Steel USA; (ii) from 2000 to 2005, he was Executive Vice President and Chief Financial Officer at lspat Inland Inc.; and (iii) from 1998 to 2000, he served as Vice President, Finance and Chief Financial Officer of Ispat Inland Inc. He began his career with Inland Steel Company (a predecessor to ArcelorMittal USA) in 1984. Mr. Rippey currently serves on the Board of Directors of Olympic Steel, Inc. (NASDAQ: ZEUS), a $1.1 billion steel[NASDAQ: ZEUS] (a leading U.S. metals service center headquartered in Ohio,center), where he is a member of the Nominating Committee the Compensation Committee, and serves as Chair of the Audit and Compliance Committee. In addition to ArcelorMittal USA, Mr. Rippey’s previous board service also includes the National Association of Manufacturers and the American Iron & Steel Institute, where he was a past Chairman of the Board.
Fay West.Katherine T. Gates. Ms. WestGates was appointed as Senior Viceelected President and Chief Financial Officer of SunCoke Energy, Inc. in October 2014. Prior to that time, she served as Vice President, and Controller of SunCoke Energy, Inc. since February 2011. In addition, Ms. West was named Vice President and Controller and appointed to the Board of Directors of SunCoke Energy Partners GP LLC, the general partner of SunCoke Energy Partners, L.P. in July 2012. Prior to joining SunCoke Energy, Inc., she was Assistant Controller at United Continental Holdings, Inc. (an airline holding company) from April 2010 to January 2011. She was Vice President, Accounting and Financial Reporting for PepsiAmericas, Inc. (a manufacturer and distributor of beverage products) from December 2006 through March 2010 and Director of Financial Reporting from December 2005 to December 2006. Ms. West is a director of Quaker Chemical Corporation (a leading manufacturer and supplier of process fluids and specialty chemicals) where she also serves as a member of its Audit Committee.
Katherine T. Gates. Ms. Gates was appointed Senior Vice President, General Counsel and Chief Compliance Officer, effective October 22, 2015. At that time, she also was appointed as a Directordirector on SunCoke’s Board of SunCoke Energy Partners GP, LLC.Directors, effective January 1, 2023.Prior to that, she was Senior Vice President, Chief Legal Officer and Chief Human Resource Officer since November 14, 2019. In both of these roles Ms. Gates led the Company’s environmental and sustainability function, including all Environmental, Social, and Governance matters. Ms. Gates joined SunCoke in February 2013 as Senior Health, Environment and Safety Counsel. She was promoted to Vice President and Assistant General Counsel in July 2014, where she focused on litigation, regulatory and commercial matters. Ms. Gates has been practicing law for two decades, and began her legal career in private practice as a Partner at Beveridge & Diamond, P.C.She served on the firm’s Management Committee, where she addressed budget, compensation, commercial, and other issues. Ms. Gates also co-chaired the civil litigation section of the firm’s Litigation Practice Group. In addition, from October 2015 through June 2019, Ms. Gates served as a director of SunCoke Energy Partners GP LLC, the general partner of our former master limited partnership subsidiary SunCoke Energy Partners, L.P.
We believe that Ms. Gates’ legal knowledge and skill, along with experience with SunCoke’s operations and Human Resources management, provides the Board of Directors with valuable expertise regarding senior level strategic planning and relevant legal matters, including those related to corporate governance, litigation, health, environment, safety, mergers, acquisitions, compliance and commercial matters.
Mark W. Marinko. Mr. Marinko was appointed as SunCoke Energy, Inc.’s Senior Vice President and Chief Financial Officer in March 2022. Prior to joining SunCoke, Mr. Marinko served as the Senior Vice President and Chief Financial Officer with Great Lakes Dredge and Dock Corporation (the largest dredging company within the United States). Prior to joining Great Lakes Dredge & Dock Corporation, Mr. Marinko was President of the Consumer Services division at TransUnion, LLC, a global provider of information and decision-processing services.
P. Michael Hardesty.Mr. Hardesty was appointed Senior Vice President, Commercial Operations, Business Development, Terminals and International Coke of SunCoke Energy, Inc., effective October 1, 2015. At that time, he also
was appointed as a Director of SunCoke Energy Partners GP, LLC. Mr. Hardesty joined SunCoke Energy, Inc. in 2011 as Senior Vice President, Sales and Commercial Operations, and has more than 30 years of
experience in the mining industry. Before joining SunCoke, Mr. Hardesty served as Senior Vice President for International Coal Group, Inc. (“ICG”), where he was responsible for leading the sales and marketing functions and was a key member of the executive management team. Prior to ICG, Mr. Hardesty served as Vice President of Commercial Optimization at Arch Coal, where he developed and executed trade strategies, optimized production output and directed coal purchasing activities. He is a past board member and Secretary-Treasurer of the Putnam County Development Authority in West Virginia. In addition, from October 2015 through June 2019, Mr. Hardesty served as a director of SunCoke Energy Partners GP LLC, the general partner of SunCoke Energy Partners, L.P., our former master limited partnership subsidiary.
Allison S. Lausas. Bonnie M. Edeus. Ms. LausasEdeus was appointed as SunCoke Energy, Inc.’s Vice President and Controller in July 2021. Ms. Edeus joined the Company in 2013 and has assumed increasing responsibility within financial leadership roles, most recently serving as Assistant Controller since January 2016. Ms. Edeus is a Certified Public Accountant and holds a Master’s degree in Accounting from Northern Illinois University. Prior to coming to the Company, Ms. Edeus worked in assurance services for BDO USA, LLP, the United States member firm of BDO International, a major global public accounting network, which she joined in 2007.
Shantanu Agrawal.Mr. Agrawal was appointed Vice President, Finance and ControllerTreasurer of both SunCoke Energy, Inc. in July, 2021 and subsequently also assumed responsibility for the Procurement function in January, 2023. Prior to that he was Director, Financial Performance & Analysis (“FP&A”) and Investor Relations. Mr. Agrawal began his career with SunCoke Energy Partners GP LLC,as an FP&A Analyst in October 2014. Ms. LausasHe has been with SunCoke for more than eight years and has increasingly taken on more responsibilities and oversight over that period. Mr. Agrawal is an accomplished finance executive with a rich mix of finance, operations and strategic planning. In his current roles, Mr. Agrawal has led the Company’s finance function, including budgeting, forecasting, financial analysis, cash management, investor relations and procurement.
John F. Quanci. Dr. John F. Quanci joined SunCoke Energy, Inc. in 2011October, 2010, and most recently held the role of Assistant Controller.was appointed to his current position as Vice President, Chief Technology Officer in May 2019. Prior to joining SunCoke, Energy,Dr. Quanci was Director, Corporate Technology of Sunoco, Inc., she worked as an auditor at KPMG LLP, an audit, advisory (a leading transportation fuel provider with interests in logistics). Dr. Quanci has over 30 years of domestic and tax services firm,international experience in process research, development, plant optimization, manufacturing, rebuilding/turnarounds, and taking new technologies from 2002ideation to 2011, where she servedfull production. Over the course of his career, Dr. Quanci has managed several major engineering and technology organizations both publicinternal and private corporationsexternal to the petroleum industry, including those of: Mobil Research, Mobil Oil, BP/Mobil, Exxon/Mobil, Rodel and Rohm and Haas Electronic Materials (now DuPont Electronic Materials). Dr. Quanci holds a Ph.D. in the consumerChemical Engineering from Princeton University and industrial markets.is a registered Professional Engineer with over one hundred U.S. and international patents and patent applications.
Gary P. Yeaw. Patrick G. Nigl. Mr. YeawNigl was appointed Senioras SunCoke Energy, Inc.’s Vice President, Human Resources of SunCoke Energy, Inc. on November 1, 2015.Coke Operations in January 2022. Prior to that, he served as General Manager at the Company’s Indiana Harbor cokemaking operations, located in East Chicago, Indiana, from September 2015. From March 2015 to September 2015, he was Vice President, Human Resources.Operations Manager at the Indiana Harbor facility. Since joining SunCoke in February 2011, as Maintenance Manager at the Company’s Haverhill, Ohio cokemaking facility, Mr. Yeaw leadsNigl has progressed into leadership and oversight roles for the human resources function at SunCoke Energy, Inc., and is responsible for key organizational activities.Company’s domestic cokemaking operations. Prior to joining SunCoke, Energy, Inc.Mr. Nigl was Machining General Manager at DMAX Ltd., he was Executive Vice President, Human Resources and Communicationsan American manufacturer of diesel engines for Chemtura Corporation. Mr. Yeaw also served as Vice President, Human Resources for American Standard Companies, as well as Vice President, Human Resources Operational Excellence in charge of global benefit programs, labor relations, HR systems and employee services. Mr. Yeaw holds professional designations as a Senior Human Resources Professional, Certified Compensation Professional and was a charter member of the International Society of Employee Benefits Specialists.heavy-duty trucks.
Item 1A.Risk Factors
In addition to the other information included in this Annual Report on Form 10-K and in our other filings with the SEC, the following risk factors should be considered in evaluating our business and future prospects. These risk factors represent what we believe to be the known material risk factors with respect to us and our business. Our business, operating results, cash flows and financial condition are subject to these risks and uncertainties, any of which could cause actual results to vary materially from recent results or from anticipated future results.
These risks are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, or results of operations.
Risks Inherent in Our Business and Industry
Sustained uncertainty in financial markets, or unfavorable economic conditions in the industries in which our customers operate, may lead to a reduction in the demand for our products and services, and adversely impact our cash flows, financial position or results of operations.
Sustained volatility and disruption in worldwide capital and credit markets in the U.S. and globally could restrict our ability to access the capital market at a time when we would like, or need, to raise capital for our business including for potential acquisitions, or other growth opportunities.
Deteriorating or unfavorable economic conditions in the industries in which our customers operate, such as steelmaking and electric power generation, may lead to reduced demand for steel products, coal, and other bulk commodities which, in turn, could adversely affect the demand for our products and services and negatively impact the revenues, margins and profitability of our business.
Additionally, the tightening of credit, or lack of credit availability to our customers, could adversely affect our ability to collect our trade receivables. We also are exposed to the credit risk of our cokeOur cokemaking and logistics customers, and any significant unanticipated deteriorationbusinesses are subject to operating risks, some of their creditworthiness and resulting increase in nonpayment or nonperformance by them could have a material adverse effect on the cash flows and/or results ofwhich are beyond our operations.
Adverse developments at our cokemaking and/or logistics operations, including equipmentcontrol. Equipment failures or deterioration of assets, may lead to production curtailments, shutdowns, impairments, or additional expenditures, which could have a material adverse effect on our results of operations.operations and financial condition.
OurFactors beyond our control could disrupt our cokemaking and logistics operations, are subjectadversely affect our ability to significant hazardsservice the needs of our customers and risks that include, but are not limited to, equipment malfunction, explosions, fires and the effects of severe weather conditions and extreme temperatures, anyincrease our operating costs, all of which could result in productionhave a material and transportation difficulties and disruptions, permit non-compliance, pollution, personal injury or wrongful death claims and other damage to adverse effect on
our properties and the propertyresults of others.
operations.Adverse developments at our cokemaking facilities could significantly disrupt our coke, steam and/or electricity production and our ability to produce and supply coke, steam, and/or electricity to our customers.Adverse developments at our logistics operations could significantly disrupt our ability to provide handling, mixing, storage, terminalling, transloading and/or transportation services, of coal and other dry and liquid bulk commodities, to our customers. Any sustained disruption at our cokemaking and/or logistics operations could have a material adverse effect on our results of operations.
There is a risk of mechanical failure of our equipment both in the normal course of operations and following unforeseen events. Our cokemaking and logistics operations depend upon critical pieces of equipment that occasionally may be out of service for scheduled upgrades or maintenance or as a result of unanticipated failures.Assets and equipment critical to these operations also may deteriorate or become depleted materially sooner than we currently estimate, resulting in additional maintenance spending or additional replacement capital expenditures.
Our facilitiescokemaking and logistics operations are subject to significant hazards and risks, any of which could result in production and transportation difficulties and disruptions, equipment failures and the risk of catastrophic loss, duepermit non-compliance, pollution, personal injury or wrongful death claims and other damage to unanticipated eventsour properties and the property of others.Such hazards and risks include, but are not limited to:
•geological, hydrologic, or other conditions that may cause damage to infrastructure or personnel;
•fire, explosion, or other major incident causing injury to personnel and/or equipment that causes a cessation, or significant curtailment, of all or part of our cokemaking or logistics operations at a site for a period of time;
•processing and plant equipment failures or malfunction, operating hazards and unexpected maintenance problems affecting our cokemaking or logistics operations, or our customers;
•adverse weather conditions and natural disasters, such as fires, accidentssevere winds, heavy rains or violent weathersnow, flooding, extreme temperatures and other natural events, including those resulting from climate change, affecting our cokemaking or logistics operations, transportation, or our customers; and
•possible legal challenges to the renewal of key permits, which may lead to their renewal on terms that restrict our cokemaking or logistics operations, or impose additional costs on us.
If any of these conditions or extreme temperatures. As a result,events occur, our cokemaking or logistics operations may be disrupted, operating costs could increase significantly and we may experience interruptionscould incur substantial losses.Such disruptions in our processingoperations could materially and production capabilities, which could have a material adverse effect onadversely affect our financial condition or results of operations and financial condition. operations. In particular, to the extent a disruption leads to our failure to maintain the temperature inside our coke oven batteries, we may not be able to maintain the integrity of the ovens or to continue operation of such coke ovens, which could adversely affect our ability to meet our customers’ requirements for coke and, in some cases, electricity and/or steam.
Assets and equipment critical to the operations ofIf our cokemaking and logistics operations also may deteriorate or become depleted materially sooner than we currently estimate. Such deterioration of assets may result in additional maintenance spending or additional capital expenditures. If these assets do not generate the amount of future cash flows that we expect, andor we are not able to execute on capital maintenance or procure replacement assets in an economically feasible manner, our future results of operations may be materially and adversely affected.
Impairment in the carrying value of long-lived assets and goodwill could adversely affect our business and results of operations.
We have a significant amount of long-lived assets and goodwill on our Consolidated Balance Sheets. Under generally accepted accounting principles, long-lived assets must be reviewed for impairment whenever adverse events or changes in circumstances indicate a possible impairment. We are required to perform impairment tests on our assets whenever events or changes in circumstances lead to a reduction of the estimated useful life or estimated future cash flows that would indicate that the carrying amount may not be recoverable or whenever management’s plans change with respect to those assets.
If business conditions or other factors cause profitability and cash flows to decline, we may be required to record non-cash impairment charges. Goodwill must be evaluated for impairment annually or more frequently if events indicate it is warranted. If the carrying value of our reporting units exceeds their current fair value as determined based on the discounted future cash flows of the related business, the goodwill is considered impaired and is reduced to fair value by a non-cash charge to earnings.
Events and conditions that could result in impairment in the value of our long-lived assets and goodwill include: the impact of a downturn in the global economy, competition, advances in technology, adverse changes in the regulatory environment, and other factors leading to a reduction in expected long-term sales or profitability, or a significant decline in the trading price of our common stock or market capitalization, lower future cash flows, slower industry growth rates and other changes in the industries in which we or our customers operate.
The financial performance of our cokemaking and logistics businesses is substantially dependent upon a limited number of customers, and the loss of any of these customers, or any failure by them to perform under their contracts with us, could materially and adversely affect our financial condition, permit compliance, results of operations and cash flows.
Substantially all of our coke sales currently are made pursuant to long-term contracts with AM USA, U.S.Cliffs Steel and AK Steel, and weU.S. Steel. We expect these three customers to continue to account for a significant portion of our revenues for the foreseeable future. In our logistics business, a significant portion of our revenues and cash flows are derived from long-term contracts with Foresight Energy LLC and Murray American Coal, Inc. at CMT, and we expect these two customers to continue to account for a significant portion of the revenues of our logistics business for the foreseeable future.
We are subject to the credit risk of our major customers and other parties.If we fail to adequately assess the creditworthiness of existing or future customers or unanticipated deterioration of their creditworthiness, any resulting increase in nonpayment or nonperformance by them could have a material adverse effect on our cash flows, financial position or results of operations.During periods of weak demand for steel or coal, our customers may experience significant reductions in their operations, or substantial declines in the prices of the steel, or coal products, they sell.These and other factors such as labor relations or bankruptcy filings may lead certain of our customers to seek renegotiation or cancellation of their existing contractual commitments to us, or reduce their utilization of our services.
The loss of any of these customers (or financial difficulties at any of these customers, which result in nonpayment or nonperformance) could have a significant adverse effect on our business.If one or more of these customers were to significantly reduce its purchases of coke or logistics services from us without a make-whole payment, or default on their agreements with us, or terminate or fail to renew their agreements with us, or if we were unable to sell such coke or logistics
services to these customers on terms as favorable to us as the terms under our current agreements, our cash flows, financial position, permit compliance, or results of operations could be materially and adversely affected.
Our cokemaking and logistics businesses are subject to operating risks, some of which are beyond our control, that could result in a material increase in our operating expenses.
Factors beyond our control could disrupt our cokemaking and logistics operations, adversely affect our ability to service the needs of our customers, and increase our operating costs, all of which could have a material adverse effect on our results of operations. Such factors could include:
geological, hydrologic, or other conditions that may cause damage to infrastructure or personnel;
fire, explosion, or other major incident causing injury to personnel and/or equipment, that causes a cessation, or significant curtailment, of all or part of our cokemaking or logics operations at a site for a period of time;
processing and plant equipment failures, operating hazards and unexpected maintenance problems affecting our cokemaking or logistics operations, or our customers;
adverse weather and natural disasters, such as severe winds, heavy rains or snow, flooding, extreme temperatures and other natural events affecting our cokemaking or logistics operations, transportation, or our customers; and
possible legal challenges to the renewal of key permits, which may lead to their renewal on terms that restrict our cokemaking or logistics operations, or impose additional costs on us.
If any of these conditions or events occur, our cokemaking or logistics operations may be disrupted, operating costs could increase significantly, and we could incur substantial losses. Such disruptions in our operations could materially and adversely affect our financial condition, or results of operations.
We face competition, both in our cokemaking operations and in our logistics business, which has the potential to reduce demand for our products and services, and that could have an adverse effect on our financial condition and results of operations.
We face competition, both in our cokemaking operations and in our logistics business:
•Cokemaking operations: Historically, coke has been used as a main input in the production of steel in blast furnaces. However, some blast furnace operators have relied upon natural gas, or pulverized coal, and the use of theseand/or other coke substitutes may increase in the future, particularly in light of current low natural gas prices.substitutes. Many steelmakers also are exploring alternatives to blast furnace technology that require less or no use of coke.coke or alternatives that reduce the amount of GHG emissions from the process. For example, electric arc furnace technology is a commercially proven process widely used in the U.S.United States. As these alternative processes for production of steel become more widespread, the demand for blast furnace coke, including the coke we produce, may be significantly reduced. We also face competition from alternative cokemaking technologies, including both by-product and heat recovery technologies. As these technologies improve and as new technologies are developed, competition in the cokemaking industry may intensify. As alternative processes for production of steel become more widespread, the demand for blast furnace coke, including the coke we produce, may be significantly reduced.
•Logistics business: Decreased throughput and utilization of our logistics assets could result indirectly due to competition in the electrical power generation business from abundant and relatively inexpensive supplies of natural gas displacing thermal coal as a fuel for electrical power generation by utility companies. In addition, competition in the steel industry from processes such as electric arc furnaces, or blast furnace injection of pulverized coal or natural gas, may reduce the demand for metallurgical coals processed through our logistics facilities. In the future, additional coal handling facilities and terminals with rail and/or barge access may be constructed in the Eastern U.S.United States. Such additional facilities could compete directly with us in specific markets now served by our logistics business. Certain coal mining companies and independent terminal operators in some areas may compete directly with our logistics facilities. In some markets, trucks may competitively deliver mined coal to certain shorter-haul destinations, resulting in reduced utilization of existing terminal capacity.
Such competition could have a materialreduce demand for our products and services, thus having an adverse effect on our financial condition and results of operations and therefore our ability to distribute cash to unitholders.
operations.
We are subject to extensive laws and regulations, which may increase our cost of doing business and have an adverse effect on our cash flows, financial position or results of operations.
Our operations are subject to strict regulation by federal, state and local authorities with respect to: discharges of substances into the surrounding environment including the air, water and water;ground; emissions of greenhouse gases, or GHG,GHGs; compliance with the NAAQS,NAAQS; management and disposal of hazardous substances and wastes,wastes; cleanup of contaminated sites,sites; protection of groundwater quality and availability,availability; protection of plants and wildlife,wildlife; reclamation and restoration of properties after completion of mining or drilling,drilling; sales of electric power; installation of safety equipment in our facilities,facilities; and protection of employee health and safety. Complying with these and other regulatory requirements, including the terms of our permits, can be costly and time-consuming, and may hinder operations. In addition, these requirements are complex, change frequently and have become more stringent over time. Regulatory requirements, including those related to GHGs, and various CAA programs, may change in the future in a manner that could result in substantially increased capital, operating and compliance costs, andwhich could have a material adverse effect on our business.business, financial condition and results of operations.
Failure to comply with applicable laws, regulations or permits may result in the assessment of administrative, civil and criminal penalties, the imposition of cleanup and site restoration costs and liens, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits and other enforcement measures that could cause delays in permitting or development of projects or materially limit, or increase the cost of, our operations. We may not have been, or may not be, at all times, in complete compliance with all such requirements, and we may incur material costs or liabilities in connection with such requirements, or in connection with remediation at sites we own, or third-party sites where it has been alleged that we have liability, in excess of the amounts we have accrued. For a description of certain environmental laws and matters applicable to us and associated risks, see “Item 1. Business-Legal and Regulatory Requirements.”
Our operations may impact the environment or cause exposure to hazardous substances, which could result in material liabilities to us.
Our operations result in emissions of various substances to the air, including GHGs, use hazardous materials, and generate solid and hazardous waste. We have in the past and could in the future be subject to claims under federal, state and local laws and regulations arising from these activities, including for the investigation and clean-up of soil, surface water, or groundwater.We previously have been and could again in the future be subject to litigation for alleged bodily injuries or property damage arising from claimed exposure to emissions or hazardous substances allegedly used, released, or disposed of by us, as well as litigation related to climate change by governments, private entities, or individuals. Although we make every effort to avoid litigation, these matters are not totally within our control. We will contest these matters vigorously and have made insurance claims where appropriate, but because of the Tax Cutsuncertain nature of litigation and Jobs Act could be materially differentcoverage decisions, we cannot predict the outcome of these matters. Environmental impacts resulting from our current estimates.
The Tax Cutsoperations, including exposures to emissions, hazardous substances, or wastes associated with our operations, could result in costs and Jobs Act (“Tax Legislation”) was signed into law on December 22, 2017. The new law made numerous changes to U.S. federal corporate tax lawliabilities that could adversely impact our financial condition and is expected to reduce our effective tax rate for fiscal year 2018 and future periods. Effective January 1, 2018, the Tax Legislation lowers the U.S. corporate tax rate from 35 percent to 21 percent and prompts various other changes to U.S. federal corporate tax law, including the establishmentresults of a territorial-style system for taxing foreign-source income of domestic multinational corporations. The tax benefit recorded in 2017 involves significant judgment and assumptions as to the impact of the Tax Legislation. Our estimated impact of the new law is based on management's current knowledge and assumptions. Recognized impacts could be materially different from current estimates based on our actual results in fiscal year 2018 and our further analysis of the new law. Because we are in the process of quantifying the impact of the Tax Legislation, we expect to record any adjustments in the next year in accordance with the guidance provided in the SEC Staff Accounting Bulletin No. 118. These adjustments could be material. The full impact of the Tax Legislation on our business, operations, and financial statements cannot be predicted at this time and we make no assurances in this regard. See Note 5 to the consolidated financial statements. operations.
We may be unable to obtain, maintain or renew permits or leases necessary for our operations, which could materially reduce our production, cash flows or profitability.
Our cokemaking and logistics operations require us to obtain a number of permits that impose strict regulations on various environmental and operational matters. These, as well as our facilities and operations (including our generation of electricity), require permits issued by various federal, state and local agencies and regulatory bodies. The permitting rules, and the interpretations of these rules, are complex, change frequently, and are often subject to discretionary interpretations by our regulators, all of which may make compliance more costly, difficult or impractical, and may possibly preclude the continuance of ongoing operations or the development of future cokemaking and/or logistics facilities. Non-governmental organizations, environmental groups and individuals have certain rights to engage in the permitting process, and may comment upon, or object to, the requested permits. Such persons also have the right to bring citizen’s lawsuits to challenge the issuance of permits, or the validity of environmental impact statements related thereto. If any permits or leases are not issued or renewed in a timely fashion or at all, or if permits issued or renewed are conditioned in a manner that restricts our ability to efficiently and economically conduct our operations, our cash flows or profitability could be materially and adversely affected.
We may incur costs and liabilities resulting from claims for damages to property or injury to persons arising from our operations, and such costs and liabilities could have a material and adverse effect on our financial condition or results of operations
Our success depends, in part, on the quality, efficacy and safety of our products and services. If our operations do not meet applicable safety standards, or our products or services are found to be unsafe, our relationships with customers could suffer and we could lose business or become subject to liability or claims. In addition, our cokemaking and logistics operations have inherent safety risks that may give rise to events resulting in death, injury, or property loss to employees,
customers, or unaffiliated third parties. Depending upon the nature and severity of such events, we could be exposed to significant financial loss, reputational damage, potential civil or criminal government or other regulatory enforcement actions, or private litigation, the settlement or outcome of which could have a material and adverse effect on our financial condition or results of operations.
Our businesses are subject to inherent risks, some for which we maintain third party insurance and some for which we self-insure. We may incur losses and be subject to liability claims that could have a material adverse effect on our financial condition, results of operations or cash flows.
We maintain insurance policies that provide limited coverage for some, but not all, potential risks and liabilities associated with our business. We may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially, and in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. As a result, we may not be able to renew our existing insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. In addition, certain risks, such as certain environmental and pollution risks, and certain cybersecurity risks, generally are not fully insurable. We must compensate employees for work-related injuries. If we do not make adequate provision for our workers' compensation liabilities, or we are pursued for applicable sanctions, costs, and liabilities, our operations and our profitability could be adversely affected. Even where insurance coverage applies, insurers may contest their obligations to make payments. Our financial condition, results of operations and cash flows could be materially and adversely affected by losses and liabilities from un-insured or under-insured events, as well as by delays in the payment of insurance proceeds, or the failure by insurers to make payments.
Divestitures and other significant transactions may adversely affect our business. In particular, if we are unable to realize the anticipated benefits from such transactions, or are unable to conclude such transactions upon favorable terms, our financial condition, results of operations or cash flows could be adversely affected.
We regularly review strategic opportunities to further our business objectives, and may eliminate assets that do not meet our return-on-investment criteria. If we are unable to complete such divestitures or other transactions upon favorable terms, or in a timely manner, or if the market conditions assumed in our project economics deteriorate, our financial condition, results of operations or cash flows could be adversely affected.
The anticipated benefits of divestitures and other strategic transactions may not be realized, or may be realized more slowly than we expected. Such transactions also could result in a number of financial consequences having a material effect on our results of operations and our financial position, including reduced cash balances; higher fixed expenses; the incurrence of debt and contingent liabilities (including indemnification obligations); restructuring charges; loss of customers, suppliers, distributors, licensors or employees; legal, accounting and advisory fees; and impairment charges.
We may not be able to successfully implement our growth strategies or plans, and we may experience significant risks associated with future acquisitions, investments and/or investments.divestitures. If we are unable to execute our strategic plans, whether as a result of unfavorable market conditions in the industries in which our customers operate, or otherwise, our future results of operations could be materially and adversely affected.
A portion of our strategy to grow our business is dependent upon our ability to acquire and operate new assets that result in an increase in our earnings per share.earnings. We may not derive the financial returns we expect on our investment in such additional assets or such operations may not be profitable. We cannot predict the effect that any failed expansion may have on our core businesses. The success of our future acquisitions and/or investments will depend substantially on the accuracy of our analysis concerning such businesses and our ability to complete such acquisitions or investments on favorable terms, as well as to finance such acquisitions or investments and to integrate the acquired operations successfully with existing operations. Risks associated with acquisitions include the diversion of management’s attention from other business concerns, the
potential loss of key employees and customers of the acquired business, the possible assumption of unknown liabilities, potential disputes with the sellers, and the inherent risks in entering markets or lines of business in which we have limited or no prior experience. Antitrust and other laws may prevent us from completing acquisitions. If we are not able to execute our strategic plans effectively, or successfully integrate new operations, whether as a result of unfavorable market conditions in the industries in which our customers operate, or otherwise, our business reputation could suffer and future results of operations could be materially and adversely affected.
We may experience significant risks associated with future acquisitions and/or investments.
The success of our future acquisitions and/or investments will depend substantially on the accuracy of our analysis concerning such businesses and our ability to complete such acquisitions or investments on favorable terms, as well as to finance such acquisitions or investments and to integrate the acquired operations successfully with existing operations. Antitrust and other laws may prevent us from completing acquisitions. If we are unable to integrate new operations successfully, our financial results and business reputation could suffer.
Risks associated with acquisitions include the diversion of management’s attention from other business concerns, the potential loss of key employees and customers of the acquired business, the possible assumption of unknown liabilities, potential disputes with the sellers, and the inherent risks in entering markets or lines of business in which we have limited or no prior experience. Additionally, inIn the event we form joint ventures or other similar arrangements, we must pay close attention to the organizational formalities and time-consuming procedures for sharing information and making decisions. We may share ownership and management with other parties who may not have the same goals, strategies, priorities, or resources as we do. The benefits from a successful investment in an existing entity or joint venture will be shared among the co-owners, so we will not receive the exclusive benefits from a successful investment. Additionally, if a co-owner changes, our relationship may be materially and adversely affected.
Security breachesWe regularly review strategic opportunities to further our business objectives, and may eliminate assets that do not meet our return-on-investment criteria. The anticipated benefits of divestitures and other information systems failuresstrategic transactions may not be realized, or may be realized more slowly than we expected. Such transactions also could disrupt our operations, compromise the integrityresult in a number of our data, expose us to liability, cause increased expenses and cause our reputation to suffer, any or all of which could havefinancial consequences having a material and adverse effect on our businessresults of operations and our financial position, including reduced cash balances; higher fixed expenses; the incurrence of debt and contingent liabilities (including indemnification obligations); restructuring charges; loss of customers, suppliers, distributors, licensors or financial position.
Our business is dependent on financial,employees; legal, accounting and other data processing systemsadvisory fees; and other communications and information systems, including our enterprise resource planning tools. We process a large numberimpairment charges.
Impairment in the carrying value of transactions on a daily basis and rely upon the proper functioning of computer systems. If a key system were to fail or experience unscheduled downtime for any reason, our operations and financial resultslong-lived assets could be affected adversely. Our systems could be damaged or interrupted by a security breach, terrorist attack, fire, flood, power loss, telecommunications failure or similar event. Our disaster recovery plans may not entirely prevent delays or other complications that could arise from an information systems failure. Our business interruption insurance may not compensate us adequately for losses that may occur.
In the ordinary course of our business, we collect and store sensitive data in our data centers, on our networks, and in our cloud vendors. In addition, we rely on third party service providers, for support of our information technology systems, including the maintenance and integrity of proprietary business information and other confidential company information and data relating to customers, suppliers and employees. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. We have instituted data security measures for confidential company information and data stored on electronic and computing devices, whether owned or leased by us or a third party vendor. However, despite such measures, there are risks associated with customer, vendor, and other third-party access and our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to: employee error or malfeasance, failure of third parties to meet contractual, regulatory and other obligations to us, or other disruptions.
Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations, and damage our reputation, which could materially and adversely affect our business, financial condition and financial position.results of operations.
We have a significant amount of long-lived assets on our Consolidated Balance Sheets. Under generally accepted accounting principles, long-lived assets must be reviewed for impairment whenever adverse events or changes in circumstances indicate a possible impairment. We are required to perform impairment tests on our assets whenever events or changes in circumstances lead to a reduction of the estimated useful life or estimated future cash flows that would indicate that the carrying amount may not be recoverable or whenever management’s plans change with respect to those assets. If business conditions or other factors cause profitability and cash flows to decline, we may be required to record non-cash impairment charges.
Events and conditions that could result in impairment in the value of our long-lived assets include: the impact of a downturn in the global economy, competition, advances in technology, adverse changes in the regulatory environment, and other factors leading to a reduction in expected long-term sales or profitability, or a significant decline in the trading price of our common stock or market capitalization, lower future cash flows, slower industry growth rates and other changes in the industries in which we or our customers operate.
Our operating results have been and may continue to be affected by fluctuations in our costs of production, and, if we cannot pass increases in our costs of production to our customers, our financial condition, results of operations and cash flows may be negatively affected.
Our operations require a reliable supply of equipment, replacement parts and metallurgical coal. If the cost to produce coke and provide logistics services, including cost of supplies, equipment, metallurgical coal or labor, experience significant price inflation and we cannot pass such increases in our costs of production to our customers, our profit margins may be reduced and our financial condition, results of operations and cash flows may be adversely affected.
Labor disputes with the unionized portion of our workforce could affect us adversely. Union represented labor creates an increased risk of work stoppagesWe may incur costs and higher labor costs.
We rely, at oneliabilities resulting from claims for damages to property or more of our facilities, on unionized labor, and there is always the possibility that we may be unableinjury to reach agreement on terms and conditions of employment or renewal of a collective bargaining agreement. When collective bargaining agreements expire or terminate, we may not be able to negotiate new agreements on the same or more favorable terms as the current agreements, or at all, and without production interruptions, including labor stoppages. If we are unable to negotiate the renewal of a collective bargaining agreement before its expiration date,persons arising from our operations, and such costs and liabilities could have a material and adverse effect on our profitability could be adversely affected. A prolonged labor dispute, which may include a work stoppage, could adversely affect our ability to satisfy our customers’ orders and, as a result, adversely affect our operations,financial condition or the stabilityresults of production and reduce our future revenues, or profitability. It is also possible that, in the future, additional employee groups may choose to be represented by a labor union.
operations.
Our ability to operate our company effectively could be impaired if we fail to attract and retain key personnel.
We have implemented recruitment, training and retention efforts to optimally staff our operations. Our ability to operate our business and implement our strategiessuccess depends, in part, on the effortsquality, efficacy and safety of our executive officersproducts and other key employees.services. If our operations do not meet applicable safety standards, or our products or services are found to be unsafe, our relationships with customers could suffer and we could lose business or become subject to liability or claims. In addition, our future success will depend on, among other factors, our abilitycokemaking and logistics operations have inherent safety risks that may give rise to attractevents resulting in death, injury, or property loss to employees, customers, or unaffiliated third parties. Depending upon the nature and retain other qualified personnel. Theseverity of such events, we could be exposed to significant financial loss, of the services of any of our executive officersreputational damage, potential civil or criminal government or other key employeesregulatory enforcement actions, or the inability to attract or retain other qualified personnel in the future could have a material adverse effect on our business or business prospects. With respect to our represented employees, we may be adversely impacted by the loss of employees who retire or obtain other employment during a layoff or a work stoppage.
We currently are, and likely will be, subject toprivate litigation, the dispositionsettlement or outcome of which could have a material adverse effect on our cash flows, financial position or results of operations.
The nature of our operations exposes us to possible litigation claims in the future, including disputes relating to our operations and commercial and contractual arrangements. Although we make every effort to avoid litigation, these matters are not totally within our control. We will contest these matters vigorously and have made insurance claims where appropriate, but because of the uncertain nature of litigation and coverage decisions, we cannot predict the outcome of these matters. Litigation is very costly, and the costs associated with prosecuting and defending litigation matters could have a material adverse effect on our financial condition or results of operations.
A new or more stringent greenhouse gas emission standard designed to address climate change and profitability. In addition,physical effects attributed to climate change may adversely affect our profitabilityoperations and impose significant costs on our business and our customers and suppliers.
There is increasing regulatory attention concerning the issue of climate change and the impact of GHGs, particularly from fossil fuels, which are integral to our cokemaking and logistics businesses. Our business and operations, as well as the business and operations of our key suppliers and customers, may become subject to legislation or cash flowregulation intended to limit GHG emissions, the use of fossil fuels or the effects of climate change, or may be impacted by the increasing drive towards a lower carbon economy in an effort to limit the impacts of climate change. It is not possible to foresee the details of such legislation or regulations or changes in the economy or their resulting effects on our business. Because our coking process is dependent on coal as a particular periodraw material and the coking process generates carbon dioxide, we are limited in our ability to reduce our GHG emissions and could be affected by future regulation of GHGs, although we are evaluating the feasibility of reducing our GHG emissions profile. Any new regulations, legislation or taxes that affect other industries that use coal or other fossil fuels processed through our terminals could reduce throughput and utilization of our logistics assets. Future legislation or regulation regarding climate change and GHG emissions could impose significant costs on our business and our customers and suppliers due to increased energy, capital equipment, emissions controls, environmental monitoring and reporting and other costs in order to comply with these laws and regulations. Failure to comply with these regulations could result in fines to our company and could affect our business, financial condition and results of operations. Additionally, our suppliers may face cost increases to comply with any new legislation or regulations leading to higher costs to us for goods or services.
Climate change may cause changes in weather patterns and increase the frequency or severity of weather events and flooding. An increase in severe weather events and flooding may adversely impact us, our operations, and our ability to procure raw materials and manufacture and transport our products and could result in an adverse ruling in any litigation currently pending in the courtseffect on our business, financial condition and results of operations. Extreme weather conditions may increase our costs, temporarily impact our production capabilities or by litigation thatcause damage to our facilities. For example, our terminals are located near bodies of water and may be filed against us in the future. Weimpacted by flooding or hurricanes, disrupting our or our customers' ability to move products. Our coke plants are also subjectgenerally located near bodies of water and may be impacted by the effects of climate change. Additionally, extreme cold could prevent coal delivery and unloading at our coke plants, impeding operation, or create a more hazardous outdoor working environment for our employees. Severe weather may also adversely impact our suppliers and our customers and their ability to significant environmentalpurchase and other government regulation, which sometimes results in various administrative proceedings. For additional information, see “Item 3. Legal Proceedings.”transport our products.
Risks Related to Indebtedness
We own a significant equityInvestor interest in the Partnership,climate change, fossil fuels, and our consolidated financial statements include the Partnership’s substantial indebtedness. If effective control of the Partnership’s general partner is transferred to a third party, the Partnership’s indebtedness could become due and payable, which would materially and adversely affect our consolidated financial position.
Due to our significant equity ownership interest in the Partnership, our consolidated financial statements include the Partnership’s indebtedness. If effective control of the Partnership’s general partner is transferred to a third party, resulting in the Partnership’s aggregate indebtedness becoming payable, our consolidated financial position would be materially and adversely affected.
If effective control of the Partnership’s general partner is transferred to a third party, the Partnership, pursuant to the indenture for its outstanding senior secured notes, could be required to repurchase such notes in an amount equal to 101 percent of the aggregate principal amount outstanding, which was $700.0 million at December 31, 2017. Under the Partnership’s revolving credit agreement, the lenders could declare the loans and other amounts (including letter of credit obligations), totaling $131.9 million at December 31, 2017, to be immediately due and payable.
The Partnership faces material debt maturities which may adversely affect our consolidated financial position.
Over the next five years, we have approximately $187.3 million of total consolidated debt maturing at SunCoke and the Partnership. See Note 12 to the consolidated financial statements. We may not be able to refinance this debt, or may be forced to do so on terms substantially less favorable than our currently outstanding debt. We may be forced to delay or not make capital expenditures, which may adversely affect our competitive position and financial results.
Our indebtednesssustainability could adversely affect our financial conditionbusiness and prevent us from fulfilling our obligations under our credit facilitiesstock price.
Climate change and sustainability have increasingly become important topics to investors and the community at large. As such, there have been recent efforts aimed at the investment community to encourage the divestment of shares of companies associated with energy, coal and/or fossil fuels, as well as to pressure lenders and other debt documents.
Subjectfinancial services companies to the limits contained inlimit or curtail business relations with coal and fossil fuel companies. If these efforts are successful, our credit agreements,stock price and our other debt instruments, we may be able to incur additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our level of debt could intensify. Specifically, a higher level of debt could have important consequences, including:
making it more difficult for us to satisfy our obligations with respect to the notes and our other debt;
limiting our ability to obtain additional financing to fund future workingaccess capital capital expenditures, acquisitions or other general corporate requirements;
requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for the payment of dividends, working capital, capital expenditures, acquisitions and other general corporate purposes;
increasing our vulnerability to general adverse economic and industry conditions;
exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the credit facilities, are at variable rates of interest;
limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
placing us at a competitive disadvantage to other, less leveraged competitors; and
increasing our cost of borrowing.
In addition, the credit agreement governing our credit facilities contains restrictive covenants that limit our ability to engage in activities (such as incurring additional debt) thatmarkets may be in our long-term best interest. Our failure to comply with those covenants couldnegatively impacted. Members of the investment community are also increasing their focus on sustainability practices, including management of GHGs and climate change. As a result, in an event of default which, if not cured or waived, could result in the acceleration of all our debt.
Our level of indebtedness may increase, reducing our financial flexibility.
In the future, we may incur significant indebtedness in order to make future acquisitions or to develop or expandface increasing pressure regarding our facilities. Our level of indebtedness could affect our operations in several ways, including the following:
a significant portion of our cash flows could be used to service our indebtedness;
a high level of debt would increase our vulnerability to general adverse economicsustainability disclosures and industry conditions;practices.
the covenants contained in the agreements governing our outstanding indebtedness will limit our ability to borrow additional funds, dispose of assets, pay distributions and make certain investments;
a high level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged, and therefore may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing;
our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and our industry; and
a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, distributions or for general corporate or other purposes.
A high level of indebtedness increases the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of indebtedness depends on our future performance. General economic conditions and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our units or a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need capital.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under the credit facilities are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. From time to time, we may enter into, interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility.
Rating agencies may downgrade our credit ratings, which would make it more difficult for us to raise capital and would increase our financing costs.
Any downgrades in our credit ratings may make raising capital more difficult, may increase the cost and affect the terms of future borrowings, may affect the terms under which we purchase goods and services and may limit our ability to take advantage of potential business opportunities.
Risks Related to Our Cokemaking Business
If a substantial portion of our agreements to supply coke, electricity, and/or steam are modified or terminated, our cash flows, financial position, permit compliance or results of operations may be adversely affected if we are not able to replace such agreements, or if we are not able to enter into new agreements at the same level of profitability.
We make substantially all of our coke, electricity and steam sales under long-term agreements. If a substantial portion of these agreements are modified or terminated or if force majeure is exercised, our results of operations may be adversely affected if we are not able to replace such agreements, or if we are not able to enter into new agreements at the same level of profitability. The profitability of our long-term coke, energy and steam sales agreements depends on a variety of factors that vary from agreement to agreement and fluctuate during the agreement term. We may not be able to obtain long-term agreements at favorable prices, compared either to market conditions or to our cost structure. Price changes provided in long-term supply agreements may not reflect actual increases in production costs. As a result, such cost increases may reduce profit margins on our long-term coke and energy sales agreements. In addition, contractual provisions for adjustment or renegotiation of prices and other provisions may increase our exposure to short-term price volatility.
From time to time, we discuss the extension of existing agreements and enter into new long-term agreements for the supply of coke, steam, and energy to our customers, but these negotiations may not be successful and these customers may
not continue to purchase coke, steam, or electricity from us under long-term agreements. In addition, declarations of bankruptcy by customers can result in changes in our contracts with less favorable terms. If any one or more of these customers were to become financially distressed and unable to pay us, significantly reduce their purchases of coke, steam, or electricity from us, or if we were unable to sell coke or electricity to them on terms as favorable to us as the terms under our current agreements, our cash flows, financial position, permit compliance or results of operations may be materially and adversely affected.
Further, because of certain technological design constraints, we do not have the ability to shut down our cokemaking operations if we do not have adequate customer demand. If a customer refuses to take or pay for our coke, we must continue to operate our coke ovens even though we may not be able to sell our coke immediately and may incur significant additional costs for natural gas to maintain the temperature inside our coke oven batteries and fees under our rail contracts to account for reductions in inbound coal or outbound coke shipments at our plants, which may have a material and adverse effect on our cash flows, financial position or results of operations.
The coke sales agreement and the energy sales agreement with AK Steel at our Haverhill facility are subject to early termination under certain circumstances and any such termination could have a material adverse effect on our consolidated cash flows, financial position and results of operations.
The coke sales agreement and the energy sales agreement with AK Steel at our Haverhill II facility are subject to early termination by AK Steel under certain circumstances, and any such termination could have a material adverse effect on our business. The Haverhill coke sales agreement with AK Steel expires on December 31, 2021, with two automatic, successive five-year renewal periods, which are subject to termination if notice is given at least one-year prior to December 31, 2021. The Haverhill energy sales agreement with AK Steel runs concurrently with the term of the coke sales agreement, including any renewals, and automatically terminates upon the termination of the related coke sales agreement. Since January 1, 2014, the coke sales agreement may be terminated by AK Steel at any time on or after upon two years' prior written notice, if AK Steel (i) permanently shuts down iron production operations at its steel plant works in Ashland, Kentucky (the Ashland Plant) and (ii) has not acquired or begun construction of a new blast furnace in the U.S. to replace, in whole or in part, the Ashland Plant’s iron production capacity.
If AK Steel were to terminate the Haverhill AK Steel Contracts, we may be unable to enter into similar long-term contracts with replacement customers for all or any portion of the coke previously purchased by AK Steel. Similarly, we may be forced to sell some or all of the previously contracted coke in the spot market, which could be at prices lower than we have currently contracted for and could subject us to significant price volatility. If AK Steel elects to terminate the Haverhill AK Steel Contracts, our cash flows, financial position and results of operations could be materially and adversely affected.
Excess capacity in the global steel industry, and/or increased exports of coke from producing countries, may weaken our customers' demand for our coke and could materially and adversely affect our future revenues and profitability.
In some countries steelmaking capacity exceeds demand for steel products. Rather than reducing employment by matching production capacity to consumption, steel manufacturers in these countries (often with local government assistance or subsidies in various forms) may export steel at prices that are significantly below their home market prices and that may not reflect their costs of production or capital. Our steelmaking customers may decrease the prices they charge for steel, or take other action, as the supply of steel increases. The profitability and financial position of our steelmaking customers may be adversely affected, causing such customers to reduce their demand for our coke and making it more likely that they may seek to renegotiate their contracts with us or fail to pay for the coke they are required to take under our contracts. In addition, future increases in exports of coke from China and/or other coke-producing countries also may reduce our customers' demand for coke capacity. Such reduced demand for our coke could adversely affect the certainty of our long-term relationships with our customers, depress coke prices, and limit our ability to enter into new, or renew existing, commercial arrangements with our customers, as well as our ability to sell excess capacity in the spot market, and could materially and adversely affect our future revenues and profitability.
Income from operation of the Vitória, Brazil cokemaking facility may be affected by global and regional economic and political factors and the policies and actions of the Brazilian government.
The Vitória cokemaking facility is owned ArcelorMittal Brazil. We earn income from the Vitória, Brazil operations through licensing and operating fees earned at the Brazilian cokemaking facility payable to us under long-term agreements with ArcelorMittal Brazil. These revenues depend on continuing operations and, in some cases, certain minimum production levels being achieved at the Vitória cokemaking facility. In the past, the Brazilian economy has been characterized by frequent and occasionally extensive intervention by the Brazilian government and unstable economic cycles. The Brazilian government has changed in the past, and may change monetary, taxation, credit, tariff and other policies to influence Brazil’s economy in the future. If the operations at Vitória cokemaking facility are interrupted or if certain minimum production levels are not achieved, we will not be able to earn the same licensing and operating fees as we are currently earning, which could have an adverse effect on our financial position, results of operations and cash flows.
Certain provisions in our long-term coke agreements may result in economic penalties to us, or may result in termination of our coke sales agreements for failure to meet minimum volume requirements, coal-to-coke yields or other required specifications, and certain provisions in these agreements and our energy sales agreements may permit our customers to suspend performance.
Our agreements for the supply of coke, energy and/or steam, contain provisions requiring us to supply minimum volumes of our products to our customers. To the extent we do not meet these minimum volumes, we are generally required under the terms of our coke saleslong-term agreements to procure replacement supply to our customers at the applicable contract price or potentially be subject to cover damages for any shortfall. If future shortfalls occur, we will work with our customer to identify possible other supply sources while we implement operating improvements at the facility, but we may not be successful in identifying alternative supplies and may be subject to paying the contract price for any shortfall or to cover damages, either of which could adversely affect our future revenues and profitability. Our coke saleslong-term agreements also contain provisions requiring us to deliver coke that meets certain quality thresholds. Failure to meet these specifications could result in economic penalties, including price adjustments, the rejection of deliveries or termination of our agreements. To the extent that we do not meet the coal-to-coke yield standard in an agreement, we are responsible for the cost of the excess coal used in the cokemaking process.
Our coke and energy sales agreements contain force majeure provisions allowing temporary suspension of performance by our customers for the duration of specified events beyond the control of our customers. Declaration of force majeure, coupled with a lengthy suspension of performance under one or more coke or energy sales agreements, may seriously and adversely affect our cash flows, financial position and results of operations.
To the extent we do not meet coal-to-coke yield standards in our coke sales agreements, we are responsible for the cost of the excess coal used in the cokemaking process, which could adversely impact our results of operations and profitability.
Our ability to pass through our coal costs to our customers under our coke sales agreements is generally subject to our ability to meet some form of coal-to-coke yield standard. To the extent that we do not meet the yield standard in the contract, we are responsible for the cost of the excess coal used in the cokemaking process. We may not be able to meet the yield standards at all times, and as a result we may suffer lower margins on our coke sales and our results of operations and profitability could be adversely affected.
Failure to maintain effective quality control systems at our cokemaking facilities could have a material adverse effect on our results of operations.
The quality of our coke is critical to the success of our business. For instance, our coke sales agreements contain provisions requiring us to deliver coke that meets certain quality thresholds. If our coke fails to meet such specifications, we could be subject to significant contractual damages or contract terminations, and our sales could be negatively affected. The quality of our coke depends significantly on the effectiveness of our quality control systems, which, in turn, depends on a number of factors, including the design of our quality control systems, our quality-training program, our laboratories and our
ability to ensure that our employees adhere to our quality control policies and guidelines. Any significant failure or deterioration of our quality control systems could have a material adverse effect on our results of operations.
If we are unable to realize the anticipated benefits from planned maintenance activities, oven re-builds, and additional measures to control costs at our Indiana Harbor cokemaking operations, our future financial performance, results of operations and cash flows could be materially and adversely affected.
Since the third quarter of 2015, when we implemented a plan to address deteriorating coke oven conditions and improve plant performance, and environmental compliance at our Indiana Harbor cokemaking operations, we have rebuilt more than half of the coke ovens at that facility. However, unexpected costs and challenges may arise and there is a risk of continuing mechanical failures and deterioration of assets leading to production curtailments, shutdowns or additional expenditures at our Indiana Harbor operations, any or all of which could significantly disrupt our coke production and our ability to supply coke to our customer.
If the implementation of these systematic planned maintenance activities to improve operating performance at Indiana Harbor (and related additional measures to control and benchmark costs) do not produce the expected benefits, our future financial performance, results of operations and cash flows could be materially and adversely affected.
Disruptions to our supply of coal and coal mixing services may reduce the amount of coke we produce and deliver, and if we are not able to cover the shortfall in coal supply or obtain replacement mixing services from other providers, our results of operations and profitability could be adversely affected.
Substantially all of the metallurgical coal used to produce coke at our cokemaking facilities is purchased from third-parties under one-year contracts, except for the Jewell facility, which purchases a substantial portion of its metallurgical coal under a five-year contract with prices reset annually.contracts. We cannot assure that there will continue to be an ample supply of metallurgical coal available or that these facilities will be supplied without any significant disruption in coke production, as economic, environmental, and other conditions outside of our control may reduce our ability to source sufficient amounts of coal for our forecasted operational needs. If we are not able to make up the shortfalls resulting from such supply failures through purchases of coal from other sources, the failure of our coal suppliers to meet their supply commitments could materially and adversely impact our results of operations and, ultimately, impact the structural integrity of our coke oven batteries.
