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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-25 · 103 added, 198 removed, 321 unchanged (48% of the section changed)

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Our future results and financial condition may differ materially from those we currently anticipate as a result of the factors we describe under “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors.”

Currently, such risks and uncertainties also include, among others:

SunCoke’s ability to manage its business during and after the COVID-19 pandemic;

the impact of the COVID-19 pandemic on SunCoke’s results of operations, revenues, earnings and cash flows;

SunCoke’s ability to reduce costs and capital spending in response to the COVID-19 pandemic;

Among other things, such risks and uncertainties include the impact of the COVID-19 pandemic on SunCoke’s results of operations, revenues, earnings and cash flows;

SunCoke’s balance sheet and liquidity throughout and following the COVID-19 pandemic;

SunCoke’s prospects for financial performance and achievement of strategic objectives following the COVID-19 pandemic;

capital allocation strategy following the COVID-19 pandemic;

and the general impact on our industry and on the U.S.

and global economy resulting from COVID-19, including actions by domestic and foreign governments and others to contain the spread, or mitigate the severity, thereof.

and global economy resulting from COVID-19 and actions by domestic and foreign governments and others in response thereto.

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 United States (“U.S.”) 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 the most comparable GAAP component, see “Non-GAAP Financial Measures” at the end of this Item and Note 20 to our consolidated financial statements.

For a reconciliation of the non-GAAP measure to the most comparable GAAP component, see Note 20 to our consolidated financial statements.

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 flows.

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Adjusted EBITDA (1)

With the new challenges of the COVID-19 pandemic, the Company revised our key objectives in 2020 and delivered against those objectives, including:

• Successfully navigated through the ongoing COVID-19 pandemic.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic.

Our facilities continued to operate during the COVID-19 pandemic due to our inclusion in the Critical Manufacturing Sector as defined by the U.S.

Department of Homeland Security and the designation as an essential business by state and local government authorities.

Our top priority has been and continues to be the safety and health of our employees and contractors.

In response to the outbreak, we established an internal task force of subject matter experts, initiated enhanced health and safety measures across our facilities and enacted a work from home program for all qualifying personnel.

We have implemented screening procedures consistent with U.S.

Centers for Disease Control and Prevention (“CDC”) recommendations, which may include screening questionnaires and temperature checks for employees, contractors, or other service providers.

Additionally, to ensure employee safety, we have also adopted protocols consistent with CDC, state, and local guidance, which include but are not limited to increased cleaning and disinfection, social distancing, physical separations, mask requirements, contact tracing and quarantine.

We continue to closely monitor the impact of the outbreak of COVID-19 on all aspects of our business, including how it has and will impact our suppliers.

We have not experienced any significant impacts or interruptions with respect to our ability to procure coal as a result of COVID-19, and we will continue to closely monitor our inventory levels to mitigate the risk of any potential supply interruptions.

• Achieved revised financial objectives.

As a result of the reduction in coke volumes during 2020 further discussed below, in August 2020, we revised our 2020 guidance range for Adjusted EBITDA from $235 million to $245 million to $190 million to $200 million as well as our guidance for cash generated from operating activities from approximately $170 million to $180 million to approximately $116 million to $136 million.

We delivered Adjusted EBITDA of $205.9 million, and generated $157.8 million of operating cash flow, both of which exceeded our revised guidance, and net income of $8.8 million.

Strong performance from our Domestic Coke operations, coupled with excellent company-wide cost management drove the financial performance in excess of the revised guidance.

(1) See Note 20 in our consolidated financial statements for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement.

• Supported customer base and executed successful relief negotiations.

Steelmaking customers faced a challenging environment in 2020.

In response to the decline in end user demand as well as in an effort to slow the spread of COVID-19, end user manufacturers began idling plants, which directly and adversely impacted our customers.

In order to help navigate through this challenging environment, SunCoke worked with our customers to provide near-term coke supply relief in exchange for extending certain contracts.

The actions we have taken, together with our customers, addressed all the near-term contracts that were approaching expiration, further strengthened our long-term customer relationships and add meaningful certainty and stability to our business.

See further discussion of the details of these contract amendments in "Items Impacting Comparability."

In December 2020, CMT entered into a long-term, take-or-pay materials handling and storage agreement with Javelin Global Commodities (UK) Ltd (“Javelin”), which includes 4 million tons in 2021 and 3 million tons in 2022.

• Continued to pursue balanced capital allocation.

We returned meaningful capital to shareholders through the repurchase of 1.6 million shares during 2020 for $7.0 million and the declaration and payment of a dividend of $0.06 per share during each quarter of 2020.

Additionally, we reduced our total debt by approximately $110 million in 2020, and we remain focused on further strengthening our balance sheet.

• Maintained asset integrity for long-term viability.

We have ensured that our assets are safeguarded throughout the COVID-19 pandemic to minimize any potential negative financial impact in the long-term, and we ensured our asset base was properly maintained, even as operating levels fluctuated.

Our Focus and Outlook for 2021

During 2021, our primary focus will be to:

• Deliver operations excellence and optimize asset base.

