Item 7.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. This discussion contains forward-looking statements about our business, operations and industry that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations and intentions. 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; 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.
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.
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. Our results of operations include reference to our business operations and market conditions, which are further described in Part I of this document.
2020 Overview
Our consolidated results of operations in 2020 were as follows:
(Dollars in millions)
Net income $ 8.8
Net cash provided by operating activities $ 157.8
Adjusted EBITDA $ 205.9
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.
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•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. 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.
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Items Impacting Comparability
•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.
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See Note 8 to our consolidated financial statements. These non-cash impairment charges resulted in a $69.1 million income tax benefit in 2019.
Consolidated Results of Operations
The following section includes year-over-year analysis of consolidated results of operations for the year ended December 31, 2020 as compared to the year ended December 31, 2019. See "Analysis of Segment Results" later in this section for further details of these results. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K for the year-over-year analysis of consolidated results of operations for the year ended December 31, 2019 as compared to the year ended December 31, 2018.
Years Ended December 31,
(Dollars in millions)
Revenues
Costs and operating expenses
Selling, general and administrative expenses 81.4 75.8 5.6
Depreciation and amortization expense 133.7 143.8 (10.1)
Long-lived asset and goodwill impairment(1) — 247.4 (247.4)
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
Less: Net income attributable to noncontrolling interests 5.1 3.9 1.2
Net income (loss) attributable to SunCoke Energy, Inc. $ 3.7 $ (152.3) $ 156.0
(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.
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.
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.
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
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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.
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.
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 the Partnership's common public unitholders — 2.6
Net income attributable to noncontrolling interest $ 5.1 $ 3.9
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.
Results of Reportable Business Segments
We report our business results through three segments:
•Domestic Coke consists of our Jewell facility, located in Vansant, Virginia, our Indiana Harbor facility, located in East Chicago, Indiana, our Haverhill facility, located in Franklin Furnace, Ohio, our Granite City facility located in Granite City, Illinois, and our Middletown facility located in Middletown, Ohio.
•Brazil Coke consists of operations in Vitória, Brazil, where we operate the ArcelorMittal Brazil cokemaking facility.
•Logistics consists of Convent Marine Terminal ("CMT"), located in Convent, Louisiana, Kanawha River Terminal ("KRT"), located in Ceredo and Belle, West Virginia, SunCoke Lake Terminal ("Lake Terminal"), located in East Chicago, Indiana, and Dismal River Terminal ("DRT"), located in Vansant, Virginia. Lake Terminal and DRT are located adjacent to our Indiana Harbor and Jewell cokemaking facilities, respectively.
The operations of each of our segments are described in Part I of this document.
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.
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. Adjusted EBITDA should not be considered a substitute for the reported results prepared in accordance with GAAP. See Note 20 to our consolidated financial statements.
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Segment Operating Data
The following table sets forth financial and operating data by segment for the years ended December 31, 2020 and 2019:
Years Ended December 31,
(Dollars in millions, except per ton amounts)
Sales and other operating revenue:
Logistics intersegment sales 22.1 26.3 (4.2)
Elimination of intersegment sales (22.1) (26.3) 4.2
Adjusted EBITDA(1):
Corporate and Other, including legacy costs, net(2) (41.9) (37.4) (4.5)
Coke Operating Data:
Domestic Coke capacity utilization (%) 91 98 (7)
Domestic Coke production volumes (thousands of tons) 3,840 4,168 (328)
Domestic Coke sales volumes (thousands of tons) 3,789 4,171 (382)
Domestic Coke Adjusted EBITDA per ton(3) $ 57.27 $ 54.35 $ 2.92
Logistics Operating Data:
(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, 2020, 2019 and 2018.
(2)Corporate and Other includes the activity from our legacy coal mining business, which incurred Adjusted EBITDA losses of $13.2 million and $11.2 million for the years ended December 31, 2020 and 2019, respectively. Additionally, Corporate and Other includes foundry related research and development costs of $3.9 million during 2020.
(3)Reflects Domestic Coke Adjusted EBITDA divided by Domestic Coke sales volumes.
(4)Reflects inbound tons handled during the period.
