SunCoke Energy(SXC) - 2022 Q4 - Annual Report

PART I Item 1. Business SunCoke Energy is the largest independent coke producer in the Americas, operating U.S. and Brazilian cokemaking facilities and a logistics business Overview SunCoke Energy is the largest independent producer of high-quality coke in the Americas, with over 60 years of experience - SunCoke Energy is the largest independent producer of high-quality coke in the Americas, with over 60 years of coke production experience[18][283] - Operates five cokemaking facilities in the U.S. with a collective nameplate capacity of approximately 4.2 million tons of blast furnace coke per year[18][283] - Operates one cokemaking facility in Brazil for ArcelorMittal Brasil S.A. with approximately 1.7 million tons of annual cokemaking capacity[18][283] - Logistics business provides export and domestic material handling and/or mixing services with a collective capacity of over 40 million tons annually and storage capacity of approximately 3 million tons[19][284] - Business results are reported through three segments: Domestic Coke, Brazil Coke, and Logistics[20][208] Domestic Coke The Domestic Coke segment operates five U.S. cokemaking facilities utilizing efficient heat recovery technology and long-term take-or-pay agreements - Domestic Coke segment consists of five U.S. cokemaking facilities (Jewell, Indiana Harbor, Haverhill, Granite City, Middletown) utilizing efficient, modern heat recovery technology[21] - Heat recovery technology combusts coal's volatile components to generate steam and electricity for sale, differing from by-product cokemaking and offering environmental benefits[21][22] Domestic Cokemaking Facilities and Capacity | Facility | Location | Year of Start Up | Use of Waste Heat | Number of Coke Ovens | Annual Cokemaking Nameplate Capacity (thousands of tons) | Customer | Contract Expiration | Contract Volume (thousands of tons) | |---|---|---|---|---|---|---|---|---| | Middletown | 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 | December 2025/December 2026 | 400 / 165 | | Haverhill I | Franklin Furnace, Ohio | 2005 | Process steam | 100 | 550 | Algoma Steel | December 2026 | | | Total | | | | 830 | 4,240 | | | | - Blast furnace coke sales are primarily under long-term, take-or-pay agreements, which include pass-through provisions for coal and operating costs, reducing exposure to price volatility[25][26][28] - The company also produces and sells foundry coke from its Jewell cokemaking facility, generally under annual agreements without take-or-pay volume commitments[31][380] Brazil Coke The Brazil segment operates the ArcelorMittal Brazil cokemaking facility, generating revenue from licensing and operating fees based on production levels - Brazil segment operates the ArcelorMittal Brazil cokemaking facility in Vitória, Brazil, under licensing and operating agreements[32][214][288] - Revenues are derived from licensing and operating fees, based on production levels and full pass-through of operating costs[32][288] Logistics The Logistics segment provides material handling and mixing services to various industrial customers, earning revenue on a per-ton basis - Logistics segment consists of Convent Marine Terminal (CMT), Kanawha River Terminal (KRT), Lake Terminal, and Dismal River Terminal (DRT)[33][208] - Provides export and domestic material handling and/or mixing services to steel, coke, electric utility, coal producing, and other manufacturing customers[19][33][284] - Revenues are earned on a per-ton basis for handling and/or mixing services; the company does not take possession of materials[33][288] Market Discussion and Competition The cokemaking and logistics markets are highly competitive, influenced by global demand, geopolitical events, and economic factors - The cokemaking market is highly competitive, with SunCoke's Domestic Coke segment accounting for approximately 35% of the U.S. blast furnace coke market capacity[36][37] - Competition factors include coke quality, price, reliability of supply, proximity to market, access to metallurgical coals, and environmental performance[36] - CMT is one of the largest export terminals on the U.S. Gulf Coast, accounting for approximately 42.5% of U.S. thermal coal exports from the Gulf Coast and 19.5% of total U.S. thermal coal exports in 2022[40] - Export coke demand and prices increased in H1 2022 due to global trade imbalance and geopolitical events (Russia-Ukraine crisis), but declined in H2 2022 due to economic uncertainty and lower Chinese coke prices[39] - Logistics business benefited in 2022 from high natural gas prices increasing global demand for coal, particularly in Europe, impacting API2 index price[41] Seasonality Domestic Coke revenues are largely non-seasonal due to long-term contracts, while cokemaking profitability and logistics demand can fluctuate seasonally - Domestic Coke revenues are largely non-seasonal due to long-term, take-or-pay agreements[44] - Cokemaking profitability tends to be more favorable in the third quarter due to improved coal-to-coke yields in drier weather[44] - Logistics (KRT) service demand fluctuates with domestic electricity markets; hot summers or cold winters can increase thermal coal demand[44] Raw Materials Metallurgical coal is the primary raw material for cokemaking, with costs generally passed through to customers under annual contracts - Metallurgical coal is the principal raw material for cokemaking operations, requiring approximately 1.4 tons of coal per ton of blast furnace coke[45][46] - The company purchased 6.0 million tons of metallurgical coal in 2022, generally under annual contracts with costs primarily passed through to customers[46] Transportation and Freight Inbound coal transportation relies on long-term rail or short-term contracts, with costs generally passed through, while coke delivery varies by facility - Inbound metallurgical coal transportation relies on