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Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-24 · 85 added, 237 removed, 187 unchanged (63% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Annual Report on Form 10-K contains certain forward-looking statements of expected future developments, as defined in the Private Securities Litigation Reform Act of 1995.

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.”

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;

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

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 Note 20 to our consolidated financial statements.

This Annual Report on Form 10-K 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 under “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors.”

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 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" in this Item and Note 19 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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(1) See Note 19 in our consolidated financial statements for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement.

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.

The Company delivered strong financial results for the year ended 2022.

Favorable pricing on export coke sales in our Domestic Coke segment and higher price realization and volumes within our Logistics segment drove record Adjusted EBITDA performance in 2022.

We also increased our participation in the foundry coke market, while continuing to deliver on our long-term, take-or-pay coke contracts.

We returned meaningful capital to our shareholders through the declaration and payment of a dividend during each quarter of 2022, increasing from $0.06 per share during the first half of the year to $0.08 per share during the second half of the year, representing a quarterly increase of 33 percent.

Additionally, we reduced total debt by approximately $83 million in 2022 .

Recent Developments

• Granulated Pig Iron Project.

On June 28, 2022, the Company entered into a non-binding letter of intent with U.S.

The letter of intent sets out the principal terms and conditions upon which SunCoke would acquire two blast furnaces from U.S.

Steel's Granite City Works facility and construct a granulated pig iron facility with an annual capacity of 2 million tons to be sold to U.S.

Steel for a ten year initial term.

Items Impacting Comparability

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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 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.

The Company issued $500.0 million of 4.875 percent senior notes, due in 2029 ("2029 Senior Notes"), amended and extended the maturity of its revolving credit facility ("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 senior notes, due in 2025 ("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 Income 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.

Consolidated Results of Operations

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32.0 42.5 (10.5)

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

Loss on extinguishment of debt — 31.9 (31.9)

Income before income tax expense 121.7 67.1 54.6

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Net income attributable to noncontrolling interests

4.2 5.4 (1.2)

Net income attributable to SunCoke Energy, Inc.

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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 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 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.

Sales and other operating revenue and costs of products sold and operating expenses increased in 2022 as compared to 2021, primarily driven by the pass-through of higher coal prices in our Domestic Coke segment, which also resulted in lower margins.

Additionally, revenues further benefited from favorable pricing on export coke sales in our Domestic Coke segment, which partially offset the impact of higher coal prices on margins.

Selling, General and Administrative Expen ses.

The increase in selling, general and administrative expense primarily reflects higher employee related expenses, higher cost of professional services, and transaction costs incurred as part of the granulated pig iron project.

These higher costs were partially offset by valuation adjustments as a result of changes in discount rates on certain legacy liabilities, which decreased legacy costs by $3.3 million as compared to the prior year.

Depreciation and Amortization Expense.

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

Interest Expense, net .

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 .

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.

Depreciation and amortization expense increased as a result of depreciable assets placed into service since the prior year period.

Interest Expen se, net.

Interest expense, net, benefited in 2022 from a lower interest rate on the outstanding senior notes, which decreased to 4.875 percent from 7.500 percent as a result of the debt refinancing that occurred during the second quarter of 2021, as well as lower average debt balances during the current year period.

Income Tax Expense.

Income tax expense during 2022 reflects the net impact of Foreign Tax Credit regulations signed in 2022 further described in Note 4 to our consolidated financial statements, which had a net result of an income tax benefit of $6.5 million during the current year period.

Additionally, the current year period reflects the recognition of research and development credits and lower apportioned state income tax rates, which resulted in an income tax benefits of $4.0 million and $6.4 million, respectively, including the related revaluation of certain deferred tax liabilities.

See Note 4 to our consolidated financial statements for further detail.

Noncontrolling Interest.

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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.

The remainder is included in Corporate and Other.

Management believes Adjusted EBITDA is an important measure of operating performance and uses it as the primary basis for the chief operating decision maker to evaluate the performance of each of our reportable segments.

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Logistics 49.7 43.5 6.2

Corporate and Other, including legacy costs, net (2)

(28.7) (41.9) 13.2

Adjusted EBITDA

$ 275.4 $ 205.9 $ 69.5

Corporate and Other, net (29.9) (28.7) (1.2)

Total Adjusted EBITDA $ 297.7 $ 275.4 $ 22.3

Coke Operating Data:

Domestic Coke capacity utilization (2)

100 % 101 % (1) %

Domestic Coke production volumes (thousands of tons)

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Tons handled (thousands of tons) 22,291 19,933 2,358

19,933 14,678 5,255

(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 for the years ended December 31, 2021, 2020 and 2019.

