SunCoke Energy Inc. Reports Second Quarter 2014 Results
07/28/2014 - SunCoke Energy Inc. reported second quarter 2014 net loss attributable to shareholders of US$49.2 million, or US$0.71 per diluted share.
This result includes US$51.0 million, or US$0.74per share, of costs for the net after-tax impact of the US$103.1 million Coal Mining impairment charge. Excluding these non-cash charges, second quarter 2014 net income was US$1.8 million, or US$0.03 per diluted share. Second quarter 2013 net income was US$5.7 million, or US$0.08 per diluted share.
"Excluding impairment charges, Adjusted EBITDA in the second quarter was driven by the contribution of our new Coal Logistics business and higher fees earned at Indiana Harbor due to last fall's contract renewal," said Fritz Henderson, chairman and chief executive officer of SunCoke Energy Inc. "Our coal mining business performed as expected and benefited from a favorable contingent consideration adjustment and lower cash production costs. We continue to expect to generate full year Adjusted EBITDA of between US$220 million and US$240 million, excluding impairment and exit costs related to our coal mining business."
CONSOLIDATED RESULTS
Total revenues fell 7.8% to US$372.2 million in second quarter 2014 versus same prior year period due to the pass-through of lower coal prices and reduced coke sales volumes in our Domestic Coke segment and a nearly US$16 per ton decline in average coal sales price and lower sales volumes in our Coal Mining segment. Offsetting these declines was revenue contributed by our new Coal Logistics business.
The second quarter 2014 operating loss of US$71.4 million primarily reflects the impact of the US$103.1 million non-cash Coal Mining impairment charge. Excluding this non-cash charge, operating income increased to US$31.7 million for the quarter. Adjusted EBITDA, which excludes the impairment charge, rose 15.5% to US$60.5 million, benefiting from our new Coal Logistics business and better results in our Domestic Coke segment.
Net loss attributable to shareholders was US$49.2 million in second quarter 2014, compared with net income of US$5.7 million in same prior year period. The major factor affecting net income in second quarter 2014 was the non-cash Coal Mining impairment charge. Excluding this non-cash charge, net income was US$1.8 million. Also impacting net income in the second quarter 2014 was US$17.4 million of pre-tax costs related to our dropdown transaction with SXCP, which included US$11.4 million bond tender premium, US$4.0 million of debt extinguishment fees, US$0.3 million of net higher interest expense andUS$1.7 million of transaction costs.
SEGMENT RESULTS
Domestic Coke
Domestic Coke consists of cokemaking facilities and heat recovery operations at our Jewell, Indiana Harbor, Haverhill, Granite City and Middletown plants.
Brazil Coke
Brazil Coke consists of a cokemaking facility in Vitória, Brazil, which we operate for an affiliate of ArcelorMittal. Brazil Coke earns operating and technology licensing fees based on production and recognizes a dividend on a preferred stock investment assuming certain minimum production levels are achieved.
India Coke
India Coke consists of our 49% interest in VISA SunCoke, a joint venture with VISA Steel formed on March 18, 2013. VISA SunCoke owns a 440,000 ton cokemaking facility and associated steam generation unit in Odisha, India. Financial results for VISA SunCoke are recorded on a onemonth lag and represent our 49% share of the joint venture's results.
Coal Mining (excluding impact of impairment charge)
Coal Mining consists of our metallurgical coal mining activities conducted in Virginia and West Virginia. A substantial portion of the metallurgical coal produced by our coal mining operations is sold to our Jewell Coke facility for conversion into coke.
Coal Logistics
The Coal Logistics segment consists of the coal handling and blending services operated by SXCP as a result of its acquisitions of Lake Terminal in third quarter 2013 and Kanawha River Terminals, LLC (KRT) in fourth quarter 2013. SXCP's coal handling and blending terminals are located in East Chicago, Indiana and along the Ohio, Big Sandy and Kanawha Rivers in West Virginia and Kentucky.
Corporate and Other
Corporate and other expenses in second quarter 2014 were US$9.6 million, up US$0.9 million compared to second quarter 2013 primarily due to expenses related to the dropdown transaction with SXCP.
Interest Expense, Net
Net interest expense increased US$15.0 million to US$27.1 million in second quarter 2014 versus second quarter 2013. Of theUS$15.0 million increase, US$11.4 million related to tender premium paid on the redemption of US$160 million of our 7.625% senior notes and US$4.0 million related to debt extinguishment fees for the early paydown of a term loan.
Cash Flow
Net cash provided by operations was US$14.8 million for the six months ended June 30, 2014 versus US$89.0 million in same respective period in 2013, primarily reflecting the impact of lower net income, dropdown financing costs and changes in working capital.
