•our ability to meet minimum volume requirements, coal-to-coke yield standards and coke quality standards in our coke sales agreements;
•variation in availability, quality and supply of metallurgical coal used in the cokemaking process, including as a result of non-performance by our suppliers;
•effects of geologic conditions, weather, natural disasters and other inherent risks beyond our control;
•effects of adverse events relating to the operation of our facilities and to the transportation and storage of hazardous materials or regulated media (including equipment malfunction, explosions, fires, spills, impoundment failure and the effects of severe weather conditions);
•the existence of hazardous substances or other environmental contamination on property owned or used by us;
•required permits and other regulatory approvals and compliance with contractual obligations and/or bonding requirements in connection with our cokemaking, logistics operations, and/or former coal mining activities;
•the availability of future permits authorizing the disposition of certain mining waste and the management of reclamation areas;
•risks related to environmental compliance;
•our ability to comply with applicable federal, state or local laws and regulations, including, but not limited to, those relating to environmental matters;
•risks related to labor relations and workplace safety;
•availability of skilled employees for our cokemaking, and/or logistics operations, and other workplace factors;
•our ability to service our outstanding indebtedness;
•our indebtedness and certain covenants in our debt documents;
•our ability to comply with the covenants and restrictions imposed by our financing arrangements;
•changes in the availability and cost of equity and debt financing;
•impacts on our liquidity and ability to raise capital as a result of changes in the credit ratings assigned to our indebtedness;
•competition from alternative steelmaking and other technologies that have the potential to reduce or eliminate the use of coke;
•our dependence on, relationships with, and other conditions affecting our customers and/or suppliers;
•consolidation of major customers;
•nonperformance or force majeure by, or disputes with, or changes in contract terms with, major customers, suppliers, dealers, distributors or other business partners;
•effects of adverse events relating to the business or commercial operations of our customers and/or suppliers;
•changes in credit terms required by our suppliers;
•our ability to secure new coal supply agreements or to renew existing coal supply agreements;
•effects of railroad, barge, truck and other transportation performance and costs, including any transportation disruptions;
•our ability to enter into new, or renew existing, long-term agreements upon favorable terms for the sale of coke, steam, or electric power, or for handling services of coal and other aggregates (including transportation, storage and mixing);
•our ability to enter into new, or renew existing, agreements upon favorable terms for logistics services;
•our ability to successfully implement domestic and/or international growth strategies;
•our ability to identify acquisitions, execute them under favorable terms, and integrate them into our existing business operations;
•our ability to realize expected benefits from investments and acquisitions;
•our ability to enter into joint ventures and other similar arrangements under favorable terms;
•our ability to consummate assets sales, other divestitures and strategic restructuring in a timely manner upon favorable terms, and/or realize the anticipated benefits from such actions;
•our ability to consummate investments under favorable terms, including with respect to existing cokemaking facilities, which may utilize by-product technology, and integrate them into our existing businesses and have them perform at anticipated levels;
•our ability to develop, design, permit, construct, start up, or operate new cokemaking facilities in the U.S. or in foreign countries;
•disruption in our information technology infrastructure and/or loss of our ability to securely store, maintain, or transmit data due to security breach by hackers, employee error or malfeasance, terrorist attack, power loss, telecommunications failure or other events;
•the accuracy of our estimates of reclamation and other environmental obligations;
•risks related to obligations under mineral leases retained by us in connection with the divestment of our legacy coal mining business;
•risks related to the ability of the assignee(s) to perform in compliance with applicable requirements under mineral leases assigned in connection with the divestment of our legacy coal mining business;
•proposed or final changes in existing, or new, statutes, regulations, rules, governmental policies and taxes, or their interpretations, including those relating to environmental matters and taxes;
•proposed or final changes in accounting and/or tax methodologies, laws, regulations, rules, or policies, or their interpretations, including those affecting inventories, leases, post-employment benefits, income, or other matters;
•changes in federal, state, or local tax laws or regulations, including the interpretations thereof;
•claims of noncompliance with any statutory or regulatory requirements;
•changes in insurance markets impacting cost, level and/or types of coverage available, and the financial ability of our insurers to meet their obligations;
•inadequate protection of our intellectual property rights;
•volatility in foreign currency exchange rates affecting the markets and geographic regions in which we conduct business; and
•historical consolidated financial data may not be reliable indicators of future results.
The factors identified above are believed to be important factors, but not necessarily all of the important factors, that could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Other factors not discussed herein also could have material adverse effects on us. All forward-looking statements included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by the foregoing cautionary statements.
In addition, our discussion of certain environmental, social and governance (“ESG”) assessments and related issues in this or other disclosures, including on our corporate website, is informed by various ESG standards and frameworks (including standards for the measurement of underlying data) and the interests of various stakeholders. As such, such information may not be, and should not be interpreted as necessarily being, “material” under the federal securities laws for Securities and Exchange Commission (“SEC”) reporting purposes. Furthermore, much of this information is subject to assumptions, methodologies, or third-party information that is still evolving and subject to repeated change. Our disclosures may change as a result of changes in frameworks, availability or quality of information, changes in business or government policy, or other factors, which may be out of our control.
Properties, plants and equipment (net of accumulated depreciation of $1,470.1 million and $1,383.6 million at September 30, 2024 and December 31, 2023, respectively)
1,147.4
1,191.1
Intangible assets, net
29.6
31.1
Deferred charges and other assets
21.8
21.4
Total assets
$
1,654.8
$
1,660.4
Liabilities and Equity
Accounts payable
$
152.0
$
172.1
Accrued liabilities
47.1
51.7
Interest payable
6.1
—
Total current liabilities
205.2
223.8
Long-term debt
491.8
490.3
Accrual for black lung benefits
13.2
53.2
Retirement benefit liabilities
14.8
15.8
Deferred income taxes
198.1
190.4
Asset retirement obligations
14.9
14.1
Other deferred credits and liabilities
25.8
27.3
Total liabilities
963.8
1,014.9
Equity
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no issued shares at both September 30, 2024 and December 31, 2023
—
—
Common stock, $0.01 par value. Authorized 300,000,000 shares; issued 99,496,809 and 99,161,446 shares at September 30, 2024 and December 31, 2023, respectively
1.0
1.0
Treasury stock, 15,404,482 shares at both September 30, 2024 and December 31, 2023
(184.0)
(184.0)
Additional paid-in capital
730.3
729.8
Accumulated other comprehensive loss
(13.5)
(12.8)
Retained earnings
124.8
80.2
Total SunCoke Energy, Inc. stockholders’ equity
658.6
614.2
Noncontrolling interest
32.4
31.3
Total equity
691.0
645.5
Total liabilities and equity
$
1,654.8
$
1,660.4
(See accompanying notes to the consolidated financial statements)
SunCoke Energy, Inc. (“SunCoke Energy,” “SunCoke,” “Company,” “we,” “our” and “us”) is the largest independent producer of high-quality coke in the Americas, as measured by tons of coke produced each year, and has more than 60 years of coke production experience. Coke 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 sell coke produced utilizing capacity in excess of that reserved for our long-term, take-or-pay agreements to customers in both the export and North American domestic coke markets 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. 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.
