SunCoke Energy, Inc. Announces Strongest Quarterly Operating Performance In Three Years With Third Quarter 2017 Results

Three Months Ended September 30,

(Dollars in millions)

2017

2016

Increase/(
Decrease)

Revenues

$

339.0

$

293.9

$

45.1

Adjusted EBITDA⁽¹⁾

$

62.1

$

49.4

$

12.7

Net income attributable to SXC

$

11.6

$

6.1

$

5.5

(1)

See definition of Adjusted EBITDA and reconciliation elsewhere in this release.

(Dollars in millions, except per ton amounts)

2017

2016

Increase/(
Decrease)

Revenues

$

309.7

$

273.2

$

36.5

Adjusted EBITDA⁽¹⁾

$

55.6

$

52.1

$

3.5

Sales volumes (thousands of tons)

975

1,000

(25)

Adjusted EBITDA per ton⁽²⁾

$

57.03

$

52.10

$

4.93

(1)

See definition of Adjusted EBITDA and reconciliation elsewhere in this release.

(2)

Reflects Domestic Coke Adjusted EBITDA divided by Domestic Coke sales volumes.

Three Months Ended September 30,

(Dollars in millions)

2017

2016

Increase/(
Decrease)

Revenues

$

18.4

$

12.2

$

6.2

Intersegment sales

$

4.8

$

4.9

$

(0.1)

Adjusted EBITDA⁽¹⁾

$

12.6

$

7.3

$

5.3

Tons handled (thousands of tons)⁽²⁾

5,134

4,334

800

CMT take-or-pay shortfall tons (thousands of tons)⁽³⁾

1,005

1,748

(743)

(1)

See definition of Adjusted EBITDA and reconciliation elsewhere in this release.

(2)

Reflects inbound tons handled during the period.

(3)

Reflects tons billed under take-or-pay contracts where services have not yet been performed.

SunCoke Energy, Inc.

Consolidated Statements of Operations

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

(Dollars and shares in millions, except per share amounts)

Revenues

Sales and other operating revenue

$

339.0

$

293.9

$

971.9

$

897.7

Costs and operating expenses

Cost of products sold and operating expenses

257.2

217.6

748.8

682.5

Selling, general and administrative expenses

17.7

21.8

61.5

68.8

Depreciation and amortization expense

30.6

25.6

97.2

82.4

Loss on divestiture of business

—

—

—

14.7

Total costs and operating expenses

305.5

265.0

907.5

848.4

Operating income

33.5

28.9

64.4

49.3

Interest expense, net

16.1

12.9

45.0

40.3

Loss (gain) on extinguishment of debt⁽¹⁾

0.1

(1.0)

20.4

(24.9)

Income (loss) before income tax (benefit) expense

17.3

17.0

(1.0)

33.9

Income tax (benefit) expense⁽²⁾

(1.5)

2.6

69.4

5.9

Net income (loss)

18.8

14.4

(70.4)

28.0

Less: Net income (loss) attributable to noncontrolling interests⁽²⁾

7.2

8.3

(58.8)

30.6

Net income (loss) attributable to SunCoke Energy, Inc.

$

11.6

$

6.1

$

(11.6)

$

(2.6)

Earnings (loss) attributable to SunCoke Energy, Inc. per common share:

Basic

$

0.18

$

0.10

$

(0.18)

$

(0.04)

Diluted

$

0.18

$

0.10

$

(0.18)

$

(0.04)

Weighted average number of common shares outstanding:

Basic

64.3

64.2

64.3

64.1

Diluted

65.2

64.5

64.3

64.1

(1)

The Partnership recorded a loss on extinguishment of debt as a result of its debt refinancing activities during the second and third quarters of 2017. The Partnership recorded a gain on extinguishment of debt as a result of senior note repurchases in 2016.

(2)

In January 2017, the Internal Revenue Service ("IRS") announced its decision to exclude cokemaking as a qualifying income generating activity in its final regulations (the "Final Regulations") issued under section 7704(d)(1)(E) of the Internal Revenue Code relating to the qualifying income exception for publicly traded partnerships. However, the Final Regulations include a transition period for activities that were reasonably interpreted to be qualifying income and carried on by publicly traded partnerships prior to the Final Regulations. The Partnership previously received a will-level opinion from its counsel, Vinson & Elkins LLP, that the Partnership's cokemaking operations generated qualifying income prior to the Final Regulations. Therefore, the Partnership believes it had a reasonable basis to conclude its cokemaking operations were considered qualifying income before the issuance of the new regulations and as such expects to maintain its treatment as a partnership through the transition period. Cokemaking entities in the Partnership will become taxable as corporations on January 1, 2028, after the transition period ends. 