Cash used in investing activities was US$77.8 million in six months ended June 30, 2014 as compared with US$129.1 million in same respective period in 2013, which included our US$67.7 million investment in the VISA SunCoke joint venture.
2014 OUTLOOK
Our 2014 guidance is as follows:
"Excluding impairment charges, Adjusted EBITDA in the second quarter was driven by the contribution of our new Coal Logistics business and higher fees earned at Indiana Harbor due to last fall's contract renewal," said Fritz Henderson, chairman and chief executive officer of SunCoke Energy Inc. "Our coal mining business performed as expected and benefited from a favorable contingent consideration adjustment and lower cash production costs. We continue to expect to generate full year Adjusted EBITDA of between US$220 million and US$240 million, excluding impairment and exit costs related to our coal mining business."
CONSOLIDATED RESULTS
| Three Months Ended June 30, | |||||||||||||||
| Increase/ | |||||||||||||||
| (In millions, except per share amounts) | 2014 | 2013 | (Decrease) | ||||||||||||
| Total Revenues | US$ | 372.2 | US$ | 403.7 | US$ | (31.5 | ) | ||||||||
| Operating Income | (71.4 | ) | 26.1 | (97.5 | ) | ||||||||||
| Adjusted EBITDA(1)(2) | 60.5 | 52.4 | 8.1 | ||||||||||||
| Net (Loss) Income Attributable to Shareholders | (49.2 | ) | 5.7 | (54.9 | ) | ||||||||||
| (Loss) Earnings Per Diluted Share | (0.71 | ) | 0.08 | (0.79 | ) | ||||||||||
| (1) | See definition of Adjusted EBITDA and reconciliation elsewhere in this release. | |
| (2) | Excludes impact of Coal Mining non-cash impairment charge of US$103.1 million. | |
The second quarter 2014 operating loss of US$71.4 million primarily reflects the impact of the US$103.1 million non-cash Coal Mining impairment charge. Excluding this non-cash charge, operating income increased to US$31.7 million for the quarter. Adjusted EBITDA, which excludes the impairment charge, rose 15.5% to US$60.5 million, benefiting from our new Coal Logistics business and better results in our Domestic Coke segment.
Net loss attributable to shareholders was US$49.2 million in second quarter 2014, compared with net income of US$5.7 million in same prior year period. The major factor affecting net income in second quarter 2014 was the non-cash Coal Mining impairment charge. Excluding this non-cash charge, net income was US$1.8 million. Also impacting net income in the second quarter 2014 was US$17.4 million of pre-tax costs related to our dropdown transaction with SXCP, which included US$11.4 million bond tender premium, US$4.0 million of debt extinguishment fees, US$0.3 million of net higher interest expense andUS$1.7 million of transaction costs.
SEGMENT RESULTS
Domestic Coke
Domestic Coke consists of cokemaking facilities and heat recovery operations at our Jewell, Indiana Harbor, Haverhill, Granite City and Middletown plants.
| Three Months Ended June 30, | ||||||||||||||
| Increase/ | ||||||||||||||
| (In millions, except per ton amounts) | 2014 | 2013 | (Decrease) | |||||||||||
| Segment Revenues | US$ | 344.5 | US$ | 375.8 | US$ | (31.3 | ) | |||||||
| Adjusted EBITDA(1) | 64.3 | 61.3 | 3.0 | |||||||||||
| Sales Volume (in,000s of tons) | 1,059 | 1,074 | (15 | ) | ||||||||||
| Adjusted EBITDA per ton(1) | US$ | 60.72 | US$ | 57.08 | 3.64 | |||||||||
| (1) | See definitions of Adjusted EBITDA and Adjusted EBITDA per Ton and reconciliation elsewhere in this release. | |
- Segment revenues were affected by the pass-through of lower coal costs and lower coke sales volumes at Haverhill and Indiana Harbor.
- Adjusted EBITDA increased US$3.0 million, due to a higher fee per ton of coke sold at Indiana Harbor and improved performance at Granite City, partly offset by lower coal-to-coke yields and higher costs at our Haverhill facility.
Brazil Coke
Brazil Coke consists of a cokemaking facility in Vitória, Brazil, which we operate for an affiliate of ArcelorMittal. Brazil Coke earns operating and technology licensing fees based on production and recognizes a dividend on a preferred stock investment assuming certain minimum production levels are achieved.
- Segment Adjusted EBITDA increased US$0.9 million to US$2.5 million on higher production.
India Coke
India Coke consists of our 49% interest in VISA SunCoke, a joint venture with VISA Steel formed on March 18, 2013. VISA SunCoke owns a 440,000 ton cokemaking facility and associated steam generation unit in Odisha, India. Financial results for VISA SunCoke are recorded on a onemonth lag and represent our 49% share of the joint venture's results.