long-term rail agreements or short-term contracts for facilities with multiple options (rail/barge); costs are generally passed through to customers[47] - Coke sales delivery varies; Middletown, Indiana Harbor, and Granite City facilities use conveyor belts to customer blast furnaces, while Jewell and Haverhill facilities use railcar shipments under long-term agreements[48] Research and Development and Intellectual Property and Proprietary Rights R&D focuses on improving cokemaking technologies and heat recovery processes, supported by numerous patents and licensing agreements for proprietary technology - R&D program aims to improve existing and develop new cokemaking technologies, including new product development and heat recovery processes[49] - The program has produced numerous patents related to heat recovery coking design, operation, and pollution control systems[49] - Intellectual property and licensing agreements are in place for the Vitória, Brazil facility's use of the company's technology[50] Human Capital Management The company's human capital strategy emphasizes attracting, developing, and retaining diverse talent within an inclusive, safety-focused culture - Human capital strategy focuses on attracting, developing, and retaining diverse talent within an inclusive work environment[51] - Company culture is driven by core values: excellence, innovation, commitment, integrity, and stewardship[52][57] - As of December 31, 2022, the company had 887 employees in the U.S. (approximately 40% unionized) and 285 in Brazil (all unionized)[53][54][305][306] - Workforce stability is high with less than 1% turnover in 2022, anchored by experienced corporate leadership (average of nearly 20 years leadership experience and over 10 years tenure with SunCoke)[61] - Offers comprehensive benefits including health care coverage, retirement benefits, life and disability insurance, and supplemental programs[67] - Safety is a top priority, integrated into core values and incentive programs, with a 2022 Total Recordable Incident Rate (TRIR) of 0.69, significantly lower than industry averages[69][70][71][72] - Maintains a Code of Business Conduct and Ethics, requiring annual training and providing multiple channels for reporting violations without fear of retaliation[73][74] Legal and Regulatory Requirements Operations are subject to extensive environmental and safety regulations, including air and water quality laws, and potential future GHG legislation - Operations are subject to extensive governmental regulation, including environmental laws (Clean Air Act, Clean Water Act, RCRA, CERCLA), which are a significant business factor[75][83][85] - Cokemaking facilities employ MACT standards to limit hazardous air pollutants, with specific standards for oven door leaks, charging, oven pressure, pushing, and quenching[78][83] - More stringent NAAQS for NO2, SO2, and PM2.5 could require additional pollution controls and increase operating costs if areas are redesignated as non-attainment[78] - The company has an asset retirement obligation of $2.9 million as of December 31, 2022, related to estimated mine reclamation costs[81] - Terminal operations are subject to CWA and CAA permitting, U.S. Coast Guard regulations, and potential challenges from environmental interest groups[83] - Subject to GHG reporting rules and potential future legislation/regulations that could impose significant costs[85][127] - Retained black lung liabilities from legacy coal operations totaled $58.1 million as of December 31, 2022, with potential for increased collateral requirements[89][159][220][234][236][348] Information about our Executive Officers This section provides a list of the company's executive officers and their respective roles as of February 24, 2023 Executive Officers as of February 24, 2023 | Name | Age | Title | |---|---|---| | Michael G. Rippey | 65 | Chief Executive Officer | | Katherine T. Gates | 46 | President | | Mark W. Marinko | 61 | Senior Vice President and Chief Financial Officer | | P. Michael Hardesty | 60 | Senior Vice President, Commercial Operations, Business Development, Terminals and International Coke | | Bonnie M. Edeus | 39 | Vice President, Controller | | Shantanu Agrawal | 36 | Vice President, Finance and Treasurer | | John F. Quanci | 61 | Vice President, Chief Technology Officer | | Patrick G. Nigl | 56 | Vice President, Coke Operations | - Michael G. Rippey became CEO on January 1, 2023, focusing on strategic objectives and growth initiatives, with extensive experience in the steel industry[90] - Katherine T. Gates was elected President and appointed director effective January 1, 2023, previously serving as SVP, Chief Legal Officer, and Chief Human Resource Officer[91] Item 1A. Risk Factors The company faces diverse risks including operational disruptions, customer concentration, intense competition, regulatory compliance costs, and financial liabilities Risks Inherent in Our Business and Industry Operational disruptions, customer concentration, intense competition, and extensive regulatory compliance pose significant risks to the business - Operating risks, including equipment failures, asset deterioration, and factors beyond control (e.g., natural disasters, fires, explosions), can disrupt cokemaking and logistics operations, leading to production curtailments, increased costs, and substantial losses[102][103][104] - Substantial dependence on a limited number of customers (Cliffs Steel, U.S. Steel) for coke sales creates significant credit risk; loss or non-performance by these customers could materially affect financial condition[106][107][109] - Highly competitive cokemaking market (from merchant producers and steel companies' captive facilities) and logistics market (from other terminals and alternative fuels) could reduce demand and adversely affect financial results[110][113] - Extensive federal, state, and local laws and regulations (environmental, GHG, safety) increase compliance costs and may lead to penalties or operational limitations if not met[111][112] - Operations may cause environmental impacts or exposure to hazardous substances, potentially resulting in material liabilities for clean-up, bodily injury, or property damage claims[114][115] - Inability to obtain, maintain, or renew necessary permits or leases could materially reduce production, cash flows, or profitability[116] - Inadequate insurance coverage for inherent business risks (e.g., environmental, cybersecurity) could lead to material losses and liabilities[117] - Challenges in implementing growth strategies, including acquisitions and joint ventures, may lead to failure to realize expected benefits, diversion of management attention, or assumption of unknown liabilities[118][119][120] - Impairment in the carrying value of long-lived assets could adversely affect financial results if future cash flows decline due to economic downturns, competition, or regulatory changes[122][123] - Fluctuations in production costs (equipment, parts, coal, labor) that cannot be passed to customers could negatively impact profit margins and financial condition[124] - Claims for property damage or personal injury from operations, or product safety issues, could result in significant financial loss and reputational damage[125] - New or more stringent GHG emission standards and physical effects of climate change (e.g., severe weather, flooding) could impose significant costs on the business, customers, and suppliers[127][128] - Investor interest in climate change and sustainability could negatively impact stock price and access to capital markets[129] Risks Related to Our Cokemaking Business The cokemaking business faces risks from contract modifications, demand fluctuations, supply chain disruptions, intellectual property protection, and political instability in Brazil - Modification or termination of long-term coke, electricity, and steam supply agreements, or inability to renew them at favorable terms, could adversely affect results of operations[130][131] - Inability to shut down cokemaking operations without adequate customer demand means continued operation and potential significant costs for natural gas if coke cannot be sold[133] - Excess capacity in the global steel industry or increased coke exports could weaken customer demand, depress prices, and limit ability to secure new contracts[134] - Failure to meet minimum volume requirements, coal-to-coke yields, or quality specifications in long-term agreements can result in economic penalties or contract termination[135][137] - Disruptions in metallurgical coal supply or coal mixing services could reduce coke production and delivery, adversely affecting results[139][140] - Limitations on transportation availability and reliability, especially rail systems, or increased costs, could hinder coal supply and coke delivery[141][142] - Inability to effectively protect intellectual property (patents for cokemaking technologies) could impair competitive ability[143] - Political and country risks in Brazil, including government intervention and economic instability, could adversely affect licensing and operating fees from the Vitória facility[144] - Compliance with U.S. and international anti-bribery, anti-corruption, and anti-fraud laws (e.g., FCPA) is critical; violations could lead to penalties, reputational damage, and financial impact[146][147] Risks Related to Our Logistics Business Logistics business growth depends on throughput volumes, which are sensitive to demand for thermal and metallurgical coal, market prices, and operational hazards - Logistics business growth depends on adequate throughput volumes; extended decline in demand for thermal or metallurgical coal could reduce need for services[148][150] - Demand for thermal coal is impacted by electricity demand, competing fuels (natural gas), and renewable energy mandates[149] - Demand for metallurgical coal is impacted by economic downturns, steel demand, and increased use of alternative steel production processes (e.g., electric arc furnaces)[149] - Fluctuations in coal market prices can affect mining activity and, consequently, volumes processed through logistics facilities[149] - CMT's Gulf Coast location exposes it to significant liabilities from operational hazards and unforeseen interruptions like hurricanes or floods, potentially disrupting operations[151] Risks Related to Indebtedness, Liquidity and Financial Position The company faces risks from potential capital needs, debt maturities, inflation, high indebtedness, and restrictive debt covenants - The company may need additional capital in the future, which may not be available on favorable terms, limiting its ability to meet financial obligations or pursue business objectives[152] - Material debt maturities of $43.8 million over the next five years may require refinancing on less favorable terms or delay capital expenditures[153] - Inflation can adversely affect liquidity, business, and financial results by increasing overall cost structure (interest rates, capital costs, labor, exchange rates)[154] - High indebtedness could limit ability to satisfy obligations, obtain additional financing, increase vulnerability to adverse conditions, and expose to variable interest rate risks[155] - Credit facilities contain restrictive covenants; failure to comply could lead to debt acceleration and material adverse effects on business and financial condition[158] Risks Related to Our Legacy Coal Mining Business Despite divestiture, legacy coal mining operations continue to impose significant costs and liabilities, particularly for black lung benefits - Despite divestiture of coal mining business, compliance with reclamation and black lung benefit requirements continues to impose significant costs[159] - Federal law requires payment of black lung benefits to former employees and contributions