We continue to expect strong operational and safety performance while optimizing asset utilization, as well as successfully executing on our 2021 capital plan.

We plan to spend approximately $80 million on capital expenditures in 2021, which is slightly higher than normal expectations for on-going capital expenditure levels.

• Support full capacity utilization via export and foundry sales.

We will work towards securing additional commitments and customers for our foundry coke and export sales agreements, enabling our Domestic Coke fleet to operate at full capacity in 2021.

• Position coke business and CMT for long-term success.

We continue to focus on revitalizing CMT with new product and customer mix.

CMT is an attractive terminal for various types of customers since it is one of the largest export terminals on the U.S.

Gulf Coast and provides strategic access to seaborne markets.

Repositioning CMT from primarily a coal export terminal to a broad-based and diversified terminal will be critical for the continued success of our logistics business.

With successful relief negotiations and contract extensions executed with our coke customers in 2020, we will work towards further enhancing our customer contracts and providing long-term stability to our coke operations.

• Further stabilize and strengthen SunCoke capital structure .

In 2020, we made significant progress on our capital allocation priorities by reducing our debt, investing in our assets and returning capital to our shareholders.

Our priorities in 2021 remain unchanged.

• Achieve financial objectives.

We expect to deliver Adjusted EBITDA of between $215 million and $230 million and operating cash flow of between $160 million and $180 million.

The expected growth in Adjusted EBITDA is driven primarily from the Domestic Coke fleet operating at full capacity in 2021, as well as higher volumes at our Logistics facilities, primarily driven by our new coal handling agreement between Javelin and CMT.

The Company successfully delivered against our key objectives in 2021.

Our entry into and participation in the export and foundry coke markets, in addition to successful execution on our contracted coke sales, enabled our Domestic Coke facilities to operate at full capacity.

This strong Domestic Coke performance along with higher volumes, price realization, and the addition of a new product, iron ore, in our Logistics segment drove record Adjusted EBITDA performance in 2021.

Our long-term, take-or-pay coke contracts continue to provide stability to our coke operations, which now also include a new five year take-or-pay contract with Algoma Steel beginning in 2022, with average sales of approximately 150 thousand tons of blast furnace coke per year.

We returned meaningful capital to our shareholders through the declaration and payment of a $0.06 per share dividend during each quarter of 2021.

Additionally, we executed a debt refinancing, discussed in further detail below, which allowed us to achieve annual interest rate savings of approximately $17 million and extend our debt maturities significantly.

We also reduced total debt by approximately $64 million in 2021.

Items Impacting Comparability

• 2021 Debt Refinancing.

During the second quarter of 2021, the Company refinanced its debt obligations.

The Company issued $500.0 million of 4.875 percent 2029 Senior Notes, amended and extended the maturity of its Revolving Facility to June 2026 and reduced the Revolving Facility capacity by $50.0 million to $350.0 million.

The Company used the proceeds of the 2029 Senior Notes along with borrowings under the Company's Revolving Facility to purchase and redeem all of the 7.500 percent 2025 Senior Notes.

As a result of the debt

refinancing and revolver amendment, the year ended December 31, 2021 included a loss on extinguishment of debt on the Consolidated Statement of Operations of $31.9 million, which consisted of the premium paid of $22.0 million and the write-off of unamortized debt issuance costs of $6.9 million and the remaining original issue discount of $3.0 million.

See Note 12 to our consolidated financial statements for further discussion of the debt refinancing.

• 2020 Customer Contract Amendments .

As a result of the market challenges presented by the current COVID-19 global pandemic, SunCoke executed contract amendments with its steelmaking customers to provide near-term coke supply relief in exchange for extending certain contracts.

In July 2020, SunCoke reached an agreement with Cliffs Steel for a supply reduction of 200 thousand tons of coke in 2020, including a 125 thousand ton reduction at Haverhill II and a 75 thousand ton reduction at Middletown, in exchange for extending the Haverhill II contract from December 31, 2021 to June 30, 2023.

Subsequent to these amendments, in October 2020, the Haverhill II contract was further extended to June 30, 2025.

Key provisions of the agreement, including pass-through of coal costs, reimbursement of operating and maintenance expenses subject to certain metrics, and pricing remain unchanged.

Also in July 2020, SunCoke reached an agreement with AM USA, now known as Cliffs Steel, to reduce supply by approximately 300 thousand coke tons in 2020 in exchange for extending the Haverhill I and Jewell contracts to December 31, 2025.

Under the new contracts, SunCoke will produce a combined 800 thousand tons for the 2021 contract year and a combined 400 thousand tons on an annualized basis for the 2022 through 2025 contract years.

These customer contract amendments resulted in a reduction of expected 2020 Adjusted EBITDA of approximately $20 million, net of cost savings.

• Simplification Transaction.

The Partnership, a wholly-owned subsidiary of SunCoke, owns our Haverhill, Middletown, and Granite City cokemaking facilities and Convent Marine Terminal ("CMT"), Kanawha River Terminal ("KRT") and SunCoke Lake Terminal ("Lake Terminal").

Prior to June 28, 2019, SunCoke owned a 60.4 percent limited partner interest in the Partnership, a then publicly traded master limited partnership, as well as our 2.0 percent general partner interest.

