What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-22 · 93 added, 74 removed, 222 unchanged (43% of the section changed)

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(1) See “Non-GAAP Financial Measures” in this Item 7 below for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement.

Operating results during the year ended December 31, 2023 primarily reflects lower margin on our non-contracted blast coke sales, unfavorable energy pricing at our Haverhill facility and lower transloading volumes in our Logistics segment.

These decreases were partially offset by favorable coal-to-coke yields on our long-term, take-or-pay agreements and favorable pricing on our foundry coke sales.

Net income for the current year period was further impacted by the establishment of a valuation allowance on deferred tax assets attributable to existing foreign tax credit carryforwards.

Operating cash flows during the current period primarily reflect a favorable year-over-year change in primary working capital.

Operating results during the year ended December 31, 2024 primarily reflect higher transloading volumes and pricing in our Logistics segment, as well as the extinguishment of certain black lung liabilities during the current year period, which resulted in the recognition of a $9.5 million pre-tax gain.

These increases were partially offset by unfavorable coal-to-coke yields on our long-term, take-or-pay agreements within our Domestic Coke segment.

Operating cash flows during the current period primarily reflect an unfavorable year-over-year change in primary working capital and a one-time payment of $36.0 million related to the extinguishment of certain black lung liabilities.

We returned meaningful capital to our shareholders through the declaration and payment of a dividend during each quarter of 2024, increasing from $0.10 per share during the first half of the year to $0.12 per share during the second half of the year, representing a quarterly increase of 20 percent.

Additionally, we reduced total debt by approximately $44 million in 2023.

Recent Developments

• 2023 Indiana Harbor Contract Renewal.

In April 2023, the Indiana Harbor long-term, take-or-pay agreement with Cliffs Steel was extended to September 30, 2035.

Under the extended agreement, Indiana Harbor will continue to supply 1,220 thousand tons to Cliffs Steel annually.

Reimbursement of certain operating and maintenance expenses under the contract are fixed subject to annual adjustment based on an inflation index.

• Granite City Contract Extension.

In October 2024, the Granite City long-term, take-or-pay agreement with United States Steel Corporation (“U.S.

Steel”) was extended through June 30, 2025, with an option for U.S.

Steel to extend for an additional six months.

Under the terms of the agreement, Granite City will supply 295 thousand tons of coke to U.S.

Steel during the initial six month term.

The terms of the extension includes a turn down fee, but results in significantly lower overall economics compared to the current long-term, take-or-pay agreement.

Other key provisions of the agreement, including the pass-through of coal costs, remain unchanged.

Items Impacting Comparability

Department of Labor’s Division of Coal Mine Workers Compensation (“DCMWC”) Regulatory Exemption.

In August 2024, the Company reached an agreement with the DCMWC and made a payment of $36.0 million to extinguish the majority of its self-insured federal black lung liabilities.

As a result of the agreement, the Company recognized a $9.5 million pre-tax gain within selling, general and administrative expenses on the Consolidated Statements of Income during the year ended December 31, 2024.

The agreement resulted in a reduction of $45.5 million of the Company's black lung liability on the Consolidated Balance Sheets.

See Note 12 to our consolidated financial statements for further detail.

Consolidated Results of Operations

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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 2023 as compared to 2022, primarily driven by the pass-through of higher coal prices in our Domestic Coke segment.

Additionally, revenues further benefited from higher volumes on our long-term, take-or-pay agreements.

These increases to sales and other operating revenue were partially offset by lower volumes and unfavorable pricing on our non-contracted blast coke sales.

Sales and other operating revenue and costs of products sold and operating expenses decreased in 2024 as compared to 2023, primarily driven by the pass-through of lower coal prices on our long-term, take-or-pay agreements.

Selling, General and Administrative Expenses.

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

These lower costs were partially offset by valuation adjustments primarily as a result of changes in discount rates on certain legacy liabilities, which increased legacy costs by $5.7 million as compared to the prior year.

The decrease in selling, general and administrative expense was primarily impacted by the recognition of a $9.5 million gain, which was the result of the extinguishment of certain liabilities related to our legacy coal mining business.

See Note 12 to our consolidated financial statements for further detail.

Depreciation and Amortization Expense.

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

Depreciation and amortization expense decreased in 2024 as compared to 2023 as a result of the expiration of the useful lives of assets in our Domestic Coke segment, which were placed into service in prior periods.