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 logistics 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 coal and other aggregates annually and have storage capacity of approximately 3 million tons.
Basis of Presentation
The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim reporting. Certain information and disclosures normally included in financial statements have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. The results of operations for the period ended September 30, 2024 are not necessarily indicative of the operating results expected for the entire year. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Intangible assets, net, include Goodwill allocated to our Domestic Coke segment of $3.4 million at both September 30, 2024 and December 31, 2023, and other intangibles detailed in the table below, excluding fully amortized intangible assets.
September 30, 2024
December 31, 2023
Weighted - Average Remaining Amortization Years
Gross Carrying Amount
Accumulated Amortization
Net
Gross Carrying Amount
Accumulated Amortization
Net
(Dollars in millions)
Customer relationships
0
$
6.7
$
6.7
$
—
$
6.7
$
6.2
$
0.5
Permits
18
31.7
6.9
24.8
31.7
5.9
25.8
Other
26
1.6
0.2
1.4
1.6
0.2
1.4
Total
$
40.0
$
13.8
$
26.2
$
40.0
$
12.3
$
27.7
Total amortization expense for intangible assets subject to amortization was $0.5 million for both the three months ended September 30, 2024 and 2023, and $1.5 million and $1.6 million for the nine months ended September 30, 2024 and 2023, respectively.
4. Income Taxes
At the end of each interim period, we make our best estimate of the annual effective tax rate and the impact of discrete items, if any, and adjust the rate as necessary.
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(Dollars in millions)
Income before income tax expense
$
41.5
$
23.1
$
98.6
$
77.9
Income tax expense
8.2
14.6
20.9
29.7
Effective tax rate
19.8
%
63.2
%
21.2
%
38.1
%
Income taxes recorded for all periods presented reflect discrete items recorded. During the three and nine months ended September 30, 2024 the Company recorded a federal return to provision tax benefit of $0.7 million. Additionally, the Company released valuation allowances established on certain foreign tax credits (“FTCs”) carryforward from prior periods during the three and nine months ended September 30, 2024 as a result of projected utilization of the FTCs of $0.7 million. Income taxes for the nine months ended September 30, 2024, reflects the release of a valuation allowance established on the deferred tax assets attributable to existing state net operating losses carryforwards, (“NOLs”) resulting in a deferred tax benefit of $2.2 million. The release was a result of tax planning conducted by the Company, as the state NOLs carried forward from prior years are now expected to be utilized. Income tax expense also reflects the revaluation of certain deferred tax liabilities due to changes in apportioned state tax rates, which resulted in income tax expense of $1.9 million for the nine months ended September 30, 2024.
During the three and nine months ended September 30, 2023, the Company established an $8.5 million valuation allowance, which was a portion of an $11.3 million valuation allowance that was released during the third quarter of 2022 on deferred tax assets attributable to existing foreign tax credit carryforwards. The establishment of the valuation allowance during the three and nine months ended September 30, 2023 was the result of changes in tax regulation.
Before the impact of discrete items described above, the Company's effective tax rate was 23.3 percent and 22.9 percent for the three and nine months ended September 30, 2024, respectively, and 26.1 percent and 27.2 percent for the three and nine months ended September 30, 2023, respectively. The difference between the Company's effective tax rates and federal statutory rate of 21.0 percent during all periods presented reflect the impact of state taxes, earnings attributable to its noncontrolling ownership interests in a partnership and compensation deduction limitations under Section 162(m) of the Internal Revenue Code. The three and nine months ended September 30, 2024 also reflects the impact of a valuation allowance established for a portion of FTCs projected for the current period as a result of tax legislation enacted in Brazil during the third quarter of 2023 as well as a valuation allowance released for a portion of state NOLs’ utilization projected for the current period as a result of tax planning. The three and nine months ended September 30, 2023 also reflects the impact of foreign taxes as a result of regulations impacting foreign tax credit utilization published by the U.S. Treasury.
Current portion of postretirement benefit obligation
2.3
2.3
Other taxes payable
12.4
10.4
Current portion of black lung liability
1.2
5.0
Lease liabilities
2.7
2.5
Other
6.3
4.7
Total accrued liabilities
$
47.1
$
51.7
6. Debt
Total debt consisted of the following:
September 30, 2024
December 31, 2023
(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”)
—
—
Total borrowings
$
500.0
$
500.0
Debt issuance costs
(8.2)
(9.7)
Total debt
$
491.8
$
490.3
Revolving Facility
As of September 30, 2024, the Revolving Facility hadno outstanding balance, leaving $350.0 million available. Additionally, the Company has certain letters of credit totaling $15.6 million, which do not reduce the Revolving Facility's available balance.
Covenants
Under the terms of the Revolving Facility, the Company is subject to a maximum consolidated net leverage ratio of 4.50:1.00 and a minimum consolidated interest coverage ratio of 2.50:1.00. The Company's debt agreements contain other covenants and events of default that are customary for similar agreements and may limit our ability to take various actions including our ability to pay a dividend or repurchase our stock.
If we fail to perform our obligations under these and other covenants, the lenders' credit commitment could be terminated and any outstanding borrowings, together with accrued interest, under the Revolving Facility could be declared immediately due and payable. The Company has a cross default provision that applies to our indebtedness having a principal amount in excess of $35.0 million.
As of September 30, 2024, the Company was in compliance with all applicable 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.
7. Commitments and Contingent Liabilities
Legal Matters
The Company is a party to certain pending and threatened claims, including matters related to commercial disputes, employment claims, personal injury claims, common law tort claims, and environmental claims. Although the ultimate outcome of these claims cannot be ascertained at this time, it is reasonably possible that some portion of these claims could be resolved unfavorably to the Company. Management of the Company believes that any liability which may arise from these claims would 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.
The Company has obligations to provide certain black lung benefits to legacy coal miners and their dependents under Title IV of the Federal Coal Mine Health and Safety Act of 1969, as amended (“Black Lung Benefits Act”), as well as for black lung benefits in the states of Virginia, Kentucky and West Virginia pursuant to state workers’ compensation legislation.
We adjust our liability each year based upon actuarial calculations of our expected future payments for these benefits. Our independent actuarial consultants calculate the present value of the estimated black lung liability annually in the fourth quarter, unless there are changes in facts and circumstances that could materially alter the amount of the liability, based on actuarial models utilizing our population of legacy coal miners, historical payout patterns of both the Company and the industry, expected claim filing patterns, expected claimant success rates, actuarial mortality rates, 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 applicable laws, as interpreted by the courts, and changes in filing patterns by claimants and their advisors, the impact of which cannot be estimated.
