SunCoke Energy, Inc. Announces Second Quarter 2017 Results

Three Months Ended June 30,

(Dollars in millions)

2017

2016

Revenues

$

323.2

$

292.7

$

30.5

Adjusted EBITDA⁽¹⁾

$

47.5

$

46.5

$

1.0

Net loss attributable to SXC

$

(24.2)

$

(4.6)

$

(19.6)

(1)

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

Three Months Ended June 30,

(Dollars in millions, except per ton amounts)

2017

2016

Increase/(Decrease)

Revenues

$

296.5

$

274.0

$

22.5

Adjusted EBITDA⁽¹⁾

$

44.0

$

51.0

$

(7.0)

Sales volumes (thousands of tons)

953

992

(39)

Adjusted EBITDA per ton⁽²⁾

$

46.17

$

51.41

$

(5.24)

(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 June 30,

(Dollars in millions)

2017

2016

Increase/(Decrease)

Revenues

$

16.2

$

11.3

$

4.9

Intersegment sales

$

5.1

$

5.2

$

(0.1)

Adjusted EBITDA⁽¹⁾

$

10.0

$

5.4

$

4.6

Tons handled (thousands of tons)⁽²⁾

5,173

4,208

965

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

956

1,616

(660)

(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 June 30,

Six Months Ended June 30,

2017

2016

2017

2016

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

Revenues

Sales and other operating revenue

$

323.2

$

292.7

$

632.9

$

603.8

Costs and operating expenses

Cost of products sold and operating expenses

257.2

224.4

491.6

464.9

Selling, general and administrative expenses

24.1

23.7

43.8

47.0

Depreciation and amortization expense

33.3

28.6

66.6

56.8

Loss on divestiture of business

—

5.1

—

14.7

Total costs and operating expenses

314.6

281.8

602.0

583.4

Operating income

8.6

10.9

30.9

20.4

Interest expense, net

15.2

13.4

28.9

27.4

Loss (gain) on extinguishment of debt⁽¹⁾

20.2

(3.5)

20.3

(23.9)

(Loss) income before income tax expense

(26.8)

1.0

(18.3)

16.9

Income tax expense⁽²⁾

4.7

—

70.9

3.3

Net (loss) income

(31.5)

1.0

(89.2)

13.6

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

(7.3)

5.6

(66.0)

22.3

Net loss attributable to SunCoke Energy, Inc.

$

$

(4.6)

$

(23.2)

$

(8.7)

Loss attributable to SunCoke Energy, Inc. per common share:

Basic

$

(0.38)

$

(0.07)

$

(0.36)

$

(0.14)

Diluted

$

(0.38)

$

(0.07)

$

(0.36)

$

(0.14)

Weighted average number of common shares outstanding:

Basic

64.3

64.2

64.3

64.1

Diluted

64.3

64.2

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 quarter of 2017. The Partnership recorded a gain on extinguishment of debt as a result of senior note repurchases through the first half of 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 six months ended June 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

June 30, 2017

December 31, 2016

(Unaudited)

(Dollars in millions, except
par value amounts)

Assets

Cash and cash equivalents

$

136.7

$

134.0

Receivables

65.3

60.7

Receivable from redemption of Brazilian investment

—

20.5

Inventories

116.4

92.5

Income tax receivable

16.5

4.6

Other current assets

6.1

3.8

Total current assets

341.0

316.1

Properties, plants and equipment (net of accumulated depreciation of $679.4 and $625.9 million at June 30, 2017 and December 31, 2016, respectively)

1,510.9

1,542.6

Goodwill

76.9

76.9

Other intangible assets, net

173.5

179.0

Deferred charges and other assets

4.5

6.3

Total assets

$

2,106.8

$

2,120.9

Liabilities and Equity

Accounts payable

$

126.4

$

98.6

Accrued liabilities

43.6

49.8

Deferred revenue

12.0

2.5

Current portion of long-term debt and financing obligation

3.7

4.9

Interest payable

6.6

16.2

Total current liabilities

192.3

172.0

Long-term debt and financing obligation

870.3

849.2

Accrual for black lung benefits

46.0

45.4

Retirement benefit liabilities

27.8

29.0

Deferred income taxes

428.7

352.5

Asset retirement obligations

13.9

13.9

Other deferred credits and liabilities

20.4

19.0

Total liabilities

1,599.4

1,481.0

Equity

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

—

—

Common stock, $0.01 par value. Authorized 300,000,000 shares; issued 71,807,075 and 71,707,304 shares at June 30, 2017 and December 31, 2016, respectively

0.7

0.7

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

(140.7)

(140.7)

Additional paid-in capital

489.2

492.1

Accumulated other comprehensive loss

(19.2)

(19.0)

Retained deficit

(45.5)

(22.0)

Total SunCoke Energy, Inc. stockholders' equity

284.5

311.1

Noncontrolling interests

222.9

328.8

Total equity

507.4

639.9

Total liabilities and equity

$

2,106.8

$

2,120.9

SunCoke Energy, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended June 30,

2017

2016

(Dollars in millions)

Cash Flows from Operating Activities:

Net (loss) income

$

(89.2)

$

13.6

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

Loss on divestiture of business

—

14.7

Depreciation and amortization expense

66.6

56.8

Deferred income tax expense

79.8

3.6

Payments in excess of expense for postretirement plan benefits

(1.2)

(1.2)

Share-based compensation expense

3.0

3.4

Loss (gain) on extinguishment of debt

20.3

(23.9)

Changes in working capital pertaining to operating activities (net of the effects of held for sale working capital):

Receivables

(4.6)

16.2

Inventories

(23.9)

15.5

Accounts payable

15.6

(5.5)

Accrued liabilities

(6.2)

7.0

Deferred revenue

9.5

18.2

Interest payable

(9.6)

(2.1)

Income taxes

(11.9)

1.9

    Other

6.2

3.3

Net cash provided by operating activities

54.4

121.5

Cash Flows from Investing Activities:

Capital expenditures

(22.4)

(30.2)

Decrease in restricted cash

0.1

15.9

Return of Brazilian investment

20.5

—

Divestiture of coal business

—

(12.1)

Other investing activities

—

2.1

Net cash used in investing activities

(1.8)

(24.3)

Cash Flows from Financing Activities:

Proceeds from issuance of long-term debt

620.6

—

Repayment of long-term debt

(532.2)

(47.0)

Repayment of financing obligation

(1.2)

—

Proceeds from revolving credit facility

128.0

20.0

Repayment of revolving credit facility

(200.0)

(60.4)

Debt issuance costs

(15.6)

—

Acquisition of additional interest in the Partnership

(24.6)

—

Cash distribution to noncontrolling interests

(24.6)

(24.7)

Other financing activities

(0.3)

(0.5)

Net cash used in financing activities

(49.9)

(112.6)

Net increase (decrease) in cash and cash equivalents

2.7

(15.4)

Cash and cash equivalents at beginning of period

134.0

123.4

Cash and cash equivalents at end of period

$

136.7

$

108.0

Supplemental Disclosure of Cash Flow Information

Interest paid

$

37.2

$

30.8

Income taxes paid, net of refunds of $0.1 million and $4.0 million in 2017 and 2016, respectively.

$

3.1

$

(2.2)

SunCoke Energy, Inc.

Segment Financial and Operating Data

The following tables set forth financial and operating data for the three and six months ended June 30, 2017 and 2016:

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

(Dollars in millions, except per ton amounts)

Sales and other operating revenues:

Domestic Coke

$

296.5

$

274.0

$

575.2

$

563.0

Brazil Coke

10.5

7.3

21.3

15.0

Coal Logistics

16.2

11.3

36.4

24.3

Coal Logistics intersegment sales

5.1

5.2

10.2

10.4

Corporate and Other⁽¹⁾

—

0.1

—

1.5

Corporate and Other intersegment sales⁽¹⁾

—

0.7

—

22.0

Elimination of intersegment sales

(5.1)

(5.9)

(10.2)

(32.4)

Total sales and other operating revenues

$

323.2

$

292.7

$

632.9

$

603.8

Adjusted EBITDA⁽²⁾:

Domestic Coke

$

44.0

$

51.0

$

93.7

$

105.3

Brazil Coke

4.5

2.4

8.9

4.7

Coal Logistics

10.0

5.4

23.1

11.3

Corporate and Other⁽³⁾

(11.0)

(12.3)

(22.6)

(31.0)

Total Adjusted EBITDA

$

47.5

$

46.5

$

103.1

$

90.3

Coke Operating Data:

Domestic Coke capacity utilization (%)

90

95

90

94

Domestic Coke production volumes (thousands of tons)

950

998

1,898

1,989

Domestic Coke sales volumes (thousands of tons)

953

992

1,899

1,992

Domestic Coke Adjusted EBITDA per ton⁽⁴⁾

$

46.17

$

51.41

$

49.34

$

52.86

Brazilian Coke production—operated facility (thousands of tons)

437

431

872

845

Coal Logistics Operating Data:

Tons handled (thousands of tons)⁽⁵⁾

5,173

4,208

10,892

8,523

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

956

1,616

1,500

3,254

(1)

Corporate and Other revenues 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 $2.7 million and $6.2 million during the three and six months ended June 30, 2017, respectively, as well as losses of $3.0 million and $9.3 million during the three and six months ended June 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 (Loss) Income and Adjusted EBITDA

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016

(Dollars in millions)

Net cash provided by operating activities

$

24.9

$

92.1

$

54.4

$

121.5

Subtract:

Loss on divestiture of business

—

5.1

—

14.7

Depreciation and amortization expense

33.3

28.6

66.6

56.8

Deferred income tax expense

14.0

0.4

79.8

3.6

Loss (gain) on extinguishment of debt

20.2

(3.5)

20.3

(23.9)

Changes in working capital and other

(11.1)

60.5

(23.1)

56.7

Net (loss) income

$

(31.5)

$

1.0

$

(89.2)

$

13.6

Add:

Coal rationalization costs⁽¹⁾

$

—

$

—

$

—

$

0.2

Depreciation and amortization expense

33.3

28.6

66.6

56.8

Interest expense, net

15.2

13.4

28.9

27.4

Loss (gain) on extinguishment of debt

20.2

(3.5)

20.3

(23.9)

Income tax expense

4.7

—

70.9

3.3

Contingent consideration adjustments⁽²⁾

0.3

—

0.3

(3.7)

Loss on divestiture of business

—

5.1

—

14.7

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

5.3

1.9

5.3

1.9

Adjusted EBITDA⁽⁴⁾

47.5

46.5

103.1

90.3

Subtract: Adjusted EBITDA attributable to noncontrolling interest⁽⁵⁾

17.5

18.6

39.1

38.9

Adjusted EBITDA attributable to SunCoke Energy, Inc.

$

30.0

$

27.9

$

64.0

$

51.4

(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 the increase in fair value of the contingent consideration liability during the second quarter of 2017, the Partnership recognized expense of $0.3 million during the three and six months ended June 30, 2017. The Partnership amended its contingent consideration terms with The Cline Group during the first quarter of 2016.  This amendment resulted in a gain of $3.7 million recorded during the six months ended June 30, 2016.

(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 second quarter of 2017, the Company wrote-off previously capitalized engineering and land deposit costs of $5.3 million. During the second quarter of 2016, the Company wrote-off expiring land deposits related to the project of $1.9 million.

(4)

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.

(5)

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

(updated post-refinancing)

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.