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Analysis of Segment Results
Domestic Coke
The following table explains year-over-year changes in our Domestic Coke segment's sales and other operating revenues and Adjusted EBITDA results:
Sales and other operating revenue Adjusted EBITDA
(Dollars in millions)
Coal cost recovery and yields(2) (116.7) (0.3)
Operating and maintenance costs(3) 3.2 28.7
Energy and other(4) 3.3 (4.0)
(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.
Logistics
The following table explains year-over-year changes in our Logistics segment's sales and other operating revenues and Adjusted EBITDA results:
(Dollars in millions)
Transloading volumes(1) (27.5) (22.1)
Price/margin impact of mix in transloading services (6.4) (6.4)
(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.
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Brazil Coke
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.
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.
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. 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.
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. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. 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."
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. 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. See further discussion in Note 13 to our consolidated financial statements.
Cash Flow Summary
The following table sets forth a summary of the net cash provided by (used in) operating, investing and financing activities for the years ended December 31, 2020 and 2019:
Years Ended December 31,
(Dollars in millions)
Net cash provided by operating activities $ 157.8 $ 181.9
Net cash used in investing activities (75.3) (109.8)
Net cash used in financing activities (131.2) (120.7)
Net (decrease) increase in cash and cash equivalents $ (48.7) $ (48.6)
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.
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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.
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.
Dividends
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. 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. Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities."
Covenants
As of December 31, 2020, we were in compliance with all applicable debt covenants. We do not anticipate a violation of these covenants nor do we anticipate that any of these covenants will restrict our operations or our ability to obtain additional financing. See Note 12 to the consolidated financial statements for details on debt covenants.
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.
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. Projected interest costs on variable rate instruments were calculated using market rates at December 31, 2020. See Note 12 to our consolidated financial statements. We also have contractual obligations for leases, including land, office space, equipment, railcars and locomotives. See Note 14 to our consolidated financial statements.
Capital Requirements and Expenditures
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. 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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Our capital requirements have consisted, and are expected to consist, primarily of:
•Ongoing capital expenditures required to maintain equipment reliability, the integrity and safety of our coke ovens and steam generators and to comply with environmental regulations. Ongoing capital expenditures are made to replace partially or fully depreciated assets in order to maintain the existing operating capacity of the assets and/or to extend their useful lives and also include new equipment that improves the efficiency, reliability or effectiveness of existing assets. 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; and
•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:
Years Ended December 31,
(Dollars in millions)
Environmental remediation project(2) — 15.9
Expansion capital(3) 14.4 —
Total capital expenditures(4) $ 73.9 $ 110.1
(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.
(4)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
A summary of our significant accounting policies is included in Note 2 to the consolidated financial statements. 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. 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. 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. Despite these inherent limitations, our management believes the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and consolidated financial statements and footnotes provide a meaningful and fair perspective of our financial condition.
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
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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 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 following table summarizes discount rates utilized, active claims and the total black lung liabilities:
December 31,
Discount rate(1) 2.0 % 2.9 %
Total black lung liability (dollars in millions)(2) $ 64.6 $ 55.1
(1)The discount rate is determined based on a portfolio of high-quality corporate bonds with maturities that are consistent with the estimated duration of our black lung obligations. A decrease of 25 basis points in the discount rate would have increased black lung expense by $1.6 million in 2020.
(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.
The following table summarizes annual black lung payments and expense:
Years Ended December 31,
(Dollars in millions)
(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.
Accounting for Impairments
Goodwill
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. ("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, 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.
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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.
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 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 2020.
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 asset group. 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.
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 2020, 2019 and 2018.
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Below is a reconciliation of 2021 Adjusted EBITDA guidance from its closest GAAP measure:
Low High
Add:
Depreciation and amortization expense 137 133
Interest expense, net 55 50
Income tax expense 8 12
Subtract: Adjusted EBITDA attributable to noncontrolling interest(1) 9 9
Adjusted EBITDA attributable to SunCoke Energy, Inc. $ 206 $ 221
(1)Reflects non-controlling interest in Indiana Harbor.
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, 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"). 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; or
•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.
