14. Business Segment Information

The Company reports its business through three segments: Domestic Coke, Brazil Coke and Coal Logistics. 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 customers pursuant to steam supply and purchase agreements. Electricity is sold into the regional power market or to AK Steel Holding Corporation ("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 S.A., AK Steel, and United States Steel Corporation. 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 licensing and operating fees payable to us under long-term contracts with the local project company that will run through at least 2023.

Coal Logistics operations are comprised of CMT, located in Louisiana, KRT, located in West Virginia, SunCoke Lake Terminal, located in Indiana, and DRT, located in Virginia adjacent to our Jewell cokemaking facility. Our coal logistics operations have a collective capacity to mix and transload approximately 40 million tons of coal annually and provide coal handling and/or mixing services to its customers, which include the Partnership's cokemaking facilities and other SunCoke cokemaking facilities. Coal handling and mixing results are presented in the Coal Logistics segment.

Corporate expenses that can be identified with a segment have been included in determining segment results. The remainder is included in Corporate and Other, which also includes activity from our legacy coal mining business, which was historically presented as a separate reportable segment. Prior year periods have been recasted to reflect current presentation.

Segment assets, net of tax are those assets utilized within a specific segment and exclude deferred taxes and current tax receivables.

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 June 30,						Six Months Ended June 30,
	2017			2016			2017			2016

	(Dollars in millions)
Sales and other operating revenue:
Domestic Coke	$	296.5		$	274.0		$	575.2		$	563.0
Brazil Coke	10.5			7.3			21.3			15.0
Coal Logistics	16.2			11.3			36.4			24.3
Coal Logistics intersegment sales	5.1			5.2			10.2			10.4
Corporate and Other⁽¹⁾	—			0.1			—			1.5
Corporate and Other intersegment sales⁽¹⁾	—			0.7			—			22.0
Elimination of intersegment sales	(5.1		)	(5.9		)	(10.2		)	(32.4		)
Total sales and other operating revenues	$	323.2		$	292.7		$	632.9		$	603.8

Adjusted EBITDA:
Domestic Coke	$	44.0		$	51.0		$	93.7		$	105.3
Brazil Coke	4.5			2.4			8.9			4.7
Coal Logistics	10.0			5.4			23.1			11.3
Corporate and Other⁽²⁾	(11.0		)	(12.3		)	(22.6		)	(31.0		)
Total Adjusted EBITDA	$	47.5		$	46.5		$	103.1		$	90.3

Depreciation and amortization expense:
Domestic Coke	$	26.8		$	19.7		$	53.4		$	40.0
Brazil Coke	0.1			0.2			0.3			0.4
Coal Logistics	6.1			8.0			12.2			13.4
Corporate and Other	0.3			0.7			0.7			3.0
Total depreciation and amortization expense	$	33.3		$	28.6		$	66.6		$	56.8

Capital expenditures:
Domestic Coke	$	7.9		$	6.9		$	19.9		$	16.9
Coal Logistics	0.7			9.0			1.3			12.4
Corporate and Other	1.1			0.5			1.2			0.9
Total capital expenditures	$	9.7		$	16.4		$	22.4		$	30.2


(1)	Corporate and Other revenues related to our legacy coal mining business.


(2)	Corporate and Other includes the activity from our legacy coal mining business, which incurred Adjusted EBITDA losses of $2.7 million and $6.2 million during the three and six months ended June 30, 2017, respectively, as well as losses of $3.0 million and $9.3 million during the three and six months ended June 30, 2016, respectively.

The following table sets forth the Company's segment assets:



	June 30, 2017		December 31, 2016

	(Dollars in millions)
Segment assets
Domestic Coke	$	1,470.1	$	1,495.0
Brazil Coke	9.7		32.6
Coal Logistics	504.1		515.6
Corporate and Other	106.4		73.1
Segment assets, excluding tax assets	2,090.3		2,116.3
Tax assets	16.5		4.6
Total assets	$	2,106.8	$	2,120.9

The following table sets forth the Company’s total sales and other operating revenue by product or service:



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016

	(Dollars in millions)
Sales and other operating revenue:
Coke sales	$	284.7	$	258.4	$	548.8	$	531.8
Steam and electricity sales	10.9		14.4		24.6		28.9
Operating and licensing fees	10.5		7.4		21.3		15.1
Coal logistics	14.3		11.0		32.4		23.6
Other	2.8		1.5		5.8		4.4
Sales and other operating revenue	$	323.2	$	292.7	$	632.9	$	603.8

The Company evaluates the performance of its segments based on segment Adjusted EBITDA, which is defined as earnings before interest, loss (gain) 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 and the expiration of certain acquired contractual obligations. 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 June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars in millions)
Net cash provided by operating activities	$	24.9		$	92.1		$	54.4		$	121.5
Subtract:
Loss on divestiture of business	—			5.1			—			14.7
Depreciation and amortization expense	33.3			28.6			66.6			56.8
Deferred income tax expense	14.0			0.4			79.8			3.6
Loss (gain) on extinguishment of debt	20.2			(3.5		)	20.3			(23.9		)
Changes in working capital and other	(11.1		)	60.5			(23.1		)	56.7
Net (loss) income	$	(31.5	)	$	1.0		$	(89.2	)	$	13.6
Add:
Coal rationalization costs⁽¹⁾	$	—		$	—		$	—		$	0.2
Depreciation and amortization expense	33.3			28.6			66.6			56.8
Interest expense, net	15.2			13.4			28.9			27.4
Loss (gain) on extinguishment of debt	20.2			(3.5		)	20.3			(23.9		)
Income tax expense	4.7			—			70.9			3.3
Contingent consideration adjustments⁽²⁾	0.3			—			0.3			(3.7		)
Loss on divestiture of business	—			5.1			—			14.7
Expiration of land deposits and write-off of costs related to potential new cokemaking facility⁽³⁾	5.3			1.9			5.3			1.9
Adjusted EBITDA⁽⁴⁾	$	47.5		$	46.5		$	103.1		$	90.3
Subtract: Adjusted EBITDA attributable to noncontrolling interest⁽⁵⁾	17.5			18.6			39.1			38.9
Adjusted EBITDA attributable to SunCoke Energy, Inc.	$	30.0		$	27.9		$	64.0		$	51.4


(1)	Prior to the divestiture of our coal mining business, the Company incurred coal rationalization costs including employee severance, contract termination costs and other costs to idle mines incurred during the execution of our coal rationalization plan.

(2)

As a result of the increase in fair value of the contingent consideration liability during the second quarter of 2017, the Partnership recognized expense of $0.3 million during the three and six months ended June 30, 2017. The Partnership amended its contingent consideration terms with The Cline Group during the first quarter of 2016. This amendment resulted in a gain of $3.7 million recorded during the six months ended June 30, 2016.

(3)

In 2014, we finalized the required permitting and engineering plan for a potential new cokemaking facility to be constructed in Kentucky. However, in June 2017, due to our focus on renewing our existing customer contracts and the lack of any long-term customer commitment for a majority of the facility's capacity, we decided to terminate the project. As a result, during the second quarter of 2017, the Company wrote-off previously capitalized engineering and land deposit costs of $5.3 million. During the second quarter of 2016, the Company wrote-off expiring land deposits related to the project of $1.9 million.


(4)	In accordance with the SEC’s May 2016 update of its guidance on the appropriate use of non-GAAP financial measures, Adjusted EBITDA does not include Coal Logistics deferred revenue until it is recognized as GAAP revenue.


(5)	Reflects noncontrolling interest in Indiana Harbor and the portion of the Partnership owned by public unitholders.