The remaining 37.6 percent limited partner interest in the Partnership was held by public unitholders.

On June 28, 2019, the Company acquired all 17,727,249 outstanding common units of the Partnership not already owned by SunCoke in exchange for 24,818,149 newly issued SunCoke common shares in the Simplification Transaction.

Additionally, the final pro-rated quarterly Partnership distribution was settled with 635,502 newly issued SunCoke common shares.

Following the completion of the Simplification Transaction, the Partnership became a wholly-owned subsidiary of SunCoke.

As of January 1, 2020, the Partnership merged with and into SunCoke Energy Partners Finance Corp., which is also a wholly-owned subsidiary of the Company.

The Simplification Transaction was accounted for as a non-cash equity transaction, and no gain or loss was recognized in our Consolidated Statements of Operations for this transaction.

The Company incurred transaction costs totaling $11.0 million, of which $5.4 million were incurred by SunCoke and were capitalized as a reduction to additional paid-in capital on the Consolidated Balance Sheets.

The remaining transaction costs were incurred by the Partnership resulting in $4.9 million and $0.4 million of expense included in selling, general and administrative expenses on the Consolidated Statements of Operations for the years ended December 31, 2019, and 2018, respectively.

Subsequent to the closing of the Simplification Transaction, SunCoke incurred $0.3 million of legal and consulting costs, which were included in selling, general and administrative expenses on the Consolidated Statements of Operations.

All transaction costs were excluded from Adjusted EBITDA.

With the closing of the Simplification Transaction, the income previously attributable to noncontrolling interest in the Partnership became 100 percent attributable to SunCoke and, therefore, and is now taxable to the Company.

• Adverse Logistics Customer Developments .

A significant portion of our logistics business has historically been from long-term, take-or-pay contracts with Murray American Coal, Inc.

("Murray") and Foresight Energy LLC ("Foresight"), which were adversely impacted by declining coal export prices and domestic demand.

Murray filed for Chapter 11 bankruptcy on October 29, 2019.

Foresight engaged outside counsel and financial advisors to assess restructuring options during 2019 and subsequently filed for Chapter 11 bankruptcy on March 10, 2020.

Both Murray and Foresight's contracts with CMT were subsequently rejected by the bankruptcy courts.

As a result of these developments, during 2019, the Company recorded non-cash, pre-tax impairment charges to the Logistics segment on the Consolidated Statements of Operations of $247.4 million, of which $73.5 million represented a full write-down of the Logistics goodwill balance, as well as a $113.3 million impairment of CMT's long-lived intangible assets and a $60.6 million impairment of CMT's properties, plants and equipment.

See Note 8 to our consolidated financial statements.

These non-cash impairment charges resulted in a $69.1 million income tax benefit in 2019.

As a result of the market challenges presented by the COVID-19 global pandemic, during 2020 SunCoke executed contract amendments with its steelmaking customers to provide near-term coke supply relief in exchange for extending certain contracts.

These customer contract amendments reduced customer contract volumes in 2020 by approximately 500 thousand tons of coke, which reduced 2020 Adjusted EBITDA by approximately $20 million, net of cost savings.

Consolidated Results of Operations

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133.9 133.7 0.2

Long-lived asset and goodwill impairment (1)

— 247.4 (247.4)

Total costs and operating expenses 1,314.5 1,263.3 51.2

1,263.3 1,744.6 (481.3)

Operating income (loss) 69.7 (144.3) 214.0

Operating income 141.5 69.7 71.8

Interest expense, net

42.5 56.3 (13.8)

Gain on extinguishment of debt, net (5.7) (1.5) (4.2)

Income (loss) before income tax expense (benefit) 19.1 (203.1) 222.2

Income tax expense (benefit) 10.3 (54.7) 65.0

Net income (loss) 8.8 (148.4) 157.2

Loss (gain) on extinguishment of debt, net 31.9 (5.7) 37.6

Income before income tax expense 67.1 19.1 48.0

Income tax expense 18.3 10.3 8.0

Net income 48.8 8.8 40.0

Net income attributable to noncontrolling interests

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

Net income attributable to SunCoke Energy, Inc.

$ 43.4 $ 3.7 $ 39.7

(1) See year-over-year changes described in "Items Impacting Comparability."

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 in 2020 as compared to 2019, primarily due to the pass-through of lower coal prices as well as the impact of volume relief provided to our customers impacted by the COVID-19 pandemic in our Domestic Coke segment.

Revenues further declined as a result of lower volumes in our Logistics segment.

Sales and other operating revenue and costs of products sold and operating expenses increased in 2021 as compared to 2020 primarily due to higher volumes in our Domestic Coke segment, partially offset by the pass-through of lower coal prices.

Higher volumes and favorable pricing in our Logistics segment also increased sales and other operating revenues in 2021 as compared to 2020.

Selling, General and Administrative Expenses.

The increase in selling, general and administrative expense was driven by research and development costs related to foundry coke production of $3.9 million, higher expense of $2.0 million as a result of revaluing certain legacy liabilities as well as costs incurred to resolve certain legal matters.