At our Granite City and Haverhill cokemaking facilities, we rely on third-parties to mix coals that we have purchased into coal mixes that we use to produce coke. We have entered into long-term agreements with coal mixing service providers that are coterminous with our coke sales agreements. However, there are limited alternative providers of coal mixing services and any disruptions from our current service providers could materially and adversely impact our results of operations. In addition, if our rail transportation agreements are terminated, we may have to pay higher rates to access rail lines or make alternative transportation arrangements.
Limitations on the availability and reliability of transportation, and increases in transportation costs, particularly rail systems, could materially and adversely affect our ability to obtain a supply of coal and deliver coke to our customers.
Our ability to obtain coal depends primarily on third-party rail systems and to a lesser extent river barges. If we are unable to obtain rail or other transportation services, or are unable to do so on a cost-effective basis, our results of operations could be adversely affected. Alternative transportation and delivery systems are generally inadequate and not suitable to handle the quantity of our shipments or to ensure timely delivery. The loss of access to rail capacity could create temporary disruption until the access is restored, significantly impairing our ability to receive coal and resulting in materially decreased revenues. Our ability to open new cokemaking facilities may also be affected by the availability and cost of rail or other transportation systems available for servicing these facilities.
Our coke production obligations at our Jewell cokemaking facility and one half of our Haverhill cokemaking facility require us to deliver coke to certain customers via railcar. We have entered into long-term rail transportation agreements to meet these obligations. Disruption of these transportation services because of weather-related problems,
including those related to climate change, mechanical difficulties, train derailments, infrastructure damage, strikes, lock-outs, lack of fuel or maintenance items, fuel costs, transportation delays, accidents, terrorism, domestic catastrophe or other events could temporarily, or over the long-term, impair our ability to produce coke, and therefore, could materially and adversely affect our business and results of operations.
If we are unable to effectively protect our intellectual property, third parties may use our technology, which would impair our ability to compete in our markets.
Our future success will depend in part on our ability to obtain and maintain meaningful patent protection for certain of our technologies and products throughout the world. The degree of future protection for our proprietary rights is uncertain. We rely on patents to protect a significant part our intellectual property portfolio and to enhance our competitive position. However, our presently pending or future patent applications may not issue as patents, and any patent previously issued to us or our subsidiaries may be challenged, invalidated, held unenforceable or circumvented. Furthermore, the claims in patents that have been issued to us or our subsidiaries or that may be issued to us in the future may not be sufficiently broad to prevent third parties from using cokemaking technologies and heat recovery processes similar to ours. In addition, the laws of various foreign countries in which we plan to compete may not protect our intellectual property to the same extent as do the laws of the United States. If we fail to obtain adequate patent protection for our proprietary technology, our ability to be commercially competitive may be materially impaired.
We are subject to certain political or country risks due to the Vitória, Brazil cokemaking facility that could adversely affect our financial results.
The Vitória cokemaking facility is owned by ArcelorMittal Brazil. We earn income from the Vitória, Brazil operations through licensing and operating fees earned at the Brazilian cokemaking facility payable to us under long-term agreements with ArcelorMittal Brazil. These revenues depend on continuing operations and, in some cases, certain minimum production levels being achieved at the Vitória cokemaking facility. In the past, the Brazilian economy has been
characterized by frequent and occasionally extensive intervention by the Brazilian government and unstable economic cycles. The Brazilian government has changed in the past, and may change monetary, taxation, credit, tariff and other policies to influence Brazil’s economy in the future. If the operations at the Vitória cokemaking facility are interrupted or if certain minimum production levels are not achieved, we will not be able to earn the same licensing and operating fees as we are currently earning, which could have an adverse effect on our financial position, results of operations and cash flows.
Additionally, the Vitória, Brazil operations require us to comply with a number of U.S. and international laws and regulations, including those involving anti-bribery, anti-corruption and anti-fraud. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, including the regulations imposed by the Foreign Corrupt Practices Act (“FCPA”), which generally prohibits issuers and their strategic or local partners, agents or representatives, which we refer to as our intermediaries (even if those intermediaries are not themselves subject to the FCPA or other similar laws), from making improper payments to foreign officials for the purpose of obtaining or keeping business or obtaining an improper business benefit.
We take precautions to comply with these laws. However, these precautions may not protect us against liability, particularly as a result of actions by our intermediaries through whom we have exposure under these anti-bribery, anti-corruption and anti-fraud laws even though we may have limited or no ability to control such intermediaries. Any violations of such laws could be punishable by criminal fines, imprisonment, civil penalties, disgorgement of profits, injunctions and exclusion from government contracts, as well as other remedial measures. Investigations of alleged violations can be very expensive, disruptive and damaging to our reputation and could negatively impact our stock price. Failure by us or our intermediaries to comply with the foregoing or other anti-bribery, anti-corruption and anti-fraud laws could adversely impact our results of operations, financial position, and cash flows, damage our reputation and negatively impact our stock price.
Risks Related to Our Logistics Business
The growth and success of our logistics business depends upon our ability to find and contract for adequate throughput volumes, and an extended decline in demand for coal could affect the customers for our logistics business adversely. As a consequence, the operating results and cash flows of our logistics business could be materially and adversely affected.
The financial results of our logistics business segment are significantly affected by the demand for both thermal coal and metallurgical coal. An extended decline in our customers’ demand for either thermal or metallurgical coals, including as a result of legislation or regulations promoting renewable energy or limiting carbon emissions from the energy sector, could result in a reduced need for the coal mixing, terminalling and transloading services we offer, thus reducing throughput and utilization of our logistics assets. Demand for such coals may fluctuate due to factors beyond our control:
•Thermal coal demand: may be impacted by changes in the energy consumption pattern of industrial consumers, electricity generators and residential users, as well as weather conditions and extreme temperatures. The amount of thermal coal consumed for electric power generation is affected primarily by the overall demand for electricity, the availability, quality and price of competing fuels for power generation, including natural gas, and governmental regulation. For example, over the past few years, production of natural gas in the U.S. has increased dramatically, which has resulted in lower natural-gas prices. As a result of sustained low natural gas prices, coal-fuel generation plants have been displaced by natural-gas fueled generation plants. In addition, state and federal mandates and market demand for increased use of electricity from renewable energy sources, or mandates for the retrofitting of existing coal-fired generators with pollution control systems, also could adversely impact the demand for thermal coal. Finally, unusually warm winter weather may reduce the commercial and residential needs for heat and electricity which, in turn, may reduce the demand for thermal coal; and
•Metallurgical coal demand: may be impacted adversely by economic downturns resulting in decreased demand for steel and an overall decline in steel production. A decline in blast furnace production of steel may reduce the demand for furnace coke, an intermediate product made from metallurgical coal. Decreased demand for metallurgical coal also may result from increased steel industry utilization of processes that do not use, or reduce the need for, furnace coke, such as electric arc furnaces, or blast furnace injection of pulverized coal or natural gas.
CMT is impacted by seaborne export market dynamics. Fluctuations in the benchmark price for coal delivery into northwest Europe, as referenced in the API2 index price, influence our customers' decisions to place tons into the export market and thus impact transloading volumes through our terminal facility.
Additionally, fluctuations in the market price of coal can greatly affect production rates and investments by third-parties in the development of new and existing coal reserves. Mining activity may decrease as spot coal prices decrease. We have no control over the level of mining activity by coal producers, which may be affected by prevailing and projected coal prices, demand for hydrocarbons, the level of coal reserves, geological considerations, governmental regulation and the availability and cost of capital. A material decrease in coal mining production in the areas of operation for our logistics business, whether as a result of depressed commodity prices or otherwise, could result in a decline in the volume of coal processed through our logistics facilities, which would reduce our revenues and operating income.
Decreased demand for thermal or metallurgical coals, and extended or substantial price declines for coal could adversely affect our operating results for future periods and our ability to generate cash flows necessary to improve productivity and expand operations. The cash flows associated with our logistics business may decline unless we are able to secure new volumes of coal or other dry bulk products, by attracting additional customers to these operations. Future growth and profitability of our logistics business segment will depend, in part, upon whether we can contract for additional coal and other bulk commodity volumes at a rate greater than that of any decline in volumes from existing customers. Accordingly, decreased demand for coal, or other bulk commodities, or a decrease in the market price of coal, or other bulk commodities, could have a material adverse effect on the results of operations or financial condition of our logistics business.
The geographic location of the Convent Marine TerminalCMT could expose us to potential significant liabilities, including operational hazards and unforeseen business interruptions, that could substantially and adversely affect our future financial performance.
CMT is located in the Gulf Coast region, and its operations are subject to operational hazards and unforeseen interruptions, including interruptions from hurricanes, floods, or floods,other potential effects of climate change, which have historically impacted the region with some regularity. If any of these events were to occur, we could incur substantial losses because of personal injury or loss of life, severe damage to and destruction of property and equipment, and pollution or other environmental damage resulting in curtailment or suspension of our related operations.
Risks Related to Indebtedness, Liquidity and Financial Position
We may need additional capital in the future to meet our financial obligations and to pursue our business objectives. Additional capital may not be available on favorable terms, or at all, which could compromise our ability to meet our financial obligations and grow our business.
We may need to raise additional capital to fund operations in the future or to finance acquisitions or other business objectives. Such additional capital may not be available on favorable terms or at all. Lack of sufficient capital resources could significantly limit our ability to meet our financial obligations or to take advantage of business and strategic opportunities. Any additional capital raised through the sale of equity or convertible debt securities would dilute stock ownership, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, we may be required to delay or reduce the scope of our business strategy.
We face material debt maturities which may adversely affect our consolidated financial position.
Over the next five years, we have $43.8 million of total consolidated debt maturing. See Note 11 to the consolidated financial statements. We may not be able to refinance this debt, or may be forced to do so on terms substantially less favorable than our currently outstanding debt. We may be forced to delay or not make capital expenditures, which may adversely affect our competitive position and financial results.
We may be adversely affected by the effects of inflation.
Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, increased costs of labor, weakening exchange rates and other similar effects. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost of inflation is incurred.
Our level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our credit facilities and other debt documents. Further, our credit facilities contain operating and financial covenants that may restrict our business and financing activities.
Subject to the limits contained in our credit agreements and our other debt instruments, we may be able to incur additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our level of debt could intensify. Specifically, a higher level of debt could have important consequences, including:
•making it more difficult for us to satisfy our obligations with respect to the notes and our other debt;
•limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions, distributions or other general corporate requirements;
•requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for the payment of dividends, working capital, capital expenditures, acquisitions and other general corporate purposes;
•increasing our vulnerability to general adverse economic and industry conditions;
•exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the credit facilities, are at variable rates of interest;
•limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
•placing us at a competitive disadvantage to other, less leveraged competitors; and
•increasing our cost of borrowing.
Our ability to meet our debt obligations and reduce our level of indebtedness depends upon our future performance and general economic, financial, business, and other factors, many of which are beyond our control. Factors affecting our ability to raise cash through an offering of our common stock or a refinancing of our debt include financial market conditions, the value of our assets, and our performance at the time we need capital.
In addition, the credit agreement governing our credit facilities contains restrictive covenants that limit our ability to engage in activities (such as incurring additional debt) that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt. In the event of an acceleration of all our debt, we may not have sufficient cash on hand to repay the indebtedness in full or refinance such debt on favorable terms, or at all. Such event could materially adversely affect our business, financial condition and results of operations.
Risks Related to Our Legacy Coal Mining Business
Our former coal mining operations were subject to governmental regulations pertaining to employee health and safety and mandated benefits for retired coal miners. Following the divestiture of our coal mining operations, compliance with such regulations has continued to impose significant costs on our business.
Our former coal mining operations were subject to strict regulation by federal, state and local authorities with respect to environmental matters such as reclamation, and to matters such as employee health and safety and mandated benefits for retired coal miners. Even after divestiture of our coal mining business, compliance with these reclamation and benefits requirements has continued to impose significant costs on us. As a former coal mine operator, federal law requiredrequires us to secure payment of federal black lung benefits to claimants who were employees, and to contribute to a trust fund for payment of benefits and medical expenses to claimants who last worked in the coal industry before January 1, 1970. At December 31, 2017,2022, our liabilities for coal workers’ black lung benefits totaled approximately $50.3 million.$58.1 million. Our business could be materially and adversely harmed if these liabilities, including the number and award size of claims, were increased. See “Item 1. Business-Legal and Regulatory Requirements-Other Regulatory Requirements.Requirements-Regulation of Operations.”
General Risks Related
The COVID-19 pandemic has in the past and may continue to Ownershipadversely impact or disrupt our, and our customers’ and suppliers’, business, operations, cash flows, financial condition and results of Our Common Stockoperations. Any future outbreak of COVID-19 variants or any other highly infectious or contagious disease could have a similar impact.
Your percentage ownershipThe COVID-19 pandemic had, and may continue to have, adverse impacts on our business.While our facilities continued to operate during the COVID-19 pandemic due to our inclusion in us may be dilutedthe Critical Manufacturing Sector as defined by future issuancesthe U.S. Department of capital stock or securities or instruments that are convertible intoHomeland Security, COVID-19 negatively impacted our capital stock, which could reduce your influence over mattersbusiness and results of operations primarily due to the impacts of the COVID-19 pandemic on which stockholders vote.
Our Board of Directors has the authority, without action or voteour customers and suppliers. For example, certain of our stockholders,steelmaking and logistics customers were adversely impacted by the idling of manufacturing plants as a result of the COVID-19 pandemic. In an effort to issue all or any partassist certain of our authorized but unissued sharessteelmaking customers impacted by the COVID-19 pandemic, we implemented volume relief measures by providing near-term coke supply relief for such customers in exchange for extending of common stock, including shares issuable upon the exercisecertain contracts. The extent to which COVID-19 or other future pandemics impact our business and results of options, shares that may be issued to satisfyoperations, and our obligations under our incentive plans, sharescustomers' and suppliers' business and results of operations, are out of our authorized but unissued preferred stock and securities and instruments that are convertible into our common stock. Issuances of common stock or voting preferred stock would reduce your influence over matters on which our stockholders vote and, in the case of issuances of preferred stock, likely would result in your interest in us being subject to the prior rights of holders of that preferred stock.
Our ability to pay dividends on our common stock may be limited by restrictive covenants in our debt agreements and by other factors.
Our Board of Directors has suspended the Company's dividend. Any declaration and payment of future dividends to holders of our common stock will be limited by restrictive covenants contained in our debt agreements, and will be at the sole discretion of our Board of Directorscontrol and will depend on many factors,future developments that are highly uncertain and cannot be predicted, including our financial condition, earnings, capital requirements, levelrising inflation and supply chain issues, the emergence of indebtedness, statutorynew variants, the severity and contractual restrictions applyingduration of the pandemic and actions taken to contain it or mitigate its effects, as well as the paymenteffectiveness of dividendsvaccine rollout plans, the public's perception of the safety of the vaccines and other considerations that our Boardtheir willingness to take the vaccines, public safety measures and the impact of Directors deems relevant.
Further, we may not have sufficient surplus under Delaware law to be able to paythe pandemic on the global economy. Therefore, the impact of COVID-19, including any dividends in the future. The absence of sufficient surplus may result from extraordinary cash expenses, actual expenses exceeding contemplated costs, funding of capital expenditures or increases in reserves.
Provisions of our amended and restated articles of incorporation, our amended and restated by-laws and the Delaware General Corporation Law (the “DGCL”) could discourage potential acquisition proposals and could deter or prevent a change in control.
Our amended and restated articles of incorporation and amended and restated by-laws contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids and to encourage prospective acquirers to negotiate with our Board of Directors rather than to attempt a hostile takeover. These provisions include:
a Board of Directors that is divided into three classes with staggered terms;
action by written consent of stockholders may only be taken unanimously by holders of all our shares of common stock;
rules regarding how our stockholders may present proposals or nominate directors for election at stockholder meetings;
the right of our Board of Directors to issue preferred stock without stockholder approval;
limitations on the right of stockholders to remove directors; and
limitations on our ability to be acquired.
The DGCL also imposes some restrictions on mergers and other business combinations between us and any holder of 15 percent or more of our outstanding common stock.
We believe that these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our Board of Directors determines is in our best interests and that of our stockholders.
Any or allresurgences of the foregoing provisionsvirus, new variants, or other similar future health crises may heighten other risks discussed herein, which could limit the price that some investors might be willing to pay in the future for shares ofadversely impact or disrupt our common stock.
A person or group could establish a substantial position in SunCoke Energy, Inc. stock.
We do not have a shareholder rights plan which may make it easier for a person or group to acquire a substantial position in SunCoke Energy, Inc. stock. Such person or group may have interests adverse to the interests of our other stockholders.
Risks Related to Our Master Limited Partnership
We own a significant equity interest in the Partnership.
We own the general partner of the Partnership, which holds a 2.0 percent ownership interest and IDRs, and we currently own a 59.9 percent limited partner interest in the Partnership. The Partnership holds a 98 percent interest in each of three entities that own our Haverhill, Ohio, Middletown, Ohio, and Granite City, Illinois cokemaking facilities and related assets. The Partnership also owns terminals and related assets that provide handling and/or mixing services of coal and other aggregates in Louisiana and West Virginia. All of the Partnership’s coke sales, and certain of its logistics services, are made pursuant to long-term, take-or-pay agreements, and our financial statements include the consolidated results of the Partnership. The Partnership is subject to operating and regulatory risks which are substantially similar to our own. The occurrence of any of these risks could directly or indirectly affect the Partnership’s, as well as our,business, financial condition, results of operations, and cash flows as the Partnership is a consolidated subsidiary. For additional information about the Partnership, see “Cokemaking Operations” and “Formation of a Master Limited Partnership”market value.
Sustained uncertainty in Business and Management’s Discussion and Analysis of Financial Condition and Operating Results (Items 1 and 7), respectively.
We derive a portion of our cash flows from the quarterly cash distributions we receive due to our equity ownership interestfinancial markets, or unfavorable economic conditions in the Partnership. If the Partnership is unableindustries in which our customers operate, may lead to generate sufficient cash flow, its ability to pay quarterly distributions to unitholders (including us) at current levels, or to increase its quarterly distributionsa reduction in the future, coulddemand for our products and services, and adversely impact our cash position.flows, financial position or results of operations.
The Partnership’sSustained volatility and disruption in worldwide capital and credit markets in the U.S. and globally could restrict our ability to pay quarterly distributions depends primarily on cash flow. The Partnership’s abilityaccess the capital market at a time when we would like, or need, to generate sufficient cash from operations is largely dependent upon its ability to successfully manage itsraise capital for our business which may be affected byincluding for potential acquisitions, or other growth opportunities.
Deteriorating or unfavorable economic financial, competitive, and regulatory factors beyond the Partnership’s control. To the extent the Partnership does not have adequate cash reserves, its ability to pay quarterly distributions to its common unitholders (including us) at current levels, or to increase its quarterly distributionsconditions in the future,industries in which our customers operate, such as steelmaking and electric power generation, may lead to reduced demand for steel products, coal, and other bulk commodities which, in turn, could be adversely affected. Due toaffect the demand for our products and services and negatively impact the revenues, margins and profitability of our business.
our equity ownership interest inLabor disputes with the Partnership, we derive aunionized portion of our cash flows fromworkforce could affect us adversely. Union represented labor creates an increased risk of work stoppages and higher labor costs.
We rely, at one or more of our facilities, on unionized labor, and there is always the quarterly cash distributionspossibility that we receive.may be unable to reach agreement on terms and conditions of employment or renewal of a collective bargaining agreement. When collective bargaining agreements expire or terminate, we may not be able to negotiate new agreements on the same or more favorable terms as the current agreements, or at all, and without production interruptions, including labor stoppages. If we are unable to obtain sufficient funds fromnegotiate the Partnership at current or increased levels,renewal of a collective bargaining agreement before its expiration date, our cash positionoperations and our profitability could be adversely affected. A prolonged labor dispute, which may include a work stoppage, could adversely affect our ability to satisfy our customers’ orders and, as a result, adversely affect our operations, or the stability of production and reduce our future revenues, or profitability. It is also possible that, in the future, additional employee groups may choose to be represented by a labor union.
Our ability to operate our company effectively could be impaired if we fail to attract and retain key personnel.
We have implemented recruitment, training and retention efforts to optimally staff our operations. Our ability to operate our business and implement our strategies depends in part on the efforts of our executive officers and other key employees. In addition, our future success will depend on, among other factors, our ability to attract and retain other qualified personnel. The loss of the services of any of our executive officers or other key employees or the inability to attract or retain other qualified personnel in the future could have a material adverse effect on our business or business prospects. With respect to our represented employees, we may be adversely impacted by the loss of employees who retire or obtain other employment during a layoff or a work stoppage.
We currently are, partyand likely will be, subject to an omnibus agreement withlitigation, the Partnership thatdisposition of which could have a material adverse effect on our cash flows, financial position or results of operations.
The nature of our operations exposes us to various riskspossible litigation claims in the future, including disputes relating to our operations and uncertainties.
In connection with the initial public offeringcommercial and contractual arrangements. Although we make every effort to avoid litigation, these matters are not totally within our control. We will contest these matters vigorously and have made insurance claims where appropriate, but because of the Partnershipuncertain nature of litigation and coverage decisions, we cannot predict the outcome of these matters. Litigation is very costly, and the related contributioncosts associated with prosecuting and defending litigation matters could have a material adverse effect on our financial condition and profitability. In addition, our profitability or cash flow in a particular period could be affected by an adverse ruling in any litigation currently pending in the courts or by litigation that may be filed against us in the future. We are also subject to significant environmental and other government regulation, which sometimes results in various administrative proceedings. For additional information, see “Item 3. Legal Proceedings.”
Security breaches and other information systems failures could disrupt our operations, compromise the Partnership of an interest in eachintegrity of our Haverhill, Ohiodata, expose us to liability, cause increased expenses and Middletown, Ohio cokemaking facilities, we entered into an omnibus agreement with the Partnership. This omnibus agreement was later amended in connection with the contributioncause our reputation to the Partnershipsuffer, any or all of an interest in our Granite City, Illinois cokemaking assets. Pursuant to this omnibus agreement, wewhich could have agreed to grant the Partnership preferential rights to pursue certain growth opportunities we identify in the U.S. and Canada and a right of first offer to acquire certain of our cokemaking assets located in the U.S. and Canada for so long as we control the Partnership’s general partner. Pursuant to this agreement, we have agreed to indemnify the Partnership for certain environmental remediation projects costs arising prior to the contribution of the interests in the Haverhill, Ohio, Middletown, Ohio and Granite City, Illinois cokemaking facilities. The omnibus agreement further provides that we will fully indemnify the Partnership with respect to certain tax liabilities arising prior to, or in connection with, the contribution of the interests in the Haverhill, Ohio, Middletown, Ohio and Granite City, Illinois cokemaking facilities, and that we will cure or fully indemnify the Partnership for losses resulting from certain title defects at the properties owned by the Partnership or its subsidiaries. Our obligations and the extent of our exposures that may arise under the omnibus agreement are subject to various contingencies and cannot be estimated with certainty at this time.
The value of our investment in the Partnership depends on the Partnership's status as a partnership for federal income tax purposes, as well as the Partnership not being subject to a material amountand adverse effect on our business or financial position.
Our business is dependent on financial, accounting and other data processing systems and other communications and information systems, including our enterprise resource planning tools. We process a large number of entity-level taxation by individual states. The Internal Revenue Service (“IRS”) has issued final regulations which would result intransactions on a daily basis and rely upon the Partnership being treated asproper functioning of computer systems. If a corporation for federal income tax purposes and subject to entity-level taxation beginning January 1, 2028. In addition, the IRS may challenge the Partnership’s status as a partnership for federal income tax purposes from the time of the Partnership's initial public offering. If the IRSkey system were to treat the Partnership as a corporationfail or experience unscheduled downtime for federal income tax purposes or the Partnership were to become subject to material additional amounts of entity-level taxation for state tax purposes, then the value ofany reason, our investment in the Partnershipoperations and financial results could be substantially reduced.
The anticipated after-tax economic benefit of our investment in the Partnership depends largely on the Partnership being treated asaffected adversely. Our systems could be damaged or interrupted by a partnership for federal income tax purposes. Despite the fact that the Partnership is organized as a limited partnership under Delaware law, the Partnership would be treated as a corporation for federal income tax purposes unless more than 90 percent of its income is from certain specified sources (the “Qualifying Income Exception”) under Section 7704 of the Internal Revenue Code of 1986, as amended (the “Code”).
On January 19, 2017, the IRS and the U.S. Department of Treasury issued qualifying income regulations (the “Final Regulations”) regarding the Qualifying Income Exception. The Final Regulations were published in the Federal Register on January 24, 2017, and apply to taxable years beginning onsecurity breach, terrorist attack, fire, flood, power loss, telecommunications failure or after January 19, 2017. Under the Final Regulations, the Partnership’s cokemaking operations have been excluded from the definition of qualifying income activities, subject to a ten-year transition period. As a result, the following consequences might ensue:
If the Partnership’s income from cokemaking operations “was qualified income under the statute as reasonably interpreted prior to May 6, 2015,” then the Partnership will have a transition period ending on December 31, 2027, during which it can treat income from its existing cokemaking activities as qualifying income. The Partnership’s transitional status during this period is likely to impair the growth prospects of the Partnership, and we do not expect that the Partnership would acquire additional cokemaking operations from third parties or from us without receipt of an IRS private letter ruling confirming the availability of the transition period as applied to the income from such an acquisition.
The IRS might challenge treatment by the Partnership of income from its cokemaking operations as qualifying income by asserting that such treatment did not rely upon a reasonable interpretation of the statute prior to May 6, 2015. If so, nothing would preclude the IRS from challenging the Partnership’s status as a partnership for federal income tax purposes from the time of the Partnership’s initial public offering. If this challenge were to occur and prevail, (i) the Partnership would be taxed retroactively as if it were a corporation at federal and state tax rates, likely resulting in a material amount of taxable income and taxes in certain open years, (ii) historical and future distributions would generally be taxed again as corporate distributions and (iii) no income, gains, losses, deductions or credits recognized by the Partnership would flow to unitholders of the Partnership. This would result in a material reduction in the Partnership’s cash flow
similar event. Our
disaster recovery plans may not entirely prevent delays or other complications that could arise from an information systems failure. Our business interruption insurance may not compensate us adequately for losses that may occur.
In the ordinary course of our business, we collect and after-tax returnstore sensitive data in our data centers, on our networks, and in our cloud vendors. In addition, we rely on third party service providers, for support of our information technology systems, including the maintenance and integrity of proprietary business information and other confidential company information and data relating to the Partnership’s unitholderscustomers, suppliers and employees. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. We have instituted data security measures for confidential company information and data stored on electronic and computing devices, whether owned or leased by us or a third party vendor. However, despite such measures, there are risks associated with customer, vendor, and other third-party access and our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to: employee error or malfeasance, failure of third parties to meet contractual, regulatory and other obligations to us, or other disruptions.
Any such breach could compromise our networks and the recordinginformation stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of an income tax provisioninformation could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and a reduction in net income.regulatory penalties, disrupt our operations, and damage our reputation, which could materially and adversely affect our business and financial position.
If, notwithstandingWe are exposed to, and may be adversely affected by, interruptions to our confidence regarding the Partnership’s eligibility to use the transition period based on the Partnership’s beliefcomputer and a legal opinion from outside counsel, the IRS were to challenge the Partnership’s eligibility to qualify for the transition period or the Partnership’s position that it has satisfied the Qualifying Income Exception from the time of its IPO, the Partnership would vigorously disagree with such a challenge, although we can provide no assurance of the Partnership’s likelihood of, or costs associated with, prevailing. For more information see “Management’s Discussiontechnology systems and Analysis-Final Regulations”. sophisticated cyber-attacks.
A successful IRS contest of the federal income tax positions the Partnership takes may impact adversely the market for its common units, and the costs of any IRS contest could reduce the Partnership’s cash available for distribution to unitholders, including us. If the Partnership were treated as a corporation for federal income tax purposes, it would pay federal income taxWe rely on our taxable income at the corporate tax rate, which is currently a maximuminformation technology systems and networks in connection with many of 21 percent,our business activities. Some of these networks and would likely pay state income tax at varying rates. Because tax would be imposed upon the Partnership as a corporation, its after tax earningssystems are managed by third-party service providers and therefore its abilityare not under our direct control. Our operations routinely involve receiving, storing, processing and transmitting sensitive information pertaining to distribute cash to us would be substantially reduced. Therefore, treatment of the Partnership as a corporation wouldour business, customers, dealers, suppliers, employees and other sensitive matters. Cyber-attacks could materially disrupt operational systems; result in loss of trade secrets or other proprietary or competitively sensitive information; compromise personally identifiable information regarding customers or employees; and jeopardize the security of our facilities. A cyber-attack could be caused by malicious outsiders using sophisticated methods to circumvent firewalls, encryption and other security defenses. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Information technology security threats, including security breaches, computer malware and other cyber-attacks are increasing in both frequency and sophistication and could create financial liability, subject us to legal or regulatory sanctions or damage our reputation with customers, dealers, suppliers and other stakeholders. We continuously seek to maintain a robust program of information security and controls, but a cyber-attack could have a material reduction in the Partnership’s anticipatedadverse effect on our competitive position, reputation, results of operations, financial condition and cash flow and after-tax returnflows. As cyber-attacks continue to the unitholders, likely causing a substantial reduction in the value of our investment in the Partnership.
The tax treatment of publicly traded partnerships or an investment in the Partnership’s common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
The present federal income tax treatment of publicly traded partnerships, including the Partnership, or an investment in its common units,evolve, we may be modified by administrative, legislative or judicial interpretation at any time. Any modificationrequired to the federal income tax laws and interpretations thereof may or may not be applied retroactively. Moreover, any such modification could make it more difficult or impossible for the Partnership to meet the exception which allows publicly traded partnerships that generate qualifying income to be treated as partnerships (rather than corporations) for U.S. federal income tax purposes, affect or cause us to change our business activities, or affect the tax consequences of an investment in its common units. For example, as discussed above, on January 24, 2017, Final Regulations were published in the Federal Register and apply to taxable years beginning on or after January 19, 2017. The Final Regulations will likely affect the Partnership’s abilityexpend additional resources to continue to qualifymodify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
We are or may become subject to privacy and data protection laws, rules and directives relating to the processing of personal data in the states and countries where we operate.
The growth of cyber-attacks has resulted in an evolving legal landscape which imposes costs that are likely to increase over time. For example, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information, including the European Union General Data Protection Regulation and recent California legislation (which, among other things, provides for a private right of action), pose increasingly complex compliance challenges and could potentially elevate our costs over time. Any failure by us to comply with such laws and regulations could result in penalties and liabilities. It is also possible under certain legislation that if we acquire a company that has violated or is not in compliance with applicable data protection laws, we may incur significant liabilities and penalties as a publicly traded partnership.result.
Item 1B.Unresolved Staff Comments
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Item 1B. | Unresolved Staff Comments |
None.
We own the following real property:property as of December 31, 2022:
•Approximately 661,700 acres in Vansant (Buchanan County), Virginia on which the Jewell cokemaking facility is located, along with an additional approximately 1,675 acres including the offices, warehouse and support buildings for our Jewell coke affiliates located in Buchanan County, Virginia, as well as other general property holdings and unoccupied land in Buchanan County, Virginia and McDowell County, West Virginia.land.
•Approximately 400 acres in Franklin Furnace (Scioto County), Ohio, at and around the area where the Haverhill cokemaking facility (both the first and second phases) is located.
•Approximately 4145 acres in Granite City (Madison County), Illinois, adjacent to the U.S. Steel Granite City Works facility, on which the Granite City cokemaking facility is located. Upon the earlier of ceasing production at the facility or the end of 2044, U.S. Steel has the right to repurchase the property, including the facility, at the fair market value of the land. Alternatively, U.S. Steel may require us to demolish and remove the facility and remediate the site to original condition upon exercise of its option to repurchase the land.
•Approximately 250 acres in Middletown (Butler County), Ohio near AK Steel’sCliff’s Middletown Works facility, on which the Middletown cokemaking facility is located.
•Approximately 180 acres in Ceredo (Wayne County), West Virginia on which KRT has two terminals for its mixing and/or handling services along the Ohio and Big Sandy Rivers.
•Approximately 174175 acres in Convent (St. James Parish), Louisiana, on which CMT is located.
We lease the following real property:property as of December 31, 2022:
•Approximately 8890 acres of land located in East Chicago (Lake County), Indiana, on which the Indiana Harbor cokemaking facility is located and the coal handling and/or mixing facilities (Lake Terminal) that service the Indiana Harbor cokemaking facility. The leased property is inside ArcelorMittal’s Indiana Harbor Works facility and is part of an enterprise zone. As lessee of the property, we are responsible for restoring the leased property to a safe and orderly condition.
•Approximately 22310 acres of land located in Buchanan County, Virginia, on whichat and around the area where our DRT coal handling terminal is located.
•Approximately 2530 acres in Belle (Kanawha County), West Virginia, on which KRT has a terminal for its mixing and/or handling services along the Kanawha River.
•Our corporate headquarters is located in leased office space in Lisle, Illinois under an 11-yeara 9 year lease that commenced in 2011.2021.
While the Company completed the disposal of its coal mining business in April 2016, we continue to leasehave rights to small parcels of land, mineral rights and coal mining rights for approximately 355 thousand acres of land in Buchanan and Russell Counties, Virginia. These leasesagreements convey mining rights to us in exchange for payment of certain immaterial royalties and/or fixed fees.
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Item 3.Item 3.Legal Proceedings | Legal Proceedings |
The information presented in Note 1312 to our consolidated financial statements within this Annual Report on Form 10-K is incorporated herein by reference.
Many 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 and tax disputes, product liability, employment claims, personal injury claims, premises-liability claims, allegations of exposures to toxic substances 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 likely be material in relation to our business or our consolidated financial position, results of operations or cash flows at December 31, 2017.2022.
Item 4.Mine Safety Disclosures
31
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Item 4.
| Mine Safety Disclosures |
While the Company divested substantially all of its remaining coal mining assets in April 2016, the Company remains responsible for reclamation of certain retainedlegacy coal mining assets remainlocations that are subject to Mine Safety and Health Administration ("MSHA") regulatory purview and the Company continues to own certain logistics assets that are also regulated by MSHA. 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 Annual Report on Form 10-K.
PART II
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Item 5. | Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities |
Item 5.Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities
Market Information
Shares of our common stock have been tradingtrade under the stock trading symbol “SXC” on the New York Stock Exchange since July 21, 2011. The table below provides quarterly price ranges of our common stock for the two most recent fiscal years, based on the high and low prices from intraday trades.
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | High | | Low | | High | | Low |
| First quarter | $ | 11.88 |
| | $ | 8.04 |
| | $ | 6.63 |
| | $ | 2.05 |
|
| Second quarter | $ | 11.47 |
| | $ | 7.66 |
| | $ | 8.19 |
| | $ | 5.14 |
|
| Third quarter | $ | 11.25 |
| | $ | 8.20 |
| | $ | 8.20 |
| | $ | 5.52 |
|
| Fourth quarter | $ | 12.57 |
| | $ | 9.01 |
| | $ | 13.14 |
| | $ | 7.23 |
|
Exchange.
Performance Graph
The following performance graph and related information shall not be deemed "soliciting material" or be "filed" with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent we specifically incorporate it by reference into such filing.
The graph below matches the Company's cumulative 5-Year total shareholder return on common stock with the cumulative total returns of the S&P Small Cap 600 indexIndex, the NASDAQ U.S. Benchmark Iron & Steel Index, and the Dow Jones U.S. Iron & Steel index.Index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 20122017 to December 31, 2017.2022.
In selecting the indices for comparison, we considered market capitalization and industry or line-of-business. The S&P Small Cap 600 Index is a broad equity market index comprised of companies of between $450 million and $2.1 billion. The Company is a part of this index. The Dow JonesNASDAQ U.S. Benchmark Iron &and Steel indexIndex is comprised of both U.S.-based steel and metals manufacturing and coal and iron ore mining companies. While we do not manufacture steel, we do produce coke, an essential ingredient in the blast furnace production of steel. In addition, we have logistics operations. Accordingly, we believe the NASDAQ U.S. Benchmark Iron & Steel Index is appropriate for comparison purposes. The Company has elected to replace the Dow Jones U.S. Iron &and Steel indexIndex with the NASDAQ U.S. Benchmark Iron and Steel Index in this analysis and going forward, as the market capitalization profile is appropriate for comparison purposes.more comparable to that of the Company. In this transition year, the stock performance graph includes both the Dow Jones U.S. Iron and Steel Index and the NASDAQ U.S. Benchmark Iron and Steel Index.
Holders
As of February 9, 2018,17, 2023, we had a total of 72,020,630 issued shares and 64,542,973 outstanding shares of our common stock and had 11,7328,340 holders of record of our common stock.
Dividends
In 2015,Our Board of Directors declared the following dividends during 2022 and through February 24, 2023: | | | | | | | | | | | | | | | | | | | | |
| Date Declared | | Record Date | | Dividend Per Share | | Payment Date |
| February 1, 2022 | | February 17, 2022 | | $0.06 | | March 1, 2022 |
| May 2, 2022 | | May 18, 2022 | | $0.06 | | June 1, 2022 |
| August 2, 2022 | | August 18, 2022 | | $0.08 | | September 1, 2022 |
| October 31, 2022 | | November 18, 2022 | | $0.08 | | December 1, 2022 |
| February 2, 2023 | | February 16, 2023 | | $0.08 | | March 1, 2023 |
Our payment of dividends in the future, if any, will be determined by our Board of Directors suspended the Company's dividend. Any future dividends will be determined by the Company's Board of Directors on a quarterly basis and will depend on business conditions, our financial condition, earnings, liquidity and capital requirements, covenants in our debt agreements and other factors. Any dividend program may be canceled, suspended, terminated or modified at any time at the discretion of the Board of Directors.
Company's Share Repurchase ProgramRecent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
On July 23, 2014,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 at any time andper share, from time to time in the open market throughtransactions at prevailing market prices, in privately negotiated transactions, block transactions, or otherwiseby other means in accordance with federal securities laws, for a total aggregate cost to the Company not to exceed $150.0$100.0 million. There werehave been no shares repurchased during 2017. At December 31, 2017 there was $39.4share repurchases since the first quarter of 2020 as the Company temporarily suspended additional repurchases, leaving $96.3 million available under the authorized share repurchase program.
Partnership Common Unit Purchase Program
In April 2017, the Company's Boardprogram as of Directors authorized a program for the Company to purchase outstanding Partnership common units at any time and from time to time in the open market, through privately negotiated transactions, block transactions, or otherwise for a total aggregate cost to the Company not to exceed $50.0 million. In July 2017, the Company's Board of Directors authorized the Company to purchase an incremental $50.0 million of Partnership common units in the open market. During 2017, the Company purchased 2,853,032 of outstanding Partnership common units in the open market for total cash payments of $48.7 million, which increased our limited partner interest in the Partnership from 53.9 percent to 59.9 percent at December 31, 2017.2022.
Subsequent to December 31, 2017, the Company purchased an additional 132,188 of outstanding Partnership common units in the open market for total cash payments of $2.3 million, leaving a remaining common unit purchase program balance of $49.0 million as of February 15, 2018.
Partnership's Unit Repurchase ProgramItem 6.[Reserved]
On July 20, 2015, the Partnership's Board of Directors authorized a program for the Partnership to repurchase up to $50.0 million of its common units. At December 31, 2017, there was $37.2 million available under the authorized unit repurchase program. There were no unit repurchases during 2017.
34
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Item 6. | Selected Financial Data |
The following table presents summary consolidated operating results and other information of SunCoke Energy and should be read in conjunction with "Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K.Operations
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| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017(1) | | 2016(1) | | 2015(1) | | 2014 | | 2013 |
| | (Dollars in millions, except per share amounts) |
| Operating Results: | | | | | | | | | |
| Total revenues | $ | 1,331.5 |
| | $ | 1,223.3 |
| | $ | 1,362.7 |
| | $ | 1,503.8 |
| | $ | 1,647.7 |
|
Operating income (loss)(2) | $ | 102.9 |
| | $ | 96.6 |
| | $ | 79.8 |
| | $ | (62.4 | ) | | $ | 111.3 |
|
Net income (loss)(2)(3)(4) | $ | 103.5 |
| | 59.5 |
| | $ | 10.3 |
| | $ | (101.8 | ) | | $ | 50.1 |
|
Net income (loss) attributable to SunCoke Energy, Inc.(4)(5) | $ | 122.4 |
| | $ | 14.4 |
| | $ | (22.0 | ) | | $ | (126.1 | ) | | $ | 25.0 |
|
| Earnings (loss) attributable to SunCoke Energy, Inc. per common share | | | | | | | | | |
| Basic | $ | 1.90 |
| | $ | 0.22 |
| | $ | (0.34 | ) | | $ | (1.83 | ) | | $ | 0.36 |
|
| Diluted | $ | 1.88 |
| | $ | 0.22 |
| | $ | (0.34 | ) | | $ | (1.83 | ) | | $ | 0.36 |
|
| Dividends paid per share | $ | — |
| | $ | — |
| | $ | 0.4335 |
| | $ | 0.0585 |
| | $ | — |
|
| Other Information: | | | | | | | | | |
| Total assets | $ | 2,060.1 |
| | $ | 2,120.9 |
| | $ | 2,255.5 |
| | $ | 1,959.7 |
| | $ | 2,213.3 |
|
| Long-term debt | $ | 861.1 |
| | $ | 849.2 |
| | $ | 997.7 |
| | $ | 633.5 |
| | $ | 630.1 |
|
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(1) | The results of CMT have been included in the consolidated financial statements since it was acquired on August 12, 2015. CMT added combined assets of $394.6 million, $411.7 million and $426.1 million at December 31, 2017, 2016 and 2015, respectively. CMT contributed revenues of $71.1 million, $62.7 million and $28.6 million, as well as operating income of $42.3 million, $46.5 million and $18.4 million during 2017, 2016 and 2015, respectively. |
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(2) | In April 2016, the Company recorded losses related to the divestiture of its coal mining business to Revelation Energy, LLC of $14.7 million. During 2014, we recorded total impairment charges related to our coal mining business of $150.3 million, which included both long-lived asset and goodwill impairment charges. |
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(3) | During 2015 and 2014, we recorded other-than-temporary impairment charges on our investment in VISA SunCoke of $19.4 million and $30.5 million, respectively. The 2015 impairment charges brought our investment in VISA SunCoke to zero. |
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(4) | During 2017, the Company recorded $154.7 million of net tax benefits, $125.0 million of which were attributable to SunCoke, related to the new Tax Legislation. Additionally, during 2017, the Company recorded deferred income tax expense of $64.2 million, all of which was attributable to noncontrolling interest, related to the Final Regulations. See Note 5 to our consolidated financial statements. |
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(5) | On January 13, 2015 and on August 12, 2015 the Partnership acquired ownership interests in the Company's Granite City cokemaking facility of 75 percent and 23 percent, respectively. Additionally, on January 24, 2013, in conjunction with the Partnership's initial public offering, and on May 9, 2014, the Partnership acquired ownership interests in each of the Company's Haverhill and Middletown cokemaking facilities of 65 percent and 33 percent, respectively. |
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Item 7.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This Annual Report on Form 10-K 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, expected future developments, expectations and intentions. Ourintentions, 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 under “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors.”
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 United States (“U.S.”) generally accepted accounting principles (“GAAP”) and certain other financial data that is prepared using a non-GAAP measures.measure. For a reconciliation of thesethe non-GAAP measuresmeasure to theits most comparable GAAP components,component, see “Non-GAAP"Non-GAAP Financial Measures” at the end ofMeasures" in this Item and Note 1819 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 flows. Our results of operations include reference to our business operations and market conditions, which are further described in Part I of this document.
20172022 Overview
Our consolidated results of operations in 20172022 were as follows: | | | | | | | | | |
| Year Ended December 31, 2022 | | |
| (Dollars in millions) |
| Net income | $ | 104.9 | | | | | |
| Net cash provided by operating activities | $ | 208.9 | | | | | |
Adjusted EBITDA(1) | $ | 297.7 | | | | | |
|
| | | |
| | Year Ended December 31, |
| | 2017 |
| | (Dollars in millions) |
| Net income attributable to SunCoke Energy, Inc. | $ | 122.4 |
|
| Net cash provided by operating activities | $ | 148.5 |
|
| Adjusted EBITDA | $ | 234.7 |
|
During 2017,(1)See Note 19 in our consolidated financial statements for both the Company successfully delivered against the majoritydefinition of our key objectives:
Achieved financial objectives. We delivered Adjusted EBITDA of $234.7 million, atand the top end ofreconciliation from GAAP to the non-GAAP measurement.
The Company delivered strong financial results for the year ended 2022. Favorable pricing on export coke sales in our guidance range of $220 million to $235 million, and generated $148.5 million of operating cash flow, above our post-refinancing guidance of between $128 million and $143 million and in line with our original guidance. Domestic Coke contributedsegment and higher price realization and volumes within our Logistics segment drove record Adjusted EBITDA per ton of approximately $49, at the high-end of our guidance range of $46 to $49 per ton, on 3.9 million tons. Logistics delivered Adjusted EBITDA of $70.8 million, within our guidance range of $67 million to $72 million, reflecting the highest annual volumesperformance in CMT’s history.
Refinanced our overall capital structure and deployed cash toward attractive investment opportunities. We refinanced our senior note obligations at both the Company and the Partnership and extended revolver maturities by more than 4 years to nearly 7 years remaining. Our current capital structure now provides us with significant flexibility to execute our growth, operating and capital allocation priorities going forward.2022. We also purchased 2.9 million Partnership common units for $48.7 million,increased our participation in the foundry coke market, while continuing to deliver on our long-term, take-or-pay coke contracts.
We returned meaningful capital to our shareholders through the declaration and payment of a dividend during each quarter of 2022, increasing our limited interest from 53.9 percent to 59.9 percent. Assuming distributions$0.06 per unit fromshare during the Partnership remain consistent, the Company expects to save $7 million annually on total distributions paid to public unitholders.
Expanded Logistics customer and product mix. We secured new volumes at CMT, expanding into aggregates (crushed stone) and petroleum coke, which contributed $1.5 million of Adjusted EBITDA. We also secured barge unloading capabilities at CMT, which provide the terminal with the ability to transload and mix a significantly broader variety of materials.
Completed 58 oven rebuilds at Indiana Harbor. We have now rebuilt a total of 144 total ovens at our Indiana Harbor facility, more thanfirst half of the entireyear to $0.08 per share during the second half of the year, representing a quarterly increase of 33 percent. Additionally, we reduced total debt by approximately $83 million in 2022.
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 remain encouraged by the performance in charge weights and coking times on the rebuilt ovens. Asconstruct a resultgranulated pig iron facility with an annual capacity of lost production from planned ovens out of service and operating and maintenance expense on the oven rebuilds, we expected Adjusted EBITDA losses at Indiana Harbor of approximately $13 million in 2017. However, in the fourth quarter of 2017, planned oven rebuilds were out of service longer than anticipated. Additionally, we experienced faster than anticipated degradation of certain non-
rebuilt ovens. Both of these factors drove lower production than anticipated, which resulted in additional losses of $5.5 million beyond our Adjusted EBITDA guidance.
Our Focus and Outlook for 2018
During 2018, our primary focus will be to:
Accomplish our 2018 financial objectives. We expect to deliver Adjusted EBITDA of between $240 million and $255 million and operating cash flow of between $150 million and $165 million. Significant improvement at Indiana Harbor and solid ongoing operations across the remaining Domestic Coke fleet are expected to drive Adjusted EBITDA per ton of approximately $50 to $52 on approximately 3.92 million tons of coke. Logistics is expected to continuebe sold to grow and to deliver Adjusted EBITDA of approximately $71 million to $76 million.
Deliver operational excellence and optimize our asset base. We will continue to work with new and existing customers to fully utilize our existing cokemaking and logistics capacity. We plan to leverage CMT's capabilities to diversify its customer base and product mix to secure new business, which we expect will contribute to our plan of securing an additional $5 million to $10 million of Adjusted EBITDA in the next two years. We also remain committed to maintainingU.S. Steel for a safe work environment and expect to substantially complete the Granite City gas sharing environmental remediation project.ten year initial term.
Complete 67 oven rebuilds at Indiana Harbor. We expect our Indiana Harbor cokemaking operation to deliver near break-even results on 870 thousand to 900 thousand tons of coke sales. The 2018 rebuilds are expected to cost approximately $30 million to $35 million, including capital expenditures of approximately $25 million to $30 million. Longer-term, we anticipate increased production from the rebuilt ovens and improved operating and maintenance spending as the oven rebuild campaign comes to an end.
Items Impacting Comparability
•2021 Debt Activities.Refinancing. During 2017, the Partnershipsecond quarter of 2021, the Company refinanced its debt obligationsobligations. The Company issued $500.0 million of 4.875 percent senior notes, due in 2029 ("2029 Senior Notes"), amended and the Company extended the maturity of its revolving credit facility ("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 reduced its borrowing capacity to $100.0 million.redeem all of the 7.500 percent senior notes, due in 2025 ("2025 Senior Notes"). As a result of the debt refinancing 2017and revolver amendment, the year ended December 31, 2021 included a loss on extinguishment of debt on the Consolidated Statement of OperationsIncome of $20.4 million. See further discussion$31.9 million, which consisted of these activities in Note 12 to our consolidated financial statements and discussion in "Liquidity and Capital Resources."
During 2016 and 2015, the Partnership de-levered its balance sheet by repurchasing $89.5premium paid of $22.0 million and $47.5 million face value 2020 Partnership Notes, resulting in gains onthe write-off of unamortized debt extinguishmentissuance costs of $25.0$6.9 million and $12.1 million on the Consolidated Statementremaining original issue discount of Operations during 2016 and 2015, respectively. Additionally, during 2015, we contributed 98 percent interest in Granite City to the Partnership. In connection with the related financing, the Partnership incurred losses on extinguishment of debt of $11.4 million in 2015.
As a result of the above debt activities, weighted average debt balances during 2017, 2016 and 2015 were $885.4 million, $920.2 million and $819.6 million, respectively, and interest expense, net was $60.6 million, $53.5 million and $56.2 million, respectively. The increase in interest expense, net in 2017 as compared to 2016 was driven by higher interest rates as a result of the Partnership's debt refinancing activities as well as lower capitalized interest, partially offset by lower average debt balances. The decrease in interest expense, net in 2016 as compared to 2015 was the result of favorable interest rates on new debt as compared to rates on debt repurchased, partially offset by interest on higher average debt balances.
Tax Rulings.
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◦ | Tax Legislation. On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Legislation”) was enacted. The Tax Legislation significantly revises the U.S. corporate income tax structure, including lowering corporate income tax rates. As a result, in 2017, SunCoke recorded net income tax benefits of $154.7 million, of which $125.0 million was attributable to the Company, resulting from the remeasurement of U.S. deferred income tax liabilities and assets at the lower enacted corporate tax rates. See Note 5 to our consolidated financial statements.
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◦ | IRS Final Regulations on Qualifying Income. In January 2017, the Internal Revenue Service ("IRS") announced its decision to exclude cokemaking as a qualifying income generating activity in its final regulations (the "Final Regulations") issued under section 7704(d)(1)(E) of the Internal Revenue Code relating to the qualifying income exception for publicly traded partnerships. Subsequent to the 10-year transition period, certain cokemaking entities in the Partnership will become taxable as corporations. As a result, the Partnership recorded deferred income tax expense of $148.6 million to set up its initial
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$3.0 million.
37
deferred income tax liability during 2017, primarily related to differences in the book and tax basis of fixed assets, which are expected to exist at the end of the 10-year transition period when the cokemaking operations become taxable. However, the Company had previously recorded $84.4 million of the deferred income tax liability in its financial statements related to the Company's share of the deferred tax liability for the book and tax differences in its investment in the Partnership. As such, the Company's 2017 financial statements reflect the $64.2 million incremental impact from the Final Regulations solely attributable to the Partnership’s public unitholders, which was also recorded as an equal reduction to noncontrolling interest. As a result, the Final Regulations have no impact to net income attributable to the Company.
Terminated the Potential New Cokemaking Facility Project. We continue to have regular discussions with our customers regarding their respective long-term coke requirements. However, our ability to construct a new cokemaking facility, or enter into new commercial arrangements with our coke customers, is subject to our customers' decisions with respect to their own cokemaking assets, their outlook for their coke requirements and general domestic steel industry and market conditions. Our ongoing focus is to renew our existing customers' contracts in the upcoming years.