On February 1, 2013, SunCoke obtained commercial insurance for state and federal black lung claims, in excess of a deductible, for employees with a last date of employment after that date. For claims based on employment that ended prior to February 1, 2013, SunCoke was reauthorized by the U.S. Department of Labor’s Division of Coal Mine Workers Compensation (“DCMWC”) to self-insure its black lung liabilities for $8.4 million. On February 21, 2020, DCMWC made an initial security determination to increase the amount of SunCoke’s collateral requirement for self-insured claims to $40.4 million. The Company appealed the security determination to the DCMWC. On August 13, 2024, the Company and DCMWC agreed that the Company would make a lump sum payment of $36.0 million to satisfy its self-insured federal black lung liabilities, with limited exceptions estimated to be approximately $1.4 million. In exchange, the DCMWC agreed to permanently assume responsibility for payment of black lung benefits for claims based on employment that ended prior to February 1, 2013, and SunCoke received a Certificate of Exemption that eliminates the Company’s responsibility for future payments arising from claims based on employment that ended prior to February 1, 2013, excluding limited exceptions estimated to be approximately $1.4 million. This agreement resulted in a reduction of $45.5 million of the Company's black lung liability, and a one-time gain of $9.5 million within selling, general and administrative expenses on the Consolidated Statements of Income during the three and nine months ended September 30, 2024. The Company no longer maintains any collateral to self-insure its former black lung liabilities incurred prior to February 1, 2013. The Company’s commercially insured federal and state black lung liabilities are not impacted by this agreement.
Additionally, on January 19, 2023, the Department of Labor proposed a new rule that would require self-insured operators to post collateral in the amount of 120 percent of the company's total expected lifetime black lung liabilities as determined by the DCMWC. This proposed new rule and any future rulings would not apply to SunCoke.
The following table summarizes the discount rate utilized, active claims and the total black lung liability as of September 30, 2024 and December 31, 2023. The black lung liability as of September 30, 2024 has been adjusted to remove the liability for claims assumed by the DCMWC when the Company received the regulatory exemption noted above. The black lung liability as of September 30, 2024 represents the population of existing claims the Company remains responsible for valued utilizing the actuarial assumptions as of December 31, 2023, including the discount rate, as we do not believe there are facts and circumstances that could materially alter the retained amount of black lung liabilities. Our independent actuarial consultants will calculate the present value of the current claims population during the fourth quarter of 2024.
September 30, 2024
December 31, 2023
(Dollars in millions)
Discount rate(1)
4.5
%
4.5
%
Active claims
53
311
Total black lung liability, discounted(2)
$
14.4
$
58.2
Total black lung liability, undiscounted
$
27.1
$
96.0
(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 decrease of 25 basis points in the discount rate would have increased black lung expense by $0.4 million at September 30, 2024 and $1.4 million at December 31, 2023.
(2)The current portion of the black lung liability was $1.2 million at September 30, 2024 and $5.9 million at December 31, 2023, and is included in accrued liabilities on the Consolidated Balance Sheets.
The following table represents expected payments for each of the five succeeding years and the aggregate amount thereafter as of September 30, 2024 and December 31, 2023:
September 30, 2024
December 31, 2023
(Dollars in millions)
2024
$
0.5
$
5.0
2025
1.2
3.9
2026
1.4
4.4
2027
0.7
4.0
2028
0.6
3.8
2029-Thereafter
22.7
74.9
Total
$
27.1
$
96.0
The following table reconciles the expected aggregate undiscounted amount to amounts recognized in the Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023:
September 30, 2024
December 31, 2023
(Dollars in millions)
Black lung liability, undiscounted
$
27.1
$
96.0
Impact of discounting
(12.7)
(37.8)
Black lung liability, discounted
$
14.4
$
58.2
The following table summarizes the annual black lung payments and (benefit) expense:
September 30, 2024
December 31, 2023
(Dollars in millions)
Payments(1)
$
39.7
$
5.4
(Benefit) expense(2)
(4.1)
5.5
(1)Payments for the nine months ended September 30, 2024 represent $3.7 million of black lung benefit payments made by the Company and the $36.0 million payment made to the DCMWC related to the regulatory exemption detailed above.
(2)The benefit for the nine months ended September 30, 2024 includes $5.4 million of accretion expense of the black lung liability and a $9.5 million gain related to the regulatory exemption detailed above. The $9.5 million gain is included in selling, general and administrative expense on the Consolidated Statement of Income.
8. Share-Based Compensation
Equity Classified Awards
During the nine months ended September 30, 2024, the Company granted share-based compensation to eligible participants under the SunCoke Energy, Inc. Omnibus Long-Term Incentive Plan (the “Omnibus Plan”). All awards vest immediately upon a qualifying termination of employment, as defined by the Omnibus Plan, following a change in control.
Restricted Stock Units Settled in Shares
During the nine months ended September 30, 2024, the Company issued 268,565 restricted stock units (“RSU”) to certain employees and members of the Board of Directors, to be settled in shares of the Company’s common stock. The weighted average grant date fair value was $10.86 per unit, and was based on the closing price of our common stock on the date of grant. RSUs granted to employees vest and become issuable in three annual installments beginning one year from the date of grant. The service period for certain retiree eligible participants is accelerated. RSUs granted to the Company's Board of Directors vest upon grant, but are paid out upon termination of board service.
Performance share units (“PSU”) were granted to certain employees to be settled in shares of the Company's common stock during the nine months ended September 30, 2024, for which the service period will end on December 31, 2026, and will vest and become issuable during the first quarter of 2027. The service period for certain retiree eligible participants is accelerated. The Company granted the following PSUs:
Shares
Weighted Average Grant Date Fair Value per Unit
PSUs(1)(2)
162,510
$
11.51
(1)Performance measures for the PSU awards are split 50/50 between the Company's three-year cumulative Adjusted EBITDA (as defined in Note 12 to the consolidated financial statements with the exception of the corporate/other expenses adjustment) and the Company's three-year average pre-tax return on capital for its coke and logistics businesses and unallocated corporate expenses.
(2)The number of PSUs ultimately awarded will be determined by the above performance measures versus targets and the Company's three-year total shareholder return (“TSR”) as compared to the TSR of the companies making up the Nasdaq Iron & Steel Index (“TSR Modifier”). The TSR Modifier can impact the payout between 80 percent and 120 percent of the Company's final performance measure results.
Each PSU award may vest between 25 percent and 200 percent of the original units granted. The fair value of the PSUs granted during the nine months ended September 30, 2024 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.
Liability Classified Awards
Restricted Stock Units Settled in Cash
During the nine months ended September 30, 2024, the Company issued 165,384 restricted stock units to certain employees to be settled in cash (“Cash RSU”), which vest and become payable 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 nine months ended September 30, 2024 was $10.96 per unit, based on the closing price of our common stock on the date of grant.
The Cash RSUs liability is adjusted based on the closing price of our common stock at the end of each quarterly period and was $1.7 million at September 30, 2024 and $2.8 million at December 31, 2023.
Cash Incentive Awards
The Company also granted long-term cash compensation to eligible participants under the Omnibus Plan. All awards vest immediately upon a qualifying termination of employment, as defined by the Omnibus Plan, following a change in control. The cash incentive award liability is included in accrued liabilities and other deferred credits and liabilities on the Consolidated Balance Sheets.
The Company issued awards with an aggregate grant date fair value of approximately $2.6 million during the nine months ended September 30, 2024, for which the service period will end on December 31, 2026 and will vest and become payable during the first quarter of 2027. The service period for certain retiree eligible participants is accelerated. The performance measures for these awards are split 50/50 between the Company's three-year cumulative Adjusted EBITDA and the Company's three-year average pre-tax return on capital for its coke and logistics businesses and unallocated corporate expenses.