As a result of the Final Regulations, the Partnership recorded deferred income tax expense of $148.6 million to set up its initial deferred income tax liability during the first quarter of 2017, primarily related to differences in the book and tax basis of fixed assets, which are expected to exist at the end of the 10-year transition period when the cokemaking operations become taxable.  As the Company consolidates the Partnership, the entire deferred income tax expense was recognized during the first quarter of 2017. However, the Company had already recorded $84.4 million of the deferred income tax liability in its financial statements related to the Company's share of the deferred tax liability for the book and tax differences in its investment in the Partnership. Therefore, the net impact to the Company's deferred tax expense was $64.2 million during the nine months ended September 30, 2017. This incremental tax impact is solely attributable to the Partnership's public unitholders. As such, an equal reduction to noncontrolling interest was recorded. As a result, the Final Regulations have no impact to net income attributable to the Company.

SunCoke Energy, Inc.

Consolidated Balance Sheets

September 30, 2017

December 31, 2016

(Unaudited)

(Dollars in millions, except
par value amounts)

Assets

Cash and cash equivalents

$

148.7

$

134.0

Receivables

70.2

60.7

Receivable from redemption of Brazilian investment

—

20.5

Inventories

121.7

92.5

Income tax receivable

9.0

4.6

Other current assets

7.1

3.8

Total current assets

356.7

316.1

Properties, plants and equipment (net of accumulated depreciation of $705.2 and $625.9 million at September 30, 2017 and December 31, 2016, respectively)

1,505.4

1,542.6

Goodwill

76.9

76.9

Other intangible assets, net

170.7

179.0

Deferred charges and other assets

5.2

6.3

Total assets

$

2,114.9

$

2,120.9

Liabilities and Equity

Accounts payable

$

138.1

$

98.6

Accrued liabilities

51.1

49.8

Deferred revenue

16.6

2.5

Current portion of long-term debt and financing obligation

2.6

4.9

Interest payable

17.6

16.2

Total current liabilities

226.0

172.0

Long-term debt and financing obligation

859.0

849.2

Accrual for black lung benefits

45.8

45.4

Retirement benefit liabilities

27.4

29.0

Deferred income taxes

417.9

352.5

Asset retirement obligations

14.1

13.9

Other deferred credits and liabilities

16.0

19.0

Total liabilities

1,606.2

1,481.0

Equity

Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no issued shares at September 30, 2017 and December 31, 2016

—

—

Common stock, $0.01 par value. Authorized 300,000,000 shares; issued 71,819,720 and 71,707,304 shares at September 30, 2017 and December 31, 2016, respectively

0.7

0.7

Treasury stock, 7,477,657 shares at September 30, 2017 and December 31, 2016, respectively

(140.7)

(140.7)

Additional paid-in capital

487.9

492.1

Accumulated other comprehensive loss

(18.8)

(19.0)

Retained deficit

(33.9)

(22.0)

Total SunCoke Energy, Inc. stockholders' equity

295.2

311.1

Noncontrolling interests

213.5

328.8

Total equity

508.7

639.9

Total liabilities and equity

$

2,114.9

$

2,120.9

SunCoke Energy, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30,

2017

2016

(Dollars in millions)

Cash Flows from Operating Activities:

Net (loss) income

$

(70.4)

$

28.0

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Loss on divestiture of business

—

14.7

Depreciation and amortization expense

97.2

82.4

Deferred income tax expense

70.4

4.5

Payments in excess of expense for postretirement plan benefits

(1.6)

(2.0)

Share-based compensation expense

4.1

5.0

Loss (gain) loss on extinguishment of debt

20.4

(24.9)

Changes in working capital pertaining to operating activities (net of the effects of divestiture):

Receivables

(9.5)

10.3

Inventories

(29.2)

24.1

Accounts payable

32.9

(3.5)

Accrued liabilities

1.3

6.7

Deferred revenue

14.1

25.5

Interest payable

1.4

(12.1)

Income taxes

(4.4)

4.4

    Other

1.6

3.0

Net cash provided by operating activities

128.3

166.1

Cash Flows from Investing Activities:

Capital expenditures

(49.6)

(42.9)

Decrease in restricted cash

0.1

17.5

Return of Brazilian investment

20.5

—

Divestiture of coal business

—

(12.8)

Other investing activities

—

2.1

Net cash used in investing activities

(29.0)

(36.1)

Cash Flows from Financing Activities:

Proceeds from issuance of long-term debt

620.6

—

Repayment of long-term debt

(644.9)

(60.8)

Proceeds from financing obligation

—

16.2

Repayment of financing obligation

(1.8)

(0.5)

Proceeds from revolving credit facility

268.0

20.0

Repayment of revolving credit facility

(240.0)

(85.4)

Debt issuance costs

(16.6)

(0.2)

Acquisition of additional interest in the Partnership

(33.6)

—

Cash distribution to noncontrolling interests

(36.0)

(36.9)

Other financing activities

(0.3)

(0.5)

Net cash used in financing activities

(84.6)

(148.1)

Net increase (decrease) in cash and cash equivalents

14.7

(18.1)

Cash and cash equivalents at beginning of period

134.0

123.4

Cash and cash equivalents at end of period

$

148.7

$

105.3

Supplemental Disclosure of Cash Flow Information

Interest paid

$

41.7

$

54.2

Income taxes paid, net of refunds of $1.0 and $6.3 million in 2017 and 2016, respectively.

$

3.5

$

(3.1)

SunCoke Energy, Inc.

Segment Financial and Operating Data

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

(Dollars in millions, except per ton amounts)

Sales and other operating revenues:

Domestic Coke

$

309.7

$

273.2

$

884.9

$

836.2

Brazil Coke

10.9

8.5

32.2

23.5

Coal Logistics

18.4

12.2

54.8

36.5

Coal Logistics intersegment sales

4.8

4.9

15.0

15.3

Corporate and Other⁽¹⁾

—

—

—

1.5

Corporate and Other intersegment sales⁽¹⁾

—

—

—

22.0

Elimination of intersegment sales

(4.8)

(4.9)

(15.0)

(37.3)

Total sales and other operating revenues

$

339.0

$

293.9

$

971.9

$

897.7

Adjusted EBITDA⁽²⁾:

Domestic Coke

$

55.6

$

52.1

$

149.3

$

157.4

Brazil Coke

4.6

3.2

13.5

7.9

Coal Logistics

12.6

7.3

35.7

18.6

Corporate and Other⁽³⁾

(10.7)

(13.2)

(33.3)

(44.2)

Total Adjusted EBITDA

$

62.1

$

49.4

$

165.2

$

139.7

Coke Operating Data:

Domestic Coke capacity utilization (%)

92

94

91

94

Domestic Coke production volumes (thousands of tons)

981

1,001

2,879

2,990

Domestic Coke sales volumes (thousands of tons)

975

1,000

2,874

2,992

Domestic Coke Adjusted EBITDA per ton⁽⁴⁾

$

57.03

$

52.10

$

51.95

$

52.61

Brazilian Coke production—operated facility (thousands of tons)

444

449

1,316

1,294

Coal Logistics Operating Data:

Tons handled (thousands of tons)⁽⁵⁾

5,134

4,334

16,026

12,857

CMT take-or-pay shortfall tons (thousands of tons)⁽⁶⁾

1,005

1,748

2,505

5,002

(1)

Corporate and Other revenues are related to our legacy coal mining business. 

(2)

See definition of Adjusted EBITDA and reconciliation to GAAP elsewhere in this release.

(3)

Corporate and Other includes the activity from our legacy coal mining business, which incurred Adjusted EBITDA losses of $2.0 million and $8.2 million during the three and nine months ended September 30, 2017, respectively, as well as losses of $2.5 million and $11.8 million during the three and nine months ended September 30, 2016, respectively.

(4)

Reflects Domestic Coke Adjusted EBITDA divided by Domestic Coke sales volumes.

(5)

Reflects inbound tons handled during the period.

(6)

Reflects tons billed under take-or-pay contracts where services have not yet been performed.

SunCoke Energy, Inc.

Reconciliations of Non-GAAP Information

Net Cash Provided by Operating Activities

to Net Income (Loss) and Adjusted EBITDA

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

(Dollars in millions)

Net cash provided by operating activities

$

73.9

$

44.6

$

128.3

$

166.1

Subtract:

Loss on divestiture of business

—

—

—

14.7

Depreciation and amortization expense

30.6

25.6

97.2

82.4

Deferred income tax expense

(9.4)

0.9

70.4

4.5

Loss (gain) on extinguishment of debt

0.1

(1.0)

20.4

(24.9)

Changes in working capital and other

33.8

4.7

10.7

61.4

Net income (loss)

$

18.8

$

14.4

$

(70.4)

$

28.0

Add:

Coal rationalization costs⁽¹⁾

$

—

$

0.2

$

—

$

0.4

Depreciation and amortization expense

30.6

25.6

97.2

82.4

Interest expense, net

16.1

12.9

45.0

40.3

Loss (gain) on extinguishment of debt

0.1

(1.0)

20.4

(24.9)

Income tax (benefit) expense

(1.5)

2.6

69.4

5.9

Contingent consideration adjustments⁽²⁾

(2.0)

(4.6)

(1.7)

(8.3)

Expiration of land deposits and write-off of costs related to potential new cokemaking facility⁽³⁾

—

—

5.3

1.9

Loss on divestiture of business

—

—

—

14.7

Non-cash reversal of acquired contractual obligation⁽⁴⁾

—

(0.7)

—

(0.7)

Adjusted EBITDA⁽⁵⁾

62.1

49.4

165.2

139.7

Subtract: Adjusted EBITDA attributable to noncontrolling interest⁽⁶⁾

21.9

18.9

61.0

57.8

Adjusted EBITDA attributable to SunCoke Energy, Inc.

$

40.2

$

30.5

$

104.2

$

81.9

(1)

Prior to the divestiture of our coal mining business, the Company incurred coal rationalization costs including employee severance, contract termination costs and other costs to idle mines incurred during the execution of our coal rationalization plan.

(2)

As a result of changes in the fair value of the contingent consideration liability, the Partnership recognized a benefit of $2.0 million and $1.7 million during the three and nine months ended September 30, 2017, respectively. The Partnership amended its contingent consideration terms with The Cline Group during the first quarter of 2016.  This amendment and subsequent fair value adjustments resulted in a gain of $4.6 million and $8.3 million recorded during the three and nine months ended September 30, 2016, respectively.

(3)

In 2014, we finalized the required permitting and engineering plan for a potential new cokemaking facility to be constructed in Kentucky.  However, in June 2017, due to our focus on renewing our existing customer contracts and the lack of any long-term customer commitment for a majority of the facility's capacity, we decided to terminate the project. As a result, during the nine months ended September 30, 2017, the Company wrote-off previously capitalized engineering and land deposit costs of $5.3 million. During the nine months ended September 30, 2016, the Company wrote-off expiring land deposits related to the project of $1.9 million.

(4)

In association with the acquisition of CMT, we assumed certain performance obligations under existing contracts and recorded liabilities related to such obligations. In the third quarter of 2016, the final acquired contractual performance obligation expired without the customer requiring performance. Therefore, the Partnership reversed the liability as we no longer have any obligations under the contract.

(5)

In accordance with the SEC's May 2016 update of its guidance on the appropriate use of non-GAAP financial measures, Adjusted EBITDA does not include Coal Logistics deferred revenue until it is recognized as GAAP revenue.

(6)

Reflects noncontrolling interest in Indiana Harbor and the portion of the Partnership owned by public unitholders.

SunCoke Energy, Inc
Reconciliation of Non-GAAP Information
Estimated 2017 Net Cash Provided by Operating Activities to Estimated Net Loss
and Estimated Consolidated Adjusted EBITDA

2017

Low

High

Net cash provided by operating activities

$

128

$

143

Subtract:

Depreciation and amortization expense

131

131

Deferred income tax expense

65

70

Changes in working capital and other

(27)

(28)

Loss on extinguishment of debt

20

20

Net loss

$

(61)

$

(50)

Add:

Depreciation and amortization expense

131

131

Interest expense, net

63

62

Loss on extinguishment of debt

20

20

Income tax expense

67

72

Adjusted EBITDA

$

220

$

235

Subtract:

 Adjusted EBITDA attributable to noncontrolling interests⁽¹⁾

90

94

Adjusted EBITDA attributable to SunCoke Energy, Inc.

$

130

$

141

(1)

Reflects non-controlling interest in Indiana Harbor and the portion of the Partnership owned by public unitholders.