In 2014, we finalized the required permitting and engineering plan for a potential new cokemaking facility to be constructed in Kentucky. However, in June 2017, due to our focus on renewing our existing customer contracts and the lack of any long-term customer commitment for a majority of the facility's capacity, we decided to terminate the project. As a result, during 2017, the Company wrote-off previously capitalized engineering cost and land deposits of $5.3 million. During 2016, the Company wrote-off expiring land deposits related to the project of $1.9 million. These costs were included in selling, general and administrative expenses on the Consolidated Statements of Operations.
Convent Marine Terminal Acquisition. Comparability between periods was impacted by the acquisition of CMT on August 12, 2015. CMT results in periods presented were as follows:
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| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Total revenues | $ | 71.1 |
| | $ | 62.7 |
| | $ | 28.6 |
|
Cost of products sold and operating expenses(1) | 11.9 |
| | 1.3 |
| | 4.7 |
|
| Depreciation and amortization expense | 16.8 |
| | 14.8 |
| | 5.4 |
|
| Adjusted EBITDA | 57.4 |
| | 50.5 |
| | 20.6 |
|
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(1) | Includes $1.7 million and $10.1 million of favorable fair value adjustments to our contingent consideration liability in 2017 and 2016, respectively. |
Redemption of Investment in Brazilian Cokemaking Operations. On November 28, 2016, ArcelorMittal Brazil redeemed SunCoke’s indirectly held preferred and common equity interest in Sol Coqueria Tubarão S.A. ("Brazil Investment") for consideration of $41.0 million, an amount equal to our carrying value of the investment. The Company received $20.5 million in cash at closing in 2016 and received the remaining $20.5 million in cash, plus interest of $0.2 million, in 2017. With the redemption of the Brazil Investment, the Company no longer receives the $9.5 million annual preferred dividend. Additionally, in 2016, SunCoke added certain new patents to its existing intellectual property licensing agreement for which SunCoke now earns an incremental $5.1 million in annual licensing fees through 2023. The Company also extended the life of its patents with the Brazilian authorities through 2033, providing opportunity to extend the existing licensing agreement beyond 2023. Overall, these transactions resulted in a redemption of the investment and a reduction of $4.4 million to total revenues and Adjusted EBITDA in 2016 and each subsequent year through the end of the contract.
Loss on Divestiture of Business and Impairments. In April 2016, the Company completed the disposal of its coal mining business to Revelation Energy, LLC ("Revelation"). Revelation assumed substantially all of the Company's remaining coal mining assets, mineral leases, real estate and a substantial portion of our mining reclamation obligations. Under the terms of the agreement, Revelation received $12.8 million from the Company to take ownership of the assets and liabilities. During 2016, the Company recognized losses associated with this divestiture of $14.7 million. Cost savings due to the absence of the coal mining operations
improved Adjusted EBITDA results by $8.4 million in 2016 as compared to 2015 and an additional $2.5 million in 2017 as compared to 2016.
Pension Plan Termination. Effective May 30, 2014, Dominion Coal Corporation ("Dominion Coal"), a wholly-owned subsidiary of the Company, terminated its defined benefit plan, which was previously offered generally to all full-time employees of Dominion Coal. In June 2015, the plan settled its obligations by purchasing annuities using plan assets, which triggered settlement accounting and resulted in a non-cash loss of $12.6 million recorded in cost of products sold and operating expenses on the Consolidated Statements of Operations.
India Equity Method Investment. As a result of market conditions, we recorded impairment charges of $19.4 million related to our equity method investment in VISA SunCoke during 2015, included in loss from equity method investment on the Consolidated Statements of Operations. The 2015 impairment brought our investment in VISA SunCoke to zero, and consequently, we no longer include our share of VISA SunCoke in our financial results. See Note 17 to our consolidated financial statements.
Consolidated Results of Operations
The following section includes year-over-year analysis of consolidated results of operations for the yearsyear ended December 31, 2017, 2016 and 2015.2022 as compared to the year ended December 31, 2021. See "Analysis of Segment Results" later in this section for further details of these results. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K for the year-over-year analysis of consolidated results of operations for the year ended December 31, 2021 as compared to the year ended December 31, 2020. | | | | Years Ended December 31, | | Increase (Decrease) | | Years Ended December 31, | |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 | | 2022 | | 2021 | | | Increase (Decrease) |
| | (Dollars in millions) | | (Dollars in millions) |
| Revenues | | | | | | | | | | Revenues | | | | |
| Sales and other operating revenue | $ | 1,331.5 |
| | $ | 1,223.3 |
| | $ | 1,362.7 |
| | $ | 108.2 |
| | $ | (139.4 | ) | Sales and other operating revenue | $ | 1,972.5 | | | $ | 1,456.0 | | | | $ | 516.5 | | |
| Costs and operating expenses | | | | | | | | | | Costs and operating expenses | | | | |
| Cost of products sold and operating expenses | 1,020.8 |
| | 906.5 |
| | 1,098.4 |
| | 114.3 |
| | (191.9 | ) | Cost of products sold and operating expenses | 1,604.9 | | | 1,118.8 | | | | 486.1 | | |
| Selling, general and administrative expenses | 79.6 |
| | 91.3 |
| | 75.4 |
| | (11.7 | ) | | 15.9 |
| Selling, general and administrative expenses | 71.4 | | | 61.8 | | | | 9.6 | | |
| Depreciation and amortization expense | 128.2 |
| | 114.2 |
| | 109.1 |
| | 14.0 |
| | 5.1 |
| Depreciation and amortization expense | 142.5 | | | 133.9 | | | | 8.6 | | |
Loss on divestiture of business and impairments(1) | — |
| | 14.7 |
| | — |
| | (14.7 | ) | | 14.7 |
| |
| Total costs and operating expenses | 1,228.6 |
| | 1,126.7 |
| | 1,282.9 |
| | 101.9 |
| | (156.2 | ) | Total costs and operating expenses | 1,818.8 | | | 1,314.5 | | | | 504.3 | | |
| Operating income | 102.9 |
| | 96.6 |
| | 79.8 |
| | 6.3 |
| | 16.8 |
| Operating income | 153.7 | | | 141.5 | | | | 12.2 | | |
Interest expense, net(1) | 60.6 |
| | 53.5 |
| | 56.2 |
| | 7.1 |
| | (2.7 | ) | |
Loss (gain) on extinguishment of debt, net(1) | 20.4 |
| | (25.0 | ) | | 0.5 |
| | 45.4 |
| | (25.5 | ) | |
| Income before income tax (benefit) expense and loss from equity method investment | 21.9 |
| | 68.1 |
| | 23.1 |
| | (46.2 | ) | | 45.0 |
| |
| Income tax (benefit) expense | (81.6 | ) | | 8.6 |
| | (8.8 | ) | | (90.2 | ) | | 17.4 |
| |
Loss from equity method investment(1) | — |
| | — |
| | 21.6 |
| | — |
| | (21.6 | ) | |
| Interest expense, net | | Interest expense, net | 32.0 | | | 42.5 | | | | (10.5) | | |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | — | | | 31.9 | | | | (31.9) | | |
| Income before income tax expense | | Income before income tax expense | 121.7 | | | 67.1 | | | | 54.6 | | |
| Income tax expense | | Income tax expense | 16.8 | | | 18.3 | | | | (1.5) | | |
| Net income | 103.5 |
| | 59.5 |
| | 10.3 |
| | 44.0 |
| | 49.2 |
| Net income | 104.9 | | | 48.8 | | | | 56.1 | | |
| Less: Net (loss) income attributable to noncontrolling interests | (18.9 | ) | | 45.1 |
| | 32.3 |
| | (64.0 | ) | | 12.8 |
| |
| Net income (loss) attributable to SunCoke Energy, Inc. | $ | 122.4 |
| | $ | 14.4 |
| | $ | (22.0 | ) | | $ | 108.0 |
| | $ | 36.4 |
| |
| Less: Net income attributable to noncontrolling interests | | Less: Net income attributable to noncontrolling interests | 4.2 | | | 5.4 | | | | (1.2) | | |
| Net income attributable to SunCoke Energy, Inc. | | Net income attributable to SunCoke Energy, Inc. | $ | 100.7 | | | $ | 43.4 | | | | $ | 57.3 | | |
| |
(1) | See year-over-year changes described in "Items Impacting Comparability." |
Sales and Other Operating Revenue. The increase in salesRevenue and Costs of Products Sold and Operating Expenses.Sales and other operating revenue and costs of products sold and operating expenses increased in 20172022 as compared to the prior year was2021, primarily due todriven by the pass-through of higher coal prices in our Domestic Coke segment, as well as higherwhich also resulted in lower margins. Additionally, revenues further benefited from favorable pricing on export coke sales volumes in our Logistics segment partially offset by lower sales volumes in our Domestic Coke segment. The decrease in sales and other operating revenues in 2016 as compared to 2015 primarily reflects the pass-through of lower coal prices in our Domestic Coke segment, as well as lower sales volumes in both our Domestic Coke and Logistics segments, excludingwhich partially offset the contributionsimpact of CMT. These decreases in 2016 were partly offset by a full year of contributions from CMT, increasing sales and other operating revenue $34.1 million as compared to 2015.
Cost of Products Sold and Operating Expenses. The increase in cost of products sold and operating expense in 2017 was primarily due to higher coal costs associated with higher coal prices in our Domestic Coke segment as compared to 2016. The decrease in cost of products sold and operating expense in 2016 was primarily due to the result of reduced coal costs in our Domestic Coke segment as compared to 2015. Additionally, black lung charges of $9.8 million in 2015 were recorded in costs of products sold and operating expenses. Beginning in 2016, with our exit from the coal mining business, black lung charges were recorded in selling, general and administrative expenses, which resulted in a favorable impact to cost of products sold and operating expenses in 2016 compared to 2015. Adjustments to our contingent consideration liability decreased cost of products sold and operating expenses by $1.7 million and $10.1 million in 2017 and 2016, respectively. See Note 17 to our consolidated financial statements.on margins.
Selling, General and Administrative Expenses. The decrease in selling, general and administrative expense in 2017 was driven by lower employee-related and other costs, lower costs to resolve certain legal matters and lower professional service fees, which together decreased selling, general and administrative expense by $12.4 million in 2017 as compared to 2016. These benefits were partially offset by the year-over-year impact of the expiration of land deposits and the write-off of costs associated with the termination of our project for a potential new cokemaking facility previously discussed in "Items Impacting Comparability." Expenses. The increase in selling, general and administrative expense in 2016 as compared to 2015 was primarily driven by $8.1 million of black lung charges in 2016, as black lung charges were included inreflects higher employee related expenses, higher cost of products sold
and operating expenses prior to 2016, as discussed above. The remaining increase was driventhe granulated pig iron project. These higher costs were partially offset by unfavorable fair valuevaluation adjustments in deferred compensation as a result of changes in discount rates on certain performance metrics and changes inlegacy liabilities, which decreased legacy costs by $3.3 million as compared to the Company’s share price and Partnership's unit price as well as the absence of a $4.0 million postretirement benefit plan curtailment gain recognized in 2015.prior year.
Depreciation and Amortization Expense. The increase in depreciationDepreciation and amortization expense during 2017 was impacted by depreciationincreased as a result of depreciable assets placed into service since the prior year period.
Interest Expense, net. Interest expense, net, benefited in 2022 from a lower interest rate on the new ship loader at CMT and certain environmental remediation assets at our Haverhill cokemaking facility, both placed in service during the fourth quarter of 2016. The increase in depreciation and amortization expense in 2016 was driven by a full year of depreciation of CMT assets of $14.8 million in 2016 comparedoutstanding senior notes, which decreased to depreciation expense of $5.4 million in 2015, as CMT was acquired in August 2015. CMT depreciation was mostly offset by lower depreciation of our coal mining assets, which decreased4.875 percent from 7.500 percent as a result of the disposaldebt refinancing that occurred during the second quarter of 2021, as well as lower average debt balances during the current year period.
Income Tax Expense.Income tax expense during 2022 reflects the net impact of Foreign Tax Credit regulations signed in 2022 further described in Note 4 to our assets in April 2016. Depreciationconsolidated financial statements, which had a net result of an income tax benefit of $6.5 million during the current year period. Additionally, the current year period reflects the recognition of research and amortization expense in each year was also impacted by revisions to the remaining useful lives of certain assets, primarily related to certain assets in our Domestic Coke segmentdevelopment credits and the closure of our former coal preparation plant,lower apportioned state income tax rates, which resulted in additional depreciationan income tax benefits of $22.4 million, $13.7$4.0 million and $15.1$6.4 million, or $0.35, $0.17 and $0.21 per common share from operations, during 2017, 2016 and 2015, respectively.
Income Taxes. Income tax benefit was $81.6 million and $8.8 million in 2017 and 2015, respectively, while 2016 had income tax expenseincluding the related revaluation of $8.6 million. The periods presented are not comparable as 2017 included net impacts to the Company’scertain deferred tax expense of $64.2 million associated with the Final Regulations as well as the $154.7 million tax benefit related to the Tax Legislation, both previously discussed in "Items Impacting Comparability." Additionally, the income tax benefit recorded in 2015 related to the insolvency of a subsidiary.liabilities. See Note 54 to theour consolidated financial statements.statements for further detail.
Noncontrolling Interest.IncomeNet income attributable to noncontrolling interest represents the common public unitholders' interest in SunCoke Energy Partners, L.P. as well as a 14.8 percent third-party interest in our Indiana Harbor cokemaking facility. The following table provides details into net income (loss) attributable to noncontrolling interest. |
| | | | | | | | | | | | |
| | | Years Ended December 31 |
| | | 2017 | | 2016 | | 2015 |
Net (loss) income attributable to the Partnership's common public unitholders'(1)(2) | | $ | (13.5 | ) | | $ | 46.1 |
| | $ | 34.1 |
|
Net loss attributable to third-party interest in our Indiana Harbor cokemaking facility(3) | | (5.4 | ) | | (1.0 | ) | | (1.8 | ) |
| Net (loss) income attributable to noncontrolling interest | | $ | (18.9 | ) | | $ | 45.1 |
| | $ | 32.3 |
|
| |
(1) | The decrease during the year ended December 31, 2017 as compared to 2016 was primarily due to the impacts of the IRS Final Regulations, which resulted in the Partnership becoming taxable at the end of the 10-year transition period, as well as the Partnership's loss on extinguishment of debt in 2017 and the absence of the Partnership's gain on extinguishment of debt in 2016. These impacts were partially offset by the Tax Legislation in 2017, which lowered corporate income tax rates. See "Items Impacting Comparability" for further discussion. |
| |
(2) | The increase during the year ended December 31, 2016 as compared to 2015 was primarily due to the Partnership's gain on extinguishment of debt due to its de-levering activities previously described in "Items Impacting Comparability." |
(3) The decrease during the year ended December 31, 2017 as compared to 2016 was primarily driven by lower volumesfacility and higher operating and maintenance spending as a result of ovens out of service associatedfluctuates with the Indiana Harbor oven rebuild initiative.financial performance of that facility.
Results of Reportable Business Segments
We report our business results through three segments:
•Domestic Coke consists of our Jewell Coke Company, L.P. ("Jewell"), Indiana Harbor Coke Company ("Indiana Harbor"), Haverhill Coke Company LLC ("Haverhill"), Gateway Energy and Coke Company, LLC ("Granite City") and Middletown Coke Company, LLC ("Middletown") cokemaking and heat recovery operationsfacility, located in Vansant, Virginia;Virginia, our Indiana Harbor facility, located in East Chicago, Indiana;Indiana, our Haverhill facility, located in Franklin Furnace, Ohio;Ohio, our Granite City Illinois;facility located in Granite City, Illinois, and our Middletown Ohio, respectively.
facility located in Middletown, Ohio.•Brazil Coke consists of our operations in Vitória, Brazil, where we operate athe ArcelorMittal Brazil cokemaking facility, ArcelorMittal Brasil S.A. ("ArcelorMittal Brazil”), for a Brazilian subsidiary of ArcelorMittal S.A.;
facility.•Logistics consists of Convent Marine Terminal ("CMT"), located in Convent, Louisiana, Kanawha River Terminals, LLCTerminal ("KRT"), located in Ceredo and Belle, West Virginia, SunCoke Lake Terminal LLC ("Lake Terminal"), located in East Chicago, Indiana, and Dismal River Terminal LLC ("DRT") providing handling and/or
mixing services, located in Convent, Louisiana; Ceredo and Belle, West Virginia; East Chicago, Indiana; and Vansant, Virginia. Lake Terminal and DRT are located adjacent to our Indiana Harbor and Jewell cokemaking facilities, respectively.
The operations of each of our segments are described in Part I of this document.
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, which was historically presented as a reportable segment. Prior year periods have been recasted to reflect current presentation.Other.
Management believes Adjusted EBITDA is an important measure of operating performance and liquidity and uses it 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 1819 to our consolidated financial statements.
Segment Operating Data
The following table sets forth financial and operating data by segment for the years ended December 31, 2017, 20162022 and 2015:2021: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | |
| 2022 | | 2021 | | | | Increase (Decrease) |
| (Dollars in millions, except per ton amounts) |
| Sales and other operating revenue: | | | | | | | | | | | | | |
| Domestic Coke | $ | 1,856.9 | | | $ | 1,354.5 | | | | | $ | 502.4 | | | | | | | |
| Brazil Coke | 38.0 | | | 36.6 | | | | | 1.4 | | | | | | | |
| Logistics | 77.6 | | | 64.9 | | | | | 12.7 | | | | | | | |
| Logistics intersegment sales | 28.9 | | | 27.1 | | | | | 1.8 | | | | | | | |
| Elimination of intersegment sales | (28.9) | | | (27.1) | | | | | (1.8) | | | | | | | |
| Total sales and other operating revenue | $ | 1,972.5 | | | $ | 1,456.0 | | | | | $ | 516.5 | | | | | | | |
Adjusted EBITDA(1): | | | | | | | | | | | | | |
| Domestic Coke | $ | 263.4 | | | $ | 243.4 | | | | | $ | 20.0 | | | | | | | |
| Brazil Coke | 14.5 | | | 17.2 | | | | | (2.7) | | | | | | | |
| Logistics | 49.7 | | | 43.5 | | | | | 6.2 | | | | | | | |
| Corporate and Other, net | (29.9) | | | (28.7) | | | | | (1.2) | | | | | | | |
| Total Adjusted EBITDA | $ | 297.7 | | | $ | 275.4 | | | | | $ | 22.3 | | | | | | | |
| Coke Operating Data: | | | | | | | | | | | | | |
Domestic Coke capacity utilization(2) | 100 | % | | 101 | % | | | | (1) | % | | | | | | |
| Domestic Coke production volumes (thousands of tons) | 4,023 | | | 4,162 | | | | | (139) | | | | | | | |
| Domestic Coke sales volumes (thousands of tons) | 4,031 | | | 4,183 | | | | | (152) | | | | | | | |
Domestic Coke Adjusted EBITDA per ton(3) | $ | 65.34 | | | $ | 58.19 | | | | | $ | 7.15 | | | | | | | |
| Brazilian Coke production—operated facility (thousands of tons) | 1,585 | | | 1,685 | | | | | (100) | | | | | | | |
| Logistics Operating Data: | | | | | | | | | | | | | |
| Tons handled (thousands of tons) | 22,291 | | | 19,933 | | | | | 2,358 | | | | | | | |
| | | | | | | | | | | | | |
(1)See Note 19 in our consolidated financial statements for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement.
(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.
(3)Reflects Domestic Coke Adjusted EBITDA divided by Domestic Coke sales volumes.
|
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | Increase (Decrease) |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| | (Dollars in millions, except per ton amounts) |
| Sales and other operating revenue: | | | | | | | | | |
| Domestic Coke | $ | 1,195.0 |
| | $ | 1,097.6 |
| | $ | 1,244.1 |
| | $ | 97.4 |
| | $ | (146.5 | ) |
| Brazil Coke | 43.4 |
| | 39.5 |
| | 43.4 |
| | 3.9 |
| | (3.9 | ) |
| Logistics | 93.1 |
| | 84.7 |
| | 60.8 |
| | 8.4 |
| | 23.9 |
|
| Logistics intersegment sales | 23.8 |
| | 23.2 |
| | 20.4 |
| | 0.6 |
| | 2.8 |
|
Corporate and Other(1) | — |
| | 1.5 |
| | 14.4 |
| | (1.5 | ) | | (12.9 | ) |
Corporate and Other intersegment sales(1) | — |
| | 22.0 |
| | 101.0 |
| | (22.0 | ) | | (79.0 | ) |
| Elimination of intersegment sales | (23.8 | ) | | (45.2 | ) | | (121.4 | ) | | 21.4 |
| | 76.2 |
|
| Total sales and other operating revenue | $ | 1,331.5 |
| | $ | 1,223.3 |
| | $ | 1,362.7 |
| | $ | 108.2 |
| | $ | (139.4 | ) |
Adjusted EBITDA(2): | | | | | | | | | |
| Domestic Coke | $ | 188.9 |
| | $ | 193.9 |
| | $ | 210.1 |
| | $ | (5.0 | ) | | $ | (16.2 | ) |
| Brazil Coke | 18.2 |
| | 16.2 |
| | 22.4 |
| | 2.0 |
| | (6.2 | ) |
| Logistics | 70.8 |
| | 63.9 |
|
| 38.0 |
| | 6.9 |
| | 25.9 |
|
Corporate and Other, including legacy costs, net(3) | (43.2 | ) | | (57.0 | ) | | (85.1 | ) | | 13.8 |
| | 28.1 |
|
| Adjusted EBITDA | $ | 234.7 |
| | $ | 217.0 |
| | $ | 185.4 |
| | $ | 17.7 |
| | $ | 31.6 |
|
| Coke Operating Data: | | |
| | | | | | |
| Domestic Coke capacity utilization (%) | 91 |
| | 93 |
| | 97 |
| | (2 | ) | | (4 | ) |
| Domestic Coke production volumes (thousands of tons) | 3,861 |
| | 3,954 |
| | 4,122 |
| | (93 | ) | | (168 | ) |
| Domestic Coke sales volumes (thousands of tons) | 3,851 |
| | 3,956 |
| | 4,115 |
| | (105 | ) | | (159 | ) |
Domestic Coke Adjusted EBITDA per ton(4) | $ | 49.05 |
| | $ | 49.01 |
| | $ | 51.06 |
| | $ | 0.04 |
| | $ | (2.05 | ) |
| Brazilian Coke production—operated facility (thousands of tons) | 1,761 |
| | 1,741 |
| | 1,760 |
| | 20 |
| | (19 | ) |
| Logistics Operating Data: | | | | | | | | | |
Tons handled (thousands of tons)(5) | 21,616 |
| | 18,569 |
| | 18,864 |
| | 3,047 |
| | (295 | ) |
CMT take-or-pay shortfall tons (thousands of tons)(6) | 2,918 |
| | 6,076 |
| | 1,291 |
| | (3,158 | ) | | 4,785 |
|
| |
(1) | Corporate and Other revenues are related to our legacy coal mining business. |
| |
(2) | See Note 18 in our consolidated financial statements for both the definition of Adjusted EBITDA and the reconciliations from GAAP to the non-GAAP measurement for the years ended December 31, 2017, 2016 and 2015. |
| |
(3) | Corporate and Other includes the activity from our legacy coal mining business, which incurred Adjusted EBITDA losses of $10.5 million, $15.0 million, and $40.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. |
| |
(4) | Reflects Domestic Coke Adjusted EBITDA divided by Domestic Coke sales volumes. |
| |
(5) | Reflects inbound tons handled during the period. |
| |
(6) | Reflects tons billed under take-or-pay contracts where services were not performed. |
Analysis of Segment Results
Domestic Coke
The following table explains year-over-year changes in our Domestic Coke segment's sales and other operating revenues and Adjusted EBITDA results: | | | | | | | | | | | | | | | |
| Sales and other operating revenue | | Adjusted EBITDA |
| 2022 vs 2021 | | | | 2022 vs 2021 | | |
| (Dollars in millions) |
| Beginning | $ | 1,354.5 | | | | | $ | 243.4 | | | |
Volume(1) | (46.4) | | | | | (13.9) | | | |
Price(2) | 543.2 | | | | | 47.4 | | | |
Operating and maintenance costs(3) | N/A | | | | (13.1) | | | |
Energy and other(4) | 5.6 | | | | | (0.4) | | | |
| Ending | $ | 1,856.9 | | | | | $ | 263.4 | | | |
|
| | | | | | | | | | | | | | | |
| | Sales and other operating revenue | | Adjusted EBITDA |
| | 2017 vs. 2016 | | 2016 vs. 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| | (Dollars in millions) |
| Beginning | $ | 1,097.6 |
| | $ | 1,244.1 |
| | $ | 193.9 |
| | $ | 210.1 |
|
Volumes(1) | (23.8 | ) | | (35.9 | ) | | (2.5 | ) | | (7.5 | ) |
Coal cost recovery and yields(2) | 118.8 |
| | (103.6 | ) | | 7.1 |
| | (8.8 | ) |
Operating and maintenance costs(3) | 1.0 |
| | 2.3 |
| | (15.6 | ) | | 14.0 |
|
Transportation costs shifted from Coal Mining segment(4) | — |
| | — |
| | — |
| | (5.5 | ) |
Haverhill turbine failure(5) | 0.9 |
| | (0.9 | ) | | 3.5 |
| | (3.5 | ) |
| Energy and other | 0.5 |
| | (8.4 | ) | | 2.5 |
| | (4.9 | ) |
| Ending | $ | 1,195.0 |
| | $ | 1,097.6 |
| | $ | 188.9 |
| | $ | 193.9 |
|
| |
(1) | In both 2016 and 2017, volumes were negatively impacted by the ongoing oven rebuild initiative at Indiana Harbor as well as a decrease in volumes to AK Steel, for which AK Steel provided make whole payments. |
| |
(2) | Revenues and the impact of coal-to-coke yields on Adjusted EBITDA move directionally with changes in coal prices, which were increasing in 2017 and decreasing in 2016. Additionally, our oven rebuilds at Indiana Harbor, which began in late 2015, negatively impacted coal-to-coke yields in 2016 as compared to 2015. As the oven rebuilds have continued in 2017, the impact on coal-to-coke yield gains in 2017 was comparable to 2016. |
| |
(3) | Higher operating and maintenance costs in 2017 as compared to 2016 was driven by an increase in the number of oven rebuilds at Indiana Harbor. Operating and maintenance savings in 2016 as compared to 2015 was primarily a result of a cost rationalization initiative completed in 2016 at Indiana Harbor. |
| |
(4) | In 2016, the divestiture of the coal mining business and the transition to a 100 percent purchased third-party coal model resulted in a shift of coal transportation costs from our former Coal Mining segment to our Jewell cokemaking facility of approximately $5.5 million. This shift of costs had no impact on consolidated Adjusted EBITDA. |
| |
(5) | In October 2016, the Partnership sustained a turbine failure at its Haverhill II facility, the impact of which was partially mitigated by insurance recoveries. The Haverhill II turbine was fully restored in January 2017. |
(1)Volumes decreased during 2022 primarily due to changes in the mix of production.
(2)Revenues increased primarily as a result of the pass-through of higher coal prices on our long-term, take-or-pay agreements, which also had a favorable impact on Adjusted EBITDA due to higher coal-to-coke yield gains on higher coal prices. Favorable pricing on export coke sales also increased revenues and was the primary driver of the increase to Adjusted EBITDA during 2022.
44
planned maintenance outages and higher cost of fuel.
(4)Favorable energy pricing at our Haverhill II facility increased both revenue and Adjusted EBITDA. This increase to Adjusted EBITDA was more than offset by higher allocation of corporate costs.
Logistics
The following table explains year-over-year changes in our Logistics segment's sales and other operating revenues and Adjusted EBITDA results: | | | | | | | | | | | | | | | |
| Sales and other operating revenue, inclusive of intersegment sales | | Adjusted EBITDA |
| 2022 vs 2021 | | | | 2022 vs 2021 | | |
| (Dollars in millions) |
| Beginning | $ | 92.0 | | | | | $ | 43.5 | | | |
Transloading volumes(1) | 5.9 | | | | | 3.6 | | | |
Price/margin impact of mix in transloading services(2) | 8.9 | | | | | 8.9 | | | |
Other(3) | (0.3) | | | | | (6.3) | | | |
| Ending | $ | 106.5 | | | | | $ | 49.7 | | | |
|
| | | | | | | | | | | | | | | |
| | Sales and other operating revenue, inclusive of intersegment sales | | Adjusted EBITDA |
| | 2017 vs. 2016 | | 2016 vs. 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| | (Dollars in millions) |
| Beginning | $ | 107.9 |
| | $ | 81.2 |
| | $ | 63.9 |
| | $ | 38.0 |
|
Acquisition of CMT(1) | — |
| | 34.1 |
| | — |
| | 29.9 |
|
Creation of DRT(2) | — |
| | 3.9 |
| | — |
| | 0.7 |
|
Transloading volumes(3) | 3.1 |
| | (10.5 | ) | | 2.4 |
| | (5.6 | ) |
Price/margin impact of mix in transloading services(4) | 3.0 |
| | (1.4 | ) | | 3.0 |
| | — |
|
| Operating and maintenance costs and other | 2.9 |
| | 0.6 |
| | 1.5 |
| | 0.9 |
|
| Ending | $ | 116.9 |
| | $ | 107.9 |
| | $ | 70.8 |
| | $ | 63.9 |
|
| |
(1) | Comparability between 2016 and 2015 was impacted by the acquisition of CMT on August 12, 2015. Both 2016 and 2017 reflect a full year of CMT results. |
| |
(2) | Comparability between 2016 and 2015 was impacted by the formation of DRT in early 2016. Both 2016 and 2017 reflect a full year of DRT results. |
| |
(3) | CMT achieved record volumes in 2017, which included $1.0 million of new merchant business. Transloading volumes decreased at KRT and Lake Terminal in both 2016 and 2017, driven by challenging market conditions in both the thermal and metallurgical coal markets. |
| |
(4) | The contractual price escalation for transloading services provided to certain customers at CMT in 2017 primarily drove the increase in both revenue and Adjusted EBITDA in 2017 as compared to 2016. |
(2)Revenues and Adjusted EBITDA increased as a result of favorable pricing at CMT driven by the strong export coal market.
(3)Other decreases in Adjusted EBITDA reflect higher operating and maintenance costs.
Brazil Coke
2017 compared to 2016
Sales and other operating revenue increased $3.9$1.4 million, or 9.94 percent, to $43.4$38.0 million in 20172022 compared to $39.5$36.6 million in 2016.2021. Adjusted EBITDA decreased $2.7 million, or 16 percent, to $14.5 million in 2022 compared to $17.2 million in 2021. Sales and other operating revenue and Adjusted EBITDA reflect the impact of lower volumes, including the absence of production bonuses for meeting certain volume targets received in the prior year. The increase inimpact of lower volumes on sales and other operating revenue was primarily due to $1.8 millionmore than offset by the pass-through of favorable translation adjustments as well as higher reimbursement ofreimbursable operating and maintenance costs of $1.1 million. The remaining increase of $1.0 million was primarily due to higher volumes, including higher production bonuses received from our customer in the current year for meeting certain volume targets beyond what was produced in the prior year.
Adjusted EBITDA increased $2.0 million, or 12.3 percent, to $18.2 million in 2017 compared to $16.2 million in 2016. The increase was primarily driven by higher volumes, including higher production bonuses as described above andwell as favorable translation adjustments.
2016 compared to 2015
Sales and other operating revenue decreased $3.9 million, or 9.0 percent, to $39.5 million in 2016 compared to $43.4 million in 2015. The decrease in sales and other operating revenue was primarily driven by the absence of our $9.5 million preferred annual dividend, no longer received with the redemption of our Brazil Investment in 2016, net of the $5.1 million additional licensing fees. Higher reimbursement of operating and maintenance costs favorably impacted sales and other operating revenue $2.0 million compared to 2015. The remaining decrease was primarily related to unfavorable translation adjustments.
Adjusted EBITDA decreased $6.2 million, or 27.7 percent, to $16.2 million in 2016 compared to $22.4 million in 2015. The decrease in Adjusted EBITDA was primarily driven by the absence of our $9.5 million preferred annual dividend, as described above, net of the $5.1 million additional licensing fees. The remaining decrease was primarily related to unfavorable translation adjustments.
Corporate and Other
2017 compared to 2016
Corporate and Other Adjusted EBITDA results, which include costs related to our legacy coal mining business, improved $13.8expenses, increased $1.2 million, or 24.24 percent, to losses of $43.2$29.9 million in 20172022 as compared to losses of $57.0$28.7 million in 2016.2021. The improvement includes a $4.5 million period-over-period benefit associated with the absence of our legacy coal mining business, which was disposed of in April 2016. The current year period also benefited from $4.6 million of lower employee-related and other costs and the $2.2 million favorable impact of period-over-period, mark-to-market adjustments in deferred compensation driven by changes in the Company's share price and the Partnership's unit price. The remaining improvementincrease was driven by lowerhigher employee related expenses and higher cost of professional services. These increased costs incurred to resolvewere mostly offset by valuation adjustments as a result of changes in discount rates on certain legal matters as comparedlegacy liabilities, which decreased legacy costs by $3.3 million.
Non-GAAP Financial Measures
In addition to the prior year period.
2016 compared to 2015
Corporate and Other revenues, inclusive of intersegment sales, were $23.5 million and $115.4 million for 2016 and 2015, respectively, and represented revenues from our legacy coal mining business, which was disposed ofGAAP results provided in April 2016.
Corporate and Otherthe Annual Report on Form 10-K, we have provided a non-GAAP financial measure, Adjusted EBITDA results, which include activity from our legacy coal mining business, improved $28.1 million, or 33.0 percent, to losses of $57.0 million in 2016 as compared to losses of $85.1 million in 2015. The improvement includes a $25.9 million year-over-year benefit associated with the absence of our legacy coal mining business, which was disposed of in April 2016. The Company also incurred lower severance costs of $3.8 million in 2016EBITDA. Our management, as well as additional employee-related savingscertain investors, uses 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 19 in our consolidated financial statements for both the definition of $1.3 million in 2016 compared to 2015. The absence of $2.6 million of transaction costs incurred in 2015 relatedAdjusted EBITDA and the reconciliation from GAAP to the acquisition of CMTnon-GAAP measurement for 2022, 2021 and the Granite City dropdowns further improved results in 2016 as compared to the prior year period. These improvements were partially offset by increases in expenses of $5.5 million substantially driven by mark-to-market adjustments in deferred compensation caused by changes in certain performance metrics and changes in the Company's share price and the Partnership's unit price.2020.
Liquidity and Capital Resources
Our primary liquidity needs are to finance the fund of working capital, fund investments, service our debt, maintain cash reserves and replacement ofreplace partially or fully depreciated assets and other capital expenditures. Our sources of liquidity include cash generated from operations, borrowings under our revolving credit facilityRevolving 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. We may be required to access the capital markets for funding related to the maturities of our long-term borrowings beginning in 2022. As of December 31, 2017, together with the Partnership,2022, we had $120.2$90.0 million of cash and cash equivalents and $226.6$315.0 million of borrowing availability under our credit facilities.Revolving Facility.
Debt RefinancingWe 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 further liquidity discussion below as well as "Part II - Item 5 - Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities."
During 2017, the Partnership refinancedfirst quarter of 2020, the U.S. Department of Labor's Division of Coal Mine Workers' Compensation (“DCMWC”) requested SunCoke provide additional collateral of approximately $32 million to secure certain of its debt obligationsblack lung obligations. SunCoke exercised its right to appeal the DCMWC’s determination and received $693.7 million of proceeds, net of a net discount of $6.3 million,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 issuance of $700.0 million of 7.5 percent 2025 Partnership Notes. The Partnership also increased the Partnership Revolver's capacity to $285.0 million and extended its maturity date to May 2022. Additionally, the Company extended the Revolving Facility's maturity date to May 2022 and reduced its capacity to $100.0 million. In connection with the refinancing and revolver amendments, the Company and the Partnership incurred debt issuance costs of $17.6 million.
The Partnership used the proceeds described above to purchase and redeem all of its 2020 Partnership Notes, including principal of $463.0 million and a premium of $18.7 million, repay the $50.0 million outstanding on the Partnership Term Loan, repay the $112.6 million outstanding on the Partnership's Promissory Note andDCMWC, which could potentially reduce the Partnership Revolver outstanding balance by $42.0 million.
OnCompany’s liquidity. Additionally, on January 11, 2018,19, 2023, the Company redeemed allDepartment of its outstanding 2019 Notes for $46.1 million, which included accrued and unpaid interest of $1.5 million. The Company funded the redemption withLabor issued a term loannew proposed rule that would require self-insured companies to post collateral in the aggregate principal amount of $45.0 million maturing on May 24, 2022 under the Company’s existing Amended and Restated Credit Agreement.
As a result120 percent of the debt refinancing activitiescompany's total expected lifetime black lung obligations as determined by the DCMWC. While this new proposed rule is not effective, if finalized, it could potentially reduce the Company's liquidity. We will submit comments on this proposed rule and continue to monitor any impact to the timing of these activities, consolidated interest expense, net is expected to increase by approximately $3 million in 2018 compared to 2017.
Company. See further discussion of these debt activities in Note 12 to our consolidated financial statements.
Covenants
As of December 31, 2017, the Company and the Partnership were in compliance with all debt covenants. We do not anticipate 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 12 to the consolidated financial statements for details on debt covenants.
Credit Rating
In May 2017, Moody's Investor Services ("Moody's") upgraded the Company's corporate family rating to B1 from B2, in connection with the refinancing of the Partnership's capital structure. The rating upgrade reflects the improved steel market fundamentals and the strengthened financial position of our customers as well as de-leveraging undertaken by the Company and Partnership in the past 24 months.
Distributions
On January 22, 2018, the Partnership's Board of Directors declared a quarterly cash distribution of $0.5940 per unit. This distribution will be paid on March 1, 2018 to unitholders of record on February 15, 2018.
Partnership Common Unit Purchase Program
In April 2017, the Company's Board of Directors authorized a program for the Company to purchase outstanding Partnership common units at any time and from time to time in the open market, through privately negotiated transactions, block transactions, or otherwise for a total aggregate cost to the Company not to exceed $50.0 million. In July 2017, the Company's Board of Directors authorized the Company to purchase an incremental $50.0 million of Partnership common units in the open market. During 2017, the Company purchased 2,853,032 of outstanding Partnership common units in the open market for total cash payments of $48.7 million, which increased our limited partner interest in the Partnership from 53.9 percent to 59.9 percent at December 31, 2017.
Subsequent to December 31, 2017, the Company purchased an additional 132,188 of outstanding Partnership common units in the open market for total cash payments of $2.3 million, leaving a remaining common unit purchase program balance of $49.0 million as of February 15, 2018.
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 years ended December 31, 2017, 20162022 and 2015:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Net cash provided by operating activities | $ | 148.5 |
| | $ | 219.1 |
| | $ | 141.1 |
|
| Net cash used in investing activities | (54.6 | ) | | (36.2 | ) | | (285.2 | ) |
| Net cash (used in) provided by financing activities | (107.7 | ) | | (172.3 | ) | | 128.5 |
|
| Net (decrease) increase in cash and cash equivalents | $ | (13.8 | ) | | $ | 10.6 |
| | $ | (15.6 | ) |
| | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | |
| (Dollars in millions) |
| Net cash provided by operating activities | $ | 208.9 | | | $ | 233.1 | | | |
| Net cash used in investing activities | (70.2) | | | (99.3) | | | |
| Net cash used in financing activities | (112.5) | | | (118.4) | | | |
| Net increase in cash and cash equivalents | $ | 26.2 | | | $ | 15.4 | | | |
Cash Provided by Operating Activities
Net cash provided by operating activities decreased by $70.6$24.2 million to $208.9 million in 20172022 as compared to 2016.2021. The decrease was primarily driven by thereflects unfavorable year-over-year changechanges in primary working capital, which is comprised of accounts receivable, inventories and accounts payable, of which approximately $47 milliondriven by higher coal prices. This decrease was due to fluctuating coal prices and inventory levels. Further contributing to the decrease in operating cash flows were higher cash interest payments of $10.6 million during 2017 as compared to 2016 due primarily to changes in the timing of interest payments as a result of the Partnership refinancing its debt obligations. Additionally, income tax payments, net were $5.8 million in the current period as compared to income tax refunds, net of $2.3 million in 2016 and compensation-related benefit payments were higher in 2017 as compared to 2016.
Net cash providedpartially offset by operating activities increased by $78.0 million in 2016 as compared to 2015 partially due to the full year benefit of CMT's cash provided by operating activities, a net increase of $35.0 million. Larger decreases to coal inventory levels and coal prices in 2016 as compared to 2015 as well as timing of payments for coal purchases in 2015 provided additional operating cash flow of approximately $23 million in 2016. Lower operating costs due to the divestiture of
the coal mining business during 2016 also contributed to the increasehigher operating results in operating cash flow as compared to 2015. Additionally, 2015 was adversely impactedour Domestic Coke segment, primarily driven by coal severance payments of $11.5 million.favorable pricing on export coke sales, and in our Logistics segment, driven by favorable pricing and higher transloading volumes.
Cash Used in Investing Activities
Net cash used in investing activities increased $18.4 million to $54.6 million in 2017 as compared to 2016. The increase is primarily due to higher capital spending on the Indiana Harbor oven rebuild initiative and the environmental remediation project at Granite City during 2017 as compared to 2016. This increase was partially offset by the $12.8 million payment related to the divestiture of the coal mining business in 2016.
Net cash used in investing activities decreased $249.0$29.1 million to $36.2$70.2 million in 20162022 as compared to 2015. The decrease is2021 primarily due to the absence of the investing cash outflow of $191.7 million from the acquisition of CMT in 2015. In 2016, the Partnership amended an agreement with The Cline Group, which unrestricted $6.0 million of previously restricted cash and relieved the Partnership of any obligation to repay these amounts to The Cline Group. The Company also received $20.5 million in cash at the closing of the redemption of its Brazil Investment during 2016. These cash inflows were more than offsetdriven by the divestituretiming of the coal mining business in 2016, where the Company paid $12.8 millionpayments related to Revelation,capital expenditures as well as capital expenditures, excluding the CMT capitalcompletion of certain foundry cokemaking expansion costs, which was funded from restricted cash. The decreaseprojects in capital expenditures in 2016 compared2021. Refer to 2015 related to lower spending on the environmental remediation project at Haverhill during 2016.Capital Requirements and Expenditures below for further detail.
Cash (Used in) Provided byUsed in Financing Activities
Net cash used in financing activities was $107.7decreased $5.9 million to $112.5 million in 2017, and2022 as compared to $118.4 million in 2021. This decrease was primarily relateddriven 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 $12.0 million of debt issuance costs. These decreases were partly offset by higher current period net repayments on the Company's debt of $19.7 million, excluding the impact of funding of the debt refinancing in the prior period, and $4.4 million of cash distributions made to noncontrolling interests. Additionally, dividends paid in 2022 increased $3.5 million as compared to the dividends paid in the prior year as a result of an increase in the dividend per share amount.
Dividends
In addition to the $23.6 million in dividends paid to our shareholders during 2022, on February 2, 2023, SunCoke's Board of Directors declared a cash dividend of $0.08 per share of the Company's acquisitioncommon stock. This dividend will be paid on March 1, 2023, to stockholders of outstanding Partnership common unitsrecord of February 16, 2023. See further discussion in "Item 5. Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities."
Covenants
As of December 31, 2022, we were in compliance with all applicable debt covenants. We do not anticipate a total paymentviolation of $48.7 million and the Partnership's distribution paymentthese covenants nor do we anticipate that any of these covenants will restrict our operations or our ability to public unitholders of $47.0 million. Additionally, during 2017, the Partnership refinanced its debt obligations, for which the Partnership made repayments of debt, net of proceeds, of $13.1 million.obtain additional financing. See Note 1211 to ourthe consolidated financial statements for further discussiondetails on debt covenants.
Credit Rating
In May 2022, S&P Global Ratings reaffirmed our corporate credit rating of debt activities.
Net cash used in financing activities was $172.3 million in 2016,BB- (stable). In June 2022, Moody’s Investors Service reaffirmed our corporate credit rating of B1 and was primarily in connection withupgraded the Partnership's de-levering activities, for which the Partnership and the Company made repayments of debt, net of proceedsoutlook from the sale-leaseback arrangement, of $121.5 million. Additionally, during 2016, the Partnership paid distributionsstable to public unitholders of $49.4 million.positive.
Net cash provided by financing activities was $128.5 million in 2015, and was primarily in connection with the Granite City Dropdown and the acquisition of CMT. The proceeds from the issuance of the related debt, net of repayments were $249.4 million. These net cash inflows were partially offset by return of investments to shareholders and unitholders, including dividends and distributions of $71.3 million and equity repurchases of $48.5 million.
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;
Environmental remediation project expenditures required to implement design changes to ensure that our existing facilities operate in accordance with existing environmental permits; and
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 enable the renewal of a coke sales agreement and/or logistics service agreement and on which we expect to earn a reasonable return.
The following table summarizes ongoing, environmental remediation project and expansion capital expenditures: |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
Ongoing capital(1) | $ | 54.7 |
| | $ | 39.8 |
| | $ | 45.9 |
|
Environmental remediation project(2) | 19.4 |
| | 7.8 |
| | 20.9 |
|
Expansion capital:(3) | | | | | |
CMT ship loader(4) | 1.1 |
| | 13.5 |
| | 4.6 |
|
| Other capital expansion | 0.4 |
| | 2.6 |
| | 4.4 |
|
| Total expansion capital | 1.5 |
| | 16.1 |
| | 9.0 |
|
| Total capital expenditures | $ | 75.6 |
| | $ | 63.7 |
| | $ | 75.8 |
|
| |
(1) | Includes $29.7 million, $14.0 million and $12.1 million of capital expenditures in connection with our current oven rebuild initiative at our Indiana Harbor facility, which began in 2015, for the years ended December 31, 2017, 2016 and 2015, respectively. |
| |
(2) | Includes $1.1 million, $2.7 million and $2.9 million of interest capitalized in connection with the environmental gas sharing projects for the years ended December 31, 2017, 2016 and 2015, respectively. |
| |
(3) | Excludes the acquisition of CMT. |
| |
(4) | Represents capital expenditures for the ship loader expansion project funded with cash withheld in conjunction with the acquisition of CMT. Additionally, this includes capitalized interest of $2.3 million and $0.8 million for the years ended December 31, 2016 and 2015, respectively. |
In 2018, we expect our capital expenditures to be approximately $95 million, which is comprised of the following:
Total ongoing capital expenditures of approximately $59 million, of which approximately $25 million will be spent at the Partnership and approximately $25 million to $30 million will be spent on the Indiana Harbor oven rebuild project.
Total capital expenditures on environmental remediation projects of approximately $35 million, all of which will be spent at the Partnership, including the cash payments for certain work performed in 2017; and
Total expansion capital of approximately $1 million in our Logistics segment.
We anticipate spending approximately $145 million on our environmental remediation projects to comply with the expected terms of the consent decree at our Haverhill and Granite City cokemaking operations. We have spent approximately $111 million, including $7 million spent by the Company prior to the formation of the Partnership, related to these projects since 2012. The remaining capital is expected to be spent through the first quarter of 2019. A portion of the proceeds from the Partnership's initial public offering and the dropdowns of ownership interest in Haverhill, Middletown and Granite City are to be used to fund $119 million of these environmental remediation projects. Pursuant to the omnibus agreement, the Company will reimburse the Partnership approximately $20 million for the estimated additional spending beyond what has previously been funded.
Contractual ObligationsNon-GAAP Financial Measures
In addition to the GAAP results provided in the Annual Report on Form 10-K, we have provided a non-GAAP financial measure, Adjusted EBITDA. Our management, as well as certain investors, uses 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 19 in our consolidated financial statements for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement for 2022, 2021 and 2020.
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 December 31, 2022, we had $90.0 million of cash and cash equivalents and $315.0 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 further liquidity discussion below as well as "Part II - Item 5 - Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities."
During the first quarter of 2020, the U.S. Department of Labor's Division of Coal Mine Workers' Compensation (“DCMWC”) requested SunCoke 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. Additionally, on January 19, 2023, the Department of Labor issued a new proposed rule that would require self-insured companies to post collateral in the amount of 120 percent of the company's total expected lifetime black lung obligations as determined by the DCMWC. While this new proposed rule is not effective, if finalized, it could potentially reduce the Company's liquidity. We will submit comments on this proposed rule and continue to monitor any impact to the Company. See further discussion in Note 12 to our consolidated financial statements.
Cash Flow Summary
The following table summarizessets forth a summary of the net cash provided by (used in) operating, investing and financing activities for the years ended December 31, 2022 and 2021: | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | |
| (Dollars in millions) |
| Net cash provided by operating activities | $ | 208.9 | | | $ | 233.1 | | | |
| Net cash used in investing activities | (70.2) | | | (99.3) | | | |
| Net cash used in financing activities | (112.5) | | | (118.4) | | | |
| Net increase in cash and cash equivalents | $ | 26.2 | | | $ | 15.4 | | | |
Cash Provided by Operating Activities
Net cash provided by operating activities decreased by $24.2 million to $208.9 million in 2022 as compared to 2021. The decrease primarily reflects unfavorable year-over-year changes in primary working capital, which is comprised of accounts receivable, inventories and accounts payable, driven by higher coal prices. This decrease was partially offset by
higher operating results in our significant contractual obligationsDomestic Coke segment, primarily driven by favorable pricing on export coke sales, and in our Logistics segment, driven by favorable pricing and higher transloading volumes.
Cash Used in Investing Activities
Net cash used in investing activities decreased $29.1 million to $70.2 million in 2022 as compared to 2021 primarily driven by the timing of payments related to capital expenditures as well as the completion of certain foundry cokemaking expansion projects in 2021. Refer to Capital Requirements and Expenditures below for further detail.
Cash Used in Financing Activities
Net cash used in financing activities decreased $5.9 million to $112.5 million in 2022 as compared to $118.4 million in 2021. 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 $12.0 million of debt issuance costs. These decreases were partly offset by higher current period net repayments on the Company's debt of $19.7 million, excluding the impact of funding of the debt refinancing in the prior period, and $4.4 million of cash distributions made to noncontrolling interests. Additionally, dividends paid in 2022 increased $3.5 million as compared to the dividends paid in the prior year as a result of an increase in the dividend per share amount.
Dividends
In addition to the $23.6 million in dividends paid to our shareholders during 2022, on February 2, 2023, 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 March 1, 2023, to stockholders of record of February 16, 2023. See further discussion in "Item 5. Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities."
Covenants
|
| | | | | | | | | | | | | | | | | | | |
| | | | Payment Due Dates |
| | Total | | 2018 | | 2019-2020 | | 2021-2022 | | Thereafter |
| | (Dollars in millions) |
Total borrowings:(1) | | | | | | | | | |
| Principal | $ | 887.3 |
| | $ | 2.6 |
| | $ | 54.7 |
| | $ | 130.0 |
| | $ | 700.0 |
|
| Interest | 422.2 |
| | 61.9 |
| | 118.7 |
| | 112.5 |
| | 129.1 |
|
Operating leases(2) | 9.3 |
| | 3.1 |
| | 3.8 |
| | 1.3 |
| | 1.1 |
|
| Purchase obligations: |
|
| | | | | | | | |
Coal(3)(4) | 584.4 |
| | 527.6 |
| | 56.8 |
| | — |
| | — |
|
Transportation and coal handling(5) | 216.8 |
| | 38.6 |
| | 61.9 |
| | 49.2 |
| | 67.1 |
|
Other(6) | 11.1 |
| | 2.5 |
| | 3.8 |
| | 3.0 |
| | 1.8 |
|
| Total | $ | 2,131.1 |
|
| $ | 636.3 |
|
| $ | 299.7 |
|
| $ | 296.0 |
|
| $ | 899.1 |
|
| |
(1) | At December 31, 2017, debt consists of $700.0 million of 2025 Partnership Notes, $44.6 million of 2019 Company Notes, $12.7 million of Partnership Financing Obligation and $130.0 million of Partnership Revolver. Projected interest costs on variable rate instruments were calculated using market rates at December 31, 2017. |
| |
(2) | Our operating leases include leases for land, locomotives, office equipment and other property and equipment. Operating leases include all operating leases that have initial noncancelable terms in excess of one year. |
| |
(3) | Certain coal procurement contracts were not executed at December 31, 2017. We estimate these contracts to be approximately $94 million of additional purchase obligations in 2018 and expect these to be finalized in the first quarter of 2018. |
| |
(4) | Our Jewell cokemaking facility has a five-year coal procurement contract with minimum volume requirements that set pricing annually. Projected purchase obligations were calculated using 2018 pricing. |
| |
(5) | Transportation and coal handling services consist primarily of railroad and terminal services attributable to delivery and handling of coal purchases and coke sales. Long-term commitments generally relate to locations for which limited transportation options exist and match the length of the related coke sales agreement. |
| |
(6) | Primarily represents open purchase orders for materials, supplies and services. |
A purchase obligation is an enforceable and legally binding agreement2022, 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 purchase goods or services that specifies significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our principal purchase obligations in the ordinary course of business consist of coal and transportation and distribution services, including railroad services. We also have contractual obligations supporting financing arrangements of third-parties, contracts to acquire or construct properties, plants and equipment, and other contractual obligations, primarily related to services and materials. Most of our coal purchase obligations are based on fixed prices. These purchase obligations generally include fixed or minimum volume requirements. Transportation and distribution obligations also typically include required minimum volume commitments. The purchase obligation amounts in the table above are based on the minimum quantities or services to be purchased at estimated prices to be paid based on current market conditions. Accordingly, the actual amounts may vary significantly from the estimates included in the table.