Interest Expense, net.

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Income Tax Expense.

Income tax expense during 2023 primarily reflects the establishment of a valuation allowance on deferred tax assets attributable to existing foreign tax credit carryforwards, which was a portion of a valuation allowance released during the third quarter of 2022, resulting in $8.4 million of deferred tax expense.

The establishment of the valuation allowance during 2023 was the result of changes in tax regulations.

Income tax expense during 2024 benefited from the absence of $8.4 million of deferred tax expense recorded in the prior year related to the establishment of a valuation allowance on deferred tax assets attributable to existing foreign tax credit carryforwards, as a result of changes in tax regulations.

Additionally, the current year period further benefited from the release of valuation allowances established on deferred tax assets related to state net operating loss carryforwards, partially offset by the revaluation of certain deferred tax liabilities due to changes in apportioned state tax rates.

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

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The operations of each of our reportable segments are described in Part I of this Annual Report on Form 10-K.

The Company elected to combine Dismal River Terminal (“DRT”) operations into the Jewell cokemaking operations in the Domestic Coke segment beginning January 1, 2023.

The DRT results were included in the Logistics segment in 2022 and are not recast.

Corporate expenses that can be identified with a segment have been included in determining segment results.

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However, we have included Corporate and Other within our operating data below.

Management believes Adjusted EBITDA is an important measure of operating performance, which is used by the chief operating decision maker as one of the measurements to evaluate the performance of each of our reportable segments.

Management believes Adjusted EBITDA is an important measure of operating performance, which is used by the chief operating decision maker as one of the measurements to help determine the allocation of costs and resources to our reportable segments.

Adjusted EBITDA should not be considered a substitute for the reported results prepared in accordance with GAAP.

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$ 234.7 $ 247.8 $ (13.1)

9.1 14.5 (5.4)

Logistics 50.4 44.3 6.1

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Total Adjusted EBITDA (2)

$ 272.8 $ 268.8 $ 4.0

Coke Operating Data:

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Tons handled (thousands of tons) 22,540 20,483 2,057

(1) See the “Non-GAAP Financial Measures” section below for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement.

(1) Corporate and Other, net is not a reportable segment.

(2) See the “Non-GAAP Financial Measures” section below for both the definition of Adjusted EBITDA and the reconciliation from GAAP to the non-GAAP measurement.

(3) The production of foundry coke tons does not replace blast furnace coke tons on a ton for ton basis, as foundry coke requires longer coking time.

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Beginning $ 1,954.0 $ 247.8

Operating and maintenance costs N/A (0.1)

(127.1) (11.1)

Operating and maintenance costs (3)

Energy and other (4)

Ending $ 1,817.3 $ 234.7

(1) Higher volumes on our long-term, take-or-pay agreements increased both revenues and Adjusted EBITDA during 2023.

These higher volumes were mostly offset by lower volumes on non-contracted blast coke sales.

(2) Revenues increased primarily as a result of the pass-through of higher coal prices on our long-term, take-or-pay agreements.

Adjusted EBITDA decreased primarily due to lower margins on our non-contracted blast coke sales.

These decreases to Adjusted EBITDA were partially offset by favorable coal-to-coke yields on our long-term, take-or-pay agreements and favorable pricing on foundry coke sales.

(3) Energy and other decreased primarily as a result of unfavorable energy pricing at our Haverhill facility.

(1) Volumes during 2024 were negatively impacted by lower coal-to-coke yields.

These decreases were partially and completely offset for Revenues and Adjusted EBITDA, respectively, by higher volumes on our foundry coke sales and higher volumes at certain of our cokemaking facilities driven by the absence of oven rebuilds in the current year period.

(2) Sales and other operating revenue decreased primarily as a result of the pass-through of lower coal prices on our long-term, take-or-pay agreements.

Adjusted EBITDA was negatively impacted by lower coal-to-coke yields on our long-term, take-or-pay agreements and lower sales pricing on our non-contracted blast coke sales, which was partially offset by the impact of lower coal prices on our non-contracted blast coke sales.

(3) Operating and maintenance costs primarily benefited in the current year period from lower planned outage costs and the absence of oven rebuilds.

(4) Energy and other decreased primarily as a result of unfavorable energy pricing.