These increases were partly offset by lower employee related expenses during 2020 as compared to 2019 as well as the absence of $4.9 million of transaction costs incurred during 2019 .

The decrease in selling, general and administrative expense primarily reflects lower legacy costs, which decreased $11.3 million in 2021 compared to 2020 as a result of valuation adjustments in both years primarily driven by changes in the discount rates on certain legacy liabilities.

Additionally, 2021 benefited from the absence of research and development costs related to foundry coke production of $3.9 million, the absence of $2.5 million of restructuring costs, and the absence of costs to resolve certain legal matters incurred during the prior year.

These benefits were partially offset by higher employee related costs.

Depreciation and Amortization Expense.

The decrease in depreciation and amortization expense during 2020 was partly driven by the impairment of our Logistics assets during 2019, which lowered the carrying value of those assets and decreased the related depreciation expense, as well as the absence of accelerated depreciation associated with upgrades to certain heat recovery steam generators, which was recorded in 2019.

These decreases were partially offset by depreciation in 2020 on assets newly placed in service, primarily related to the completion of rebuilt ovens at Indiana Harbor near the end of 2019, which increased depreciation $8.1 million in 2020 as compared to 2019.

Depreciation and amortization expense was reasonably consistent with the prior year.

Interest Expense, net .

Weighted average debt balances during 2020 and 2019 were $785.8 million and $845.0 million, respectively.

Weighted average interest rates during 2020 and 2019 were 6.74 percent and 7.16 percent, respectively, resulting in related interest expense of $52.9 million and $60.5 million, respectively.

A reduction in LIBOR-based interest rates and lower interest rates on our revolving facility as a result of the restructuring in the third quarter of 2019, as well as

lower balances on our higher interest rate debt due to the repurchases of our Senior Notes in 2020 resulted in lower weighted average interest rates in 2020 as compared to 2019.

Interest expense, net benefited from lower interest rates as a result of the debt refinancing that occurred during the second quarter of 2021 and lower average debt balances on the revolving facility.

Income Taxes .

The income tax expense recorded was $10.3 million in 2020 compared to an income tax benefit of $54.7 million in 2019.

Certain discrete items, such as pre-tax impairment charges recorded to our Logistics assets discussed in "Items Impacting Comparability" and the revaluation of certain deferred tax assets discussed in Note 5 to our consolidated financial statements impacted comparability between periods.

Income tax expense, net during 2021 reflects the impacts of certain changes in state tax laws, resulting in a state tax benefit of $1.3 million.

During 2020, income tax expense, net reflects the revaluation of certain deferred tax assets due to lower apportioned state tax rates, which resulted in deferred income tax expense of $6.5 million, partly offset by a $1.5 million benefit as result of the Coronavirus Aid, Relief, and Economic Security Act.

Excluding these discrete items, SunCoke's effective tax rate has remained reasonably consistent.

See Note 5 to our consolidated financial statements.

Noncontrolling Interest.

Income attributable to noncontrolling interest represents the common public unitholders' interest in the Partnership prior to the closing of the Simplification Transaction as well as a third-party interest in our Indiana Harbor cokemaking facility.

The following table provides details into net income attributable to noncontrolling interest.

Years Ended December 31,

Net income attributable to third-party interest in our Indiana Harbor cokemaking facility $ 5.1 $ 1.3

Net income attributable to the Partnership's common public unitholders — 2.6

Net income attributable to noncontrolling interest

The completion of the Indiana Harbor oven rebuild project during 2019 improved operating results, resulting in an increase in net income attributable to third-party interest in our Indiana Harbor cokemaking facility.

Net i ncome attributable to noncontrolling interest 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

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Analysis of Segment Results

Historically, SunCoke's analysis of our Domestic Coke segment has aligned with the pass-through nature of our long-term, take-or-pay contracts, including analysis of the prices of coal passed through and the reimbursement of operating maintenance spending as compared to prior year periods.

Beginning in 2021, our Domestic Coke business has expanded into the export coke market and the foundry coke market.

These sales do not contain the same pass-through provisions as our long-term, take-or-pay contracts.

Therefore, the analysis of our Domestic Coke results has evolved to allow for the inclusion of these sales.

The impact of fluctuating coal prices, including the value of coal-to-coke yield gains and losses, and indexed operating and maintenance reimbursement rates are now presented as price variances along with the impact of export and foundry sales prices as compared to prior period sales prices.

Domestic Coke

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Beginning $ 1,265.4 $ 217.0

(113.5) (34.1)

Coal cost recovery and yields (2)

(116.7) (0.3)

Operating and maintenance costs (3)

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Ending $ 1,354.5 $ 243.4

(1) Improved performance from rebuilt ovens at our Indiana Harbor facility increased volumes, which increased sales and other operating revenues and Adjusted EBITDA by $47.2 million and $14.1 million, respectively.

This increase was more than offset by the volume relief provided to our customers impacted by the COVID-19 pandemic beginning during the second quarter 2020.

(2) The pass through of lower coal prices resulted in the decline in revenues as well as lower coal-to-coke yields.