Off-Balance Sheet Arrangements
We have letters of credit disclosed inobtain additional financing. See Note 1211 to the consolidated financial statements as well as operating leases disclosed in Note 13for details on debt covenants.
Credit Rating
In May 2022, S&P Global Ratings reaffirmed our corporate credit rating of BB- (stable). In June 2022, Moody’s Investors Service reaffirmed our corporate credit rating of B1 and upgraded the outlook from stable to the consolidated financial statements. We had outstanding surety bonds with third parties of approximately $24 million as of December 31, 2017 to secure reclamation and other performance commitments. Other than these arrangements, the Company has not entered into any transactions, agreements or other contractual arrangements that would result in material off-balance sheet liabilities.positive.
Impact of Inflation
Although the impact of inflation has been relatively low in recent years, it is still a factor in the U.S. economy and may increase the cost to acquire or replace properties, plants, and equipment and may increase the costs of labor and supplies. To the extent permitted by competition, regulation and existing agreements, we have generally passed along increased costs to our customers in the form of higher fees and we expect to continue this practice.
Critical Accounting Policies
A summary of our significant accounting policies is included in Note 2 to the consolidated financial statements. Our management believes that the application of these policies on a consistent basis enables us to provide the users of the financial statements with useful and reliable information about our operating results and financial condition. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions consist of: (1) accounting for impairments and (2) black lung benefit obligations. Although our management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results may differ to some extent from the estimates on which our consolidated financial statements have been prepared at any point in time. Despite these inherent limitations, our management believes the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and consolidated financial statements and footnotes provide a meaningful and fair perspective of our financial condition.
Accounting for Impairments
Goodwill
Goodwill, which represents the excess of the purchase price over the fair value of the net assets acquired, is tested for impairment as of October 1 of each year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of the reporting unit to below its carrying value. We perform our annual goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount. We would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.
The Logistics reporting unit had a goodwill carrying value of $73.5 million as of December 31, 2017. The goodwill analysis as of October 1st resulted in the fair value of the Logistics reporting unit, which was determined based on a discounted cash flow analysis, exceeding its carrying value by approximately 25 percent. A significant portion of our logistics business holds long-term, take-or-pay contracts with Murray American Coal Inc. ("Murray") and Foresight Energy LLC ("Foresight"). Key assumptions in our goodwill impairment test include continued customer performance against long-term, take-or-pay contracts, renewal of future long-term, take-or-pay contracts, incremental merchant business and a 14 percent discount rate representing the estimated weighted average cost of capital for this business line. The use of different assumptions, estimates or judgments, such as the estimated future cash flows of Logistics and the discount rate used to discount such cash flows, could significantly impact the estimated fair value of a reporting unit, and therefore, impact the excess fair value above carrying value of the reporting unit. A 100 basis point change in the discount rate would not have reduced the fair value of the reporting unit below its carrying value.
To the extent changes in factors or circumstances occur that impact our future cash flow projections, such as a loss of either Murray or Foresight as customers, significant reductions in volume or pricing beyond our existing contract term or lower incremental merchant business, future assessments of goodwill and intangible assets may result in material impairment charges.
Finite-Lived Intangible and Long-Lived Assets
Intangible assets are primarily comprised of customer contracts, customer relationships, and permits. Intangible assets are amortized over their useful lives in a manner that reflects the pattern in which the economic benefit of the asset is consumed.
Finite-lived intangible and long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. A finite-lived intangible and long-lived asset, or group of assets, is considered to be impaired when the undiscounted net cash flows expected to be generated by the asset are less than its carrying amount. Such estimated future cash flows are highly subjective and are based on numerous assumptions about future operations and market conditions. The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the impaired asset, or group of assets. It is also difficult to precisely estimate fair market value because quoted market prices for our finite-lived and long-lived assets may not be readily
available. Therefore, fair market value is generally based on the present values of estimated future cash flows using discount rates commensurate with the risks associated with the assets being reviewed for impairment.
Cash flows at our Indiana Harbor facility were negative during 2017, driven by the oven rebuild project implemented to address coke oven degradation. Based on these results, we performed an impairment test in 2017 and concluded that our projected undiscounted cash flows associated with the facility were approximately 45 percent, or substantially in excess, of the carrying value of our long-lived assets at Indiana Harbor. However, we continue to closely monitor our performance at Indiana Harbor, and if our coke oven rebuild project does not stabilize production or if the project costs are significantly higher than expected, our current conclusion as to recoverability of assets at that location could change.
Black Lung Benefit Liabilities
The Company has obligations related to coal workers’ pneumoconiosis, or black lung, benefits to certain of our 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 act as a self-insurer for both state and federal black lung benefits and 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 following table summarizes discount rates utilized, active claims, and the total estimated black lung liabilities: |
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Discount rate (percent)(1) | 3.3 | % | | 3.7 | % |
| Active claims | 351 |
| | 349 |
|
Estimated black lung liability (dollars in millions)(2) | $ | 50.3 |
| | $ | 50.2 |
|
(1) The discount rate is determined based on a portfolio of high-quality corporate bonds with maturities that are consistent with the estimated duration of our black lung obligations. A 0.25 percent decrease in the discount rate would have increased coal workers' black lung expense by $1.2 million in 2017.
(2) The current portion of the black lung liability was $5.4 million and $4.8 million at December 31, 2017 and 2016, respectively, and was included in accrued liabilities on the Consolidated Balance Sheets.
The following table summarizes annual black lung payments and expense:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (dollars in millions) |
| Payments | $ | 7.4 |
| | $ | 7.8 |
| | $ | 3.8 |
|
| Expense | $ | 7.5 |
| | $ | 8.1 |
| | $ | 9.8 |
|
Recent Accounting Standards
See Note 2 to our consolidated financial statements.
Non-GAAP Financial Measures
In addition to the GAAP results provided in the Annual Report on Form 10-K, we have provided a non-GAAP financial measure, Adjusted EBITDA. Our management, as well as certain investors, uses this non-GAAP measure to analyze our current and expected future financial performance and liquidity.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 1819 in our consolidated financial statements for both the definition of Adjusted EBITDA and reconciliationsthe reconciliation from GAAP to the non-GAAP measurement for 2017, 20162022, 2021 and 2015.2020.
Below
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 December 31, 2022, we had $90.0 million of cash and cash equivalents and $315.0 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 further liquidity discussion below as well as "Part II - Item 5 - Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities."
During the first quarter of 2020, the U.S. Department of Labor's Division of Coal Mine Workers' Compensation (“DCMWC”) requested SunCoke 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. Additionally, on January 19, 2023, the Department of Labor issued a
reconciliationnew proposed rule that would require self-insured companies to post collateral in the amount of
2018 Adjusted EBITDA guidance from its closest GAAP measures:120 percent of the company's total expected lifetime black lung obligations as determined by the DCMWC. While this new proposed rule is not effective, if finalized, it could potentially reduce the Company's liquidity. We will submit comments on this proposed rule and continue to monitor any impact to the Company. See further discussion in Note 12 to our consolidated financial statements. |
| | | | | | | | |
| | | 2018 |
| | | Low | | High |
| Net Cash Provided by Operating activities | | $ | 150 |
| | $ | 165 |
|
| Subtract: | | | | |
| Depreciation and amortization expense | | 137 |
| | 129 |
|
| Changes in working capital and other | | (22 | ) | | (14 | ) |
| Net Income | | $ | 35 |
| | $ | 50 |
|
| Add: | | | | |
| Depreciation and amortization expense | | 137 |
| | 129 |
|
| Interest expense, net | | 63 |
| | 63 |
|
| Income tax expense | | 5 |
| | 13 |
|
| Adjusted EBITDA | | $ | 240 |
| | $ | 255 |
|
Subtract: Adjusted EBITDA attributable to noncontrolling interest(1) | | 80 |
| | 84 |
|
| Adjusted EBITDA attributable to SXC | | $ | 160 |
| | $ | 171 |
|
| |
(1) | Reflects non-controlling interest in Indiana Harbor and the portion of the Partnership owned by public unitholders.
|
The following table sets forth a summary of the net cash provided by (used in) operating, investing and financing activities for the years ended December 31, 2022 and 2021: | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | |
| (Dollars in millions) |
| Net cash provided by operating activities | $ | 208.9 | | | $ | 233.1 | | | |
| Net cash used in investing activities | (70.2) | | | (99.3) | | | |
| Net cash used in financing activities | (112.5) | | | (118.4) | | | |
| Net increase in cash and cash equivalents | $ | 26.2 | | | $ | 15.4 | | | |
Cash Provided by Operating Activities
Net cash provided by operating activities decreased by $24.2 million to $208.9 million in 2022 as compared to 2021. The decrease primarily reflects unfavorable year-over-year changes in primary working capital, which is comprised of accounts receivable, inventories and accounts payable, driven by higher coal prices. This decrease was partially offset by
higher operating results in our Domestic Coke segment, primarily driven by favorable pricing on export coke sales, and in our Logistics segment, driven by favorable pricing and higher transloading volumes.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTSCash Used in Investing Activities
We have made forward-looking statementsNet cash used in this Annual Reportinvesting activities decreased $29.1 million to $70.2 million in 2022 as compared to 2021 primarily driven by the timing of payments related to capital expenditures as well as the completion of certain foundry cokemaking expansion projects in 2021. Refer to Capital Requirements and Expenditures below for further detail.
Cash Used in Financing Activities
Net cash used in financing activities decreased $5.9 million to $112.5 million in 2022 as compared to $118.4 million in 2021. 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 $12.0 million of debt issuance costs. These decreases were partly offset by higher current period net repayments on Form 10-K, including, among others,the Company's debt of $19.7 million, excluding the impact of funding of the debt refinancing in the sections entitled “Business,” “Risk Factors,” "Quantitativeprior period, and Qualitative Disclosures About$4.4 million of cash distributions made to noncontrolling interests. Additionally, dividends paid in 2022 increased $3.5 million as compared to the dividends paid in the prior year as a result of an increase in the dividend per share amount.
Dividends
In addition to the $23.6 million in dividends paid to our shareholders during 2022, on February 2, 2023, 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 March 1, 2023, to stockholders of record of February 16, 2023. See further discussion in "Item 5. Market Risk"for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities."
Covenants
As of December 31, 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 11 to the consolidated financial statements for details on debt covenants.
Credit Rating
In May 2022, S&P Global Ratings reaffirmed our corporate credit rating of BB- (stable). In June 2022, Moody’s Investors Service reaffirmed our corporate credit rating of B1 and upgraded the outlook from stable to positive.
Contractual Obligations
As of December 31, 2022, significant contractual obligations related to our metallurgical coal procurement contracts, which are generally based on annual coke production requirements at fixed coal prices, were $1,092.8 million and extend through 2023. As of December 31, 2022 significant contractual obligations related to debt were $543.8 million of principal borrowings and $166.6 million of related interest, which will be repaid through 2029. Projected interest costs on variable rate instruments were calculated using market rates at December 31, 2022. See Note 11 to our consolidated financial statements. We also have contractual obligations for leases, including land, office space, equipment, railcars and locomotives. See Note 13 to our consolidated financial statements.
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 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.
The following table summarizes our capital expenditures: | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | |
| (Dollars in millions) |
| Ongoing capital | $ | 72.1 | | | $ | 87.6 | | | |
Expansion capital(1) | 3.4 | | | 11.0 | | | |
Total capital expenditures(2) | $ | 75.5 | | | $ | 98.6 | | | |
(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 and Estimates
A summary of our significant accounting policies is included in Note 2 to the consolidated financial statements. Our management believes that the application of these policies on a consistent basis enables us to provide the users of our financial statements with useful and reliable information about our operating results and financial condition. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. The Company's black lung benefit obligations is an item that is subject to such estimates and assumptions. Although our management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results may differ to some extent from the estimates on which our consolidated financial statements have been prepared at any point in time. Despite these inherent limitations, our management believes the “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Such forward-lookingOperations” and consolidated financial statements areand footnotes provide a meaningful and fair perspective of our financial condition.
Black Lung Benefit Liabilities
The Company has obligations related to coal workers’ pneumoconiosis, or black lung, to provide benefits to certain of its former coal miners and their dependents further described in Note 12 to our consolidated financial statements.
Our independent actuarial consultants calculate the present value of the estimated black lung liability annually based on management’s beliefs and assumptions and on information currently available. Forward-looking statements includeactuarial models utilizing our population of former coal miners, historical payout patterns of both the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance, the effects of competitionCompany and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical factsindustry, actuarial mortality rates, medical costs, death benefits, dependents, discount rates and the current federally mandated payout rates. The estimated liability may be identifiedimpacted 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. In particular, statements in this Annual Report on Form 10-K concerning future dividend declarations are subject to approval by our Board of Directors and will be based upon circumstances then existing.
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 Annual Report on Form 10-K, except as required by applicable law.
The risk factors discussed in “Risk Factors” could cause our results to differ materially from those expressed in the forward-looking statements made in this Annual Report on Form 10-K. There also may be other risks that we are unable to predict at this time. Such risks and uncertainties include, without limitation:
changes in levels of production, production capacity, pricing and/or margins for coal and coke;
variation in availability, quality and supply of metallurgical coal used in the cokemaking process, including as a result of non-performance by our suppliers;
changes in the marketplace that may affect our logistics business, including the supplystatutory mechanisms, modifications by court decisions and demand for thermal and metallurgical coal;
changes in filing patterns by claimants and their advisors, the marketplaceimpact of which cannot be estimated.
The following table summarizes discount rates utilized, active claims and the total black lung liabilities: | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Discount rate(1) | 4.9 | % | | 2.4 | % |
| Active claims | 332 | | | 332 | |
Total black lung liability (dollars in millions)(2) | $ | 58.1 | | | $ | 63.3 | |
(1)The discount rate is determined based on a portfolio of high-quality corporate bonds with maturities that may affect our cokemaking business, includingare consistent with the supply and demand for our coke products, as well as increased imports of coke from foreign producers;
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;
our dependence on, relationships with, and other conditions affecting our suppliers;
severe financial hardship or bankruptcy of one or moreestimated duration of our major customers, or the occurrenceblack lung obligations. A decrease of a customer default or other event affecting our ability to collect payments from our customers;
volatility and cyclical downturns25 basis points in the steel industrydiscount rate would have increased black lung expense by $1.1 million in 2022.
(2)The current portion of the black lung liability was $5.9 million and $5.4 million at December 31, 2022 and 2021, respectively, and was included in other industries in which our customers and/or suppliers operate;
volatility, cyclical downturns and other change inaccrued liabilities on the business climate and market for coal, affecting customers or potential customers for the Partnership's logistics business;
our significant equity interest in the Partnership;
our ability to repair aging coke ovens to maintain operational performance;
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);
the Partnership's ability to enter into new, or renew existing, agreements upon favorable terms for logistics services;
our ability to identify acquisitions, execute them under favorable terms, and integrate them into our existing business operations;
Consolidated Balance Sheets.
The following table summarizes annual black lung payments and (benefit) expense: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (Dollars in millions) |
| Payments | $ | 5.0 | | | $ | 4.4 | | | $ | 6.0 | |
(Benefit) expense(1) | $ | (0.2) | | | $ | 3.1 | | | $ | 15.4 | |
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(1)Black lung (benefit) expense incurred in the U.S. or in foreign countries;
our ability to successfully implement domestic and/or our international growth strategies;
our ability to realize expected benefits from investments and acquisitions;
ageexcess of and changes in the reliability, efficiency and capacityannual accretion of the various equipment and operating facilities used in our cokemaking operations, and inblack lung liability reflects the operations of our subsidiaries major customers, business partners and/or suppliers;
changes in the expected operating levels of our assets;
our ability to meet minimum volume requirements, coal-to-coke yield standards and coke quality standards in our coke sales agreements;
changes in the level of capital expenditures or operating expenses, including any changes in the level of environmental capital, operating or remediation expenditures;
our ability to service our outstanding indebtedness;
our ability to comply with the restrictions imposed by our financing arrangements;
our ability to comply with applicable federal, state or local laws and regulations, including, but not limited to, those relating to environmental matters;
nonperformance or force majeure by, or disputes with, or changes in contract terms with, major customers, suppliers, dealers, distributors or other business partners;
availability of skilled employees for our cokemaking, and/or logistics operations, and other workplace factors;
effects of railroad, barge, truck and other transportation performance and costs, including any transportation disruptions;
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);
effects of adverse events relating to the business or commercial operations of our customers and/or suppliers;
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;
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;
changes in the availability and cost of equity and debt financing;
impacts on our liquidity and ability to raise capital as a resultimpact of changes in the credit ratings assigneddiscount rates, current filing and approval rate assumptions and/or other changes in our actuarial assumptions.
Recent Accounting Standards
See Note 2 to our indebtedness;
changes in credit terms required by our suppliers;
risks related to labor relations and workplace safety;
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;
the existence of hazardous substances or other environmental contamination on property owned or used by us;
the availability of future permits authorizing the disposition of certain mining waste and the management of reclamation areas;
consolidated financial statements.
55
risks related to obligations under mineral leases retained by us in connection with the divestment of our legacy coal mining business;
risks related to environmental compliance;
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;
claims of noncompliance with any statutory or regulatory requirements;
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;
historical consolidated financial data may not be reliable indicator of future results;
public company costs;
our indebtednessItem 7A.Quantitative and certain covenants in our debt documents;Qualitative Disclosures About Market Risk
our ability to secure new coal supply agreements or to renew existing coal supply agreements;
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;
changes in product specifications for the coke that we produce or the coals we mix, store and transport;
changes in insurance markets impacting cost, level and/or types of coverage available, and the financial ability of our insurers to meet their obligations;
changes in tax laws or their interpretations, including regulations governing the federal income tax treatment of the Partnership;
volatility in foreign currency exchange rates affecting the markets and geographic regions in which we conduct business;
the accuracy of our estimates of reclamation and other mine closure obligations;
inadequate protection of our intellectual property rights; and
effects of geologic conditions, weather, natural disasters and other inherent risks beyond our control.
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 Annual Report on Form 10-K are expressly qualified in their entirety by the foregoing cautionary statements.
| |
Item 7A.
| Quantitative and Qualitative Disclosures About Market Risk |
Our primary areas of market risk include the following: (1) changes in: (1)in the price of coal which is the key raw material for our cokemaking business;and coke in certain cases, as detailed below; (2) changes in interest rates; and (3) changes in foreign currency exchange rates. We do not enter into any market risk sensitive instruments for trading purposes.
Price of coal and coke
We do not use derivatives to hedge any of our coal purchases or sales. Although we have not previously done so, we may enter into derivative financial instruments from time to time in the future to economically manage our exposure related to these market risks.
ForCoal is the key raw material for our Domestic Coke segment,cokemaking business and is the largest component of the pricecost of our coke is coal cost. However, under thecoke. Under our long-term, take-or-pay coke sales agreements at all of our Domestic Coke cokemaking facilities, coal costs are a pass-through component of the coke price, provided that we are able to realize certain targeted coal-to-coke yields. As such, when targeted coal-to-coke yields are achieved, the price of coal is not a significant determining factor in the profitability of these facilities. The coal component ofcoke sold under our long-term, take-or-pay agreements, which comprise the Jewell coke price is fixed annually for each calendar year based on the weighted-average contract price of third-party coal purchases at our Haverhill facility applicable to AM USA coke sales.
The provisionsvast majority of our coke sales volumes in our Domestic Coke segment.
Our long-term, take-or-pay agreements require us to meet minimum production levels and generally require us to secureprovide replacement coke supplies at the prevailing market price if we do not meet contractual minimum volumes. Because market prices for coke are generally highly correlated to market prices for metallurgical coal, toTo the extent any of our facilities are unable to produce their contractual minimum volumes, and we are unable to supply coke from one of our other facilities, we are subject to market risk related to the procurement of replacement supplies.
We are subject to market risk for the price of coals used to produce coke sold into the export coke market. Export coke sales are typically based on coke market pricing at the time of sale, rather than the pass-through provisions in our long-term, take-or-pay agreements. Generally over time, market prices for metallurgical coal and coke have been correlated. We monitor the market for our coal purchases versus pricing in the coke market to optimize profitability in our export business.However, we are exposed to market risk to the extent the coal and coke markets fall out of correlation. Additionally, the timing of contracting our coal purchases versus the timing of contracting our coke sales may cause favorable or unfavorable differences between the prices at which we procure our coals and the market rates at which we are able to sell our coke into the export market. We are also subject to market risk for the price of coal as it relates to the foundry coke sales. However, our foundry coke prices are largely set at the time we negotiate our coal purchases and therefore we are less exposed to market risk as it relates to the volatility in the price of coal on our foundry coke sales.
Interest rates
We are exposed to changes in interest rates as a result of borrowing activities with variable interest rates and interest earned on our cash balances. During the years ended December 31, 20172022 and 2016,2021, the daily average outstanding balance on borrowings with variable interest rates was $184.3$105.8 million and $262.1$102.8 million, respectively. Assuming a 50 basis point change in LIBOR, interest expense would have been impacted by $0.9 million and $1.2$0.5 million in 2017both 2022 and 2016,2021, respectively. At December 31, 2017,2022, we had outstanding borrowings with variable interest rates of $130.0$35.0 million under the Partnership Revolver.Revolving Facility. Subsequent to December 31, 2022, we amended the Revolving Facility to transition from a variable interest rate based on LIBOR to a variable interest rate based on the secured overnight financing rate ("SOFR"). The Company does not expect the transition from LIBOR to SOFR to have a material impact on its consolidated financial statements and disclosures. Refer to Note 11 to our consolidated financial statements for further detail.
At December 31, 20172022 and 2016,2021, we had cash and cash equivalents of $120.2$90.0 million and $134.0$63.8 million, respectively, which accruesaccrue interest at various rates. Assuming a 50 basis point change in the rate of interest associated with our cash and cash equivalents, interest income would have been impacted by $0.6$0.4 million and $0.3 million for both the years ended December 31, 20172022 and 2016.2021, respectively.
Foreign currency
Because we operate outside the U.S., we are subject to risk resulting from changes in the Brazil RealBrazilian real currency exchange rates. The currency exchange rates are influenced by a variety of economic factors including local inflation, growth, interest rates and governmental actions, as well as other factors. Revenues and expenses of our foreign operations are translated at average exchange rates during the period and balance sheet accounts are translated at period-end exchange rates. Balance sheet translation adjustments are excluded from the results of operations and are recorded in equity as a component of accumulated other comprehensivecomprehensive loss. If the currency exchange rates had changed by 10 percent, we estimate the impact to our net income in 20172022 and 20162021 would have been approximately $0.4 million and $0.5 million.
57
Item 8.Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS | | | | | |
Item 8. | Financial Statements and Supplementary Data |
INDEX TO FINANCIAL STATEMENTS
58
Report of Independent Registered Public Accounting Firm
To the stockholdersStockholders and boardBoard of directorsDirectors
SunCoke Energy, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of SunCoke Energy, Inc. and subsidiaries (the “Company”)Company) as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations,income, comprehensive income, (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2022, and the related notes (collectively, the “consolidatedconsolidated financial statements”)statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control -– Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017,2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022 based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for OpinionOpinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the Company’s estimated black lung benefit liability
As discussed in Note 12 to the consolidated financial statements, the Company has obligations related to coal workers’ pneumoconiosis, or black lung, benefits to certain former coal miners and their dependents. As of December 31, 2022, the Company’s black lung benefit liability was $58.1 million. The Company, with the assistance of an external expert, estimated the liability using an actuarial model with several assumptions.
We identified the evaluation of the Company’s estimated black lung benefit liability as a critical audit matter. There was a high degree of subjective auditor judgment in evaluating the actuarial model and key assumptions in the actuarial model. The actuarial model included internally-developed assumptions related to expected claim filing patterns and expected claimant success rates. There was limited market information from which to develop these assumptions, and therefore subjective auditor judgment was required to evaluate the relevance and reliability of internally-developed information.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to estimate the black lung benefit liability, including controls related to the development of assumptions related to the expected claim filing patterns and claimant success rates. We evaluated the Company’s assumptions related to expected claim filing patterns and the claimant success rates by comparing the assumptions to industry filing patterns and claimant success rates. We performed sensitivity analyses over the expected claim filing patterns and claimant success rate assumptions to assess their impact on the Company’s estimated black lung liability. We compared the Company’s historical black lung payment estimates to actual payments to assess the accuracy of previous estimates related to its black lung benefit liability. In addition, we involved actuarial professionals with specialized skills and knowledge who assisted in evaluating the expected claim filing patterns and expected claimant success rates assumptions used by the Company to estimate its black lung benefit liability by comparing the assumptions to industry standards.
/s/ KPMG LLP
We have served as the Company’s auditor since 2015.
Chicago, Illinois
February 15, 2018
24, 2023
SunCoke Energy, Inc.
Consolidated Statements of OperationsIncome | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (Dollars and shares in millions, except per share amounts) |
| Revenues | | | | | |
| Sales and other operating revenue | $ | 1,972.5 | | | $ | 1,456.0 | | | $ | 1,333.0 | |
| Costs and operating expenses | | | | | |
| Cost of products sold and operating expenses | 1,604.9 | | | 1,118.8 | | | 1,048.2 | |
| Selling, general and administrative expenses | 71.4 | | | 61.8 | | | 81.4 | |
| Depreciation and amortization expense | 142.5 | | | 133.9 | | | 133.7 | |
| Total costs and operating expenses | 1,818.8 | | | 1,314.5 | | | 1,263.3 | |
| Operating income | 153.7 | | | 141.5 | | | 69.7 | |
| Interest expense, net | 32.0 | | | 42.5 | | | 56.3 | |
| Loss (gain) on extinguishment of debt, net | — | | | 31.9 | | | (5.7) | |
| Income before income tax expense | 121.7 | | | 67.1 | | | 19.1 | |
| Income tax expense | 16.8 | | | 18.3 | | | 10.3 | |
| Net income | 104.9 | | | 48.8 | | | 8.8 | |
| Less: Net income attributable to noncontrolling interests | 4.2 | | | 5.4 | | | 5.1 | |
| Net income attributable to SunCoke Energy, Inc. | $ | 100.7 | | | $ | 43.4 | | | $ | 3.7 | |
| Earnings attributable to SunCoke Energy, Inc. per common share: | | | | | |
| Basic | $ | 1.20 | | | $ | 0.52 | | | $ | 0.04 | |
| Diluted | $ | 1.19 | | | $ | 0.52 | | | $ | 0.04 | |
| Weighted average number of common shares outstanding: | | | | | |
| Basic | 83.8 | | | 83.0 | | | 83.0 | |
| Diluted | 84.6 | | | 83.7 | | | 83.2 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars and shares in millions, except per share amounts) |
| Revenues | | | | | |
| Sales and other operating revenue | $ | 1,331.5 |
| | $ | 1,223.3 |
| | $ | 1,362.7 |
|
| Costs and operating expenses | | | | | |
| Cost of products sold and operating expenses | 1,020.8 |
| | 906.5 |
| | 1,098.4 |
|
| Selling, general and administrative expenses | 79.6 |
| | 91.3 |
| | 75.4 |
|
| Depreciation and amortization expense | 128.2 |
| | 114.2 |
| | 109.1 |
|
| Loss on divestiture of business and impairments | — |
| | 14.7 |
| | — |
|
| Total costs and operating expenses | 1,228.6 |
| | 1,126.7 |
| | 1,282.9 |
|
| Operating income | 102.9 |
| | 96.6 |
| | 79.8 |
|
| Interest expense, net | 60.6 |
| | 53.5 |
| | 56.2 |
|
| Loss (gain) on extinguishment of debt, net | 20.4 |
| | (25.0 | ) | | 0.5 |
|
| Income before income tax (benefit) expense and loss from equity method investment | 21.9 |
| | 68.1 |
| | 23.1 |
|
| Income tax (benefit) expense | (81.6 | ) | | 8.6 |
| | (8.8 | ) |
| Loss from equity method investment | — |
| | — |
| | 21.6 |
|
| Net income | 103.5 |
| | 59.5 |
| | 10.3 |
|
| Less: Net (loss) income attributable to noncontrolling interests | (18.9 | ) | | 45.1 |
| | 32.3 |
|
| Net income (loss) attributable to SunCoke Energy, Inc. | $ | 122.4 |
| | $ | 14.4 |
| | $ | (22.0 | ) |
| Earnings (loss) attributable to SunCoke Energy, Inc. per common share: | | | | | |
| Basic | $ | 1.90 |
| | $ | 0.22 |
| | $ | (0.34 | ) |
| Diluted | $ | 1.88 |
| | $ | 0.22 |
| | $ | (0.34 | ) |
| Weighted average number of common shares outstanding: | | | | | |
| Basic | 64.3 |
| | 64.2 |
| | 65.0 |
|
| Diluted | 65.2 |
| | 64.4 |
| | 65.0 |
|
(See Accompanying Notes)
61
SunCoke Energy, Inc.
Consolidated Statements of Comprehensive Income (Loss) | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (Dollars in millions) |
| Net income | $ | 104.9 | | | $ | 48.8 | | | $ | 8.8 | |
| Other comprehensive income (loss): | | | | | |
| Reclassifications of actuarial loss amortization and prior service benefit to earnings (net of related tax benefit of $0.1 million in both 2022 and 2021, and zero for 2020) | 0.4 | | | 0.3 | | | 0.1 | |
| Retirement benefit plans funded status adjustment (net of related tax (expense) benefit of $(0.9) million, $(0.3) million and $0.4 million, respectively) | 3.1 | | | 1.0 | | | (1.6) | |
| Currency translation adjustment | 0.2 | | | (0.9) | | | (1.2) | |
| Comprehensive income | 108.6 | | | 49.2 | | | 6.1 | |
| Less: Comprehensive income attributable to noncontrolling interests | 4.2 | | | 5.4 | | | 5.1 | |
| Comprehensive income attributable to SunCoke Energy, Inc. | $ | 104.4 | | | $ | 43.8 | | | $ | 1.0 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Net income | $ | 103.5 |
| | $ | 59.5 |
| | $ | 10.3 |
|
| Other comprehensive income (loss): | | | | | |
| Reclassifications of actuarial loss amortization, prior service benefit, curtailment gain and settlement loss to earnings (net of related tax expense of zero, zero and $3.4 million, respectively) | 0.2 |
| | — |
| | 5.2 |
|
| Retirement benefit plans funded status adjustment (net of related tax benefit of $0.3 million, $0.1 million and $0.1 million, respectively) | (0.8 | ) | | (0.2 | ) | | (0.4 | ) |
| Currency translation adjustment | (0.5 | ) | | 1.0 |
| | (3.1 | ) |
| Comprehensive income | 102.4 |
| | 60.3 |
| | 12.0 |
|
Less: Comprehensive (loss) income attributable to noncontrolling
interests | (18.9 | ) | | 45.1 |
| | 32.3 |
|
| Comprehensive income (loss) attributable to SunCoke Energy, Inc. | $ | 121.3 |
| | $ | 15.2 |
| | $ | (20.3 | ) |
(See Accompanying Notes)
SunCoke Energy, Inc.
Consolidated Balance Sheets | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (Dollars in millions,
except par value amounts) |
| Assets | | | |
| Cash and cash equivalents | $ | 90.0 | | | $ | 63.8 | |
| Receivables, net | 104.8 | | | 77.6 | |
| Inventories | 175.2 | | | 127.0 | |
| Other current assets | 4.0 | | | 3.5 | |
| Total current assets | 374.0 | | | 271.9 | |
| Properties, plants and equipment (net of accumulated depreciation of $1,276.0 and $1,160.1 at December 31, 2022 and 2021, respectively) | 1,229.3 | | | 1,287.9 | |
| Intangible assets, net | 33.2 | | | 35.2 | |
| Deferred charges and other assets | 18.1 | | | 20.4 | |
| Total assets | $ | 1,654.6 | | | $ | 1,615.4 | |
| Liabilities and Equity | | | |
| Accounts payable | $ | 159.3 | | | $ | 126.0 | |
| Accrued liabilities | 61.4 | | | 53.0 | |
| Current portion of financing obligation | 3.3 | | | 3.2 | |
| | | |
| Total current liabilities | 224.0 | | | 182.2 | |
| Long-term debt and financing obligation | 528.9 | | | 610.4 | |
| Accrual for black lung benefits | 52.2 | | | 57.9 | |
| Retirement benefit liabilities | 16.4 | | | 21.8 | |
| Deferred income taxes | 172.3 | | | 169.0 | |
| Asset retirement obligations | 13.4 | | | 11.6 | |
| Other deferred credits and liabilities | 24.7 | | | 27.1 | |
| Total liabilities | 1,031.9 | | | 1,080.0 | |
| Equity | | | |
| Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no issued shares at both December 31, 2022 and 2021 | — | | | — | |
| Common stock, $0.01 par value. Authorized 300,000,000 shares; issued 98,815,780 and 98,496,809 shares at December 31, 2022 and 2021, respectively | 1.0 | | | 1.0 | |
| Treasury stock, 15,404,482 shares at both December 31, 2022 and 2021 | (184.0) | | | (184.0) | |
| Additional paid-in capital | 728.1 | | | 721.2 | |
| Accumulated other comprehensive loss | (13.0) | | | (16.7) | |
| Retained earnings (deficit) | 53.5 | | | (23.4) | |
| Total SunCoke Energy, Inc. stockholders' equity | 585.6 | | | 498.1 | |
| Noncontrolling interests | 37.1 | | | 37.3 | |
| Total equity | 622.7 | | | 535.4 | |
| Total liabilities and equity | $ | 1,654.6 | | | $ | 1,615.4 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (Dollars in millions, except par value amounts) |
| Assets | | | |
| Cash and cash equivalents | $ | 120.2 |
| | $ | 134.0 |
|
| Receivables | 68.5 |
| | 60.7 |
|
| Receivable from redemption of Brazilian investment | — |
| | 20.5 |
|
| Inventories | 111.0 |
| | 92.5 |
|
| Income tax receivable | 4.8 |
| | 4.6 |
|
| Other current assets | 6.7 |
| | 3.8 |
|
| Total current assets | 311.2 |
| | 316.1 |
|
| Properties, plants and equipment (net of accumulated depreciation of $733.2 million and $625.9 million at December 31, 2017 and 2016, respectively) | 1,501.3 |
| | 1,542.6 |
|
| Goodwill | 76.9 |
| | 76.9 |
|
| Other intangible assets, net | 167.9 |
| | 179.0 |
|
| Deferred charges and other assets | 2.8 |
| | 6.3 |
|
| Total assets | $ | 2,060.1 |
| | $ | 2,120.9 |
|
| Liabilities and Equity | | | |
| Accounts payable | $ | 115.5 |
| | $ | 98.6 |
|
| Accrued liabilities | 53.2 |
| | 49.8 |
|
| Deferred revenue | 1.7 |
| | 2.5 |
|
| Current portion of long-term debt and financing obligation | 2.6 |
| | 4.9 |
|
| Interest payable | 5.4 |
| | 16.2 |
|
| Total current liabilities | 178.4 |
| | 172.0 |
|
| Long-term debt and financing obligation | 861.1 |
| | 849.2 |
|
| Accrual for black lung benefits | 44.9 |
| | 45.4 |
|
| Retirement benefit liabilities | 28.2 |
| | 29.0 |
|
| Deferred income taxes | 257.8 |
| | 352.5 |
|
| Asset retirement obligations | 14.0 |
| | 13.9 |
|
| Other deferred credits and liabilities | 16.1 |
| | 19.0 |
|
| Total liabilities | 1,400.5 |
| | 1,481.0 |
|
| Equity | | | |
| Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no issued shares at December 31, 2017 and 2016 | — |
| | — |
|
| Common stock, $0.01 par value. Authorized 300,000,000 shares; issued 72,006,905 shares and 71,707,304 shares at December 31, 2017 and 2016, respectively | 0.7 |
| | 0.7 |
|
| Treasury stock, 7,477,657 shares at December 31, 2017 and 2016, respectively | (140.7 | ) | | (140.7 | ) |
| Additional paid-in capital | 486.2 |
| | 492.1 |
|
| Accumulated other comprehensive loss | (20.1 | ) | | (19.0 | ) |
| Retained earnings (deficit) | 100.1 |
| | (22.0 | ) |
| Total SunCoke Energy, Inc. stockholders' equity | 426.2 |
| | 311.1 |
|
| Noncontrolling interests | 233.4 |
| | 328.8 |
|
| Total equity | 659.6 |
| | 639.9 |
|
| Total liabilities and equity | $ | 2,060.1 |
| | $ | 2,120.9 |
|
(See Accompanying Notes)
63
SunCoke Energy, Inc.
Consolidated Statements of Cash Flows |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Cash Flows from Operating Activities: | | | | | |
| Net income | $ | 103.5 |
| | $ | 59.5 |
| | $ | 10.3 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization expense | 128.2 |
| | 114.2 |
| | 109.1 |
|
| Deferred income tax (benefit) expense | (87.2 | ) | | 3.1 |
| | (5.6 | ) |
| Gain on curtailment and payments in excess of expense for postretirement plan benefits | (1.8 | ) | | (2.6 | ) | | (8.0 | ) |
| Settlement loss and payments in excess of expense for pension plan | — |
| | — |
| | 13.1 |
|
| Share-based compensation expense | 4.8 |
| | 6.5 |
| | 7.2 |
|
| Loss (gain) on extinguishment of debt, net | 20.4 |
| | (25.0 | ) | | 0.5 |
|
| Loss on divestiture of business and impairments | — |
| | 14.7 |
| | — |
|
| Loss from equity method investment | — |
| | — |
| | 21.6 |
|
| Changes in working capital pertaining to operating activities (net of the effects of divestiture and acquisition): | | | | | |
| Receivables | (7.8 | ) | | 3.7 |
| | 18.8 |
|
| Inventories | (18.5 | ) | | 29.4 |
| | 23.2 |
|
| Accounts payable | 11.7 |
| | (0.8 | ) | | (17.9 | ) |
| Accrued liabilities | 2.6 |
| | 6.8 |
| | (24.3 | ) |
| Deferred revenue | (0.8 | ) | | 0.4 |
| | (4.4 | ) |
| Interest payable | (10.8 | ) | | (2.7 | ) | | (1.0 | ) |
| Income taxes | (0.2 | ) | | 7.0 |
| | (5.6 | ) |
| Other | 4.4 |
| | 4.9 |
| | 4.1 |
|
| Net cash provided by operating activities | 148.5 |
| | 219.1 |
| | 141.1 |
|
| Cash Flows from Investing Activities: | | | | | |
| Capital expenditures | (75.6 | ) | | (63.7 | ) | | (75.8 | ) |
| Decrease (increase) in restricted cash | 0.5 |
| | 17.7 |
| | (17.7 | ) |
| Return of Brazilian investment | 20.5 |
| | 20.5 |
| | — |
|
| Divestiture of coal business | — |
| | (12.8 | ) | | — |
|
| Acquisition of businesses, net of cash received | — |
| | — |
| | (191.7 | ) |
| Other investing activities | — |
| | 2.1 |
| | — |
|
| Net cash used in investing activities | (54.6 | ) | | (36.2 | ) | | (285.2 | ) |
| Cash Flows from Financing Activities: | | | | | |
| Proceeds from issuance of long-term debt | 693.7 |
| | — |
| | 260.8 |
|
| Repayment of long-term debt | (644.9 | ) | | (66.1 | ) | | (248.1 | ) |
| Debt issuance costs | (17.4 | ) | | (0.2 | ) | | (5.7 | ) |
| Proceeds from revolving facility | 350.0 |
| | 28.0 |
| | 292.4 |
|
| Repayment of revolving facility | (392.0 | ) | | (98.4 | ) | | (50.0 | ) |
| Proceeds from financing obligation | — |
| | 16.2 |
| | — |
|
| Repayment of financing obligation | (2.5 | ) | | (1.0 | ) | | — |
|
| Cash distributions to noncontrolling interests | (47.0 | ) | | (49.4 | ) | | (43.3 | ) |
| Dividends paid | — |
| | — |
| | (28.0 | ) |
| Acquisition of additional interest in the Partnership | (48.7 | ) | | — |
| | — |
|
| Shares repurchased | — |
| | — |
| | (35.7 | ) |
| SunCoke Energy Partners, L.P. units repurchased | — |
| | — |
| | (12.8 | ) |
| Other financing activities | 1.1 |
| | (1.4 | ) | | (1.1 | ) |
| Net cash (used in) provided by financing activities | (107.7 | ) | | (172.3 | ) | | 128.5 |
|
| Net (decrease) increase in cash and cash equivalents | (13.8 | ) | | 10.6 |
| | (15.6 | ) |
| Cash and cash equivalents at beginning of year | 134.0 |
| | 123.4 |
| | 139.0 |
|
| Cash and cash equivalents at end of year | $ | 120.2 |
| | $ | 134.0 |
| | $ | 123.4 |
|
| Supplemental Disclosure of Cash Flow Information | | | | | |
| Interest paid | $ | 69.0 |
| | $ | 58.4 |
| | $ | 58.1 |
|
| Income taxes paid, net of refunds of $1.0 million, $8.2 million and $1.5 million, respectively | $ | 5.8 |
| | $ | (2.3 | ) | | $ | 2.4 |
|
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (Dollars in millions) |
| Cash Flows from Operating Activities: | | | | | |
| Net income | $ | 104.9 | | | $ | 48.8 | | | $ | 8.8 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization expense | 142.5 | | | 133.9 | | | 133.7 | |
| Deferred income tax expense | 2.3 | | | 9.3 | | | 12.1 | |
| | | | | |
| Share-based compensation expense | 6.7 | | | 6.1 | | | 3.8 | |
| Loss (gain) on extinguishment of debt, net | — | | | 31.9 | | | (5.7) | |
| Changes in working capital pertaining to operating activities: | | | | | |
| Receivables, net | (32.3) | | | (31.3) | | | 13.2 | |
| Inventories | (48.2) | | | (1.1) | | | 21.8 | |
| Accounts payable | 27.4 | | | 29.5 | | | (38.0) | |
| Accrued liabilities | 8.4 | | | 6.3 | | | (1.0) | |
| Other | (2.8) | | | (0.3) | | | 9.1 | |
| Net cash provided by operating activities | 208.9 | | | 233.1 | | | 157.8 | |
| Cash Flows from Investing Activities: | | | | | |
| Capital expenditures | (75.5) | | | (98.6) | | | (73.9) | |
| Other investing activities | 5.3 | | | (0.7) | | | (1.4) | |
| Net cash used in investing activities | (70.2) | | | (99.3) | | | (75.3) | |
| Cash Flows from Financing Activities: | | | | | |
| Proceeds from issuance of long-term debt | — | | | 500.0 | | | — | |
| Repayment of long-term debt | — | | | (609.3) | | | (55.9) | |
| Proceeds from revolving facility | 596.0 | | | 690.1 | | | 629.9 | |
| Repayment of revolving facility | (676.0) | | | (663.4) | | | (684.9) | |
| Proceeds from financing obligation | — | | | — | | | 10.0 | |
| Repayment of financing obligation | (3.2) | | | (2.9) | | | (3.0) | |
| Debt issuance costs | — | | | (12.0) | | | — | |
| Dividends paid | (23.6) | | | (20.1) | | | (19.9) | |
| Shares repurchased | — | | | — | | | (7.0) | |
| Cash distributions to noncontrolling interests | (4.4) | | | — | | | — | |
| Other financing activities | (1.3) | | | (0.8) | | | (0.4) | |
| Net cash used in financing activities | (112.5) | | | (118.4) | | | (131.2) | |
| Net increase (decrease) in cash and cash equivalents | 26.2 | | | 15.4 | | | (48.7) | |
| Cash and cash equivalents at beginning of year | 63.8 | | | 48.4 | | | 97.1 | |
| Cash and cash equivalents at end of year | $ | 90.0 | | | $ | 63.8 | | | $ | 48.4 | |
| Supplemental Disclosure of Cash Flow Information | | | | | |
| Interest paid, net of capitalized interest of zero, $0.5 million and $0.2 million, respectively | $ | 28.5 | | | $ | 40.0 | | | $ | 51.8 | |
| Income taxes paid, net of refunds of $0.5 million, $2.9 million and $3.0 million, respectively | $ | 14.5 | | | $ | 2.9 | | | $ | 1.1 | |
(See Accompanying Notes)
64
SunCoke Energy, Inc.
Consolidated Statements of Equity
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive Loss | | Retained
Earnings | | Total SunCoke
Energy, Inc. Equity | | Non- controlling
Interests | | Total
Equity |
| | Shares | | Amount | | Shares | | Amount | | | | | |
| | (Dollars in millions) |
| At December 31, 2014 | 71,251,529 |
| | $ | 0.7 |
| | 4,977,115 |
| | $ | (105.0 | ) | | $ | 543.6 |
| | $ | (21.5 | ) | | $ | 13.9 |
| | $ | 431.7 |
| | $ | 273.7 |
| | $ | 705.4 |
|
| Net (loss) income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (22.0 | ) | | (22.0 | ) | | 32.3 |
| | 10.3 |
|
| Reclassifications of prior service cost and actuarial loss amortization to earnings (net of related tax expense of $3.4 million) | — |
| | — |
| | — |
| | — |
| | — |
| | 5.2 |
| | — |
| | 5.2 |
| | — |
| | 5.2 |
|
| Retirement benefit plans funded status adjustment (net of related tax benefit of $0.1 million) | — |
| | — |
| | — |
| | — |
| | — |
| | (0.4 | ) | | — |
| | (0.4 | ) | | — |
| | (0.4 | ) |
| Currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | (3.1 | ) | | — |
| | (3.1 | ) | | — |
| | (3.1 | ) |
| Adjustments from changes in ownership of SunCoke Energy Partners, L.P. | — |
| | — |
| | — |
| | — |
| | (8.0 | ) | | — |
| | — |
| | (8.0 | ) | | 83.0 |
| | 75.0 |
|
| Deferred taxes related to basis difference in the Partnership | — |
| | — |
| | — |
| | — |
| | (55.6 | ) | | — |
| | — |
| | (55.6 | ) | | — |
| | (55.6 | ) |
| Cash distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (43.3 | ) | | (43.3 | ) |
| Dividends | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (28.3 | ) | | (28.3 | ) | | — |
| | (28.3 | ) |
| Share-based compensation expense | — |
| | — |
| | — |
| | — |
| | 7.2 |
| | — |
| | — |
| | 7.2 |
| | — |
| | 7.2 |
|
| Share issuances, net of shares withheld for taxes and other equity activities | 237,919 |
| | — |
| | — |
| | — |
| | (1.1 | ) | | — |
| | — |
| | (1.1 | ) | | — |
| | (1.1 | ) |
| Shares repurchased | — |
| | — |
| | 2,500,542 |
| | (35.7 | ) | | — |
| | — |
| | — |
| | (35.7 | ) | | — |
| | (35.7 | ) |
| Partnership unit repurchases | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (12.8 | ) | | (12.8 | ) |
| At December 31, 2015 | 71,489,448 |
| | $ | 0.7 |
| | 7,477,657 |
| | $ | (140.7 | ) | | $ | 486.1 |
| | $ | (19.8 | ) | | $ | (36.4 | ) | | $ | 289.9 |
| | $ | 332.9 |
| | $ | 622.8 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive Loss | | Retained
Deficit | | Total SunCoke
Energy, Inc. Equity | | Non- controlling
Interests | | Total
Equity |
| Shares | | Amount | | Shares | | Amount | | | | | |
| (Dollars in millions) |
| At December 31, 2019 | 98,047,389 | | | $ | 1.0 | | | 13,783,182 | | | $ | (177.0) | | | $ | 712.1 | | | $ | (14.4) | | | $ | (30.1) | | | $ | 491.6 | | | $ | 26.8 | | | $ | 518.4 | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 3.7 | | | 3.7 | | | 5.1 | | | 8.8 | |
| Reclassification of prior service benefit and actuarial loss amortization to earnings (net of related tax) | — | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | | | — | | | 0.1 | |
| Retirement benefit plans funded status adjustment (net of related tax benefit of $0.4 million) | — | | | — | | | — | | | — | | | — | | | (1.6) | | | — | | | (1.6) | | | — | | | (1.6) | |
| Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (1.2) | | | — | | | (1.2) | | | — | | | (1.2) | |
| Share-based compensation | — | | | — | | | — | | | — | | | 3.8 | | | — | | | — | | | 3.8 | | | — | | | 3.8 | |
| Share issuances, net of shares withheld for taxes | 130,552 | | | — | | | — | | | — | | | (0.2) | | | — | | | — | | | (0.2) | | | — | | | (0.2) | |
| Share repurchases | — | | | — | | | 1,621,300 | | | (7.0) | | | — | | | — | | | — | | | (7.0) | | | — | | | (7.0) | |
| Dividends | — | | | — | | | — | | | — | | | — | | | — | | | (20.2) | | | (20.2) | | | — | | | (20.2) | |
| At December 31, 2020 | 98,177,941 | | | $ | 1.0 | | | 15,404,482 | | | $ | (184.0) | | | $ | 715.7 | | | $ | (17.1) | | | $ | (46.6) | | | $ | 469.0 | | | $ | 31.9 | | | $ | 500.9 | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 43.4 | | | 43.4 | | | 5.4 | | | 48.8 | |
| Reclassification of prior service benefit and actuarial loss amortization to earnings (net of related tax benefit of $0.1 million) | — | | | — | | | — | | | — | | | — | | | 0.3 | | | — | | | 0.3 | | | — | | | 0.3 | |
| Retirement benefit plans funded status adjustment (net of related tax expense of $0.3 million) | — | | | — | | | — | | | — | | | — | | | 1.0 | | | — | | | 1.0 | | | — | | | 1.0 | |
| Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (0.9) | | | — | | | (0.9) | | | — | | | (0.9) | |
| Share-based compensation | — | | | — | | | — | | | — | | | 6.1 | | | — | | | — | | | 6.1 | | | — | | | 6.1 | |
| Share issuances, net of shares withheld for taxes | 318,868 | | | — | | | — | | | — | | | (0.6) | | | — | | | — | | | (0.6) | | | — | | | (0.6) | |
| Dividends | — | | | — | | | — | | | — | | | — | | | — | | | (20.2) | | | (20.2) | | | — | | | (20.2) | |
| At December 31, 2021 | 98,496,809 | | | $ | 1.0 | | | 15,404,482 | | | $ | (184.0) | | | $ | 721.2 | | | $ | (16.7) | | | $ | (23.4) | | | $ | 498.1 | | | $ | 37.3 | | | $ | 535.4 | |
(See Accompanying Notes)
SunCoke Energy, Inc.
Consolidated Statements of Equity
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive Loss | | Retained
Earnings | | Total SunCoke
Energy, Inc. Equity | | Non- controlling
Interests | | Total
Equity |
| | Shares | | Amount | | Shares | | Amount | | | | | |
| | (Dollars in millions) |
| At December 31, 2015 | 71,489,448 |
| | $ | 0.7 |
| | 7,477,657 |
| | $ | (140.7 | ) | | $ | 486.1 |
| | $ | (19.8 | ) | | $ | (36.4 | ) | | $ | 289.9 |
| | $ | 332.9 |
| | $ | 622.8 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14.4 |
| | 14.4 |
| | 45.1 |
| | 59.5 |
|
| Retirement benefit plans funded status adjustment (net of related tax benefit of $0.1 million) | — |
| | — |
| | — |
| | — |
| | — |
| | (0.2 | ) | | — |
| | (0.2 | ) | | — |
| | (0.2 | ) |
| Currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | 1.0 |
| | — |
| | 1.0 |
| | — |
| | 1.0 |
|
| Cash distribution to noncontrolling interests, net of unit issuances | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (49.2 | ) | | (49.2 | ) |
| Share-based compensation expense | — |
| | — |
| | — |
| | — |
| | 6.5 |
| | — |
| | — |
| | 6.5 |
| | — |
| | 6.5 |
|
| Share issuances, net of shares withheld for taxes and other equity activities | 217,856 |
| | — |
| | — |
| | — |
| | (0.5 | ) | | — |
| | — |
| | (0.5 | ) | | — |
| | (0.5 | ) |
| At December 31, 2016 | 71,707,304 |
| | $ | 0.7 |
| | 7,477,657 |
| | $ | (140.7 | ) | | $ | 492.1 |
| | $ | (19.0 | ) | | $ | (22.0 | ) |
| $ | 311.1 |
| | $ | 328.8 |
| | $ | 639.9 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive Loss | | Retained
(Deficit)
Earnings | | Total SunCoke
Energy, Inc. Equity | | Non- controlling
Interests | | Total
Equity |
| Shares | | Amount | | Shares | | Amount | | | | | |
| (Dollars in millions) |
| At December 31, 2021 | 98,496,809 | | | $ | 1.0 | | | 15,404,482 | | | $ | (184.0) | | | $ | 721.2 | | | $ | (16.7) | | | $ | (23.4) | | | $ | 498.1 | | | $ | 37.3 | | | $ | 535.4 | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 100.7 | | | 100.7 | | | 4.2 | | | 104.9 | |
| Reclassification of prior service benefit and actuarial loss amortization to earnings (net of related tax benefit of $0.1 million) | — | | | — | | | — | | | — | | | — | | | 0.4 | | | — | | | 0.4 | | | — | | | 0.4 | |
| Retirement benefit plans funded status adjustment (net of related tax expense of $0.9 million) | — | | | — | | | — | | | — | | | — | | | 3.1 | | | — | | | 3.1 | | | — | | | 3.1 | |
| Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | 0.2 | | | — | | | 0.2 | | | — | | | 0.2 | |
| Share-based compensation | — | | | — | | | — | | | — | | | 8.1 | | | — | | | — | | | 8.1 | | | — | | | 8.1 | |
| Share issuances, net of shares withheld for taxes | 318,971 | | | — | | | — | | | — | | | (1.2) | | | — | | | — | | | (1.2) | | | — | | | (1.2) | |
| Dividends | — | | | — | | | — | | | — | | | — | | | — | | | (23.8) | | | (23.8) | | | — | | | (23.8) | |
| Cash distribution to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4.4) | | | (4.4) | |
| At December 31, 2022 | 98,815,780 | | | $ | 1.0 | | | 15,404,482 | | | $ | (184.0) | | | $ | 728.1 | | | $ | (13.0) | | | $ | 53.5 | | | $ | 585.6 | | | $ | 37.1 | | | $ | 622.7 | |
(See Accompanying Notes)
SunCoke Energy, Inc.
Consolidated Statements of Equity
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive Loss | | Retained
Earnings | | Total SunCoke
Energy, Inc. Equity | | Non- controlling
Interests | | Total
Equity |
| | Shares | | Amount | | Shares | | Amount | | | | | |
| | (Dollars in millions) |
| At December 31, 2016 | 71,707,304 |
| | $ | 0.7 |
| | 7,477,657 |
| | $ | (140.7 | ) | | $ | 492.1 |
| | $ | (19.0 | ) | | $ | (22.0 | ) | | $ | 311.1 |
| | $ | 328.8 |
| | $ | 639.9 |
|
| Net income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 122.4 |
| | 122.4 |
| | (18.9 | ) | | 103.5 |
|
| Reclassifications of prior service cost and actuarial loss amortization to earnings (net of related tax expense of zero) | — |
| | — |
| | — |
| | — |
| | — |
| | 0.2 |
| | — |
| | 0.2 |
| | — |
| | 0.2 |
|
| Retirement benefit plans funded status adjustment (net of related tax benefit of $0.3 million) | — |
| | — |
| | — |
| | — |
| | — |
| | (0.8 | ) | | — |
| | (0.8 | ) | | — |
| | (0.8 | ) |
| Currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | (0.5 | ) | | — |
| | (0.5 | ) | | — |
| | (0.5 | ) |
| Cash distribution to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (47.0 | ) | | (47.0 | ) |
| Share-based compensation expense | — |
| | — |
| | — |
| | — |
| | 4.7 |
| | — |
| | — |
| | 4.7 |
| | 0.1 |
| | 4.8 |
|
| Share issuances, net of shares withheld for taxes | 299,601 |
| |
|
| | — |
| | — |
| | 1.1 |
| | — |
| | — |
| | 1.1 |
| | — |
| | 1.1 |
|
| Acquisition of additional interest in the Partnership: | | | | | | | | | | | | | | | | | | | |
| Cash paid | — |
| | — |
| | — |
| | — |
| | (19.1 | ) | | — |
| | — |
| | (19.1 | ) | | (29.6 | ) | | (48.7 | ) |
| Deferred tax adjustment | — |
| | — |
| | — |
| | — |
| | 7.1 |
| | — |
| | — |
| | 7.1 |
| | — |
| | 7.1 |
|
| Cumulative effect from adoption of ASU 2016-09 | — |
| | — |
| | — |
| | — |
| | 0.3 |
| | — |
| | (0.3 | ) | | — |
| | — |
| | — |
|
| At December 31, 2017 | 72,006,905 |
| | $ | 0.7 |
| | 7,477,657 |
| | $ | (140.7 | ) | | $ | 486.2 |
| | $ | (20.1 | ) | | $ | 100.1 |
| | $ | 426.2 |
| | $ | 233.4 |
| | $ | 659.6 |
|
SunCoke Energy, Inc.
Notes to Consolidated Financial Statements
1. General and Basis of Presentation
Description of Business
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 approximately 55more than 60 years of coke production experience. Coke is a principal raw material in the blast furnace steelmaking process and is produced by heating metallurgical coal in a refractory oven, which releases certain volatile components from the coal, thus transforming the coal into coke. Additionally, we own and operateOur coke is primarily used as a logistics business, which primarily provides handling and/or mixing services of coal and other aggregates to third-party customersprincipal raw material in the blast furnace steelmaking process as well as in the foundry production of casted iron, and the majority of our sales are derived from blast furnace coke sales made under long-term, take-or-pay agreements. We also export coke to our own cokemaking facilities.
international customers seeking high-quality product for their blast furnaces. We have designed, developed and built, and we currently own and operate five cokemaking facilities in the United States (“U.S.”) with 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.
We also holdown and operate a 49 percent investment in a cokemaking joint venture with VISA Steel Limited in India ("VISA SunCoke"), which was fully impaired in 2015, and consequently, beginning in the fourth quarter of 2015, we no longer include our share of VISA SunCoke in our financial results.
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. This differs from by-product cokemaking, which repurposes the coal’s liberated volatile components for other uses. We have constructed the only greenfield cokemaking facilities in the U.S. in approximately 30 years and are the only North American coke producer that utilizes heat recovery technology in the cokemaking process. We provide steam pursuant to steam supply and purchase agreements with our customers. Electricity is sold into the regional power market or pursuant to energy sales agreements.
Our logistics business that provides export and domestic material handling and/or mixing services to steel, coke (including some of our domestic cokemaking facilities), electric utility, coal producing and other manufacturing based customers. TheOur logistics business has terminals, in Indiana, West Virginia, Virginia,which are strategically located to reach Gulf Coast, East Coast, Great Lakes and Louisiana withinternational ports, have the collective capacity to mix and/or transload more than 40 million tons of coal and other aggregates annually and has total storage capacity of approximately 3 million tons.
We previously controlled coal mining operations in Virginia and West Virginia until April 2016 when the Company completed the disposal of its coal mining business to Revelation Energy, LLC ("Revelation"). Revelation assumed substantially all of our remaining coal mining assets and real estate, and was assigned substantially all of our mineral leases and a substantial portion of our mining reclamation obligations. Under the terms of the agreement, Revelation received $12.8 million from the Company to take ownership of the assets and liabilities. During 2016, the Company recognized losses associated with this divestiture of $14.7 million.
Our consolidated financial statements include SunCoke Energy Partners, L.P. (the "Partnership"), a publicly-traded partnership. At December 31, 2017, we owned the general partner of the Partnership, which consists of a 2.0 percent ownership interest and incentive distribution rights ("IDRs"), and a 59.9 percent limited partner interest in the Partnership. The remaining 38.1 percent interest in the Partnership was held by public unitholders.
Incorporated in Delaware in 2010 and headquartered in Lisle, Illinois, we became a publicly-traded company in 2011, and our stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “SXC.”
Consolidation and Basis of Presentation
The consolidated financial statements of the Company and its subsidiaries were prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") and include the assets, liabilities, revenues and expenses of the Company and all subsidiaries where we have a controlling financial interest. Intercompany transactions and balances have been eliminated in consolidation. Net income attributable to noncontrolling interest represents the common public unitholders’ interest in SunCoke Energy Partners, L.P. as well as a 14.8 percent third-party interest in our Indiana Harbor cokemaking facility.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual amounts could differ from these estimates.
Reclassifications
Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current year presentation. See Note 18.
Revenue Recognition
The Company sells coke as well as steam and electricity and also provides mixing and/or handling services of coal and other aggregates. The Company also receives fees for operating the cokemaking plant in Brazil and for the licensing of its proprietary technology for use at this facility as well as reimbursement of substantially all of its operating costs. Revenues related to the sale of products are recognized when title passes, generally when products are shipped or delivered in accordance with the terms of the respective sales agreements. Service revenues are recognized when services are provided as defined by customer contracts. Revenues are not recognized until sales prices are fixed or determinable and collectability is reasonably assured. Licensing fees, which include an annual fixed fee and a fee determined on a per ton basis, are recognized when earned in accordance with the contract terms.
Substantially all of the coke produced by the Company is sold pursuant to long-term contracts with its customers. The Company evaluates each of its contracts to determine whether the arrangement contains a lease under the applicable accounting standards. If the specific facts and circumstances indicate that it is remote that parties other than the contracted customer will take more than a minor amount of the coke that will be produced by the property, plant and equipment during the term of the coke supply agreement, and the price that the customer is paying for the coke is neither contractually fixed per unit nor equal to the current market price per unit at the time of delivery, then the long-term contract is deemed to contain a lease. The lease component of the price of coke represents the rental payment for the use of the property, plant and equipment, and all such payments are accounted for as contingent rentals as they are only earned by the Company when the coke is delivered and title passes to the customer. The total amount of revenue recognized by the Company for these contingent rentals represents less than 10 percent of combined sales and other operating revenues for each of the years ended December 31, 2017, 2016 and 2015.
The Partnership receives payment for shortfall obligations on certain Logistics take-or-pay contracts. The payments in excess of services performed are recorded in deferred revenue on the Consolidated Balance Sheets. Deferred revenue on take-or-pay contracts is generally billed quarterly and recognized as income at the earlier of when service is provided or annually based on the terms of the contract.See Note 18.
Cash Equivalents
The Company considers all highly liquid investments with a remaining maturity of three months or less at the time of purchase to be cash equivalents. These cash equivalents consist principally of certificates of deposit.money market funds.
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method, except for the Company’s materials and supplies inventory, which are determined using the average-cost method. The Company primarily utilizes the sellingcontracted sales prices under its long-term coke supplysales contracts to record lower of cost or net realizable value inventory adjustments. See Note 5.
Properties, Plants and Equipment
Plants and equipment are depreciated on a straight-line basis over their estimated useful lives. Coke and energy plant, machinery and equipment are generally depreciated over 25 to 30 years. Logistics plant and equipment are generally depreciated over 15 to 35 years. Depreciation and amortization is excluded from cost of products sold and operating
expenses and is presented separately on the Consolidated Statements of Operations.Income. Gains and losses on the disposal or retirement of fixed assets are reflected in earnings when the assets are sold or retired. Amounts incurred that extend an asset’s useful life, increase its productivity or add production capacity are capitalized. Additionally, the Company generally capitalizes interest on capital projects with an expected construction period of one year or longer. The Company capitalized interest of $1.1 million, $5.0 million and $3.7 millionaccounts for changes in 2017, 2016 and 2015, respectively.useful lives, when appropriate, as a change in estimate, with prospective application only. Direct costs, such as outside labor, materials, internal payroll and benefits costs incurred during capital projects are capitalized; indirect costs are not capitalized. Normal repairs and maintenance costs are expensed as incurred. See Note 6.
Intangible Assets
TableIntangible assets are primarily comprised of Contentspermits. Intangible assets are amortized over their useful lives in a manner that reflects the pattern in which the economic benefit of the intangible asset is consumed. Intangible assets are assessed for impairment when a triggering event occurs. See Note 7.
Impairment of Long-Lived Assets
Long-lived assets, which includes intangible assets and properties, plants and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. A long-lived asset, or group of assets, is considered to be impaired when the undiscounted net cash flows expected to be generated by the asset are less than its carrying amount. Such estimated future cash flows are highly subjective and are based on numerous assumptions about future operations and market conditions. The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the impaired asset, or group of assets. It is also difficult to precisely estimate fair market value because quoted market prices for our long-lived assets may not be readily available. Therefore, fair market value is generally based on the present values of estimated future cash flows using discount rates commensurate with the risks associated with the assets being reviewed for impairment.
Cash flows at our Indiana Harbor facility were negative during 2017, driven by the oven rebuild project implemented to address coke oven degradation. Based on these results, we performed an impairment test in 2017 and concluded that our projected undiscounted cash flows associated with the facility were approximately 45 percent, or substantially in excess, of the carrying value of our long-lived assets at Indiana Harbor. However, we continue to closely monitor our performance at Indiana Harbor, and if our coke oven rebuild project does not stabilize production or if the project costs are significantly higher than expected, our current conclusion as to recoverability of assets at that location could change.
See Note 17 for discussion of impairments recorded during prior years.
Goodwill and Other Intangibles
Goodwill, which represents the excess of the purchase price over the fair value of net assets acquired, is tested for impairment as of October 1 of each year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit to below its carrying value. The Company performs its annual goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount. The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.
Intangible assets are primarily comprised of permits, customer contracts and customer relationships. Intangible assets are amortized over their useful lives in a manner that reflects the pattern in which the economic benefit of the intangible asset is consumed. Intangible assets are assessed for impairment when a triggering event occurs.
There were no impairments of goodwill or other intangible assets during the periods presented. See Note 8 for further discussion on the Partnership's Logistics goodwill impairment test.
Investment in Brazilian Cokemaking Operations
On November 28, 2016, ArcelorMittal Brazil redeemed SunCoke’s indirectly held preferred and common equity interest in Sol Coqueria Tubarão S.A. ("Brazil Investment"), previously accounted for at cost, for consideration of $41.0 million. The Company received $20.5 million in cash at closing in 2016 and received the remaining $20.5 million in cash, plus interest of $0.2 million, in 2017. With the redemption of the Brazil Investment, the Company no longer receives the $9.5 million annual preferred dividend on its Brazil Investment from ArcelorMittal Brazil, included in sales and other operating revenue on the Consolidated Statement of Operations in 2015. Starting in 2016, SunCoke receives $5.1 million in licensing fees per year, in addition to our per ton licensing fee, through 2023 related to the addition of certain patents to its existing intellectual property licensing agreement, which are currently in use by ArcelorMittal Brazil at the Brazil facility. The Company also extended the life of its patents with the Brazilian authorities through 2033, providing opportunity to extend the existing licensing agreement beyond 2023. Licensing fees are included in sales and other operating revenue on the Consolidated Statement of Operations.7.
Income Taxes
Income tax expense (benefit) is determined by applying the provisions of federal and state tax laws to taxable income (loss) during the period. We do business in a number of states with differing laws concerning how income subject to each state's tax structure is measured. These laws, as well as changes in tax legislation, impact what effective tax rate is applied to income generated in each state, and the Company makes estimates of how income will be apportioned among various states based on these factors. Deferred tax asset and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are projected to be recovered or settled. See Note 5 for discussion of the impacts of the Tax Cuts and Jobs Act (“Tax Legislation”), which was enacted on December 22, 2017.
The Company recognizes uncertain tax positions in its financial statements when minimum recognition threshold and measurement attributes are met in accordance with current accounting guidance. There were no uncertain tax positions at December 31, 2017, and 2016. See Note 5.
4.
Black Lung Benefit Liabilities
The Company has obligations related to coal workers’ pneumoconiosis, or black lung, benefits toof certain of our 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 act as a self-insurer for both state and federal black lung benefits and adjust our liability each year based upon actuarial calculations of our expected future payments for these benefits.benefits, including a provision for incurred but not reported losses. Adjustments are recognized in the period the adjustment occurs as a component of selling, general and administrative expense on the Consolidated Statements of Income. See Note 13.12.
Postretirement Benefit Plan Liabilities
The postretirement benefit plans, which are frozen, are unfunded and the accumulated postretirement benefit obligation is fully recognized on the Consolidated Balance Sheets. Actuarial gains (losses) and prior service costs (benefits) which have not yet been recognized in net income are recognized as a credit (charge) to accumulated other comprehensive income (loss). The credit (charge) to accumulated other comprehensive income (loss), which is reflected net of related tax effects, is subsequently recognized in net income when amortized as a component of postretirement benefit plans expense included in selling, general and administrative expensesinterest expense, net on the Consolidated StatementStatements of Operations.Income. See Note 10.9.
Asset Retirement Obligations
The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the asset and depreciated over its remaining estimated useful life. When the assumptions used to estimate a recorded asset retirement obligation change, a revision is recorded to both the asset retirement obligation and the asset retirement cost capitalized to the extent remaining useful life exists. The Company’s asset retirement obligations primarily relate to costs associated with restoring land to its original state. See Note 9.8.
Leases
We determine if an arrangement contains a lease at inception. We recognize right-of-use assets and lease liabilities associated with leases based on the present value of the future minimum lease payments over the lease term at the commencement date. Our leases do not provide an implicit rate of return, therefore, we use our incremental borrowing rate at the inception of the lease to calculate the present value of lease payments. Our incremental borrowing rate is determined through market sources for secured borrowings and approximates the interest rate at which we could borrow on a collateralized basis with similar terms and payments in similar economic environments. Lease terms reflect options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The Company has elected to apply the short-term lease exception for all asset classes, therefore, excluding all leases with a term of less than 12 months from the balance sheet, and will recognize the lease payments in the period they are incurred. Additionally, the Company accounts for lease and non-lease components of an arrangement, such as assets and services, as a single lease component for all asset classes on existing leases. See Note 13.
Shipping and Handling Costs
Shipping and handling costs are included in cost of products sold and operating expenses on the Consolidated Statements of OperationsIncome and are generally passed through to our customers. The Company has elected the practical expedient under Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers," to account for shipping and handling activities as a promise to fulfill the transfer of coke. See Note 18.
Share-Based Compensation
We measure the cost of employee services in exchange for equity instrument awards and cash awards based on the grant-date fair value of the award. The cashCash awards and the performance metrics of equity awards are remeasured on a quarterly basis. The market metrics of equity awards are not remeasured. The total cost is recognized over the requisite service period. Award forfeitures are accounted for as they occur. The costs of equity awards and cash awards wereare recorded to additional paid-in capital and accrued liabilities, respectively, on the Consolidated Balance Sheets. See Note 15.
Fair Value Measurements
The Company determines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As required, the Company utilizes valuation techniques that maximize the use of observable inputs (levels 1 and 2) and minimize the use of unobservable inputs (level 3) within the fair value hierarchy included in current accounting guidance. Assets and liabilities are classified within the fair value hierarchy based on the lowest level (least observable) input that is significant to the measurement in its entirety. See Note 17.
Currency Translation
The functional currency of the Company’s Brazilian operations and India joint venture areis the Brazilian real and Indian rupee, respectively.real. The Company’s foreignBrazil operations translate theirits assets and liabilities into U.S. dollars at the current exchange rates in effect at the end of the fiscal period. The gains or losses that result from this process are shown as cumulative translation adjustments within accumulated other comprehensive loss in the Consolidated Balance Sheets. The revenue and expense accounts of foreign operations are translated into U.S. dollars at the average exchange rates during the period and are included in our Consolidated Statements of Operations. The Company did not incur any material foreign currency transaction gains or losses duringperiod.
Recent Accounting Pronouncements
In December, 2022 the periods presented.
Recently Issued Pronouncements
In May 2014, Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2014-09, “Revenue from Contracts with Customersissued ASU 2022-06 Reference Rate Reform (Topic 606),” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Subsequently, the FASB has issued various ASUs to provide further clarification around certain aspects of ASC 606. This standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and early adoption was permitted on a limited basis. We have substantially completed our analysis848):Deferral of the new standard and doSunset Date of Topic 848 as an amendment to previously issued ASU 2020-04 Reference Rate Reform (Topic 848):Facilitation of the Effects of Reference Rate Reform on Financial Reporting. These updates help limit the accounting impact from contract modifications due to the transition from LIBOR to alternative reference rates that are completed by December 31, 2024. The Company does not expect the transition from LIBOR to SOFR to have a material change in our revenue recognition model on an annual basis. Deferred revenue at CMT may be recognized on a more accelerated basis during quarterly periods within the year based on facts and circumstances considered at each quarter under the new guidance. The Company will adopt this standard on January 1, 2018 using the modified retrospective method.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 requires lessees to recognize assets and liabilitiesimpact on the balance sheetconsolidated financial statements and disclosures. Refer to Note 11 for the rights and obligations created by all leases with terms of more than 12 months. It is effective for annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. A multi-disciplined implementation team has gained an understanding of the accounting and disclosure provisions of the standard and is in the process of analyzing the impacts to our business, including the development of new accounting processes to account for our leases and support the required disclosures. While we are still evaluating the impact of adopting this standard, we expect that upon adoption the right-of-use assets and lease liabilities, such as various plant equipment rentals and the lease of our corporate office space, will increase the reported assets and liabilities on our Consolidated Balance Sheets. We are currently evaluating technology tools to assist with the accounting and reporting requirements of this standard. The Company expects to adopt this standard on January 1, 2019 and is currently evaluating our transition method options. further detail.
Labor Concentrations
As of December 31, 2017,2022, we have approximately 909887 employees in the U.S. Approximately 3940 percent of our domestic employees, principally at our cokemaking operations, are represented by the United Steelworkers union under various contracts. Additionally, approximately 3 percent of our domestic employees are represented by the International Union of Operating Engineers. While the labor agreementLabor agreements at ourKRT, Lake Terminal, and Indiana Harbor cokemaking facility expired on August 31, 2015, the parties mutually agreed to extend the terms of this agreement through August 2018, at which time the collective bargaining process will resume. We do not anticipate any work stoppages during the extended period of the agreement. In 2017, we reached a new three-year agreement for our Granite City location, whichwere renewed in 2022 and will expire on August 31, 2020.April 30, 2025, June 30, 2025, and September 1, 2026, respectively.
As of December 31, 2017, 2022,we have approximately 270285 employees at the cokemaking facility in Vitória, Brazil, all of whom are represented by a union under a labor agreement. In 2017, we reached a new one-yearagreement. During 2022, the labor agreement at our Vitoria,Vitória, Brazil facility which will expirewas renewed
for an additional year, and it expires on October 31, 2018. We will negotiate the renewal of this agreement in 2018 and do not anticipate any work stoppages. 2023.
3. Acquisitions and Dropdown Transactions
Acquisition of Partnership Common Units
In April 2017, the Company's Board of Directors authorized a program for the Company to purchase outstanding Partnership common units at any time and from time to time in the open market, through privately negotiated transactions, block transactions, or otherwise for a total aggregate cost to the Company not to exceed $50.0 million. In July 2017, the Company's Board of Directors authorized the Company to purchase an incremental $50.0 million of Partnership common units in the open market. During 2017, the Company purchased 2,853,032 of outstanding Partnership common units in the open market for total cash payments of $48.7 million, which increased our limited partner interest in the Partnership from 53.9 percent to 59.9 percent at December 31, 2017. This resulted in a decrease in noncontrolling interest of $29.6 million
during 2017 on the Consolidated Balance Sheets related to the Partnership's net book value acquired by the Company. The Company decreased its additional paid-in capital balance by $12.0 million on the Consolidated Balance Sheets for the consideration paid in excess of the net book value of the noncontrolling interest acquired, net of a deferred tax adjustment of $7.1 million during 2017.
The following table summarizes the effects of the changes in the Company's ownership interest in the Partnership on SunCoke's equity: |
| | | |
| | Year Ended December 31, 2017 |
| | (Dollars in millions) |
| Net income attributable to SunCoke Energy, Inc | $ | 122.4 |
|
| Decrease in SunCoke Energy, Inc. equity for the purchase of additional interest in the Partnership | (12.0 | ) |
| Changes from net income attributable to SunCoke Energy, Inc and transfers to noncontrolling interest | $ | 110.4 |
|
Subsequent to December 31, 2017, the Company purchased an additional 132,188 of outstanding Partnership common units in the open market for total cash payments of $2.3 million, leaving a remaining common unit purchase program balance of $49.0 million as of February 15, 2018.
Convent Marine Terminal Acquisition
On August 12, 2015, the Partnership completed the acquisition of a 100 percent ownership interest in Raven Energy LLC, which owns Convent Marine Terminal ("CMT"), for a total transaction value of $403.1 million. The transaction value included $191.7 million in cash paid by the Partnership, 4.8 million common units issued with an aggregate value of $75.0 million to The Cline Group, $114.9 million of debt assumed and $21.5 million of cash withheld to fund capital expenditures.
The results of CMT have been included in the consolidated financial statements since the date of acquisition and are reported in the Logistics segment. CMT contributed revenues of $71.1 million, $62.7 million and $28.6 million, as well as operating income of $42.3 million, $46.5 million and $18.4 million during 2017, 2016 and 2015, respectively.
The following combined and consolidated results of operations were prepared using historical financial information of CMT and assumes that the acquisition of CMT occurred on January 1, 2015: |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Audited) | | (Unaudited pro forma) |
| | (Dollars in millions) |
| Total revenues | $ | 1,331.5 |
| | $ | 1,223.3 |
| | $ | 1,395.4 |
|
| Net income | $ | 103.5 |
| | $ | 59.5 |
| | $ | 9.7 |
|
| Net income (loss) attributable to SunCoke Energy, Inc. | $ | 122.4 |
| | $ | 14.4 |
| | $ | (22.3 | ) |
| Earnings (loss) attributable to SunCoke Energy, Inc. per common share: | | | | | |
| Basic | $ | 1.90 |
| | $ | 0.22 |
| | $ | (0.34 | ) |
| Diluted | $ | 1.88 |
| | $ | 0.22 |
| | $ | (0.34 | ) |
The unaudited pro forma combined results of operations reflect historical results adjusted for interest expense, depreciation adjustments based on the fair value of acquired property, plant and equipment, amortization of acquired identifiable intangible assets, and income tax expense. The pro forma combined results do not include acquisition costs or new contracts. The unaudited pro forma combined and consolidated financial statements are presented for informational purposes only and do not necessarily reflect future results given the timing of new customer contracts, revenue recognition related to take-or-pay shortfalls, and other effects of integration, nor do they purport to be indicative of the results of operations that actually would have resulted had the acquisition of CMT occurred on January 1, 2015 or future results.
Granite City Dropdowns
On January 13, 2015, the Company contributed a 75 percent interest in its Granite City cokemaking facility to the Partnership for a total transaction value of $244.4 million (the "Granite City Dropdown"). The transaction value included $148.3 million of debt and other liabilities assumed by the Partnership, $50.1 million of Partnership common units issued, $1.0 million of general partner interest issued to the Partnership's general partner and $45.0 million of cash withheld to pre-fund our obligation to the Partnership for the anticipated costs of an environmental remediation project at Granite City. Subsequent to the Granite City Dropdown, we continued to own the general partner of the Partnership, which owns a 2 percent general partners interest and IDRs, and a 56.1 percent limited partner interest in the Partnership. The remaining 41.9 percent limited partner interest in the Partnership was held by public unitholders and was reflected as a noncontrolling interest in the consolidated financial statements.
On August 12, 2015, the Company contributed an additional 23 percent interest in Granite City to the Partnership for a total transaction value of $65.2 million (the "Granite City Supplemental Dropdown"). The transaction value included $46.9 million of debt and other liabilities assumed by the Partnership, $17.9 million of Partnership common units issued and $0.4 million of general partner interest issued to the Partnership's general partner. Subsequent to the Granite City Supplemental Dropdown and the units issued in connection with the acquisition of CMT, we continue to own the general partner of the Partnership, which owns a 2 percent general partner interest and IDRs, and owned a 53.4 percent limited partner interest in the Partnership. The remaining 44.6 percent limited partner interest in the Partnership was held by public unitholders and was reflected as a noncontrolling interest in the consolidated financial statements.
We accounted for the Granite City Dropdown and Granite City Supplemental Dropdown as equity transactions, which resulted in an increase in noncontrolling interest and a decrease in SunCoke Energy's equity of $6.5 million and $1.5 million, respectively, representing the Partnership's common public unitholders' share of the book value of ownership interest received of $114.7 million, net of their share of the transaction value of $106.7 million.
The table below summarizes the effects of the changes in the Company’s ownership interest in Granite City on SunCoke’s equity:
|
| | | |
| | Year Ended December 31, 2015 |
| | (Dollars in millions) |
| Net loss attributable to SunCoke Energy, Inc. | $ | (22.0 | ) |
| Decrease in SunCoke Energy, Inc. equity for the contribution of 75 percent interest in Granite City | (6.5 | ) |
| Decrease in SunCoke Energy, Inc. for the contribution of an additional 23 percent interest in Granite City | (1.5 | ) |
| Change from net loss attributable to SunCoke Energy, Inc. and dropdown transactions | $ | (30.0 | ) |
4. Customer Concentrations
In 2017,2022, the Company sold approximately 43.4 million tons of coke under long-term, take-or-pay contracts to its threetwo primary customers in the U.S.: AKCleveland-Cliffs Steel Holding Corporation ("AK Steel"), ArcelorMittal USAand Cleveland-Cliffs Steel LLC, and/or its affiliates (“AM USA”)subsidiaries of Cleveland-Cliffs Inc. and collectively referred to as "Cliffs Steel," and United States Steel Corporation ("U.S. Steel"). In addition, licensing and operating fees are payable to the Company under long-term contracts with a Brazilian subsidiary of ArcelorMittal S.A., where we operate a cokemaking facility, ArcelorMittal Brasil S.A. ("ArcelorMittal Brazil”).
The tabletables below showsshow sales to the Company's significant customers for the years ended December 31, 2017, 2016 and 2015:customers: |
| | | | | | | | | | | | | | | | | | | | | |
| | | Years ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | Sales and other operating revenue | | Percent of Company sales and other operating revenue | | Sales and other operating revenue | | Percent of Company sales and other operating revenue | | Sales and other operating revenue | | Percent of Company sales and other operating revenue |
| | | (Dollars in millions) |
AM USA and ArcelorMittal Brazil(1) | | $ | 678.2 |
| | 50.9 | % | | $ | 596.6 |
| | 48.8 | % | | $ | 671.8 |
| | 49.3 | % |
AK Steel(2) | | $ | 331.3 |
| | 24.9 | % | | $ | 350.0 |
| | 28.6 | % | | $ | 395.4 |
| | 29.0 | % |
U.S. Steel(3) | | $ | 214.1 |
| | 16.1 | % | | $ | 185.3 |
| | 15.1 | % | | $ | 212.7 |
| | 15.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | |
| | | 2022 | | | | | 2021 | | |
| | | Sales and other operating revenue | | Percent of Company sales and other operating revenue | | | | | Sales and other operating revenue | | Percent of Company sales and other operating revenue | | |
| | | (Dollars in millions) | | |
Cliffs Steel(1) | | | $ | 1,182.8 | | | 60.0 | % | | | | | $ | 994.6 | | | 68.3 | % | | |
U.S. Steel(2) | | | $ | 284.8 | | | 14.4 | % | | | | | $ | 210.0 | | | 14.4 | % | | |
(1) Represents revenues included in our Domestic Coke and Brazil Coke segments. | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020 | | |
| | Sales and other operating revenue | | Percent of Company sales and other operating revenue | | | | |
| | (Dollars in millions) |
Cliffs Steel / AM USA(1)(3) | | $ | 687.3 | | | 51.6 | % | | | | |
Cliffs Steel / AK Steel(1)(3) | | $ | 355.8 | | | 26.7 | % | | | | |
U.S. Steel(2) | | $ | 208.2 | | | 15.6 | % | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(2) (1)Represents revenues included in our Domestic Coke segment.
(3) (2)Represents revenues included in our Domestic Coke and Logistics segments.
Since 2015,(3)In March 2020, Cleveland-Cliffs Inc. completed the acquisition of AK Steel has kept its Ashland Kentucky Works facility idledHolding Corporation ("AK Steel"), and U.S. Steel has kept portionssubsequently changed the name of its Granite City Works facility idled. These temporary idlings do not change any obligations that AK Steel and/or U.S.to Cleveland-Cliffs Steel have under their long-term, take-or-pay contracts with us.Holding Corporation. In December 2020, Cliffs completed the acquisition of ArcelorMittal USA LLC ("AM USA"), and subsequently changed the name of AM USA to Cleveland-Cliffs Steel LLC. As stated above, subsequent to the acquisitions we collectively refer to these subsidiaries as Cliffs Steel.
The Company generally does not require any collateral with respect to its receivables. At both December 31, 2017 and 2016, the Company’s receivables balances were primarilydue under long-term, take-or-pay contracts. Receivables due from AM USA and ArcelorMittal Brazil, AKCliffs Steel and U.S. Steel.Steel were approximately $33.5 million and $7.1 million as of December 31, 2022, respectively, and $30.0 million and $7.3 million as of December 31, 2021, respectively. These balances comprised approximately 39 percent and 48 percent of the Company's receivables balance as of December 31, 2022 and 2021, respectively. As a result, the Company experiences concentrations of credit risk in its receivables with these three customers. These concentrations of credit riskcustomers, which may be affected by changes in economic or other conditions affecting the steel industry.
The table below shows receivables due from the Company's three significant customers as of December 31, 2017 and 2016: |
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (Dollars in millions) |
AM USA and ArcelorMittal Brazil(1) | $ | 25.7 |
| | $ | 47.7 |
|
| AK Steel | $ | 13.2 |
| | $ | 10.7 |
|
| U.S. Steel | $ | 5.6 |
| | $ | 5.7 |
|
(1) The 2016 receivables due include the $20.5 million receivable recorded as redemption of Brazil investment on the Consolidated Balance Sheets and was collected in 2017.
Our Logistics segment provides coal handling and storage services to Murray American Coal, Inc. ("Murray") and Foresight Energy LLC ("Foresight"), who are the two primary customers in the Logistics segment and related parties of The Cline Group, a beneficial owner of the Partnership. Sales to Foresight and Murray accounted for $57.8 million, or 4.3 percent, and $53.5 million, or 4.4 percent and $22.0 million, or 1.6 percent of the Company's sales and other operating revenue and were recorded in the Logistics segment for the years ended December 31, 2017, 2016 and 2015, respectively, representing 49.4 percent, 49.6 percent and 27.1 percent of Logistics revenue, including intersegment sales, in 2017, 2016 and 2015, respectively. Receivables from Murray and Foresight were $9.7 million and $8.0 million and were recorded in receivables on the Consolidated Balance Sheets at December 31, 2017 and 2016, respectively.
5.4. Income Taxes
The components of income before income tax (benefit) expense and loss from equity method investment are as follows: |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Domestic | $ | 4.3 |
| | $ | 52.5 |
| | $ | 8.6 |
|
| Foreign | 17.6 |
| | 15.6 |
| | 14.5 |
|
| Total | $ | 21.9 |
| | $ | 68.1 |
| | $ | 23.1 |
|
The components of income tax (benefit) expense are as follows: | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| | (Dollars in millions) |
| Domestic | $ | 107.1 | | | $ | 50.4 | | | $ | 6.1 | |
| Foreign | 14.6 | | | 16.7 | | | 13.0 | |
| Total | $ | 121.7 | | | $ | 67.1 | | | $ | 19.1 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Income taxes currently payable (receivable): |
| |
| |
|
| U.S. federal | $ | 1.7 |
| | $ | 2.7 |
| | $ | (3.1 | ) |
| State | (1.0 | ) | | (2.2 | ) | | (3.3 | ) |
| Foreign | 4.9 |
| | 5.0 |
| | 3.2 |
|
| Total taxes currently payable (receivable) | 5.6 |
| | 5.5 |
| | (3.2 | ) |
| | | | | | |
| Deferred tax (benefit) expense: |
| |
| |
|
| U.S. federal | (99.7 | ) | | (1.5 | ) | | (12.7 | ) |
| State | 12.5 |
| | 4.6 |
| | 7.1 |
|
| Total deferred tax (benefit) expense | (87.2 | ) | | 3.1 |
| | (5.6 | ) |
| Total | $ | (81.6 | ) | | $ | 8.6 |
| | $ | (8.8 | ) |
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| | (Dollars in millions) |
| Current tax expense (benefit): | | | | | |
| U.S. federal | $ | 4.3 | | | $ | 0.8 | | | $ | (4.7) | |
| State | 5.4 | | | 3.7 | | | (0.3) | |
| Foreign | 4.8 | | | 4.5 | | | 3.2 | |
| Total current tax expense (benefit) | 14.5 | | | 9.0 | | | (1.8) | |
| | | | | |
| Deferred tax expense (benefit): | | | | | |
| U.S. federal | 8.6 | | | 11.0 | | | 3.6 | |
| State | (6.3) | | | (1.7) | | | 8.5 | |
| Total deferred tax expense | 2.3 | | | 9.3 | | | 12.1 | |
| Total | $ | 16.8 | | | $ | 18.3 | | | $ | 10.3 | |
The reconciliation of income tax expense at the U.S. statutory rate to income tax (benefit) expense is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| | (Dollars in millions) |
| Income tax expense at U.S. statutory rate | $ | 25.6 | | | 21.0 | % | | $ | 14.1 | | | 21.0 | % | | $ | 4.0 | | | 21.0 | % |
| Increase (reduction) in income taxes resulting from: | | | | | | | | | | | |
Income attributable to noncontrolling interests in partnerships(1) | (0.9) | | | (0.7) | % | | (1.1) | | | (1.7) | % | | (1.1) | | | (5.6) | % |
State and other income taxes, net of federal income tax effects(2) | (0.9) | | | (0.7) | % | | 1.6 | | | 2.4 | % | | 7.8 | | | 41.2 | % |
Foreign income taxes(3) | 4.8 | | | 4.0 | % | | — | | | — | % | | — | | | — | % |
Impact of CARES Act(4) | — | | | — | % | | — | | | — | % | | (1.5) | | | (7.9) | % |
R&D tax credit(5) | (4.0) | | | (3.4) | % | | — | | | — | % | | — | | | — | % |
| Non-deductible equity compensation | 3.0 | | | 2.5 | % | | 3.4 | | | 4.9 | % | | 1.0 | | | 5.5 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Return to provision adjustments | (0.1) | | | (0.1) | % | | (0.1) | | | (0.1) | % | | 1.2 | | | 6.5 | % |
Change in valuation allowance(3) | (11.0) | | | (9.0) | % | | 0.5 | | | 0.8 | % | | (1.3) | | | (6.9) | % |
| Other | 0.3 | | | 0.2 | % | | (0.1) | | | (0.1) | % | | 0.2 | | | 0.5 | % |
| Income tax expense at effective tax rate | $ | 16.8 | | | 13.8 | % | | $ | 18.3 | | | 27.2 | % | | $ | 10.3 | | | 54.3 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Income tax expense at 35 percent U.S. statutory rate | $ | 7.7 |
| | 35.0 | % | | $ | 23.8 |
| | 35.0 | % | | $ | 8.0 |
| | 35.0 | % |
| Increase (reduction) in income taxes resulting from: | | | | | | | | | | | |
Impact of Final Regulations(1) | 64.2 |
| | 293.2 | % | | — |
| | — | % | | — |
| | — | % |
Impact of Tax Legislation(2) | (154.7 | ) | | (706.4 | )% | | — |
| | — | % | | — |
| | — | % |
Income attributable to noncontrolling interests in partnerships(3) | (5.4 | ) | | (24.7 | )% | | (15.6 | ) | | (23.0 | )% | | (11.2 | ) | | (48.3 | )% |
| State and other income taxes, net of federal income tax effects | 2.0 |
| | 9.1 | % | | 1.1 |
| | 1.7 | % | | 1.8 |
| | 7.7 | % |
Change in valuation allowance(4)(5) | 3.9 |
| | 17.8 | % | | 0.4 |
| | 0.6 | % | | (8.8 | ) | | (38.0 | )% |
Investment in subsidiary(5) | — |
| | — | % | | — |
| | — | % | | 1.0 |
| | 4.4 | % |
| Other | 0.7 |
| | 3.2 | % | | (1.1 | ) | | (1.6 | )% | | 0.4 |
| | 1.2 | % |
| Income tax (benefit) expense at effective tax rate | $ | (81.6 | ) | | (372.8 | )% | | $ | 8.6 |
| | 12.7 | % | | $ | (8.8 | ) | | (38.0 | )% |
| |
(1) | In January 2017, the Internal Revenue Service ("IRS") announced its decision to exclude cokemaking as a qualifying income generating activity in its final regulations (the "Final Regulations") issued under section 7704(d)(1)(E) of the Internal Revenue Code relating to the qualifying income exception for publicly traded partnerships. Subsequent to the 10-year transition period, certain cokemaking entities in the Partnership will become taxable as corporations. As a result, the Partnership recorded deferred income tax expense of $148.6 million to set up its initial deferred income tax liability during 2017, primarily related to differences in the book and tax basis of fixed assets, which are expected to exist at the end of the 10-year transition period when the cokemaking operations become |
(1)No income tax expense is reflected in the Consolidated Statements of Income for income attributable to noncontrolling interests in our Indiana Harbor cokemaking facility.
taxable. However,certain deferred tax liabilities and resulted in deferred tax benefits of $4.9 million and $1.3 million recorded during 2022 and 2021, respectively. The decrease in apportioned state tax rates in 2022 was partly driven by the Company had previously recorded $84.4 milliondissolution of SunCoke Energy Partners Finance Corp. During 2020, lower apportioned state tax rates were primarily the result of a change in the tax filing status of our Convent Marine Terminal in Louisiana from a taxable partnership to a member of the deferred income tax liabilityconsolidated return group resulted in its financial statements related to the Company's sharerevaluation of thecertain deferred tax liability for the bookassets and deferred tax differencesexpense of $6.5 million.
(3)During 2022, new regulations impacting foreign tax credit utilization were published, which make foreign taxes paid in its investmentfuture years to certain countries, including Brazil, no longer creditable in the Partnership. As such, the Company's 2017 financial statements reflect the $64.2 million incremental impact from the Final Regulations solely attributable to the Partnership’s public unitholders, which was also recorded as an equal reduction to noncontrolling interest.U.S. As a result the Final Regulations have no impact to net income attributable to the Company.
| |
(2) | On December 22, 2017, the Tax Legislation was enacted. The Tax Legislation significantly revises the U.S. corporate income tax structure, including lowering corporate income tax rates. In addition, the SEC staff released Staff Accounting Bulletin 118 on December 23, 2017, which provides for companies to record a provisional impact of the Tax Legislation during a measurement period, not to exceed one year, in situations where companies do not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting under ASC 740 for certain income tax effects of the Tax Legislation for the reporting period which includes enactment.
|
During 2017, SunCoke recorded a provisional net income tax benefit of $154.7 million, of which $125.0 million was attributable to the Company, forthese regulations and the impact of this Tax Legislation. These benefits were primarily due to the $169.0 million impact resulting from the remeasurement of U.S. deferred incomeCompany's tax liabilities and assets at the lower enacted corporate tax rates. Based on information currently available, the Company has recorded a provisional income tax expense of $14.3 million forplanning, SunCoke released a valuation allowance against $19.0 million ofestablished on deferred tax assets attributable to existing foreign tax credit carryforwards, thatresulting in a deferred tax benefit of $11.3 million. Additionally, foreign income taxes paid in 2022 reflected the absence of the generation of foreign tax credits for taxes paid in Brazil due to the new regulations.
(4)On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES Act") was enacted. The enactment of the CARES Act allows the Company believes will not be realized prior to their expiration ascarry back net operating losses generated in 2019 to each of the five years preceding 2019. As a result of the Tax Legislation. The final impactCARES Act, SunCoke recorded a tax benefit of $1.5 million during 2020.
(5)As part of tax planning, SunCoke conducted an analysis with respect to the Tax Legislation may differ from the estimate recorded this period, possibly materially, due to changesCompany’s research and development activities, which resulted in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the Tax Legislation.
| |
(3) | Excludes the 2017 impact of the Final Regulations on qualifying income discussed above. No income tax expense is reflected in the Consolidated Statements of Operations for income attributable to noncontrolling interests in partnership entities. |
| |
(4) | In 2017, the Company recorded a valuation allowance as a result of changes in future state allocation assumptions. |
| |
(5) | On December 22, 2014, SunCoke executed a definitive agreement to sell 100 percent of its interest in the entities that made up the Harold Keene Coal Companies. This required SunCoke to record a deferred tax asset of $11.9 million related to the outside basis difference on the Harold Keene investment. This deferred tax asset was offset by a $9.8 million valuation allowance. SunCoke canceled the definitive agreement during the third quarter of 2015. Due to the cancellation of the agreement, the deferred tax asset and the valuation allowance recorded during 2014 were reversed during 2015. The reversal of the deferred tax asset during 2015 was largely offset by a related current income tax deduction due to the determination of insolvency of the subsidiary, resulting in the net income tax benefit of $1.0 million in the investment in subsidiary line. The actual sale of the coal business, which was completed in the second quarter of 2016, had no material impact on the effective tax rate.
|
$4.0 million deferred tax benefit.
The tax effects of temporary differences that comprise the net deferred income tax liability from operations are as follows: | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | (Dollars in millions) |
| Deferred tax assets: | |
| Retirement benefit liabilities | $ | 4.2 | | | $ | 5.5 | |
| Black lung benefit liabilities | 13.2 | | | 14.4 | |
| Share-based compensation | 2.0 | | | 2.6 | |
Federal tax credit carryforward(1) | 8.7 | | | 17.6 | |
Foreign tax credit carryforward(2) | 9.2 | | | 12.3 | |
State net operating loss carryforward, net of federal income tax effects(3) | 12.9 | | | 12.6 | |
| Other liabilities not yet deductible | 12.9 | | | 10.4 | |
| Total deferred tax assets | 63.1 | | | 75.4 | |
Less: valuation allowance(4) | (9.2) | | | (20.2) | |
| Deferred tax asset, net | 53.9 | | | 55.2 | |
| Deferred tax liabilities: | | | |
| Properties, plants and equipment | (155.4) | | | (151.0) | |
| Investment in partnerships | (70.8) | | | (73.2) | |
| Total deferred tax liabilities | (226.2) | | | (224.2) | |
| Net deferred tax liability | $ | (172.3) | | | $ | (169.0) | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (Dollars in millions) |
| Deferred tax assets: | |
| Retirement benefit liabilities | $ | 7.1 |
| | $ | 12.2 |
|
| Black lung benefit liabilities | 11.6 |
| | 18.9 |
|
| Share-based compensation | 6.1 |
| | 8.6 |
|
Federal tax credit carryforward(1) | 23.2 |
| | 23.2 |
|
Foreign tax credit carryforward(2) | 19.0 |
| | 14.0 |
|
| Federal net operating loss | 2.5 |
| | 17.2 |
|
State tax credit carryforward, net of federal income tax effects(3) | 4.0 |
| | 5.5 |
|
State net operating loss carryforward, net of federal income tax effects(4) | 13.9 |
| | 8.4 |
|
| Other liabilities not yet deductible | 4.3 |
| | 7.8 |
|
| Total deferred tax assets | 91.7 |
| | 115.8 |
|
Less valuation allowance(5) | (26.2 | ) | | (5.9 | ) |
| Deferred tax asset, net | 65.5 |
| | 109.9 |
|
| Deferred tax liabilities: |
| |
|
Properties, plants and equipment(6) | (114.9 | ) | | (0.3 | ) |
Investment in partnerships(6) | (208.4 | ) | | (462.1 | ) |
| Total deferred tax liabilities | (323.3 | ) | | (462.4 | ) |
| Net deferred tax liability | $ | (257.8 | ) | | $ | (352.5 | ) |
| |
(1) | Federal tax credit carryforward expires in 2032 through 2033. |
| |
(2) | Foreign tax credit carryforward expires in 2022 through 2027. |
| |
(3) | State tax credit carryforward, net of federal income tax effects expires in 2017 through 2022. |
| |
(4) | State net operating loss carryforward, net of federal income tax effects expires in 2017 through 2035. |
| |
(5) | Primarily related to state tax credit carryforward and the $14.3 million allowance against the foreign tax credit carryforward as a result of the Tax Legislation in 2017. |
| |
(6) | As a result of the Final Regulations discussed above, deferred tax liabilities associated with properties, plants and equipment increased and investment in partnerships decreased. |
(2)Foreign tax credit carryforward expires in 2027 through 2031.
(3)State net operating loss carryforward, net of federal income tax effects expires in 2032 through 2043.
(4)Primarily related to state net operating loss carryforwards.
The Company's consolidated federal income tax returns have been examined by the IRS for all years through the year ended December 31, 2014. SunCoke is currently open to examination by the IRS for tax years ended December 31, 20142019 and forward.
State and foreign income tax returns are generally subject to examination for a period of three to five years after the filing of the respective returns. The state impact of any amended federal returns remains subject to examination by various states for a period of up to one year after formal notification of such amendments to the states.
Uncertain Tax Positions
During the year, the company recorded $0.3 million of expense related to uncertain prior year tax positions and the balance of unrecognized tax benefits at December 31, 2022 remains at approximately $0.3 million that, if recognized, will reduce the effective tax rate on income from continuing operations.
There were no uncertain tax positions recorded at December 31, 20172021 and 2016,2020, and there were no associated interest or penalties recognized duringfor the years ended December 31, 2017, 2016 and 2015.2022, 2021 or 2020. The Company does not expectexpects that anynominal unrecognized tax benefits pertaining to income tax matters will be required in the next twelve months.
