Suncoke Energy, Inc. — 2013 Form 10-K Summary
Business context and reporting period
Reports the fiscal year ended December 31, 2013; the filing also provides fourth-quarter results. SunCoke produces coke for blast-furnace steelmaking, recovers heat to generate steam or electricity, operates coal mines, and entered coal handling and blending during 2013. It owns and operates five U.S. coke plants, operates a facility in Brazil, and owns 49% of an Indian coke joint venture. Its U.S. coke sales are predominantly under long-term take-or-pay contracts with coal-cost pass-through provisions.
Key financial and operating metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Total revenue | $1,647.7 million | $1,914.1 million |
| Operating income | $111.3 million | $173.7 million |
| Net income | $50.1 million | $102.5 million |
| Net income attributable to SunCoke | $25.0 million; $0.36 diluted EPS | $98.8 million; $1.40 diluted EPS |
| Adjusted EBITDA (non-GAAP) | $215.1 million | $265.7 million |
| Cash from operations | $151.3 million | $206.1 million |
| Capital expenditures | $145.6 million | $80.6 million |
| Cash and cash equivalents | $233.6 million | $239.2 million |
| Total debt | $689.1 million | $723.4 million |
2013 operating margin was approximately 6.8% and net margin approximately 3.0%, based on total revenue and consolidated net income. At year-end, current assets were $481.9 million and current liabilities $283.0 million. Cash less reported debt was approximately $455.5 million net debt. The company reported $147.9 million available under its revolving facility and the Partnership reported $109.3 million available under its facility, subject to their terms.
Domestic Coke generated $243.2 million of Adjusted EBITDA, down from $249.4 million; EBITDA per ton remained roughly stable at $57. Coal Mining shifted to an $18.7 million Adjusted EBITDA loss from $33.4 million of EBITDA. Coal Logistics, added through acquisitions, contributed $4.7 million of Adjusted EBITDA. Fourth-quarter 2013 sales and other operating revenue were $388.5 million, net income $18.7 million, and income attributable to SunCoke $11.0 million.
Material changes versus prior period
- Revenue fell 13.9%, primarily because lower coal prices reduced pass-through coke revenue and coal-mining prices, and Indiana Harbor produced less during refurbishment.
- Net income attributable to SunCoke declined to $25.0 million from $98.8 million. Management cited coal-market weakness and Indiana Harbor refurbishment costs and volume disruption.
- Coal-mining sales price fell about $49 per ton; the segment’s Adjusted EBITDA declined by $52.1 million. Lower cash production costs, down about $19 per ton, partly offset the price pressure.
- Operating cash flow decreased $54.8 million. Investing cash outflow increased to $326.6 million, including the $67.7 million India investment, Lake Terminal and KRT acquisitions, and higher capital spending.
- The Partnership’s January 2013 IPO raised net proceeds of approximately $231.8 million and created public unitholder noncontrolling interests. Partnership and SunCoke transactions included debt issuance and repayment of $225.0 million of SunCoke term debt.
- Acquisitions of Lake Terminal and KRT expanded coal logistics. SunCoke also acquired a 49% interest in VISA SunCoke in India.
Outlook, commentary, risks and unusual items
- For 2014, management forecast consolidated Adjusted EBITDA of $230–$255 million and net income of $53–$71 million. It expected approximately 4.3 million tons of domestic coke production and $60–$65 Adjusted EBITDA per ton from cokemaking.
- Management expected coal-mining Adjusted EBITDA losses of $20–$30 million in 2014, with coal-market conditions remaining difficult; it was evaluating strategic alternatives for the mining business. The company expected 2014 coal production to remain near 2013 levels.
- Planned 2014 capital expenditures were approximately $117 million, excluding a potential Kentucky coke facility and a potential coal preparation plant. Indiana Harbor refurbishment was expected to require a further $20 million in 2014.
- Environmental remediation projects at Haverhill and Granite City were estimated at $120 million total, with approximately $41 million expected in 2014 and $46 million in 2015–2016. The filing says a consent decree was lodged and under court review; estimated probable loss was approximately $2.2 million. Potential Indiana Harbor penalties or injunctive relief could not be estimated.
- A $2.5 million estimated liability was recorded for an ArcelorMittal coke-quality claim. An AK Steel blast-furnace outage led to adjusted production and delayed payment of $20.7 million into early 2014.
- Customer concentration is substantial: ArcelorMittal, AK Steel and U.S. Steel represented approximately 51%, 30% and 17% of 2013 sales and other operating revenue, respectively. Despite take-or-pay contracts, customer credit, contract termination provisions, and force majeure remain risks.
- Other principal risks include weak metallurgical coal prices, competition from Chinese coke imports and alternative steelmaking processes, operating outages, environmental and mine-safety regulation, permitting and surety-bond availability, India currency and supply risks, and debt covenants and interest costs. The company paid no common-stock dividend and said it had no plans to do so in the foreseeable future.
Important facts for investors to verify
- Reconcile the steep decline in attributable earnings with segment-level performance, noncontrolling interests, and refurbishment-related depreciation and costs.
- Track Indiana Harbor refurbishment completion, remaining spending, production recovery, and returns under the renewed 10-year customer contract.
- Assess coal-mining pricing, cost reductions, forecast losses, and any resulting strategic transaction or restructuring.
- Confirm environmental project spending and consent-decree outcomes, particularly the unresolved Indiana Harbor exposure.
- Review cash conversion, acquisition performance and utilization of coal-logistics terminals, and the India joint venture’s path to stable positive cash flow.
- Evaluate debt-service capacity, facility availability, covenant headroom, and the effect of high customer concentration and contractual commitments.
The filing’s financial statements received an unqualified audit opinion, and the auditor reported effective internal control over financial reporting as of December 31, 2013.