to a trust fund; liabilities totaled $58.1 million as of December 31, 2022[159] - Increased black lung liabilities or collateral requirements could materially and adversely harm the business[159] General Risks General risks include the impacts of the COVID-19 pandemic, economic uncertainty, labor disputes, litigation, and cybersecurity threats - COVID-19 pandemic (and future variants/diseases) has and may continue to adversely impact business, operations, and financial results, particularly through effects on customers and suppliers[160][161] - Sustained uncertainty in financial markets or unfavorable economic conditions in customer industries (steelmaking, power generation) could reduce demand for products/services[162][163] - Labor disputes with unionized workforce (e.g., work stoppages, higher costs) could adversely affect operations and profitability[164] - Failure to attract and retain key personnel could impair effective company operation and strategy implementation[165] - Exposure to litigation (commercial, employment, personal injury, environmental) could result in material adverse effects on cash flows, financial position, or results of operations[166] - Security breaches and information systems failures (cyber-attacks, employee error) could disrupt operations, compromise data integrity, expose to liability, and damage reputation[167][169][170][171] - Subject to evolving privacy and data protection laws (e.g., GDPR, California legislation), which impose compliance challenges and potential penalties[172] Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - No unresolved staff comments[173] Item 2. Properties SunCoke Energy owns and leases various real properties for its cokemaking facilities, logistics terminals, and corporate headquarters across several U.S. states - Owns approximately 1,700 acres in Vansant, Virginia (Jewell facility) and 400 acres in Franklin Furnace, Ohio (Haverhill facility)[174] - Leases properties for Granite City (45 acres), Middletown (250 acres), KRT (180 acres in Ceredo, 30 acres in Belle), CMT (175 acres), Indiana Harbor (90 acres), DRT (310 acres), and corporate headquarters in Lisle, Illinois[176] - Retains rights to approximately 5 thousand acres of land, mineral rights, and coal mining rights in Buchanan and Russell Counties, Virginia, from former coal mining business[176] Item 3. Legal Proceedings The company is involved in various legal and administrative proceedings, but management believes any resulting liabilities would not be material to its financial position - Company is party to pending and threatened claims related to commercial disputes, employment, personal injury, toxic substances, and environmental matters[178][345] - Management believes any liabilities that may arise from these claims would not likely have a material adverse impact on consolidated financial statements[178][345] - Consent decrees with EPA and state agencies regarding air emission violations at Haverhill and Granite City facilities have been completed and are being overseen for compliance[343] - Consent decree for Indiana Harbor cokemaking facility with EPA and Indiana Department of Environmental Management was terminated in January 2023 after all requirements were met[344] Item 4. Mine Safety Disclosures Despite divesting most coal mining assets, the company remains responsible for reclamation of certain legacy coal mining locations and owns logistics assets subject to MSHA oversight - Company remains responsible for reclamation of certain legacy coal mining locations subject to MSHA regulatory purview[179] - Owns certain logistics assets also regulated by MSHA[179] PART II Item 5. Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities SunCoke Energy's common stock trades on the NYSE under 'SXC', with quarterly dividends declared and an authorized share repurchase program Market Information Shares of common stock trade on the New York Stock Exchange under the symbol 'SXC' - Shares of common stock trade on the New York Stock Exchange under the symbol 'SXC'[3][182] Performance Graph The performance graph compares the company's 5-year total shareholder return against relevant market indices - Performance graph compares 5-year total shareholder return to the S&P Small Cap 600 Index, NASDAQ U.S. Benchmark Iron & Steel Index, and Dow Jones U.S. Iron & Steel Index[184][185] - The NASDAQ U.S. Benchmark Iron & Steel Index was chosen as a more comparable market capitalization profile[185] Holders As of February 17, 2023, there were 8,340 holders of record of the company's common stock - As of February 17, 2023, there were 8,340 holders of record of the company's common stock[5][187] Dividends The company declared quarterly dividends in 2022, increasing from $0.06 to $0.08 per share, with future payments subject to Board approval Dividends Declared (2022-2023) | 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 | - Future dividend payments are subject to Board approval and depend on business conditions, financial health, earnings, liquidity, and debt covenants[188] Recent Sales of Unregistered Securities The company reported no recent sales of unregistered securities - No recent sales of unregistered securities[189] Issuer Purchases of Equity Securities The Board authorized a $100.0 million share repurchase program in 2019, with $96.3 million remaining as of December 31, 2022 - Board authorized a $100.0 million share repurchase program on October 28, 2019[190] - As of December 31, 2022, $96.3 million remained available under the program, with no repurchases since Q1 2020[190] Item 6. [Reserved] This item is reserved and contains no information - Item 6 is reserved[191] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations SunCoke Energy achieved strong financial results in 2022, driven by record Adjusted EBITDA, increased net income, robust liquidity, and compliance with debt covenants 2022 Overview The company delivered strong