These decreases were partially offset by higher energy sales as a result of increased volumes related to upgrades of our assets made in the prior year period .

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

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Adjusted EBITDA presented above is inclusive of the impact of intersegment transactions.

(1) Volumes decreased as a result of lower demand at CMT driven by weakened thermal coal markets and the short-term idling of a customer mine during the fourth quarter of 2023.

Additionally, Adjusted EBITDA in the current year period reflects the absence of DRT volumes.

(2) Revenues and Adjusted EBITDA increased as a result of higher transloading pricing.

(3) Revenues and Adjusted EBITDA decreased as a result of unfavorable ancillary revenue, which was a result of lower volumes at CMT.

This decrease in Adjusted EBITDA was more than offset by the absence of costs associated with DRT in the current year period.

Sales and other operating revenue decreased $2.8 million, or 7 percent, to $35.2 million in 2023 compared to $38.0 million in 2022.

Adjusted EBITDA decreased $5.4 million, or 37 percent, to $9.1 million in 2023 compared to $14.5 million

Decreases in sales and other operating revenue and Adjusted EBITDA were primarily due to the absence of technology fees, which expired at the end of 2022.

(1) Volumes primarily increased as a result of higher demand and transloading volumes at KRT.

(2) Revenues and Adjusted EBITDA increased as a result of higher transloading pricing at CMT.

(3) Revenues and Adjusted EBITDA increased as a result of favorable ancillary revenue.

Sales and other operating revenue decreased $0.1 million, or zero percent, to $35.1 million in 2024 compared to $35.2 million in 2023.

Adjusted EBITDA increased $0.8 million, or 9 percent, to $9.9 million in 2024 compared to $9.1 million in 2023.

The increase in Adjusted EBITDA primarily reflects higher operating fees and production volumes.

Corporate and Other

Corporate and Other Adjusted EBITDA decreased $2.5 million, or 8 percent, to a loss of $32.4 million in 2023 compared to a loss of $29.9 million in 2022.

This decrease was primarily driven by valuation adjustments as a result of changes in discount rates on certain legacy liabilities, which increased legacy costs by $5.7 million, partially offset by lower employee related expenses and lower cost of professional services in the current year period.

Corporate and Other Adjusted EBITDA increased $10.2 million, or 31 percent, to a loss of $22.2 million in 2024 compared to a loss of $32.4 million in 2023.

This increase was primarily driven by the recognition of a $9.5 million gain, which was the result of the extinguishment of certain liabilities related to our legacy coal mining business.

See Note 12 to our consolidated financial statements for further detail.

Non-GAAP Financial Measures

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Interest expense, net 23.4 27.3 32.0

Loss on extinguishment of debt — — 31.9

Income tax expense 25.0 34.3 16.8

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Adjusted EBITDA $ 272.8 $ 268.8 $ 297.7

(1) Costs incurred as part of the granulated pig iron project with U.S.

(1) Reflects costs incurred related to potential mergers and acquisitions and the granulated pig iron project with U.S.

Liquidity and Capital Resources

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Our sources of liquidity include cash generated from operations, borrowings under our revolving credit facility (“Revolving Facility”) and, from time to time, debt and equity offerings.

We believe our current resources are sufficient to meet our working capital requirements for our current business for at least the next 12 months and thereafter for the foreseeable future.

We believe our current resources are sufficient to meet our working capital requirements for our current

business for at least the next 12 months and thereafter for the foreseeable future.

As of December 31, 2024, we had $189.6 million of cash and cash equivalents and $350.0 million of borrowing availability under our Revolving Facility.

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Refer to further liquidity discussion in “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.

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 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.

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 submitted comments on this proposed rule and continue to monitor any impact to the Company.

On February 1, 2013, SunCoke obtained commercial insurance for state and federal black lung claims, in excess of a deductible, for employees with a last date of employment after that date.

For claims based on employment that ended prior to February 1, 2013, SunCoke was reauthorized by the U.S.

Department of Labor’s Division of Coal Mine Workers Compensation (“DCMWC”) to self-insure its black lung liabilities for $8.4 million.

On February 21, 2020, DCMWC made an initial security determination to increase the amount of SunCoke’s collateral requirement for self-insured claims to $40.4 million.

The Company appealed the security determination to the DCMWC.

On August 13, 2024, the Company and DCMWC agreed that the Company would make a lump sum payment of $36.0 million to satisfy its self-insured federal black lung liabilities, with limited exceptions estimated to be approximately $1.4 million.

In exchange, the DCMWC agreed to permanently assume responsibility for payment of black lung benefits for claims based on employment that ended prior to February 1, 2013, and SunCoke received a certificate of exemption that eliminates the Company’s responsibility for future payments arising from claims based on employment that ended prior to February 1, 2013, excluding limited exceptions estimated to be approximately $1.4 million.

As a result of the agreement, the Company no longer maintains any collateral to self-insure its former black lung liabilities incurred prior to February 1, 2013.

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

If finalized, the new rule would not apply to SunCoke.

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

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Cash Provided by Operating Activities

Net cash provided by operating activities increased $40.1 million to $249.0 million in 2023 as compared to 2022.

The increase primarily reflects a favorable year-over-year change in primary working capital, which is comprised of accounts receivable, inventories, and accounts payable, driven by the timing of receipts from customers and the impact of the changes in coal prices.

The current year period was further impacted by an increase in deferred income tax expense relating to new regulations impacting foreign tax credit utilization.

Net cash provided by operating activities decreased $80.2 million to $168.8 million in 2024 as compared to $249.0 million in 2023.

The decrease primarily reflects an unfavorable year-over-year change in primary working capital, which is comprised of accounts receivable, inventories, and accounts payable, driven by the timing of receipts from customers and the impact of the changes in coal prices.

A payment of $36.0 million related to the extinguishment of certain liabilities related to our legacy coal mining business further negatively impacted net cash provided by operating activities in the current year period.

Lower depreciation and deferred income tax expense as compared to the prior year period also favorably impacted cash provided by operating activities.

See Note 4 to our consolidated financial statements for further detail on the change in deferred income tax expense.

These favorable impacts were partially offset by lower operating results and higher payments made for employee related expenses in the current period.

Cash Used in Investing Activities

Net cash used in investing activities increased $39.0 million to $109.2 million in 2023 as compared to 2022 primarily driven by ongoing capital expenditures related to upgrades of our assets in order to improve long-term reliability and operational performance as well as increased spending on the foundry expansion project in the current year period.

Net cash used in investing activities decreased $36.9 million to $72.3 million in 2024 as compared to $109.2 million in 2023.

The decrease primarily reflects lower ongoing capital expenditures, partially driven by the absence of capital spending in connection with oven rebuild projects, as well as the absence of the foundry expansion project in the current year period.

Refer to Capital Requirements and Expenditures below for further detail.

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Net cash used in financing activities decreased $42.7 million to $47.0 million in 2024 as compared to $89.7 million in 2023.

This decrease in net cash used in financing activities was primarily driven by lower net repayments of $45.0 million on the Revolving Facility in the current year period.

This decrease was offset by an increase in dividends paid of $7.1 million as compared to the prior year period, primarily as a result of an increase in the dividend per share amount, as well as higher cash distributions made to noncontrolling interests of $7.4 million in the current year period.

The current year period was also impacted by higher repayments on financing obligations of $5.6 million, resulting from the early buyout on a sale leaseback arrangement, discussed further in Note 11 to our consolidated financial statements.

In addition to the $30.7 million in dividends paid to our shareholders during 2023, on February 1, 2024, SunCoke's Board of Directors declared a cash dividend of $0.10 per share of the Company's common stock.

This dividend will be paid

on March 1, 2024, to stockholders of record on February 15, 2024.

The decrease in net cash used in financing activities was primarily driven by lower net repayments of $35.0 million on the Revolving Facility, the absence of repayments on financing obligations of $8.8 million resulting from the early buyout on a sale leaseback arrangement in the prior year period, and lower cash distributions made to noncontrolling interests of $3.7 million.

These decreases were partially offset by an increase to dividends paid of $6.9 million as compared to the prior year period, primarily as a result of an increase in the dividend per share amount.

In addition to the $37.6 million in dividends paid to our shareholders during 2024, on January 30, 2025, SunCoke's Board of Directors declared a cash dividend of $0.12 per share of the Company's common stock.

This dividend will be paid on March 3, 2025, to stockholders of record on February 17, 2025.

See further discussion in “Item 5.

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Credit Rating

In May 2023, S&P Global Ratings reaffirmed our corporate credit rating of BB- (stable).