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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
(Dollars in millions)
Costs and operating expenses 906.6
Operating income 56.0
Net loss $ (6.6)
Balance Sheets Issuer and Guarantor Subsidiaries
(Dollars in millions)
Assets:
Current receivables from Non-Guarantor subsidiaries 14.2
Other current assets 162.1
Properties, plants and equipment, net 1,176.7
Other non-current assets 54.8
Liabilities:
Current liabilities $ 126.5
Long-term debt and financing obligations 673.9
Long-term payable to Non-Guarantor subsidiaries 189.4
Other long-term liabilities 240.6
Total liabilities $ 1,230.4
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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.” 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.
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;
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•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;
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•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; and
•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.
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Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Our primary areas of market risk include changes in: (1) the price of coal, which is the key raw material for our cokemaking business; (2) interest rates; and (3) foreign currency exchange rates. We do not enter into any market risk sensitive instruments for trading purposes.
Price of coal
We did not use derivatives to hedge any of our coal purchases or sales. Although we have not previously done so, we may enter into derivative financial instruments from time to time in the future to economically manage our exposure related to these market risks.
For our Domestic Coke segment, the largest component of the price of our coke is coal cost. However, under the coke sales agreements at all of our Domestic Coke cokemaking facilities, coal costs are a pass-through component of the coke price, provided that we are able to realize certain targeted coal-to-coke yields. As such, when targeted coal-to-coke yields are achieved, the price of coal is not a significant determining factor in the profitability of these facilities. The coal component of the Jewell coke price is based on the weighted-average contract price of third-party coal purchases at our Haverhill facility applicable to Cliffs Steel coke sales. Therefore, we are subject to market risk to the extent the cost to procure coal at Jewell differs from the amount allowable to be passed through to our customer based on Haverhill's coal price. Additionally, we may be subject to market risk for the price of coals used to produce any tonnage in excess of those tons contracted in our long-term coke sales agreements.
The provisions of our coke sales agreements require us to meet minimum production levels and generally require us to secure replacement coke supplies at the prevailing market price if we do not meet contractual minimum volumes. Because market prices for coke are generally highly correlated to market prices for metallurgical coal, to the extent any of our facilities are unable to produce their contractual minimum volumes, we are subject to market risk related to the procurement of replacement supplies.
Interest rates
We are exposed to changes in interest rates as a result of borrowing activities with variable interest rates and interest earned on our cash balances. During the years ended December 31, 2020 and 2019, the daily average outstanding balance on borrowings with variable interest rates was $147.9 million and $152.1 million, respectively. Assuming a 50 basis point change in LIBOR, interest expense would have been impacted by $0.7 million and $0.8 million in 2020 and 2019, respectively. At December 31, 2020, we had outstanding borrowings with variable interest rates of $88.3 million under the Revolving Facility.
At December 31, 2020 and 2019, we had cash and cash equivalents of $48.4 million and $97.1 million, respectively, which accrue interest at various rates. Assuming a 50 basis point change in the rate of interest associated with our cash and cash equivalents, interest income would have been impacted by $0.5 million and $0.6 million for the years ended December 31, 2020 and 2019, respectively.
Foreign currency
Because we operate outside the U.S., we are subject to risk resulting from changes in the Brazilian real currency exchange rates. The currency exchange rates are influenced by a variety of economic factors including local inflation, growth, interest rates and governmental actions, as well as other factors. Revenues and expenses of our foreign operations are translated at average exchange rates during the period and balance sheet accounts are translated at period-end exchange rates. Balance sheet translation adjustments are excluded from the results of operations and are recorded in equity as a component of accumulated other comprehensive loss. If the currency exchange rates had changed by 10 percent, we estimate the impact to our net income in 2020 and 2019 would have been approximately $0.3 million and $0.4 million.
