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EX-95.1 - EXHIBIT 95.1 - SunCoke Energy, Inc.sxc2016q310-qex951.htm
EX-32.2 - EXHIBIT 32.2 - SunCoke Energy, Inc.sxc2016q310-qex322.htm
EX-32.1 - EXHIBIT 32.1 - SunCoke Energy, Inc.sxc2016q310-qex321.htm
EX-31.2 - EXHIBIT 31.2 - SunCoke Energy, Inc.sxc2016q310-qex312.htm
EX-31.1 - EXHIBIT 31.1 - SunCoke Energy, Inc.sxc2016q310-qex311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________  
FORM 10-Q
 ________________________________________ 

ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 001-35243 
 ________________________________________
SUNCOKE ENERGY, INC.
(Exact name of registrant as specified in its charter)
 ________________________________________ 
 
Delaware
 
90-0640593
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1011 Warrenville Road, Suite 600
Lisle, Illinois 60532
(630) 824-1000
(Registrant’s telephone number, including area code)
 ________________________________________ 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ¨  Yes    ý  No
As of October 21, 2016, there were 64,214,034 shares of the Registrant’s $0.01 par value Common Stock outstanding.



SUNCOKE ENERGY, INC.
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
SunCoke Energy, Inc.
Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(Dollars and shares in millions, except per share amounts)
Revenues
 
 
 
 
 
 
 
 
Sales and other operating revenue
 
$
293.7

 
$
336.2

 
$
896.8

 
$
1,007.7

Other income, net
 
0.2

 
0.7

 
0.9

 
1.4

Total revenues
 
293.9

 
336.9

 
897.7

 
1,009.1

Costs and operating expenses
 
 
 
 
 
 
 
 
Cost of products sold and operating expenses
 
217.6

 
266.3

 
682.5

 
824.4

Selling, general and administrative expenses
 
21.8

 
21.9

 
68.8

 
53.9

Depreciation and amortization expense
 
25.6

 
25.6

 
82.4

 
75.8

Loss on divestiture of business
 

 

 
14.7

 

Total costs and operating expenses
 
265.0

 
313.8

 
848.4

 
954.1

Operating income
 
28.9

 
23.1

 
49.3

 
55.0

Interest expense, net
 
12.9

 
14.6

 
40.3

 
41.5

(Gain) loss on extinguishment of debt
 
(1.0
)
 

 
(24.9
)
 
9.4

Income before income tax expense and loss from equity method investment
 
17.0

 
8.5

 
33.9

 
4.1

Income tax expense
 
2.6

 
4.8

 
5.9

 
5.1

Loss from equity method investment
 

 
20.2

 

 
21.6

Net income (loss)
 
14.4

 
(16.5
)
 
28.0

 
(22.6
)
Less: Net income attributable to noncontrolling interests
 
8.3

 
7.0

 
30.6

 
18.4

Net income (loss) attributable to SunCoke Energy, Inc.
 
$
6.1

 
$
(23.5
)
 
$
(2.6
)
 
$
(41.0
)
Earnings (loss) attributable to SunCoke Energy, Inc. per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.10

 
$
(0.36
)
 
$
(0.04
)
 
$
(0.63
)
Diluted
 
$
0.10

 
$
(0.36
)
 
$
(0.04
)
 
$
(0.63
)
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
64.2

 
64.5

 
64.1

 
65.3

Diluted
 
64.5

 
64.5

 
64.1

 
65.3

(See Accompanying Notes)

1


SunCoke Energy, Inc.
Consolidated Statements of Comprehensive Loss
(Unaudited) 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Net income (loss)
 
$
14.4

 
$
(16.5
)
 
$
28.0

 
$
(22.6
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Reclassifications of prior service benefit, actuarial loss amortization and curtailment gain to earnings (net of related tax benefit of $0.1 and $3.9 million for the three and nine months ended September 30, 2015, respectively)
 

 
(0.1
)
 

 
5.7

Currency translation adjustment
 
(0.1
)
 
(1.6
)
 
1.0

 
(3.2
)
Comprehensive income (loss)
 
14.3

 
(18.2
)
 
29.0

 
(20.1
)
Less: Comprehensive income attributable to noncontrolling interests
 
8.3

 
7.0

 
30.6

 
18.4

Comprehensive income (loss) attributable to SunCoke Energy, Inc.
 
$
6.0

 
$
(25.2
)
 
$
(1.6
)
 
$
(38.5
)
(See Accompanying Notes)

2


SunCoke Energy, Inc.
Consolidated Balance Sheets
(Unaudited)
 
 
September 30, 2016
 
December 31, 2015
 
 
(Dollars in millions, except
par value amounts)
Assets
 
 
 
 
Cash and cash equivalents
 
$
105.3

 
$
123.4

Receivables
 
54.1

 
64.6

Inventories
 
97.8

 
121.8

Income tax receivable
 
7.2

 
11.6

Other current assets
 
4.8

 
3.9

Assets held for sale
 

 
0.9

Total current assets
 
269.2

 
326.2

Restricted cash
 
0.7

 
18.2

Investment in Brazilian cokemaking operations
 
41.0

 
41.0

Properties, plants and equipment (net of accumulated depreciation of $632.9 and $590.2 million at September 30, 2016 and December 31, 2015, respectively)
 
1,547.5

 
1,582.0

Goodwill
 
76.9

 
71.1

Other intangible assets, net
 
181.8

 
190.2

Deferred charges and other assets
 
4.8

 
15.4

Long-term assets held for sale
 

 
11.4

Total assets
 
$
2,121.9

 
$
2,255.5

Liabilities and Equity
 
 
 
 
Accounts payable
 
$
93.1

 
$
99.8

Accrued liabilities
 
50.0

 
42.9

Deferred revenue
 
27.6

 
2.1

Current portion of long-term debt and financing obligation
 
3.6

 
1.1

Interest payable
 
6.8

 
18.9

Liabilities held for sale
 

 
0.9

Total current liabilities
 
181.1

 
165.7

Long-term debt and financing obligation
 
860.9

 
997.7

Accrual for black lung benefits
 
44.2

 
44.7

Retirement benefit liabilities
 
29.3

 
31.3

Deferred income taxes
 
353.8

 
349.0

Asset retirement obligations
 
13.2

 
16.3

Other deferred credits and liabilities
 
20.0

 
22.1

Long-term liabilities held for sale
 

 
5.9

Total liabilities
 
1,502.5

 
1,632.7

Equity
 
 
 
 
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no issued shares at September 30, 2016 and December 31, 2015
 

 

Common stock, $0.01 par value. Authorized 300,000,000 shares; issued 71,676,576 and 71,489,448 shares at September 30, 2016 and December 31, 2015, respectively
 
0.7

 
0.7

Treasury stock, 7,477,657 shares at September 30, 2016 and December 31, 2015, respectively
 
(140.7
)
 
(140.7
)
Additional paid-in capital
 
490.6

 
486.1

Accumulated other comprehensive loss
 
(18.8
)
 
(19.8
)
Retained deficit
 
(39.0
)
 
(36.4
)
Total SunCoke Energy, Inc. stockholders’ equity
 
292.8

 
289.9

Noncontrolling interests
 
326.6

 
332.9

Total equity
 
619.4

 
622.8

Total liabilities and equity
 
$
2,121.9

 
$
2,255.5

(See Accompanying Notes)

3


SunCoke Energy, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
 
 
 
 
 
 
(Dollars in millions)
Cash Flows from Operating Activities:
 
 
 
 
Net income (loss)
 
$
28.0

 
$
(22.6
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Loss on divestiture of business