(3) Adjusted EBITDA benefited from lower operating and maintenance costs across the fleet as well as the absence of costs related to the Indiana Harbor oven rebuild initiative.

(4) Revenues benefited from foundry coke sales of $4.1 million as well as the pass through of higher transportation costs.

Revenues and Adjusted EBITDA decreased with lower energy production levels as a result of volume relief discussed above.

(1) Volumes improved in 2021 due to the absence of volume relief provided to our customers in exchange for contract extensions in 2020 as well as our successful entry into and participation in the foundry and export coke markets.

(2) The pass through of lower coal prices on our long-term, take-or-pay agreements resulted in lower revenues.

Under recovery of coal costs at our Jewell cokemaking facility decreased Adjusted EBITDA $11.1 million in 2021 as compared to 2020, the impact of which was more than offset by favorable margins on our foundry coke and export coke sales.

(3) Operating and maintenance costs across the fleet returned to a normalized level during 2021.

Costs were minimized during 2020 in conjunction with the volume relief discussed above.

(4) Energy and other increased primarily due to favorable energy pricing and higher volumes, which increased with our return to operating our facilities at full capacity in 2021.

The following table explains year-over-year changes in our Logistics segment's sales and other operating revenues and Adjusted EBITDA results:

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Transloading volumes (1)

(27.5) (22.1)

Price/margin impact of mix in transloading services (2)

Ending $ 92.0 $ 43.5

(1) Lower volumes were primarily the result of lower demand and depressed thermal coal export pricing, which adversely impacted major logistics customers at CMT.

The COVID-19 pandemic further impacted volumes.

(2) Ancillary revenues, primarily for costs passed through to the customer, declined with the decrease in volumes.

Adjusted EBITDA benefited from lower operating and maintenance costs.

Sales and other operating revenue decreased $6.8 million, or 18 percent, to $31.6 million in 2020 compared to $38.4 million in 2019, reflecting lower volumes as well as the impact of unfavorable changes in foreign currency rates.

Adjusted EBITDA decreased $2.5 million, or 16 percent, to $13.5 million in 2020 compared to $16.0 million in 2019, reflecting lower volumes.

(1) Volumes improved as a result of the improved export coal market as well as the handling of iron ore.

(2) Revenues and Adjusted EBITDA increased as a result of favorable pricing at CMT driven by the strong export coal market.

(3) Other increased as a result of favorable ancillary revenue, which was a result of higher volumes as well as minimal costs incurred in 2021 associated with high water levels at CMT due to abnormal weather patterns.

Sales and other operating revenue increased $5.0 million, or 16 percent, to $36.6 million in 2021 compared to $31.6 million in 2020.

Adjusted EBITDA increased $3.7 million, or 27 percent, to $17.2 million in 2021 compared to $13.5 million in 2020.

The improvements as compared to the prior year reflect higher volumes as well as production bonuses for meeting certain volume targets during the current year.

Corporate and Other

Corporate and Other expenses, which include costs related to our legacy coal mining business, increased $4.5 million, or 12 percent, to $41.9 million in 2020 as compared to $37.4 million in 2019.

This increase was driven by foundry related research and development costs of $3.9 million as well as higher legacy costs of approximately $2.0 million during 2020.

These increases to corporate and other expense were partly offset by lower employee related expenses.

Corporate and Other expenses, which include costs related to our legacy coal mining business, decreased $13.2 million, or 32 percent, to $28.7 million in 2021 as compared to $41.9 million in 2020.

This improvement was driven by the absence of foundry related research and development costs of $3.9 million and valuation adjustments as a result of changes in discount rates on certain legacy liabilities, which decreased legacy cost approximately $11.3 million as compared to the prior year.

These cost savings were partly offset by higher employee related costs.

Liquidity and Capital Resources

Our primary liquidity needs are to fund working capital, fund 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 and, from time to time, debt and equity offerings.

Our sources of liquidity include cash generated from operations, borrowings under our 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.

However, the Company continues to evaluate whether any borrowings or other actions are needed to safeguard the business amidst the fluid market conditions and the uncertainty around the magnitude and duration of the COVID-19 pandemic.

As of December 31, 2020, we had $48.4 million of cash and cash equivalents and $299.9 million of borrowing availability under our credit facility.

As of December 31, 2021, we had $63.8 million of cash and cash equivalents and $228.8 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.

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Department of Labor's Division of Coal Mine Workers' Compensation (“DCMWC”) requested SunCoke provide additional collateral of approximately $32 million to secure certain of its black lung obligations.

SunCoke exercised its right to appeal the DCMWC’s determination and provided additional information supporting the Company’s position in May 2020.

SunCoke exercised its right to appeal the DCMWC’s determination and provided additional information supporting the Company’s position in May 2020 and February 2021.

If the Company’s appeal is unsuccessful, the Company may be required to provide additional collateral to receive its self-insurance reauthorization from the DCMWC, which could potentially reduce the Company’s liquidity.

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Net cash used in financing activities (118.4) (131.2)

Net (decrease) increase in cash and cash equivalents $ (48.7) $ (48.6)

Net increase (decrease) in cash and cash equivalents $ 15.4 $ (48.7)

Cash Provided by Operating Activities

Net cash provided by operating activities decreased by $24.1 million to $157.8 million in 2020 as compared to 2019, reflecting lower operating results driven by lower volumes.

Primary working capital, which is comprised of accounts receivable, inventories and accounts payable, also resulted in a $5.8 million decrease in 2020 operating cash flows as compared to 2019, reflecting timing of coal purchases in the fourth quarter of 2020.

Net cash provided by operating activities increased by $75.3 million to $233.1 million in 2021 as compared to 2020, reflecting higher operating results in both our coke and logistics businesses as well as lower interest payments of $11.8 million, net of capitalized interest, primarily as a result of lower interest rates in connection with the debt refinancing during the second quarter of 2021.

Additionally, operating activities reflect certain income tax refunds received during the current year in connection with the CARES act.

Cash Used in Investing Activities

Net cash used in investing activities decreased $34.5 million to $75.3 million in 2020 as compared to 2019 driven by lower capital spending further discussed in Capital Requirements and Expenditures.

Net cash used in investing activities increased $24.0 million to $99.3 million in 2021 as compared to 2020 driven by higher capital spending.

Ongoing capital expenditures, as defined in Capital Requirements and Expenditures below, have returned to a more normalized level in 2021 as compared to 2020.

Restrictions during 2020 related to the COVID-19 global pandemic resulted in a reduction of capital project work and related spending in the prior year.

Cash Used in Financing Activities

Net cash used in financing activities increased $10.5 million to $131.2 million in 2020 as compared to $120.7 million in 2019.

In 2020, the Company repurchased $62.7 million face value of outstanding 2025 Senior Notes for $55.9 million of cash payment, compared to $50.0 million face value of 2025 Senior Notes repurchased for $46.6 million cash payments in 2019.

The Company repurchased shares for total cash payments of $7.0 million in 2020 compared to $36.3 million in 2019 under the repurchase program discussed in "Item 5.

Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities", and paid dividends to stockholders of $19.9 million in 2020 compared to $5.1 million in 2019.

Additionally, in 2020, the Company made net repayments of $55.0 million on the Revolving Facility, which was partially offset by $10.0 million of financing obligation proceeds, further discussed in Note 12.

The prior period also reflects distribution payments made by the Partnership to public unitholders of $14.2 million prior to the Simplification Transaction, and additional payments of $5.1 million made in connection with the Simplification Transaction.

Additionally, the Revolving Facility refinancing in the third quarter of 2019, which increased borrowings on the revolver and paid down the $43.3 million term loan, had no net impact on financing cash flows.

During each quarter of 2020, SunCoke's Board of Directors declared a quarterly cash dividend of $0.06 per share of the Company's common stock, see further discussion in "Item 5.

Net cash used in financing activities decreased $12.8 million to $118.4 million in 2021 as compared to $131.2 million in 2020.

In 2021, the Company refinanced its debt, further described in Note 6 of our consolidated financial statements, with no significant impact on total debt balances.

In conjunction with this refinancing, the Company paid a premium of $22.0 million, included in repayment of long-term debt on the consolidated statement of cash flows, as well as $12.0 million of debt issuance costs.

The Company also made net repayments on its debt of $63.5 million and made dividend payments of $20.1 million during 2021.

In 2020, the Company repurchased $62.7 million face value of outstanding 2025 Senior Notes for $55.9 million of cash payment.

Add itionally, the Company made net repayments of $55.0 million on the Revolving Facility, which was partially offset by $10.0 million of financing obligation proceeds.

The Company paid dividends to stockholders of $19.9 million and repurchased shares for total cash payments of $7.0 million under the repurchase program discussed in "Item 5.

Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities."

Share Repurchase Programs

In 2020, the Company repurchased $7 million of our common stock, or 1.6 million shares, in the open market for an average share price of $4.29, leaving $96.3 million available under the current authorized repurchase program as of December 31, 2020.

For further detail on our share repurchase programs see "Item 5.

In addition to the $20.1 million in dividends paid to our shareholders during 2021, on February 1, 2022, SunCoke's Board of Directors declared a cash dividend of $0.06 per share of the Company's common stock.

This dividend will be paid on March 1, 2022, to stockholders of record of February 17, 2022.

See further discussion in "Item 5.

Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities."

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Credit Rating

In March 2020, S&P Global Ratings reaffirmed our corporate credit rating of BB- (stable).

In April 2020, Moody’s Investors Service reaffirmed our corporate credit rating of B1 and changed the rating outlook to negative.

In June 2021, S&P Global Ratings reaffirmed our corporate credit rating of BB- (stable).

In June 2021, Moody’s Investors Service reaffirmed our corporate credit rating of B1 and stable outlook.

Contractual Obligations

As of December 31, 2020 significant contractual obligations related to debt were $690.5 million of principal borrowings and $205.2 million of related interest, which will be repaid through 2025.

As of December 31, 2021 significant contractual obligations related to debt were $627.0 m illion of principal borrowings and $195.0 million of related interest, which will be repaid through 2029.

Projected interest costs on variable rate instruments were calculated using market rates at December 31, 2021.

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Ongoing capital expenditures do not include normal repairs and maintenance expenses, which are expensed as incurred;

• Environmental remediation project expenditures required to implement design changes to ensure that our existing facilities operate in accordance with existing environmental permits;

• 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 enable the renewal of a coke sales agreement and/or logistics service agreement and on which we expect to earn a reasonable return;

The following table summarizes ongoing, environmental remediation project and expansion capital expenditures:

• Environmental remediation project expenditures required to implement design changes to ensure that our existing facilities operate in accordance with existing environmental permits.

The following table summarizes our capital expenditures:

Years Ended December 31,

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Ongoing capital $ 87.6 $ 59.5

$ 59.5 $ 94.2

Environmental remediation project (2)

Expansion capital (1)

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$ 98.6 $ 73.9

(1) Includes $34.8 million of capital expenditures in connection with the oven rebuild initiative at our Indiana Harbor facility for the year ended December 31, 2019.

This initiative was completed at the end of 2019.

(2) Includes $2.3 million of interest capitalized in connection with the Granite City gas sharing project for the year ended December 31, 2019.

The gas sharing projects were completed in June 2019.

(3) Includes capital spending in connection with the foundry cokemaking growth project, including $0.2 million of interest capitalized for the year ended December 31, 2020.

(1) Includes capital spending in connection with the foundry cokemaking growth project, including $0.5 million and $0.2 million of interest capitalized for the years ended December 31, 2021 and 2020, respectively.

(2) Reflects actual cash payments during the periods presented for our capital requirements.

In 2021, we expect our capital expenditures to be approximately $80 million.

Critical Accounting Policies

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Black Lung Benefit Liabilities

The Company has obligations related to coal workers’ pneumoconiosis, or black lung, benefits to certain of our former coal miners and their dependents.

Such benefits are provided for under Title IV of the Federal Coal Mine and Safety Act of 1969 and subsequent amendments, as well as for black lung benefits provided in the states of Virginia, Kentucky and West Virginia pursuant to workers’ compensation legislation.

The Patient Protection and Affordable Care Act (“PPACA”), which was implemented in 2010, amended previous legislation related to coal workers’ black lung obligations.

PPACA provides for the automatic extension of awarded lifetime benefits to surviving spouses and changes the legal criteria used to

assess and award claims.

We act as a self-insurer for both state and federal black lung benefits and 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 based on actuarial models utilizing our population of former coal miners, historical payout patterns of both the Company and the industry, actuarial mortality rates, disability incidence, medical costs, death benefits, dependents, discount rates and the current federally mandated payout rates.

The Company has obligations related to coal workers’ pneumoconiosis, or black lung, benefits to certain of its former coal miners and their dependents further described in Note 13.

Our independent actuarial consultants calculate the present value of the estimated black lung liability annually based on actuarial models utilizing our population of former coal miners, historical payout patterns of both the Company and the industry, 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 statutory mechanisms, modifications by court decisions and changes in filing patterns driven by perceptions of success by claimants and their advisors, the impact of which cannot be estimated.

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A decrease of 25 basis points in the discount rate would have increased black lung expense by $1.4 million in 2021.

(2) The current portion of the black lung liability was $4.6 million at both December 31, 2020 and 2019, respectively, and was included in accrued liabilities on the Consolidated Balance Sheets.

(2) The current portion of the black lung liability was $5.4 million and $4.6 million at December 31, 2021 and 2020, respectively, and was included in accrued liabilities on the Consolidated Balance Sheets.

The following table summarizes annual black lung payments and expense:

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$ 3.1 $ 15.4 $ 10.9

(1) Expenses incurred in excess of annual accretion of the black lung liability primarily reflect the impact of changes in discount rates as well as increases in expected future claims as a result of higher refiling and approval rate assumptions.

(1) Expenses incurred in excess of annual accretion of the black lung liability in 2020 and 2019 primarily reflect the impact of changes in discount rates as well as increases in expected future claims as a result of higher refiling and approval rate assumptions.

Accounting for Impairments

Goodwill, which represents the excess of the purchase price over the fair value of net assets acquired, is assessed for impairment as of October 1 of each year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit to below its carrying value.

A significant portion of our logistics business has historically been from long-term, take-or-pay contracts with Murray American Coal, Inc.

Prior to 2020, a significant portion of our logistics business was from long-term, take-or-pay contracts with Murray American Coal, Inc.

("Murray") and Foresight Energy LLC ("Foresight"), which were adversely impacted by declining coal export prices and domestic demand.

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Key assumptions in our goodwill impairment test included reduced forecasted volumes and reduced rates from Foresight, no further business from Murray, incremental merchant business and a discount rate of 12 percent, representing the estimated weighted average cost of capital for this business line.

As a result, the Company recorded a $73.5 million non-cash, pre-tax impairment charge to the Logistics segment on the Consolidated Statements of Operations during 2019, which represents a full impairment of the Logistics goodwill balance.

The Company's total goodwill balance as of December 31, 2020 was $3.4 million.

Please see Note 8 to our consolidated financial statements for further discussion on the current goodwill balance.

As a result, the Company recorded a $73.5 million non-cash, pretax impairment charge to the Logistics segment on the Consolidated Statements of Operations during 2019, which represents a full impairment of the Logistics goodwill balance.

The Company's total goodwill balance at both December 31, 2021 and 2020 was $3.4 million.

Please see Note 8 to our consolidated financial statements.

Long-lived Assets

Long-lived assets are comprised of properties, plants and equipment as well as our long-lived intangible assets, comprised of customer contracts, customer relationships, and permits.

Long-lived assets are comprised of properties, plants and equipment as well as our long-lived intangible assets, comprised primarily of customer contracts, customer relationships, and permits.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

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Therefore, fair market value is generally based on the present values of estimated future cash flows using discount rates commensurate with the risks associated with the assets being reviewed for impairment.

No impairments on long-lived assets were recorded in 2020.

No impairments on long-lived assets were recorded in 2021 or 2020.

Please see Note 8 to our consolidated financial statements for further discussion on long-lived assets.

As a result of our logistics customers' events discussed above, CMT's long-lived assets, including customer contracts, customer relationships, permits and properties, plant and equipment, were also assessed for impairment as of September 30, 2019.

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The fair value of the CMT long-lived assets was determined to be $112.1 million based on discounted cash flows, asset replacement cost and adjustments for capacity utilization, which are considered Level 3 inputs in the fair value hierarchy as defined in Note 18 to our consolidated financial statements.

Key assumptions in our discounted cash flows included reduced forecasted volumes and reduced rates from Foresight, no further business from Murray, incremental merchant business and a discount rate of 11 percent, representing the estimated weighted average cost of capital for this asset group.

Key assumptions in our discounted cash flows

included reduced forecasted volumes and reduced rates from Foresight, no further business from Murray, incremental merchant business and a discount rate of 11 percent, representing the estimated weighted average cost of capital for this

As a result, during 2019, the Company recorded a total non-cash, pre-tax long-lived asset impairment charge of $173.9 million included in long-lived asset and goodwill impairment on the Consolidated Statements of Operations, all of which was attributable to the Logistics segment.

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See Note 20 in our consolidated financial statements for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement for 2021, 2020 and 2019.

Below is a reconciliation of 2021 Adjusted EBITDA guidance from its closest GAAP measure:

Net income $ 15 $ 35

Depreciation and amortization expense 137 133

Interest expense, net 55 50

Income tax expense 8 12

Adjusted EBITDA $ 215 $ 230

Adjusted EBITDA attributable to noncontrolling interest (1)

Adjusted EBITDA attributable to SunCoke Energy, Inc.

(1) Reflects non-controlling interest in Indiana Harbor.

Guarantor Financial and Non-Financial Disclosures

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For purposes of the following information, SunCoke Energy, Inc.

is referred to as “Issuer.” All 100 percent owned subsidiaries of the Company, including Finance Corp.

and its consolidated subsidiaries, are expected to serve as guarantors of obligations (“Guarantor Subsidiaries”) included in the shelf registration statement, other than the Indiana Harbor partnership and certain of the Company’s corporate financing, international and legacy coal mining subsidiaries ("Non-Guarantors").

is referred to as “Issuer.” All 100 percent owned subsidiaries of the Company are expected to serve as guarantors of obligations (“Guarantor Subsidiaries”) included in the shelf registration statement, other than the Indiana Harbor partnership and certain of the Company’s corporate financing, international and legacy coal mining subsidiaries ("Non-Guarantors").

These guarantees will be full and unconditional (subject, in the case of the Guarantor Subsidiaries, to customary release provisions as described below) and joint and several.

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Operating income 119.5

Net loss $ (6.6)

Balance Sheets

Issuer and Guarantor Subsidiaries

Net income $ 23.4

Balance Sheet Issuer and Guarantor Subsidiaries

December 31, 2021

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Current liabilities

Long-term debt and financing obligations 673.9

Long-term debt and financing obligation 610.4

Long-term payable to Non-Guarantor subsidiaries

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this Annual Report on Form 10-K, including, among others, in the sections entitled “Business,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include all statements that are not historical facts and may be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “will,” “should” or the negative of these terms or similar expressions.

Such forward-looking statements are based on management’s beliefs and assumptions and on information currently available.

Forward-looking statements include, but are not limited to, the information concerning our expectations regarding the future impact of COVID-19 and the related economic conditions on our business, financial condition and results of operations, possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance, the effects of competition, the anticipated expansion into the foundry coke market and the effects of future legislation or regulations.

Forward-looking statements include all statements that are not historical facts and may be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “will,” “should” or the negative of these terms or similar expressions.

In particular, statements in this Annual Report on Form 10-K concerning future dividend declarations are subject to approval by our Board of Directors and will be based upon circumstances then existing.

In addition, statements in this Annual Report on Form 10-K concerning future dividend declarations are subject to approval by our Board of Directors and will be based upon circumstances then existing.

Forward-looking statements are not guarantees of future performance, but are based upon the current knowledge, beliefs and expectations of SunCoke management, and upon assumptions by SunCoke concerning future conditions, any or all of which ultimately may prove to be inaccurate.

Forward-looking statements involve risks, uncertainties and assumptions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis