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Business Segment Information
 9 Months Ended
Sep. 30, 2016
Segment Reporting [Abstract]  
Business Segment Information
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. 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

(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

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.
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:
 
 
 
 
 
 
 
 
Loss on divestiture of business
 
—

 
—

 
14.7

 
—

Depreciation and amortization expense
 
25.6

 
25.6

 
82.4

 
75.8

Deferred income tax expense
 
0.9

 
8.0

 
4.5

 
6.9

(Gain) loss on extinguishment of debt
 
(1.0
)
 
—

 
(24.9
)
 
9.4

Changes in working capital and other
 
4.7

 
(10.7
)
 
61.4

 
13.5

Net Income
 
$
14.4

 
$
(16.5
)
 
$
28.0

 
$
(22.6
)
Add:
 
 
 
 
 
 
 
 
Adjustment to unconsolidated affiliate earnings(2)
 
$
—

 
$
19.8

 
$
—

 
$
20.8

Coal rationalization costs (3)
 
0.2

 
0.8

 
0.4

 
0.4

Depreciation and amortization expense
 
25.6

 
25.6

 
82.4

 
75.8

Interest expense, net
 
12.9

 
14.6

 
40.3

 
41.5

(Gain) loss on extinguishment of debt
 
(1.0
)
 
—

 
(24.9
)
 
9.4

Income tax expense
 
2.6

 
4.8

 
5.9

 
5.1

Loss on divestiture of business
 
—

 
—

 
14.7

 
—

Contingent consideration adjustments(4)
 
(4.6
)
 
—

 
(8.3
)
 
—

Expiration of land deposits(5)
 
—

 
—

 
1.9

 
—

Non-cash reversal of acquired contractual obligation(6)
 
(0.7
)
 
—

 
(0.7
)
 
—

Adjusted EBITDA
 
$
49.4

 
$
49.1

 
$
139.7

 
$
130.4

Subtract: Adjusted EBITDA attributable to noncontrolling interest(7)
 
18.9

 
20.1

 
57.8

 
56.3

Adjusted EBITDA attributable to SunCoke Energy, Inc.
 
$
30.5

 
$
29.0

 
$
81.9

 
$
74.1


(1)
Beginning in the second quarter of 2016, in response to the SEC’s May 2016 update of its guidance on the appropriate use of non-GAAP financial measures, Adjusted EBITDA no longer includes Coal Logistics deferred revenue until it is recognized as GAAP revenue.
(2)
Reflects share of interest, taxes, depreciation and amortization related to our equity method investment in VISA SunCoke. The three and nine months ended September 30, 2015 include a $19.4 million impairment of our investment.
(3)
Coal rationalization costs includes employee severance, contract termination costs and other costs to idle mines incurred during the execution of our coal rationalization plan. The nine months ended September 30, 2015, included $2.3 million of income related to a severance accrual adjustment.
(4)
The Partnership amended its contingent consideration terms with The Cline Group during the first quarter of 2016. These amendments and subsequent fair value adjustments resulted in gains of $4.6 million and $8.3 million recorded during the three and nine months ended September 30, 2016, respectively, which were excluded from Adjusted EBITDA.
(5)
Reflects the expiration of land deposits in connection with the Company's potential new cokemaking facility to be constructed in Kentucky.
(6)
In association with the acquisition of CMT, we assumed certain performance obligations under existing contracts and recorded liabilities related to such obligations. In third quarter of 2016, the final acquired contractual performance obligation expired without the customer requiring performance. As such, the Partnership reversed the liability in the period as we no longer have any obligations under the contract.
(7)
Reflects noncontrolling interest in Indiana Harbor and the portion of the Partnership owned by public unitholders.