14.7



Depreciation and amortization expense
 
82.4

 
75.8

Deferred income tax expense
 
4.5

 
6.9

Settlement loss and expense for pension plan
 

 
13.1

Gain on curtailment and payments in excess of expense for postretirement plan benefits
 
(2.0
)
 
(6.4
)
Share-based compensation expense
 
5.0

 
5.8

Loss from equity method investment
 

 
21.6

(Gain) loss on extinguishment of debt
 
(24.9
)
 
9.4

Changes in working capital pertaining to operating activities (net of the effects of divestiture and acquisition):
 
 
 
 
Receivables
 
10.3

 
8.0

Inventories
 
24.1

 
20.7

Accounts payable
 
(3.5
)
 
(10.4
)
Accrued liabilities
 
6.7

 
(20.9
)
Deferred revenue
 
25.5

 
1.1

Interest payable
 
(12.1
)
 
(10.8
)
Income taxes
 
4.4

 
(5.0
)
       Other
 
3.0

 
(3.3
)
Net cash provided by operating activities
 
166.1

 
83.0

Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
 
(42.9
)
 
(49.3
)
Acquisition of business
 

 
(193.1
)
Decrease (increase) in restricted cash
 
17.5

 
(21.5
)
Divestiture of coal business
 
(12.8
)
 

Other investing activities
 
2.1

 

Net cash used in investing activities
 
(36.1
)
 
(263.9
)
Cash Flows from Financing Activities:
 
 
 
 
Proceeds from issuance of long-term debt
 

 
210.8

Repayment of long-term debt
 
(60.8
)
 
(149.8
)
Proceeds from revolving credit facility
 
20.0

 
185.0

Repayment of revolving credit facility
 
(85.4
)
 

Proceeds from financing obligation
 
16.2

 

Repayment of financing obligation
 
(0.5
)
 

Debt issuance costs
 
(0.2
)
 
(4.8
)
Cash distribution to noncontrolling interests
 
(36.9
)
 
(31.0
)
Shares repurchased
 

 
(35.7
)
Units repurchased
 

 
(10.0
)
Other financing activities
 
(0.5
)
 
(1.0
)
Dividends paid
 

 
(18.4
)
Net cash (used in) provided by financing activities
 
(148.1
)
 
145.1

Net decrease in cash and cash equivalents
 
(18.1
)
 
(35.8
)
Cash and cash equivalents at beginning of period
 
123.4

 
139.0

Cash and cash equivalents at end of period
 
$
105.3

 
$
103.2

Supplemental Disclosure of Cash Flow Information
 
 
 
 
Interest paid
 
$
54.2

 
$
52.4

Income taxes paid, net of refunds of $6.3 million in 2016 and no refunds in 2015
 
$
(3.1
)
 
$
3.3

(See Accompanying Notes)

4


SunCoke Energy, Inc.
Consolidated Statements of Equity
(Unaudited) 
 
Common Stock
 
Treasury Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Deficit
 
Total  SunCoke
Energy, Inc. Equity
 
Noncontrolling
Interests
 
Total
Equity
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
At December 31, 2015
71,489,448

 
$
0.7

 
7,477,657

 
$
(140.7
)
 
$
486.1

 
$
(19.8
)
 
$
(36.4
)
 
$
289.9

 
$
332.9

 
$
622.8

Net income (loss)

 

 

 

 

 

 
(2.6
)
 
(2.6
)
 
30.6

 
28.0

Currency translation adjustment

 

 

 

 

 
1.0

 

 
1.0

 

 
1.0

Cash distribution to noncontrolling interests

 

 

 

 

 

 

 

 
(36.9
)
 
(36.9
)
Share-based compensation expense

 

 

 

 
5.0

 

 

 
5.0

 

 
5.0

Share issuances, net of shares withheld for taxes
187,128

 

 

 

 
(0.5
)
 

 

 
(0.5
)
 

 
(0.5
)
At September 30, 2016
71,676,576

 
$
0.7

 
7,477,657

 
$
(140.7
)
 
$
490.6

 
$
(18.8
)
 
$
(39.0
)
 
$
292.8

 
$
326.6

 
$
619.4

(See Accompanying Notes)

5


SunCoke Energy, Inc.
Notes to the Consolidated Financial Statements
1. General
Description of Business
SunCoke Energy, Inc. (“SunCoke Energy,” “Company,” "we," "our" and "us") is an independent owner and operator of five cokemaking facilities in the United States ("U.S."), which consists of our Haverhill Coke Company LLC ("Haverhill"), Middletown Coke Company, LLC ("Middletown"), Gateway Energy and Coke Company, LLC ("Granite City"), Jewell Coke Company, L.P. ("Jewell") and Indiana Harbor Coke Company ("Indiana Harbor") cokemaking facilities. Internationally, we operate a cokemaking facility in Brazil, in which we have a preferred stock investment. We also have a cokemaking joint venture with VISA Steel Limited in India called VISA SunCoke Limited ("VISA SunCoke"). In 2015, we impaired our 49 percent investment in VISA SunCoke to zero, and consequently, beginning in the fourth quarter of 2015, we no longer include our share of VISA SunCoke in our financial results.
Additionally, we own and operate a Coal Logistics business, which provides coal handling and/or mixing services to third-party customers as well as to our own cokemaking facilities. Our Coal Logistics business consists of Convent Marine Terminal ("CMT"), Kanawha River Terminals, LLC ("KRT"), SunCoke Lake Terminal, LLC ("Lake Terminal") and Dismal River Terminal, LLC ("DRT").
Our consolidated financial statements include SunCoke Energy Partners, L.P. (the "Partnership"), a publicly-traded partnership. At September 30, 2016, we owned the general partner of the Partnership, which consists of a 2.0 percent ownership interest and incentive distribution rights, and owned a 53.9 percent limited partner interest in the Partnership. The remaining 44.1 percent interest in the Partnership was held by public unitholders. SunCoke is considered the primary beneficiary of the Partnership as it has the power to direct the activities that most significantly impact the Partnership's economic performance.
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.”
Basis of Presentation
The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim reporting. Certain information and disclosures normally included in financial statements have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. The results of operations for the period ended September 30, 2016 are not necessarily indicative of the operating results expected for the entire year. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.
New Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 simplifies the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. It is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating this ASU to determine its potential impact on the Company's financial condition, results of operations, or cash flows.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. It is effective for annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating this ASU to determine its potential impact on the Company's financial condition, results of operations, or cash flows.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March 2016, the FASB issued ASU 2016-08,

6


“Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting revenue gross versus net),” which clarifies gross versus net revenue reporting when another party is involved in the transaction. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing,” which amends the revenue guidance on identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients," which provides narrow-scope improvements to the guidance on collectibility, non-cash consideration, and completed contracts at transition. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and permits early adoption on a limited basis. The Company is currently evaluating the new standard to determine its potential impact on the Company's financial condition, results of operations, and cash flows.
Reclassifications
Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current year presentation.
2. Coal Mining Business
In April 2016, the Company completed the disposal of its coal mining business, previously included in the Coal Mining segment, to Revelation Energy, LLC ("Revelation") who assumed substantially all of the Company's remaining coal mining assets, mineral leases, real estate and a substantial portion of our mining reclamation obligations. Under the terms of the agreement, Revelation received $12.1 million from the Company in the second quarter of 2016 to take ownership of the assets and liabilities and an additional $0.7 million in the third quarter of 2016 to take ownership of additional obligations. These cash payments were reflected as cash flows used in investing activities on the Consolidated Statements of Cash Flows.
During the nine months ended September 30, 2016, the Company recognized losses associated with this divestiture of $14.7 million, which included a $10.7 million asset impairment charge. These losses, which included transaction-related costs of $1.1 million during the nine months ended September 30, 2016, were recorded in loss on divestiture of business on the Consolidated Statements of Operations and as cash flows used in operating activities on the Consolidated Statements of Cash Flows.
The Consolidated Balance Sheets as of December 31, 2015 has been reclassified to present the assets and liabilities associated with the divestiture of the coal mining business as held for sale. As of December 31, 2015, the Company had $12.3 million of assets held for sale, which primarily consisted of $11.4 million of properties, plants, and equipment, net, and $6.8 million of liabilities held for sale, which primarily consisted of $5.9 million of asset retirement obligations.
3. Related Party Transactions
Our Coal Logistics business provides coal handling and storage services to Murray American Coal ("Murray") and Foresight Energy LP ("Foresight"), who are related parties with The Cline Group. The Cline Group currently owns a 10.3 percent interest in the Partnership, acquired as part of the CMT acquisition. Additionally, Murray also holds a significant interest in Foresight. Sales to Murray and Foresight accounted for $4.6 million, or 1.6 percent, and $15.0 million, or 1.7 percent of the Company's sales and other operating revenue and were recorded in the Coal Logistics segment for the three and nine months ended September 30, 2016, respectively. During the three and nine months ended September 30, 2015, Coal Logistics recorded revenues derived from services provided to these related parties of $4.4 million. At September 30, 2016, receivables from Murray and Foresight were $11.6 million, which were recorded in receivables on the Consolidated Balance Sheets, and deferred revenue for minimum volume shortfall payments was $25.7 million, which was recorded in deferred revenue on the Consolidated Balance Sheets. Deferred revenue on these take-or-pay contracts are billed quarterly, but recognized into income at the earlier of when service is provided or annually based on the terms of the contract. At December 31, 2015, receivables from Murray and Foresight were $7.2 million, which were recorded in receivables on the Consolidated Balance Sheets, and there were no deferred revenues for minimum volume shortfall payments from these customers.
In connection with the acquisition of CMT, the Partnership assumed Raven Energy LLC's promissory note ("Promissory Note") of $114.9 million with a subsidiary of The Cline Group as the lender. See Note 8. Additionally, as part of the acquisition of CMT, the Partnership entered into a contingent consideration agreement with The Cline Group. See Note 15.
Also as part of the CMT acquisition, the Partnership withheld $21.5 million in cash to fund the completion of capital improvements at CMT. The cash withheld was recorded as restricted cash on the Consolidated Balance Sheets. During the first quarter of 2016, the Partnership amended an agreement with the Cline Group, which unrestricted $6.0 million of the restricted cash and relieved any obligation of the Partnership to repay these amounts to The Cline Group. The remaining restricted cash balance as of September 30, 2016 of $0.7 million is primarily related to the completion of the installation of the

7


new state-of-the-art ship loader, which is expected to be placed into service during the fourth quarter of 2016 and will allow for faster coal loading onto larger ships.
4. Inventories
The components of inventories were as follows:
 
 
September 30, 2016
 
December 31, 2015
 
 
 
 
 
 
 
(Dollars in millions)
Coal
 
$
53.9

 
$
76.5

Coke
 
7.6

 
8.8

Materials, supplies and other
 
36.3

 
36.5

Total inventories
 
$
97.8

 
$
121.8

5. Goodwill and Other Intangible Assets
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. Goodwill allocated to SunCoke's reportable segments as of September 30, 2016 and changes in the carrying amount of goodwill during the nine months ended September 30, 2016 were as follows:
 
Domestic Coke
 
Coal Logistics
 
Total
 
 
 
 
 
 
 
(Dollars in millions)
Net balance at December 31, 2015
$
3.4

 
$
67.7

 
$
71.1

Adjustments(1)(2)

 
5.8

 
5.8

Net balance at September 30, 2016
$
3.4

 
$
73.5

 
$
76.9

(1)
In the first quarter of 2016, a working capital adjustment to the acquisition date fair value of the acquired net assets decreased the amount of the purchase price allocated to goodwill by $0.6 million.
(2) In the third quarter of 2016, an adjustment to the acquisition date fair value of the contingent consideration liability increased the amount of the purchase price allocated to goodwill by $6.4 million.
The components of intangible assets were as follows:
 
 
 
September 30, 2016
 
December 31, 2015
 
Weighted - Average Remaining Amortization Years
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Customer contracts
6
 
$
31.7

 
$
9.0

 
$
22.7

 
$
31.7

 
$
6.1

 
$
25.6

Customer relationships
14
 
28.7

 
3.3

 
25.4

 
28.7

 
1.8

 
26.9

Permits
26
 
139.0

 
5.8

 
133.2

 
139.0

 
1.9

 
137.1

Trade name
2
 
1.2

 
0.7

 
0.5

 
1.2

 
0.6

 
0.6

Total
 
 
$
200.6

 
$
18.8

 
$
181.8

 
$
200.6

 
$
10.4

 
$
190.2

    
Total amortization expense for intangible assets subject to amortization was $2.8 million and $8.4 million for the three and nine months ended September 30, 2016, respectively, and $1.4 million and $2.1 million for the three and nine months ended September 30, 2015, respectively.
6. Income Taxes
At the end of each interim period, we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year and the impact of discrete items, if any, and adjust the rate as necessary.

8


The Company's effective tax rate for the three and nine months ended September 30, 2016 was 15.3 percent and 17.4 percent, respectively, as compared to the 35 percent federal statutory rate. The decreases from the statutory rate were primarily due to the impact of earnings attributable to noncontrolling ownership interests in partnerships, in both periods.
The Company’s effective tax rate for three and nine months ended September 30, 2015 was 56.4 percent and 125.2 percent, respectively, as compared to the 35 percent federal statutory rate. The differences from the statutory rate were primarily due to income tax expense of $3.8 million related to the acquisition of CMT and $2.0 million due to the cancellation of the Harold Keene Coal Company sales agreement in the third quarter of 2015. Additionally, the nine months ended September 30, 2015 includes income tax expense of $2.1 million related to additional valuation allowances associated with state and local taxes offset by income tax benefit of $1.4 million related to the Granite City Dropdown.
The Internal Revenue Service has commenced an audit on the Partnership's 2013 tax return. Although no assurance can be given, the Partnership does not anticipate any material changes in prior year taxable income as a result of the audit.
On January 17, 2012, SunCoke Energy and Sunoco, Inc. entered into a tax sharing agreement that governs the parties’ respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes. SunCoke Energy will continue to monitor the utilization of all tax attributes subject to the tax sharing agreement as applicable tax returns are filed or as tax examinations progress and will record additional adjustments when necessary, consistent with the terms of the tax sharing agreement.
7. Accrued Liabilities
Accrued liabilities consisted of the following:
 
 
September 30, 2016
 
December 31, 2015
 
 
 
 
 
 
 
(Dollars in millions)
Accrued benefits
 
$
22.3

 
$
20.3

Other taxes payable
 
12.6

 
8.4

Accrued severance
 
1.0

 
4.7

Current portion of black lung liability
 
5.2

 
5.2

Accrued legal
 
5.8

 
1.9

Other
 
3.1

 
2.4

Total accrued liabilities
 
$
50.0

 
$
42.9


9


8. Debt and Financing Obligation
Total debt and financing obligation, including the current portion of long-term debt and financing obligation, consisted of the following:
 
 
September 30, 2016
 
December 31, 2015
 
 
 
 
 
 
 
(Dollars in millions)
7.625% senior notes, due 2019 ("Notes")
 
$
44.6

 
$
44.6

SunCoke's revolving credit facility, due 2018 ("Revolving Facility")
 

 
60.4

7.375% senior notes, due 2020 (“Partnership Notes”)
 
468.1

 
552.5

Partnership's revolving credit facility, due 2019 ("Partnership Revolver")
 
177.0

 
182.0

Partnership's promissory note payable, due 2021 ("Promissory Note")
 
113.5

 
114.3

Partnership's term loan, due 2019 ("Partnership Term Loan")
 
50.0

 
50.0

5.82% financing obligation, due 2021 ("Partnership Financing Obligation")
 
15.7

 

Total borrowings
 
868.9

 
1,003.8

Original issue premium
 
8.2

 
12.1

Debt issuance costs
 
(12.6
)
 
(17.1
)
Total debt and financing obligation
 
864.5

 
998.8

Less: current portion of long-term debt and financing obligation
 
3.6

 
1.1

Total long-term debt and financing obligation
 
$
860.9

 
$
997.7

Partnership Notes
During the nine months ended September 30, 2016, the Partnership continued de-levering its balance sheet and repurchased $84.4 million face value of outstanding Partnership Notes for $60.0 million of cash payments. This resulted in a gain on extinguishment of debt of $24.9 million during the nine months ended September 30, 2016, which included a write-off of $0.5 million of unamortized original issue premium, net of unamortized debt issuance costs.
Revolving Facility
During the first quarter of 2016, the Company issued $30.8 million of letters of credit as collateral to its surety providers. These letters of credit were issued in connection with certain contractual obligations, including reclamation obligations, black lung, workers' compensation, general liability and other financial guarantee obligations. Additionally, during the second and third quarter of 2016, the Company cancelled $4.1 million of letters of credit as a result of the divestiture of the coal mining business.
During the nine months ended September 30, 2016, the Company repaid $60.4 million on the Revolving Facility. As of September 30, 2016, the Revolving Facility had letters of credit outstanding of $29.5 million and no outstanding balance, leaving $120.5 million available subject to the terms of the Credit Agreement.
Partnership Revolver
The Partnership repaid $5.0 million on the Partnership Revolver during the third quarter of 2016. At September 30, 2016 the Partnership had $1.5 million of letters of credit outstanding and an outstanding balance of $177.0 million, leaving $71.5 million available. Subsequent to September 30, 2016, on October 4, 2016, the Partnership repaid an additional $5.0 million on the Partnership Revolver.
Partnership Financing Obligation
On July 22, 2016, the Partnership entered into a sale-leaseback arrangement of certain integral equipment from the Domestic Coke segment and certain mobile equipment from the Coal Logistics segment for total proceeds of $16.2 million. The leaseback agreement has an initial lease period of 60 months, with an early buyout option after 48 months to purchase the equipment at 34.5 percent of the original lease equipment cost. Under Accounting Standards Codification 840 "Leases", the early buyout option results in a form of continuing involvement by the Partnership, and therefore the arrangement is accounted for as a financing transaction. The Partnership repaid $0.5 million of the financing obligation during the third quarter of 2016. Annual future minimum lease payments are approximately $2.5 million to $3.0 million through 2019 and $7.3 million in 2020, which includes the early buyout option payment.

10


Covenants
The Company and the Partnership are subject to certain debt covenants that, among other things, limit the Company's and Partnership’s ability, and the ability of certain of the Company's and the Partnership’s subsidiaries, to (i) incur indebtedness, (ii) pay dividends or make other distributions, (iii) prepay, redeem or repurchase certain debt, (iv) make loans and investments, (v) sell assets, (vi) incur liens, (vii) enter into transactions with affiliates and (viii) consolidate or merge. These covenants are subject to a number of exceptions and qualifications set forth in the respective agreements. Additionally, under the terms of the credit agreement, the Company is subject to a maximum consolidated leverage ratio of 3.25 to 1.00, calculated by dividing total debt by EBITDA as defined by the credit agreement, and a minimum consolidated interest coverage ratio of 2.75 to 1.00, calculated by dividing EBITDA by interest expense as defined by the credit agreement. Under the terms of the Partnership Revolver, the Partnership is subject to a maximum consolidated leverage ratio of 4.50 to 1.00, calculated by dividing total debt by EBITDA as defined by the Partnership Revolver, and a minimum consolidated interest coverage ratio of 2.50 to 1.00, calculated by dividing EBITDA by interest expense as defined by the Partnership Revolver. The Partnership Term Loan has the same covenants as the previously discussed Partnership Revolver covenants.
Under the terms of the promissory agreement, Raven Energy LLC, a wholly-owned subsidiary of the Partnership, is subject to a maximum leverage ratio of 5.00:1.00 for any fiscal quarter ending prior to August 12, 2018, calculated by dividing total debt by EBITDA as defined by the promissory agreement. For any fiscal quarter ending on or after August 12, 2018, the maximum leverage ratio is 4.50:1.00. Additionally, in order to make restricted payments, Raven Energy LLC is subject to a fixed charge ratio of greater than 1.00:1.00, calculated by dividing EBITDA by fixed charges as defined by the promissory agreement.
If we fail to perform our obligations under these and other covenants, the lenders' credit commitment could be terminated and any outstanding borrowings, together with accrued interest, under the Revolving Facility, Partnership Revolver, Partnership Term Loan and Promissory Note could be declared immediately due and payable. The Partnership has a cross-default provision that applies to our indebtedness having a principal amount in excess of $20 million.
As of September 30, 2016, the Company and the Partnership were in compliance with all applicable debt covenants contained in the credit agreement and promissory agreement. We do not anticipate violation of these covenants nor do we anticipate that any of these covenants will restrict our operations or our ability to obtain additional financing.
9. Retirement Benefits Plans
The Company has plans which provide health care and life insurance benefits for many of its retirees (“postretirement benefit plans”). The postretirement benefit plans are unfunded and the costs are borne by the Company.
The termination of coal mining employees during the first quarter of 2015 triggered a postretirement benefit plan curtailment gain of $4.0 million, which represented accelerated amortization of prior service credits previously recorded in accumulated other comprehensive income. Postretirement benefit plans expense (benefit) consisted of the following components:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Interest cost on benefit obligations
 
$
0.3

 
$
0.3

 
$
0.9

 
$
0.9

Amortization of:
 
 
 
 
 
 
 

Actuarial losses
 
0.2

 
0.2

 
0.6

 
0.6

Prior service benefit
 
(0.2
)
 
(0.2
)
 
(0.6
)
 
(0.9
)
Curtailment gain
 

 

 

 
(4.0
)
Total expense (benefit)
 
$
0.3

 
$
0.3

 
$
0.9

 
$
(3.4
)
The Company previously had a defined benefit pension plan, which was terminated in June 2015. As a result of the pension termination, unrecognized losses, which previously were recorded in accumulated other comprehensive loss on the Consolidated Balance Sheets, were recognized as expense. The net settlement loss of $12.6 million was recorded in cost of products sold and operating expenses on the Consolidated Statements of Operations for the nine months ended September 30, 2015.