financial results in 2022, achieving record Adjusted EBITDA and reducing total debt - Company delivered strong financial results for the year ended 2022, with record Adjusted EBITDA performance[195] - Favorable pricing on export coke sales in Domestic Coke segment and higher price realization and volumes within Logistics segment drove record Adjusted EBITDA[195] - Increased quarterly dividends from $0.06 per share during H1 2022 to $0.08 per share during H2 2022, representing a 33% increase[196] - Reduced total debt by approximately $83 million in 2022[196] 2022 Consolidated Financial Highlights | Metric | Year Ended December 31, 2022 ($ millions) | |---|---| | Net income | $104.9 | | Net cash provided by operating activities | $208.9 | | Adjusted EBITDA | $297.7 | Recent Developments The company entered a non-binding letter of intent with U.S. Steel to acquire blast furnaces and construct a granulated pig iron facility - Entered into a non-binding letter of intent with U.S. Steel to acquire two blast furnaces and construct a granulated pig iron facility with an annual capacity of 2 million tons[197] Items Impacting Comparability The 2021 debt refinancing, including the issuance of senior notes and amendment of the revolving credit facility, resulted in a significant loss on extinguishment of debt - The 2021 debt refinancing (issuance of $500.0 million 4.875% senior notes, amendment of revolving credit facility) resulted in a $31.9 million loss on extinguishment of debt, impacting comparability with 2022[198][200] Consolidated Results of Operations Consolidated sales and net income significantly increased in 2022, driven by higher coal prices, favorable export coke pricing, and lower interest and tax expenses Consolidated Results of Operations (2022 vs 2021) | Metric | 2022 ($ millions) | 2021 ($ millions) | Change ($ millions) | |---|---|---|---| | Sales and other operating revenue | $1,972.5 | $1,456.0 | $516.5 | | Total costs and operating expenses | $1,818.8 | $1,314.5 | $504.3 | | Operating income | $153.7 | $141.5 | $12.2 | | Interest expense, net | $32.0 | $42.5 | $(10.5) | | Loss on extinguishment of debt | — | $31.9 | $(31.9) | | Income before income tax expense | $121.7 | $67.1 | $54.6 | | Income tax expense | $16.8 | $18.3 | $(1.5) | | Net income | $104.9 | $48.8 | $56.1 | | Net income attributable to SunCoke Energy, Inc. | $100.7 | $43.4 | $57.3 | - Sales and other operating revenue increased primarily due to the pass-through of higher coal prices in Domestic Coke and favorable pricing on export coke sales[200] - Selling, general and administrative expenses increased due to higher employee-related expenses, professional services, and transaction costs for the granulated pig iron project, partially offset by $3.3 million in valuation adjustments on legacy liabilities[201] - Interest expense, net, decreased due to a lower interest rate (4.875% from 7.500%) on senior notes after 2021 debt refinancing and lower average debt balances[202] - Income tax expense benefited from Foreign Tax Credit regulations ($6.5 million), research and development credits ($4.0 million), and lower apportioned state income tax rates ($6.4 million) in 2022[203] Results of Reportable Business Segments Total Adjusted EBITDA increased by $22.3 million in 2022, driven by strong performance in Domestic Coke and Logistics, partially offset by a decrease in Brazil Coke Segment Adjusted EBITDA (2022 vs 2021) | Segment | 2022 ($ millions) | 2021 ($ millions) | Increase (Decrease) ($ millions) | |---|---|---|---| | 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 | $22.3 | Segment Sales and Other Operating Revenue (2022 vs 2021) | Segment | 2022 ($ millions) | 2021 ($ millions) | Increase (Decrease) ($ millions) | |---|---|---|---| | 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 | - Domestic Coke Adjusted EBITDA increased by $20.0 million, primarily driven by favorable pricing on export coke sales and higher coal-to-coke yield gains due to higher coal prices, despite decreased volumes[212] - Logistics Adjusted EBITDA increased by $6.2 million, driven by increased transloading volumes and favorable pricing at CMT due to strong export coal market[213] - Brazil Coke Adjusted EBITDA decreased by $2.7 million due to lower volumes and the absence of prior year production bonuses[214] - Corporate and Other expenses increased by $1.2 million due to higher employee-related expenses and professional services, partially offset by valuation adjustments on legacy liabilities[217] Non-GAAP Financial Measures Adjusted EBITDA is a key non-GAAP financial measure used by management and investors to evaluate financial performance - Adjusted EBITDA is a non-GAAP financial measure used by management and investors to analyze financial performance[218][207][393] - Defined as earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted for impairments, restructuring costs, gains or losses on extinguishment of debt, and/or transaction costs[393] Adjusted EBITDA Reconciliation to Net Income (2022-2020) | Metric | 2022 ($ millions) | 2021 ($ millions) | 2020 ($ 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 | | Add: Interest expense, net | $32.0 | $42.5 | $56.3 | | Add: Loss (gain) on extinguishment of debt, net | — | $31.9 | $(5.7) | | Add: Income tax expense | $16.8 | $18.3 | $10.3 | | Add: Restructuring costs | — | — | $2.5 | | Add: Transaction costs | $1.5 | — | — | | Adjusted EBITDA | $297.7 | $275.4 | $205.9 | | Subtract: Adjusted EBITDA attributable to noncontrolling interests | $8.4 | $9.3 | $9.1 | | Adjusted EBITDA attributable to SunCoke Energy, Inc. | $289.3 | $266.1 | $196.8 | Liquidity and Capital Resources The company maintains strong liquidity with sufficient cash and borrowing capacity, while managing debt and capital expenditures, though black lung obligations pose a potential risk - Primary liquidity needs are to fund working capital, investments, debt service, cash