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Item 8.Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm 51
Notes to Consolidated Financial Statements 60
1. General and Basis of Presentation 60
2. Summary of Significant Accounting Policies 61
3. Acquisitions and Divestitures 63
4. Customer Concentrations 64
5. Income Taxes 65
6. Inventories 68
7. Properties, Plants, and Equipment, Net 68
8. Goodwill and Other Intangible Assets 68
9. Asset Retirement Obligations 70
10. Retirement Benefit Plans 70
11. Accrued Liabilities 72
12. Debt and Financing Obligations 73
13. Commitments and Contingent Liabilities 74
15. Accumulated Other Comprehensive Loss 78
16. Share-Based Compensation 79
17. Earnings Per Share 83
18. Fair Value Measurements 83
19. Revenue From Contracts with Customers 84
20. Business Segment Information 85
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
SunCoke Energy, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of SunCoke Energy, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019 the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases effective January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842), and its subsequent amendments.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
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permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the Company’s estimated black lung benefit liability
As discussed in Note 13 to the consolidated financial statements, the Company has obligations related to coal workers’ pneumoconiosis, or black lung, benefits to certain former coal miners and their dependents. As of December 31, 2020, the Company’s black lung benefit liability was $64.6 million. The Company, with the assistance of an external expert, estimated the liability using an actuarial model with several assumptions.
We identified the evaluation of the Company’s estimated black lung benefit liability as a critical audit matter. There was a high degree of subjective auditor judgment in evaluating the actuarial model and key assumptions in the actuarial model. The actuarial model included internally-developed assumptions related to expected claim filing patterns and expected claimant success rates. There was limited market information from which to develop these assumptions, and therefore subjective auditor judgment was required to evaluate the relevance and reliability of internally-developed information.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to estimate the black lung benefit liability, including controls related to the development of assumptions related to the expected claim filing patterns and claimant success rates. We evaluated the Company’s assumptions related to expected claim filing patterns and the claimant success rates by comparing the assumptions to industry filing patterns and claimant success rates. We performed sensitivity analyses over the expected claim filing patterns and claimant success rate assumptions to assess their impact on the Company’s estimated black lung liability. We compared the Company’s historical black lung payment estimates to actual payments to assess the accuracy of previous estimates related to its black lung benefit liability. In addition, we involved actuarial professionals with specialized skills and knowledge who assisted in evaluating the expected claim filing patterns and expected claimant success rates assumptions used by the Company to estimate its black lung benefit liability by comparing the assumptions to industry standards.
/s/ KPMG LLP
We have served as the Company’s auditor since 2015.
Chicago, Illinois
February 25, 2021
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SunCoke Energy, Inc.
Consolidated Statements of Operations
Years Ended December 31,
(Dollars and shares in millions, except per share amounts)
Revenues
Costs and operating expenses
Selling, general and administrative expenses 81.4 75.8 66.1
Long-lived asset and goodwill impairment — 247.4 —
(Gain) loss on extinguishment of debt, net (5.7) (1.5) 0.3
Income tax expense (benefit) 10.3 (54.7) 4.6
Loss from equity method investment — — 5.4
Less: Net income attributable to noncontrolling interests 5.1 3.9 20.8
Net income (loss) attributable to SunCoke Energy, Inc. $ 3.7 $ (152.3) $ 26.2
Earnings (loss) attributable to SunCoke Energy, Inc. per common share:
Weighted average number of common shares outstanding:
(See Accompanying Notes)
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SunCoke Energy, Inc.
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31,
(Dollars in millions)
Other comprehensive income (loss):
Currency translation adjustment (1.2) (0.6) (1.4)
Less: Comprehensive income attributable to noncontrolling interests 5.1 3.9 20.8
(See Accompanying Notes)
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SunCoke Energy, Inc.