11


Defined Contribution Plans
The Company has defined contribution plans which provide retirement benefits for certain of its employees. The Company’s contributions, which are principally based on the Company’s pretax income and the aggregate compensation levels of participating employees are charged against income as incurred. These contributions amounted to $1.4 million and $4.1 million for the three and nine months ended September 30, 2016, respectively, and $1.4 million and $4.8 million for three and nine months ended 2015, respectively.
10. Commitments and Contingent Liabilities
SunCoke Energy is party to an omnibus agreement pursuant to which we will provide remarketing efforts to the Partnership upon the occurrence of certain potential adverse events under certain coke sales agreements, indemnification of certain environmental costs and preferential rights for growth opportunities.
The United States Environmental Protection Agency (the “EPA”) has issued Notices of Violations (“NOVs”) for our Haverhill and Granite City cokemaking facilities which stem from alleged violations of our air emission operating permits for these facilities. We are working in a cooperative manner with the EPA, the Ohio Environmental Protection Agency and the Illinois Environmental Protection Agency to address the allegations, and have entered into a consent decree in federal district court with these parties. The consent decree includes a $2.2 million civil penalty payment, which was paid in December 2014, as well as capital projects already underway to improve the reliability of the energy recovery systems and enhance environmental performance at the Haverhill and Granite City facilities. We anticipate spending approximately $130 million related to these projects, of which we have spent approximately $92 million to date. The remaining capital is expected to be spent through the first quarter of 2019. A portion of the proceeds from the Partnership's initial public offering and subsequent dropdowns are being used to fund $119 million of these environmental remediation projects.
SunCoke Energy has also received NOVs, Findings of Violations ("FOVs"), and information requests from the EPA related to our Indiana Harbor cokemaking facility, which allege violations of certain air operating permit conditions for this facility. The Clean Air Act (the "CAA") provides the EPA with the authority to issue, among other actions, an Order to enforce a State Implementation Plan ("SIP") 30 days after an NOV. The CAA also authorizes EPA enforcement of other non-SIP requirements immediately after an FOV. Generally, an NOV applies to SIPs and requires the EPA to wait 30 days, while an FOV applies to all other provisions (such as federal regulations) of the CAA, and has no waiting period. The NOVs and/or FOVs were received in 2010, 2012, 2013, 2015 and 2016. After initial discussions with the EPA and the Indiana Department of Environmental Management (“IDEM”) in 2010, resolution of the NOVs/FOVs was postponed by mutual agreement because of ongoing discussions regarding the NOVs at Haverhill and Granite City. In January 2012, the Company began working in a cooperative manner to address the allegations with the EPA, the IDEM and Cokenergy, Inc., an independent power producer that owns and operates an energy facility, including heat recovery equipment and a flue gas desulfurization system, that processes hot flue gas from our Indiana Harbor facility to produce steam and electricity and to reduce the sulfur and particulate content of such flue gas. The EPA, IDEM, SunCoke Energy and Cokenergy, Inc are continuing to meet regularly in 2016 to attempt to work out a settlement of the NOVs and FOVS. Capital projects are underway to address items that may be required in conjunction with a settlement of the NOVs/FOVs. Any such settlement may require payment of a penalty for alleged past violations as well as undertaking capital projects to achieve compliance, and possibly enhance reliability and environmental performance of our Indiana Harbor facility. The settlement of most NOVs and FOVs typically involves first agreeing on injunctive relief and then agreeing on any appropriate penalty in light of the violations and the scope and cost of any injunctive relief.
Over the past year, EPA, IDEM, SunCoke Energy and Cokenergy, Inc. have begun to focus on the nature and extent of any injunctive relief to settle the NOVs/FOVs. Despite the negotiations, the scope and cost of any such injunctive relief remains uncertain, including any part of such injunctive relief that would be performed by SunCoke Energy. Likewise, any discussions about the amount of any civil penalties that SunCoke Energy would be willing to pay in settlement of these claims in uncertain. As a result, SunCoke Energy cannot yet assess the scope or cost of any injunctive relief or potential monetary penalty. Moreover, the Company believes that it has meritorious defenses to many of the claims and that a failure to reach a settlement with the EPA regarding the NOVs and FOVs may lead to litigation in which rulings in the Company's favor on some or all of the allegations are entirely possible. For these reasons, the Company is unable to reliably estimate a range of probable or reasonably possible loss.
The Company is a party to certain other pending and threatened claims, including matters related to commercial and tax disputes, product liability, employment claims, personal injury claims, premises-liability claims, allegations of exposures to toxic substances and general environmental claims. Although the ultimate outcome of these claims cannot be ascertained at this time, it is reasonably possible that some portion of these claims could be resolved unfavorably to the Company. Management of the Company believes that any liability which may arise from claims would not have a material adverse impact on our consolidated financial statements.

12


The Company has obligations related to coal workers’ pneumoconiosis, or black lung, benefits to certain of our former coal mining employees (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 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.
Independent actuaries annually calculate the present value of the estimated black lung liability based on actuarial models utilizing SunCoke's population of former coal mining employees, 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 advisers, the impact of which cannot be estimated. The estimated liability was $49.4 million and $49.9 million as of September 30, 2016 and December 31, 2015, respectively, of which $5.2 million was included in accrued liabilities on the Consolidated Balance Sheets in both periods.
11. Restructuring
    In connection with the restructuring of our coal mining business, the Company recorded $10.2 million of employee-related restructuring costs prior to December 31, 2015 within our Coal Mining segment. An additional $0.2 million of severance was recorded in the first quarter of 2016 in connection with the disposition of the coal business in April 2016.
In the third and fourth quarter of 2015, the Company reduced the workforce in its corporate office and incurred total charges of $2.3 million and $1.8 million, respectively, in Corporate and Other. Employee-related restructuring costs are included in selling, general, and administrative expenses on the Consolidated Statements of Operations.
The following table presents accrued restructuring and related activity for Coal Mining and Corporate and Other as of and for the nine months ended September 30, 2016, which is included in accrued liabilities on the Consolidated Balance Sheets:
 
Coal Mining
 
Corporate
 
Total
 
 
 
 
 
 
 
(Dollars in millions)
Balance at December 31, 2015
$
0.8

 
$
3.9

 
$
4.7

Charges
0.2

 

 
0.2

Cash payments
(0.9
)
 
(3.0
)
 
(3.9
)
Balance at September 30, 2016
$
0.1

 
$
0.9

 
$
1.0

The restructuring balance at September 30, 2016 relates to severance, and the Company expects it will be substantially paid in 2016.
12. Share-Based Compensation
Equity Classified Awards
During the nine months ended September 30, 2016, the Company granted share-based compensation to eligible participants under the SunCoke Energy, Inc. Long-Term Performance Enhancement Plan (“SunCoke LTPEP”). All awards vest immediately upon a change in control and a qualifying termination of employment as defined by the SunCoke LTPEP.

13


Stock Options
The Company granted the following stock options during the nine months ended September 30, 2016 with an exercise price equal to the closing price of our common stock on the date of grant.
 