reserves, and capital expenditures[219] - Sources of liquidity include cash generated from operations, borrowings under the Revolving Facility, and debt/equity offerings[219] - As of December 31, 2022, had $90.0 million of cash and cash equivalents and $315.0 million of borrowing availability under the Revolving Facility[219] - Believes current resources are sufficient to meet working capital requirements for at least the next 12 months and thereafter for the foreseeable future[219] - May be required to provide additional collateral for black lung obligations if appeal is unsuccessful, which could potentially reduce liquidity[220] - New proposed rule (Jan 2023) could require self-insured companies to post collateral of 120% of total expected lifetime black lung obligations, potentially reducing liquidity[220][349] Cash Flow Summary (2022 vs 2021) | Metric | 2022 ($ millions) | 2021 ($ millions) | Change ($ millions) | |---|---|---|---| | Net cash provided by operating activities | $208.9 | $233.1 | $(24.2) | | Net cash used in investing activities | $(70.2) | $(99.3) | $29.1 | | Net cash used in financing activities | $(112.5) | $(118.4) | $5.9 | | Net increase in cash and cash equivalents | $26.2 | $15.4 | $10.8 | - Net cash provided by operating activities decreased by $24.2 million due to unfavorable year-over-year changes in primary working capital (higher coal prices), partially offset by higher operating results in Domestic Coke and Logistics[222][223] - Net cash used in investing activities decreased by $29.1 million due to timing of payments related to capital expenditures and completion of certain foundry cokemaking expansion projects in 2021[224] - Net cash used in financing activities decreased by $5.9 million due to the absence of costs associated with the debt refinancing that took place during the second quarter of 2021, partly offset by higher current period net repayments on debt and increased dividends[225] - As of December 31, 2022, the company was in compliance with all debt covenants and does not anticipate violations or restrictions on operations or ability to obtain additional financing[226][341] - Credit ratings reaffirmed (S&P Global Ratings BB- stable, Moody's Investors Service B1 upgraded to positive outlook) in May/June 2022[227] - Significant contractual obligations as of Dec 31, 2022: $1,092.8 million for metallurgical coal procurement (through 2023) and $543.8 million principal + $166.6 million related interest for debt (through 2029)[228] Capital Expenditures (2022 vs 2021) | Type | 2022 ($ millions) | 2021 ($ millions) | |---|---|---| | Ongoing capital | $72.1 | $87.6 | | Expansion capital | $3.4 | $11.0 | | Total capital expenditures | $75.5 | $98.6 | - Total capital expenditures decreased to $75.5 million in 2022 from $98.6 million in 2021[232] Critical Accounting Policies and Estimates Black lung benefit obligations represent a critical accounting estimate, calculated annually by actuarial consultants based on various assumptions - Preparation of financial statements requires management to make estimates and assumptions, with black lung benefit obligations being a key area[233][235] - Black lung liability is calculated annually by independent actuarial consultants using models based on former coal miners, historical payouts, mortality rates, medical costs, and discount rates[235][347] Black Lung Benefit Liabilities (2022 vs 2021) | Metric | December 31, 2022 | December 31, 2021 | |---|---|---| | Discount rate | 4.9% | 2.4% | | Active claims | 332 | 332 | | Total black lung liability ($ millions) | $58.1 | $63.3 | | Current portion ($ millions) | $5.9 | $5.4 | Annual Black Lung Payments and (Benefit) Expense (2022-2020) | Metric | 2022 ($ millions) | 2021 ($ millions) | 2020 ($ millions) | |---|---|---|---| | Payments | $5.0 | $4.4 | $6.0 | | (Benefit) expense | $(0.2) | $3.1 | $15.4 | - Black lung (benefit) expense in 2022 was $(0.2) million, reflecting the impact of changes in discount rates and actuarial assumptions[239][348] Recent Accounting Standards FASB issued ASU 2022-06 to defer the LIBOR sunset date, with no material impact expected on the company's financial statements from the transition to SOFR - FASB issued ASU 2022-06 deferring the sunset date of Topic 848 to facilitate the transition from LIBOR to alternative reference rates[304] - The company does not expect the transition from LIBOR to SOFR to have a material impact on its consolidated financial statements and disclosures[304][337] Item 7A. Quantitative and Qualitative Disclosures About Market Risk SunCoke Energy is exposed to market risks from fluctuations in coal and coke prices, interest rates, and foreign currency exchange rates Price of coal and coke While long-term contracts mitigate coal price risk for most sales, export and foundry coke sales remain sensitive to market fluctuations - Coal costs are generally a pass-through component of the coke price in long-term, take-or-pay coke sales agreements, provided targeted coal-to-coke yields are met[244] - The company is subject to market risk for the price of coals used to produce coke sold into the export coke market (spot basis) and for foundry coke sales (annual agreements)[246] - Risk exists if coal and coke markets fall out of correlation or due to timing differences in contracting coal purchases versus coke sales[246] - Risk of economic penalties or termination if unable to meet minimum production levels or procure replacement supplies for contractual shortfalls[245] Interest rates The company is exposed to interest rate changes from variable-rate borrowings and cash balances, with the Revolving Facility transitioning from LIBOR to SOFR - Exposed to changes in interest rates as a result of borrowing activities with variable interest rates and interest earned on cash balances[247] - Daily average outstanding balance on variable interest rate borrowings was $105.8 million in 2022 and $102.8 