5. Inventories
6. Inventories
The Company’s inventory consists of metallurgical coal, which is the principal raw material for the Company’s cokemaking operations, coke, which is the finished good sold by the Company to its customers, and materials, supplies and other. These components of inventories, net of lower of cost or net realizable value adjustments of $2.6 million, were as follows: | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | (Dollars in millions) |
| Coal | $ | 109.4 | | | $ | 63.5 | |
| Coke | 14.3 | | | 16.6 | |
| Materials, supplies and other | 51.5 | | | 46.9 | |
| Total inventories | $ | 175.2 | | | $ | 127.0 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (Dollars in millions) |
| Coal | $ | 61.4 |
| | $ | 49.4 |
|
| Coke | 12.3 |
| | 7.7 |
|
| Materials, supplies and other | 37.3 |
| | 35.4 |
|
| Total inventories | $ | 111.0 |
| | $ | 92.5 |
|
7.6. Properties, Plants, and Equipment Net
The components of net properties, plants and equipment were as follows: | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | (Dollars in millions) |
| Coke and energy plant, machinery and equipment | $ | 2,134.9 | | | $ | 2,077.3 | |
| Logistics plant, machinery and equipment | 176.6 | | | 170.7 | |
| Land and land improvements | 106.8 | | | 105.5 | |
| Construction-in-progress | 40.7 | | | 50.8 | |
| Other | 46.3 | | | 43.7 | |
| Gross investment, at cost | 2,505.3 | | | 2,448.0 | |
| Less: accumulated depreciation | (1,276.0) | | | (1,160.1) | |
| Total properties, plants and equipment, net | $ | 1,229.3 | | | $ | 1,287.9 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (Dollars in millions) |
Coke and energy plant, machinery and equipment(1) | $ | 1,812.0 |
| | $ | 1,767.1 |
|
| Logistics plant, machinery and equipment | 216.2 |
| | 214.4 |
|
| Land and land improvements | 118.7 |
| | 118.7 |
|
| Construction-in-progress | 51.9 |
| | 33.4 |
|
| Other | 35.7 |
| | 34.9 |
|
| Gross investment, at cost | 2,234.5 |
| | 2,168.5 |
|
Less: Accumulated depreciation(2) | (733.2 | ) | | (625.9 | ) |
| Total properties, plants and equipment, net | $ | 1,501.3 |
| | $ | 1,542.6 |
|
| |
(1) | Includes assets, consisting mainly of coke and energy plant, machinery and equipment, with a gross investment totaling $1,337.3 million and $1,281.5 million and accumulated depreciation of $475.8 million and $410.4 million at December 31, 2017 and December 31, 2016, respectively, which are subject to long-term contracts to sell coke and are deemed to contain operating leases. |
8. Goodwill and Other7. Intangible Assets
GoodwillIntangible assets, net, include goodwill allocated to SunCoke's reportable segments asour Domestic Coke segment of $3.4 million at both December 31, 20172022 and 20162021, and changesother intangibles detailed in the carrying amount of goodwill during the fiscal year ended December 31, 2016 are shown below.table below, excluding fully amortized intangible assets. There were no changes in the carrying amount of goodwill during the fiscal yearyears ended December 31, 2017:2022 and 2021, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 | | December 31, 2021 |
| Weighted - Average Remaining Amortization Years | | Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
| | | (Dollars in millions) |
| Customer relationships | 2 | | 6.7 | | | 5.6 | | | 1.1 | | | 6.7 | | | 5.0 | | | 1.7 | |
| Permits | 20 | | 31.7 | | | 4.5 | | | 27.2 | | | 31.7 | | | 3.1 | | | 28.6 | |
| Other | 28 | | 1.6 | | | 0.1 | | | 1.5 | | | 1.6 | | | 0.1 | | | 1.5 | |
| Total | | | $ | 40.0 | | | $ | 10.2 | | | $ | 29.8 | | | $ | 40.0 | | | $ | 8.2 | | | $ | 31.8 | |
|
| | | | | | | | | | | |
| | Domestic Coke | | Logistics | | Total |
| | (Dollars in millions) |
| Net balance at December 31, 2015 | $ | 3.4 |
| | $ | 67.7 |
| | $ | 71.1 |
|
Adjustments(1) | — |
| | 5.8 |
| | 5.8 |
|
| Net balance at December 31, 2016 and 2017 | $ | 3.4 |
| | $ | 73.5 |
| | $ | 76.9 |
|
| |
(1) | During 2016, the Partnership recorded an adjustment to correct an error in the acquisition date fair value of the contingent consideration liability, which increased the contingent consideration liability and goodwill balance by $6.4 million. See Note 17. Additionally, a working capital adjustment to the acquisition date fair value of the acquired net assets decreased the amount of the purchase price allocated to goodwill by $0.6 million. |
The Company performed its annual goodwill impairment test as of October 1, 2017, with no indication of impairment. The fair value of the Logistics reporting unit, which was determined based on a discounted cash flow analysis, exceeded the carrying value of the reporting unit by approximately 25 percent. A significant portion of our logistics business holds long-term, take-or-pay contracts with Murray and Foresight. Key assumptions in our goodwill impairment test include continued customer performance against long-term, take-or-pay contracts, renewal of future long-term, take-or-pay contracts, incremental merchant business and a 14 percent discount rate representing the estimated weighted average cost of capital for this business line. The use of different assumptions, estimates or judgments, such as the estimated future cash flows of Logistics and the discount rate used to discount such cash flows, could significantly impact the estimated fair value of a reporting unit, and therefore, impact the excess fair value above carrying value of the reporting unit. A 100 basis point change in the discount rate would not have reduced the fair value of the reporting unit below its carrying value. To the extent changes in factors or circumstances occur that impact our future cash flow projections, such as a loss of either Murray or Foresight as customers, significant reductions in volume or pricing beyond our existing contract term or lower incremental merchant business, future assessments of goodwill and intangible assets may result in material impairment charges.
The following table summarizes the components of gross and net intangible asset balances as of December 31, 2017 and December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2017 | | December 31, 2016 |
| | Weighted - Average Remaining Amortization Years | | Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
| | | | (Dollars in millions) |
| Customer contracts | 5 | | $ | 31.7 |
| | $ | 13.8 |
| | $ | 17.9 |
| | $ | 31.7 |
| | $ | 9.9 |
| | $ | 21.8 |
|
| Customer relationships | 14 | | 28.7 |
| | 5.7 |
| | 23.0 |
| | 28.7 |
| | 3.8 |
| | 24.9 |
|
| Permits | 25 | | 139.0 |
| | 12.2 |
| | 126.8 |
| | 139.0 |
| | 7.1 |
| | 131.9 |
|
| Trade name | 1 | | 1.2 |
| | 1.0 |
| | 0.2 |
| | 1.2 |
| | 0.8 |
| | 0.4 |
|
| Total | | | $ | 200.6 |
| | $ | 32.7 |
| | $ | 167.9 |
| | $ | 200.6 |
| | $ | 21.6 |
| | $ | 179.0 |
|
The permits above represent the environmental and operational permits required to operate a coal export terminal in accordance with the U.S. Environmental Protection Agency ("EPA") and other regulatory bodies. Intangible assets are amortized over their useful lives in a manner that reflects the pattern in which the economic benefit of the asset is consumed. The permits’ useful lives were estimated to be 27 years at acquisition based on the expected useful life of the significant operating equipment at the facility. We have historical experience of renewing and extending similar arrangements at our other facilities and intend to continue to renew our permits as they come up for renewal for the foreseeable future. The permits were renewed regularly prior to our acquisition of CMT. These permits have an average remaining renewal term of approximately 3.4 years.approximately 5.4 years.
Total amortization expense for intangible assets subject to amortization was $11.1$2.0 million, $11.2$2.0 million and $5.1$2.5 million for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively. Based on the carrying value of finite-lived intangible assets as of December 31, 2017,2022, we estimate amortization expense for each of the next five years as follows: | | | | | |
| (Dollars in millions) |
| 2023 | $ | 2.0 | |
| 2024 | 1.9 | |
| 2025 | 1.5 | |
| 2026 | 1.5 | |
| 2027 | 1.4 | |
| Thereafter | 21.5 | |
| Total | $ | 29.8 | |
|
| | | |
| | (Dollars in millions) |
| 2018 | $ | 11.0 |
|
| 2019 | 10.9 |
|
| 2020 | 10.7 |
|
| 2021 | 10.3 |
|
| 2022 | 10.3 |
|
| Thereafter | 114.7 |
|
| Total | $ | 167.9 |
|
9.8. Asset Retirement Obligations
The Company has asset retirement obligations, primarily in the Domestic Coke segment, related to certain contractual obligations. These contractual obligations mostly relatedrelate to costs associated with restoring land to its original state, and may require the retirement and removal of long-lived assets from certain cokemaking properties as well as other reclamation obligations related to our former coal mining business. The Federal Surface Mining Control and Reclamation Act of 1977 and similar state statutes require that mine property be restored in accordance with specified standards and an approved reclamation plan. We do not have any unrecorded asset retirement obligations.
The following table provides a reconciliation of changes in the asset retirement obligation from operations during each period: | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 |
| Asset retirement obligation at beginning of year | $ | 12.3 | | | $ | 11.4 | |
| Liabilities settled | — | | | (0.1) | |
Accretion expense(1) | 0.9 | | | 0.9 | |
| Revisions in estimated cash flows | 0.6 | | | 0.1 | |
Asset retirement obligation at end of year(2) | $ | 13.8 | | | $ | 12.3 | |
| | | |
| | | |
|
| | | |
| | (Dollars in millions) |
| Balance at December 31, 2015 | $ | 22.2 |
|
| Liabilities settled | (0.7 | ) |
Accretion expense(1) | 1.1 |
|
Disposal of coal mining liabilities(2) | (9.4 | ) |
| Revisions in estimated cash flows | 0.7 |
|
| Balance at December 31, 2016 | $ | 13.9 |
|
| Liabilities settled | (0.7 | ) |
Accretion expense(1) | 1.0 |
|
| Revisions in estimated cash flows | (0.2 | ) |
| Balance at December 31, 2017 | $ | 14.0 |
|
| |
(1) | (1)Included in cost of products sold and operating expenses on the Consolidated Statements of Operations. |
| |
(2) | In 2016, the Company completed the disposal of its coal mining business to Revelation who assumed a substantial portion of our mining reclamation obligations. |
10. Retirement Benefits Plans
Defined Benefit Pension Plan and Postretirement Health Care and Life Insurance Plans
The Company had a noncontributory defined benefit pension plan (“defined benefit plan”), which provided retirement benefits for certain of its employees. Effective January 1, 2011, pension benefits under the Company’s defined benefit plan were frozen for all participants in this plan. Effective May 30, 2014, Dominion Coal Corporation, a wholly-owned subsidiary of the Company, terminated its defined benefit plan, a plan that was previously offered generally to all full-time employees of Dominion Coal Corporation. Subsequently, the Company obtained IRS approval for the plan termination and executed an agreement with a high-quality insurance company to annuitize the pension plan using plan assets. As a result of the termination of the Dominion Coal defined benefit plan, each participant became fully vested in his or her benefits thereunder without regard to age and years of service.
As a result of the pension termination, unrecognized losses, which previously were recorded in accumulated other comprehensive loss on the Consolidated Balance Sheets, were recognized as expense. The net settlement loss of $12.6 million was recorded in cost of products sold and operating expenses on the Consolidated Statements of Operations during 2015. AtIncome.
(2)The current portion of asset retirement obligation liabilities, which totaled $0.4 million and $0.7 million at December 31, 20172022 and 2016, there are no remaining benefit obligations or plan assets related toDecember 31, 2021, respectively, is classified in accrued liabilities on the defined benefit pension plan.Consolidated Balance Sheets.
9. Retirement Benefits Plans
Postretirement Health Care and Life Insurance Plans
The Company also has plans which provide health care and life insurance benefits for many of its retirees (“postretirement benefit plans”). The postretirement benefit plans are unfunded and the costs are borne by the Company. Effective January 1, 2011, postretirement medical benefits for future retirees were phased out or eliminated for non-mining employees with less than ten years of service. Employer costs for all those still eligible for such benefits were capped. The termination of coal mining employees triggered a curtailment gain of $4.1 million in 2015, respectively, which represented accelerated amortization of prior service credits previously recorded in accumulated other comprehensive income.
DefinedPostretirement benefit planplans expense consisted of the following components: | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| | (Dollars in millions) |
| Interest cost on benefit obligations | $ | 0.6 | | | $ | 0.5 | | | $ | 0.7 | |
| Amortization of: | | | | | |
| Actuarial losses | 0.7 | | | 0.8 | | | 0.7 | |
| Prior service benefit | (0.2) | | | (0.4) | | | (0.5) | |
| Total expense | $ | 1.1 | | | $ | 0.9 | | | $ | 0.9 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Interest cost on benefit obligations | $ | — |
| | $ | — |
| | $ | 0.7 |
|
| Expected return on plan assets | — |
| | — |
| | (0.7 | ) |
| Settlement loss | — |
| | — |
| | 12.6 |
|
| Amortization of: | | | | | |
| Actuarial losses | — |
| | — |
| | 0.5 |
|
| Total expense | $ | — |
| | $ | — |
| | $ | 13.1 |
|
Postretirement benefit plans expense (benefit) consisted of the following components: |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Interest cost on benefit obligations | $ | 1.1 |
| | $ | 1.3 |
| | $ | 1.3 |
|
| Amortization of: | | | | | |
| Actuarial losses | 0.9 |
| | 0.7 |
| | 0.8 |
|
| Prior service benefit | (0.7 | ) | | (0.7 | ) | | (1.2 | ) |
| Curtailment gain | — |
| | — |
| | (4.1 | ) |
| Total expense (benefit) | $ | 1.3 |
| | $ | 1.3 |
| | $ | (3.2 | ) |
Amortization of actuarial losses and prior service benefit for 2018 is estimated to be $0.6 million and $0.7 million, respectively, for the postretirement benefit plans.
Postretirement benefit plans expense (benefit) is determined using actuarial assumptions as of the beginning of the year or using weighted-average assumptions when curtailments, settlements and/or other events require a plan remeasurement. The following assumptions were used to determine postretirement benefit plans expense (benefit):expense: | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 | | 2020 |
| Discount rate | 2.50 | % | | 2.00 | % | | 2.90 | % |
|
| | | | | | | | |
| | Postretirement Benefit Plans |
| | 2017 | | 2016 | | 2015 |
| Discount Rate | 3.65 | % | | 3.80 | % | | 3.45 | % |
The following amounts were recognized as components of other comprehensive income (loss) before related tax impacts for the years ended December 31, 2017, 2016 and 2015:impacts: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| | (Dollars in millions) |
| Reclassifications to earnings of: | |
| Actuarial loss amortization | $ | 0.7 | | | $ | 0.8 | | | $ | 0.7 | |
| Prior service benefit amortization | (0.2) | | | (0.4) | | | (0.5) | |
Retirement benefit plan funded status
adjustments: | | | | | |
| Actuarial gains (losses) | 4.0 | | | 1.3 | | | (2.0) | |
| $ | 4.5 | | | $ | 1.7 | | | $ | (1.8) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | Defined Benefit Plan | | Postretirement Benefit Plans |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Reclassifications to earnings of: | |
| Actuarial loss amortization | $ | — |
| | $ | — |
| | $ | 0.5 |
| | $ | 0.9 |
| | $ | 0.7 |
| | $ | 0.8 |
|
| Prior service benefit amortization | — |
| | — |
| | — |
| | (0.7 | ) | | (0.7 | ) | | (1.2 | ) |
| Curtailment gain | — |
| | — |
| | — |
| | — |
| | — |
| | (4.1 | ) |
| Settlement loss | — |
| | — |
| | 12.6 |
| | — |
| | — |
| | — |
|
Retirement benefit plan funded status adjustments: | | | | | | | | | | | |
| Actuarial gains (losses) | — |
| | — |
| | 0.9 |
| | (1.1 | ) | | (1.8 | ) | | (1.4 | ) |
Prior service (cost) benefit(1) | — |
| | — |
| | — |
| | — |
| | 1.5 |
| | — |
|
| | $ | — |
| | $ | — |
|
| $ | 14.0 |
| | $ | (0.9 | ) | | $ | (0.3 | ) | | $ | (5.9 | ) |
(1) Effective January 1, 2017, a plan change occurred resulting in Medicare-eligible disabled participants transitioning from a Company-sponsored group medical plan to a federal health care exchange plan. The Company will provide a subsidy to these participants of $3,600 per participant per year. The plan change resulted in a decrease in the benefit obligation of $1.5 million during 2016.
The following table sets forth the components of the changes in benefit obligations during 2017 and 2016:obligations: | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 |
| | (Dollars in millions) |
| Benefit obligation at beginning of year | $ | 24.4 | | | $ | 27.5 | |
| Interest cost | 0.6 | | | 0.5 | |
| Actuarial gains | (4.0) | | | (1.3) | |
| Benefits paid | (2.2) | | | (2.3) | |
Benefit obligation at end of year(1) | $ | 18.8 | | | $ | 24.4 | |
|
| | | | | | | |
| | Postretirement
Benefit Plans |
| | 2017 | | 2016 |
| | (Dollars in millions) |
| Benefit obligation at beginning of year | $ | 32.3 |
| | $ | 34.8 |
|
| Interest cost | 1.1 |
| | 1.3 |
|
| Actuarial losses | 1.1 |
| | 1.8 |
|
Plan amendments(1) | — |
| | (1.5 | ) |
| Benefits paid | (3.2 | ) | | (4.1 | ) |
Benefit obligation at end of year(2) | $ | 31.3 |
| | $ | 32.3 |
|
| |
(1) | Effective January 1, 2017, a plan change occurred resulting in Medicare-eligible disabled participants transitioning from a Company-sponsored group medical plan to a federal health care exchange plan. The Company will provide a subsidy to these participants of $3,600 per participant per year. The plan change resulted in a decrease in the benefit obligation of $1.5 million during 2016. |
(2) Represents retirement benefit liabilities, including current portion, on the Consolidated Balance Sheets. (1)The current portion of retirement benefit liabilities, which totaled $3.1$2.4 million and $3.3$2.6 million at December 31, 20172022 and 2016,2021, respectively, is classified in accrued liabilities on the Consolidated Balance Sheets.
The following table sets forth the cumulative amounts not yet recognized in net income (loss) at December 31, 2017 and 2016:income: | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 |
| | (Dollars in millions) |
| Cumulative amounts not yet recognized in net income: | | | |
| Actuarial losses | $ | 5.2 | | | $ | 10.0 | |
| Prior service benefits | (0.8) | | | (1.1) | |
| Accumulated other comprehensive loss (before related tax benefit) | $ | 4.4 | | | $ | 8.9 | |
|
| | | | | | | | |
| | | Postretirement
Benefit Plans |
| | | 2017 | | 2016 |
| | | (Dollars in millions) |
| Cumulative amounts not yet recognized in net income: | | | | |
| Actuarial losses | | $ | 11.8 |
| | $ | 11.6 |
|
| Prior service benefits | | (3.4 | ) | | (4.1 | ) |
| Accumulated other comprehensive loss (before related tax benefit) | | $ | 8.4 |
| | $ | 7.5 |
|
The expected benefit payments through 20262032 for the postretirement benefit plan are as follows: |
| | | | |
| | | Postretirement
Benefit Plans |
| | | (Dollars in millions) |
| Year ending December 31: | | |
| 2018 | | $ | 3.1 |
|
| 2019 | | 3.0 |
|
| 2020 | | 2.9 |
|
| 2021 | | 2.8 |
|
| 2022 | | 2.6 |
|
| 2023 through 2026 | | 10.1 |
|
| | | | | |
| (Dollars in millions) |
| Year ending December 31: | |
| 2023 | $ | 2.4 | |
| 2024 | $ | 2.3 | |
| 2025 | $ | 2.1 | |
| 2026 | $ | 1.9 | |
| 2027 | $ | 1.8 | |
| 2028 through 2032 | $ | 7.1 | |
The measurement date for the Company’s postretirement benefit plans is December 31. The following discount rates were used to determine the benefit obligation at December 31, 2017 and 2016, respectively (in percentages): |
| | | | | | |
| | | Postretirement
Benefit Plans |
| | | 2017 | | 2016 |
| Discount rate | | 3.35 | % | | 3.65 | % |
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Discount rate | 5.25 | % | | 2.50 | % |
The health care cost trend assumption used at December 31, 2017,2022 to compute the accumulated postretirement benefit obligation for the postretirement benefit plans was 6.507.00 percent, (6.50 percent at December 31, 2016), which is assumed to decline gradually to 5.00 percent in 20252031 and to remain at that level thereafter. A one-percentage point change each year in assumedThe health care cost trend rates would have an impact of less than $0.1 million on the total of service and interest cost components of postretirement benefits expense andassumption used at December 31, 2021 to compute the accumulated postretirement benefit obligation as of December 31, 2017for the postretirement benefit plan was 6.00 percent, which is assumed to decline gradually to 5.00 percent in 2026 and 2016.to remain at that level thereafter.
Defined Contribution Plans
The Company has defined contribution plans which provide retirement benefits for certain of its employees. The Company’s contributions, which are principally based on the Company’s pretax income and the aggregate compensation levels of participating employees and are charged against income as incurred, amounted to $6.4$7.9 million, $5.6$6.9 million and $6.5$6.6 million for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively.
11.10. Accrued Liabilities
Accrued liabilities consist of following: | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | (Dollars in millions) |
| Accrued benefits | $ | 29.7 | | | $ | 21.7 | |
| Current portion of postretirement benefit obligation | 2.4 | | | 2.6 | |
| Other taxes payable | 9.8 | | | 9.2 | |
| Current portion of black lung liability | 5.9 | | | 5.4 | |
| Accrued legal | 4.9 | | | 4.5 | |
| Other | 8.7 | | | 9.6 | |
| Total accrued liabilities | $ | 61.4 | | | $ | 53.0 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (Dollars in millions) |
| Accrued benefits | $ | 21.3 |
| | $ | 21.4 |
|
| Current portion of postretirement benefit obligation | 3.1 |
| | 3.3 |
|
| Other taxes payable | 10.5 |
| | 10.4 |
|
| Current portion of black lung liability | 5.4 |
| | 4.8 |
|
| Accrued legal | 5.6 |
| | 4.4 |
|
| Other | 7.3 |
| | 5.5 |
|
| Total accrued liabilities | $ | 53.2 |
| | $ | 49.8 |
|
12.11. Debt and Financing ObligationObligations
Total debt and financing obligations consisted of the following: | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | (Dollars in millions) |
| 4.875 percent senior notes, due 2029 ("2029 Senior Notes") | $ | 500.0 | | | $ | 500.0 | |
| $350.0 revolving credit facility, due 2026 ("Revolving Facility") | 35.0 | | | 115.0 | |
| 5.346 percent financing obligation, due 2024 | 8.8 | | | 12.0 | |
| Total borrowings | $ | 543.8 | | | $ | 627.0 | |
| Debt issuance costs | (11.6) | | | (13.4) | |
| Total debt and financing obligation | $ | 532.2 | | | $ | 613.6 | |
| Less: current portion of long-term debt and financing obligation | 3.3 | | | 3.2 | |
| Total long-term debt and financing obligation | $ | 528.9 | | | $ | 610.4 | |
|
| | | | | | | |
| | December 31, |
| | 2017 |
| 2016 |
| | (Dollars in millions) |
| 7.500 percent senior notes, due 2025 ("2025 Partnership Notes") | $ | 700.0 |
| | $ | — |
|
| 7.375 percent senior notes, due 2020 (''2020 Partnership Notes'') | — |
| | 463.0 |
|
| 7.625 percent senior notes, due 2019 ("2019 Notes") | 44.6 |
| | 44.6 |
|
| Partnership's term loan, due 2019 ("Partnership Term Loan") | — |
| | 50.0 |
|
| SunCoke's revolving credit facility, due 2022 ("Revolving Facility") | — |
| | — |
|
| Partnership's revolving credit facility, due 2022 and 2019, respectively ("Partnership Revolver") | 130.0 |
| | 172.0 |
|
| Partnership's promissory note payable, due 2021 ("Promissory Note") | — |
| | 113.2 |
|
| 5.82 percent financing obligation, due 2021 ("Partnership Financing Obligation") | 12.7 |
| | 15.2 |
|
| Total borrowings | $ | 887.3 |
| | $ | 858.0 |
|
| (Discount) premium | (5.9 | ) | | 7.5 |
|
| Debt issuance costs | (17.7 | ) | | (11.4 | ) |
| Total debt and financing obligation | $ | 863.7 |
| | $ | 854.1 |
|
| Less: current portion of long-term debt and financing obligation | 2.6 |
| | 4.9 |
|
| Total long-term debt and financing obligation | $ | 861.1 |
| | $ | 849.2 |
|
Issuance of 2025 Partnership2029 Senior Notes
The Partnership issued $630.0 million aggregate principal amount of senior notes in May 2017 and an additional $70.0 million aggregate principal amount of senior notes in December 2017 with an interest rate of 7.5 percent due in May 2025. The Partnership received proceeds of $693.7 million, net of a net discount of $6.3 million during 2017. The Partnership incurred debt issuance costs related to this transaction of $12.9 million. The 2025 Partnership2029 Senior Notes are the senior unsecuredsecured obligations of the Partnership, and are guaranteed on a senior unsecured basis by each of the Partnership’s existing and certain future subsidiaries.Company. Interest on the 2025 Partnership2029 Senior Notes is payable semi-annually in cash in arrears on June 1530 and December 1530 of each year, which commenced on December 15, 2017.
year. The PartnershipCompany may redeem some or all of the 2025 Partnership2029 Senior Notes at any time onits option, in whole or after June 15, 2020part, at specified redemption prices plus accruedthe dates and unpaid interest, if any, to the redemption date. Before June 15, 2020, and following certain equity offerings, the Partnership also may redeem up to 35 percent of the 2025 Partnership Notes at a price equal to 107.5 percent of the principal amount, plus accrued and unpaid interest, if any, to the redemption date. In addition, at any time prior to June 15, 2020, the Partnership may redeem some or all of the 2025 Partnership Notes at a price equal to 100 percent of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus a “make-whole” premium.
The Partnership is obligated to offer to purchase all or a portion of the 2025 Partnership Notes at a price of (a) 101 percent of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase, upon the occurrence of certain change of control events and (b) 100 percent of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase, upon the occurrence of certain asset dispositions. These restrictions and prohibitions are subject to certain qualifications and exceptionsamounts set forth in the Indenture, including without limitation, reinvestment rights with respect to the proceeds of asset dispositions.applicable indenture.
The 2025 Partnershipapplicable indenture for the 2029 Senior Notes contains covenants that, among other things, limit the Partnership’sCompany's ability and, in certain circumstances, the ability of certain of the Partnership’sCompany’s subsidiaries to (i) incur indebtedness,borrow money, (ii) create liens on assets, (iii) pay dividends or make other distributions (ii)on or repurchase or redeem the Company's capital stock, (iv) prepay, redeem or repurchase certain subordinated debt, (iv)(v) make loans and investments, (v)(vi) sell assets, (vi)(vii) incur liens, (vii)(viii) enter into transactions with affiliates, (viii)(ix) enter into agreements restricting the ability of subsidiaries to pay dividends and (ix)(x) consolidate, merge or merge.
Purchase, Redemption and Repayment of Partnership Debt
During 2017, the Partnership used the proceeds from the issuancesell all or substantially all of the 2025 Partnership Notes to purchase and redeem all of its 2020 Partnership Notes, including principal of $463.0 million and a premium of $18.7 million, repay the $50.0 million outstanding on the Partnership Term Loan, repay the $112.6 million outstanding on the Partnership's Promissory Note and reduce the Partnership Revolver outstanding balance by $42.0 million. As a result of the debt extinguishment, the Partnership recorded a loss on extinguishment of debt on the Consolidated Statement of Operations of $19.2 million, which included the premium paid and a write-off of unamortized debt issuance costs of $7.1 million partly offset by a write-off of unamortized premiums of $6.6 million.
Partnership Financing Obligation
In 2016, the Partnership entered into a sale-leaseback arrangement of certain coke and logistics equipment. The leaseback agreement has an initial lease period of 60 months, with an effective interest rate of 5.82 percent and an early buyout option after 48 months to purchase the equipment at 34.5 percent of the original lease equipment cost. The arrangement is accounted for as a financing transaction, resulting in a financing obligation on the Consolidated Balance Sheets. The financing obligation is guaranteed by the Partnership.
Redemption of 2019 Notes
The 2019 Notes are the Company’s senior unsecured obligations and are guaranteed on a senior unsecured basis by each of the Company’s existing and future subsidiaries that guarantees the Company’s credit facilities. The Company may redeem some or all of their notes at specified redemption prices. If the Company sells certain of its assets or experiences specific kinds of changes in control, subject to certain exceptions, the Company must offer to purchase their notes.
On January 11, 2018, the Company redeemed all of its outstanding 2019 Notes for $46.1 million, which included accrued and unpaid interest of $1.5 million. The Company funded the redemption with a term loan in the aggregate principal amount of $45.0 million maturing on May 24, 2022 under the Company’s existing Amended and Restated Credit Agreement. Borrowings under the term loan will bear interest, at the Company’s option, at either (i) a base rate plus an applicable margin or (ii) LIBOR plus an applicable margin. The applicable margin is based on the Company's consolidated leverage ratio, as defined in the Credit Agreement.assets.
Revolving Facility
The proceeds of any borrowings made under the Revolving Facility can be used to finance working capital needs, acquisitions, capital expenditures and for other general corporate purposes. The obligations under the credit agreement are guaranteed by certain of the Company’s subsidiaries and secured by liens on substantially all of the Company’s and the guarantors’ assets pursuant to a guarantee and collateral agreement.
In February 2017, the Company extended the maturity of its Revolving Facility to December 2018 and reduced its capacity by $25.0 million to $125.0 million, resulting in additional debt issuance costs of $0.6 million. Additionally, the Company recorded a loss on extinguishment of debt on the Consolidated Statement of Operations of $0.1 million, representing a write-off of unamortized debt issuance costs, during 2017.
In May 2017, the Company amended and restated its Revolving Facility, which extended its maturity date from December 2018 to May 2022 and reduced its capacity to $100.0 million, resulting in debt issuance costs of $1.1 million. Additionally, the Company recorded a loss on extinguishment of debt on the Consolidated Statement of Operations of $0.3 million, representing a write-off of unamortized debt issuance costs, during 2017. As of December 31, 2017,2022, the Revolving Facility had an outstanding balance of $35.0 million, leaving $315.0 million available. Additionally, the Company has certain letters of credit outstanding of $26.5totaling $22.9 million, and no outstanding balance, leaving $73.5 million available.which do not reduce the Revolving Facility's available balance. Commitment fees are based on the unused portion of the Revolving Facility at a rate of 0.40.20 percent.
BorrowingsDecember 31, 2022, loans under the Revolving Facility bore interest at a variable per annum rate based upon, at SunCoke's option, either an adjusted base rate ("ABR") or an adjusted London Interbank Offered Rate ("LIBOR"), in each case plus an applicable margin. Subsequent to December 31, 2022, we amended the Revolving Facility to transition from a variable interest rate based on LIBOR to a variable interest rate based on the secured overnight financing rate ("SOFR"). After giving effect to that amendment, loans under the Revolving Facility bear interest, at SunCoke Energy’sSunCoke's option, at a rate per annum equal to either (i) an adjusted term SOFR rate (defined as SOFR for a base ratespecified term plus a credit spread adjustment of 10 basis points, subject to a zero percent floor) plus 1.75 percent or (ii) an ABR plus 0.75 percent. The applicable margin or (ii) LIBOR plus 175 basis points. The spread is subject to change based on the Company'sSunCoke's consolidated leverage ratio, as defined in the credit agreement. The weighted-average interest rate for borrowings outstanding under the Credit AgreementRevolving Facility was 2.8 percent and 2.33.3 percent during 20162022.
The Company does not expect the transition from LIBOR to SOFR to have a material impact on its consolidated financial statements and 2015, respectively. There were no borrowings during 2017.disclosures.
Partnership RevolverFinancing Obligation
The proceedsCompany has a sale-leaseback arrangement related to certain coke and logistics equipment. The arrangement has an initial period of any borrowings made under48 months beginning December 2020, and an early buyout option after 36 months to purchase the Partnership Revolver can be used to finance working capital needs, acquisitions, capital expenditures andequipment at a fixed rate. The arrangement is accounted for other general corporate purposes. The Partnership Revolver provides total aggregate commitments from lenders of $285.0 million and up to $200.0 million uncommitted incremental revolving capacity. The obligations under the Partnership Revolver are guaranteed by the Partnership’s subsidiaries and secured by liens on substantially all of the Partnership’s and the guarantors’ assets.
In May 2017, the Partnership amended and restated the Partnership Revolver, which increased the Partnership's capacity from $250.0 million to $285.0 million and extended the maturity from May 2019 to May 2022. In connection with the amendments to the Partnership Revolver, the Partnership incurred debt issuance costs of $3.0 million and recordedas a loss on extinguishment of debtfinancing transaction, resulting in a financing obligation on the Consolidated StatementBalance Sheets.
As of December 31, 2017, the Partnership had $1.9 million of letters of credit outstanding and an outstanding balance of $130.0 million, leaving $153.1 million available. Commitment fees are based on the unused portion of the Partnership Revolver at a rate of 0.4 percent.
The Partnership Revolver borrowings bear interest at a variable rate of LIBOR plus 250 basis points or an alternative base rate plus 150 basis points. The spread is subject to change based on the Partnership's consolidated leverage ratio, as defined in the credit agreement. The weighted-average interest rate for borrowings under the Partnership Revolver was 3.8 percent, 3.3 percent and 2.9 percent during 2017, 2016 and 2015, respectively.
Covenants
Under the terms of the Revolving Facility, the Company is subject to a maximum consolidated leverage ratio of 3.25:4.50:1.00 and a minimum consolidated interest coverage ratio of 2.75:2.50:1.00. Under the terms of the Partnership's credit agreement, the Partnership is subject to a maximum consolidated leverage ratio of 4.5:1.0 prior to June 30, 2020 and 4.0:1.0 after June 30, 2020 and a minimum consolidated interest coverage ratio of 2.5:1.0. The Company and Partnership's credit agreementCompany's debt agreements contains 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 and Partnership Revolver could be declared immediately due and payable. The Company and the Partnership havehas a cross default provision that applies to our indebtedness having a principal amount in excess of $35 million.
As of December 31, 2017,2022, the Company and the Partnership werewas in compliance with all debt covenants. We do not anticipate violation of these covenants nor do we anticipate that any of these covenants will restrict our operations or our ability to obtain additional financing.
Maturities
As of December 31, 2017,2022, the combined aggregate amount of maturities for long-term borrowings for each of the next five years is as follows: | | | | | |
| (Dollars in millions) |
| 2023 | $ | 3.3 | |
| 2024 | 5.5 | |
| 2025 | — | |
| 2026 | 35.0 | |
| 2027 | — | |
| 2028-Thereafter | 500.0 | |
| Total | $ | 543.8 | |
|
| | | |
| | (Dollars in Millions)(1) |
| 2018 | $ | 2.6 |
|
2019(2) | 47.4 |
|
| 2020 | 7.3 |
|
| 2021 | — |
|
| 2022 | 130.0 |
|
| 2023-Thereafter | 700.0 |
|
| Total | $ | 887.3 |
|
| |
(1) | Assumes the Partnership Financing Obligation early buyout option is exercised in 2020. |
| |
(2) | As previously disclosed, the 2019 Notes were repaid in January 2018 with the proceeds of a new term loan due in May 2022. |
13.12. Commitments and Contingent Liabilities
Lease obligations
The Company, as lessee, has noncancelable operating leases for land, office space, equipment and railcars. Total rental expense was $7.3 million, $8.7 million and $8.5 million in 2017, 2016 and 2015, respectively. The aggregate amount of future minimum annual rental payments applicable to noncancelable operating leases is as follows:
|
| | | |
| | Minimum
Rental
Payments |
| | (Dollars in millions) |
| Year ending December 31: | |
| 2018 | $ | 3.1 |
|
| 2019 | 2.4 |
|
| 2020 | 1.4 |
|
| 2021 | 0.9 |
|
| 2022 | 0.3 |
|
| 2023-Thereafter | 1.1 |
|
| Total | $ | 9.2 |
|
Legal Matters
SunCoke Energy is party to an omnibus agreement, pursuant to which we have agreed to indemnifyBetween 2005 and 2012, the Partnership for costsEPA and expenses related to remediation of certain identified environmental matters in existence prior to the Partnership's initial public offering on January 24, 2013 ("IPO") at the Partnership’s Haverhill and Middletown facilities and certain identified environmental matters in existence prior to the Granite City Dropdown at the Partnership's Granite City facility. However, under the terms of the omnibus agreement, SunCoke Energy is not obligated to indemnify the Partnership for any new environmental matters coming into existence after the IPO at the Partnership’s Haverhill and Middletown facilities, or any new environmental matters coming into existence after the Granite City Dropdown at the Partnership's Granite City facility.
The U.S.Ohio Environmental Protection Agency ("EPA"(“OEPA”) issued Notices of Violations (“NOVs”), alleging violations of air emission operating permits for our Haverhill and Granite City cokemaking facilities which stemmed from alleged violations of our air emission operating permits for these facilities. We are workingworked in a cooperative manner with the EPA, the Ohio Environmental Protection AgencyOEPA and the Illinois Environmental Protection Agency to address the allegations and, havein November 2014, entered into a consent decree with these parties in federal district court with these parties.in the Southern District of Illinois. The consent decree includesincluded a $2.2 million civil penalty payment, which was paid in December 2014, as well asand a commitment to undertake capital projects underway to improve the reliability of the energy recovery systems and enhance environmental performance atperformance. Although all projects regarding the Haverhill and Granite City facilities. An amendment was lodged in federal court in February 2018 and is
undergoing review. The amendment provides the Haverhill and Granite City facilities with additional time to perform necessary maintenance on the flue gas desulfurization systems without exceeding consent decree limits. The emissions associated with this maintenance will be mitigatedhave been completed, the consent decree remains in accordance with the amendment,effect and there are no civil penalty payments.is being overseen for compliance.
We anticipate spending approximately $145 million related to these projects, of which we have spent approximately $111 million to date, including $7 million spent by the Company prior to the formation of the Partnership. The remaining capital is expected to be spent through the first quarter of 2019. A portion of the proceeds from the Partnership's initial public offeringBetween 2010 and subsequent dropdowns are expected to be used to fund $119 million of these environmental remediation projects. Pursuant to the omnibus agreement, the Company will reimburse the Partnership approximately $20 million for the estimated additional spending beyond what has previously been funded.
2016, SunCoke Energy has also received certain NOVs, Findings of Violations ("FOVs"(“FOVs”), and information requests from the EPA, alleging violations of air operating permit conditions related to our Indiana Harbor cokemaking facility, which allege violationsfacility. To reach a settlement of certain air operating permit conditions for this facility. The Clean Air Act (the "CAA") provides the EPA with the authority to issue, among other actions, an order to enforcethese NOVs and FOVs, a State Implementation Plan ("SIP") 30 days after an NOV. The CAA also authorizes EPA enforcement of other non-SIP requirements immediately after an FOV. Generally, an NOV applies to SIPs and requires the EPA to wait 30 days, while an FOV applies to all other provisions (such as federal regulations) of the CAA, and has no waiting period. The NOVs and/or FOVs were received in 2010, 2012, 2013, 2015 and 2016. After discussionsconsent decree with the EPA and the Indiana Department of Environmental Management (“IDEM”)was entered by the federal district court in 2010, resolutionthe Northern District of Indiana during the NOVs/FOVs was postponed by mutual agreement becausefourth quarter of ongoing discussions regarding the NOVs at Haverhill and Granite City. In January 2012, the Company began working in a cooperative manner to address the allegations with the EPA, the IDEM and Cokenergy, LLC., an independent power producer that owns and operates an energy facility, including heat recovery equipment and a flue gas desulfurization system, that processes hot flue gas from our2018. After Indiana Harbor facility to produce steam and electricity and to reducecompleted all consent decree requirements, the sulfur and particulate content of such flue gas.
The EPA, IDEM, SunCoke Energy and Cokenergy, LLC. have met regularly since those discussions commenced, and continued to meet regularly in 2017 to reach a settlement offederal district court terminated the NOVs and FOVs. Capital projects were underway during this time to address items that would be included in conjunction with a settlement of the NOVs/FOVs. A Consent Decree among the parties was lodged in federal courtconsent decree in January, 2018 and is undergoing review. The settlement includes a $2.5 million civil penalty payment, which is included in accrued liabilities on the Consolidated Balance Sheets as of December 31, 2017. Further, the settlement consists of capital projects already underway to improve reliability and environmental performance of the coke ovens at the facility. 2023.
The Company is a party to certain other pending and threatened claims, including matters related to commercial and tax disputes, product liability, employment claims, personal injury claims, premises-liabilitycommon law tort claims, allegations of exposures to toxic substances 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 likely 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 $1 million.
Black Lung Benefit Liabilities
The Company has obligations related to coal workers’ pneumoconiosis, or black lung, to provide benefits to certain of ourits 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 and amended previous legislation related to coal workers’ black lung obligations. PPACAobligations, provides for the automatic extension of awarded lifetime benefits to surviving spouses and changes the legal criteria used to assess and award claims.
We act as a self-insurer for both state and federal black lung benefits and 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 following table summarizes discount rates utilized, active claims and the total estimated black lung liabilities: | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Discount rate(1) | 4.9 | % | | 2.4 | % |
| Active claims | 332 | | | 332 | |
Total black lung liability (dollars in millions)(2) | $ | 58.1 | | | $ | 63.3 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Discount rate (percent)(1) | 3.3 | % | | 3.7 | % |
| Active claims | 351 |
| | 349 |
|
Estimated black lung liability (dollars in millions)(2) | $ | 50.3 |
| | $ | 50.2 |
|
(1)The discount rate is determined based on a portfolio of high-quality corporate bonds with maturities that are consistent with the estimated duration of our black lung obligations. A 0.25 percent decrease of 25 basis points in the discount rate would have increased coal workers' black lung expense by $1.2$1.1 million in 2017.2022.
(2)The current portion of the black lung liability was $5.4$5.9 million and $4.8$5.4 million at December 31, 20172022 and 2016,2021, respectively, and was included in accrued liabilities on the Consolidated Balance Sheets.
The following table summarizes annual black lung payments and (benefit) expense: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (Dollars in millions) |
| Payments | $ | 5.0 | | | $ | 4.4 | | | $ | 6.0 | |
(Benefit) expense (1) | $ | (0.2) | | | $ | 3.1 | | | $ | 15.4 | |
(1)Black lung (benefit) expense incurred in excess of annual accretion of the black lung liability reflects the impact of changes in discount rates, current filing and approval rate assumptions and/or other changes in our actuarial assumptions.
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 $8.4 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 any 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 $40.4 million to secure certain of its black lung obligations. This proposed collateral requirement is a substantial increase from the $8.4 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. Additionally, on January 19, 2023, the Department of
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (dollars in millions) |
| Payments | $ | 7.4 |
| | $ | 7.8 |
| | $ | 3.8 |
|
| Expense | $ | 7.5 |
| | $ | 8.1 |
| | $ | 9.8 |
|
13. Leases
The Company's operating leases consist primarily of leases for land, office space, equipment, railcars and locomotives. Certain of our long-term leases include one or more options to renew or to terminate, with renewal terms that can extend the lease term from one month to 50 years. The Company's finance leases are immaterial to our consolidated financial statements.
The components of lease expense were as follows: | | | | | | | | | | | |
| Year ended December 31, 2022 | | Year ended December 31, 2021 |
| (Dollars in millions) |
| Operating leases: | | | |
| Cost of products sold and operating expenses | $ | 2.3 | | | $ | 1.9 | |
| Selling, general and administrative expenses | 0.4 | | | 0.5 | |
| $ | 2.7 | | | $ | 2.4 | |
| | | |
| | | |
| | | |
| | | |
| Short-term leases: | | | |
Cost of products sold and operating expenses(1)(2) | 5.5 | | | 6.0 | |
| Total lease expense | $ | 8.2 | | | $ | 8.4 | |
(1)Includes expenses for month-to-month equipment leases, which are classified as short-term as the Company is not reasonably certain to renew the lease term beyond one month.
(2)Includes variable lease expenses, which are immaterial to the consolidated financial statements.
Supplemental balance sheet information related to leases was as follows: | | | | | | | | | | | | | | | | | |
| Financial Statement Classification | | December 31, 2022 | | December 31, 2021 |
| | | (Dollars in millions) |
| | | | | |
| Operating ROU assets | Deferred charges and other assets | | $ | 11.3 | | | $ | 12.9 | |
| | | | | |
| Operating lease liabilities: | | | | | |
| Current operating lease liabilities | Accrued liabilities | | $ | 2.0 | | | $ | 1.9 | |
| Noncurrent operating lease liabilities | Other deferred credits and liabilities | | 8.5 | | | 9.8 | |
| Total operating lease liabilities | | | $ | 10.5 | | | $ | 11.7 | |
The weighted average remaining lease term and weighted average discount rate were as follows: | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Weighted average remaining lease term of operating leases | 5.9 years | | 6.7 years |
| Weighted average discount rate of operating leases | 4.2 | % | | 4.2 | % |
Supplemental cash flow information related to leases was as follows: | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
| (Dollars in millions) |
| Operating cash flow information: | | | |
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 2.4 | | | $ | 2.7 | |
| Non-cash activity: | | | |
| ROU assets obtained in exchange for new operating lease liabilities | $ | 0.6 | | | $ | 3.9 | |
Maturities of operating lease liabilities as of December 31, 2022 are as follows: | | | | | |
| (Dollars in millions) |
| Year ending December 31: | |
| 2023 | $ | 2.4 | |
| 2024 | 2.2 | |
| 2025 | 2.1 | |
| 2026 | 1.5 | |
| 2027 | 1.2 | |
| 2028-Thereafter | 2.5 | |
| Total lease payments | 11.9 | |
| Less: imputed interest | 1.4 | |
| Total lease liabilities | $ | 10.5 | |
14. Accumulated Other Comprehensive Loss
The following tables set forth the changes in the balance of accumulated other comprehensive income (loss),loss, net of tax, by component: | | | | | | | | | | | | | | | | | | | | |
| | Benefit Plans | | Currency Translation Adjustments | | Total |
| | (Dollars in millions) |
| At December 31, 2020 | | $ | (8.2) | | | $ | (8.9) | | | $ | (17.1) | |
| Other comprehensive income (loss) before reclassifications / adjustments | | 0.3 | | | (0.9) | | | (0.6) | |
| Retirement benefit plans funded status adjustment | | 1.0 | | | — | | | 1.0 | |
| Net current period change in accumulated other comprehensive loss | | 1.3 | | | (0.9) | | | 0.4 | |
| At December 31, 2021 | | $ | (6.9) | | | $ | (9.8) | | | $ | (16.7) | |
| Other comprehensive income before reclassifications / adjustments | | 0.4 | | | 0.2 | | | 0.6 | |
| Retirement benefit plans funded status adjustment | | 3.1 | | | — | | | 3.1 | |
| Net current period change in accumulated other comprehensive loss | | 3.5 | | | 0.2 | | | 3.7 | |
| At December 31, 2022 | | $ | (3.4) | | | $ | (9.6) | | | $ | (13.0) | |
|
| | | | | | | | | | | | |
| | | Benefit Plans | | Currency Translation Adjustments | | Total |
| | | (Dollars in millions) |
| At December 31, 2015 | | $ | (4.6 | ) | | $ | (15.2 | ) | | $ | (19.8 | ) |
| Other comprehensive loss before reclassifications | | — |
| | 1.0 |
| | 1.0 |
|
| Retirement benefit plans funded status adjustment | | (0.2 | ) | | — |
| | (0.2 | ) |
| Net current period other comprehensive loss | | (0.2 | ) | | 1.0 |
| | 0.8 |
|
| At December 31, 2016 | | $ | (4.8 | ) | | $ | (14.2 | ) | | $ | (19.0 | ) |
| Other comprehensive loss before reclassifications | | — |
| | (0.5 | ) | | (0.5 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | 0.2 |
| | — |
| | 0.2 |
|
| Retirement benefit plans funded status adjustment | | (0.8 | ) | | — |
| | (0.8 | ) |
| Net current period other comprehensive loss | | (0.6 | ) | | (0.5 | ) | | (1.1 | ) |
| At December 31, 2017 | | $ | (5.4 | ) | | $ | (14.7 | ) | | $ | (20.1 | ) |
| |
(1) | As a result of the Tax Legislation, the Company revalued its deferred tax asset for our postretirement benefit plan for the impact of lower income tax rates, the impact of which was reclassified from retained earnings to accumulated other comprehensive loss. |
The tax benefit associated with the Company's benefit plans as of December 31, 20172022 and 20162021 was $3$1.0 million and $2.7$2.0 million, respectively.
The Company's accumulated other comprehensive loss balance includes $9.0 million from currency translation adjustments of the investment in VISA SunCoke, which remains until the cumulative investment balance is no longer negative or the investment is disposed. The balance would be reclassified to earnings if the investment is disposed of by the Company.
The increase (decrease) onin net income due to reclassification adjustments from accumulated other comprehensive (income) lossincome were as follows:follows(1): | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (Dollars in millions) |
Amortization of benefit plans to net income:(2) | | | | | | |
| Actuarial loss | | $ | (0.7) | | | $ | (0.8) | | | $ | (0.6) | |
| Prior service benefit | | 0.2 | | | 0.4 | | | 0.5 | |
| Total before taxes | | (0.5) | | | (0.4) | | | (0.1) | |
| Income tax | | 0.1 | | | 0.1 | | | — | |
| Total, net of tax | | $ | (0.4) | | | $ | (0.3) | | | $ | (0.1) | |
| | | | | | |
| | | | | | |
(1)Amounts in parentheses indicate debits to net income.
|
| | | | | | | | | | | | |
| | | December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Amortization of benefit plans to net income: | | | | | | |
| Actuarial loss | | $ | (0.9 | ) | | $ | (0.7 | ) | | $ | (1.3 | ) |
| Prior service benefit | | 0.7 |
| | 0.7 |
| | 1.2 |
|
| Curtailment gain | | — |
| | — |
| | 4.1 |
|
| Settlement loss | | — |
| | — |
| | (12.6 | ) |
| Total before taxes | | (0.2 | ) | | — |
| | (8.6 | ) |
| Income tax cost (benefit) | | — |
| | — |
| | 3.4 |
|
| Total, net of tax | | $ | (0.2 | ) | | $ | — |
| | $ | (5.2 | ) |
15. Share-Based Compensation
Equity Classified Awards.
Effective July 13, 2011, SunCoke Energy’s Board of Directors approvedOn May 12, 2022, the Company adopted the SunCoke Energy, Inc. Omnibus Long-Term Performance EnhancementIncentive Plan (“SunCoke LTPEP”(the
"Omnibus Plan"). The SunCoke LTPEPOmnibus Plan provides for the grant of equity-based awards including stock options and share units, or
restricted stock, to the Company’s directors, officers,Board of Directors and othercertain employees advisors, and consultants who are selected by the plan committee for participation in the plan. The total
number of shares of common stock authorized for issuance under the Omnibus Plan consists of (i) 2,700,000 new shares, (ii) 2,434,445 shares of common stock reserved for issuance primarily under the previous SunCoke LTPEP. AllEnergy, Inc. Long-Term Performance Enhancement Plan ("SunCoke LTPEP"), which all equity based awards vest immediately uponwere issued under prior to the effective date of May 12, 2022, and (iii) any shares of common stock subject to awards granted under the SunCoke LTPEP that were outstanding on the effective date and that, on or after such date, are not issued or delivered to a change in control and a qualifying terminationparticipant. As of employment as defined bythe effective date, new awards will no longer be granted under the SunCoke LTPEP. The plan authorizes the issuance of (i) 1,600,000 shares of SunCoke Energy common stock issuable upon the adjustment of Sunoco equity awards in connection with the Separation and Distribution Agreement between Sunoco and SunCoke and (ii) up to 6,000,000 shares of SunCoke Energy common stock pursuant to new awardsAwards previously granted under the SunCoke LTPEP.
The Company measuresLTPEP, and described in further detail below, were not modified or impacted by the cost of employee services in exchange for an award of equity instruments based on the grant-date fair valueadoption of the award. The performance metrics of equity awards are remeasured on a quarterly basis. The market metrics of equity awards are not remeasured. The total cost is recognized over the requisite service period. Award forfeitures are accounted for as they occur.Omnibus Plan.
Stock Options
TheStock options granted by the Company granted the following stock options during the years ended December 31, 2017, 2016 and 2015, with an exercise price equal to the closing price of our common stock on the date of grant. |
| | | | | | | | | | |
| | | | Weighted Average Per Share |
| | No. of Shares | | Exercise Price | | Weighted Average Grant Date Fair Value |
| Traditional stock options: | | | | | |
| 2017 grant | 157,196 |
| | $ | 10.29 |
| | $ | 5.32 |
|
| 2016 March grant | 90,925 |
| | $ | 6.03 |
| | $ | 2.78 |
|
| 2016 February grant | 95,001 |
| | $ | 3.80 |
| | $ | 1.71 |
|
| 2015 grant | 593,976 |
| | $ | 16.33 |
| | $ | 4.87 |
|
| Performance based options: | | | | | |
| 2017 grant | 80,595 |
| | $ | 9.85 |
| | $ | 5.17 |
|
| 2016 March grant | 90,925 |
| | $ | 6.03 |
| | $ | 2.42 |
|
| 2016 February grant | 58,448 |
| | $ | 3.80 |
| | $ | 1.06 |
|
The stock options vest in three equal annual installments beginning one year from the date of grant. In order to become exercisable, the performance based options also require the closing price of the Company's common stock to reach or exceed $14.78 per share for the 2017 grantsgrant, and $9.50 per share for the February and March 2016 grants for any 15 trading days during the three-year period beginning on the grant date. The February and March 2016 grants met the required stock price performance during 2016. The stock options expire ten years from the date of grant.
The Company calculates the value of each employee stock option, estimated on the date of grant, using the Black-Scholes option pricing model with a Monte Carlo simulation for the performance based options. The weighted-average fair value of employeemodel. There were no stock options granted by the Company during the years ended December 31, 2017, 20162022, 2021 and 2015 was based on using the following weighted-average assumptions:2020. |
| | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Risk free interest rate | 2.11 | % | | 1.25 | % | | 1.66 | % |
| Expected term | 6 years |
| | 5 years |
| | 5 years |
|
| Volatility | 53 | % | | 52 | % | | 36 | % |
| Dividend yield | — | % | | — | % | | 1.64 | % |
The risk-free interest rate assumption is based on the U.S. Treasury yield curve at the date of grant for periods which approximate the expected life of the option. The expected term of the employee options represent the average contractual term adjusted by the average vesting period of each option tranche. We based our expected volatility on our historical volatility over our entire available trading history. The dividend yield assumption is based on the Company’s expectation of dividend payouts at the time of grant.
The following table summarizes information with respect to common stock option awards outstanding as of December 31, 20172022 and stock option activity during the fiscal year then ended: |
| | | | | | | | | | | | |
| | Number of
Options | | Weighted
Average
Exercise Price | | Weighted Average Remaining Contractual Term (years) | | Aggregate
Intrinsic Value (millions) |
| Outstanding at December 31, 2016 | 2,923,668 |
| | $ | 15.69 |
| | 6.3 | | $ | 2.2 |
|
| Granted | 237,791 |
| | $ | 10.14 |
| | | | |
| Exercised | (10,252 | ) | | $ | 9.66 |
| | | | |
| Forfeited | (5,092 | ) | | $ | 20.70 |
| | | | |
| Outstanding at December 31, 2017 | 3,146,115 |
| | $ | 15.31 |
| | 5.6 | | $ | 2.8 |
|
| Exercisable at December 31, 2017 | 2,530,129 |
| | $ | 16.64 |
| | 4.8 | | $ | 0.7 |
|
| Expected to vest at December 31, 2017 | 615,986 |
| | $ | 9.87 |
| | 8.4 | | $ | 2.1 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of
Options | | Weighted
Average
Exercise Price | | Weighted Average Remaining Contractual Term (years) | | Aggregate
Intrinsic Value (millions) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Outstanding at December 31, 2021 | 2,087,505 | | | $ | 14.59 | | | 3.2 | | 0.1 | |
| | | | | | | |
| Exercised | (60,618) | | | $ | 6.03 | | | | | |
| | | | | | | |
| Expired | (506,677) | | | $ | 14.23 | | | | | |
| Outstanding and Exercisable at December 31, 2022 | 1,520,210 | | | $ | 15.06 | | | 2.7 | | 0.2 | |
| | | | | | | |
| | | | | | | |
Intrinsic value for stock options is defined as the difference between the current market value of our common stock and the exercise price of the stock options. Total intrinsic value of stock options exercised during 2017in 2022 and 20152021 was $0.2 million and $0.3 million, and $0.1 million, respectively. No stock options were exercised during 2016.In 2020 the amount was immaterial.
Restricted Stock Units Settled in Shares
The Company issues restricted stock units ("RSUs") to be settled in shares of the Company's common stock to certain employees and members of the Board of Directors. The Company granted the following restricted stock units ("RSUs")RSUs during the years ended December 31, 20172022, 2021 and 2015:2020: | | | | | | | | | | | | | | | | | |
| Number of RSUs | | Weighted Average Grant-Date Fair Value per Unit | | Grant Date Fair Value |
| | | | | (Dollars in millions) |
| 2022 grants | 346,600 | | | $ | 7.62 | | | $ | 2.6 | |
| 2021 grants | 463,476 | | | $ | 6.72 | | | $ | 3.1 | |
| 2020 grants | 304,332 | | | $ | 6.04 | | | $ | 1.8 | |
|
| | | | | | | | | | |
| | Shares | | Weighted Average Grant-Date Fair Value | | Grant Date Fair Value |
| | | | | | (Dollars in millions) |
| 2017 grants | 22,628 |
| | $ | 9.85 |
| | $ | 0.2 |
|
| 2015 grants | 297,514 |
| | $ | 14.51 |
| | $ | 4.3 |
|
No RSUs were granted during 2016. The RSUs granted to employees vest and become payable in three annual installments beginning one year from the date of grant.
RSUs granted to the Company's Board of Directors vest upon grant, but are paid upon termination of board service.
The following table summarizes information with respect to RSUs outstanding as of December 31, 20172022 and RSU activity during the fiscal year then ended: |
| | | | | | |
| | Number of
RSUs | | Weighted
Average Grant-
Date Fair Value |
| Nonvested at December 31, 2016 | 224,940 |
| | $ | 16.18 |
|
| Granted | 22,628 |
| | $ | 9.85 |
|
| Vested | (135,522 | ) | | $ | 17.22 |
|
| Forfeited | (5,649 | ) | | $ | 11.47 |
|
| Nonvested at December 31, 2017 | 106,397 |
| | $ | 13.53 |
|
| | | | | | | | | | | |
| Number of
RSUs | | Weighted
Average Grant-
Date Fair Value per Unit |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Nonvested at December 31, 2021 | 568,018 | | | $ | 6.70 | |
| Granted | 346,600 | | | $ | 7.62 | |
| Vested | (243,640) | | | $ | 6.96 | |
| | | |
| Nonvested at December 31, 2022 | 670,978 | | | $ | 7.08 | |
Total grant date fair value of RSUs vested was $2.3$1.7 million, $3.7$1.2 million and $4.6$0.6 million during 2017, 20162022, 2021 and 2015,2020, respectively.
Performance Share Units
The Company grants performance share units ("PSUs"), which represent the right to receive shares of the Company's common stock, contingent upon the attainment of Company performance and market goals and continued employment.
The Company granted the following PSUs during the yearyears ended December 31, 2017:2022, 2021 and 2020: | | | | | | | | | | | | | | | | | |
| Number of PSUs | | Weighted Average Grant Date Fair Value per Unit | | Grant Date Fair Value |
| | | | | (Dollars in millions) |
2022 grant(1) | 154,860 | | | $ | 8.40 | | | $ | 1.3 | |
2021 grant(1) | 177,176 | | | $ | 7.60 | | | $ | 1.3 | |
2020 grant(1) | 228,248 | | | $ | 6.70 | | | $ | 1.5 | |
|
| | | | | | | | | | |
| | Shares | | Fair Value per Share | | Grant Date Fair Value |
| | | | | | (Dollars in millions) |
| 2017 grant | 385,758 |
| | $ | 11.61 |
| | $ | 4.5 |
|
The 2017 PSU grant wasgrants were split 50/50 between the Company's three-year cumulative Adjusted EBITDA performance measure and the Company's three-year average pre-tax return on capital ("ROIC") performance measure for its coke and logistics businesses and unallocated corporate expenses. The number of PSU'sPSUs ultimately awarded will be determined by the Adjusted EBITDA and ROIC performance versus targets and the Company's three-year total shareholder return ("TSR") as compared to the TSR of the companies making up the NasdaqNASDAQ U.S. Benchmark Iron & Steel Index ("TSR Modifier"). The TSR Modifier can impact the payout between 50(between 80 percent and 150120 percent of the 2022 awards, and between 75 percent and 125 percent of the 2021 and 2020 awards) of the Company's final performance measure results. The award2022, 2021 and 2020 awards may vest between zero25 percent and 250 percent of the original units granted. The fair value of the PSUs granted during 2017 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. In February 2017, the Company granted 237,610 PSUs that will vest on December 31, 2019. In December 2017, the Company granted 148,148 PSUs that will vest on December 31, 2020.
The Company granted the following PSUs during the years ended December 31, 2016 and 2015: |
| | | | | | | | | | | | | | | | | |
| | ROIC Portion(1) | | TSR Portion(2) | | Total |
| | Shares | | Fair Value per Share | | Shares | | Fair Value per Share | | Grant Date Fair Value |
| | | | | | | | | | (Dollars in millions) |
2016 March grant(3) | 67,167 |
| | $ | 10.51 |
| | 201,500 |
| | $ | 6.35 |
| | $ | 2.0 |
|
| 2016 February grant | 105,210 |
| | $ | 5.66 |
| | 105,210 |
| | $ | 5.81 |
| | $ | 1.2 |
|
| 2015 grant | 67,135 |
| | $ | 16.90 |
| | 67,136 |
| | $ | 18.27 |
| | $ | 2.4 |
|
| |
(1) | The number of PSUs that ultimately vest will be determined by the Company's three-year average pre-tax return on capital for the Company's coke and logistics businesses. Additionally, only applicable to the 2016 grants, if at any time during the vesting period the closing price of the Company's common stock equals or exceeds $9.00 per share for any 15 trading days, which was met during 2016, the pre-tax return on capital portion of the award, as adjusted, will be multiplied by two. |
| |
(2) | The number of PSUs that ultimately vest will be determined by the Company's three-year total shareholder return ("TSR") as compared to the TSR of the companies making up the S&P 600. |
| |
(3) | The final vesting value of the TSR portion of this award cannot exceed $4.9 million. |
Each portion of the award may vest between zero and 200 percent of the original units granted. The fair value of the PSUs granted are based on the closing price of our common stock on the date of grant as well as a Monte Carlo simulation for the portion of the award subject to a market condition. The 2016 and 2015 grants will vest on December 31, 2018 and December 31, 2017, respectively.
The following table summarizes information with respect to unearned PSUs outstanding as of December 31, 20172022 and PSU activity during the fiscal year then ended: | | | | | | | | | | | |
| Number of
PSUs | | Weighted
Average Grant
Date Fair Value per Unit |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Nonvested at December 31, 2021 | 527,015 | | | $ | 8.38 | |
| Granted | 154,860 | | | $ | 8.40 | |
| Performance adjustments | (1,101) | | | $ | 10.79 | |
| Vested | (182,028) | | | $ | 10.79 | |
| | | |
| Nonvested at December 31, 2022 | 498,746 | | | $ | 7.21 | |
|
| | | | | | |
| | Number of
PSUs | | Weighted
Average Grant-
Date Fair Value |
| Nonvested at December 31, 2016 | 666,713 |
| | $ | 10.51 |
|
| Granted | 385,758 |
| | $ | 11.61 |
|
| Vested | (11,071 | ) | | $ | 22.30 |
|
| Forfeited | (258,619 | ) | | $ | 13.72 |
|
| Nonvested at December 31, 2017 | 782,781 |
| | $ | 10.06 |
|
Liability Classified Awards
Restricted Stock Units Settled in Cash
During the years ended December 31, 20172022, 2021 and 2016,2020, the Company issued 98,364250,615, 230,056 and 198,668263,998 restricted stock units to be settled in cash ("Cash RSUs"), respectively, which vest in three annual installments beginning one year from the grant date. The weighted average grant date fair value of the Cash RSUs granted during the years ended December 31, 20172022, 2021 and 20162020, was $9.82$7.56, $6.68 and $3.82,$6.04, respectively, and was based on the closing price of our common stock on the day of grant. The Cash RSU liability at December 31, 20172022 was adjusted based on the closing price of our common stock on December 31, 20172022 of $11.99$8.63 per share. The Cash RSU liability was $2.4 million at December 31, 20172022 and was $1.2$1.9 million of which $0.9 million was included in accrued liabilities and $0.3 million was included in other deferred credits and liabilities on the Consolidated Balance Sheets.at December 31, 2021.
Cash Incentive Award
The Company also granted share-based 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 change in control and a qualifying termination of employment as defined by the SunCoke LTCIP. 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 a grant date fair value award of $0.7$2.0 million, $2.1 million and $0.9$2.0 million during the years ended December 31, 20172022, 2021 and 2016,2020, respectively, that vestsfor which the service periods end on December 31, 20192024, 2023 and 2018,2022, respectively, and the awards will vests during the first quarter of 2025, 2024 and 2023, respectively. The 2017service period for certain retiree eligible participants is accelerated. The 2022, 2021 and 2020 awards are split 50/50 between the Adjusted EBITDA and ROIC metrics, consistent with the PSU awards, but is not impacted by the TSR modifier. See above for details.
The cash incentive award liability at December 31, 2022 was adjusted based on the Company's three three-year cumulative Adjusted EBITDA performance and the Company's three-year average pre-tax return on capital performance measure for its coke and logistics businesses and unallocated corporate expense. The ultimate award value will be determined by the performance versus targets and the Company's three year TSR Modifier performance, but will be capped at 250 percent of the target award.
The 2016 award value will be adjusted based upon the Company's three-year average pre-tax return on capital for the Company's coke and logistics businesses and if at any time during the vesting period the closing price of the Company's common stock equals or exceeds $9.00 per share for any 15 trading days, which was met in 2016, the award, as adjusted, will be multiplied by two, but will be capped at 200 percent of the target award.
unallocated corporate expenses. The cash incentive award liability was $8.7 million at December 31, 2017 was adjusted based on the Company's current performance related to the above awards. The cash incentive award liability2022 and $4.1 million at December 31, 2017 was not material.2021.
Summary of Share-Based Compensation Expense
Below is a summary of the compensation expense, unrecognized compensation costs, the period for which the unrecognized compensation cost is expected to be recognized over and the estimated forfeiture rate for each award: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | |
| 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | December 31, 2022 |
| Compensation Expense(1) | | Net of tax | | Unrecognized Compensation Cost | | Weighted Average Remaining Recognition Period |
| (Dollars in millions) | | (Dollars in millions) | | (Years) |
| Equity Awards: | | | | | | | | | | | | | | | |
| Stock Options | $ | — | | | $ | 0.1 | | | $ | 0.3 | | | $ | — | | | $ | 0.1 | | | $ | 0.3 | | | $ | — | | | — | |
| RSUs | 2.5 | | | 2.3 | | | 1.9 | | | 1.9 | | | 1.8 | | | 1.5 | | | $ | 0.4 | | | 1.7 |
| PSUs | 3.9 | | | 3.4 | | | 1.5 | | | 3.0 | | | 2.6 | | | 1.2 | | | $ | 0.7 | | | 1.7 |
| Total equity awards | $ | 6.4 | | | $ | 5.8 | | | $ | 3.7 | | | $ | 4.9 | | | $ | 4.5 | | | $ | 3.0 | | | | | |
| Liability Awards: | | | | | | | | | | | | | | | |
| Cash RSUs | $ | 2.1 | | | $ | 1.7 | | | $ | 0.8 | | | $ | 1.6 | | | $ | 1.3 | | | $ | 0.6 | | | $ | 1.6 | | | 1.8 |
| Cash incentive award | 5.1 | | | 3.4 | | | 0.6 | | | 3.9 | | | 2.6 | | | 0.4 | | | $ | 2.0 | | | 1.6 |
| Total liability awards | $ | 7.2 | | | $ | 5.1 | | | $ | 1.4 | | | $ | 5.5 | | | $ | 3.9 | | | $ | 1.0 | | | | | |
(1)Compensation expense is recognized by the Company in selling, general and administrative expenses on the Consolidated Statements of Income.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, | | | | |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | December 31, 2017 |
| | Compensation Expense(1) | | Net of tax | | Unrecognized Compensation Cost | | Recognition Period |
| | (Dollars in millions) | | (Dollars in millions) | | (Years) |
| Equity Awards: | | | | | | | | | | | | | | | |
| Stock Options | $ | 1.3 |
| | $ | 2.1 |
| | $ | 2.5 |
| | $ | 0.8 |
| | $ | 1.3 |
| | $ | 1.6 |
| | $ | 0.7 |
| | 2.0 |
| RSUs | 1.1 |
| | 2.6 |
| | 4.2 |
| | 0.7 |
| | 1.7 |
| | 2.7 |
| | $ | 0.3 |
| | 1.2 |
| PSUs | 1.9 |
| | 1.4 |
| | 0.5 |
| | 1.2 |
| | 0.9 |
| | 0.3 |
| | $ | 2.4 |
| | 2.8 |
| Total equity awards | $ | 4.3 |
| | $ | 6.1 |
| | $ | 7.2 |
| | $ | 2.7 |
| | $ | 3.9 |
| | $ | 4.6 |
| | | | |
| Liability Awards: | | | | | | | | | | | | | | | |
| Cash RSUs | $ | 1.0 |
| | $ | 0.7 |
| | $ | — |
| | $ | 0.6 |
| | $ | 0.5 |
| | $ | — |
| | $ | 1.3 |
| | 1.7 |
| Cash incentive award | 0.2 |
| | 0.1 |
| | — |
| | 0.1 |
| | 0.1 |
| | — |
| | $ | 0.4 |
| | 1.9 |
| Total liability awards | $ | 1.2 |
| | $ | 0.8 |
| | $ | — |
| | $ | 0.7 |
| | $ | 0.6 |
| | $ | — |
| | | | |
| |
(1) | Compensation expense is recognized by the Company in selling, general and administrative expenses on the Consolidated Statements of Operations. |
The Company issued $0.5$0.3 million, $0.3 million, and $0.4$0.1 million of share-based compensation to the Company's Board of Directors during the years ended December 31, 20172022, 2021 and 2016,2020, respectively. The share-based compensation issued to the Company's Board of Directors was not material during the year ended December 31, 2015.
16. Earnings Per Share
Basic earnings per share (“EPS”) has been computed by dividing net income (loss) available to SunCoke Energy, Inc. by the weighted average number of shares outstanding during the period. Except where the result would be anti-dilutive, diluted earnings per share has been computed to give effect to share-based compensation awards using the treasury stock method.
The following table sets forth the reconciliation of the weighted-average number of common shares used to compute basic earnings per share to those used to compute diluted EPS: | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| | (Shares in millions) |
| Weighted-average number of common shares outstanding-basic | 83.8 | | | 83.0 | | | 83.0 | |
| Add: effect of dilutive share-based compensation awards | 0.8 | | | 0.7 | | | 0.2 | |
| Weighted-average number of shares-diluted | 84.6 | | | 83.7 | | | 83.2 | |
|
| | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Shares in millions) |
| Weighted-average number of common shares outstanding-basic | 64.3 |
| | 64.2 |
| | 65.0 |
|
| Add: effect of dilutive share-based compensation awards | 0.9 |
| | 0.2 |
| | — |
|
| Weighted-average number of shares-diluted | 65.2 |
| | 64.4 |
| | 65.0 |
|
The following table shows stock options, restricted stock units, and performance stock units that are excluded from the computation of diluted earnings per share as the shares would have been anti-dilutive: | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| | (Shares in millions) |
| Stock options | 1.6 | | | 2.5 | | | 3.2 | |
| Restricted stock units | — | | | — | | | 0.2 | |
| Performance stock units | — | | | — | | | 0.3 | |
| Total | 1.6 | | | 2.5 | | | 3.7 | |
|
| | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Shares in millions) |
| Stock options | 2.9 |
| | 3.0 |
| | 2.9 |
|
| Restricted stock units | — |
| | 0.2 |
| | 0.5 |
|
| Performance stock units | 0.1 |
| | 0.2 |
| | — |
|
| Total | 3.0 |
| | 3.4 |
| | 3.4 |
|
17. Fair Value Measurements
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 to sell 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
Cash and Cash Equivalents
Certain assets and liabilities are measured at fair value on a recurring basis. The Company’s cash equivalents, which amounted to $5.5 million and $4.4 million at December 31, 2017 and 2016, respectively,cash equivalents were measured at fair value at December 31, 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.
CMT Contingent Consideration
In connection with the CMT acquisition, the Partnership entered into a contingent consideration arrangement that requires the Partnership to make future payments to The Cline Group based on future volume over a specified threshold, price and contract renewals. The fair value of the contingent consideration was estimated based on a probability-weighted analysis using significant inputs that are not observable in the market, or Level 3 inputs. Key assumptions included probability adjusted levels of handling services provided by CMT, anticipated price per ton on future sales and probability of contract renewal, including length of future contracts, volume commitment, and anticipated price per ton. The fair value of the contingent consideration at December 31, 2017 and December 31, 2016 was $2.5 million and $4.2 million, respectively, and was included in other deferred credits and liabilities on the Consolidated Balance Sheets.
During 2017, as a result of adverse mining conditions faced by one of our thermal coal customers, the Partnership lowered CMT's throughput volume projection for this customer, which reduced the Partnership's contingent consideration liability balance by $1.7 million. The decrease in fair value was recorded as a reduction to costs of products sold and operating expenses on the Consolidated Statements of Operations during 2017. Throughput volumes at CMT in 2017 were consistent with projections and higher than 2016 levels, but still significantly below levels that would trigger payment of the contingent consideration.
During March 2016, as part of developing commercial activities subsequent to the acquisition, the Partnership and The Cline Group signed an amended agreement, which modified the contingent consideration terms by increasing the volume threshold required for the Partnership to make payments to The Cline Group in exchange for future pricing modifications. The increase in the volume threshold reduced the fair value of the contingent consideration liability by $3.7 million, which was recorded as a reduction to cost of products sold and operating expense on the Consolidated Statement of Operations.
During the second half of 2016, the Partnership lowered CMT’s throughput volume projections in future periods for certain customers due to declining coal prices which were expected to reduce export volume through CMT. These updated volume projections resulted in a net decrease to the contingent consideration liability, decreasing cost of products sold and operating expenses on the Consolidated Statements of Operations by $6.4 million during the year ended December 31, 2016. During 2016, the Partnership also recorded an adjustment to correct an error in the acquisition date fair value of the contingent consideration liability, which increased the contingent consideration liability and goodwill balance by $6.4 million.
Non-Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment).
India Equity Method Investment Valuation
As a result of sustained depressed market conditions, the Company recorded other-than-temporary impairment charges of the joint venture investment in the Company's India reportable segment of $19.4 million in 2015. These charges were recorded in loss from equity method investment on the Consolidated Statement of Operations and resulted in an investment balance of zero. Consequently, beginning in the fourth quarter of 2015, we no longer include the results of our share of VISA SunCoke in our consolidated financial statements. In accordance with GAAP, our share of future earnings of the joint venture will only be included in our results once the cumulative investment balance is no longer negative. The Company has no plans to make further capital contributions to this investment.
The estimated discounted cash flows in 2015 utilized inputs considered to be Level 3 in the fair value hierarchy. Key assumptions in the 2015 discounted cash flow analysis included a 13.5 percent discount rate and estimated cash flows, which considered the timing and extent of future improvements in the Indian market, an important component of which is gross margin recovery. The continuing deterioration of market conditions resulted in forecasted gross loss of $8 per ton to a forecasted gross margin gain of $13 per ton upon market recovery. A $5 per ton change in the gross margin assumption in 2016 would have impacted the valuation of our investment by approximately $8 million. To the extent possible, the Company considered available market information and other third-party data and compared the inputs to relevant historical information during the 2015 valuations.
Certain Financial Assets and Liabilities not Measured at Fair Value
At December 31, 20172022 and 2016,2021, the fair value of the Company’s long-term debt was estimated to be $919.7$471.9 million and $854.4$625.1 million, respectively, compared to a carrying amount of $887.3$543.8 million and $858.0$627.0 million, respectively. These fair values were estimated by management based upon estimates of debt pricing provided by financial institutions which are considered Level 2 inputs.
18. Revenue from Contracts with Customers
Cokemaking
Our blast furnace coke sales are largely made pursuant to long-term, take-or-pay agreements. These agreements require us to produce and deliver the contracted volumes of coke and require our customers to purchase such volumes of coke up to a specified tonnage or pay the contract price for any tonnage they elect not to take. As of December 31, 2022, our coke sales agreements have approximately 10.9 million tons of unsatisfied or partially unsatisfied performance obligations, which are expected to be delivered over a weighted average remaining contract term of approximately five years.
Our coke sales prices include an operating cost component, a coal cost component and a return of capital component. Operating costs under three of our coke sales agreements are fixed subject to an annual adjustment based on an inflation index. Under our other four coke sales agreements, operating costs are passed through to the respective customers subject to an annually negotiated budget, in some cases subject to a cap annually adjusted for inflation, and we share any difference in costs from the budgeted amounts with our customers. Our coke sales agreements contain pass-through provisions for coal and coal procurement costs, subject to meeting contractual coal-to-coke yields. To the extent that the actual coal-to-coke yields are less than the contractual standard, we are responsible for the cost of the excess coal used in the cokemaking process. Conversely, to the extent our actual coal-to-coke yields are higher than the contractual standard, we realize gains. The reimbursement of pass-through operating and coal costs from these coke sales agreements are considered to be variable consideration components included in the cokemaking sales price. The return of capital component for each ton of coke sold to the customer is determined at the time the coke sales agreement is signed and is effective for the term of each sales agreement. This component of our coke sales prices is intended to provide an adequate return on invested capital and may differ based on investment levels and other considerations. The actual return on invested capital at any facility is also impacted by favorable or unfavorable performance on pass-through cost items. Revenues 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.
We also sell blast furnace coke into the export coke market, utilizing capacity in excess of that reserved for our long-term, take-or-pay agreements. Export coke sales are generally made on a spot basis at the current market price and do not contain the same provisions as our long-term, take-or-pay agreements.
While the revenues in our Domestic Coke segment are primarily tied to blast furnace coke sales made under long-term, take-or-pay agreements, we also produce and sell foundry coke out of our Jewell cokemaking facility. 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.
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. Logistics services provided to our domestic cokemaking facilities are provided under contracts with terms equivalent to those of arm's-length transactions.
Estimated take-or-pay revenue of approximately $51.4 million from all of our multi-year logistics contracts is expected to be recognized over the next four years for unsatisfied or partially unsatisfied performance obligations as of December 31, 2022.
Energy
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. Our Middletown facility and the second phase of our Haverhill facility, or Haverhill II, have cogeneration plants that generate
electricity, which is either sold into the regional power market or to customers pursuant to energy sales agreements. Our Granite City facility and the first phase of our Haverhill facility, or Haverhill I, have steam generation facilities, which produce steam for sale to customers pursuant to steam supply and purchase agreements. The energy provided under these arrangements results in transfer of control over time. Revenues are recognized over time as energy is delivered to our customers, in an amount based on the terms of each arrangement. Energy generated at our remaining facilities is either used internally or provided, at minimal cost, to energy suppliers.
Operating and Licensing Fees
Operating and licensing fees are made pursuant to long-term contracts with ArcelorMittal Brazil, where we operate a Brazilian cokemaking facility. The licensing fees are based upon the level of production required by our customer. Operating fees include the full pass-through of the operating costs of the Brazilian facility as well as a per ton fee based on the level of production required by our customer. Revenues are recognized over time as our customers receive and consume the benefits in an amount that corresponds directly with the value provided to the customer to date.
Disaggregated Sales and Other Operating Revenue
The following table provides disaggregated sales and other operating revenue by product or service, excluding intersegment revenues: | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| | | | | | |
| | | (Dollars in millions) |
| Sales and other operating revenue: | | | | | | |
| Cokemaking | | $ | 1,791.3 | | | $ | 1,293.6 | | | $ | 1,218.9 | |
| Energy | | 61.5 | | | 56.1 | | | 43.6 | |
| Logistics | | 76.7 | | | 64.3 | | | 35.5 | |
| Operating and licensing fees | | 38.0 | | | 36.6 | | | 31.6 | |
| Other | | 5.0 | | | 5.4 | | | 3.4 | |
| Sales and other operating revenue | | $ | 1,972.5 | | | $ | 1,456.0 | | | $ | 1,333.0 | |
Disaggregated sales and other operating revenue by customer is discussed in Note 3.
19. Business Segment Information
The Company reports its business through three segments: Domestic Coke, Brazil Coke and Logistics. The Domestic Coke segment includes the Jewell, Indiana Harbor, Haverhill, Granite City and Middletown cokemaking facilities located in Vansant, Virginia; East Chicago, Indiana; Franklin Furnace, Ohio; Granite City, Illinois; and Middletown, Ohio, respectively.facilities. Each of these facilities produces coke, and all facilities except Jewell and Indiana Harbor recover waste heat, which is converted to steam or electricity through a similar production process. Steam is provided to customers pursuant to steam supply and purchase agreements. Electricity is sold into the regional power market or to AK Steel Holding Corporation ("AK Steel") pursuant to energy sales agreements. Coke sales at each of the Company's five domestic cokemaking facilities are made pursuant to long-term, take-or-pay agreements with ArcelorMittal S.A., AK Steel, and U.S. Steel. Each of the coke sales agreements contains pass-through provisions for costs incurred in the cokemaking process, including coal procurement costs (subject to meeting contractual coal-to-coke yields), operating and maintenance expense, costs related to the transportation of coke to the customers, taxes (other than income taxes) and costs associated with changes in regulation, in addition to containing a fixed fee.
The Brazil Coke segment operates a cokemaking facility located in Vitória, Brazil for a project company. The Brazil Coke segment earns income fromincludes the Brazilian facility through licensing and operating fees payable to us under long-term contracts with the local project company that will runArcelorMittal Brazil, under which we operate a cokemaking facility located in Vitória, Brazil through at least 2023.
January, 2028.
Logistics operations are comprised of CMT, located in Louisiana, KRT, located in West Virginia, SunCoke Lake Terminal, located inwhich provides services to our Indiana Harbor cokemaking facility, and DRT, located in Virginia adjacentwhich provides services to our Jewell cokemaking facility. Our logistics operations have a collective capacity to mix and transload approximately 40 million tons of coal and other aggregates annually and provide handling and/or mixing services to its customers, which include the Partnership's cokemaking facilities and other SunCoke cokemaking facilities. 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. Corporate and Other, which also includes activity from our legacy coal mining business, which was historically presented as a separate reportable segment. Prior year periods have been recasted to reflect current presentation.business.
Segment assets net of tax are those assets utilized within a specific segment and exclude deferred taxes and current tax receivables.taxes.
The following table includes Adjusted EBITDA, as defined below, which is the measure of segment profit or loss and liquidity reported to the chief operating decision maker for purposes of allocating resources to the segments and assessing their performance: | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| | | (Dollars in millions) |
| Sales and other operating revenue: | | | | | | |
| Domestic Coke | | $ | 1,856.9 | | | $ | 1,354.5 | | | $ | 1,265.4 | |
| Brazil Coke | | 38.0 | | | 36.6 | | | 31.6 | |
| Logistics | | 77.6 | | | 64.9 | | | 36.0 | |
| Logistics intersegment sales | | 28.9 | | | 27.1 | | | 22.1 | |
| Elimination of intersegment sales | | (28.9) | | | (27.1) | | | (22.1) | |
| Total sales and other operating revenue | | $ | 1,972.5 | | | $ | 1,456.0 | | | $ | 1,333.0 | |
| | | | | | |
| Adjusted EBITDA: | | | | | | |
| Domestic Coke | | $ | 263.4 | | | $ | 243.4 | | | $ | 217.0 | |
| Brazil Coke | | 14.5 | | | 17.2 | | | 13.5 | |
| Logistics | | 49.7 | | | 43.5 | | | 17.3 | |
Corporate and Other(1) | | (29.9) | | | (28.7) | | | (41.9) | |
| Total Adjusted EBITDA | | $ | 297.7 | | | $ | 275.4 | | | $ | 205.9 | |
| | | | | | |
| Depreciation and amortization expense: | | | | | | |
| Domestic Coke | | $ | 126.8 | | | $ | 119.0 | | | $ | 119.1 | |
| Brazil Coke | | 0.2 | | | 0.4 | | | 0.5 | |
| Logistics | | 14.5 | | | 13.3 | | | 12.8 | |
| Corporate and Other | | 1.0 | | | 1.2 | | | 1.3 | |
| Total depreciation and amortization expense | | $ | 142.5 | | | $ | 133.9 | | | $ | 133.7 | |
| | | | | | |
| Capital expenditures: | | | | | | |
| Domestic Coke | | $ | 70.3 | | | $ | 83.1 | | | $ | 60.0 | |
| Brazil Coke | | 0.1 | | | 0.3 | | | 0.4 | |
| Logistics | | 4.5 | | | 14.7 | | | 13.5 | |
| Corporate and Other | | 0.6 | | | 0.5 | | | — | |
| Total capital expenditures | | $ | 75.5 | | | $ | 98.6 | | | $ | 73.9 | |
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | (Dollars in millions) |
| Sales and other operating revenue: | | | | | | |
| Domestic Coke | | $ | 1,195.0 |
| | $ | 1,097.6 |
| | $ | 1,244.1 |
|
| Brazil Coke | | 43.4 |
| | 39.5 |
| | 43.4 |
|
| Logistics | | 93.1 |
| | 84.7 |
| | 60.8 |
|
| Logistics intersegment sales | | 23.8 |
| | 23.2 |
| | 20.4 |
|
Corporate and Other(1) | | — |
| | 1.5 |
| | 14.4 |
|
Corporate and Other intersegment sales(1) | | — |
| | 22.0 |
| | 101.0 |
|
| Elimination of intersegment sales | | (23.8 | ) | | (45.2 | ) | | (121.4 | ) |
| Total sales and other operating revenue | | $ | 1,331.5 |
| | $ | 1,223.3 |
| | $ | 1,362.7 |
|
| | | | | | | |
| Adjusted EBITDA | | | | | | |
| Domestic Coke | | $ | 188.9 |
| | $ | 193.9 |
| | $ | 210.1 |
|
| Brazil Coke | | 18.2 |
| | 16.2 |
| | 22.4 |
|
| Logistics | | 70.8 |
| | 63.9 |
| | 38.0 |
|
Corporate and Other(2) | | (43.2 | ) | | (57.0 | ) | | (85.1 | ) |
| Total Adjusted EBITDA | | $ | 234.7 |
| | $ | 217.0 |
| | $ | 185.4 |
|
| | | | | | | |
| Depreciation and amortization expense: | | | | | | |
| Domestic Coke | | $ | 102.6 |
| | $ | 84.0 |
| | $ | 81.6 |
|
| Brazil Coke | | 0.7 |
| | 0.7 |
| | 0.6 |
|
| Logistics | | 24.4 |
| | 24.8 |
| | 14.0 |
|
| Corporate and Other | | 0.5 |
| | 4.7 |
| | 12.9 |
|
| Total depreciation and amortization expense | | $ | 128.2 |
| | $ | 114.2 |
| | $ | 109.1 |
|
| | | | | | | |
| Capital expenditures: | | | | | | |
| Domestic Coke | | $ | 68.8 |
| | $ | 44.6 |
| | $ | 67.6 |
|
| Logistics | | 4.4 |
| | 17.4 |
| | 6.0 |
|
| Corporate and Other | | 2.4 |
| | 1.7 |
| | 2.2 |
|
| Total capital expenditures | | $ | 75.6 |
| | $ | 63.7 |
| | $ | 75.8 |
|
(1) Corporate and Other revenues are related to our legacy coal mining business, which was disposed in April 2016.
(2) Corporate and Other includes the activity from our legacy coal mining business, which incurred Adjusted EBITDA lossesfoundry related research and development costs of $10.5$3.9 million $15.0 million, and $40.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.during 2020.
The following table sets forth the Company’s segment assets: | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | (Dollars in millions) |
| Segment assets: | | | | |
| Domestic Coke | | $ | 1,422.6 | | | $ | 1,370.6 | |
| Brazil Coke | | 15.7 | | | 18.0 | |
| Logistics | | 193.5 | | | 202.9 | |
| Corporate and Other | | 22.8 | | | 23.9 | |
| Total assets | | $ | 1,654.6 | | | $ | 1,615.4 | |
| | | | |
| | | | |
|
| | | | | | | | |
| | | Years Ended December 31, |
| | | 2017 | | 2016 |
| | | (Dollars in millions) |
| Segment assets | | | | |
| Domestic Coke | | $ | 1,439.7 |
| | $ | 1,495.0 |
|
| Brazil Coke | | 10.9 |
| | 32.6 |
|
| Logistics | | 491.9 |
| | 515.6 |
|
| Corporate and Other | | 112.8 |
| | 73.1 |
|
| Segment assets, excluding tax assets and assets held for sale | | 2,055.3 |
| | 2,116.3 |
|
| Tax assets | | 4.8 |
| | 4.6 |
|
| Total assets | | $ | 2,060.1 |
| | $ | 2,120.9 |
|
The following table sets forth the Company’s total sales and other operating revenue by product or service: |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Sales and other operating revenue: | | | | | |
| Cokemaking | $ | 1,140.8 |
| | $ | 1,038.2 |
| | $ | 1,182.0 |
|
| Energy | 53.2 |
| | 54.3 |
| | 61.5 |
|
| Logistics | 89.7 |
| | 82.9 |
| | 58.8 |
|
| Operating and licensing fees | 43.4 |
| | 39.5 |
| | 34.0 |
|
| Other | 4.4 |
| | 8.4 |
| | 26.4 |
|
| Sales and other operating revenue | $ | 1,331.5 |
| | $ | 1,223.3 |
| | $ | 1,362.7 |
|
The Company evaluates the performance of its segments based on segment Adjusted EBITDA, which is defined as earnings before interest, (gain) loss on extinguishment of debt, taxes, depreciation and amortization (“EBITDA”), adjusted for any impairments, coal rationalizationrestructuring costs, changes to our contingent consideration liability related to our acquisitiongains or losses on extinguishment of CMT, the expiration of certain acquired contractual obligations, and interest, taxes, depreciation and amortization and impairments attributable to our equity method investment.debt, and/or transaction costs ("Adjusted EBITDA"). 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 of thein assessing operating performance and liquidity of the Company's net assets and its ability to incur and service debt, fund capital expenditures and make distributions.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 and liquidity.performance. EBITDA and Adjusted EBITDA are not measures calculated in accordance with GAAP, and they should not be considered a substitute for net income, operating cash flow or any other measure of financial performance presented in accordance with GAAP. Set forth below is additional discussion of the limitations of Adjusted EBITDA as an analytical tool.
Limitations. OtherAdditionally, other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. Adjusted EBITDA also has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis
Reconciliation of our results as reported under GAAP. Some of these limitations include that Adjusted EBITDA:Non-GAAP Financial Measures
does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
does not reflect items such as depreciation and amortization;
does not reflect changes in, or cash requirement for, working capital needs;
does not reflect our interest expense, orBelow is the cash requirements necessary to service interest on or principal payments of our debt;
does not reflect certain other non-cash income and expenses
excludes income taxes that may represent a reduction in available cash; and
includes net income attributable to noncontrolling interests
Below are reconciliationsreconciliation of Adjusted EBITDA to net income, and Adjusted EBITDA to net cash provided by operating activities, which areis its most directly comparable financial measuresmeasure calculated and presented in accordance with GAAP: |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in millions) |
| Net cash provided by operating activities | $ | 148.5 |
| | $ | 219.1 |
| | $ | 141.1 |
|
| Subtract: | | | | | |
| Depreciation and amortization expense | 128.2 |
| | 114.2 |
| | 109.1 |
|
| Deferred income tax (benefit) expense | (87.2 | ) | | 3.1 |
| | (5.6 | ) |
| Loss (gain) on extinguishment of debt | 20.4 |
| | (25.0 | ) | | 0.5 |
|
| Loss on divestiture of business | ��� |
| | 14.7 |
| | — |
|
| Changes in working capital and other | (16.4 | ) | | 52.6 |
| | 26.8 |
|
| Net income | $ | 103.5 |
| | $ | 59.5 |
| | $ | 10.3 |
|
| Add: | | | | | |
| Depreciation and amortization expense | 128.2 |
| | 114.2 |
| | 109.1 |
|
| Interest expense, net | 60.6 |
| | 53.5 |
| | 56.2 |
|
| Loss (gain) on extinguishment of debt | 20.4 |
| | (25.0 | ) | | 0.5 |
|
| Income tax (benefit) expense | (81.6 | ) | | 8.6 |
| | (8.8 | ) |
Contingent consideration adjustments(1) | (1.7 | ) | | (10.1 | ) | | — |
|
Expiration of land deposits and write-off of costs related to potential new cokemaking facility(2) | 5.3 |
| | 1.9 |
| | — |
|
Non-cash reversal of acquired contractual obligation(3) | — |
| | (0.7 | ) | | (3.3 | ) |
| Loss on divestiture of business | — |
| | 14.7 |
| | — |
|
Coal rationalization costs(4) | — |
| | 0.4 |
| | 0.6 |
|
Adjustment to unconsolidated affiliate earnings(5) | — |
| | — |
| | 20.8 |
|
Adjusted EBITDA(6) | $ | 234.7 |
| | $ | 217.0 |
| | $ | 185.4 |
|
Subtract: Adjusted EBITDA attributable to noncontrolling interest(7) | 86.4 |
| | 86.6 |
| | 81.2 |
|
| Adjusted EBITDA attributable to SunCoke Energy, Inc. | $ | 148.3 |
| | $ | 130.4 |
| | $ | 104.2 |
|
| |
(1) | As a result of changes in the fair value of the contingent consideration liability, the Partnership recognized benefits of $1.7 million and $10.1 million during 2017 and 2016, respectively. See Note 17. |
| |
(2) | In 2014, we finalized the required permitting and engineering plan for a potential new cokemaking facility to be constructed in Kentucky. However, in June 2017, due to our focus on renewing our existing customer contracts and the lack of any long-term customer commitment for a majority of the facility's capacity, we decided to terminate the project. As a result, during 2017, the Company wrote-off previously capitalized engineering and land deposit costs of $5.3 million. During 2016, the Company wrote-off expiring land deposits related to the project of $1.9 million. |
| |
(3) | In association with the acquisition of CMT, we assumed certain performance obligations under existing contracts and recorded liabilities related to such obligations. In 2015 and 2016, the final acquired contractual performance obligations expired without the customer requiring performance. Therefore, the Partnership reversed the liabilities as we no longer have any obligations under the contracts. |
| |
(4) | Prior to the divestiture of our coal mining business, the Company incurred coal rationalization costs including employee severance, contract termination costs and other costs to idle mines during the execution of our coal rationalization plan. |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (Dollars in millions) |
| Net income attributable to SunCoke Energy, Inc. | $ | 100.7 | | | $ | 43.4 | | | $ | 3.7 | |
| Add: Net income attributable to noncontrolling interests | 4.2 | | | 5.4 | | | 5.1 | |
| Net income | $ | 104.9 | | | $ | 48.8 | | | $ | 8.8 | |
| Add: | | | | | |
| Depreciation and amortization expense | 142.5 | | | 133.9 | | | 133.7 | |
| Interest expense, net | 32.0 | | | 42.5 | | | 56.3 | |
| Loss (gain) on extinguishment of debt, net | — | | | 31.9 | | | (5.7) | |
| Income tax expense | 16.8 | | | 18.3 | | | 10.3 | |
Restructuring costs(1) | — | | | — | | | 2.5 | |
Transaction costs(2) | 1.5 | | | — | | | — | |
| Adjusted EBITDA | $ | 297.7 | | | $ | 275.4 | | | $ | 205.9 | |
Subtract: Adjusted EBITDA attributable to noncontrolling interests(3) | 8.4 | | | 9.3 | | | 9.1 | |
| Adjusted EBITDA attributable to SunCoke Energy, Inc. | $ | 289.3 | | | $ | 266.1 | | | $ | 196.8 | |
(1)Charges related to a company-wide restructuring and cost-reduction initiative.
100
| |
(5) | Reflects share of interest, taxes, depreciation and amortization related to VISA SunCoke, including impairments of our investment in VISA SunCoke of $19.4 million, which resulted in an investment balance of zero. Beginning in the fourth quarter of 2015, we no longer include the results of our share of VISA SunCoke in our consolidated financial statements. |
| |
(6) | In accordance with the SEC’s May 2016 update of its guidance on the appropriate use of non-GAAP financial measures, Adjusted EBITDA does not include Logistics deferred revenue until it is recognized as GAAP revenue. |
| |
(7) | Reflects noncontrolling interest in Indiana Harbor and the portion of the Partnership owned by public unitholders. |
19. Selected Quarterly Data (unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | First
Quarter(1) | | Second
Quarter(2) | | Third
Quarter | | Fourth
Quarter(3)(4) | | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter(4) |
| | (Dollars in millions) |
| Sales and other operating revenue | $ | 309.7 |
| | $ | 323.2 |
| | $ | 339.0 |
| | $ | 359.6 |
| | $ | 311.1 |
| | $ | 292.7 |
| | $ | 293.9 |
| | $ | 325.6 |
|
Gross profit(5) | $ | 42.0 |
| | $ | 32.7 |
| | $ | 51.2 |
| | $ | 56.6 |
| | $ | 42.4 |
| | $ | 39.7 |
| | $ | 50.7 |
| | $ | 69.8 |
|
| Net (loss) income | $ | (57.7 | ) | | $ | (31.5 | ) | | $ | 18.8 |
| | $ | 173.9 |
| | $ | 12.6 |
| | $ | 1.0 |
| | $ | 14.4 |
| | $ | 31.5 |
|
| Less: Net (loss) income attributable to noncontrolling interests | $ | (58.7 | ) | | $ | (7.3 | ) | | $ | 7.2 |
| | $ | 39.9 |
| | $ | 16.7 |
| | $ | 5.6 |
| | $ | 8.3 |
| | $ | 14.5 |
|
| Net income (loss) attributable to SunCoke Energy, Inc. | $ | 1.0 |
| | $ | (24.2 | ) | | $ | 11.6 |
| | $ | 134.0 |
| | $ | (4.1 | ) | | $ | (4.6 | ) | | $ | 6.1 |
| | $ | 17.0 |
|
| Earnings (loss) attributable to SunCoke Energy, Inc. per common share: | | | | | | | | | | | | | | | |
Basic(6) | $ | 0.02 |
| | $ | (0.38 | ) | | $ | 0.18 |
| | $ | 2.08 |
| | $ | (0.06 | ) | | $ | (0.07 | ) | | $ | 0.10 |
| | $ | 0.26 |
|
Diluted(6) | $ | 0.02 |
| | $ | (0.38 | ) | | $ | 0.18 |
| | $ | 2.05 |
| | $ | (0.06 | ) | | $ | (0.07 | ) | | $ | 0.10 |
| | $ | 0.26 |
|
| |
(1) | The first quarter of 2017 reflects the net impact to the Company’s deferred tax expense of $64.2 million related to the IRS Final Regulations on qualifying income all of which was attributable to unitholders of the Partnership. See Note 5. |
| |
(2) | During the second quarter of 2017, the Partnership incurred $20.2 million of losses in connection with debt refinancing. See Note 12. |
| |
(3) | During the fourth quarter of 2017, the Company recorded $154.7 million of tax benefits as a result of the new Tax Legislation, $125.0 million of which was attributable to the Company. See Note 5. |
| |
(4) | The Partnership recognized deferred revenue from Logistics take-or-pay billings for minimum volume shortfalls of $16.4 million and $31.5 million into revenue in the fourth quarters of 2017 and 2016 respectively. |
| |
(5) | Gross profit equals sales and other operating revenue less cost of products sold and operating expenses and depreciation and amortization. |
| |
(6) | Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share. |
20. Supplemental Condensed Combining and Consolidating Financial Information
Certain 100 percent owned subsidiaries(2)Costs incurred as part of the Company serve as guarantors of the obligations under the credit agreementgranulated pig iron project with U.S. Steel.
(3)Reflects noncontrolling interests in Indiana Harbor.
Item 9.Changes in and $44.6 million of 2019 Notes (“Guarantor Subsidiaries”). These guarantees are fullDisagreements with Accountants on Accounting and unconditional (subject, in the case of the Guarantor Subsidiaries, to customary release provisions as described below) and joint and several. For purposes of the following footnote, SunCoke Energy, Inc. is referred to as “Issuer.” The indenture dated July 26, 2011 among the Company, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., governs subsidiaries designated as “Guarantor Subsidiaries.” All other consolidated subsidiaries of the Company are collectively referred to as “Non-Guarantor Subsidiaries.”Financial Disclosure
The ability of the Partnership and Indiana Harbor to pay dividends and make loans to the Company is restricted under the partnership agreements of the Partnership and Indiana Harbor, respectively. The credit agreement governing the Partnership’s credit facility and the indenture governing the 2025 Partnership Notes contain customary provisions which would potentially restrict the Partnership’s ability to make distributions or loans to the Company under certain circumstances. For the year ended December 31, 2017, less than 25 percent of net assets were restricted. As such, all the subsidiaries described above are presented as "Non-Guarantor Subsidiaries."
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 2019 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 2019 Notes, has occurred as a result thereof;
the designation of a Guarantor Subsidiary as an "unrestricted subsidiary" in accordance with the indenture governing the 2019 Notes
the requirements for defeasance or discharge of the indentures governing the 2019 Notes having been satisfied;
the release, other than the discharge through payments by a Guarantor Subsidiary, from its guarantee under the Credit Agreement or other indebtedness that resulted in the obligation of the Guarantor Subsidiary under the indenture governing the 2019 Notes.
The following supplemental condensed combining and consolidating financial information reflects the Issuer’s separate accounts, the combined accounts of the Guarantor Subsidiaries, the combined accounts of the Non-Guarantor Subsidiaries, the combining and consolidating adjustments and eliminations and the Issuer’s consolidated accounts for the dates and periods indicated. For purposes of the following condensed combining and consolidating information, the Issuer’s investments in its subsidiaries and the Guarantor and Non-Guarantor Subsidiaries’ investments in its subsidiaries are accounted for under the equity method of accounting.
SunCoke Energy, Inc.
Condensed Consolidating Statement of Operations
Years Ended December 31, 2017
(Dollars in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Issuer | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Combining
and
Consolidating
Adjustments | | Total |
| Revenues | | | | | | | | | |
| Sales and other operating revenue | $ | — |
| | $ | 209.6 |
| | $ | 1,126.3 |
| | $ | (4.4 | ) | | $ | 1,331.5 |
|
| Equity in earnings (loss) of subsidiaries | 109.9 |
| | (54.5 | ) | | — |
| | (55.4 | ) | | — |
|
| Total revenues, net of equity in earnings of subsidiaries | 109.9 |
| | 155.1 |
| | 1,126.3 |
| | (59.8 | ) | | 1,331.5 |
|
| Costs and operating expenses | | | | | | | | | |
| Cost of products sold and operating expenses | — |
| | 157.3 |
| | 867.9 |
| | (4.4 | ) | | 1,020.8 |
|
| Selling, general and administrative expenses | 8.7 |
| | 22.6 |
| | 48.3 |
| | — |
| | 79.6 |
|
| Depreciation and amortization expenses | — |
| | 7.5 |
| | 120.7 |
| | — |
| | 128.2 |
|
| Total costs and operating expenses | 8.7 |
|
| 187.4 |
|
| 1,036.9 |
|
| (4.4 | ) |
| 1,228.6 |
|
| Operating income (loss) | 101.2 |
| | (32.3 | ) | | 89.4 |
| | (55.4 | ) | | 102.9 |
|
| Interest (income) expense, net - affiliate | — |
| | (7.5 | ) | | 7.5 |
| | — |
| | — |
|
| Interest expense (income), net | 4.9 |
| | (0.5 | ) | | 56.2 |
| | — |
| | 60.6 |
|
| Total interest expense (income), net | 4.9 |
| | (8.0 | ) | | 63.7 |
| | — |
| | 60.6 |
|
| Loss on extinguishment of debt | 0.4 |
| | — |
| | 20.0 |
| | — |
| | 20.4 |
|
| Income before income tax (benefit) expense | 95.9 |
|
| (24.3 | ) |
| 5.7 |
|
| (55.4 | ) | | 21.9 |
|
| Income tax (benefit) expense | (26.5 | ) | | (150.2 | ) | | 95.1 |
| | — |
| | (81.6 | ) |
| Net income (loss) | 122.4 |
|
| 125.9 |
|
| (89.4 | ) |
| (55.4 | ) | | 103.5 |
|
| Less: Net loss attributable to noncontrolling interests | — |
| | — |
| | (18.9 | ) | | — |
| | (18.9 | ) |
| Net income (loss) attributable to SunCoke Energy, Inc. | $ | 122.4 |
| | $ | 125.9 |
| | $ | (70.5 | ) | | $ | (55.4 | ) | | $ | 122.4 |
|
| Comprehensive income (loss) | $ | 121.3 |
| | $ | 125.3 |
| | $ | (91.0 | ) | | $ | (53.2 | ) | | $ | 102.4 |
|
| Less: Comprehensive loss attributable to noncontrolling interests | — |
| | — |
| | (18.9 | ) | | — |
| | (18.9 | ) |
| Comprehensive income (loss) attributable to SunCoke Energy, Inc. | $ | 121.3 |
| | $ | 125.3 |
| | $ | (72.1 | ) | | $ | (53.2 | ) | | $ | 121.3 |
|
SunCoke Energy, Inc.