 
 
Weighted Average Per Share
 
No. of Shares
 
Exercise Price
 
Grant Date Fair Value
Traditional Stock options:
 
 
 
 
 
February grants
95,001

 
$
3.80

 
$
1.71

March grants
90,925

 
$
6.03

 
$
2.78

Performance based options:
 
 
 
 
 
February grants
58,448

 
$
3.80

 
$
1.06

March grants
90,925

 
$
6.03

 
$
2.42

The stock options vest in three equal annual installments beginning one year from the date of grant. In order to become exercisable, the performance based options also require the closing price of the Company's common stock to reach or exceed $9.50 for any 15 trading days during the three-year period beginning on the grant date. The stock options expire ten years from the date of grant.
The Company calculates the value of each employee stock option, estimated on the date of grant, using the Black-Scholes option pricing model with a Monte Carlo simulation for the performance based options. The weighted-average fair value of employee stock options granted during the nine months ended September 30, 2016 was based on using the following weighted-average assumptions:
 
 
Nine Months Ended September 30, 2016
Risk-free interest rate
 
1.25
%
Expected term
 
5 years

Volatility
 
52
%
Dividend yield
 
0.0
%
The risk-free interest rate assumption is based on the U.S. Treasury yield curve at the date of grant for periods which approximate the expected life of the option. The expected term of the employee options represent the average contractual term adjusted by the average vesting period of each option tranche. We based our expected volatility on our historical volatility over our entire available trading history. The dividend yield assumption is based on the Company’s expectation of dividend payouts at the time of grant.
Restricted Stock Units Settled in Shares
The Company did not issue any restricted stock units (“RSUs”) for shares of the Company’s common stock during the nine months ended September 30, 2016.
Performance Share Units
The Company granted the following performance share units ("PSUs") for shares of the Company's common stock during the nine months ended September 30, 2016 that vest on December 31, 2018:
 
ROIC Portion(1)
 
TSR Portion(2)
 
Total
 
Shares
 
Fair Value per Share
 
Shares
 
Fair Value per Share
 
Grant Date Fair Value
 
 
 
 
 
 
 
 
 
(Dollars in millions)
February grants
105,210

 
$
5.66

 
105,210

 
$
5.81

 
$
1.2

March grants(3)
67,167

 
$
10.51

 
201,500

 
$
6.35

 
$
2.0

(1) The number of PSU's ultimately awarded will be determined by the Company's three year average pre-tax return on capital for the Company's Coke and Coal Logistics businesses. If at any time during the vesting period the closing price of the Company's common stock equals or exceeds $9.00 per share for any 15 trading days, the pre-tax return on capital portion of the award, as adjusted, will be multiplied by two.

14


(2) The number of PSU's ultimately awarded will be determined by the Company's three year total shareholder return ("TSR") as compared to the TSR of the companies making up the S&P 600.
(3) The final vesting value of the TSR portion of this award cannot exceed $4.9 million.
Each portion of the award may vest between zero and 200 percent of the original units granted. The fair value of the PSUs granted during the nine months ended September 30, 2016 is based on the closing price of our common stock on the date of grant as well as a Monte Carlo simulation for the portion of the award subject to a market condition.
Liability Classified Awards
Restricted Stock Units Settled in Cash
During the nine months ended September 30, 2016, the Company issued 198,668 restricted stock units to be settled in cash ("Cash RSUs"), which vest in three annual installments beginning one year from the grant date. The weighted average grant date fair value of the Cash RSUs granted during the nine months ended September 30, 2016 was $3.82 and was based on the closing price of our common stock on the day of grant.
The Cash RSU liability at September 30, 2016 was adjusted based on the closing price of our common stock on September 30, 2016 of $8.02 per share. The liability at September 30, 2016 was not material.
Cash Incentive Award
The Company also granted share-based compensation to eligible participants under the SunCoke Energy, Inc. Long-Term Cash Incentive Plan ("SunCoke LTCIP"), which became effective January 1, 2016. SunCoke LTCIP is designed to provide for performance-based, cash-settled awards. All awards vest immediately upon a change in control and a qualifying termination of employment as defined by the SunCoke LTCIP.
The Company issued a grant date fair value award of $0.9 million during the nine months ended September 30, 2016 that vest on December 31, 2018. The ultimate award value will be adjusted based upon the Company's three year average pre-tax return on capital for the Company's coke and Coal Logistics businesses, and if at any time during the vesting period the closing price of the Company's common stock equals or exceeds $9.00 per share for any 15 trading days, the award, as adjusted, will be multiplied by two, but will be capped at 200 percent of the target award.
The cash incentive award liability at September 30, 2016 was adjusted based on the Company's adjusted three year average pre-tax return on capital for the Company's Coke and Coal Logistics businesses and a Monte Carlo simulation for the market multiplier. The cash incentive award liability at September 30, 2016 was not material.
Summary of Share-Based Compensation Expense
Below is a summary of the compensation expense, unrecognized compensation costs, the period for which the unrecognized compensation cost is expected to be recognized over and the estimated forfeiture rate for each award:
 
Three months ended September 30,
 
Nine months ended September 30
 
 
 
2016
 
2015
 
2016
 
2015
 
September 30, 2016
 
Compensation Expense(1)
 
Unrecognized Compensation Cost
 
Recognition Period
 
Forfeiture Rate(2)(3)
 
(Dollars in millions)
 
(Years)
 
(Percent)
Equity Awards:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock Options
$
0.6

 
$
0.4

 
$
1.6

 
$
1.8

 
$
1.3

 
0.9
 
16
RSUs
0.6

 
1.1

 
2.1

 
3.2

 
$
1.7

 
1.2
 
18
PSUs
0.3

 
(0.2
)
 
1.0

 
0.5

 
$
2.9

 
2.2
 
Total equity awards
$
1.5

 
$
1.3

 
$
4.7

 
$
5.5

 
 
 
 
 
 
Liability Awards:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash RSUs
$
0.2

 
$

 
$
0.3

 
$

 
$
0.9

 
2.3
 
18
Cash incentive award
0.1

 

 
0.2

 

 
$
0.6

 
2.3
 
16
Total liability awards
$
0.3

 
$

 
$
0.5

 
$

 
 
 
 
 
 
(1)
Compensation expense recognized by the Company in selling, general and administrative expenses on the Consolidated Statements of Operations.
(2)
Excludes awards issued to certain executive employees, which were estimated at a zero percent forfeiture rate.

15


(3)
Forfeiture rates may be revised in subsequent periods if the actual forfeiture rate differs.
The Company issued $0.3 million of shared-based compensation to the Company's Board of Directors during the nine months ended September 30, 2016 and 2015.
13. Earnings per Share
Basic earnings per share (“EPS”) has been computed by dividing net income (loss) available to SunCoke Energy, Inc. by the weighted average number of shares outstanding during the period. Except where the result would be anti-dilutive, diluted earnings per share has been computed to give effect to share-based compensation awards using the treasury stock method.
The following table sets forth the reconciliation of the weighted-average number of common shares used to compute basic EPS to those used to compute diluted EPS:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(Shares in millions)
Weighted-average number of common shares outstanding-basic
 
64.2

 
64.5

 
64.1

 
65.3

Add: Effect of dilutive share-based compensation awards
 
0.3

 

 

 

Weighted-average number of shares-diluted
 
64.5

 
64.5

 
64.1

 
65.3

The following table shows stock options, restricted stock units, and performance stock units that are excluded from the computation of diluted earnings per share as the shares would have been anti-dilutive:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(Shares in millions)
 
(Shares in millions)
Stock options
 
3.1

 
3.1

 
3.2

 
2.8

Restricted stock units
 
0.1

 
0.5

 
0.3

 
0.5

Performance stock units
 

 
0.1

 
0.4

 
0.2

Total
 
3.2

 
3.7

 
3.9

 
3.5

14. Supplemental Accumulated Other Comprehensive Loss Information
Changes in accumulated other comprehensive loss, by component, are presented below:
 
Defined and Postretirement Benefit Plans
 
Currency Translation Adjustments
 
Total
 
 
 
 
 
 
 
(Dollars in millions)
At December 31, 2015
$
(4.6
)
 
$
(15.2
)
 
$
(19.8
)
Other comprehensive income

 
1.0

 
1.0

At September 30, 2016
$
(4.6
)
 
$
(14.2
)
 
$
(18.8
)
    
    

16


Reclassifications out of the accumulated other comprehensive loss were as follows:(1)  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Amortization of postretirement and defined benefit plan items to net income:
 
 
 
 
 
 
 