million in 2021[247] - A 50 basis point change in LIBOR would have impacted interest expense by $0.5 million in both 2022 and 2021[247] - The Revolving Facility transitioned from a variable interest rate based on LIBOR to SOFR subsequent to December 31, 2022, with no material impact expected[247][337] - Cash and cash equivalents were $90.0 million (2022) and $63.8 million (2021); a 50 basis point change in interest rate would impact interest income by $0.4 million (2022) and $0.3 million (2021)[248] Foreign currency Operations in Brazil expose the company to foreign currency risk from changes in the Brazilian real exchange rates - Subject to risk resulting from changes in the Brazilian real currency exchange rates due to operations in Brazil[249] - A 10% change in currency exchange rates would have impacted net income by approximately $0.4 million in 2022 and $0.5 million in 2021[249] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements, including statements of income, comprehensive income, balance sheets, cash flows, and equity, along with the independent auditor's report and detailed notes Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the financial statements and internal controls, identifying black lung benefit liability as a critical audit matter - KPMG LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[255] - Identified the evaluation of the Company's estimated black lung benefit liability as a critical audit matter due to high subjective auditor judgment in evaluating the actuarial model and key assumptions[263][264] Consolidated Statements of Income Consolidated net income attributable to SunCoke Energy, Inc. significantly increased in 2022, reflecting higher sales and improved EPS Consolidated Statements of Income (2022-2020) | Metric | 2022 ($ millions) | 2021 ($ millions) | 2020 ($ millions) | |---|---|---|---| | Sales and other operating revenue | $1,972.5 | $1,456.0 | $1,333.0 | | 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 | | 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 | | 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 | | Basic EPS | $1.20 | $0.52 | $0.04 | | Diluted EPS | $1.19 | $0.52 | $0.04 | - Net income attributable to SunCoke Energy, Inc. increased by $57.3 million from 2021 to 2022[268] - Basic EPS increased to $1.20 in 2022 from $0.52 in 2021[268] Consolidated Statements of Comprehensive Income Comprehensive income attributable to SunCoke Energy, Inc. saw a substantial increase in 2022, driven by net income and other comprehensive income adjustments Consolidated Statements of Comprehensive Income (2022-2020) | Metric | 2022 ($ millions) | 2021 ($ millions) | 2020 ($ 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 tax) | $0.4 | $0.3 | $0.1 | | Retirement benefit plans funded status adjustment (net of tax) | $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 | - Comprehensive income attributable to SunCoke Energy, Inc. increased by $60.6 million from 2021 to 2022[271] Consolidated Balance Sheets Total assets increased while total liabilities decreased in 2022, reflecting growth in cash and a reduction in long-term debt Consolidated Balance Sheets (2022 vs 2021) | Metric | December 31, 2022 ($ millions) | December 31, 2021 ($ millions) | |---|---|---| | Cash and cash equivalents | $90.0 | $63.8 | | Receivables, net | $104.8 | $77.6 | | Inventories | $175.2 | $127.0 | | Total current assets | $374.0 | $271.9 | | Properties, plants and equipment, net | $1,229.3 | $1,287.9 | | Total assets | $1,654.6 | $1,615.4 | | Accounts payable | $159.3 | $126.0 | | Accrued liabilities | $61.4 | $53.0 | | 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 | | Total liabilities | $1,031.9 | $1,080.0 | | Total SunCoke Energy, Inc. stockholders' equity | $585.6 | $498.1 | | Total equity | $622.7 | $535.4 | - Total assets increased by $39.2 million, and total liabilities decreased by $48.1 million from 2021 to 2022[274] - Cash and cash equivalents increased to $90.0 million from $63.8 million[274] - Long-term debt and financing obligation decreased to $528.9 million from $610.4 million[274] Consolidated Statements of Cash Flows Net cash provided by operating activities decreased in 2022 due to working capital changes, while investing and financing activities saw reduced cash usage Consolidated Statements of Cash Flows (2022-2020) | Metric | 2022 ($ millions) | 2021 ($ millions) | 2020 ($ millions) | |---|---|---|---| | Net cash provided by operating activities | $208.9 | $233.1 | $157.8 | | Net cash used in investing activities | $(70.2) | $(99.3) | $(75.3) | | 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 end of year | $90.0 | $63.8 | $48.4 | - Net cash provided by operating activities decreased by $24.2 million in 2022 compared to 2021, primarily due to unfavorable changes in working capital[277][222] - Net cash used in investing activities decreased by $29.1 million in 2022, mainly due to timing of capital expenditures and completion of foundry cokemaking expansion projects[277][224] - Net cash used in financing activities decreased by $5.9 million in 2022, driven by the absence of debt refinancing costs from 2021[277][225] Consolidated Statements of Equity Total equity increased significantly in 2022, with retained earnings shifting from a deficit to a positive balance Consolidated Statements of Equity (2022 vs 2021) | Metric | December 31, 2022 ($ millions) | December 31, 2021 ($ millions) | |---|---|---| | Common Stock | $1.0 | $1.0 | | Treasury stock | $(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 equity increased by $87.3 million from 2021 to 2022[279][281] - Retained earnings shifted from a deficit of $(23.4) million in 2021 to earnings of $53.5 million in 2022[279][281] Notes to Consolidated Financial Statements These notes provide detailed information on the company's significant accounting policies, segment performance, financial obligations, and key estimates - Note 