In November 2023, Moody’s Investors Service reaffirmed our corporate credit rating of B1 (positive).

In February 2024, S&P Global Ratings reaffirmed our corporate credit rating of BB- (stable).

In October 2024, Moody’s Investors Service reaffirmed our corporate credit rating of B1 and changed the rating outlook from positive to stable.

Contractual Obligations

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Our operations are capital intensive, requiring significant investment to upgrade or enhance existing operations and to meet environmental and operational regulations.

The level of future capital expenditures will depend on various factors, including market conditions and customer requirements, and may differ from current or anticipated levels.

The level of future capital expenditures will depend on various factors, including market conditions, regulatory requirements and customer requirements, and may differ from current or anticipated levels.

Material changes in capital expenditure levels may impact financial results, including but not limited to the amount of depreciation, interest expense and repair and maintenance expense.

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• 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;

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

• Environmental project expenditures to ensure that our existing facilities operate in accordance with changing regulations.

The following table summarizes our capital expenditures:

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$ 72.9 $ 109.2

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

(1) Capital expenditures for the year ended December 31, 2023 includes capital spending in connection with the foundry cokemaking growth project.

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

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Our management believes that the application of these policies on a consistent basis enables us to provide the users of our financial statements with useful and reliable information about our operating results and financial condition.

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.

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.

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

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Black Lung Benefit Liabilities

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.

The Company has obligations to provide certain black lung benefits to legacy coal miners and their dependents further described in Note 12 to our consolidated financial statements.

We adjust our liability each year based upon actuarial calculations of our expected future payments for these benefits.

Our independent actuarial consultants calculate the present value of the estimated black lung liability annually 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 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.

Our independent actuarial consultants calculate the present value of the black lung liability annually in the fourth quarter, unless there are changes in facts and circumstances that could materially alter the amount of the liability.

Our independent actuarial consultants calculate the present value of the estimated black lung liability annually in the fourth quarter, unless there are changes in facts and circumstances that could materially alter the amount of the liability, based on actuarial models utilizing our population of legacy coal miners, historical payout patterns of both the Company and the industry, expected claim filing patterns, expected claimant success rates, actuarial mortality rates, medical costs, death benefits, dependents, discount rates and the current federally mandated payout rates.

The estimated liability may be impacted by future changes in the applicable laws, as interpreted by the courts, and changes in filing patterns by claimants and their advisors, the impact of which cannot be estimated.

On February 1, 2013, SunCoke obtained commercial insurance for state and federal black lung claims, in excess of a deductible, for employees with a last date of employment after that date.

For claims based on employment that ended prior to February 1, 2013, SunCoke was reauthorized by the U.S.

Department of Labor’s Division of Coal Mine Workers Compensation (“DCMWC”) to self-insure its black lung liabilities for $8.4 million.

On February 21, 2020, DCMWC made an initial security determination to increase the amount of SunCoke’s collateral requirement for self-insured claims to $40.4 million.

The Company appealed the security determination to the DCMWC.

This agreement resulted in a reduction of $45.5 million of the Company's black lung liability, and a one-time gain of $9.5 million within selling, general and administrative expenses on the Consolidated Statements of Income during the year ended December 31, 2024.

The Company no longer maintains any collateral to self-insure its former black lung liabilities incurred prior to February 1, 2013.

The Company’s commercially insured federal and state black lung liabilities are not impacted by this agreement.

determined by the DCMWC.

This proposed new rule and any future rulings would not apply to SunCoke as a result of the regulatory exemption detailed above.

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

(Dollars in millions)

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(Dollars in millions)

Payments $ 5.4 $ 5.0 $ 4.4

$ 40.4 $ 5.4 $ 5.0

Expense (benefit) (2)

$ (4.1) $ 5.5 $ (0.2)

(1) Black lung expense (benefit) 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.

(1) Payments for the year ended December 31, 2024 represent $4.4 million of black lung benefit payments made by the Company and the $36.0 million payment made to the DCMWC related to the regulatory exemption detailed above.

(2) The benefit for the year ended December 31, 2024 includes $5.4 million of accretion expense of the black lung liability and a $9.5 million gain related to the regulatory exemption detailed above.

The $9.5 million gain is included in selling, general and administrative expense on the Consolidated Statement of Income.

Recent Accounting Standards

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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