Consolidated Balance Sheets
December 31,
(Dollars in millions, except par value amounts)
Assets
Cash and cash equivalents $ 48.4 $ 97.1
Income tax receivable 5.5 2.2
Other current assets 2.9 2.5
Goodwill and other intangible assets, net 37.2 38.1
Deferred charges and other assets 18.5 17.2
Liabilities and Equity
Current portion of financing obligations 3.0 2.9
Interest payable 2.0 2.2
Long-term debt and financing obligations 673.9 780.0
Accrual for black lung benefits 60.0 50.5
Retirement benefit liabilities 24.7 24.5
Asset retirement obligations 11.4 14.4
Other deferred credits and liabilities 24.3 23.6
Equity
Accumulated other comprehensive loss (17.1) (14.4)
Total SunCoke Energy, Inc. stockholders' equity 469.0 491.6
Noncontrolling interests 31.9 26.8
(See Accompanying Notes)
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SunCoke Energy, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
(Dollars in millions)
Cash Flows from Operating Activities:
Long-lived asset and goodwill impairment — 247.4 —
Deferred income tax expense (benefit) 12.1 (63.1) (3.4)
Payments in excess of expense for postretirement plan benefits (1.7) (1.9) (2.4)
Share-based compensation expense 3.8 4.5 3.1
(Gain) loss on extinguishment of debt, net (5.7) (1.5) 0.3
Loss from equity method investment — — 5.4
Changes in working capital pertaining to operating activities:
Accrued liabilities 2.5 (2.4) (6.0)
Interest payable (0.2) (1.4) (1.8)
Cash Flows from Investing Activities:
Sale of equity method investment — — 4.0
Other investing activities (1.4) 0.3 0.5
Net cash used in investing activities (75.3) (109.8) (95.8)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt — — 45.0
Repayment of long-term debt (55.9) (90.5) (45.7)
Debt issuance costs — (2.1) (0.5)
Proceeds from financing obligation 10.0 — —
Repayment of financing obligations (3.0) (2.9) (2.6)
Dividends paid (19.9) (5.1) —
Shares repurchased (7.0) (36.3) —
Acquisition of additional interest in the Partnership — — (4.2)
Cash distributions to noncontrolling interests — (14.2) (31.9)
Other financing activities (0.4) (7.9) 0.4
Net cash used in financing activities (131.2) (120.7) (64.5)
Net (decrease) increase in cash and cash equivalents (48.7) (48.6) 25.5
Cash and cash equivalents at beginning of year 97.1 145.7 120.2
Cash and cash equivalents at end of year $ 48.4 $ 97.1 $ 145.7
Supplemental Disclosure of Cash Flow Information
(See Accompanying Notes)
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SunCoke Energy, Inc.
Consolidated Statements of Equity
Shares Amount Shares Amount
(Dollars in millions)
Currency translation adjustment — — — — — (1.4) — (1.4) — (1.4)
Cash distribution to noncontrolling interests — — — — — — — — (31.9) (31.9)
Share-based compensation expense — — — — 3.1 — — 3.1 — 3.1
Acquisition of additional interest in the Partnership:
Cash paid — — — — (1.5) — — (1.5) (2.7) (4.2)
Deferred tax adjustment — — — — 0.3 — — 0.3 — 0.3
(See Accompanying Notes)
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SunCoke Energy, Inc.
Consolidated Statements of Equity
Shares Amount Shares Amount
(Dollars in millions)
Currency translation adjustment — — — — — (0.6) — (0.6) — (0.6)
Share-based compensation expense — — — — 4.5 — — 4.5 — 4.5
Dividends — — — — — — (5.2) (5.2) — (5.2)
Cash distribution to noncontrolling interest — — — — — — — — (14.2) (14.2)
Simplification Transaction:
Transaction costs — — — — (5.4) — — (5.4) — (5.4)
Deferred tax adjustment — — — — 43.7 — — 43.7 — 43.7
(See Accompanying Notes)
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SunCoke Energy, Inc.
Consolidated Statements of Equity
Shares Amount Shares Amount
(Dollars in millions)
Currency translation adjustment — — — — — (1.2) — (1.2) — (1.2)
Share-based compensation expense — — — — 3.8 — — 3.8 — 3.8
(See Accompanying Notes)
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SunCoke Energy, Inc.
Notes to Consolidated Financial Statements
1. General and Basis of Presentation
Description of Business
SunCoke Energy, Inc. (“SunCoke Energy,” “SunCoke,” “Company,” “we,” “our” and “us”) is the largest independent producer of high-quality coke in the Americas, as measured by tons of coke produced each year, and has more than 60 years of coke production experience. Coke is a principal raw material in the blast furnace steelmaking process and is produced by heating metallurgical coal in a refractory oven, which releases certain volatile components from the coal, thus transforming the coal into coke. Additionally, we own and operate a logistics business, which primarily provides handling and/or mixing services of coal and other aggregates to third-party customers as well as to our own cokemaking facilities.