The cash incentive award liability at September 30, 2024 was adjusted based on the Company's three-year cumulative Adjusted EBITDA and the Company's three-year adjusted average pre-tax return on capital for its coke and logistics businesses and unallocated corporate expenses. The cash incentive award liability was $7.2 million at September 30, 2024 and $8.1 million at December 31, 2023.
Below is a summary of the compensation expense, unrecognized compensation costs, and the period for which the unrecognized compensation cost is expected to be recognized over:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
September 30, 2024
Compensation Expense(1)
Unrecognized Compensation Cost
Weighted Average Remaining Recognition Period
(Dollars in millions)
(Dollars in millions)
(Years)
Equity Awards:
RSUs
$
0.3
$
0.8
$
2.1
$
2.2
$
1.4
2.0
PSUs
0.8
0.3
1.9
1.8
1.3
1.9
Total equity awards
$
1.1
$
1.1
$
4.0
$
4.0
Liability Awards:
Cash RSUs
$
0.2
$
0.9
$
1.0
$
1.9
$
1.5
1.7
Cash incentive award
1.1
0.6
2.5
2.3
2.4
1.9
Total liability awards
$
1.3
$
1.5
$
3.5
$
4.2
(1)Compensation expense recognized by the Company is included in selling, general and administrative expenses on the Consolidated Statements of Income.
The Company issued an additional $0.1 million and $0.3 million of share based compensation to the Company's Board of Directors during the nine months ended September 30, 2024 and 2023, respectively.
9. Earnings per Share
Basic earnings per share (“EPS”) has been computed by dividing net income attributable to SunCoke Energy, Inc. by the weighted average number of shares outstanding during the period. Except where the result would be anti-dilutive, diluted EPS has been computed to give effect to share-based compensation awards using the treasury stock method.
The following table sets forth the reconciliation of the weighted-average number of common shares used to compute basic EPS to those used to compute diluted EPS:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(Shares in millions)
Weighted-average number of common shares outstanding-basic
85.1
84.8
85.1
84.7
Add: Effect of dilutive share-based compensation awards
0.2
0.3
0.2
0.2
Weighted-average number of shares-diluted
85.3
85.1
85.3
84.9
The following table shows equity awards that are excluded from the computation of diluted EPS as the shares would have been anti-dilutive:
The Company measures certain financial and non-financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received 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 and cash equivalents were measured at fair value at September 30, 2024 and December 31, 2023 based on quoted prices in active markets for identical assets. These inputs are classified as Level 1 within the valuation hierarchy.
Certain Financial Assets and Liabilities not Measured at Fair Value
At September 30, 2024 and December 31, 2023, the fair value of the Company’s total debt was estimated to be $451.2 million and $450.2 million, respectively, compared to a carrying amount of $500.0 million at both periods. The fair value was estimated by management based upon estimates of debt pricing provided by financial institutions, which are considered Level 2 inputs.
11. Revenue from Contracts with Customers
Cokemaking
Our blast furnace coke sales are largely made pursuant to long-term, take-or-pay coke sales agreements primarily with Cleveland-Cliffs Steel Holding Corporation and Cleveland-Cliffs Steel LLC, both subsidiaries of Cleveland Cliffs Inc. and collectively referred to as “Cliffs Steel”, United States Steel Corporation (“U.S. Steel”), and Algoma Steel Inc. The take-or-pay provisions in our agreements require our customers to purchase coke volumes as specified in the agreements or pay the contract price for any tonnage they do not purchase. The take-or-pay provisions of our agreements also require us to deliver minimum annual tonnage. As of September 30, 2024, our coke sales agreements have approximately 19.9 million tons of unsatisfied or partially unsatisfied performance obligations, which are expected to be delivered over a weighted average remaining contract term of approximately nine years.
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.
Non-contracted blast coke sales are produced utilizing capacity in excess of our long-term, take-or-pay agreements and foundry coke. These non-contracted blast coke sales are generally sold on a spot basis at the current market price into the global export and North American coke markets, and do not contain the same provisions as our long-term, take-or-pay agreements.
Revenues on all coke sales are recognized when performance obligations to our customers are satisfied in an amount that reflects the consideration that we expect to receive in exchange for the coke.
Logistics
In our logistics business, handling and/or mixing services are provided to steel, coke (including some of our domestic cokemaking facilities), electric utility, coal producing and other manufacturing based customers. Materials are transported in numerous ways, including rail, truck, barge or ship. We do not take possession of materials handled, but rather act as intermediaries between our customers and end users, deriving our revenues from services provided on a per ton basis. The handling and mixing services consist primarily of two performance obligations, unloading and loading of materials. Revenues
are recognized when the customer receives the benefits of the services provided, in an amount that reflects the consideration that we will receive in exchange for those services.
Estimated take-or-pay revenue of approximately $32.5 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 September 30, 2024.
Disaggregated Sales and Other Operating Revenue
The following table provides disaggregated sales and other operating revenue by product or service, excluding intersegment revenues:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(Dollars in millions)
Sales and other operating revenue:
Cokemaking
$
446.2
$
481.3
$
1,322.2
$
1,418.5
Energy
12.7
12.5
36.1
36.5
Logistics
20.8
15.4
60.9
55.6
Operating and licensing fees
8.8
9.1
26.2
25.8
Other
1.6
2.1
4.0
6.2
Sales and other operating revenue
$
490.1
$
520.4
$
1,449.4
$
1,542.6
The following tables provide disaggregated sales and other operating revenue by customer:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(Dollars in millions)
Sales and other operating revenue:
Cliffs Steel
$
311.5
$
338.7
$
915.7
$
1,000.8
U.S. Steel
72.0
79.2
214.1
230.4
Other
106.6
102.5
319.6
311.4
Sales and other operating revenue
$
490.1
$
520.4
$
1,449.4
$
1,542.6
12. Business Segment Information
The Company reports its business through three reportable segments: Domestic Coke, Brazil Coke and Logistics. The Domestic Coke segment includes the Jewell, Indiana Harbor, Haverhill, Granite City and Middletown cokemaking facilities. Each of these facilities produces coke, and all facilities except Jewell recover waste heat, which is converted to steam or electricity.
The Brazil Coke segment includes the licensing and operating fees payable to us under long-term contracts with ArcelorMittal Brazil, under which we operate a cokemaking facility located in Vitória, Brazil through January 2028.
Logistics operations are comprised of Convent Marine Terminal (“CMT”), Kanawha River Terminal (“KRT”), and Lake Terminal, which provides services to our Indiana Harbor cokemaking facility. Handling and mixing results are presented in the Logistics segment.
Corporate expenses that can be identified with a segment have been included in determining segment results. The remainder is included in Corporate and Other, which is not a reportable segment, but which also includes activity from our legacy coal mining business.
Segment assets are those assets utilized within a specific segment.