Actuarial loss(2)(3)
$
0.2

 
$
0.2

 
$
0.6

 
$
1.0

Settlement loss(2)

 

 

 
13.5

Prior service benefit(2)
(0.2
)
 
(0.2
)
 
(0.6
)
 
(0.9
)
Curtailment gain(2)

 

 

 
(4.0
)
Total expense before taxes

 

 

 
9.6

Less income tax benefit

 
(0.1
)
 

 
(3.9
)
Total (income) expense, net of tax
$

 
$
(0.1
)
 
$

 
$
5.7

(1)
Amounts in parentheses indicate credits to net income.
(2)
These accumulated other comprehensive (income) loss components are included in the computation of postretirement benefit plan expense (benefit) and defined benefit plan expense. See Note 9.
(3)
The nine months ended September 30, 2015 includes $0.4 million of amortization of actuarial losses related to the Company's defined benefit plan, which was terminated in the second quarter of 2015.
15. Fair Value Measurement
The Company measures certain financial and non-financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. Fair value disclosures are reflected in a three-level hierarchy, maximizing the use of observable inputs and minimizing the use of unobservable inputs.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market.
Level 2 - inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Certain assets and liabilities are measured at fair value on a recurring basis. The Company's cash equivalents, which amounted to $4.1 million and $15.4 million at September 30, 2016 and December 31, 2015, respectively, were measured at fair value based on quoted prices in active markets for identical assets. These inputs are classified as Level 1 within the valuation hierarchy.
CMT Contingent Consideration
In connection with the CMT acquisition, the Partnership entered into a contingent consideration arrangement that requires the Partnership to make future payments to The Cline Group based on future volume over a specified threshold, price, and contract renewals. The fair value of the contingent consideration was estimated based on a probability-weighted analysis using significant inputs that are not observable in the market, or Level 3 inputs. Key assumptions included probability adjusted levels of coal handling services provided by CMT, anticipated price per ton on future sales and probability of contract renewal, including length of future contracts, volume commitment, and anticipated price per ton. The fair value of the contingent consideration at September 30, 2016 and December 31, 2015 was $6.0 million and $7.9 million, respectively, and was included in other deferred charges and liabilities on the Consolidated Balance Sheets. During the third quarter of 2016, the Partnership recorded an adjustment to the acquisition date fair value of the contingent consideration liability, which increased the liability and goodwill by $6.4 million. During the first quarter of 2016, the Partnership amended the contingent consideration terms

17


with The Cline Group. These amended terms and subsequent fair value adjustments to the contingent consideration decreased costs of products sold and operating expenses on the Consolidated Statement of Operations by $4.6 million and $8.3 million during the three and nine months ended September 30, 2016, respectively.
Deferred Compensation    
The Company and Partnership offer their Board of Directors the opportunity to defer their share and unit-based compensation. The Company and Partnership measure the fair value of this deferred compensation on a quarterly basis using the Company's closing share price and Partnership's closing unit price as of the end of the period, or Level 1 inputs. The fair value of the Board of Directors deferred compensation was $3.5 million and $1.5 million as of September 30, 2016 and December 31, 2015, respectively, and was included in other deferred credits and liabilities on the Consolidated Balance Sheets. The fair value adjustments increased selling, general and administrative expenses by $0.8 million and $1.5 million during the three and nine months ended September 30, 2016, respectively and decreased selling, general and administrative expenses by $0.6 million and $1.3 million during the three and nine months ended September 30, 2015, respectively.
Certain Financial Assets and Liabilities not Measured at Fair Value
At September 30, 2016, the fair value of the Company’s total debt was estimated to be $833.3 million, compared to a carrying amount of $868.9 million. The fair value was estimated by management based upon estimates of debt pricing provided by financial institutions, which are considered Level 2 inputs.
16. Business Segment Information     
The Company reports its business through four segments: Domestic Coke, Brazil Coke, Coal Logistics and Coal Mining. The Domestic Coke segment includes the Jewell, Indiana Harbor, Haverhill, Granite City and Middletown cokemaking facilities. Each of these facilities produces coke, and all facilities except Jewell and Indiana Harbor recover waste heat, which is converted to steam or electricity through a similar production process. Steam is provided to third-party customers primarily pursuant to steam supply and purchase agreements. Electricity is sold into the regional power market or to AK Steel pursuant to energy sales agreements. Coke sales at each of the Company's five domestic cokemaking facilities are made pursuant to long-term, take-or-pay agreements with ArcelorMittal, AK Steel, and U.S. Steel. Each of the coke sales agreements contains pass-through provisions for costs incurred in the cokemaking process, including coal procurement costs (subject to meeting contractual coal-to-coke yields), operating and maintenance expense, costs related to the transportation of coke to the customers, taxes (other than income taxes) and costs associated with changes in regulation, in addition to containing a fixed fee.
The Brazil Coke segment operates a cokemaking facility located in Vitória, Brazil for a project company. The Brazil Coke segment earns income from the Brazilian facility through (1) licensing and operating fees payable to us under long-term contracts with the local project company that will run through at least 2022; and (2) an annual preferred dividend on our preferred stock investment from the project company guaranteed by the Brazil subsidiary of ArcelorMittal.
Coal Logistics operations are comprised of CMT located in Louisiana, KRT located in West Virginia, Lake Terminal, located in Indiana, and DRT, located in Virginia adjacent to our Jewell cokemaking facility. DRT was formed to accommodate Jewell in its direct procurement of third-party coal, beginning in 2016. This business has a collective capacity to mix and transload approximately 35 million tons of coal annually and provides coal handling and/or mixing services to third-party customers as well as our own cokemaking facilities and other SunCoke cokemaking facilities. Coal handling and mixing results are presented in the Coal Logistics segment.
Until the business was divested in April 2016, the Coal Mining segment conducted coal mining operations, mined by contractors, near the Company’s Jewell cokemaking facility with mines located in Virginia and West Virginia. Prior to April 2016, a substantial portion of the coal production was sold to the Jewell cokemaking facility for conversion into coke. Some coal was also sold to other cokemaking facilities within the Domestic Coke segment. Historically, intersegment Coal Mining revenues for coal sales to the Domestic Coke segment were reflective of the contract price that the facilities within the Domestic Coke segment charge their customers, which approximated the market prices for this quality of metallurgical coal. In 2016, the Company transitioned to a 100 percent purchased third-party coal model, which resulted in a shift of coal transportation costs from the Coal Mining segment to the Domestic Coke segment beginning in the first quarter of 2016. These additional transportation costs are included in Coal Mining's intersegment revenues to Domestic Coke. It is impracticable to show the impacts of this change in our coal procurement model in segment results on a comparable basis.
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 certain legacy coal mining expenses (i.e. black lung, workers' compensation and other postretirement employee benefit obligations). These legacy costs are included in Corporate and Other Adjusted EBITDA. The results of our equity method investment in Visa SunCoke were also included in Corporate and Other until the Company impaired its investment to zero in the third quarter of 2015 and suspended equity method accounting.