We have designed, developed, built, own and operate five cokemaking facilities in the United States (“U.S.”) with collective nameplate capacity to produce approximately 4.2 million tons of blast furnace coke per year. Additionally, we have designed and operate one cokemaking facility in Brazil under licensing and operating agreements on behalf of ArcelorMittal Brasil S.A. ("ArcelorMittal Brazil”), which has approximately 1.7 million tons of annual cokemaking capacity. To diversify our business and customer base, SunCoke began exploring the foundry coke market in 2020. Foundry coke is a high-quality grade of coke that is used at foundries to melt iron and various metals in cupola furnaces, which is further processed via casting or molding into products used in various industries such as construction, transportation and industrial products. Throughout 2020, we tested production capacity and executed successful test sales of foundry coke. We will begin to produce and sell foundry coke on a commercial scale in 2021.
Our cokemaking ovens utilize efficient, modern heat recovery technology designed to combust the coal’s volatile components liberated during the cokemaking process and use the resulting heat to create steam or electricity for sale. This differs from by-product cokemaking, which repurposes the coal’s liberated volatile components for other uses. We have constructed the only greenfield cokemaking facilities in the U.S. in approximately 30 years and are the only North American coke producer that utilizes heat recovery technology in the cokemaking process. We provide steam pursuant to steam supply and purchase agreements with our customers. Electricity is sold into the regional power market or pursuant to energy sales agreements.
Our logistics business provides handling and/or mixing services to steel, coke (including some of our domestic cokemaking facilities), electric utility, coal producing and other manufacturing based customers. The logistics business has terminals in Indiana, West Virginia, Virginia, and Louisiana with collective capacity to mix and/or transload more than 40 million tons of coal and other aggregates annually and has total storage capacity of approximately 3 million tons.
Incorporated in Delaware in 2010 and headquartered in Lisle, Illinois, we became a publicly-traded company in 2011, and our stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “SXC.”
Consolidation and Basis of Presentation
The consolidated financial statements of the Company and its subsidiaries were prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") and include the assets, liabilities, revenues and expenses of the Company and all subsidiaries where we have a controlling financial interest. Intercompany transactions and balances have been eliminated in consolidation.
Our consolidated financial statements have historically included SunCoke Energy Partners, L.P. (the “Partnership”), which owned our Haverhill, Middletown, and Granite City cokemaking facilities and Convent Marine Terminal ("CMT"), Kanawha River Terminal ("KRT") and SunCoke Lake Terminal ("Lake Terminal"). On June 28, 2019, the Company acquired the outstanding units of the Partnership not already owned by SunCoke, at which time the Partnership became a wholly-owned subsidiary of SunCoke. See Note 3. 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.
Net income attributable to noncontrolling interest represents the common public unitholders’ interest in the Partnership prior to the transaction discussed in Note 3 as well as a 14.8 percent third-party interest in our Indiana Harbor cokemaking facility.
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2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual amounts could differ from these estimates.
Revenue Recognition
The Company sells coke as well as steam and electricity and also provides mixing and/or handling services of coal and other aggregates. The Company also receives fees for operating the cokemaking plant in Brazil and for the licensing of its proprietary technology for use at this facility as well as reimbursement of substantially all of its operating costs. See Note 19.
Cash Equivalents
The Company considers all highly liquid investments with a remaining maturity of three months or less at the time of purchase to be cash equivalents. These cash equivalents consist principally of money market funds.
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method, except for the Company’s materials and supplies inventory, which are determined using the average-cost method. The Company primarily utilizes the selling prices under its long-term coke supply contracts to record lower of cost or net realizable value inventory adjustments.
Properties, Plants and Equipment
Plants and equipment are depreciated on a straight-line basis over their estimated useful lives. Coke and energy plant, machinery and equipment are generally depreciated over 25 to 30 years. Logistics plant and equipment are generally depreciated over 15 to 35 years. Depreciation and amortization is excluded from cost of products sold and operating expenses and is presented separately on the Consolidated Statements of Operations. Gains and losses on the disposal or retirement of fixed assets are reflected in earnings when the assets are sold or retired. Amounts incurred that extend an asset’s useful life, increase its productivity or add production capacity are capitalized. The Company accounts for changes in useful lives, when appropriate, as a change in estimate, with prospective application only. The Company capitalized interest of $0.2 million, $2.3 million, and $3.2 million in 2020, 2019 and 2018, respectively. Direct costs, such as outside labor, materials, internal payroll and benefits costs incurred during capital projects are capitalized; indirect costs are not capitalized. Normal repairs and maintenance costs are expensed as incurred.
Goodwill
Goodwill, which represents the excess of the purchase price over the fair value of net assets acquired, is tested 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. The Company performs its annual goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount. The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. See Note 8.
Intangible Assets
Intangible assets are primarily comprised of permits. Intangible assets are amortized over their useful lives in a manner that reflects the pattern in which the economic benefit of the intangible asset is consumed. Intangible assets are assessed for impairment when a triggering event occurs.
Impairment of Long-Lived Assets
Long-lived assets, which includes intangible assets and properties, plants and equipment, 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. See Note 8.
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Income Taxes
Deferred tax asset and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are projected to be recovered or settled. The Company recognizes uncertain tax positions in its financial statements when minimum recognition threshold and measurement attributes are met in accordance with current accounting guidance. See Note 5.
Black Lung Benefit Liabilities
The Company has obligations related to coal workers’ pneumoconiosis, or black lung, benefits of certain of our former coal miners and their dependents. We adjust our liability each year based upon actuarial calculations of our expected future payments for these benefits, including a provision for incurred but not reported losses. See Note 13.
Postretirement Benefit Plan Liabilities
The postretirement benefit plans, which are frozen, are unfunded and the accumulated postretirement benefit obligation is fully recognized on the Consolidated Balance Sheets. Actuarial gains (losses) and prior service costs (benefits) which have not yet been recognized in net income are recognized as a credit (charge) to accumulated other comprehensive income (loss). The credit (charge) to accumulated other comprehensive income (loss), which is reflected net of related tax effects, is subsequently recognized in net income when amortized as a component of postretirement benefit plans expense included in interest expense, net on the Consolidated Statements of Operations. See Note 10.
Asset Retirement Obligations
The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the asset and depreciated over its remaining estimated useful life. When the assumptions used to estimate a recorded asset retirement obligation change, a revision is recorded to both the asset retirement obligation and the asset retirement cost capitalized to the extent remaining useful life exists. The Company’s asset retirement obligations primarily relate to costs associated with restoring land to its original state. See Note 9.
Shipping and Handling Costs
Shipping and handling costs are included in cost of products sold and operating expenses on the Consolidated Statements of Operations and are generally passed through to our customers. The Company has elected the practical expedient under Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers," to account for shipping and handling activities as a promise to fulfill the transfer of coke.
Share-Based Compensation
We measure the cost of employee services in exchange for equity instrument awards and cash awards based on the grant-date fair value of the award. Cash awards and the performance metrics of equity awards are remeasured on a quarterly basis. The market metrics of equity awards are not remeasured. The total cost is recognized over the requisite service period. Award forfeitures are accounted for as they occur. The costs of equity awards and cash awards are recorded to additional paid-in capital and accrued liabilities, respectively, on the Consolidated Balance Sheets. See Note 16.
Fair Value Measurements
The Company determines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As required, the Company utilizes valuation techniques that maximize the use of observable inputs (levels 1 and 2) and minimize the use of unobservable inputs (level 3) within the fair value hierarchy included in current accounting guidance. Assets and liabilities are classified within the fair value hierarchy based on the lowest level (least observable) input that is significant to the measurement in its entirety. See Note 18.
Currency Translation
The functional currency of the Company’s Brazilian operations is the Brazilian real. The Company’s Brazil operations translate its assets and liabilities into U.S. dollars at the current exchange rates in effect at the end of the fiscal period. The gains or losses that result from this process are shown as cumulative translation adjustments within accumulated other comprehensive loss in the Consolidated Balance Sheets. The revenue and expense accounts of foreign operations are translated into U.S. dollars at the average exchange rates during the period.
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Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).” ASU 2016-02 requires leases to be recognized as assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. Subsequently, the FASB has issued various ASUs to provide further clarification around certain aspects of ASC 842, “Leases.” We adopted the standard effective January 1, 2019 using the modified retrospective transition approach and elected not to adjust prior comparative periods. Upon adoption, the Company recognized right-of-use assets and lease liabilities of $5.1 million at January 1, 2019. See Note 14.
In February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The Company adopted this ASU in the first quarter 2018 and reclassified $1.1 million of deferred tax adjustments to accumulated other comprehensive income (loss) from retained earnings on the December 31, 2017 balance sheet for the tax effects resulting from the Tax Cuts and Jobs Act of 2017.
Labor Concentrations
As of December 31, 2020, we have approximately 841 employees in the U.S. Approximately 41 percent of our domestic employees, principally at our cokemaking operations, are represented by the United Steelworkers union under various contracts. Additionally, approximately 3 percent of our domestic employees are represented by the International Union of Operating Engineers. During 2020, the labor agreements at Granite City and Haverhill were renewed and will expire on September 1, 2023 and November 1, 2023, respectively.
As of December 31, 2020, we have approximately 292 employees at the cokemaking facility in Vitória, Brazil, all of whom are represented by a union under a labor agreement. During 2020, the labor agreement at our Vitória, Brazil facility was renewed for an additional year, and it expires on November 30, 2021.
3. Acquisitions and Divestitures
Simplification Transaction
Prior to June 28, 2019, SunCoke owned a 60.4 percent limited partner interest in the 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 (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, the Partnership common units ceased to be publicly traded and the Partnership’s incentive distribution rights were eliminated.
SunCoke controlled the Partnership both before and after the Simplification Transaction. Therefore, the change in our ownership interest was accounted for as an equity transaction, and no gain or loss was recognized in our Consolidated Statements of Operations for this transaction.
The following table summarizes the non-cash (decreases) increases on our balance sheet related to the Simplification Transaction, reflecting the changes in ownership of the Partnership and a step-up in the tax basis in the underlying assets acquired:
(Dollars in millions)
Noncontrolling interest $ (182.5)
Deferred income taxes $ (43.7)
Common stock $ 0.3
Additional paid-in capital $ 225.9
Additionally, the Company incurred transaction costs totaling $11.0 million, of which $5.4 million were incurred by SunCoke and were recorded as a reduction to additional paid-in capital on the Consolidated Balance Sheets at December 31, 2019. 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 for the year ended December 31, 2019.
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The following table summarizes the effects of the changes in the Company's ownership interest in the Partnership on SunCoke's equity in 2019 and 2018. There were no changes in SunCoke's ownership interest in consolidated subsidiaries in 2020.
Years Ended December 31,
Net (loss) income attributable to SunCoke Energy, Inc. $ (152.3) $ 26.2
(1)During the years ended December 31, 2018 the Company purchased 231,171, of outstanding Partnership common units in the open market for total cash payments of $4.2 million. SunCoke controlled the Partnership both before and after this unit acquisition. Therefore, the cash paid for the Partnership units in excess of the net book value of Partnership interest acquired was recorded as a reduction to additional paid-in capital, reducing SunCoke’s equity balance. Upon the closing of the Simplification Transaction, the Company's program to purchase outstanding Partnership common units was terminated.
Divestiture of India Equity Method Investment
On June 27, 2018, we sold our 49 percent investment in VISA SunCoke Limited ("VISA SunCoke") for cash consideration of $4.0 million. Consequently, we recognized $9.0 million of accumulated currency translation losses and incurred $0.4 million of transaction costs, resulting in a net $5.4 million loss from equity method investment during 2018 on the Consolidated Statements of Operations. Our investment in VISA SunCoke was previously accounted for as an equity method investment and was fully impaired in 2015. Therefore, its financial results had not been included in our financial statements since that time.
4. Customer Concentrations
Historically, coke sales were made by the Company under long-term, take-or-pay contracts to three primary customers in the U.S.: ArcelorMittal USA LLC ("AM USA"), AK Steel Holding Corporation ("AK Steel") and United States Steel Corporation ("U.S. Steel"). In March 2020, Cleveland-Cliffs Inc. ("Cliffs") completed the acquisition of AK Steel, and subsequently changed the name of AK Steel to Cleveland-Cliffs Steel Holding Corporation. In December 2020, Cliffs completed the acquisition of AM USA, and subsequently changed the name of AM USA to Cleveland-Cliffs Steel LLC. Collectively, we refer to Cleveland-Cliffs Steel Holding Corporation and Cleveland-Cliffs Steel LLC as "Cliffs Steel."