Condensed Consolidating Statement of Operations
Years Ended December 31, 2016
(Dollars in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Issuer | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Combining
and
Consolidating
Adjustments | | Total |
| Revenues | | | | | | | | | |
| Sales and other operating revenue | $ | — |
| | $ | 176.7 |
| | $ | 1,050.5 |
| | $ | (3.9 | ) | | $ | 1,223.3 |
|
| Equity in earnings of subsidiaries | 19.7 |
| | 51.3 |
| | — |
| | (71.0 | ) | | — |
|
| Total revenues, net of equity earnings of subsidiaries | 19.7 |
| | 228.0 |
| | 1,050.5 |
| | (74.9 | ) | | 1,223.3 |
|
| Costs and operating expenses | | | | | | | | | |
| Cost of products sold and operating expenses | — |
| | 131.3 |
| | 779.1 |
| | (3.9 | ) | | 906.5 |
|
| Selling, general and administrative expenses | 12.9 |
| | 25.5 |
| | 52.9 |
| | — |
| | 91.3 |
|
| Depreciation and amortization expenses | — |
| | 9.2 |
| | 105.0 |
| | — |
| | 114.2 |
|
| Loss on divestiture of business and impairments | — |
| | — |
| | 14.7 |
| | — |
| | 14.7 |
|
| Total costs and operating expenses | 12.9 |
| | 166.0 |
| | 951.7 |
| | (3.9 | ) | | 1,126.7 |
|
| Operating income | 6.8 |
| | 62.0 |
| | 98.8 |
| | (71.0 | ) | | 96.6 |
|
| Interest (income) expense, net - affiliate | — |
| | (7.6 | ) | | 7.6 |
| | — |
| | — |
|
| Interest expense (income), net | 6.0 |
| | (0.2 | ) | | 47.7 |
| | — |
| | 53.5 |
|
| Total interest expense (income), net | 6.0 |
| | (7.8 | ) | | 55.3 |
| | — |
| | 53.5 |
|
| Gain on extinguishment of debt | — |
| | — |
| | (25.0 | ) | | — |
| | (25.0 | ) |
| Income before income tax (benefit) expense | 0.8 |
|
| 69.8 |
|
| 68.5 |
|
| (71.0 | ) | | 68.1 |
|
| Income tax (benefit) expense | (13.6 | ) | | 38.7 |
| | (16.5 | ) | | — |
| | 8.6 |
|
| Net income | 14.4 |
|
| 31.1 |
|
| 85.0 |
|
| (71.0 | ) | | 59.5 |
|
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | 45.1 |
| | — |
| | 45.1 |
|
| Net income attributable to SunCoke Energy, Inc. | $ | 14.4 |
| | $ | 31.1 |
| | $ | 39.9 |
| | $ | (71.0 | ) | | $ | 14.4 |
|
| Comprehensive income | $ | 15.2 |
| | $ | 30.8 |
| | $ | 86.1 |
| | $ | (71.8 | ) | | $ | 60.3 |
|
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | 45.1 |
| | — |
| | 45.1 |
|
| Comprehensive income attributable to SunCoke Energy, Inc. | $ | 15.2 |
| | $ | 30.8 |
| | $ | 41.0 |
| | $ | (71.8 | ) | | $ | 15.2 |
|
SunCoke Energy, Inc.
Condensed Consolidating Statement of Operations
Years Ended December 31, 2015
(Dollars in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Issuer | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Combining
and
Consolidating
Adjustments | | Total |
| Revenues | | | | | | | | | |
| Sales and other operating revenue | $ | — |
| | $ | 197.2 |
| | $ | 1,165.5 |
| | $ | — |
| | $ | 1,362.7 |
|
| Equity in (loss) earnings of subsidiaries | (8.4 | ) | | 34.4 |
| | — |
| | (26.0 | ) | | — |
|
| Total revenues, net of equity in (loss) earnings of subsidiaries | (8.4 | ) | | 231.6 |
| | 1,165.5 |
| | (26.0 | ) | | 1,362.7 |
|
| Costs and operating expenses | | | | | | | | | |
| Cost of products sold and operating expenses | — |
| | 150.2 |
| | 948.2 |
| | — |
| | 1,098.4 |
|
| Selling, general and administrative expenses | 9.5 |
| | 30.7 |
| | 35.2 |
| | — |
| | 75.4 |
|
| Depreciation and amortization expenses | — |
| | 10.4 |
| | 98.7 |
| | — |
| | 109.1 |
|
| Total costs and operating expenses | 9.5 |
| | 191.3 |
| | 1,082.1 |
| | — |
| | 1,282.9 |
|
| Operating (loss) income | (17.9 | ) | | 40.3 |
| | 83.4 |
| | (26.0 | ) | | 79.8 |
|
| Interest (income) expense, net - affiliate | — |
| | (7.3 | ) | | 7.3 |
| | — |
| | — |
|
| Interest expense (income), net | 8.3 |
| | (0.6 | ) | | 48.5 |
| | — |
| | 56.2 |
|
| Total interest expense (income), net | 8.3 |
| | (7.9 | ) | | 55.8 |
| | — |
| | 56.2 |
|
| Loss (gain) on extinguishment of debt, net | 1.2 |
| | — |
| | (0.7 | ) | | — |
| | 0.5 |
|
| (Loss) income before income tax (benefit) expense and loss from equity method investment | (27.4 | ) |
| 48.2 |
|
| 28.3 |
|
| (26.0 | ) | | 23.1 |
|
| Income tax (benefit) expense | (5.4 | ) | | 29.6 |
| | (33.0 | ) | | — |
| | (8.8 | ) |
| Loss from equity method investment | — |
| | — |
| | 21.6 |
| | — |
| | 21.6 |
|
| Net (loss) income | (22.0 | ) |
| 18.6 |
|
| 39.7 |
|
| (26.0 | ) | | 10.3 |
|
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | 32.3 |
| | — |
| | 32.3 |
|
| Net (loss) income attributable to SunCoke Energy, Inc. | $ | (22.0 | ) | | $ | 18.6 |
| | $ | 7.4 |
| | $ | (26.0 | ) | | $ | (22.0 | ) |
| Comprehensive (loss) income | $ | (20.3 | ) | | $ | 18.4 |
| | $ | 41.6 |
| | $ | (27.7 | ) | | $ | 12.0 |
|
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | 32.3 |
| | — |
| | 32.3 |
|
| Comprehensive (loss) income attributable to SunCoke Energy, Inc. | $ | (20.3 | ) | | $ | 18.4 |
| | $ | 9.3 |
| | $ | (27.7 | ) | | $ | (20.3 | ) |
SunCoke Energy, Inc.
Condensed Consolidating Balance Sheet
December 31, 2017
(Dollars in millions, except per share amounts) |
| | | | | | | | | | | | | | | | | | | | |
| | | Issuer | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Combining
and
Consolidating
Adjustments | | Total |
| Assets | | | | | | | | | | |
| Cash and cash equivalents | | $ | — |
| | $ | 103.6 |
| | $ | 16.6 |
| | $ | — |
| | $ | 120.2 |
|
| Receivables | | — |
| | 17.1 |
| | 51.4 |
| | — |
| | 68.5 |
|
| Inventories | | — |
| | 9.1 |
| | 101.9 |
| | — |
| | 111.0 |
|
| Income tax receivable | | — |
| | — |
| | 88.1 |
| | (83.3 | ) | | 4.8 |
|
| Other current assets | | — |
| | 4.6 |
| | 2.1 |
| | — |
| | 6.7 |
|
| Advances to affiliates | | — |
| | 245.8 |
| | — |
| | (245.8 | ) | | — |
|
| Total current assets | | — |
| | 380.2 |
| | 260.1 |
| | (329.1 | ) | | 311.2 |
|
| Notes receivable from affiliate | | — |
| | 89.0 |
| | 300.0 |
| | (389.0 | ) | | — |
|
| Properties, plants and equipment, net | | — |
| | 59.8 |
| | 1,441.5 |
| | — |
| | 1,501.3 |
|
| Goodwill | | — |
| | 3.4 |
| | 73.5 |
| | — |
| | 76.9 |
|
| Other intangibles assets, net | | — |
| | 1.7 |
| | 166.2 |
| | — |
| | 167.9 |
|
| Deferred income taxes | | 7.1 |
| | — |
| | — |
| | (7.1 | ) | | — |
|
| Deferred charges and other assets | | — |
| | 2.3 |
| | 0.5 |
| | — |
| | 2.8 |
|
| Investment in subsidiaries | | 632.5 |
| | 721.2 |
| | — |
| | (1,353.7 | ) | | — |
|
| Total assets | | $ | 639.6 |
| | $ | 1,257.6 |
| | $ | 2,241.8 |
| | $ | (2,078.9 | ) | | $ | 2,060.1 |
|
| Liabilities and Equity | | | | | | | | | |
|
| Advances from affiliate | | $ | 162.2 |
| | $ | — |
| | $ | 83.6 |
| | $ | (245.8 | ) | | $ | — |
|
| Accounts payable | | — |
| | 16.4 |
| | 99.1 |
| | — |
| | 115.5 |
|
| Accrued liabilities | | 1.5 |
| | 19.7 |
| | 32.0 |
| | — |
| | 53.2 |
|
| Deferred revenue | | — |
| | — |
| | 1.7 |
| | — |
| | 1.7 |
|
Current portion of financing
obligation | | — |
| | — |
| | 2.6 |
| | — |
| | 2.6 |
|
| Interest payable | | 1.4 |
| | — |
| | 4.0 |
| | — |
| | 5.4 |
|
| Income taxes payable | | 1.9 |
| | 81.4 |
| | — |
| | (83.3 | ) | | — |
|
| Total current liabilities | | 167.0 |
|
| 117.5 |
|
| 223.0 |
|
| (329.1 | ) | | 178.4 |
|
| Long term-debt and financing obligation | | 42.7 |
| | — |
| | 818.4 |
| | — |
| | 861.1 |
|
| Payable to affiliate | | — |
| | 300.0 |
| | 89.0 |
| | (389.0 | ) | | — |
|
| Accrual for black lung benefits | | — |
| | 11.8 |
| | 33.1 |
| | — |
| | 44.9 |
|
| Retirement benefit liabilities | | — |
| | 13.7 |
| | 14.5 |
| | — |
| | 28.2 |
|
| Deferred income taxes | | — |
| | 193.8 |
| | 71.1 |
| | (7.1 | ) | | 257.8 |
|
| Asset retirement obligations | | — |
| | — |
| | 14.0 |
| | — |
| | 14.0 |
|
| Other deferred credits and liabilities | | 3.7 |
| | 6.4 |
| | 6.0 |
| | — |
| | 16.1 |
|
| Total liabilities | | 213.4 |
|
| 643.2 |
|
| 1,269.1 |
|
| (725.2 | ) | | 1,400.5 |
|
| Equity | | | | | | | | | | |
Preferred stock, $0.01 par value. Authorized 50,000,000
shares; no issued and outstanding shares at
December 31, 2017 | | — |
| | — |
| | — |
| | — |
| | — |
|
Common stock, $0.01 par value. Authorized
300,000,000 shares; issued 72,006,905 shares at
December 31, 2017 | | 0.7 |
| | — |
| | — |
| | — |
| | 0.7 |
|
| Treasury stock, 7,477,657 shares at December 31, 2017 | | (140.7 | ) | | — |
| | — |
| |
|
| | (140.7 | ) |
| Additional paid-in capital | | 486.2 |
| | 141.0 |
| | 641.9 |
| | (782.9 | ) | | 486.2 |
|
| Accumulated other comprehensive loss | | (20.1 | ) | | (2.2 | ) | | (17.9 | ) | | 20.1 |
| | (20.1 | ) |
| Retained earnings | | 100.1 |
| | 475.6 |
| | 115.3 |
| | (590.9 | ) | | 100.1 |
|
| Total SunCoke Energy, Inc. stockholders’ equity | | 426.2 |
| | 614.4 |
| | 739.3 |
| | (1,353.7 | ) | | 426.2 |
|
| Noncontrolling interests | | — |
| | — |
| | 233.4 |
| | — |
| | 233.4 |
|
| Total equity | | 426.2 |
| | 614.4 |
| | 972.7 |
| | (1,353.7 | ) | | 659.6 |
|
| Total liabilities and equity | | $ | 639.6 |
| | $ | 1,257.6 |
| | $ | 2,241.8 |
| | $ | (2,078.9 | ) | | $ | 2,060.1 |
|
SunCoke Energy, Inc.
Condensed Consolidating Balance Sheet
December 31, 2016
(Dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | |
| | | Issuer | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Combining
and
Consolidating
Adjustments | | Total |
| Assets | | | | | | | | | | |
| Cash and cash equivalents | | $ | — |
| | $ | 59.7 |
| | $ | 74.3 |
| | $ | — |
| | $ | 134.0 |
|
| Receivables | | — |
| | 12.2 |
| | 48.5 |
| | — |
| | 60.7 |
|
| Receivable from redemption of investment in Brazil | | — |
| | — |
| | 20.5 |
| | — |
| | 20.5 |
|
| Inventories | | — |
| | 9.0 |
| | 83.5 |
| | — |
| | 92.5 |
|
| Income taxes receivable | | 17.8 |
| | — |
| | 74.3 |
| | (87.5 | ) | | 4.6 |
|
| Other current assets | | 0.2 |
| | 1.8 |
| | 1.8 |
| | — |
| | 3.8 |
|
| Advances to affiliate | | — |
| | 282.2 |
| | — |
| | (282.2 | ) | | — |
|
| Total current assets | | 18.0 |
|
| 364.9 |
|
| 302.9 |
|
| (369.7 | ) | | 316.1 |
|
| Notes receivable from affiliate | | — |
| | 89.0 |
| | 300.0 |
| | (389.0 | ) | | — |
|
| Properties, plants and equipment, net | | — |
| | 62.8 |
| | 1,479.8 |
| | — |
| | 1,542.6 |
|
| Goodwill | | — |
| | 3.4 |
| | 73.5 |
| | — |
| | 76.9 |
|
| Other intangible assets, net | | — |
| | 2.3 |
| | 176.7 |
| | — |
| | 179.0 |
|
| Deferred charges and other assets | | — |
| | 5.1 |
| | 1.2 |
| | — |
| | 6.3 |
|
| Investment in subsidiaries | | 542.7 |
| | 688.2 |
| | — |
| | (1,230.9 | ) | | — |
|
| Total assets | | $ | 560.7 |
| | $ | 1,215.7 |
| | $ | 2,334.1 |
| | $ | (1,989.6 | ) | | $ | 2,120.9 |
|
| Liabilities and Equity | | | | | | | | | | |
| Advances from affiliate | | $ | 184.2 |
| | $ | — |
| | $ | 98.0 |
| | $ | (282.2 | ) | | $ | — |
|
| Accounts payable | | — |
| | 13.6 |
| | 85.0 |
| | — |
| | 98.6 |
|
| Accrued liabilities | | 1.7 |
| | 20.5 |
| | 27.6 |
| | — |
| | 49.8 |
|
| Deferred Revenue | | — |
| | — |
| | 2.5 |
| | — |
| | 2.5 |
|
| Current portion of long-term debt and financing obligation | | — |
| | — |
| | 4.9 |
| | — |
| | 4.9 |
|
| Interest payable | | 1.5 |
| | — |
| | 14.7 |
| | — |
| | 16.2 |
|
| Income taxes payable | | — |
| | 87.5 |
| | — |
| | (87.5 | ) | | — |
|
| Total current liabilities | | 187.4 |
|
| 121.6 |
|
| 232.7 |
|
| (369.7 | ) | | 172.0 |
|
| Long-term debt and financing obligation | | 43.5 |
| | — |
| | 805.7 |
| | — |
| | 849.2 |
|
| Payable to affiliate | | — |
| | 300.0 |
| | 89.0 |
| | (389.0 | ) | | — |
|
| Accrual for black lung benefits | | — |
| | 12.3 |
| | 33.1 |
| | — |
| | 45.4 |
|
| Retirement benefit liabilities | | — |
| | 14.1 |
| | 14.9 |
| | — |
| | 29.0 |
|
| Deferred income taxes | | 15.9 |
| | 371.0 |
| | (34.4 | ) | | — |
| | 352.5 |
|
| Asset retirement obligations | | — |
| | — |
| | 13.9 |
| | — |
| | 13.9 |
|
| Other deferred credits and liabilities | | 2.8 |
| | 6.4 |
| | 9.8 |
| | — |
| | 19.0 |
|
| Total liabilities | | 249.6 |
|
| 825.4 |
|
| 1,164.7 |
|
| (758.7 | ) |
| 1,481.0 |
|
| Equity | | | | | | | | | | |
| Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no issued and outstanding shares at December 31, 2016 | | — |
| | — |
| | — |
| | — |
| | — |
|
| Common stock, $0.01 par value. Authorized 300,000,000 shares; issued 71,707,304 shares at December 31, 2016 | | 0.7 |
| | — |
| | — |
| | — |
| | 0.7 |
|
Treasury stock, 7,477,657 shares at
December 31, 2016 | | (140.7 | ) | | — |
| | — |
| | — |
| | (140.7 | ) |
| Additional paid-in capital | | 492.1 |
| | 42.1 |
| | 672.2 |
| | (714.3 | ) | | 492.1 |
|
| Accumulated other comprehensive loss | | (19.0 | ) | | (1.6 | ) | | (17.4 | ) | | 19.0 |
| | (19.0 | ) |
| Retained (deficit) earnings | | (22.0 | ) | | 349.8 |
| | 185.8 |
| | (535.6 | ) | | (22.0 | ) |
| Total SunCoke Energy, Inc. stockholders’ equity | | 311.1 |
| | 390.3 |
| | 840.6 |
| | (1,230.9 | ) | | 311.1 |
|
| Noncontrolling interests | | — |
| | — |
| | 328.8 |
| | — |
| | 328.8 |
|
| Total equity | | 311.1 |
| | 390.3 |
| | 1,169.4 |
| | (1,230.9 | ) | | 639.9 |
|
| Total liabilities and equity | | $ | 560.7 |
| | $ | 1,215.7 |
| | $ | 2,334.1 |
| | $ | (1,989.6 | ) | | $ | 2,120.9 |
|
SunCoke Energy, Inc.
Condensed Consolidating Statement of Cash Flows
Years Ended December 31, 2017
(Dollars in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Issuer | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Combining
and
Consolidating
Adjustments | | Total |
| Cash Flows from Operating Activities: | | | | | | | | | |
| Net income (loss) | $ | 122.4 |
| | $ | 125.9 |
| | $ | (89.4 | ) | | $ | (55.4 | ) | | $ | 103.5 |
|
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | | | | | | | | | |
| Depreciation and amortization expense | — |
| | 7.5 |
| | 120.7 |
| | — |
| | 128.2 |
|
| Deferred income tax expense (benefit) | (22.8 | ) | | (170.1 | ) | | 105.7 |
| | — |
| | (87.2 | ) |
| Gain on curtailment and payments in excess of expense for postretirement plan benefits | — |
| | (1.0 | ) | | (0.8 | ) | | — |
| | (1.8 | ) |
| Share-based compensation expense | 4.7 |
| | — |
| | 0.1 |
| | — |
| | 4.8 |
|
| Equity in (earnings) loss of subsidiaries | (109.9 | ) | | 54.5 |
| | — |
| | 55.4 |
| | — |
|
| Loss on extinguishment of debt | 0.4 |
| | — |
| | 20.0 |
| | — |
| | 20.4 |
|
| Changes in working capital pertaining to operating activities: | | | | | | | | | |
| Receivables | — |
| | (4.9 | ) | | (2.9 | ) | | — |
| | (7.8 | ) |
| Inventories | — |
| | (0.1 | ) | | (18.4 | ) | | — |
| | (18.5 | ) |
| Accounts payable | — |
| | 3.0 |
| | 8.7 |
| | — |
| | 11.7 |
|
| Accrued liabilities | (0.2 | ) | | (1.3 | ) | | 4.1 |
| | — |
| | 2.6 |
|
| Deferred revenue | — |
| | — |
| | (0.8 | ) | | — |
| | (0.8 | ) |
| Interest payable | (0.1 | ) | | — |
| | (10.7 | ) | | — |
| | (10.8 | ) |
| Income taxes | (2.7 | ) | | 16.3 |
| | (13.8 | ) | | — |
| | (0.2 | ) |
| Other | 1.3 |
| | — |
| | 3.1 |
| | — |
| | 4.4 |
|
| Net cash (used in) provided by operating activities | (6.9 | ) | | 29.8 |
| | 125.6 |
| | — |
| | 148.5 |
|
| Cash Flows from Investing Activities: | | | | | | | | | |
| Capital expenditures | — |
| | (4.1 | ) | | (71.5 | ) | | — |
| | (75.6 | ) |
| Decrease in restricted cash | — |
| | — |
| | 0.5 |
| | — |
| | 0.5 |
|
| Return of Brazilian investment | — |
| | — |
| | 20.5 |
| | — |
| | 20.5 |
|
| Net cash used in investing activities | — |
| | (4.1 | ) | | (50.5 | ) | | — |
| | (54.6 | ) |
| Cash Flows from Financing Activities: | | | | | | | | | |
| Proceeds from issuance of long-term debt | — |
| | — |
| | 693.7 |
| | — |
| | 693.7 |
|
| Repayment of long-term debt | — |
| | — |
| | (644.9 | ) | | — |
| | (644.9 | ) |
| Debt issuance costs | (1.6 | ) | | — |
| | (15.8 | ) | | — |
| | (17.4 | ) |
| Proceeds from revolving facility | — |
| | — |
| | 350.0 |
| | — |
| | 350.0 |
|
| Repayment of revolving facility | — |
| | — |
| | (392.0 | ) | | — |
| | (392.0 | ) |
| Repayment of financing obligation | — |
| | — |
| | (2.5 | ) | | — |
| | (2.5 | ) |
| Cash distributions to noncontrolling interests | — |
| | — |
| | (47.0 | ) | | — |
| | (47.0 | ) |
| Acquisition of additional interest in the Partnership | — |
| | (48.7 | ) | | — |
| | — |
| | (48.7 | ) |
| Other financing activities | 1.1 |
| | — |
| | — |
| | — |
| | 1.1 |
|
| Net increase (decrease) in advances from affiliate | 7.4 |
| | 66.9 |
| | (74.3 | ) | | — |
| | — |
|
| Net cash provided by (used in) financing activities | 6.9 |
| | 18.2 |
| | (132.8 | ) | | — |
| | (107.7 | ) |
| Net increase (decrease) in cash and cash equivalents | — |
| | 43.9 |
| | (57.7 | ) | | — |
| | (13.8 | ) |
| Cash and cash equivalents at beginning of year | — |
| | 59.7 |
| | 74.3 |
| | — |
| | 134.0 |
|
| Cash and cash equivalents at end of year | $ | — |
| | $ | 103.6 |
| | $ | 16.6 |
| | $ | — |
| | $ | 120.2 |
|
SunCoke Energy, Inc.
Condensed Consolidating Statement of Cash Flows
Years Ended December 31, 2016
|
| | | | | | | | | | | | | | | | | | | | |
| | | Issuer | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Combining
and
Consolidating
Adjustments | | Total |
| Cash Flows from Operating Activities: | | | | | | | | | | |
| Net income | | $ | 14.4 |
| | $ | 31.1 |
| �� | $ | 85.0 |
| | $ | (71.0 | ) | | $ | 59.5 |
|
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | | | | | | | | |
| Depreciation and amortization expense | | — |
| | 9.2 |
| | 105.0 |
| | — |
| | 114.2 |
|
| Deferred income tax (benefit) expense | | (16.6 | ) | | 8.7 |
| | 11.0 |
| | — |
| | 3.1 |
|
| Gain on curtailment and payments in excess of expense for postretirement plan benefits | | — |
| | (1.5 | ) | | (1.1 | ) | | — |
| | (2.6 | ) |
| Share-based compensation expense | | 6.5 |
| | — |
| | — |
| | — |
| | 6.5 |
|
| Equity in earnings of subsidiaries | | (19.7 | ) | | (51.3 | ) | | — |
| | 71.0 |
| | — |
|
| Gain on extinguishment of debt | | — |
| | — |
| | (25.0 | ) | | — |
| | (25.0 | ) |
| Loss on divestiture of business and impairments | | — |
| | — |
| | 14.7 |
| | — |
| | 14.7 |
|
| Changes in working capital pertaining to operating activities (net of the effects of divestiture): | | | | | | | | | | |
| Receivables | | — |
| | (4.3 | ) | | 8.0 |
| | — |
| | 3.7 |
|
| Inventories | | — |
| | (3.7 | ) | | 33.1 |
| | — |
| | 29.4 |
|
| Accounts payable | | — |
| | 4.6 |
| | (5.4 | ) | | — |
| | (0.8 | ) |
| Accrued liabilities | | 1.5 |
| | 4.8 |
| | 0.5 |
| | — |
| | 6.8 |
|
| Deferred revenue | | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
|
| Interest payable | | 0.1 |
| | — |
| | (2.8 | ) | | — |
| | (2.7 | ) |
| Income taxes | | (6.9 | ) | | 28.2 |
| | (14.3 | ) | | — |
| | 7.0 |
|
| Other | | 2.5 |
| | 8.9 |
| | (6.5 | ) | | — |
| | 4.9 |
|
| Net cash (used in) provided by operating activities | | (18.2 | ) | | 34.7 |
| | 202.6 |
| | — |
| | 219.1 |
|
| Cash Flows from Investing Activities: | | | | | | | | | | |
| Capital expenditures | | — |
| | (5.7 | ) | | (58.0 | ) | | — |
| | (63.7 | ) |
| Decrease in restricted cash | | — |
| | — |
| | 17.7 |
| | — |
| | 17.7 |
|
| Return of Brazilian investment | | — |
| | — |
| | 20.5 |
| | — |
| | 20.5 |
|
| Divestiture of coal business | | — |
| | — |
| | (12.8 | ) | | — |
| | (12.8 | ) |
| Other investing activities | | — |
| | — |
| | 2.1 |
| | — |
| | 2.1 |
|
| Net cash used in investing activities | | — |
| | (5.7 | ) | | (30.5 | ) | | — |
| | (36.2 | ) |
| Cash Flows from Financing Activities: | | | | | | | | | | |
| Repayment of long-term debt | | — |
| | — |
| | (66.1 | ) | | — |
| | (66.1 | ) |
| Debt issuance costs | | — |
| | — |
| | (0.2 | ) | | — |
| | (0.2 | ) |
| Proceeds from revolving facility | | — |
| | — |
| | 28.0 |
| | — |
| | 28.0 |
|
| Repayment of revolving facility | | (60.4 | ) | | — |
| | (38.0 | ) | | — |
| | (98.4 | ) |
| Proceeds from financing obligation | | — |
| | — |
| | 16.2 |
| | — |
| | 16.2 |
|
| Repayment of financing obligation | | — |
| | — |
| | (1.0 | ) | | — |
| | (1.0 | ) |
| Cash distributions to noncontrolling interests | | — |
| | — |
| | (49.4 | ) | | — |
| | (49.4 | ) |
| Other financing activities | | (0.3 | ) | | (1.1 | ) | | — |
| | — |
| | (1.4 | ) |
| Net increase (decrease) in advances from affiliate | | 78.9 |
| | (38.8 | ) | | (40.1 | ) | | — |
| | — |
|
| Net cash provided by (used in) financing activities | | 18.2 |
| | (39.9 | ) | | (150.6 | ) | | — |
| | (172.3 | ) |
| Net (decrease) increase in cash and cash equivalents | | — |
| | (10.9 | ) | | 21.5 |
| | — |
| | 10.6 |
|
| Cash and cash equivalents at beginning of year | | — |
| | 70.6 |
| | 52.8 |
| | — |
| | 123.4 |
|
| Cash and cash equivalents at end of year | | $ | — |
| | $ | 59.7 |
| | $ | 74.3 |
| | $ | — |
| | $ | 134.0 |
|
SunCoke Energy, Inc.
Condensed Consolidating Statement of Cash Flows
December 31, 2015
|
| | | | | | | | | | | | | | | | | | | | |
| | | Issuer | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Combining
and
Consolidating
Adjustments | | Total |
| Cash Flows from Operating Activities: | | | | | | | | | | |
| Net (loss) income | | $ | (22.0 | ) | | $ | 18.6 |
| | $ | 39.7 |
| | $ | (26.0 | ) | | $ | 10.3 |
|
| Adjustments to reconcile net income to net cash (used in) provided by continuing operating activities: | | | | | | | | | | |
| Depreciation and amortization expense | | — |
| | 10.4 |
| | 98.7 |
| | — |
| | 109.1 |
|
| Deferred income tax (benefit) expense | | (20.7 | ) | | 14.9 |
| | 0.2 |
| | — |
| | (5.6 | ) |
| Gain on curtailment and payments in excess of expense for postretirement plan benefits | | — |
| | (1.6 | ) | | (6.4 | ) | | — |
| | (8.0 | ) |
| Settlement loss and payments in excess of expense for pension plan | | — |
| | — |
| | 13.1 |
| | — |
| | 13.1 |
|
| Share-based compensation expense | | 7.2 |
| | — |
| | — |
| | — |
| | 7.2 |
|
| Equity in loss (earnings) of subsidiaries | | 8.4 |
| | (34.4 | ) | | — |
| | 26.0 |
| | — |
|
| Loss from equity method investment | | — |
| | — |
| | 21.6 |
| | — |
| | 21.6 |
|
| Loss (gain) on extinguishment of debt, net | | 1.2 |
| | — |
| | (0.7 | ) | | — |
| | 0.5 |
|
| Changes in working capital pertaining to operating activities (net of acquisitions): | | | | | | | | | | |
| Receivables | | 0.1 |
| | 9.4 |
| | 9.3 |
| | — |
| | 18.8 |
|
| Inventories | | — |
| | (1.3 | ) | | 24.5 |
| | — |
| | 23.2 |
|
| Accounts payable | | — |
| | (3.2 | ) | | (14.7 | ) | | — |
| | (17.9 | ) |
| Accrued liabilities | | (0.2 | ) | | (2.3 | ) | | (21.8 | ) | | — |
| | (24.3 | ) |
| Deferred revenue | | — |
| | — |
| | (4.4 | ) | | — |
| | (4.4 | ) |
| Interest payable | | (6.1 | ) | | — |
| | 5.1 |
| | — |
| | (1.0 | ) |
| Income taxes | | 17.1 |
| | 23.2 |
| | (45.9 | ) | | — |
| | (5.6 | ) |
| Other | | (0.9 | ) | | 1.5 |
| | 3.5 |
| | — |
| | 4.1 |
|
| Net cash (used in) provided by operating activities | | (15.9 | ) | | 35.2 |
| | 121.8 |
| | — |
| | 141.1 |
|
| Cash Flows from Investing Activities: | | | | | | | | | | |
| Capital expenditures | | — |
| | (11.8 | ) | | (64.0 | ) | | — |
| | (75.8 | ) |
| Acquisition of business, net of cash acquired | | — |
| | — |
| | (191.7 | ) | | — |
| | (191.7 | ) |
| Increase in restricted cash | | — |
| | — |
| | (17.7 | ) | | — |
| | (17.7 | ) |
| Net cash used in investing activities | | — |
| | (11.8 | ) | | (273.4 | ) | | — |
| | (285.2 | ) |
| Cash Flows from Financing Activities: | | | | | | | | | | |
| Proceeds from issuance of long-term debt | | — |
| | — |
| | 260.8 |
| | — |
| | 260.8 |
|
| Repayment of long-term debt | | (16.8 | ) | | — |
| | (231.3 | ) | | — |
| | (248.1 | ) |
| Debt issuance costs | | (0.4 | ) | | — |
| | (5.3 | ) | | — |
| | (5.7 | ) |
| Proceeds from revolving facility | | 60.4 |
| | — |
| | 232.0 |
| | — |
| | 292.4 |
|
| Repayment of revolving facility | | — |
| | — |
| | (50.0 | ) | | — |
| | (50.0 | ) |
| Cash distributions to noncontrolling interests | | — |
| | — |
| | (43.3 | ) | | — |
| | (43.3 | ) |
| Dividends paid | | (28.0 | ) | | — |
| | — |
| | — |
| | (28.0 | ) |
| Shares repurchased | | (35.7 | ) | | — |
| | — |
| | — |
| | (35.7 | ) |
| SunCoke Energy Partners, L.P. units repurchased | | — |
| | — |
| | (12.8 | ) | | — |
| | (12.8 | ) |
| Other financing activities | | (1.1 | ) | | — |
| | — |
| | — |
| | (1.1 | ) |
| Net increase (decrease) in advances from affiliate | | 37.5 |
| | (55.1 | ) | | 17.6 |
| | — |
| | — |
|
| Net cash provided by (used in) financing activities | | 15.9 |
| | (55.1 | ) | | 167.7 |
| | — |
| | 128.5 |
|
| Net (decrease) increase in cash and cash equivalents | | — |
| | (31.7 | ) | | 16.1 |
| | — |
| | (15.6 | ) |
| Cash and cash equivalents at beginning of year | | — |
| | 102.3 |
| | 36.7 |
| | — |
| | 139.0 |
|
| Cash and cash equivalents at end of year | | $ | — |
| | $ | 70.6 |
| | $ | 52.8 |
| | $ | — |
| | $ | 123.4 |
|
| |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| |
Item 9A. | Controls and Procedures |
Item 9A.Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officerChief Executive Officer and principal financial officer,Chief Financial Officer, is responsible for evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officerChief Executive Officer and principal financial officer,Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officerChief Executive Officer and principal financial officerChief Financial Officer concluded
that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management, with the participation of our principal executive officerChief Executive Officer and principal financial officer,Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined under Exchange Act Rule 13a-15(f). Our internal control system was designed to provide reasonable assurance to management regarding the preparation and fair presentation of published financial statements.
In evaluating the effectiveness of our internal control over financial reporting as of December 31, 2017,2022, management used the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control -Integrated Framework (2013). Based on such evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2017.2022.
Our management, including our principal executive officerChief Executive Officer and principal financial officer,Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors, and instances of fraud, if any, within our company have been or will be prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks that internal controls may become inadequate as a result of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.
KPMG LLP, ourOur independent registered public accounting firm KPMG LLP, issued an attestation report on our internal control over financial reporting, which is contained in Item 8, “Financial Statements and Supplementary Data.”
Changes in Internal Control over Financial Reporting
There was no change in ourthe Company’s internal control over financial reporting that occurred during the yearquarter ended December 31, 20172022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
|
| |
Item 9B. | Other Information |
Item 9B.Other InformationNone.
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
111
PART III
| |
Item 10. | Directors, Executive Officers and Corporate Governance |
Item 10.Directors, Executive Officers and Corporate Governance
The information called forrequired to be disclosed by this Item 10 required by Item 401 of Regulation S-K relating to Directors and Nominees for election to the Board of Directorsitem is incorporated herein by reference to the section entitled “Proposal 1- Election of Directors” in our definitive Proxy Statementproxy statement for our 2017the 2023 Annual Meeting of the Stockholders (the "2023 Proxy Statement"), which we expect to be held on May 3, 2018 (the “Proxy Statement”). Information called for by this file with the SEC within 120 days of the end of our fiscal year ended December 31, 2022.
Item 10 required by Item 401 of Regulation S-K concerning the Company’s executive officers appears in Part I of this Annual Report on Form 10-K.11.Executive Compensation
The information called forrequired to be disclosed by this Item 10 required by Item 405 of Regulation S-Kitem is incorporated herein by reference to our 2023 Proxy Statement, which we expect to file with the section entitled “Section 16(a)SEC within 120 days of the end of our fiscal year ended December 31, 2022.
Item 12.Security Ownership of Certain Beneficial Ownership Reporting Compliance” under the heading “Other Information,” in the Proxy Statement.Owners and Management and Related Stockholder Matters
The information called forrequired to be disclosed by this Item 10 required by Item 406 of Regulation S-Kitem is incorporated herein by reference to our 2023 Proxy Statement, which we expect to file with the section entitled “CodeSEC within 120 days of Business Conductthe end of our fiscal year ended December 31, 2022.
Item 13.Certain Relationships and Ethics” under the heading “Corporate Governance” in the Proxy Statement.Related Transactions, and Director Independence
The information called forrequired to be disclosed by this Item 10 required by Item 407(c)(3) of Regulation S-Kitem is incorporated herein by reference to our 2023 Proxy Statement, which we expect to file with the section entitled “Governance Committee Process for Director Nominations�� underSEC within 120 days of the heading “Corporate Governance” in the Proxy Statement.end of our fiscal year ended December 31, 2022.
Item 14.Principal Accounting Fees and Services
Our independent registered accounting firm is KPMG LLP, Chicago, IL, Auditor Firm ID: 185.
The information called forrequired to be disclosed by this Item 10 required by Items 407(d)(4) and 407(d)(5) of Regulation S-Kitem is incorporated herein by reference to our 2023 Proxy Statement, which we expect to file with the information under the heading entitled “The Board of Directors and its Committees” and in the section entitled “Audit Committee Report” under the heading entitled “Audit Committee Matters,” in the Proxy Statement.
| |
Item 11.
| Executive Compensation |
The information called for by this Item 11 required by Item 402 of Regulation S-K is incorporated herein by reference to the sectionsSEC within 120 days of the Proxy Statement appearing under the heading “Executive Compensation,” including the sections entitled “Compensation Discussion and Analysis,” “Summary Compensation Table,” “Grantsend of Plan-Based Awards Table,” “Outstanding Equity Awards at Fiscal Year-End Table,” “Option Exercises and Stock Vested Table,” “Pension Benefits,” “Nonqualified Deferred Compensation” and “Potential Payments Upon Termination or Change in Control,” and the sections of the Proxy Statement appearing under the heading “Directors Compensation.”
The information called for by this Item 11 required by Items 407(e)(4) and 407(e)(5) of Regulation S-K is incorporated herein by reference to the sections of the Proxy Statement appearing under the heading “Executive Compensation,” including the sections entitled “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation.”
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information called for by this Item 12 required by Item 201(d) of Regulation S-K is incorporated herein by reference to the section of the Proxy Statement entitled “Equity Compensation Plan Information,” appearing under the heading “Other Information.”
The information called for by this Item 12 required by Item 403 of Regulation S-K is incorporated herein by reference to the sections of the Proxy Statement appearing under the heading “Beneficial Stock Ownership of Directors, Executive Officers and Persons Owning More Than Five Percent of Common Stock.”
| |
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Arrangements Between SunCoke Energy and the Partnership
In the first half of 2016, SunCoke took certain actions to support the Partnership's strategy to de-lever its balance sheet and maintain a solid liquidity position. During the first quarter of 2016, SunCoke provided a "reimbursement holiday" on the $7.0 million of corporate costs allocated to the Partnership and also returned its $1.4 million IDR cash distribution to the Partnership ("IDR giveback"), resulting in capital contributions of $8.4 million. During the second quarter of 2016, SunCoke provided the Partnership with deferred payment terms until April 2017 on the reimbursement of the $6.9 million of allocated corporate costs to the Partnership and the $1.4 million IDR cash distribution, resulting in an outstanding payable to SunCoke of $8.3 million included in payable to affiliate, net on the Consolidated Balance Sheets as ofour fiscal year ended December 31, 2016. During 2017, the Partnership paid the amounts due to SunCoke.
2022.
112
Omnibus Agreement
The omnibus agreement with SunCoke and the Partnership's general partner addresses certain aspects of our relationship, including:
Business Opportunities. The Partnership has a preferential right to invest in, acquire and construct cokemaking facilities in the U.S. and Canada. SunCoke has a preferential right to all other business opportunities. If the Partnership decides not to pursue an opportunity to construct a new cokemaking facility and SunCoke or any of its controlled affiliates undertake such construction, then upon completion of such construction, the Partnership will have the option to acquire such facility at a price sufficient to give SunCoke an internal rate of return on its invested capital equal to the sum of SunCoke’s weighted average cost of capital (as determined in good faith by SunCoke) and 6.0 percent. If the Partnership decides not to pursue an opportunity to invest in or acquire a cokemaking facility, SunCoke or any of its controlled affiliates may undertake such an investment or acquisition and if such acquisition is completed by SunCoke, the cokemaking facility so acquired will be subject to the right of first offer described below. If a business opportunity includes cokemaking facilities but such facilities represent a minority of the value of such business opportunity as determined by SunCoke in good faith, SunCoke will have a preferential right as to such business opportunity. These agreements as to business opportunities shall apply only so long as SunCoke controls the Partnership, and shall not apply with respect to any business opportunity SunCoke or any of its controlled affiliates was actively pursuing at the time of the closing of the Partnership's initial public offering on January 24, 2013 ("IPO").
Right of First Offer. If SunCoke or any of its controlled affiliates decides to sell, convey or otherwise transfer to a third-party a cokemaking facility located in the U.S. or Canada or an interest therein, the Partnership shall have a right of first offer as to such facility. SunCoke shall have the same right of first offer if the Partnership decides to sell, convey or otherwise transfer to a third-party any cokemaking facility or an interest therein. In the event a party decides to sell, convey or otherwise transfer a cokemaking facility, it will offer the other party, referred to as the ROFO Party, such facility with a proposed price for such assets. If the ROFO Party does not exercise its right, the seller shall have the right to complete the proposed transaction, on terms not materially more favorable to the buyer than the last written offer proposed during negotiations with the ROFO Party, with a third-party within 270 days. If the seller fails to complete such a transaction within 270 days, then the right of first offer is reinstated. This right of first offer shall apply only so long as SunCoke controls the Partnership.
Indemnity.SunCoke will indemnify the Partnership with respect to remediation arising from any environmental matter discovered and identified as requiring remediation prior to the contribution by SunCoke to the Partnership of an interest in the Haverhill, Middletown and Granite City (Gateway) cokemaking facilities, except for any liability or increase in liability resulting from changes in environmental regulations; provided, however, that, in each case, SunCoke will be deemed to have contributed in satisfaction of this obligation, as of the effective date of the contribution of an interest in these cokemaking facilities, the amount identified in the applicable contribution agreement as being reserved to pre-fund existing environmental remediation projects.
Post-closing. The Partnership will indemnify SunCoke for events relating to the Partnership's operations except to the extent that it is entitled to indemnification by SunCoke.
Tax Matters. SunCoke will fully indemnify the Partnership with respect to any tax liability arising prior to or in connection with the closing of its IPO.
Real Property. SunCoke will either cure or fully indemnify the Partnership for losses resulting from any material title defects at the properties owned by the entities in which the Partnership has acquired an interest from SunCoke, to the extent that such defects interfere with, or reasonably could be expected to interfere with, the operations of the related cokemaking facilities.
License. SunCoke has granted the Partnership a royalty-free license to use the name “SunCoke” and related marks. Additionally, SunCoke will grant the Partnership a non-exclusive right to use all of SunCoke’s current and future cokemaking and related technology. The Partnership has not paid and will not pay a separate license fee for the rights it receives under the license.
Expenses and Reimbursement. SunCoke will continue to provide the Partnership with certain general and administrative services, and the Partnership will reimburse SunCoke for all direct costs and expenses incurred on the Partnership's behalf and the portion of SunCoke’s corporate and other costs and expenses attributable to the Partnership's operations. Additionally, the Partnership has agreed to pay all fees (i) due under its revolving credit facility and/or existing senior notes; and (iii) in connection with any future financing arrangement entered into for the purpose of amending, modifying, or replacing its revolving credit facility or its senior notes.
The omnibus agreement can be amended by written agreement of all parties to the agreement. However, the Partnership may not agree to any amendment or modification that would, in the reasonable discretion of its general partner, be adverse in any material respect to the holders of its common units without prior approval of the conflicts committee. So long as SunCoke controls the Partnership's general partner, the omnibus agreement will remain in full force and effect unless mutually terminated by the parties. If SunCoke ceases to control the Partnership's general partner, the omnibus agreement will terminate, provided (i) the indemnification obligations described above and (ii) the Partnership's non-exclusive right to use all of SunCoke’s existing cokemaking and related technology will remain in full force and effect in accordance with their terms.
Additional information called for by this Item 13 required by Item 404 of Regulation S-K is incorporated herein by reference to the sections of the Proxy Statement entitled “Transactions with Related Persons” under the heading “Governance Matters.”
| |
Item 14. | Principal Accounting Fees and Services |
The information called for by this Item 14 required by Item 9(e) of Schedule 14A is incorporated herein by reference to the sections of the Proxy Statement appearing under the heading “Audit Committee Matters.”
The information called for by this Item 14 required by Item 407(a) of Regulation S-K is incorporated herein by reference to the section of the Proxy Statement entitled “Corporate Governance,” under the heading “Director Independence.”
PART IV
Item 15.Exhibits and Financial Statement Schedules
| |
Item 15.
| Exhibits, Financial Statement Schedules |
|
| | | |
| (a)The following documents are filed as a part of this report: |
| 1.1 | Consolidated Financial Statements: The consolidated financial statements are set forth under Item 8 of this report. |
| 2.2 | Financial Statements Schedules: Financial statement schedules are omitted because required information is shown elsewhere in this report, is not necessary or is not applicable. |
| 3.3 | Exhibits: |
2.1 | | |
| | |
| | |
| 2.1 | | Contribution Agreement and Plan of Merger dated January 12, 2015,as of February 4, 2019 by and among SunCoal & SunCoke Energy, Inc., SC Energy Acquisition LLC, SunCoke Energy Partners, L.P., and SunCoke Energy Inc. and agreed to for purposes of Section 2.9 thereof by Gateway Energy & Coke Company, LLCPartners GP LLC. (incorporated by reference herein to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed on January 13, 2015,February 5, 2019, File No. 001-35243)001-35243) |
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2.23.1 | | |
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3.1 | | |
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3.23.2* | | |
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| 4.1 | | |
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10.14.2 | | |
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| 4.3 | | Indenture, dated as of May 24, 2017,June 22, 2021, by and among SunCoke Energy, Inc., the subsidiary guarantors party thereto and The Bank of America,New York Mellon Trust Company, N.A., as Administrative Agenttrustee and the several lenders party thereto,as notes collateral agent (incorporated by reference herein to Exhibit 10.14.1 to the Company’sCompany's Current Report on Form 8-K, filed on May 25, 2017June 22, 2021, File No. 001-35243) |
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10.24.3.1 | | Omnibus Agreement, dated January 24, 2013, by and among SunCoke Energy Partners, L.P., SunCoke Energy Partners GP LLC and SunCoke Energy, Inc.Form of 4.875% Senior Secured Notes due 2029 (incorporated by reference herein to Exhibit 10.14.2 to the Company’sCompany's Current Report on Form 8-K, filed on January 24, 2013,June 22, 2021, File No. 001-35243) |
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10.2.110.1* | | Amendment No. 1 to OmnibusThird Amended and Restated Credit Agreement, dated as of March 17, 2014,February 16, 2023 by and among SunCoke Energy, Partners, L.P.Inc., and certain subsidiaries of SunCoke Energy, Partners GP LLCInc., as joint and several borrowers, the several lenders party thereto from time to time and Bank of America, N.A., as administrative agent (filed herewith) |
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| 10.2^ | | |
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10.2.2 | | Amendment No. 2 to Omnibus Agreement, dated as of January 13, 2015, by and among SunCoke Energy Partners, L.P., SunCoke Energy Partners GP LLC and SunCoke Energy, Inc. (incorporated by reference to Exhibit 10.5.210.4 to the Company's Annual Report on Form 10-K, filed on February 24, 2015,2022, File No. 001-35243) |
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10.3**10.3^ | | |
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10.4*10.3.1^* | | |
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10.5*10.3.2^* | | |
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| 10.3.3^* | | |
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| 10.3.4^* | | |
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| 10.4^ | | SunCoke Energy, Inc. Long-Term Performance Enhancement Plan, amended and restated effective as of February 22, 201314, 2018 (incorporated by reference herein to Exhibit A10.5 to the Company’s Notice ofCompany's Annual Meeting of Stockholders and Definitive Proxy StatementReport on Schedule 14A,Form 10-K, filed on March 28, 2013,February 24, 2022, File No. 001-35243) |
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10.5.1**10.4.1^ | |
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10.5.2**10.4.2^ | | |
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10.5.3**10.4.3^ | | |
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10.5.4**10.5^
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10.5.5* | |
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10.6**
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10.6.1*
10.6^
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10.7**
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10.7.1**
10.6.1^
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10.7.2**
10.6.2^
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10.7.3**
10.6.3^
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10.8*10.6.4^ | | |
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| 10.7^ | | |
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10.9*10.8^ | | |
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10.10** | | |
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10.11**10.9^ | | |
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10.13†10.11† | | |
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10.13.1†10.11.1† | | |
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10.13.2†10.11.2† | | Letter Agreement, dated as of May 7, 2008, between ArcelorMittal USA Inc., Haverhill North Coke Company, Jewell Coke Company, L.P. and ISG Sparrows Point LLC, serving as (1) Amendment No. 2 to the Amended and Restated Coke Supply Agreement, by and between Jewell Coke Company, L.P., ArcelorMittal Cleveland Inc. (f/k/a ISG Cleveland Inc.) and ArcelorMittal Indiana Harbor (f/k/a ISG Indiana Harbor Inc.) and (2) Amendment No. 2 to the Coke Purchase Agreement, by and between Haverhill North Coke Company, ArcelorMittal Cleveland Inc. (f/k/a ISG Cleveland Inc.) and ArcelorMittal Indiana Harbor (f/k/a ISG Indiana Harbor Inc.) (incorporated by reference herein to Exhibit 10.20 to the Company’s Amendment No. 32 to Registration Statement on Form S-1 filed on June 3, 2011, File No. 333-173022)
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10.13.3†
10.11.3†
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10.14†
10.11.4† | | |
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10.12†
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10.14.1†
10.12.1†
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10.14.2†
10.12.2†
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10.14.3†
10.12.3†
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10.15†10.12.4 | | |
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| 10.13† | | |
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10.16†10.13.1† | | |
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| 10.13.2 | | |
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| 10.14† | | |
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10.16.1†10.14.1† | | |
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10.16.2†10.14.2† | | |
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10.16.3†10.14.3† | | |
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10.16.4†10.14.4† | | |
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10.16.5†10.14.5† | | |
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10.17†10.15† | | |
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10.17.1†10.15.1† | | |
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10.17.210.15.2 | | |
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10.17.3†10.15.3† | | |
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10.18†10.16† | | |
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12.1*21.1* | |
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21.1* | | |
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23.1*22.1* | | |
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| 23.1* | | |
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24.1*31.1* | | |
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31.1* | | |
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| 31.2* | | |
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| 32.1* | | |
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| 32.2* | | |
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| 95.1* | | |
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101.INS*101* | | XBRL Instance DocumentThe following financial statements from SunCoke Energy, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on February 24, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Income, (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. |
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101.SCH*104* | | XBRL Taxonomy Extension Schema DocumentThe cover page from SunCoke Energy, Inc's Annual Report on Form 10-K for the year ended December 31, 2022 formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101. |
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101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document |
| * | | Provided herewith. |
101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document |
| ^ | | |
101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
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* | | Provided herewith. |
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** | | Management contract or compensatory plan or arrangement. |
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| † | | Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been separately filed with the Securities and Exchange Commission. |
Item 16. Form 10-K Summary
None.
119
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on February 15, 2018.24, 2023.
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| SUNCOKE ENERGY, INC. |
|
| By: | | /s/ Fay WestMark W. Marinko |
| | Fay West
Mark W. Marinko
Senior Vice President and Chief Financial Officer
|
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on February 15, 2018.
24, 2023. | | | | | | | | |
| Signature | | Title |
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| /s/ Michael G. Rippey | | Chief Executive Officer and Director
(Principal Executive Officer ) |
| Michael G. Rippey | |
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Signature/s/ Katherine T. Gates | | TitlePresident and Director |
| Katherine T. Gates | | |
/s/ Michael G. Rippey* | | President and Chief Executive Officer
(Principal Executive Officer)
|
Michael G. Rippey | |
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/s/ Fay WestMark W. Marinko | | Senior Vice President and Chief Financial Officer (Principal
(Principal Financial Officer) |
Fay WestMark W. Marinko | |
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/s/ Allison S. Lausas*Bonnie M. Edeus | | Vice President, Finance and Controller
(Principal Accounting Officer)
|
Allison S. LausasBonnie M. Edeus | |
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/s/ Andrew D. Africk*Arthur F. Anton | | Director |
Andrew D. Africk | |
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/s/ Alvin Bledsoe* | | Director |
Alvin Bledsoe | |
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/s/ Susan Landahl* | | Director |
Susan Landahl | |
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/s/ Peter B. Hamilton* | | Director |
Peter B. Hamilton | |
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/s/ Robert A. Peiser* | | Director |
Robert A. Peiser | |
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/s/ John W. Rowe* | | Chairman of the Board |
John W. RoweArthur F. Anton | |
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/s/ James E. Sweetnam*Martha Z. Carnes | | Director |
James E. SweetnamMartha Z. Carnes | |
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* Fay West, pursuant to powers of attorney duly executed by the above officers and directors of SunCoke Energy, Inc. and filed with the SEC in Washington, D.C., hereby executes this Annual Report on Form 10-K on behalf of each of the persons named above in the capacity set forth opposite his or her name./s/ Ralph M. Della Ratta, Jr. | | Director |
| Ralph M. Della Ratta | | |
/s/ Fay West | | February 15, 2018 |
Fay West/s/ Susan Landahl | | Director |
| Susan Landahl | |
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| /s/ Michael W. Lewis | | Director |
| Michael W. Lewis | |