- Adjusted EBITDA declined US$1.3 million for a loss of US$0.5 million in second quarter 2014. The Adjusted EBITDA loss per ton was US$12 per ton. Import competition from China continues to depress coke pricing in India, resulting in weak margins.
- India Coke's net loss in second quarter 2014 was US$0.9 million versus a loss of US$0.2 million in the same prior year period.
Coal Mining (excluding impact of impairment charge)
Coal Mining consists of our metallurgical coal mining activities conducted in Virginia and West Virginia. A substantial portion of the metallurgical coal produced by our coal mining operations is sold to our Jewell Coke facility for conversion into coke.
| Three Months Ended June 30, | ||||||||||||||||
| Increase/ | ||||||||||||||||
| (In millions, except per ton amounts) | 2014 | 2013 | (Decrease) | |||||||||||||
| Total Coal Mining Revenues(1) | US$ | 42.9 | US$ | 52.7 | US$ | (9.8 | ) | |||||||||
| Segment Revenues (excluding sales to affiliates) | US$ | 7.5 | US$ | 19.8 | US$ | (12.3 | ) | |||||||||
| Adjusted EBITDA(1) | US$ | (1.2 | ) | US$ | (2.6 | ) | US$ | 1.4 | ||||||||
| Coal Production (in,000s of tons)(2) | 336 | 367 | (31 | ) | ||||||||||||
| Sales Volumes (in,000s of tons)(3) | 419 | 457 | (38 | ) | ||||||||||||
| Sales Price per ton (excludes transportation costs) | US$ | 98.64 | US$ | 114.18 | US$ | (15.54 | ) | |||||||||
| Adjusted EBITDA per ton(1) | US$ | (2.86 | ) | US$ | (5.69 | ) | US$ | 2.83 | ||||||||
| (1) | See definitions of Adjusted EBITDA, Adjusted EBITDA per Ton and reconciliation elsewhere in this release. | |
| (2) | Includes production from Company and contract-operated mines. | |
| (3) | Includes sales to affiliates. | |
- Total Coal Mining revenues (including sales to affiliates) fell as a result of a nearly US$16 per ton decline in average coal sales price and lower volumes. Excluding sales to affiliates, segment revenues were down on lower average sales price and sales volumes. The difference between coal sales volumes and coal production in second quarter 2014 was due to an increase in raw coal purchases.
- Adjusted EBITDA reflects the negative impact of lower average sales price and volumes, offset by a US$4.3 millionfavorable fair value adjustment to a Harold Keene Coal Co., Inc. (HKCC) contingent consideration arrangement and US$4 per ton reduction in cash production costs.
- Effective third quarter 2014, the Coal Mining segment will be considered as "held for sale" and will be reflected as discontinued operations for future financial reporting.
Coal Logistics
The Coal Logistics segment consists of the coal handling and blending services operated by SXCP as a result of its acquisitions of Lake Terminal in third quarter 2013 and Kanawha River Terminals, LLC (KRT) in fourth quarter 2013. SXCP's coal handling and blending terminals are located in East Chicago, Indiana and along the Ohio, Big Sandy and Kanawha Rivers in West Virginia and Kentucky.
- Coal Logistics handled 5,605,000 tons of coal, contributing US$5.0 million to Adjusted EBITDA.
Corporate and Other
Corporate and other expenses in second quarter 2014 were US$9.6 million, up US$0.9 million compared to second quarter 2013 primarily due to expenses related to the dropdown transaction with SXCP.
Interest Expense, Net
Net interest expense increased US$15.0 million to US$27.1 million in second quarter 2014 versus second quarter 2013. Of theUS$15.0 million increase, US$11.4 million related to tender premium paid on the redemption of US$160 million of our 7.625% senior notes and US$4.0 million related to debt extinguishment fees for the early paydown of a term loan.
Cash Flow
Net cash provided by operations was US$14.8 million for the six months ended June 30, 2014 versus US$89.0 million in same respective period in 2013, primarily reflecting the impact of lower net income, dropdown financing costs and changes in working capital.
Cash used in investing activities was US$77.8 million in six months ended June 30, 2014 as compared with US$129.1 million in same respective period in 2013, which included our US$67.7 million investment in the VISA SunCoke joint venture.
2014 OUTLOOK
Our 2014 guidance is as follows:
- Domestic coke production is expected to be approximately 4.2 million tons
- Excluding impairment charge and costs related to the exit from our Coal Mining segment, consolidated Adjusted EBITDA is expected to be between US$220 million and US$240 million. Adjusted EBITDA attributable to SXC is expected to be between US$160 million and US$177 million
- Adjusted EBITDA from continuing operations is expected to be between US$235 million and US$255 million
- Capital expenditures are projected to be US$138 million. Approximately US$36 million of the projected 2014 capital expenditures were pre-funded with the proceeds from SXCP's initial public offering in January 2013