1: Describes SunCoke Energy as the largest independent producer of high-quality coke in the Americas, operating cokemaking facilities in the U.S. and Brazil, and a logistics business[283][284] - Note 2: Outlines significant accounting policies including use of estimates, revenue recognition, cash equivalents, inventories (FIFO/average-cost), properties/plants/equipment depreciation (straight-line), intangible assets amortization, impairment of long-lived assets, income taxes, black lung benefit liabilities, postretirement benefit plan liabilities, asset retirement obligations, leases, shipping/handling costs, share-based compensation, fair value measurements, and currency translation[286][287][288][289][290][291][292][293][294][295][296][297][299][300][301][302][303] - Note 3: Highlights customer concentrations, with Cliffs Steel accounting for 60.0% and U.S. Steel for 14.4% of total sales in 2022[307] - Note 4: Details income tax expense, reconciliation of statutory to effective tax rate, and deferred tax assets/liabilities. 2022 income tax expense was $16.8 million (13.8% effective rate)[309] - Note 5: Inventories totaled $175.2 million at Dec 31, 2022, primarily coal ($109.4 million), coke ($14.3 million), and materials/supplies ($51.5 million)[317] - Note 6: Net properties, plants, and equipment were $1,229.3 million at Dec 31, 2022, with coke and energy plant being the largest component[318] - Note 7: Intangible assets, net, were $29.8 million at Dec 31, 2022, primarily permits ($27.2 million), with estimated amortization expense of $2.0 million for 2023[320][321] - Note 8: Asset retirement obligation was $13.8 million at Dec 31, 2022, primarily for land restoration and removal of assets from cokemaking properties[323] - Note 9: Postretirement benefit plans are unfunded; total expense was $1.1 million in 2022. Defined contribution plan contributions were $7.9 million in 2022[325][329] - Note 10: Accrued liabilities totaled $61.4 million at Dec 31, 2022, including accrued benefits ($29.7 million), other taxes payable ($9.8 million), and current black lung liability ($5.9 million)[330] - Note 11: Total debt and financing obligations were $532.2 million at Dec 31, 2022, including $500.0 million in 4.875% senior notes due 2029 and $35.0 million outstanding on the Revolving Facility[331] - Note 12: Details legal matters and black lung benefit liabilities ($58.1 million at Dec 31, 2022), including potential for increased collateral requirements[345][346][348][349] - Note 13: Operating lease liabilities totaled $10.5 million at Dec 31, 2022, with a weighted average remaining lease term of 5.9 years[350][352] - Note 14: Accumulated other comprehensive loss was $(13.0) million at Dec 31, 2022, with a net current period change of $3.7 million[353] - Note 15: Share-based compensation expense was $6.4 million for equity awards and $7.2 million for liability awards in 2022[369] - Note 16: Basic EPS was $1.20 and diluted EPS was $1.19 in 2022[372] - Note 17: Fair value of long-term debt was estimated at $471.9 million at Dec 31, 2022, compared to a carrying amount of $543.8 million[376] - Note 18: Describes revenue recognition for cokemaking (long-term take-or-pay, export, foundry), logistics (per-ton services), energy (steam/electricity sales), and operating/licensing fees (Brazil)[377][378][379][380][381][383][385] - Note 19: Provides business segment information and reconciliation of Adjusted EBITDA to net income[387][390][393][395] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its independent accountants regarding accounting principles or financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[396] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes during the quarter Management's Evaluation of Disclosure Controls and Procedures Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of December 31, 2022 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022[398] Management's Report on Internal Control over Financial Reporting Management concluded that internal control over financial reporting was effective as of December 31, 2022, based on the COSO (2013) framework - Management concluded that internal control over financial reporting was effective as of December 31, 2022, based on the COSO (2013) framework[400] - Acknowledges that control systems provide only reasonable, not absolute, assurance and can be circumvented by individual acts, collusion, or management override[401] - The independent registered public accounting firm, KPMG LLP, issued an attestation report on internal control over financial reporting[402] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the fourth quarter of 2022 - No change in the company's internal control over financial reporting occurred during the quarter ended December 31, 2022, that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[402] Item 9B. Other Information The company reported no other information required by this item - No other information to report[403] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[404] PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 definitive Proxy Statement - Information required for this item is incorporated by reference to the company's 2023 definitive Proxy Statement[407] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2023 definitive Proxy Statement - Information required for this item is incorporated by reference to the company's 2023 definitive Proxy Statement[408] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's 2023 definitive Proxy Statement - Information required for this item is incorporated by reference to the company's 2023 definitive Proxy Statement[409] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the company's 2023 definitive Proxy Statement - Information required for this item is incorporated by reference to the company's 2023 definitive Proxy Statement[410] Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2023 definitive Pro