The following table includes Adjusted EBITDA reportable segments, as defined below, which is a measure of segment profit or loss reported to the chief operating decision maker for purposes of allocating resources to the segments and assessing their performance:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(Dollars in millions)
Sales and other operating revenue:
Domestic Coke
$
459.9
$
495.7
$
1,361.0
$
1,460.4
Brazil Coke
8.8
9.1
26.2
25.8
Logistics
21.4
15.6
62.2
56.4
Logistics intersegment sales
6.0
5.6
17.8
16.9
Elimination of intersegment sales
(6.0)
(5.6)
(17.8)
(16.9)
Total sales and other operating revenues
$
490.1
$
520.4
$
1,449.4
$
1,542.6
Adjusted EBITDA reportable segments:
Domestic Coke
$
58.1
$
64.0
$
177.4
$
192.6
Brazil Coke
2.5
2.2
7.4
6.9
Logistics
13.7
8.4
38.9
33.6
Total Adjusted EBITDA reportable segments
$
74.3
$
74.6
$
223.7
$
233.1
Depreciation and amortization expense:
Domestic Coke
$
24.6
$
32.1
$
79.9
$
97.1
Brazil Coke
0.1
0.1
0.2
0.2
Logistics
3.3
3.2
9.6
9.7
Total reportable segments
$
28.0
$
35.4
$
89.7
$
107.0
Corporate and Other
0.1
0.1
0.4
0.2
Total depreciation and amortization expense
$
28.1
$
35.5
$
90.1
$
107.2
Capital expenditures:
Domestic Coke
$
12.3
$
32.6
$
43.3
$
80.8
Brazil Coke
0.1
—
0.1
0.2
Logistics
2.6
1.4
4.2
3.3
Total reportable segments
$
15.0
$
34.0
$
47.6
$
84.3
Corporate and Other
0.1
0.1
0.5
0.2
Total capital expenditures
$
15.1
$
34.1
$
48.1
$
84.5
The following table sets forth the Company's segment assets:
September 30, 2024
December 31, 2023
(Dollars in millions)
Segment assets:
Domestic Coke
$
1,366.1
$
1,405.5
Brazil Coke
9.6
11.9
Logistics
156.8
158.4
Total reportable segments
$
1,532.5
$
1,575.8
Corporate and Other
116.7
83.2
Total assets, excluding tax assets
$
1,649.2
$
1,659.0
Tax assets
5.6
1.4
Total assets
$
1,654.8
$
1,660.4
The Company evaluates the performance of its segments based on Adjusted EBITDA reportable segments, which is defined as earnings before interest, taxes, depreciation and amortization, adjusted for any impairments, restructuring costs, gains or losses on extinguishment of debt, transaction costs, and/or corporate/other expenses (“Adjusted EBITDA reportable
segments”). Management believes Adjusted EBITDA reportable segments is an important measure in assessing operating performance. Additionally, other companies may calculate Adjusted EBITDA reportable segments differently than we do, limiting its usefulness as a comparative measure.
Reconciliation of Adjusted EBITDA Reportable Segments to Net Income
Below is a reconciliation of Adjusted EBITDA reportable segments to net income, which is its most directly comparable financial measure calculated and presented in accordance with GAAP:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(Dollars in millions)
Net income
$
33.3
$
8.5
$
77.7
$
48.2
Add:
Depreciation and amortization expense
28.1
35.5
90.1
107.2
Interest expense, net
5.7
6.6
17.8
21.0
Income tax expense
8.2
14.6
20.9
29.7
Transaction costs(1)
—
0.2
0.2
0.4
Corporate and Other
(1.0)
9.2
17.0
26.6
Adjusted EBITDA reportable segments
$
74.3
$
74.6
$
223.7
$
233.1
(1)Costs incurred as part of the granulated pig iron project with U.S. Steel.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 (this “Quarterly Report on Form 10-Q”) contains certain forward-looking statements, 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, and they involve known and unknown risks that are difficult to predict. As a result, our future results and financial condition may differ materially from those we currently anticipate as a result of the factors we describe in our filings with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report on Form 10-K”), and as updated in this Quarterly Report on Form 10-Q, and other quarterly and current reports, which are on file with the SEC and are available at the SEC's website (www.sec.gov). Additionally, please see our “Cautionary Statement Concerning Forward-Looking Statements” located elsewhere in this Quarterly Report on Form 10-Q.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is based on financial data derived from the financial statements prepared in accordance with the United States generally accepted accounting principles (“GAAP”) and certain other financial data that is prepared using a non-GAAP measure. For a reconciliation of the non-GAAP measure to its most comparable GAAP component, see “Non-GAAP Financial Measures” at the end of this Item 2.
Our MD&A is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flow.
Overview
SunCoke Energy, Inc. (“SunCoke Energy,” “SunCoke,” “Company,” “we,” “our” and “us”) is the largest independent producer of high-quality coke in the Americas, as measured by tons of coke produced each year, and has more than 60 years of coke production experience. Coke 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 sell coke produced utilizing capacity in excess of that reserved for our long-term, take-or-pay agreements to customers in both the export and North American domestic coke markets 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. 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.
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 logistics 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 coal and other aggregates annually and has storage capacity of approximately 3 million tons.
Market Discussion
During the nine months ended September 30, 2024, our domestic coke plants continued to operate at full capacity. Our long-term, take-or-pay Domestic Coke sales agreements, which largely consume our capacity, are not impacted by the fluctuations of global coke prices. Non-contracted blast coke, which is produced utilizing capacity in excess of that reserved for long-term, take-or-pay Domestic Coke sales agreements, is sold in the global market and can be impacted by fluctuations of global coke prices.
Our Convent Marine Terminal (“CMT”) serves certain customers impacted by seaborne export market dynamics. Volumes through CMT are impacted by fluctuations in global energy needs and benchmark pricing for coal delivery into Europe, which can be impacted by weather conditions, natural gas prices, and global thermal coal supply. Our Kanawha River Terminal (“KRT”) serves 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.
Our consolidated results of operations were as follows:
Three Months Ended September 30,
Increase (Decrease)
Nine Months Ended September 30,
Increase (Decrease)
2024
2023
2024
2023
(Dollars in millions)
Net income
$
33.3
$
8.5
$
24.8
$
77.7
$
48.2
$
29.5
Net cash provided by operating activities
$
107.2
$
93.7
$
13.5
$
107.9
$
192.6
$
(84.7)
Adjusted EBITDA(1)
$
75.3
$
65.4
$
9.9
$
206.7
$
206.5
$
0.2
(1)See the “Non-GAAP Financial Measures” section below for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement.
Operating results for the three and nine months ended September 30, 2024 reflect higher transloading volumes and pricing in our Logistics segment, as well as the extinguishment of certain black lung liabilities during the current year period, which resulted in the recognition of a $9.5 million pre-tax gain. These increases were partially offset by unfavorable coal-to-coke yields on our long-term, take-or-pay agreements within our Domestic Coke segment. See detailed analysis of the quarter's results throughout this MD&A.
Recent Developments
•Granite City Contract Extension.In October 2024, the Granite City long-term, take-or-pay agreement with United States Steel Corporation (“U.S. Steel”) was extended through June 30, 2025, with an option for U.S. Steel to extend for an additional six months. Under the terms of the agreement, Granite City will supply 295 thousand tons of coke to U.S. Steel during the initial six month term. The terms of the extension includes a turn down fee, but results in significantly lower overall economics compared to the current long-term, take-or-pay agreement. Other key provisions of the agreement, including the pass-through of coal costs, remain unchanged.