18


Interest expense, net, which consists principally of interest income and interest expense, net of capitalized interest, and gains and losses on extinguishment of debt are also excluded from segment results. Segment assets, net of tax are those assets utilized within a specific segment and exclude current tax receivables and assets held for sale.
The following table includes Adjusted EBITDA, which is the measure of segment profit or loss and liquidity reported to the chief operating decision maker for purposes of allocating resources to the segments and assessing their performance:    
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Sales and other operating revenue:
 
 
 
 
 
 
 
 
Domestic Coke
 
$
273.0

 
$
311.5

 
$
836.0

 
$
941.1

Brazil Coke
 
8.4

 
8.0

 
23.5

 
26.4

Coal Logistics
 
12.3

 
13.8

 
36.5

 
29.7

Coal Logistics intersegment sales

4.9


5.7


15.3


15.3

Coal Mining
 

 
2.9

 
0.8

 
10.5

Coal Mining intersegment sales



25.3


22.0


74.3

Elimination of intersegment sales
 
(4.9
)

(31.0
)

(37.3
)

(89.6
)
Total sales and other operating revenue
 
$
293.7

 
$
336.2

 
$
896.8

 
$
1,007.7

 
 
 
 


 
 
 


Adjusted EBITDA:
 
 
 
 
 
 
 
 
Domestic Coke
 
$
52.1

 
$
55.9

 
$
157.4

 
$
164.8

Brazil Coke
 
3.2

 
3.4

 
7.9

 
10.1

Coal Logistics
 
7.3

 
9.3

 
18.6

 
16.9

Coal Mining

(0.6
)

(4.9
)

(5.6
)

(13.4
)
Corporate and Other, including legacy costs, net(1)
 
(12.6
)
 
(14.6
)
 
(38.6
)
 
(48.0
)
Total Adjusted EBITDA
 
$
49.4

 
$
49.1

 
$
139.7

 
$
130.4

 
 
 
 
 
 
 
 
 
Depreciation and amortization expense:
 
 
 
 
 
 
 
 
Domestic Coke(2)
 
$
19.1

 
$
19.7

 
$
59.1

 
$
57.9

Brazil Coke
 
0.1

 
0.2

 
0.5

 
0.5

Coal Logistics(3)
 
5.6

 
3.5

 
19.0

 
7.2

Coal Mining(4)
 

 
1.6

 
1.5

 
8.1

Corporate and Other
 
0.8

 
0.6

 
2.3

 
2.1

Total depreciation and amortization expense
 
$
25.6

 
$
25.6

 
$
82.4

 
$
75.8

 
 
 
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
 
 
Domestic Coke
 
$
8.4

 
$
24.3

 
$
25.3

 
$
46.2

Coal Logistics
 
3.9

 
0.7

 
16.3

 
1.2

Coal Mining
 

 
1.7

 

 
1.7

Corporate and Other
 
0.4

 
0.1

 
1.3

 
0.2

Total capital expenditures
 
$
12.7

 
$
26.8

 
$
42.9

 
$
49.3


19


(1)
Legacy costs, net, include costs associated with former mining employee-related liabilities, net of certain royalty revenues. See details of these legacy items below.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Black lung charges
 
$
(1.7
)
 
$
(1.4
)
 
$
(5.2
)
 
$
(3.3
)
Postretirement benefit plan (expense) benefit
 
(0.2
)
 
(0.1
)
 
(0.6
)
 
3.7

Defined benefit plan expense, including termination charges
 

 

 

 
(13.1
)
Workers' compensation expense
 
(0.2
)
 
(0.2
)
 
(0.6
)
 
(1.6
)
Other
 
0.2

 
0.3

 
0.2

 
(0.4
)
Total legacy costs, net
 
$
(1.9
)

$
(1.4
)

$
(6.2
)

$
(14.7
)
(2) The Company revised the estimated useful lives on certain assets at its domestic cokemaking facilities, resulting in additional depreciation of $0.8 million, or $0.01 per common share, and $1.0 million, or $0.02 per common share from operations, for the three months ended September 30, 2016 and 2015, respectively, and $4.4 million, or $0.07 per common share, and $4.0 million, or $0.06 per common share, for the nine months ended September 30, 2016 and 2015, respectively.
(3) The Partnership revised the estimated useful lives of certain assets in its Coal Logistics segment, which resulted in additional depreciation of $2.2 million, or $0.03 per common share, during the nine months ended September 30, 2016.
(4) Depreciation expense was zero for the three months ended September 30, 2016 as a result of the divestiture of the business. In 2015, the Company revised the estimated useful lives of certain coal preparation plant assets in its Coal Mining segment which resulted in additional depreciation of $4.7 million or $0.07 per common share, during the nine months ended September 30, 2015.
The following table sets forth the Company’s total sales and other operating revenue by product or service:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Sales and other operating revenue:
 
 
 
 
 
 
 
 
Coke sales
 
$
257.8

 
$
295.9

 
$
789.5

 
$
893.7

Steam and electricity sales
 
14.1

 
15.6

 
43.0

 
47.3

Operating and licensing fees
 
8.4

 
8.0

 
23.5

 
26.4

Coal Logistics
 
11.8

 
13.2

 
35.4

 
28.4

Metallurgical coal sales
 

 
2.3

 
0.5

 
8.9

Other
 
1.6

 
1.2

 
4.9

 
3.0

Sales and other operating revenue
 
$
293.7

 
$
336.2

 
$
896.8

 
$
1,007.7


20


The following table sets forth the Company's segment assets:
 
 
September 30,
2016
 
December 31,
2015
 
 
 
 
 
 
 
(Dollars in millions)
Segment assets
 
 
 
 
Domestic Coke
 
$
1,500.5

 
$
1,534.2

Brazil Coke
 
50.8

 
58.8

Coal Logistics
 
524.6

 
532.0

Coal Mining
 

 
8.2

Corporate and Other
 
38.8

 
98.4

Segment assets, excluding tax assets and assets held for sale
 
2,114.7


2,231.6

Tax assets
 
7.2

 
11.6

Assets held for sale
 

 
12.3

Total assets
 
$
2,121.9

 
$
2,255.5

The Company evaluates the performance of its segments based on segment Adjusted EBITDA, which is defined as earnings before interest, (gain) loss on extinguishment of debt, taxes, depreciation and amortization (“EBITDA”), adjusted for impairments, coal rationalization costs, changes to our contingent consideration liability related to our acquisition of CMT, the expiration of certain acquired contractual obligations, and interest, taxes, depreciation and amortization and impairments attributable to our equity method investment. EBITDA and Adjusted EBITDA do not represent and should not be considered alternatives to net income or operating income under GAAP and may not be comparable to other similarly titled measures in other businesses.
Management believes Adjusted EBITDA is an important measure of the operating performance and liquidity of the Company's net assets and its ability to incur and service debt, fund capital expenditures and make distributions. Adjusted EBITDA provides useful information to investors because it highlights trends in our business that may not otherwise be apparent when relying solely on GAAP measures and because it eliminates items that have less bearing on our operating performance and liquidity. EBITDA and Adjusted EBITDA are not measures calculated in accordance with GAAP, and they should not be considered a substitute for net income, operating cash flow or any other measure of financial performance presented in accordance with GAAP. Set forth below is additional discussion of the limitations of Adjusted EBITDA as an analytical tool.
Limitations. Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. Adjusted EBITDA also has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. Some of these limitations include that Adjusted EBITDA:
does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
does not reflect items such as depreciation and amortization;
does not reflect changes in, or cash requirement for, working capital needs;
does not reflect our interest expense, or the cash requirements necessary to service interest on or principal payments of our debt;
does not reflect certain other non-cash income and expenses;
excludes income taxes that may represent a reduction in available cash; and
includes net income attributable to noncontrolling interests.

21


Below is a reconciliation of Adjusted EBITDA to net income and net cash provided by operating activities, which are its most directly comparable financial measures calculated and presented in accordance with GAAP:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015(1)
 
2016(1)
 
2015(1)
 
 
(Dollars in millions)
Net cash provided by operating activities
 
$
44.6

 
$
6.4

 
$
166.1

 
$
83.0

Subtract: