SunCoke Energy(SXC) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Consolidated Financial Statements This section presents the unaudited consolidated financial statements for Q3 2023 and 2022, including income, balance sheets, cash flows, and equity, with detailed notes Consolidated Statements of Income (Unaudited) | | Three Months Ended Sep 30, | | Nine Months Ended Sep 30, | | :--- | :--- | :--- | :--- | :--- | | (In millions) | 2023 | 2022 | 2023 | 2022 | | Sales and other operating revenue | $520.4 | $516.8 | $1,542.6 | $1,458.5 | | Operating income | $29.7 | $47.6 | $98.9 | $130.7 | | Net income | $8.5 | $42.5 | $48.2 | $92.1 | | Net income attributable to SunCoke Energy, Inc. | $7.0 | $41.4 | $43.7 | $88.9 | | Diluted EPS | $0.08 | $0.49 | $0.51 | $1.05 | Consolidated Balance Sheets Highlights (Unaudited) | | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | (In millions) | | | | Assets | | | | Cash and cash equivalents | $125.9 | $90.0 | | Total current assets | $421.3 | $374.0 | | Total assets | $1,679.2 | $1,654.6 | | Liabilities and Equity | | | | Total current liabilities | $250.9 | $224.0 | | Long-term debt and financing obligation | $489.8 | $528.9 | | Total liabilities | $1,037.4 | $1,031.9 | | Total equity | $641.8 | $622.7 | Consolidated Statements of Cash Flows (Unaudited) | | Nine Months Ended Sep 30, | | :--- | :--- | :--- | | (In millions) | 2023 | 2022 | | Net cash provided by operating activities | $192.6 | $120.6 | | Net cash used in investing activities | $(85.4) | $(52.1) | | Net cash used in financing activities | $(71.3) | $(73.0) | | Net increase (decrease) in cash and cash equivalents | $35.9 | $(4.5) | General SunCoke Energy, the largest independent coke producer in the Americas, operates U.S. and Brazilian facilities, plus a logistics business - The company is the largest independent producer of high-quality coke in the Americas, with a U.S. nameplate capacity of approximately 4.2 million tons per year and operates a facility in Brazil with 1.7 million tons of capacity[35] - The logistics business has the capacity to mix and/or transload over 40 million tons of coal and other aggregates annually[36] Inventories Total inventories increased to $206.8 million as of September 30, 2023, from $175.2 million at December 31, 2022, primarily driven by an increase in coal inventories Components of Inventories | | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | (In millions) | | | | Coal | $127.8 | $109.4 | | Coke | $21.5 | $14.3 | | Materials, supplies and other | $57.5 | $51.5 | | Total inventories | $206.8 | $175.2 | Income Taxes The effective tax rate significantly increased to 63.2% in Q3 2023 due to an $8.5 million valuation allowance on foreign tax credit carryforwards - In Q3 2023, the company established an $8.5 million valuation allowance on deferred tax assets related to foreign tax credit carryforwards, partially reversing an $11.3 million valuation allowance released in Q3 2022[42] - New Brazilian legislation aligning transfer pricing with OECD guidelines will make Brazilian taxes creditable in the U.S. from 2024, limiting the utilization of prior years' foreign tax credit carryforwards[43] Effective Tax Rate | | Three Months Ended Sep 30, | Nine Months Ended Sep 30, | | :--- | :--- | :--- | :--- | :--- | | | 2023 | 2022 | 2023 | 2022 | | Effective tax rate | 63.2% | (7.3)% | 38.1% | 13.4% | Debt and Financing Obligation As of September 30, 2023, total debt and financing obligation was $496.1 million, down from $532.2 million at year-end 2022, with no outstanding balance on its $350.0 million Revolving Facility Total Debt and Financing Obligation | | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | (In millions) | | | | 4.875% Senior Notes, due 2029 | $500.0 | $500.0 | | Revolving Facility, due 2026 | $0.0 | $35.0 | | Total borrowings | $506.3 | $543.8 | | Total debt and financing obligation | $496.1 | $532.2 | - As of September 30, 2023, the Revolving Facility had no outstanding balance, with $350.0 million available[48] - The company was in compliance with all applicable debt covenants as of September 30, 2023[51] Commitments and Contingent Liabilities The company faces legal and black lung liabilities, with a $60.0 million black lung liability and a potential $40.4 million collateral requirement from the U.S. Department of Labor - The black lung liability was $60.0 million at September 30, 2023[55] - The U.S. Department of Labor requires $40.4 million in collateral to self-insure black lung obligations, a substantial increase from the current $8.4 million, which the company has appealed[58] Revenue from Contracts with Customers Revenue is primarily generated from long-term, take-or-pay cokemaking contracts and logistics services, with Cliffs Steel and U.S. Steel as major customers - As of September 30, 2023, coke sales agreements have approximately 22.7 million tons of unsatisfied performance obligations, expected to be delivered over a weighted average remaining contract term of about ten years[76] Disaggregated Sales by Customer (Nine Months Ended Sep 30) | | 2023 | 2022 | | :--- | :--- | :--- | | (In millions) | | | | Cliffs Steel | $1,000.8 | $861.4 | | U.S. Steel | $230.4 | $209.8 | | Other | $311.4 | $387.3 | | Total | $1,542.6 | $1,458.5 | Business Segment Information The company operates three segments: Domestic Coke, Brazil Coke, and Logistics, with total Adjusted EBITDA for reportable segments at $233.1 million for the nine months ended September 30, 2023 Adjusted EBITDA by Reportable Segment (Nine Months Ended Sep 30) | | 2023 | 2022 | | :--- | :--- | :--- | | (In millions) | | | | Domestic Coke | $192.6 | $216.9 | | Brazil Coke | $6.9 | $11.4 | | Logistics | $33.6 | $38.0 | | Total Adjusted EBITDA reportable segments | $233.1 | $266.3 | Reconciliation of Adjusted EBITDA to Net Income (Nine Months Ended Sep 30, 2023) | | Amount (in millions) | | :--- | :--- | | Net income | $48.2 | | Add: | | | Depreciation and amortization expense | $107.2 | | Interest expense, net | $21.0 | | Income tax expense (benefit) | $29.7 | | Transaction costs | $0.4 | | Corporate and Other expenses | $26.6 | | Adjusted EBITDA reportable segments | $233.1 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 financial results, noting impacts from lower coke margins, unfavorable energy pricing, and reduced logistics volumes, while highlighting strong liquidity and contract extension Third Quarter Key Financial Results | | Three Months Ended Sep 30, | Nine Months Ended Sep 30, | | :--- | :--- | :--- | :--- | :--- | | (In millions) | 2023 | 2022 | 2023 | 2022 | | Net income | $8.5 | $42.5 | $48.2 | $92.1 | | Adjusted EBITDA | $65.4 | $83.7 | $206.5 | $238.8 | - Operating results were primarily impacted by lower margins on non-contracted blast coke sales, unfavorable energy pricing at the Haverhill facility, and lower transloading volumes in the Logistics segment[101] - In April 2023, the Indiana Harbor take-or-pay agreement with Cliffs Steel was extended to September 30, 2035, continuing the supply of 1,220 thousand tons annually[102] - Net cash from operating activities increased by $72.0 million to $192.6 million for the nine months ended Sep 30, 2023, mainly due to favorable changes in working capital[127] Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes to its exposure to market risk as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes to the Company's exposure to market risk from what was disclosed in the 2022 Annual Report on Form 10-K[136] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report[140] - There have been no changes in the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal controls during the quarter ended September 30, 2023[141] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety disclosures, and a list of exhibits Legal Proceedings The company is party to various legal proceedings arising from its operations, with management believing any liabilities are not likely to have a material adverse impact - The company is involved in pending legal and administrative proceedings related to commercial disputes, employment claims, personal injury, and environmental claims[144] - Management believes that any liabilities arising from these matters would not likely be material to the company's consolidated financial position or results of operations[144] Risk Factors There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes with respect to risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[145] Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company has a share repurchase program authorized for up to $100.0 million, with $96.3 million remaining available as of September 30, 2023, and no repurchases since Q1 2020 - As of September 30, 2023, $96.3 million remains available under the authorized $100.0 million share repurchase program[146] - No share repurchases have been made since the first quarter of 2020[146] Defaults Upon Senior Securities None reported - None[147] Mine Safety Disclosures Information regarding mine safety violations and other regulatory matters required under the Dodd-Frank Act is included in Exhibit 95.1 to this quarterly report - Information concerning mine safety violations is included in Exhibit 95.1 to this Quarterly Report on Form 10-Q[148] Other Information None reported - None[149] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, certifications, and financial statements in iXBRL format - The report includes a list of exhibits filed, such as corporate governance documents, CEO/CFO certifications, and financial data in iXBRL format[150]