(2) Corporate and Other includes the activity from our legacy coal mining business, which incurred Adjusted EBITDA losses of $1.9 million and $13.2 million for the years ended December 31, 2021 and 2020, respectively.

Additionally, Corporate and Other includes foundry related research and development costs of $3.9 million during 2020.

(1) See Note 19 in our consolidated financial statements for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement.

(2) 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.

(3) Reflects Domestic Coke Adjusted EBITDA divided by Domestic Coke sales volumes.

(4) Reflects inbound tons handled during the period.

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 $ 1,354.5 $ 243.4

(46.4) (13.9)

Operating and maintenance costs (3)

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Ending $ 1,856.9 $ 263.4

(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.

(1) Volumes decreased during 2022 primarily due to changes in the mix of production.

(2) Revenues increased primarily as a result of the pass-through of higher coal prices on our long-term, take-or-pay agreements, which also had a favorable impact on Adjusted EBITDA due to higher coal-to-coke yield gains on higher coal prices.

Favorable pricing on export coke sales also increased revenues and was the primary driver of the increase to Adjusted EBITDA during 2022.

(3) Higher operating and maintenance costs includes the impact of planned maintenance outages and higher cost of fuel.

(4) Favorable energy pricing at our Haverhill II facility increased both revenue and Adjusted EBITDA.

This increase to Adjusted EBITDA was more than offset by higher allocation of corporate costs.

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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Ending $ 106.5 $ 49.7

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

(1) Volumes improved as a result of increased demand driven by the strong domestic metallurgical and thermal coal markets.

(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.

(3) Other decreases in Adjusted EBITDA reflect higher operating and maintenance costs.

Sales and other operating revenue increased $1.4 million, or 4 percent, to $38.0 million in 2022 compared to $36.6 million in 2021.

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.

Adjusted EBITDA decreased $2.7 million, or 16 percent, to $14.5 million in 2022 compared to $17.2 million in 2021.

Sales and other operating revenue and Adjusted EBITDA reflect the impact of lower volumes, including the absence of production bonuses for meeting certain volume targets received in the prior year.

The impact of lower volumes on sales and other operating revenue was more than offset by the pass-through of higher reimbursable operating and maintenance costs as well as favorable translation adjustments.

Corporate and Other

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.

Corporate and Other expenses, increased $1.2 million, or 4 percent, to $29.9 million in 2022 as compared to $28.7 million in 2021.

The increase was driven by higher employee related expenses and higher cost of professional services.

These increased costs were mostly offset by valuation adjustments as a result of changes in discount rates on certain legacy liabilities, which decreased legacy costs by $3.3 million.

Non-GAAP Financial Measures

In addition to the GAAP results provided in the Annual Report on Form 10-K, we have provided a non-GAAP financial measure, Adjusted EBITDA.

Our management, as well as certain investors, uses 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.

See Note 19 in our consolidated financial statements for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement for 2022, 2021 and 2020.

Liquidity and Capital Resources

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The amounts involved may be material.

Refer to further liquidity discussion below as well as to Note 12 to our consolidated financial statements and "Part I - Item 5 - Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities."

Refer to further liquidity discussion below as well as "Part II - Item 5 - Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities."

During the first quarter of 2020, the U.S.

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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.

Additionally, on January 19, 2023, the Department of Labor issued a new proposed rule that would require self-insured companies to post collateral in the amount of 120 percent of the company's total expected lifetime black lung obligations as determined by the DCMWC.

While this new proposed rule is not effective, if finalized, it could potentially reduce the Company's liquidity.

We will submit comments on this proposed rule and continue to monitor any impact to the Company.

See further discussion in Note 12 to our consolidated financial statements.

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Net cash used in financing activities (112.5) (118.4)

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

Net increase in cash and cash equivalents $ 26.2 $ 15.4

Cash Provided by Operating Activities

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.

Net cash provided by operating activities decreased by $24.2 million to $208.9 million in 2022 as compared to 2021.

The decrease primarily reflects unfavorable year-over-year changes in primary working capital, which is comprised of accounts receivable, inventories and accounts payable, driven by higher coal prices.

This decrease was partially offset by

higher operating results in our Domestic Coke segment, primarily driven by favorable pricing on export coke sales, and in our Logistics segment, driven by favorable pricing and higher transloading volumes.

Cash Used in Investing Activities

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.

Net cash used in investing activities decreased $29.1 million to $70.2 million in 2022 as compared to 2021 primarily driven by the timing of payments related to capital expenditures as well as the completion of certain foundry cokemaking expansion projects in 2021.

Refer to Capital Requirements and Expenditures below for further detail.

Cash Used in Financing Activities

Net cash used in financing activities decreased $5.9 million to $112.5 million in 2022 as compared to $118.4 million in 2021.

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."

T his decrease was primarily driven by the absence of costs associated with the debt refinancing that took place during the second quarter of 2021, which consisted of a $22.0 million premium and $12.0 million of debt issuance costs.

These decreases were partly offset by higher current period net repayments on the Company's debt of $19.7 million, excluding the impact of funding of the debt refinancing in the prior period, and $4.4 million of cash distributions made to noncontrolling interests.

Additionally, dividends paid in 2022 increased $3.5 million as compared to the dividends paid in the prior year as a result of an increase in the dividend per share amount.

In addition to the $23.6 million in dividends paid to our shareholders during 2022, on February 2, 2023, SunCoke's Board of Directors declared a cash dividend of $0.08 per share of the Company's common stock.

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Credit Rating

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.

In May 2022, S&P Global Ratings reaffirmed our corporate credit rating of BB- (stable).

In June 2022, Moody’s Investors Service reaffirmed our corporate credit rating of B1 and upgraded the outlook from stable to positive.

Contractual Obligations

As of December 31, 2022, significant contractual obligations related to our metallurgical coal procurement contracts, which are generally based on annual coke production requirements at fixed coal prices, were $1,092.8 million and extend through 2023.

As of December 31, 2022 significant contractual obligations related to debt were $543.8 m illion of principal borrowings and $166.6 million of related interest, which will be repaid through 2029.

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$ 75.5 $ 98.6

(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.

(1) Includes capital spending in connection with the foundry cokemaking growth project.

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

Critical Accounting Policies

Critical Accounting Policies and Estimates

A summary of our significant accounting policies is included in Note 2 to the consolidated financial statements.

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The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities.

Significant items that are subject to such estimates and assumptions consist of:

(1) black lung benefit obligations and (2) accounting for impairments of goodwill and long-lived assets.

The Company's black lung benefit obligations is an item that is subject to such estimates and assumptions.

Although our management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results may differ to some extent from the estimates on which our consolidated financial statements have been prepared at any point in time.

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Black Lung Benefit Liabilities

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.

The Company has obligations related to coal workers’ pneumoconiosis, or black lung, to provide benefits to certain of its former coal miners and their dependents further described in Note 12 to our consolidated financial statements.

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.

The estimated liability may be impacted by future changes in the statutory mechanisms, modifications by court decisions and changes in filing patterns by claimants and their advisors, the impact of which cannot be estimated.

The following table summarizes discount rates utilized, active claims and the total black lung liabilities:

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(2) The current portion of the black lung liability was $5.9 million and $5.4 million at December 31, 2022 and 2021, respectively, and was included in accrued liabilities on the Consolidated Balance Sheets.

The following table summarizes annual black lung payments and expense:

The following table summarizes annual black lung payments and (benefit) expense:

Years Ended December 31,

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Payments $ 5.0 $ 4.4 $ 6.0

(Benefit) expense (1)

$ (0.2) $ 3.1 $ 15.4

(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.

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.

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.

The Company concluded the impact of the events discussed above could more likely than not reduce the fair value of the Logistics reporting unit below its carrying value, requiring SunCoke to perform its annual goodwill test as of September 30, 2019.

The fair value of the Logistics reporting unit, which was determined based on a discounted cash flow analysis, did not exceed the carrying value of the reporting unit.

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, 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 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.

A long-lived asset, or group of assets, is considered to be impaired when the undiscounted net cash flows expected to be generated by the asset are less than its carrying amount.

Such estimated future cash flows are highly subjective and are based on numerous assumptions about future operations and market conditions.

The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the impaired asset, or group of assets.

It is also difficult to precisely estimate fair market value because quoted market prices for our long-lived assets may not be readily available.

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 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.

The Company re-evaluated its projections for throughput volumes, pricing and customer performance against the existing long-term, take-or-pay contracts.

The resulting undiscounted cash flows were lower than the carrying value of the asset group.

Therefore, the Company assessed the fair value of the asset group to measure the amount of impairment.

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

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.

The charge included an impairment of CMT's long-lived intangible assets of $113.3 million and of CMT's property, plant and equipment of $60.6 million.

(1) Black lung (benefit) expense incurred in excess of annual accretion of the black lung liability reflects the impact of changes in discount rates, current filing and approval rate assumptions and/or other changes in our actuarial assumptions.

Recent Accounting Standards

See Note 2 to our consolidated financial statements.

Non-GAAP Financial Measures

In addition to the GAAP results provided in the Annual Report on Form 10-K, we have provided a non-GAAP financial measure, Adjusted EBITDA.

Our management, as well as certain investors, uses 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.

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.

Guarantor Financial and Non-Financial Disclosures

The Company has an existing shelf registration statement, which was filed on November 8, 2019, upon the expiration of the prior shelf registration statement, for the offering of debt and/or securities on a delayed or continuous basis and is presenting these guarantor financial and non-financial disclosures in connection therewith.

The following information has been prepared and presented pursuant to amended SEC Rule 3-10 of Regulation S-X and new SEC Rule 13-01 of Regulation S-X, which were adopted by the SEC on March 2, 2020.

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

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.

The guarantee of a Guarantor Subsidiary will terminate upon:

• a sale or other disposition of the Guarantor Subsidiary or of all or substantially all of its assets;

• a sale of the majority of the capital stock of a Guarantor Subsidiary to a third-party, after which the Guarantor Subsidiary is no longer a “Restricted Subsidiary” in accordance with the indenture governing the notes;

• the liquidation or dissolution of a Guarantor Subsidiary so long as no “Default” or "Event of Default”, as defined under the indenture governing the notes, has occurred as a result thereof;

• the designation of a Guarantor Subsidiary as an “unrestricted subsidiary” in accordance with the indenture governing the notes;

• the requirements for defeasance or discharge of the indenture governing the notes having been satisfied;

• the release, other than the discharge through payments by a Guarantor Subsidiary, from other indebtedness that resulted in the obligation of the Guarantor Subsidiary under the indenture governing the notes.

The following tables present summarized financial information for the Issuer and the Guarantor Subsidiaries on a combined basis after intercompany balances and transactions between the Issuer and Guarantor Subsidiaries have been eliminated and excluding investment in and equity in earnings from the Non-Guarantor Subsidiaries

Statements of Operations Issuer and Guarantor Subsidiaries

Year Ended December 31, 2021

(Dollars in millions)

Revenues $ 1,080.7

Costs and operating expenses 961.2

Operating income 119.5

Net income $ 23.4

Balance Sheet Issuer and Guarantor Subsidiaries

December 31, 2021

(Dollars in millions)

Current receivables from Non-Guarantor subsidiaries

Other current assets

Properties, plants and equipment, net

Other non-current assets

Current liabilities

Long-term debt and financing obligation 610.4

Long-term payable to Non-Guarantor subsidiaries

Other long-term liabilities

Total liabilities

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.

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.

Actual results may differ materially from those expressed in these forward-looking statements.

You should not put undue reliance on any forward-looking statements.

We do not have any intention or obligation to update any forward-looking statement (or its associated cautionary language), whether as a result of new information or future events, after the date of this Annual Report on Form 10-K, except as required by applicable law.

The risk factors discussed in “Risk Factors” could cause our results to differ materially from those expressed in the forward-looking statements made in this Annual Report on Form 10-K.

There also may be other risks that are currently unknown to us or that we are unable to predict at this time.

Such risks and uncertainties include, without limitation:

• the potential operating and financial impacts on our operations, or those of our customers and suppliers, and the general impact on our industry and on the U.S.

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

• volatility and cyclical downturns in the steel industry and in other industries in which our customers and/or suppliers operate;

• changes in the marketplace that may affect our cokemaking business, including the supply and demand for our coke products, as well as increased imports of coke from foreign producers;

• volatility, cyclical downturns and other change in the business climate and market for coal, affecting customers or potential customers for our logistics business;

• changes in the marketplace that may affect our logistics business, including the supply and demand for thermal and metallurgical coal;

• severe financial hardship or bankruptcy of one or more of our major customers, or the occurrence of a customer default or other event affecting our ability to collect payments from our customers;

• our ability to repair aging coke ovens to maintain operational performance;

• age of, and changes in the reliability, efficiency and capacity of the various equipment and operating facilities used in our cokemaking operations, and in the operations of our subsidiaries major customers, business partners and/or suppliers;

• changes in the expected operating levels of our assets;

• changes in the level of capital expenditures or operating expenses, including any changes in the level of environmental capital, operating or remediation expenditures;

• changes in levels of production, production capacity, pricing and/or margins for coal and coke;

• changes in product specifications for the coke that we produce or the coals we mix, store and transport;

• 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;

• 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 Annual Report on Form 10-K are expressly qualified in their entirety by the foregoing cautionary statements.

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