Items Impacting Comparability
•U.S. Department of Labor’s Division of Coal Mine Workers Compensation (“DCMWC”) Regulatory Exemption. In August 2024, the Company reached an agreement with the DCMWC and made a payment of $36.0 million to extinguish the majority of its self-insured federal black lung liabilities. As a result of the agreement, the Company recognized a $9.5 million pre-tax gain within selling, general and administrative expenses on the Consolidated Statements of Income during the three and nine months ended September 30, 2024. The agreement resulted in a reduction of $45.5 million of the Company's black lung liability on the Consolidated Balance Sheets. See Note 7 to our consolidated financial statements for further detail.
The following table sets forth amounts from the Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023, respectively:
Three Months Ended September 30,
Increase (Decrease)
Nine Months Ended September 30,
Increase (Decrease)
2024
2023
2024
2023
(Dollars in millions)
Revenues
Sales and other operating revenue
$
490.1
$
520.4
$
(30.3)
$
1,449.4
$
1,542.6
$
(93.2)
Costs and operating expenses
Cost of products sold and operating expenses
405.2
436.1
(30.9)
1,197.1
1,281.2
(84.1)
Selling, general and administrative expenses
9.6
19.1
(9.5)
45.8
55.3
(9.5)
Depreciation and amortization expense
28.1
35.5
(7.4)
90.1
107.2
(17.1)
Total costs and operating expenses
442.9
490.7
(47.8)
1,333.0
1,443.7
(110.7)
Operating income
47.2
29.7
17.5
116.4
98.9
17.5
Interest expense, net
5.7
6.6
(0.9)
17.8
21.0
(3.2)
Income before income tax expense
41.5
23.1
18.4
98.6
77.9
20.7
Income tax expense
8.2
14.6
(6.4)
20.9
29.7
(8.8)
Net income
33.3
8.5
24.8
77.7
48.2
29.5
Less: Net income attributable to noncontrolling interests
2.6
1.5
1.1
5.5
4.5
1.0
Net income attributable to SunCoke Energy, Inc.
$
30.7
$
7.0
$
23.7
$
72.2
$
43.7
$
28.5
Sales and Other Operating Revenue and Costs of Products Sold and Operating Expenses. Sales and other operating revenue and costs of products sold and operating expenses decreased for the three and nine months ended September 30, 2024 compared to the same prior year periods, primarily driven by the pass-through of lower coal prices on our long-term, take-or-pay agreements.
Selling, General and Administrative Expenses. Selling, general and administrative expenses during the three and nine months ended September 30, 2024 was primarily impacted by the recognition of a $9.5 million gain, which was the result of the extinguishment of certain liabilities related to our legacy coal mining business. See Note 7 to our consolidated financial statements for further detail.
Depreciation and Amortization Expense. Depreciation and amortization expense for the three and nine months ended September 30, 2024 decreased as a result of the expiration of the useful lives of assets in our Domestic Coke segment placed into service in prior periods.
Interest Expense, Net. Interest expense, net, benefited during the three and nine months ended September 30, 2024 from lower average debt balances in the current year periods and higher interest income of $0.8 million and $2.0 million, respectively, as compared to the same prior year periods.
Income Tax Expense. Income tax expense during the three and nine months ended September 30, 2024, benefited from the absence of $8.5 million of deferred tax expense recorded in the prior year related to the establishment of a valuation allowance on deferred tax assets attributable to existing foreign tax credit carryforwards, as a result of changes in tax regulations. Additionally, the nine months ended September 30, 2024 further benefited from the release of valuation allowances established on deferred tax assets related to state net operating loss carryforwards, partially offset by the revaluation of certain deferred tax liabilities due to changes in apportioned state tax rates. See Note 4 to our consolidated financial statements for further detail.
Noncontrolling Interest. Net income attributable to noncontrolling interests represents a 14.8 percent third-party interest in our Indiana Harbor cokemaking facility and fluctuates with the financial performance of that facility.
Results of Reportable Business Segments
We report our business results through three reportable segments:
•Domestic Coke consists of our Jewell facility, located in Vansant, Virginia, our Indiana Harbor facility, located in East Chicago, Indiana, our Haverhill facility, located in Franklin Furnace, Ohio, our Granite City facility located in Granite City, Illinois, and our Middletown facility located in Middletown, Ohio.
•Brazil Coke consists of operations in Vitória, Brazil, where we operate the ArcelorMittal Brazil cokemaking facility.
•Logistics consists of CMT, located in Convent, Louisiana, KRT, located in Ceredo and Belle, West Virginia, and Lake Terminal, located in East Chicago, Indiana. Lake Terminal is located adjacent to our Indiana Harbor cokemaking facility.
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 is not considered a reportable segment and therefore, not included in our segment information in Note 12. However, we have included Corporate and Other within our operating data below.
Management believes Adjusted EBITDA is an important measure of operating performance, which is used by the chief operating decision maker as one of the measurements 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 the “Non-GAAP Financial Measures” section below for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement.
The following tables set forth financial and operating data by segment:
Three Months Ended September 30,
Increase (Decrease)
Nine Months Ended September 30,
Increase (Decrease)
2024
2023
2024
2023
(Dollars in millions)
Sales and Other Operating Revenues:
Domestic Coke
$
459.9
$
495.7
$
(35.8)
$
1,361.0
$
1,460.4
$
(99.4)
Brazil Coke
8.8
9.1
(0.3)
26.2
25.8
0.4
Logistics
21.4
15.6
5.8
62.2
56.4
5.8
Logistics intersegment sales
6.0
5.6
0.4
17.8
16.9
0.9
Elimination of intersegment sales
(6.0)
(5.6)
(0.4)
(17.8)
(16.9)
(0.9)
Total sales and other operating revenues
$
490.1
$
520.4
$
(30.3)
$
1,449.4
$
1,542.6
$
(93.2)
Adjusted EBITDA:
Domestic Coke
$
58.1
$
64.0
$
(5.9)
$
177.4
$
192.6
$
(15.2)
Brazil Coke
2.5
2.2
0.3
7.4
6.9
0.5
Logistics
13.7
8.4
5.3
38.9
33.6
5.3
Corporate and Other, net(1)
1.0
(9.2)
10.2
(17.0)
(26.6)
9.6
Total Adjusted EBITDA(2)
$
75.3
$
65.4
$
9.9
$
206.7
$
206.5
$
0.2
Coke Operating Data:
Domestic Coke capacity utilization(3)
102
%
102
%
—
%
100
%
101
%
(1)
%
Domestic Coke production volumes (thousands of tons)
1,031
1,032
(1)
3,009
3,024
(15)
Domestic Coke sales volumes (thousands of tons)
1,027
1,016
11
2,996
3,009
(13)
Domestic Coke Adjusted EBITDA per ton(4)
$
56.57
$
62.99
$
(6.42)
$
59.21
$
64.01
$
(4.80)
Brazilian Coke production—operated facility (thousands of tons)
423
381
42
1,191
1,175
16
Logistics Operating Data:
Tons handled (thousands of tons)
5,843
4,961
882
17,277
15,461
1,816
(1)Corporate and Other, net is not a reportable segment.
(2)See the “Non-GAAP Financial Measures” section below for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement.
(3)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.
The following table sets forth year-over-year changes in the Domestic Coke segment's sales and other operating revenues and Adjusted EBITDA results:
Three Months Ended September 30, 2024 vs. 2023
Nine Months Ended September 30, 2024 vs. 2023
Sales and other operating revenue
Adjusted EBITDA
Sales and other operating revenue
Adjusted EBITDA
(Dollars in millions)
Prior year period
$
495.7
$
64.0
$
1,460.4
$
192.6
Volume(1)
6.5
1.7
(3.4)
(0.1)
Price(2)
(41.4)
(6.8)
(92.7)
(9.2)
Operating and maintenance costs(3)
N/A
0.9
N/A
(1.9)
Energy and other(4)
(0.9)
(1.7)
(3.3)
(4.0)
Current year period
$
459.9
$
58.1
$
1,361.0
$
177.4
(1)Volumes during the three months ended September 30, 2024 increased due to the timing of shipments of our blast coke sales. Volumes during the three and nine months ended September 30, 2024 were negatively impacted by lower coal-to-coke yields.
(2)Sales and other operating revenue during the three and nine months ended September 30, 2024 decreased primarily as a result of the pass-through of lower coal prices on our long-term, take-or-pay agreements. Adjusted EBITDA during the three and nine months ended September 30, 2024 was negatively impacted by lower coal-to-coke yields on our long-term, take-or-pay agreements and lower sales pricing on our non-contracted blast coke sales, which was partially offset by the impact of lower coal prices on our non-contracted blast coke sales.
(3)Operating and maintenance costs during the three and nine months ended September 30, 2024 decreased as a result of the absence of oven rebuilds in the current year. Decreases to operating and maintenance costs for the nine months ended September 30, 2024 as compared to the prior year period were more than offset by increases resulting from timing of planned maintenance outages.
(4)Energy and other during the three and nine months ended September 30, 2024 decreased primarily due to unfavorable energy pricing. These decreases were partially offset by higher energy sales as a result of timing of planned maintenance outages in the prior year period.
Logistics
During the three and nine months ended September 30, 2024, sales and other operating revenues, exclusive of intersegment sales, were $21.4 million and $62.2 million, respectively, compared to $15.6 million and $56.4 million, respectively, in the corresponding prior year periods. Adjusted EBITDA during the three and nine months ended September 30, 2024 was $13.7 million and $38.9 million, respectively, compared to $8.4 million and $33.6 million, respectively, in the corresponding prior year periods. Logistics results during the three and nine months ended September 30, 2024, as compared to the same prior year periods reflect higher transloading volumes and pricing.
Brazil
During the three and nine months ended September 30, 2024, sales and other operating revenue were $8.8 million and $26.2 million, respectively, which was reasonably consistent with $9.1 million and $25.8 million, respectively, in the corresponding prior year periods. Adjusted EBITDA during the three and nine months ended September 30, 2024 was $2.5 million and $7.4 million, respectively, which was reasonably consistent with $2.2 million and $6.9 million, respectively, in the corresponding prior year periods.
Corporate and Other
Corporate and Other Adjusted EBITDA represented income of $1.0 million and a loss of $17.0 millionfor the three and nine months ended September 30, 2024, respectively, compared to a loss of $9.2 million and $26.6 million for the three and nine months ended September 30, 2023, respectively. The three and nine months ended September 30, 2024 benefited from the recognition of a $9.5 million gain, which was the result of the extinguishment of certain liabilities related to our legacy coal mining business. See Note 7 to our consolidating financial statements for further detail.
In addition to the GAAP results provided in this Quarterly Report on Form 10-Q, we have provided a non-GAAP financial measure, Adjusted EBITDA. Our management, as well as certain investors, use this non-GAAP measure to analyze our current and expected future financial performance. This measure is not in accordance with, or a substitute for, GAAP and may be different from, or inconsistent with, non-GAAP financial measures used by other companies.
The Company evaluates the performance of its segments based on segment Adjusted EBITDA, which is defined as earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted for any impairments, restructuring costs, gains or losses on extinguishment of debt, and/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 in assessing operating performance. Adjusted EBITDA provides useful information to investors because it highlights trends in our business that may not otherwise be apparent when relying solely on GAAP measures and because it eliminates items that have less bearing on our operating performance. EBITDA and Adjusted EBITDA are not measures calculated in accordance with GAAP, and they should not be considered a substitute for net income, or any other measure of financial performance presented in accordance with GAAP. Additionally, other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Reconciliation of Non-GAAP Financial Measures
Below is a reconciliation of Adjusted EBITDA to net income, which is its most directly comparable financial measure calculated and presented in accordance with GAAP:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(Dollars in millions)
Net income
$
33.3
$
8.5
$
77.7
$
48.2
Add:
Depreciation and amortization expense
28.1
35.5
90.1
107.2
Interest expense, net
5.7
6.6
17.8
21.0
Income tax expense
8.2
14.6
20.9
29.7
Transaction costs(1)
—
0.2
0.2
0.4
Adjusted EBITDA
$
75.3
$
65.4
$
206.7
$
206.5
(1)Costs incurred as part of the granulated pig iron project with U.S. Steel.
Liquidity and Capital Resources
Our primary liquidity needs are to fund working capital and 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 credit facility (“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 September 30, 2024, we had $164.7 million of cash and cash equivalents and $350.0 million of borrowing availability under our Revolving Facility.
We may, from time to time, seek to retire or purchase additional amounts of our outstanding equity and/or debt securities through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Refer to “Part II Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.”
On February 1, 2013, SunCoke obtained commercial insurance for state and federal black lung claims, in excess of a deductible, for employees with a last date of employment after that date. For claims based on employment that ended prior to February 1, 2013, SunCoke was reauthorized by the U.S. Department of Labor’s Division of Coal Mine Workers Compensation (“DCMWC”) to self-insure its black lung liabilities for $8.4 million. On February 21, 2020, DCMWC made an initial security determination to increase the amount of SunCoke’s collateral requirement for self-insured claims to $40.4 million. The Company appealed the security determination to the DCMWC. On August 13, 2024, the Company and DCMWC agreed that the Company would make a lump sum payment of $36.0 million to satisfy its self-insured federal black lung liabilities, with
limited exceptions estimated to be approximately $1.4 million. In exchange, the DCMWC agreed to permanently assume responsibility for payment of black lung benefits for claims based on employment that ended prior to February 1, 2013, and SunCoke received a Certificate of Exemption that eliminates the Company’s responsibility for future payments arising from claims based on employment that ended prior to February 1, 2013, excluding limited exceptions estimated to be approximately $1.4 million. As a result of the agreement, the Company no longer maintains any collateral to self-insure its former black lung liabilities incurred prior to February 1, 2013. Additionally, on January 19, 2023, the Department of Labor proposed a new rule that would require self-insured operators to post collateral in the amount of 120 percent of the company's total expected lifetime black lung liabilities as determined by the DCMWC. If finalized, the new rule would not apply to SunCoke. See Note 7 to our consolidated financial statements for further detail.
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 nine months ended September 30, 2024 and 2023:
Nine Months Ended September 30,
2024
2023
(Dollars in millions)
Net cash provided by operating activities
$
107.9
$
192.6
Net cash used in investing activities
(47.6)
(85.4)
Net cash used in financing activities
(35.7)
(71.3)
Net increase in cash and cash equivalents
$
24.6
$
35.9
Cash Flows from Operating Activities
Net cash provided by operating activities decreased by $84.7 million to $107.9 million for the nine months ended September 30, 2024 as compared to the corresponding prior year period. The decrease primarily reflects an unfavorable year-over-year change in primary working capital, which is comprised of accounts receivable, inventories, and accounts payable, driven by the timing of coal purchases and the impact of changes in coal prices. A payment of $36.0 million related to the extinguishment of certain liabilities related to our legacy coal mining business further impacted net cash provided by operating activities in the current year period. See Note 7 to our consolidated financial statements for further detail.
Cash Flows from Investing Activities
Net cash used in investing activities decreased by $37.8 million to $47.6 million for the nine months ended September 30, 2024 as compared to the corresponding prior year period. The decrease was primarily driven by the absence of capital spending in connection with both an oven rebuild project and the foundry expansion project in the current year period. Additionally, the timing of payments related to ongoing capital expenditures further contributed to the decrease in the current year as compared to the same prior year period. Refer to Capital Requirements and Expenditures below for further detail.
Cash Flows from Financing Activities
Net cash used in financing activities decreased by $35.6 million to $35.7 million for the nine months ended September 30, 2024 as compared to the corresponding prior year period. The decrease in net cash used in financing activities was primarily driven by lower net repayments of $35.0 million on the Revolving Facility, lower cash distributions made to noncontrolling interests of $3.7 million as well as the absence of repayments on financing obligations of $2.5 million in the current year period. These decreases were partially offset by an increase to dividends paid of $5.2 million as compared to the prior year period, primarily as a result of an increase in the dividend per share amount.
Dividends
On July 31, 2024, SunCoke's Board of Directors declared a cash dividend of $0.12 per share of the Company's common stock. This dividend was paid on September 3, 2024, to stockholders of record on August 15, 2024.
Additionally, on October 31, 2024, SunCoke's Board of Directors declared a cash dividend of $0.12 per share of the Company's common stock. This dividend will be paid on December 2, 2024, to stockholders of record on November 15, 2024.
Covenants
As of September 30, 2024, we were in compliance with all applicable debt covenants. We do not anticipate a violation of these covenants nor do we anticipate that any of these covenants will restrict our operations or our ability to obtain additional financing. See Note 6 to the consolidated financial statements for details on debt covenants.
In February 2024, S&P Global Ratings reaffirmed our corporate credit rating of BB- (stable). In October 2024, Moody’s Investors Service reaffirmed our corporate credit rating of B1 and changed the rating outlook from positive to stable.
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, regulatory requirements and customer requirements, and may differ from current or anticipated levels. Material changes in capital expenditure levels may impact financial results, including but not limited to the amount of depreciation, interest expense and repair and maintenance expense.
Our capital requirements have consisted, and are expected to consist, primarily of:
•Ongoing capital expenditures required to maintain equipment reliability, the integrity and safety of our coke ovens and steam generators and to comply with environmental regulations. Ongoing capital expenditures are made to replace partially or fully depreciated assets in order to maintain the existing operating capacity of the assets and/or to extend their useful lives and also include new equipment that improves the efficiency, reliability or effectiveness of existing assets. Ongoing capital expenditures do not include normal repairs and maintenance expenses, which are expensed as incurred;
•Expansion capital expenditures to acquire and/or construct complementary assets to grow our business and to expand existing facilities as well as capital expenditures made to grow our business through new markets or enable the renewal of a coke sales agreement and/or logistics service agreement and on which we expect to earn a reasonable return; and
•Environmental project expenditures required to implement design changes to ensure that our existing facilities operate in accordance with existing environmental permits or changing regulations.
The following table summarizes our capital expenditures:
Nine Months Ended September 30,
2024
2023
(Dollars in millions)
Ongoing capital
$
44.1
$
73.2
Expansion capital
4.0
11.3
Total capital expenditures(1)
$
48.1
$
84.5
(1)Reflects actual cash payments during the periods presented for our capital requirements.
Critical Accounting Policies
There have been no significant changes to our accounting policies during the nine months ended September 30, 2024. Please refer to our Annual Report on Form 10-K filed for the year ended December 31, 2023 for a summary of these policies.
Recent Accounting Standards
There have been no new accounting standards material to the Company that have been adopted during the nine months ended September 30, 2024.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the Company's exposure to market risk previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
The Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended September 30, 2024.
The information presented in Note 7 to our consolidated financial statements within this Quarterly Report on Form 10-Q is incorporated herein by reference.
Certain legal and administrative proceedings are pending or may be brought against us arising out of our current and past operations, including matters related to commercial disputes, employment claims, personal injury claims, common law tort claims, and general environmental claims. Although the ultimate outcome of these proceedings cannot be ascertained at this time, it is reasonably possible that some of them could be resolved unfavorably to us. Our management believes that any liabilities that may arise from such matters would not likely be material in relation to our business or our consolidated financial position, results of operations or cash flows at September 30, 2024.
Item 1A. Risk Factors
There have been no material changes with respect to risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On October 28, 2019, the Company's Board of Directors authorized a program to repurchase outstanding shares of the Company’s common stock, $0.01 par value per share, from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws, for a total aggregate cost to the Company not to exceed $100.0 million. There have been no share repurchases since the first quarter of 2020. As of September 30, 2024, $96.3 million remains available under the authorized repurchase program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
While the Company divested substantially all of its remaining coal mining assets in April 2016, the Company remains responsible for reclamation of certain legacy coal mining locations that are subject to Mine Safety and Health Administration (“MSHA”) regulatory purview and the Company continues to own certain logistics assets that are 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 Quarterly Report on Form 10-Q.
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference herein to Exhibit 3.1 to the Company’s Amendment No. 4 to Registration Statement on Form S-1 filed on July 6, 2011, File No. 333-173022)
3.2
Amended and Restated Bylaws of SunCoke Energy, Inc., effective as of February 23, 2023 (incorporated by reference herein to Exhibit 3.2 to the Company’s Annual Report on Form 10-K, filed on February 24, 2023, File No. 001-35243)
The following financial statements from SunCoke Energy, Inc.'s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2024, filed with the Securities and Exchange Commission on October 31, 2024, is formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity, and (vi) the Notes to Consolidated Financial Statements.
104
The cover page from SunCoke Energy, Inc's Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2024 is formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SunCoke Energy, Inc.
Dated:
October 31, 2024
By:
/s/ Mark W. Marinko
Mark W. Marinko
Senior Vice President and Chief Financial Officer (Duly Authorized Officer) (Principal Financial and Accounting Officer)