10-K 1 sxcp-20161231x10xk.htm 10-K Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
 
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 001-35782
 
 
SUNCOKE ENERGY PARTNERS, L.P.
(Exact name of Registrant as specified in its charter)
 
 
Delaware
 
35-2451470
(State of or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
1011 Warrenville Road, Suite 600
Lisle, Illinois
 
60532
(Address of principal executive offices)
 
(zip code)
Registrant’s telephone number, including area code: (630) 824-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on which Registered
Common units representing limited partner interests
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    No  ý
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.    Yes  ý    No  o
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý
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
 
¨
  
Accelerated filer
 
ý
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý
The aggregate market value of the registrant's common units held by non-affiliates of the registrant (treating directors and executive officers of the registrant’s general partner and holders of 10 percent or more of the common units outstanding, for this purpose, as affiliates of the registrant) as of June 30, 2016 was $223,560,994, computed based on a price per common unit of $10.80, the price at which the common units were last sold as reported on the New York Stock Exchange on such date.
As of February 10, 2017, the registrant had 46,215,877 common units outstanding.




SUNCOKE ENERGY PARTNERS, L.P.
TABLE OF CONTENTS
 
PART I
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 1B.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
Item 7.
 
 
 
Item 7A.
 
 
 
Item 8.
 
 
 
Item 9.
 
 
 
Item 9A.
 
 
 
Item 9B.
 
PART III
 
 
 
Item 10.
 
 
 
Item 11.
 
 
 
Item 12.
 
 
 
Item 13.
 
 
 
Item 14.
 
PART IV
 
 
 
Item 15.




PART I
Item 1.
Business
Overview
SunCoke Energy Partners, L.P., (the "Partnership," "we," "our" and "us"), is a Delaware limited partnership formed in July 2012, which primarily produces coke used in the blast furnace production of steel. Coke is a principal raw material in the blast furnace steelmaking process and is produced by heating metallurgical coal in a refractory oven, which releases certain volatile components from the coal, thus transforming the coal into coke.  We also provide coal handling and/or mixing services at our Coal Logistics terminals to steel, coke (including some of our domestic cokemaking facilities), electric utility and coal mining customers.
At December 31, 2016, we owned a 98 percent interest in Haverhill Coke Company LLC ("Haverhill"), Middletown Coke Company, LLC ("Middletown") and Gateway Energy and Coke Company, LLC ("Granite City") and SunCoke Energy, Inc. ("SunCoke") owned the remaining 2 percent interest in each of Haverhill, Middletown, and Granite City. The Partnership also owns a 100 percent interest in all of its coal logistics terminals. Through its subsidiary, SunCoke owned a 53.9 percent limited partnership interest in us and indirectly owned and controls our general partner, which holds a 2 percent general partner interest in us and all of our incentive distribution rights ("IDRs").
On October 31, 2016, SunCoke announced that it had submitted a proposal to the Board of Directors of the general partner of the Partnership to acquire all of the Partnership’s common units not already owned by SunCoke ("Simplification Transaction"). The proposed transaction is to be structured as a merger of the Partnership with a wholly-owned subsidiary of SunCoke, and is subject to the negotiation and execution of definitive documents and approval of SunCoke's Board of Directors and the Conflicts Committee of our Board of Directors. The Conflicts Committee, which is composed of only the independent directors of the Board of Directors of our general partner, is considering the proposal pursuant to applicable procedures established in our partnership agreement and the Conflicts Committee’s charter. The transaction also will require majority approval from SunCoke's common stockholders. SunCoke owns a majority of our common units and intends to vote in favor of the transaction. The proposed Simplification Transaction is also conditioned upon receipt of customary regulatory approvals.
We were organized in Delaware since July 2012, and are headquartered in Lisle, Illinois. We are a master limited partnership whose common units, representing limited partnership interests, were first listed for trading on the New York Stock Exchange (“NYSE”) in January 2013 under the symbol “SXCP.”
Business Segments
We report our business results through two segments:
Domestic Coke consists of the Haverhill, Middletown and Granite City cokemaking and heat recovery operations located in Franklin Furnace, Ohio; Middletown, Ohio; and Granite City, Illinois, respectively.
Coal Logistics consists of our Convent Marine Terminal ("CMT"), Kanawha River Terminals, LLC ("KRT") and SunCoke Lake Terminal, LLC ("Lake Terminal") coal handling and/or mixing service operations in Convent, Louisiana; Ceredo and Belle, West Virginia; and East Chicago, Indiana, respectively. Lake Terminal is located adjacent to SunCoke's Indiana Harbor cokemaking facility.
For additional information regarding our business segments, see “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 16 to our combined and consolidated financial statements.

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Cokemaking Operations
The following table sets forth information about our cokemaking facilities:
Facility
 
Location
 
Coke Customer
 
Year of
Start Up
 
Contract
Expiration
 
Number of
Coke Ovens
 
Annual Cokemaking
Capacity
(thousands of tons)
 
Use of Waste Heat
Haverhill I
 
Franklin Furnace, Ohio
 
ArcelorMittal
 
2005
 
2020
 
100

 
550

 
Process steam
Haverhill II
 
Franklin Furnace, Ohio
 
AK Steel
 
2008
 
2022
 
100

 
550

 
Power 
generation
Middletown(1)
 
Middletown, Ohio
 
AK Steel
 
2011
 
2032
 
100

 
550

 
Power generation
Granite City
 
Granite City,
Illinois
 
U.S. Steel
 
2009
 
2025
 
120

 
650

 
Steam for power generation
Total
 
 
 
 
 
 
 
 
 
420

 
2,300

 
 
(1)
Cokemaking capacity represents stated capacity for the production of blast furnace coke. Middletown production and sales volumes are based on “run of oven” capacity, which includes both blast furnace coke and small coke. Using the stated capacity, Middletown capacity on a “run of oven” basis is approximately 578 thousand tons per year.
Together, we and SunCoke are the largest independent producer of high-quality coke in the Americas, as measured by tons of coke produced each year, and, in our opinion, SunCoke is the technological leader in the cokemaking process with more than 50 years of coke production experience. SunCoke designed, developed, built, and currently owns and operates five cokemaking facilities in the U.S. (including, together with us, Haverhill, Middletown and Granite City) with an aggregate coke production capacity of approximately 4.2 million tons per year. Our cokemaking ovens have collective capacity to produce 2.3 million tons of coke annually and utilize efficient, modern heat recovery technology designed to combust the coal’s volatile components liberated during the cokemaking process and use the resulting heat to create steam or electricity for sale. This differs from by-product cokemaking, which seeks to repurpose the coal’s liberated volatile components for other uses. SunCoke has constructed the only greenfield cokemaking facility in the U.S. in more than 25 years and is the only North American coke producer that utilizes heat recovery technology in the cokemaking process.
SunCoke's advanced heat recovery cokemaking process has numerous advantages over by-product cokemaking, including producing higher quality coke, using waste heat to generate derivative energy for resale and reducing the environmental impact. The Clean Air Act Amendments of 1990 specifically directed the U.S. Environmental Protection Agency (“EPA”) to evaluate its heat recovery coke oven technology as a basis for establishing Maximum Achievable Control Technology (“MACT”) standards for new cokemaking facilities. In addition, each of the four cokemaking facilities that SunCoke has built since 1990 has either met or exceeded the applicable Best Available Control Technology (“BACT”), or Lowest Achievable Emission Rate (“LAER”) standards, as applicable, set forth by the EPA for cokemaking facilities at that time.
Our Granite City facility and the first phase of our Haverhill facility, or Haverhill I, have steam generation facilities which use hot flue gas from the cokemaking process to produce steam for sale to customers pursuant to steam supply and purchase agreements. Granite City sells steam to United States Steel Corporation ("U.S. Steel") and Haverhill I provides steam, at no cost, to Altivia Petrochemicals, LLC ("Altivia"), which purchased its facility out of bankruptcy from a third-party, Haverhill Chemicals LLC, in 2015.  Altivia provides boiler feed water to Haverhill I, which enables the heat recovery steam generators to operate. The heat recovery steam generators cool the flue gas for desulfurization and produce steam. While the Partnership is not currently generating revenues from providing steam to Altivia, the current arrangement, for which rates may be renegotiated beginning in 2018, mitigates costs associated with disposing of steam. In an effort to mitigate risks associated with any potential disruptions to the boiler feed water, the Partnership began a capital project in 2016, which it expects to complete in 2017, to allow Haverhill I to procure its own boiler feed water. The Partnership anticipates investing approximately $3 million in this project, of which $1.9 million was spent in 2016. Our Middletown facility and the second phase of our Haverhill facility, or Haverhill II, have cogeneration plants that use the hot flue gas created by the cokemaking process to generate electricity, which either is sold into the regional power market or to AK Steel Holding Corporation ("AK Steel") pursuant to energy sales agreements.
Our core business model is predicated on providing steelmakers an alternative to investing capital in their own captive coke production facilities. We direct our marketing efforts principally towards steelmaking customers that require

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coke for use in their blast furnaces. Substantially all of our coke sales were made pursuant to long-term, take-or-pay agreements with AK Steel, ArcelorMittal S.A. ("ArcelorMittal") and U.S. Steel, three of the largest blast furnace steelmakers in North America, each of which individually accounts for greater than ten percent of our consolidated revenues. The take-or-pay provisions require us to produce the contracted volumes of coke and require our customers to purchase such volumes of coke up to a specified tonnage or pay the contract price for any tonnage they elect not to take. As a result, our ability to produce the contracted coke volume is a key determinant of our profitability. We generally do not have significant spot coke sales since our capacity is consumed by long-term contracts; accordingly, spot prices for coke do not generally affect our revenues. To date, our coke customers have satisfied their obligations under these agreements. In addition, for a five-year period following our January 2013 initial public offering, SunCoke has agreed to purchase all of our coke production not taken by our customers in the event of a customer’s default, or exercise of certain termination rights, under the same terms as those provided for in the coke sales agreements with our customers.
Our coke sales agreements have an average remaining term of approximately nine years and contain pass-through provisions for costs we incur in the cokemaking process, including coal and coal procurement costs subject to meeting contractual coal-to-coke yields, operating and maintenance costs, costs related to transportation of coke to our customers, taxes (other than income taxes) and costs associated with changes in regulation. When targeted coal-to-coke yields are achieved, the price of coal is not a significant determining factor in the profitability of these facilities, although it does affect our revenue and cost of sales for these facilities in approximately equal amounts. However, to the extent that the actual coal-to-coke yields are less than the contractual standard, we are responsible for the cost of the excess coal used in the cokemaking process. Conversely, to the extent our actual coal-to-coke yields are higher than the contractual standard, we realize gains. As coal prices increase, the benefits associated with favorable coal-to-coke yields also increase. These features of our coke sales agreements reduce our exposure to variability in coal price changes and inflationary costs over the remaining terms of these agreements.
Our coke prices include both an operating cost component and a fixed fee component. Operating costs under three of our coke sales agreements are passed through to the respective customers subject to an annually negotiated budget, in some cases subject to a cap annually adjusted for inflation, and we share any difference in costs from the budgeted amounts with our customers. Under our one other coke sales agreement, the operating cost component for our coke sales are fixed subject to an annual adjustment based on an inflation index. Accordingly, actual operating costs in excess of caps or budgets can have a significant impact on the profitability of all our domestic cokemaking facilities. The fixed fee component for each ton of coke sold to the customer is determined at the time the coke sales agreement is signed and is effective for the term of each sales agreement. The fixed fee is intended to provide an adequate return on invested capital and may differ based on investment levels and other considerations. The actual return on invested capital at any facility is based on the fixed fee per ton and favorable or unfavorable performance on pass-through cost items.
The coke sales agreement and energy sales agreement with AK Steel at our Haverhill facility are subject to early termination by AK Steel under limited circumstances, such as AK Steel permanently shutting down operation of the iron production portion of its Ashland plant and not acquiring or beginning construction of a new blast furnace in the U.S. to replace, in whole or in part, the Ashland plant's iron production capacity, and provided that AK Steel has given at least two years prior notice of its intention to terminate the agreement and certain other conditions are met. No other coke sales contract has an early termination clause. As part of our omnibus agreement, SunCoke will provide indemnification 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.
While our steelmaking customers are operating in an environment that is challenged by global overcapacity, our customers have been able to strengthen their capital and liquidity structure by raising debt and equity during 2016. Additionally, 2016 saw a decline in steel imports compared to 2015, a rebound in steel pricing and positive signals from the new presidential administration on trade and infrastructure. Despite the improved market trends in 2016, AK Steel and U.S. Steel have kept portions of their Ashland Kentucky Works facility and Granite City Works facility idled as they await further signs of market stability. Despite market challenges, our customers continue to comply with the terms of their long-term, take-or-pay contracts with us.
Coal Logistics Operations
Our Coal Logistics segment consists of CMT, KRT and Lake Terminal. CMT is one of the largest export terminals on the U.S. Gulf Coast. CMT provides strategic access to seaborne markets for coal and other industrial materials. Supporting low-cost Illinois basin coal producers, the terminal provides loading and unloading services and has direct rail access and the current capability to transload 15 million tons of coal annually due to its recently commissioned ship loader. The facility is supported by long-term contracts with volume commitments covering 10 million tons of its coal handling capacity as well as 350 thousand liquid tons and additional merchant coal business. KRT is a leading

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metallurgical and thermal coal mixing and handling terminal service provider with collective capacity to mix and transload 25 million tons of coal annually through its two operations in West Virginia. Lake Terminal is located in East Chicago, Indiana and provides coal handling and mixing services to SunCoke's Indiana Harbor cokemaking operations.
Our four coal handling terminals have the collective capacity to mix and/or transload more than 40 million tons of coal annually and have storage capacity of approximately 3 million tons. Our coal terminals act as intermediaries between coal producers and coal end users by providing transloading, storage and mixing services. Coal is transported from the mine site in numerous ways, including rail, truck, barge or ship. We do not take possession of coal but instead derive our revenue by providing coal handling and/or mixing services to our customers on a per ton basis. Revenues are recognized when services are provided as defined by customer contracts. For CMT, cash received from customers for quarterly take-or-pay billings based on pro-rata volume commitments under take-or-pay contracts that is in excess of cash earned for services provided during the quarter is recorded as deferred revenue. Deferred revenue on these take-or-pay contracts is recognized as income at the earlier of when service is provided or annually based on the terms of the contract. Our coal mixing and/or handling services are provided to steel, coal mining, coke (including some of our and SunCoke's domestic cokemaking facilities) and electric utility customers. Services provided to our and SunCoke's domestic cokemaking facilities are provided under contracts with terms equivalent to those of an arm's-length transactions.
The financial performance of our coal logistics business is substantially dependent upon a limited number of customers. Our CMT customers are impacted by seaborne export market dynamics. Fluctuations in the benchmark price for coal delivery into northwest Europe, as referenced in the Argus/McCloskey's Coal Price Index report ("API2 index price"), contribute to our customers' decisions to place tons into the export market and thus impact transloading volumes through our terminal facility. Our KRT terminals are primarily impacted by the domestic coal markets in which its customers operate and generally benefit from extreme weather conditions.
While the thermal and metallurgical coal markets were severely challenged during the first half of 2016, they improved over the second half of the year.  At least four formerly bankrupt major coal producers have emerged from reorganization under Chapter 11 of the U.S. Bankruptcy Code, and a number of formerly idled coal mines have been brought back into service.  Additionally, domestic and global metallurgical and thermal coal prices have surged from previous lows during early 2016, resulting in improved mining economics for our customers and significantly increased tonnage at our terminals in the fourth quarter of 2016. The API2 index price at the end of 2016 more than doubled from lows in early 2016 as a result of natural gas storage issues and reduced nuclear power and hydropower generation in Europe. Domestically, natural gas prices have stabilized and slightly increased since March 2016, which has improved the economics of coal-fired electric generating stations and led to an increase in demand for coal, and therefore, increased the potential for higher volumes of coal logistics services.
Seasonality
Our revenues in our cokemaking business and much of our coal logistics business are tied to long-term, take-or-pay contracts, and as such, are not seasonal. However, our cokemaking profitability is tied to coal-to-coke yields, which improve in drier weather. Accordingly, the coal-to-coke yield component of our profitability tends to be more favorable in the third quarter. Extreme weather conditions may also challenge our operating costs and production in the winter months for our domestic coke business. Additionally, excessively hot summer weather or cold winter weather, may increase commercial and residential needs for heat or air conditioning which in turn, may increase electricity usage and the demand for thermal coal and, therefore, may favorably impact our coal logistics business.
Raw Materials
Metallurgical coal is the principal raw material for our cokemaking operations. All of the metallurgical coal used to produce coke at our cokemaking facilities is purchased from third-parties. We believe there is an ample supply of metallurgical coal available in the U.S. and worldwide, and we have been able to supply coal to our cokemaking facilities without any significant disruption in coke production.
Each ton of coke produced at our facilities requires approximately 1.4 tons of metallurgical coal. In 2016, we purchased approximately 3.4 million tons of metallurgical coal for our coke production. Coal from third-parties is generally purchased on an annual basis via one-year contracts with costs passed through to our customers in accordance with the applicable coke sales agreements. Occasionally, shortfalls in deliveries by coal suppliers require us to procure supplemental coal volumes. As with typical annual purchases, the cost of these supplemental purchases is also passed through to our customers. In 2017, certain of our coal contracts contain an option, at the Partnership's discretion, to reduce our commitment by up to 15 percent. Most coal procurement decisions are made through a coal committee structure with customer participation. The customer can generally exercise an overriding vote on most coal procurement decisions.

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While we generally pass coal costs through to our coke customers, all of our contracts include some form of coal-to-coke yield standard. To the extent that our actual yields are less than the standard in the contract, we are at risk for the cost of the excess coal used in the cokemaking process. Conversely, to the extent actual yields are higher than contractual standards we are able to realize higher margins.
Transportation and Freight
For inbound transportation of coal purchases, our cokemaking facilities have long-term transportation agreements and where necessary, coal-mixing agreements that run concurrently with the associated coke sales agreements. At our facilities with multiple transportation options, including rail and barge, we enter into short-term transportation contracts from year to year. For coke sales, the point of delivery varies by agreement and facility. The point of delivery for coke sales from the Haverhill cokemaking facilities is generally designated by the customer and shipments are made by railcar under a long-term transportation agreement held by us. All delivery costs are passed through to the customers. At the Middletown and Granite City cokemaking facilities, coke is delivered primarily by a conveyor belt leading to the customer’s blast furnace. All transportation and freight costs in our Coal Logistics segment are paid by the customer directly to the transportation provider.
Research and Development and Intellectual Property and Proprietary Rights
As part of our omnibus agreement, SunCoke has granted us a royalty-free license to use the name “SunCoke” and related marks. Additionally, SunCoke has granted us a non-exclusive right to use all of SunCoke’s current and future cokemaking and related technology necessary to operate our business. SunCoke’s research and development program seeks to develop promising new cokemaking technologies and improve our heat recovery processes. Over the years, this program has produced numerous patents related to heat recovery coking design and operation, including patents for pollution control systems, oven pushing and charging mechanisms, oven flue gas control mechanisms and various others.
Competition
Cokemaking
The cokemaking business is highly competitive. Most of the world’s coke production capacity is owned by blast furnace steel companies utilizing by-product coke oven technology. The international merchant coke market is largely supplied by Chinese, Colombian and Ukrainian producers, among others, though it is difficult to maintain high quality coke in the export market, and when coupled with transportation costs, coke imports into the U.S. are often not economical.
The principal competitive factors affecting our cokemaking business include coke quality and price, reliability of supply, proximity to market, access to metallurgical coals and environmental performance. Competitors include merchant coke producers as well as the cokemaking facilities owned and operated by blast furnace steel companies.
In the past, there have been technologies which have sought to produce carbonaceous substitutes for coke in the blast furnace. While none have proven commercially viable thus far, we monitor the development of competing technologies carefully. We also monitor ferrous technologies, such as direct reduced iron production ("DRI"), as these could indirectly impact our blast furnace customers. 
We believe we are well-positioned to compete with other coke producers. Current production from our cokemaking business is committed under long-term take-or-pay contracts. As a result, competition mainly affects our ability to obtain new contracts supporting development of additional cokemaking capacity, re-contracting existing facilities, as well as the sale of coke in the spot market. Our facilities were constructed using proven, industry-leading technology with many proprietary features allowing us to produce consistently higher quality coke than our competitors produce. Additionally, our technology allows us to produce heat that can be converted into steam or electrical power.
Coal Logistics
The coal mixing and/or handling service market is highly competitive in the geographic area of our operations. The principal competitive factors affecting our coal logistics business include proximity to the source of coal as well as the nature and price of our services provided. We believe we are well-positioned to compete with other coal mixing and/or handling terminal service providers.
Our KRT competitors are generally located within 100 miles of our operations. KRT has state-of-the-art mixing capabilities with fully automated and computer-controlled mixing that mixes coal to within two percent accuracy of customer specifications. KRT also has the ability to provide pad storage and has access to both CSX and Norfolk Southern rail lines as well as the Ohio River system.

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The principal competitors of CMT, who serve the coal export market, are located on the U.S. Gulf Coast or U.S. East Coast. CMT is one of the largest export terminals on the U.S. Gulf Coast and provides strategic access to seaborne markets for coal and other industrial materials. In 2016, CMT built a new state-of-the-art ship loader, which allows for faster coal loading onto larger ships. We believe the new ship loader has the fastest loading rate available in the Gulf Region which should allow our customers to benefit from lower shipping costs. Additionally, CMT is the only terminal in the lower U.S. with direct rail access on the Canadian National Railway, which provides a competitive advantage.
Lake Terminal provides coal handling and/or mixing services to SunCoke's Indiana Harbor cokemaking facility and therefore, does not have any competitors.
Employees
We are managed and operated by the officers of our general partner. Our operating personnel are employees of our operating subsidiaries. Our operating subsidiaries had approximately 574 employees at December 31, 2016. Approximately 36 percent of our operating subsidiaries' employees are represented by the United Steelworkers union. Additionally, approximately 5 percent are represented by the International Union of Operating Engineers. The labor agreement at our Granite City cokemaking facility will expire on August 31, 2017. We will be negotiating the renewal of this agreement in 2017 and do not anticipate any work stoppages.
Safety
We are committed to maintaining a safe work environment and ensuring strict environmental compliance across all of our operations as the health and safety of our employees and the communities in which we operate are critical to our success. We believe that we employ best practices and conduct continual training programs to ensure that all of our employees are focused on safety. Furthermore, SunCoke employs a structured safety and environmental process that provides a robust framework for managing and monitoring safety and environmental performance.
We have consistently operated within the top quartile for the U.S. Occupational Safety and Health Administration’s recordable injury rates as measured and reported by the American Coke and Coal Chemicals Institute.
Legal and Regulatory Requirements
The following discussion summarizes the principal legal and regulatory requirements that we believe may significantly affect us.
Permitting and Bonding
Permitting Process for Cokemaking Facilities. The permitting process for our cokemaking facilities is administered by the individual states. However, the main requirements for obtaining environmental construction and operating permits are found in the federal regulations. Once all requirements are satisfied, a state or local agency produces an initial draft permit. Generally, the facility reviews and comments on the initial draft. After accepting or rejecting the facility’s comments, the agency typically publishes a notice regarding the issuance of the draft permit and makes the permit and supporting documents available for public review and comment. A public hearing may be scheduled, and the U.S. Environmental Protection Agency ("EPA") also has the opportunity to comment on the draft permit. The state or local agency responds to comments on the draft permit and may make revisions before a final construction permit is issued. A construction permit allows construction and commencement of operations of the facility and is generally valid for at least 18 months. Generally, construction commences during this period, while many states allow this period to be extended in certain situations.
Air Quality. Our cokemaking facilities employ Maximum Available Control Technology (“MACT”) standards designed to limit emissions of certain hazardous air pollutants. Specific MACT standards apply to door leaks, charging, oven pressure, pushing and quenching. Certain MACT standards for new cokemaking facilities were developed using test data from SunCoke's Jewell cokemaking facility located in Vansant, Virginia. Under applicable federal air quality regulations, permitting requirements may differ among facilities, depending upon whether the cokemaking facility will be located in an “attainment” area—i.e., one that meets the national ambient air quality standards (“NAAQS”) for certain pollutants, or in a “non-attainment” or "unclassifiable" area. The status of an area may change over time as new NAAQS standards are adopted, resulting in an area change from one status or classification to another. In an attainment area, the facility must install air pollution control equipment or employ Best Available Control Technology (“BACT”). In a non-attainment area, the facility must install air pollution control equipment or employ procedures that meet Lowest Achievable Emission Rate (“LAER”) standards. LAER standards are the most stringent emission limitation achieved in practice by existing facilities. Unlike the BACT analysis, cost is generally not considered as part of a LAER

6



analysis, and emissions in a non-attainment area must be offset by emission reductions obtained from other sources.
Stringent NAAQS for ambient nitrogen dioxide and sulfur dioxide went into effect in 2010. In July 2013, the EPA identified or "designated" as non-attainment 29 areas in 16 states where monitored air quality showed violations of the 2010 1-hour SO2 NAAQS. In August 2015, the EPA finalized a new rulemaking to assist in implementation of the primary 1-hour SO2 NAAQS that requires either additional monitoring, or modeling of ambient air SO2 levels in various areas including where certain of our facilities are located. By July 2016, states subject to this rulemaking were required to provide EPA with either a modeling approach using existing emissions data, or a plan to undertake ambient air monitoring for SO2 to begin in 2017. For states that choose to install ambient air SO2 monitoring stations, after three years of data has been collected, or sometime in 2020, the EPA will evaluate this data relative to the appropriate attainment designation for the areas under the 1-hour SO2 NAAQS. This rulemaking will require certain of our facilities to undertake this ambient air monitoring. We may be required to install additional pollution controls and incur greater costs of operating at those of our facilities located in areas that EPA determines to be non-attainment with the 1-hour SO2 NAAQS based on its evaluation of this data. In 2012, a NAAQS for fine particulate matter, or PM 2.5, went into effect. In November 2015, the EPA revised the existing NAAQS for ground level ozone to make the standard more stringent. These new standards and any future more stringent standard for ozone have two impacts on permitting: (1) demonstrating compliance with the standard using dispersion modeling from a new facility will be more difficult; and (2) additional areas of the country may become designated as non-attainment areas. Facilities operating in areas that become non-attainment areas due to the application of new standards may be required to install Reasonably Available Control Technology (“RACT”). A number of states have also filed or joined suits to challenge the EPA’s new standard in court. While we are not able to determine the extent to which this new standard will impact our business at this time, it does have the potential to have a material impact on our operations and cost structure.
The EPA adopted a rule in 2010 requiring a new facility that is a major source of greenhouse gases (“GHGs”) to install equipment or employ BACT procedures. Currently, there is little information on what may be acceptable as BACT to control GHGs (primarily carbon dioxide from our facilities), but the database and additional guidance may be enhanced in the future.
Several states have additional requirements and standards other than those in the federal statutes and regulations. Many states have lists of “air toxics” with emission limitations determined by dispersion modeling. States also often have specific regulations that deal with visible emissions, odors and nuisance. In some cases, the state delegates some or all of these functions to local agencies.
Wastewater and Stormwater. Our heat recovery cokemaking technology does not produce process wastewater as is typically associated with by-product cokemaking. Our cokemaking facilities, in some cases, have wastewater discharge and stormwater permits.
Waste. The primary solid waste product from our heat recovery cokemaking technology is calcium sulfate from flue gas desulfurization, which is generally taken to a solid waste landfill. The solid material from periodic cleaning of heat recovery steam generators is disposed of as hazardous waste. On the whole, our heat recovery cokemaking process does not generate substantial quantities of hazardous waste.
U.S. Endangered Species Act. The U.S. Endangered Species Act and certain counterpart state regulations are intended to protect species whose populations allow for categorization as either endangered or threatened. With respect to permitting additional cokemaking facilities, protection of endangered or threatened species may have the effect of prohibiting, limiting the extent of or placing permitting conditions on soil removal, road building and other activities in areas containing the affected species. Based on the species that have been designated as endangered or threatened on our properties and the current application of these laws and regulations, we do not believe that they are likely to have a material adverse effect on our operations.
Permitting Process for Certain Coal Terminals. Certain coal terminal operations in West Virginia and Kentucky have state-issued surface mining permits. The permit application process is initiated by collecting baseline data to adequately characterize, assess and model the pre-terminal environmental condition of the permit area, including soil and rock structures, cultural resources, soils, surface and ground water hydrology, and existing use. The permit application includes the coal terminal operations plan and reclamation plan, documents defining ownership and agreements pertaining to coal, minerals, oil and gas, water rights, rights of way and surface land and documents required by the Office of Surface Mining Reclamation and Enforcement’s

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(“OSM’s”) Applicant Violator System. Once a permit application is submitted to the regulatory agency, it goes through a completeness and technical review before a public notice and comment period. Regulatory authorities have considerable discretion in the timing of the permit issuance and the public has the right to comment on and otherwise engage in the permitting process, including through public hearings and intervention in the courts. Final guidance released by the CEQ regarding climate change considerations in the NEPA analyses may increase the likelihood of future challenges to the NEPA documents prepared for actions requiring federal approval. SMCRA mine permits also take a significant period of time to be transferred.
Bonding Requirements for Coal Terminals with Surface Mining Permits. Before a surface mining permit is issued in Kentucky or West Virginia, a mine operator must submit a bond or other form of financial security to guarantee the payment and performance of certain long-term mine closure and reclamation obligations. The costs of these bonds or other forms of financial security have fluctuated in recent years and the market terms of surety bonds generally have become more unfavorable to mine operators. These changes in the terms of the bonds have been accompanied, at times, by a decrease in the number of companies willing to issue surety bonds. As of December 31, 2016, we have posted an aggregate of approximately $2 million in surety bonds for our West Virginia and Louisiana coal terminal operations.
Regulation of Operations
Clean Air Act. The Clean Air Act and similar state laws and regulations affect our cokemaking operations, primarily through permitting and/or emissions control requirements relating to particulate matter (“PM”) and sulfur dioxide (“SO2”). The Clean Air Act air emissions programs that may affect our operations, directly or indirectly, include, but are not limited to: the Acid Rain Program; NAAQS implementation for SO2, PM and nitrogen oxides (“NOx”); GHG rules; the Clean Air Interstate Rule; MACT emissions limits for hazardous air pollutants; the Regional Haze Program; New Source Performance Standards (“NSPS”); and New Source Review. The Clean Air Act requires, among other things, the regulation of hazardous air pollutants through the development and promulgation of various industry-specific MACT standards. Our cokemaking facilities are subject to two categories of MACT standards. The first category applies to pushing and quenching. The EPA is to make a risk-based determination for pushing and quenching emissions and determine whether additional emissions reductions are necessary, but the EPA has yet to publish or propose any residual risk standards; therefore, the impact of potential additional EPA regulation in this area cannot be estimated at this time. The second category of MACT standards applicable to our cokemaking facilities applies to emissions from charging and coke oven doors.
Terminal Operations. Our terminal operations located along waterways and the Gulf of Mexico are also governed by permitting requirements under the CWA and CAA. These terminals are subject to U.S. Coast Guard regulations and comparable state statutes regarding design, installation, construction, and management. Many such terminals owned and operated by other entities that are also used to transport coal, including for export, have been pursued by environmental interest groups for alleged violations of their permits’ requirements, or have seen their efforts to obtain or renew such permits contested by such groups. While we believe that our operations are in material compliance with these permits, we cannot assure you that no such challenges or claims will be made against our operations in the future. Moreover, our terminal operations may be affected by the impacts of additional regulation on the mining of all types of coal and use of thermal coal for fuel, which is restricting supply in some markets and may reduce the volumes of coal that our terminals manage.
Federal Energy Regulatory Commission. The Federal Energy Regulatory Commission (“FERC”) regulates the sales of electricity from our Haverhill and Middletown facilities, including the implementation of the Federal Power Act (“FPA”) and the Public Utility Regulatory Policies Act of 1978 (“PURPA”). The nature of the operations of the Haverhill and Middletown facilities makes each facility a qualifying facility under PURPA, which exempts the facilities and the Partnership from certain regulatory burdens, including the Public Utility Holding Company Act of 2005 (“PUHCA”), limited provisions of the FPA, and certain state laws and regulation. FERC has granted requests for authority to sell electricity from the Haverhill and Middletown facilities at market-based rates and the entities are subject to FERC’s market-based rate regulations, which require regular regulatory compliance filings.
Clean Water Act of 1972. Although our cokemaking facilities generally do not have water discharge permits, the Clean Water Act (“CWA”) may affect our operations by requiring water quality standards generally and through the National Pollutant Discharge Elimination System (“NPDES”). Regular monitoring, reporting requirements and performance standards are requirements of NPDES permits that govern the discharge of

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pollutants into water. Discharges must either meet state water quality standards or be authorized through available regulatory processes such as alternate standards or variances. Additionally, through the CWA Section 401 certification program, states have approval authority over federal permits or licenses that might result in a discharge to their waters.
Resource Conservation and Recovery Act. We may generate wastes, including “solid” wastes and “hazardous” wastes that are subject to the Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes, although certain mining and mineral beneficiation wastes and certain wastes derived from the combustion of coal currently are exempt from regulation as hazardous wastes under RCRA. The EPA has limited the disposal options for certain wastes that are designated as hazardous wastes under RCRA. Furthermore, it is possible that certain wastes generated by our operations that currently are exempt from regulation as hazardous wastes may in the future be designated as hazardous wastes, and therefore be subject to more rigorous and costly management, disposal and clean-up requirements.
Climate Change Legislation and Regulations. Our facilities are presently subject to the greenhouse gas ("GHG") reporting rule, which obligates us to report annual emissions of GHGs. The EPA also finalized a rule in 2010 requiring a new facility that is a major source of GHGs to install equipment or employ BACT procedures. Currently there is little information as to what may constitute BACT for GHG in most industries. We may also be subject to the EPA’s “Tailoring Rule,” where certain modifications to our facilities could subject us to the additional permitting and other obligations relative to the GHG emissions under the New Source Review/Prevention of Significant Deterioration ("NSR/PSD") and Title V programs of the Clean Air Act based on triggering PSD review for another pollutant such as SO2, NOx, PM, ozone or lead. The EPA has engaged in rulemaking to regulate GHG emissions from existing and new coal fired power plants, and we expect continued legal challenges to this rulemaking and any future rulemaking for other industries. In August 2015, the EPA issued its final Clean Power Plan rules establishing carbon pollution standards for power plants. The EPA expects each state to develop implementation plans for power plants in its state to meet the individual state targets established in the Clean Power Plan, and has also proposed a federal compliance plan to implement the Clean Power Plan in the event that approvable state plans are not submitted. In February 2016, the U.S. Supreme Court granted a stay of the implementation of the Clean Power Plan before the U.S. Court of Appeals for the District of Columbia (“D.C. Circuit”) issued a decision on the rule. By its terms, this stay will remain in effect throughout the pendency of the appeals process including at the D.C. Circuit and the Supreme Court through any certiorari petition that may be granted. Additionally, it is unclear how the Clean Power Plan will be impacted by the actions of the new presidential administration beginning in 2017. Depending on the method of implementation selected by the states, and whether the rule is ultimately upheld, the Clean Power Plan could increase the demand for natural gas-generated electricity.
Currently, we do not anticipate these new or existing power plan GHG rules to impact our facilities. However, the impact current and future GHG-related legislation and regulations have on us will depend on a number of factors, including whether GHG sources in multiple sectors of the economy are regulated, the overall GHG emissions cap level, the degree to which GHG offsets are allowed, the allocation of emission allowances to specific sources decisions by states regarding the sources that will be subject to any implementing programs they may adopt and the indirect impact of carbon regulation on coal prices. We may not recover the costs related to compliance with regulatory requirements imposed on us from our customers due to limitations in our agreements. The imposition of a carbon tax or similar regulation could materially and adversely affect our revenues. Collectively, these requirements along with restrictions and requirements regarding the mining of all types of coal may reduce the volumes of coal that we manage and may ultimately adversely impact our customers.
Mine Improvement and New Emergency Response Act of 2006. The Mine Improvement and New Emergency Response Act of 2006 (the “Miner Act”), has increased significantly the enforcement of safety and health standards and imposed safety and health standards on all aspects of mining operations. There also has been a significant increase in the dollar penalties assessed for citations issued.
Security. CMT is subject to regulation by the United States Coast Guard pursuant to the Maritime Transportation Security Act. We have an internal inspection program designed to monitor and ensure compliance by CMT with these requirements. We believe that we are in material compliance with all applicable laws and regulations regarding the security of the facility.

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Reclamation and Remediation
Comprehensive Environmental Response, Compensation, and Liability Act. Under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), also known as Superfund, and similar state laws, responsibility for the entire cost of clean-up of a contaminated site, as well as natural resource damages, can be imposed upon current or former site owners or operators, or upon any party who released one or more designated “hazardous substances” at the site, regardless of the lawfulness of the original activities that led to the contamination. In the course of our operations we may have generated and may generate wastes that fall within CERCLA’s definition of hazardous substances. We also may be an owner or operator of facilities at which hazardous substances have been released by previous owners or operators. Under CERCLA, we may be responsible for all or part of the costs of cleaning up facilities at which such substances have been released and for natural resource damages. We also must comply with reporting requirements under the Emergency Planning and Community Right-to-Know Act and the Toxic Substances Control Act.
Environmental Matters and Compliance
Our failure to comply with the aforementioned requirements may result in the assessment of administrative, civil and criminal penalties, the imposition of clean-up and site restoration costs and liens, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits and other enforcement measures that could have the effect of limiting production from our operations. The EPA and state regulators have issued Notices of Violations (“NOVs”) for the Haverhill cokemaking facility which stem from alleged violations of air operating permits for this facility. SunCoke is working in a cooperative manner with the EPA and Ohio Environmental Protection Agency to address the allegations and has entered into a consent decree in federal district court with these parties. The consent decree includes an approximately $2.2 million civil penalty payment that was paid by SunCoke in December 2014, as well as capital projects underway to improve the reliability of the energy recovery systems and enhance environmental performance at the Haverhill and Granite City facilities. We retained $119 million in proceeds from our initial public offering, Haverhill and Middletown Dropdown and the Granite City Dropdown for these environmental remediation projects. Pursuant to the omnibus agreement, any amounts that we spend on these Haverhill and Granite City facility projects in excess of the $119 million will be reimbursed by SunCoke. Prior to our formation, SunCoke spent approximately $7 million related to these projects. The Partnership has spent approximately $86 million to date, and the remaining capital is expected to be spent through the first quarter of 2019.
Many other legal and administrative proceedings are pending or may be brought against us arising out of our current and past operations, including matters related to commercial and tax disputes, product liability, antitrust, employment claims, natural resource damage claims, premises-liability claims, allegations of exposures of third-parties to toxic substances and general environmental claims. Although the ultimate outcome of these proceedings cannot be ascertained at this time, it is reasonably possible that some of them could be resolved unfavorably to us. Our management believes that any liabilities that may arise from such matters would not be material in relation to our business or our consolidated financial position, results of operations or cash flows at December 31, 2016.
Under the terms of the omnibus agreement, SunCoke will indemnify us for certain environmental remediation projects costs. Please read “Part III. Item 13. Certain Relationships and Related Transactions, and Director Independence—Agreements Entered Into with Affiliates in Connection with our Initial Public Offering—Omnibus Agreement.”
IRS Final Regulations on Qualifying Income
Section 7704 of the code provides that a publicly-traded partnership will be treated as a corporation for federal income tax purposes. However, if 90 percent or more of a partnership’s gross income for every taxable year it is publicly-traded consists of “qualifying income,” the publicly-traded partnership may continue to be treated as a partnership for federal income tax purposes.
At the time of our initial public offering, in January 2013, we believed, and received a legal opinion to the effect, that income from our cokemaking operations would be treated as generating qualifying income under the Code.  The Partnership and counsel believed at the time that this view was based on the correct interpretation of the Code and the legislative history of the relevant Code section, and since that time continued to believe that income from its cokemaking operations is qualifying income. 
In May, 2015, the IRS released new proposed regulations (the “Proposed Regulations”) which would have substantially changed the rules relating to qualifying income for publicly-traded partnerships for the processing, refining and transportation of minerals or natural resources, and created ambiguity as to whether cokemaking generates qualifying income. Following the release of the Proposed Regulations, our representatives, together with counsel, submitted comments and gave testimony to the IRS, expressing the view that the Proposed Regulations were not consistent with the statute and its legislative

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history.  Our views were consistent with those of a number of other commentators, including the tax section of the American Bar Association and the Master Limited Partnership Association. 
On January 19, 2017, the Treasury Department and the IRS released the Final Regulations on the treatment of income from natural resource activities of publicly traded partnerships as qualifying income for purposes of the Code.  The Final Regulations were published in the Federal Register on January 24, 2017, and apply to taxable years beginning after January 19, 2017.  Under the Final Regulations, our cokemaking operations have been excluded from the definition of activities that generate qualifying income. 
The Final Regulations provide that if a partnership’s income from non-qualifying operations “was qualified income under the statute as reasonably interpreted,” then that partnership will have a transition period ending on the last day of the partnership’s taxable year that included the date that is ten years after the date the final regulations are published in the Federal Register (i.e., December 31, 2027), during which it can treat income from such activities as qualifying income. After conferring with outside counsel, we are of the view that our interpretation was reasonable in concluding that our income from cokemaking was qualifying income, and that we will benefit from the ten-year transition period. Subsequent to the transition period, certain cokemaking entities in the Partnership will become taxable as corporations. Therefore, the Partnership expects to record deferred tax expense of between approximately $127 million and $136 million in 2017 related to the future tax expense expected to be owed related to projected book to tax differences at the end of the 10-year transition period. We are evaluating our options for engaging with the appropriate parties to address our concerns with the scope of these final regulations. Also see “Part I. Item 1A. Risk Factors."
Available Information
We make available free of charge, through our website, www.suncoke.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file or furnish such material with the Securities and Exchange Commission, or SEC. These documents are also available at the SEC’s website at www.sec.gov. Our website also includes our Code of Business Conduct and Ethics, our Governance Guidelines, our Related Persons Transaction Policy and the charters of our Audit Committee and Conflicts Committee.
A copy of any of these documents will be provided without charge upon written request to Investor Relations, SunCoke Energy Partners, L.P., 1011 Warrenville Road, Suite 600, Lisle, Illinois 60532.

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Item 1A. Risk Factors
In addition to the other information included in this Annual Report on Form 10-K, the following risk factors should be considered in evaluating our business and future prospects. These risk factors represent what we believe to be the known material risk factors with respect to us and our business. Our business, operating results, cash flows and financial condition are subject to these risks and uncertainties, any of which could cause actual results to vary materially from recent results or from anticipated future results.
These risks are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, or results of operations.
Risks Inherent in Our Business and Industry
We may not generate sufficient earnings from operations to enable us to pay the minimum quarterly distribution to unitholders.
We may not have sufficient earnings each quarter to support a decision to pay the full amount of our minimum quarterly distribution of $0.4125 per unit, or $1.65 per unit per year, which will require us to generate from earnings amounts available for distribution of approximately $13.2 million per quarter, or $52.9 million per year. The amount we decide to distribute on our common units also depends upon our liquidity and other considerations, which will fluctuate from quarter to quarter based on the following factors, some of which are beyond our control:
severe financial hardship or bankruptcy of one or more of our major customers, or the occurrence of other events affecting our ability to collect payments from our customers, including our customers’ default;
volatility and cyclical downturns in the steel industry and other industries in which our customers and/or suppliers operate;
the exercise by AK Steel of its early termination rights under its coke sales agreement and its energy sales agreement at the Haverhill facility;
our sponsor’s inability to perform under the omnibus agreement;
age of, and changes in the reliability, efficiency and capacity of the various equipment and operating facilities used in our cokemaking operations and/or our coal logistics business, and in the operations of our major customers, business partners and/or suppliers;
the cost of environmental remediation projects at our cokemaking operations and our coal logistics facilities;
changes in the expected operating levels of our assets;
our ability to meet minimum volume requirements, coal-to-coke yield standards and coke quality requirements in our coke sales agreements;
our ability to enter into new, or renew existing, long-term agreements for the supply of coke to domestic steel producers under terms similar to, or more favorable than, those currently in place;
our ability to enter into new, or renew existing, agreements for the sale of steam and electricity generated by our facilities under terms similar to, or more favorable than, those currently in place;
our ability to enter into new, or renew existing, agreements for coal handling, mixing, storage, terminalling, transloading and/or transportation services at our coal logistics facilities, under terms similar to, or more favorable than, those currently in place;
changes in the marketplace that may adversely affect the supply of, and demand for, our coke and/or our coal logistics services, including increased exports of coke from other countries and increasing competition from alternative steelmaking and cokemaking technologies that have the potential to reduce or eliminate the use of coke;
our relationships with, and other conditions affecting, our customers and/or suppliers;
changes in levels of production, production capacity, pricing and/or margins for coke and/or coal;
our ability to secure new coal supply and/or coal logistics agreements or to renew existing agreements;
variation in availability, quality and supply of metallurgical coal used in the cokemaking process, including as a result of nonperformance by our suppliers;

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effects of railroad, barge, truck and other transportation performance and costs, including any transportation disruptions;
cost of labor and other risks related to employees and workplace safety;
effects of adverse events relating to the operation of our facilities and to the transportation and storage of hazardous materials (including equipment malfunction, explosions, fires, spills, and the effects of severe weather conditions and extreme temperatures);
changes in product specifications for the coke that we produce, or the coals that we mix;
changes in credit terms required by our suppliers;
changes in insurance markets and the level, types and costs of coverage available, and the financial ability of our insurers to meet their obligations;
changes in, or new, statutes, regulations or governmental policies by federal, state and local authorities with respect to protection of the environment;
changes in, or new, statutes, regulations or governmental policies by federal authorities with respect to the sale of electric energy from the Haverhill and Middletown facilities;
proposed or final changes in accounting and/or tax methodologies, laws, regulations, rules, or policies, or their interpretations, including those affecting inventories, leases, equity compensation, pensions, income, or other matters;
changes in tax laws or their interpretations, including the adoption of proposed rules governing whether a partnership such as ours would be treated as a corporation for federal income tax purposes;
nonperformance or force majeure by, or disputes with or changes in contract terms with, major customers, suppliers, dealers, distributors or other business partners; and
changes in, or new, statutes, regulations, governmental policies and taxes, or their interpretations.
In addition, the actual amount of cash we will have available for distribution will depend on other factors, some of which are beyond our control, including:
the level of capital expenditures we make;
the cost of acquisitions;
our debt service requirements and other liabilities;
fluctuations in our working capital needs;
our ability to borrow funds and access capital markets;
restrictions contained in debt agreements to which we are a party; and
the amount of cash reserves established by our general partner.
We are exposed to the credit risk, and certain other risks, of our major customers and other parties, and any material nonpayment or nonperformance by our major customers, or the failure of our customers to continue to purchase coke, or coal logistics services, from us at similar prices under similar arrangements, may have a material adverse effect on our permit compliance or results of operations and therefore our ability to distribute cash to our unitholders.
We are subject to the credit risk of our major customers and other parties. If we fail to adequately assess the creditworthiness of existing or future customers or unanticipated deterioration of their creditworthiness, any resulting increase in nonpayment or nonperformance by them could have a material adverse effect on our cash flows, financial position or results of operations.
We are subject to the risk of loss resulting from nonpayment or nonperformance by our customers and/or our coal logistics customers. We have long-term take-or-pay agreements with our coke customers whose operations are concentrated in the steelmaking industry, and with certain of our coal logistics customers who market coal internationally and domestically. These agreements require such customers either to purchase all of our coke production (or a specified maximum tonnage greater than our stated capacity, as applicable), or our coal handling services, as the case may be, or to pay the contract prices for the coke, or the coal handling services, they do not accept. Our customers experience significant fluctuations in demand for their steel and/or coal products because of economic conditions, consumer demand, raw material and energy costs, and

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decisions by the U.S. federal and state governments to fund or not fund infrastructure projects, such as highways, bridges, schools, energy plants, railroads and transportation facilities. During periods of weak demand for steel, or coal, our customers may experience significant reductions in their operations, or substantial declines in the prices of the steel, or coal products, they sell. For example, in response to worsening market conditions for the steel industry, U.S. Steel and AK Steel have temporarily idled their facilities at Granite City and Ashland, respectively. These and other factors such as labor relations or bankruptcy filings may lead certain of our customers to seek renegotiation or cancellation of their existing contractual commitments to us, or reduce their utilization of our services, which could have a material adverse effect on our permit compliance or results of operations and therefore our ability to distribute cash to unitholders.
We sell substantially all of our coke, steam, and electricity to customers under long-term agreements. Likewise, at our Convent Marine Terminal, we provide coal logistics services to customers pursuant to long-term contracts. If any one or more of these customers were to become financially distressed and unable to pay us, significantly reduce their purchases of coke, steam, electricity, or coal logistics services from us, or if we were unable to sell to them on terms as favorable to us as the terms under our current agreements, our results of operations and therefore our ability to distribute cash to unitholders may be materially and adversely affected.
If a customer refuses to take or pay for our coke, we must continuously operate our coke ovens even though we may not be able to sell our coke immediately and may incur significant additional costs for natural gas to maintain the temperature inside our coke oven batteries, which may have a material and adverse effect on our results of operations and therefore our ability to distribute cash to unitholders.
The financial performance of our cokemaking business is substantially dependent upon a very limited number of customers in the steel industry, and adverse developments with any of these customers (including any failure by them to perform under their contracts with us) could have a material adverse effect on our results of operations and therefore our ability to distribute cash to unitholders.
Substantially all of our coke sales will be made under long-term contracts with ArcelorMittal, AK Steel and U.S. Steel. We expect these customers to continue to account for a significant portion of our revenues for the foreseeable future. If any of these customers were to significantly reduce its purchases of coke from us, or default on its agreements with us, or terminate or fail to renew its agreements with us, or if we were unable to sell coke to any one or more of these customers on terms as favorable to us as the terms under our current agreements, our cash flows, financial position and results of operations, and therefore our ability to distribute cash to unitholders, could be materially and adversely affected. Additionally, declaration of force majeure, coupled with a lengthy suspension of performance under one or more coke or energy sales agreements, may materially and adversely affect our results of operations and therefore our ability to distribute cash to unitholders.
If a substantial portion of our agreements to supply coke and electricity are modified or terminated, our results of operations may be adversely affected if we are not able to replace such agreements, or if we are not able to enter into new agreements at the same level of profitability. In addition, our operating results have been, and may continue to be, affected by fluctuations in our costs of production and, if we cannot pass increases in our costs of production to our customers, our financial condition, results of operations and cash flows may be adversely affected.
We sell substantially all of our coke, electricity and/or steam under long-term agreements. If a substantial portion of these agreements are modified or terminated or if force majeure is exercised, our results of operations may be adversely affected if we are not able to replace such agreements, or if we are not able to enter into new agreements at the same level of profitability. The profitability of our long-term coke and energy sales agreements depends on a variety of factors that vary from agreement to agreement and fluctuate during the agreement term. We may not be able to obtain long-term agreements at favorable prices, compared either to market conditions or to our cost structure. If any one or more of our customers were to significantly reduce their purchases of coke, electricity and/or steam from us, or if we were unable to sell coke or electricity to them on terms as favorable to us as the terms under our current agreements, our cash flows, financial position or results of operations may be materially and adversely affected.
In recent years, many of the components of our cost of producing coke, including cost of supplies, equipment and labor, have experienced significant price inflation, and such price inflation may continue in the future. Price changes provided in long-term supply agreements may not reflect actual increases in production costs. As a result, such cost increases may reduce profit margins on our long-term coke and energy sales agreements. In addition, contractual provisions for adjustment or renegotiation of prices and other provisions may increase our exposure to short-term price volatility. Our financial condition, results of operations and cash flows may be adversely affected if the costs of production increase significantly and we cannot pass such increases in our costs of production to our customers.

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Further, because of certain technological design constraints, we do not have the ability to shut down our cokemaking operations if we do not have adequate customer demand. If a customer refuses to take or pay for our coke, we must continue to operate our coke ovens even though we may not be able to sell our coke immediately and may incur significant additional costs for natural gas to maintain the temperature inside our coke oven batteries, which may have a material and adverse effect on our cash flows, financial position or results of operations.
Unfavorable economic conditions in the U. S. and globally, may cause a reduction in the demand for our products and services, which could adversely affect our cash flows, financial position or results of operations.
Sustained volatility and disruption in worldwide capital and credit markets in the U.S. and globally could cause reduced demand for our products and services. Additionally, unfavorable economic conditions, including the potentially reduced availability of credit, may cause reduced demand for steel products or reduced demand for coal, either of which, in turn, could adversely affect demand for the coke we produce and services we perform. Such conditions could have an adverse effect on our cash flows, financial position or results of operations.
Adverse developments at our cokemaking operations, or at our coal logistics facilities, could have a material adverse effect on our results of operations and therefore our ability to distribute cash to unitholders.
Our cokemaking operations and coal logistics facilities are subject to significant hazards and risks that include, but are not limited to, equipment malfunction, explosions, fires and the effects of severe weather conditions and extreme temperatures, any of which could result in production and transportation difficulties and disruptions, pollution, personal injury or wrongful death claims and other damage to our properties and the property of others. There is also a risk of mechanical failure of our equipment both in the normal course of operations and following unforeseen events. In particular, to the extent a disruption leads to our failure to maintain the temperature inside our coke oven batteries, we would not be able to continue operation of such coke ovens, which could adversely affect our ability to meet our customers’ requirements for coke.
Adverse developments at our cokemaking facilities could significantly disrupt our coke, steam and/or electricity production and our ability to supply coke, steam, and/or electricity to our customers. Adverse developments at our coal logistics operations could significantly disrupt our ability to provide coal handling, mixing, storage, terminalling, transloading and/or transportation services to our customers. Any sustained disruption at either our cokemaking operations, or our coal logistics facilities could have a material adverse effect on our results of operations and therefore our ability to distribute cash to unitholders.
There is a risk of mechanical failure of our equipment both in the normal course of operations and following unforeseen events. Our cokemaking and coal logistics operations depend upon critical pieces of equipment that occasionally may be out of service for scheduled upgrades or maintenance or as a result of unanticipated failures. Our facilities are subject to equipment failures and the risk of catastrophic loss due to unanticipated events such as fires, accidents or violent weather conditions or extreme temperatures. As a result, we may experience interruptions in our processing and production capabilities, which could have a material adverse effect on our results of operations and financial condition. In particular, to the extent a disruption leads to our failure to maintain the temperature inside our coke oven batteries, we would not be able to continue operation of such coke ovens, which could adversely affect our ability to meet our customers’ requirements for coke and, in some cases, electricity and/or steam.
Assets and equipment critical to the operations of our cokemaking and coal logistics operations also may deteriorate or become depleted materially sooner than we currently estimate. Such deterioration of assets may result in additional maintenance spending or additional capital expenditures. If these assets do not generate the amount of future cash flows that we expect, and we are not able to procure replacement assets in an economically feasible manner, our future results of operations may be materially and adversely affected.
We are subject to extensive laws and regulations, which may increase our cost of doing business and have an adverse effect on our results of operations and therefore our ability to distribute cash to unitholders.
Our operations are subject to increasingly strict regulation by federal, state and local authorities with respect to: discharges of substances into the air and water; emissions of greenhouse gases, or GHG; compliance with the NAAQS; management and disposal of hazardous substances and wastes; cleanup of contaminated sites; protection of groundwater quality and availability; protection of plants and wildlife; reclamation and restoration of properties after completion of operations; installation of safety equipment in our facilities; protection of employee health and safety; and other matters. Complying with these and other regulatory requirements, including the terms of our permits, can be costly and time-consuming, and may delay commencement or hinder continuation of operations. In addition, these requirements are complex, change frequently and have become more stringent over time. Regulatory requirements may change in the future in a manner that could result in substantially increased capital, operating and compliance costs, and could have a material adverse effect on our business.

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Failure to comply with these regulations or permits may result in the assessment of administrative, civil and criminal penalties, the imposition of cleanup and site restoration costs and liens, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits and other enforcement measures that could cause delays in permitting or development of projects or materially limit or increase the cost of our operations. We may not have been, or may not be, at all times, in complete compliance with all of these requirements, and we may incur material costs or liabilities in connection with these requirements, or in connection with remediation at sites we own, or third-party sites where it has been alleged that we have liability, in excess of the amounts we have accrued. Any such federal or state regulations requiring us, or our customers, to invest in expensive equipment or technology in order to maintain compliance could adversely affect our future results of operations and our future ability to distribute cash to unitholders. For a description of certain environmental laws and matters applicable to us, see "Item 1. Business-Legal and Regulatory Requirements."
We may be unable to obtain, maintain or renew permits or leases necessary for our operations, which could impair our ability to conduct our operations and limit our ability to make distributions to unitholders.
Our facilities and operations require us to obtain a number of permits that impose strict regulations on various environmental and operational matters in connection with cokemaking (including our generation of electricity) and coal logistics operations. These include permits issued by various federal, state and local agencies and regulatory bodies. The permitting rules, and the interpretations of these rules, are complex, change frequently, and are often subject to discretionary interpretations by our regulators, all of which may make compliance more difficult or impractical, and may possibly preclude the continuance of ongoing operations or the development of future cokemaking or coal logistics facilities. The public, including non-governmental organizations, environmental groups and individuals, have certain rights to comment upon and submit objections to requested permits and environmental impact statements prepared in connection with applicable regulatory processes, and otherwise engage in the permitting process. Such persons also have the right to bring citizen’s lawsuits to challenge the issuance of permits, or the validity of environmental impact statements related thereto. If any permits or leases are not issued or renewed in a timely fashion or at all, or if permits issued or renewed are conditioned in a manner that restricts our ability to efficiently and economically conduct our cokemaking and coal logistics operations, our cash flows may be reduced, which could limit our ability to make distributions to unitholders.
Our businesses are subject to inherent risks, some for which we maintain third-party insurance and some for which we self-insure. We may incur losses and be subject to liability claims that could have a material adverse effect on our financial condition or results of operations and therefore on our ability to distribute cash to unitholders.
We are currently covered by insurance policies maintained by our sponsor and we currently maintain our own directors’ and officers’ liability insurance policy. These insurance policies provide limited coverage for some, but not all, of the potential risks and liabilities associated with our businesses. For some risks, we may not obtain insurance or be covered by our sponsor’s policies if we believe the cost of available insurance is excessive relative to the risks presented. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially, and in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. As a result, we and our sponsor may not be able to renew our or its existing insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. In addition, certain environmental and pollution risks generally are not fully insurable. Even where insurance coverage applies, insurers may contest their obligations to make payments. Further, with the exception of directors’ and officers’ liability, for which we maintain our own insurance policy, our coverage under our sponsor’s insurance policies is our sole source of insurance for risks related to our business. Our sponsor’s insurance coverage may not be adequate to cover us against losses we incur and coverage under these policies may be depleted or may not be available to us to the extent that our sponsor exhausts the coverage limits. Our financial condition, results of operations and cash flows and, therefore, our ability to distribute cash to unitholders, could be materially and adversely affected by losses and liabilities from un-insured or under-insured events, as well as by delays in the payment of insurance proceeds, or the failure by insurers to make payments.
We also may incur costs and liabilities resulting from claims for damages to property or injury to persons arising from our operations. We must compensate employees for work-related injuries. If we do not make adequate provision for our workers’ compensation liabilities, it could harm our future operating results. If we are required to pay for these sanctions, costs and liabilities, our operations and therefore our ability to distribute cash to unitholders could be adversely affected.
We are exposed to the credit risk of our sponsor, and our sponsor’s inability to perform under the omnibus agreement could adversely affect our business and our ability to distribute cash to unitholders.
Our sponsor has agreed, for the five-year period after our initial public offering ("IPO"), to make us whole to the extent our customers fail to fully satisfy their existing obligations to purchase and pay for coke, under certain circumstances. Our sponsor is rated B2 by Moody’s Investors Service, Inc. and BB- by Standard & Poor’s Ratings Services, respectively. Any deterioration of our sponsor’s creditworthiness, and any resulting change in support from our sponsor or inability to

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perform under the omnibus agreement, could have a material adverse effect on our business, financial condition, results of operations and ability to distribute cash to unitholders.
We face competition, both in our cokemaking operations and in our coal logistics business, which has the potential to reduce demand for our products and services, and that could have an adverse effect on our results of operations and therefore our ability to distribute cash to unitholders.
We face competition, both in our cokemaking operations and in our coal logistics business:
Cokemaking operations: Historically, coke has been used as a main input in the production of steel in blast furnaces. However, some blast furnace operators have reduced the amount of coke per ton of hot metal through alternative injectants, such as natural gas and pulverized coal, and the use of these coke substitutes could increase in the future, particularly in light of current low natural gas prices. Many steelmakers also are exploring alternatives to blast furnace technology that require less or no use of coke. For example, electric arc furnace technology is a commercially proven process widely used in the U.S. As these alternative processes for production of steel become more widespread, the demand for coke, including the coke we produce, may be significantly reduced. We also face competition from alternative cokemaking technologies, including both by-product and heat recovery technologies. As these technologies improve and as new technologies are developed, competition in the cokemaking industry may intensify. As these alternative processes for production of steel become more widespread, the demand for coke, including the coke we produce, may be significantly reduced.
Coal logistics business: Decreased throughput and utilization of our coal logistics assets could result indirectly due to competition in the electrical power generation business from abundant and relatively inexpensive supplies of natural gas displacing thermal coal as a fuel for electrical power generation by utility companies. In addition, competition in the steel industry from processes such as electric arc furnaces, or blast furnace injection of pulverized coal or natural gas, may reduce the demand for metallurgical coals processed through our coal logistics facilities. In the future, additional coal handling facilities and terminals with rail and/or barge access may be constructed in the Eastern U.S. Such additional facilities could compete directly with us in specific markets now served by our coal logistics business. Certain coal mining companies and independent terminal operators in some areas may compete directly with our coal logistics facilities. In some markets, trucks may competitively deliver mined coal to certain shorter-haul destinations, resulting in reduced utilization of existing terminal capacity.
Such competition could have a material and adverse effect on our results of operations and therefore our ability to distribute cash to unitholders.
To the extent we do not meet coal-to-coke yield standards in our coke sales agreements, we are responsible for the cost of the excess coal used in the cokemaking process, which could adversely impact our results of operations and profitability and therefore our ability to distribute cash to unitholders.
To the extent we do not meet coal-to-coke yield standards in our coke sales agreements, we are responsible for the cost of the excess coal used in the cokemaking process, which could adversely impact our results of operations and therefore our ability to distribute cash to unitholders. Our ability to pass through our coal costs to our customers under our coke sales agreements is generally subject to our ability to meet some form of coal-to-coke yield standard. To the extent that we do not meet the yield standard in the contract, we are responsible for the cost of the excess coal used in the cokemaking process. We may not be able to meet the yield standards at all times, and as a result we may suffer lower margins on our coke sales and our results of operations and profitability and therefore our ability to distribute cash to unitholders could be adversely affected.
Equipment upgrades, equipment failures and deterioration of assets may lead to production curtailments, shutdowns or additional expenditures.
Our operations depend upon critical pieces of equipment that occasionally may be out of service for scheduled upgrades or maintenance or as a result of unanticipated failures. Our facilities are subject to equipment failures and the risk of catastrophic loss due to unanticipated events such as fires, accidents or violent weather conditions and extreme temperatures. As a result, we may experience interruptions in our processing and production capabilities, which could have a material adverse effect on our results of operations and financial condition. In particular, to the extent a disruption leads to our failure to maintain the temperature inside our coke oven batteries, we would not be able to continue operation of such coke ovens, which could adversely affect our ability to meet our customers’ requirements for coke and, in some cases, electricity.
In addition, assets and equipment critical to our cokemaking operations, and/or coal logistics business, may deteriorate or become depleted materially sooner than we currently estimate. Such deterioration of assets may result in additional maintenance spending or additional capital expenditures. If these assets do not generate the amount of future cash flows that

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we expect, and we are not able to procure replacement assets in an economically feasible manner, our future results of operations may be materially and adversely affected.
We are also required to perform impairment tests on our assets whenever events or changes in circumstances lead to a reduction of the estimated useful life or estimated future cash flows that would indicate that the carrying amount may not be recoverable or whenever management’s plans change with respect to those assets. If we are required to incur impairment charges in the future, our results of operations in the period taken could be materially and adversely affected.
Divestitures and other strategic transactions may adversely affect our business. If we are unable to realize the anticipated benefits from strategic transactions, or are unable to conclude such transactions upon favorable terms, our financial condition, results of operations or cash flows could be materially and adversely affected.
We regularly review strategic opportunities to further our business objectives, and may eliminate assets that do not meet our return-on-investment criteria. The anticipated benefits of divestitures and other strategic transactions may not be realized, or may be realized more slowly than we expected. Such transactions also could result in a number of financial consequences having a material effect on our results of operations and our financial position, including: reduced cash balances and related interest income; higher fixed expenses; the incurrence of debt and contingent liabilities (including indemnification obligations); restructuring charges; loss of customers, suppliers, distributors, licensors or employees; legal, accounting and advisory fees; and one-time write-offs of large amounts.
There can be no assurance that SunCoke’s proposed acquisition of our outstanding common units that it does not already own will be agreed upon, approved and ultimately consummated, and the terms of any such transaction may differ materially from those originally proposed.
On October 31, 2016, we announced that Suncoke had submitted a proposal to the Board of Directors of our general partner regarding the Simplification Transaction, pursuant to which SunCoke proposed to acquire all of our common units that it does not already own. Under the terms of the proposal, our common unitholders would receive approximately 1.65 new shares of SunCoke common stock for each Partnership common unit.
The proposal was made to the Board of Directors of our general partner, which is an indirect wholly owned subsidiary of SunCoke, and the Board of Directors of the our general partner has delegated the authority to review and evaluate the proposal to our Conflicts Committee. The Conflicts Committee, which is composed of only the independent directors of the Board of Directors of our general partner, is considering the proposal pursuant to applicable procedures established in our partnership agreement and the Conflicts Committee’s charter. The Simplification Transaction is subject to the negotiation and execution of a mutually acceptable agreement and plan of merger, which would provide the definitive terms of the transaction. The closing of the Simplification Transaction also is conditioned upon customary regulatory approvals. If an agreement is reached and definitive terms ultimately are approved by SunCoke’s Board of Directors and that of our general partner, the transaction also will require approval by a majority of votes cast by SunCoke’s shareholders at a meeting, and approval by a majority of our outstanding common units, including the common units held by SunCoke’s affiliates. Through its affiliates, SunCoke owns approximately 53.9 percent of our outstanding common units, which it intends to vote in favor of the Simplification Transaction.
We cannot predict whether the terms of the Simplification Transaction will be agreed upon by SunCoke’s Board of Directors and the Conflicts Committee or whether any such transaction would be approved by our unitholders. We also cannot predict the timing, final structure and other terms of any potential transaction, and the terms of any such transaction may differ materially from those that SunCoke originally proposed. Any decrease in the market prices of SunCoke’s common stock would result in a corresponding proportional decrease in the value of the common stock that our unitholders would receive in the event the Simplification Transaction were consummated on the terms proposed. In addition, any changes in the market prices of SunCoke’s common stock or our common units could affect whether SunCoke’s Board of Directors, the Conflicts Committee, and our unitholders ultimately approve the proposed transaction, or if such approval is granted, the terms on which the proposed transaction is approved.
In addition, if a transaction is not agreed upon, approved and consummated for any reason, the current market price of SunCoke's common stock and our common units may be adversely affected and a failure to agree upon, approve and consummate a transaction could result in negative publicity or a negative impression of us or of SunCoke in the investment community, and in turn cause a decline in the market price of SunCoke's shares and the Partnership’s common units.

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There may be substantial disruption to our business and distraction of our management and employees as a result of the Simplification Transaction, and the uncertainty associated with the proposed transaction may otherwise adversely impact our operations and relationships with key stakeholders.
There may be substantial disruption to our business and distraction of our management and employees from day-to-day operations because matters related to the Simplification Transaction may require substantial commitments of time and resources, which could otherwise have been devoted to other opportunities that could have been beneficial to us.
In addition, the uncertainty surrounding whether or when the Simplification Transaction will occur and other aspects of such a transaction, may adversely affect our ability to attract and retain qualified personnel. The uncertainty relating to the possibility of the Simplification Transaction may increase the risk that we could experience higher than normal rates of attrition or that we experience increased difficulty in attracting qualified personnel or incur higher expenses to do so. High levels of attrition among management and/or other employees or difficulties or increased expense incurred to replace any personnel who leave, could materially adversely affect our business or results of operations.
We may experience significant risks associated with future acquisitions and/or investments. The failure to consummate or integrate acquisitions of, or investments in, other businesses and assets in a timely and cost-effective manner could have an adverse effect on our results of operations.
The acquisition of assets or businesses that expand our operations is an important component of our business strategy. We believe that acquisition opportunities may arise from time to time, and any such acquisitions could be significant. The success of any future acquisitions and/or investments will depend substantially on the accuracy of our analysis concerning such businesses and our ability to complete such acquisitions or investments on favorable terms, as well as to finance such acquisitions or investments and to integrate the acquired operations successfully with existing operations. If we are unable to integrate new operations successfully, our financial results and business reputation could suffer.
Risks associated with acquisitions include the diversion of management’s attention from other business concerns, the potential loss of key employees and customers of the acquired business, the possible assumption of unknown liabilities, potential disputes with the sellers, and the inherent risks in entering markets or lines of business in which we have limited or no prior experience. Any acquisition could involve the payment by us of a substantial amount of cash, the incurrence of a substantial amount of debt or the issuance of a substantial amount of equity. Certain acquisition and investment opportunities may not result in the consummation of a transaction. In addition, we may not be able to obtain acceptable terms for the required financing for any such acquisition or investment that arises. We cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our common units. Our future acquisitions could present a number of risks, including the risk of incorrect assumptions regarding the future results of acquired operations or assets or expected cost reductions or other synergies expected to be realized as a result of acquiring operations or assets, the risk of failing to successfully and timely integrate the operations or management of any acquired businesses or assets and the risk of diverting management’s attention from existing operations or other priorities. If we fail to consummate and integrate our acquisitions in a timely and cost-effective manner, our results of operations could be materially and adversely affected.
Additionally, in the event we make investments in entities that own and operate existing cokemaking facilities, or form joint ventures or other similar arrangements, we must pay close attention to the organizational formalities and time-consuming procedures for sharing information and making decisions. We may share ownership and management with other parties who may not have the same goals, strategies, priorities, or resources as we do. The benefits from a successful investment in an existing entity or joint venture will be shared among the co-owners, so we will not receive the exclusive benefits from a successful investment. If a co-owner changes, our relationship may be materially and adversely affected.
Our operations could be disrupted if our information systems fail, causing increased expenses. Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
Our business is highly dependent on financial, accounting and other data processing systems and other communications and information systems, including our enterprise resource planning tools. We process a large number of transactions on a daily basis and rely upon the proper functioning of computer systems. If a key system was to fail or experience unscheduled downtime for any reason, our operations and financial results could be affected adversely. Our systems could be damaged or interrupted by a security breach, terrorist attack, fire, flood, power loss, telecommunications failure or similar event.  We have a disaster recovery plan in place, but this plan may not entirely prevent delays or other complications that could arise from an information systems failure. Our business interruption insurance may not compensate us adequately for losses that may occur.
In the ordinary course of our business, we collect and store sensitive data in our data centers, on our networks, and in our cloud vendors.  Such data includes:  intellectual property; our proprietary business information and that of our customers,

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suppliers and business partners; and personally identifiable information of our employees.  The secure processing, maintenance and transmission of this information is critical to our operations and business strategy.  Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.  Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.  Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations, and damage our reputation, which could adversely affect our business.
If we fail to maintain satisfactory labor relations, disputes with the unionized portion of our workforce could affect us adversely. Union represented labor creates an increased risk of work stoppages and higher labor costs which could adversely affect our operations, and reduce our future revenues or our ability to pay cash distributions to our unitholders.
We rely, at one or more of our facilities, on unionized labor, and there is always the possibility that we may be unable to reach agreement on terms and conditions of employment or renewal of a collective bargaining agreement. When collective bargaining agreements expire or terminate, we may not be able to negotiate new agreements on the same or more favorable terms as the current agreements, or at all, and without production interruptions, including labor stoppages. The labor agreement at our Granite City cokemaking facility will expire on August 31, 2017. If we are unable to negotiate the renewal of a collective bargaining agreement before its expiration date, our operations and our profitability could be adversely affected. Any labor disputes, work stoppages, or increased labor costs could adversely affect our operations and the stability of production and reduce our future revenues, our profitability, or our ability to pay cash distributions to our unitholders. It is also possible that, in the future, additional employee groups may choose to be represented by a labor union.
Our ability to operate our partnership effectively could be impaired if we fail to attract and retain key personnel.
We have implemented recruitment, training and retention efforts to optimally staff our operations. Our ability to operate our business and implement our strategies depends in part on the efforts of our executive officers and other key employees. In addition, our future success will depend on, among other factors, our ability to attract and retain other qualified personnel. The loss of the services of any of our executive officers or other key employees or the inability to attract or retain other qualified personnel in the future could have a material adverse effect on our business or business prospects. With respect to our represented employees, we may be adversely impacted by the loss of employees who retire or obtain other employment during a layoff or a work stoppage.
We currently are, and likely will be, subject to litigation, the disposition of which could have a material adverse effect on our cash flows, financial position or results of operations.
The nature of our operations exposes us to possible litigation claims in the future, including disputes relating to our operations and commercial and contractual arrangements. Although we make every effort to avoid litigation, these matters are not totally within our control. We will contest these matters vigorously and have made insurance claims where appropriate, but because of the uncertain nature of litigation and coverage decisions, we cannot predict the outcome of these matters. Litigation is very costly, and the costs associated with prosecuting and defending litigation matters could have a material adverse effect on our financial condition and profitability. In addition, our profitability or cash flow in a particular period could be affected by an adverse ruling in any litigation currently pending in the courts or by litigation that may be filed against us in the future. We are also subject to significant environmental and other government regulation, which sometimes results in various administrative proceedings. For additional information, see “Item 3. Legal Proceedings.”

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Our indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under outstanding notes and credit facilities.
Subject to the limits contained in our credit agreements, the indenture that governs our notes and our other debt instruments, we may be able to incur additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our level of debt could intensify. Specifically, a higher level of debt could have important consequences, including:
making it more difficult for us to satisfy our obligations with respect to the notes and our other debt;
limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;
requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for distributions, working capital, capital expenditures, acquisitions and other general corporate purposes;
increasing our vulnerability to general adverse economic and industry conditions;
exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the credit facilities, are at variable rates of interest;
limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
placing us at a competitive disadvantage to other, less leveraged competitors; and
increasing our cost of borrowing.
In addition, the indenture that governs the notes and the credit agreements governing our credit facilities contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under our credit facilities are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. We may in the future enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may decide not to maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.
We face substantial debt maturities which may adversely affect our consolidated financial position.
Over the next five years, we have approximately $813.4 million of total consolidated debt maturing (see Note 12 to the combined and consolidated financial statements). We may not be able to refinance this debt, or may be forced to do so on terms substantially less favorable than our currently outstanding debt.
Rating agencies may downgrade our credit ratings, which would make it more difficult for us to raise capital and would increase our financing costs.
Any downgrades in our credit ratings may make raising capital more difficult, may increase the cost and affect the terms of future borrowings, may affect the terms under which we purchase goods and services and may limit our ability to take advantage of potential business opportunities.
Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation for federal income tax purposes or we were to become subject to material additional amounts of entity-level taxation for state tax purposes, then our ability to distribute cash to you could be substantially reduced.
The anticipated after-tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for federal income tax purposes. Despite the fact that we are organized as a limited partnership under Delaware law, a partnership such as ours would be treated as a corporation for federal income tax purposes unless more than 90 percent of our income is from certain specified sources (the “Qualifying Income Exception”).

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On January 19, 2017, the Internal Revenue Service ("IRS") announced its decision to exclude cokemaking as a qualifying income generating activity in its final regulations issued under section 7704(d)(1)(E) of the Internal Revenue Code relating to the qualifying income exception for publicly traded partnerships. The Partnership and its outside legal counsel believe that income from its cokemaking operations will be considered qualifying income for the purpose of maintaining our Partnership status during the 10-year transition period contemplated by the final regulations. In order to be grandfathered, a partnership either must have received a private letter ruling or be engaged in the activity based on a reasonable interpretation of the statute and its legislative history. The Partnership received a will-level opinion from its counsel, Vinson & Elkins LLP, that the Partnership's cokemaking operations generated qualifying income, and therefore we believe we reasonably interpreted the statute. Subsequent to the transition period, the Partnership entities will become taxable as corporations.
Although we do not believe, based upon our current operations and language of the Proposed Regulations, that we will be treated as a corporation for U.S. federal income tax purposes, the IRS could disagree with our analysis and therefore cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to taxation as an entity. In addition, a change in our business could also subject us to taxation as an entity.
Because the income earned by our process steam and power generation subsidiaries may not satisfy the Qualifying Income Exception, if the income generated by these subsidiaries increases as a percentage of our total gross income, such that we are at risk of exceeding the amount of non-qualifying income we can earn and still be classified as a partnership for federal tax purposes (10 percent of our gross income each year), we may file an election to have one or both of these subsidiaries treated as a corporation for U.S. federal income tax purposes which would result in the subsidiaries becoming taxable entities.
The IRS may adopt positions that differ from the ones we have taken. A successful IRS contest of the federal income tax positions we take may impact adversely the market for our common units, and the costs of any IRS contest could reduce our cash available for distribution to unitholders, including our sponsor. If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 35 percent, and would likely pay state income tax at varying rates. Distributions to you would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits recognized by us would flow through to you. Because tax would be imposed upon us as a corporation, our after tax earnings and therefore our ability to distribute cash to you would be substantially reduced. Therefore, treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to the unitholders, likely causing a substantial reduction in the value of our common units.
Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on us.
If effective control of the Partnership’s general partner is transferred to a third party, the Partnership’s indebtedness could become due and payable, which would materially and adversely affect our consolidated financial position.
If effective control of the Partnership’s general partner is transferred to a third party, the Partnership, pursuant to the indenture for its outstanding senior secured notes, could be required to repurchase such notes in an amount equal to 101 percent of the aggregate principal amount outstanding, which was $463.0 million at December 31, 2016.  Under the Partnership’s revolving credit agreement, the lenders could declare the loans and other amounts (including letter of credit obligations), totaling $173.4 million at December 31, 2016, to be immediately due and payable.  In addition, the Partnership has 50.0 million drawn under a term loan facility that contains event of default and remedies provisions identical to those of the revolving credit agreement.  Thus, the potential acceleration remedies under the Partnership’s revolving credit agreement and term loan facility could result in approximately $223.4 million of outstanding borrowings being declared immediately due and payable.
If effective control of the Partnership’s general partner is transferred to a third party, resulting in the Partnership’s aggregate indebtedness becoming payable, our financial position would be materially and adversely affected.

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Risks Related to Our Cokemaking Business
Our cokemaking business is subject to operating risks, some of which are beyond our control, which could result in a material increase in our operating expenses.
Factors beyond our control could disrupt our cokemaking operations, adversely affect our ability to service the needs of our customers, and increase our operating costs, all of which could have a material adverse effect on our results of operations. Such factors could include:
earthquakes, subsidence and unstable ground or other conditions that may cause damage to infrastructure or personnel;
fire, explosion, or other major incident causing injury to personnel and/or equipment, resulting in all or part of the cokemaking operations at one of our facilities to cease, or be severely curtailed for a period of time;
processing and plant equipment failures, operating hazards and unexpected maintenance problems affecting our cokemaking operations or our customers; and
adverse weather and natural disasters, such as severe winds, heavy rains, snow, flooding, extremes of temperature, and other natural events affecting cokemaking operations, transportation, or our customers.
If any of these conditions or events occur, our cokemaking operations may be disrupted, operating costs could increase significantly, and we could incur substantial losses in this business segment. Disruptions in our cokemaking operations could materially and adversely affect our financial condition, or results of operations.
The coke sales agreement and the energy sales agreement with AK Steel at the Haverhill facility are subject to early termination under certain circumstances and any such termination could have a material adverse effect on our results of operations and therefore our ability to distribute cash to unitholders.
The coke sales agreement and the energy sales agreement with AK Steel at our Haverhill II facility, are subject to early termination by AK Steel under certain circumstances and any such termination could have a material adverse effect on our business. The Haverhill coke sales agreement with AK Steel expires on January 1, 2022, with two automatic, successive five-year renewal periods. The Haverhill energy sales agreement with AK Steel runs concurrently with the term of the coke sales agreement, including any renewals, and automatically terminates upon the termination of the related coke sales agreement. The coke sales agreement may be terminated by AK Steel at any time on or after January 1, 2014 upon two years' prior written notice if AK Steel (i) permanently shuts down iron production operations at its steel plant works in Ashland, Kentucky (the Ashland Plant) and (ii) has not acquired or begun construction of a new blast furnace in the U.S. to replace, in whole or in part, the Ashland Plant’s iron production capacity. In mid-December 2015, AK Steel temporarily idled its facilities in Ashland.
If AK Steel were to terminate the Haverhill AK Steel Contracts, we may be unable to enter into similar long-term contracts with replacement customers for all or any portion of the coke previously purchased by AK Steel. Similarly, we may be forced to sell some or all of the previously contracted coke in the spot market, which could be at prices lower than we have currently contracted for and could subject us to significant price volatility. If AK Steel elects to terminate the Haverhill AK Steel Contracts, our cash flows, financial position and results of operations could be materially and adversely affected.
We may not be able to successfully implement our growth strategies or plans.
A portion of our strategy to grow our business and increase distributions to unitholders is dependent on our ability to acquire and operate new assets (whether through contributions from our sponsor, or otherwise) that result in an increase in our earning per unit. We may not derive the financial returns we expect on our investment in such additional assets or such operations may not be profitable. We cannot predict the effect that any failed expansion may have on our core business. If we are not able to successfully execute our strategic plans, whether as a result of unfavorable market conditions in the steel industry or otherwise, our future results of operations could be materially and adversely affected.
Excess capacity in the global steel industry, including in China, may weaken demand for steel produced by our U.S. steel industry customers, which, in turn, may reduce demand for our coke.
In some countries, such as China, steelmaking capacity exceeds demand for steel products. Rather than reducing employment by matching production capacity to consumption, steel manufacturers in these countries (often with local government assistance or subsidies in various forms) may export steel at prices that are significantly below their home market prices and that may not reflect their costs of production or capital. The availability of this steel at such prices has negatively affected our steelmaking customers, who may have to decrease the prices that they charge for steel, or take other action, as the supply of steel increases. For example, in response to worsening market conditions for the steel industry, U.S. Steel and

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AK Steel have temporarily idled their facilities at Granite City and Ashland, respectively. Our customers also may reduce their demand for our coke correspondingly, and make it more likely that they may seek to renegotiate their contracts with us or fail to pay for the coke they are required to take under our contracts. The profitability and financial position of our steelmaking customers may be adversely affected, which in turn, could adversely affect the certainty of our long-term relationships with those customers, as well as our ability to sell excess capacity in the spot market, and our own results of operations.
Certain provisions in our long-term coke agreements may result in economic penalties to us, or may result in termination of our coke sales agreements for failure to meet minimum volume requirements or other required specifications, and certain provisions in these agreements and our energy sales agreements may permit our customers to suspend performance.
All of our coke sales agreements and our steam supply and purchase agreements contain provisions requiring us to supply minimum volumes of our products to our customers. To the extent we do not meet these minimum volumes, we are generally required under the terms of our coke sales agreements to procure replacement supply to our customers at the applicable contract price or potentially be subject to cover damages for any shortfall. If future shortfalls occur, we will work with our customer to identify possible other supply sources while we implement operating improvements at the facility, but we may not be successful in identifying alternative supplies and may be subject to paying the contract price for any shortfall or to cover damages, either of which could adversely affect our future revenues and profitability. Our coke sales agreements also contain provisions requiring us to deliver coke that meets certain quality thresholds. Failure to meet these specifications could result in economic penalties, including price adjustments, the rejection of deliveries or termination of our agreements.
Our coke and energy sales agreements contain force majeure provisions allowing temporary suspension of performance by our customers for the duration of specified events beyond the control of our customers. Declaration of force majeure, coupled with a lengthy suspension of performance under one or more coke or energy sales agreements, may seriously and adversely affect our cash flows, financial position and results of operations.
Failure to maintain effective quality control systems at our cokemaking facilities could have a material adverse effect on our results of operations.
The quality of our coke is critical to the success of our business. For instance, our coke sales agreements contain provisions requiring us to deliver coke that meets certain quality thresholds. If our coke fails to meet such specifications, we could be subject to significant contractual damages or contract terminations, and our sales could be negatively affected. The quality of our coke depends significantly on the effectiveness of our quality control systems, which, in turn, depends on a number of factors, including the design of our quality control systems, our quality-training program and our ability to ensure that our employees adhere to our quality control policies and guidelines. Any significant failure or deterioration of our quality control systems could have a material adverse effect on our results of operations.
Disruptions to our supply of coal and coal mixing services may reduce the amount of coke we produce and deliver and, if we are not able to cover the shortfall in coal supply or obtain replacement mixing services from other providers, our results of operations and profitability could be adversely affected.
The metallurgical coal used to produce coke at our cokemaking facilities is generally purchased from third-parties under one-year contracts. We cannot assure that there will continue to be an ample supply of metallurgical coal available or that we will be able to supply these facilities without any significant disruption in coke production, as economic, environmental, and other conditions outside of our control may reduce our ability to source sufficient amounts of coal for our forecasted operational needs. The failure of our coal suppliers to meet their supply commitments could materially and adversely impact our results of operations if we are not able to make up the shortfalls resulting from such supply failures through purchases of coal from other sources.
Certain of our cokemaking facilities rely on third-parties to mix coals that we have purchased into coal mixes that we use to produce coke. We have entered into long-term agreements with coal mixing service providers that are coterminous with our coke sales agreements. However, there are limited alternative providers of coal mixing services and any disruptions from our current service providers could materially and adversely impact our results of operations. In addition, if our rail transportation agreements are terminated, we may have to pay higher rates to access rail lines or make alternative transportation arrangements.
Limitations on the availability and reliability of transportation, and increases in transportation costs, particularly rail systems, could materially and adversely affect our ability to obtain a supply of coal and deliver coke to our customers.
Our ability to obtain coal depends primarily on third-party rail systems and to a lesser extent river barges. If we are unable to obtain rail or other transportation services, or are unable to do so on a cost-effective basis, our results of operations could be adversely affected. Alternative transportation and delivery systems are generally inadequate and not suitable to handle

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the quantity of our shipments or to ensure timely delivery. The loss of access to rail capacity could create temporary disruption until the access is restored, significantly impairing our ability to receive coal and resulting in materially decreased revenues. Our ability to open new cokemaking facilities may also be affected by the availability and cost of rail or other transportation systems available for servicing these facilities.
Our arrangements with ArcelorMittal at the Haverhill cokemaking facility require us to deliver coke to ArcelorMittal via railcar. We have entered into a long-term rail transportation agreement to meet this obligation. Disruption of these transportation services because of weather-related problems, mechanical difficulties, train derailments, infrastructure damage, strikes, lock-outs, lack of fuel or maintenance items, fuel costs, transportation delays, accidents, terrorism, domestic catastrophe or other events could temporarily, or over the long-term impair, our ability to produce coke, and therefore, could materially and adversely affect our results of operations. In addition, if our rail transportation agreement is terminated, we may have to pay higher rates to access rail lines or make alternative transportation arrangements.
If we are unable to effectively protect our intellectual property, third parties may use our technology, which would impair our ability to compete in our markets.
Our future success will depend in part on our ability to obtain and maintain meaningful patent protection for certain of our technologies and products throughout the world. The degree of future protection for our proprietary rights is uncertain. We rely on patents to protect a significant part our intellectual property portfolio and to enhance our competitive position. However, our presently pending or future patent applications may not issue as patents, and any patent previously issued to us or our subsidiaries may be challenged, invalidated, held unenforceable or circumvented. Furthermore, the claims in patents that have been issued to us or our subsidiaries or that may be issued to us in the future may not be sufficiently broad to prevent third parties from using cokemaking technologies and heat recovery processes similar to ours. In addition, the laws of various foreign countries in which we plan to compete may not protect our intellectual property to the same extent as do the laws of the United States. If we fail to obtain adequate patent protection for our proprietary technology, our ability to be commercially competitive may be materially impaired.  
Risks Related to Our Coal Logistics Business
The financial performance of our coal logistics business is substantially dependent upon a limited number of customers, and the loss of these customers, or any failure by them to perform under their contracts with us, could adversely affect the results of operations and cash flows of our coal logistics business.
The financial performance of our coal logistics business is substantially dependent upon a limited number of customers. The loss of any of these customers (or financial difficulties at any of these customers, which result in nonpayment or nonperformance) could have a significant and adverse effect on our business, results of operations and financial condition, and/or our ability to make cash distributions at currently anticipated levels. For example, a significant portion of our revenues and cash flows from the CMT is derived from long-term take-or-pay contracts with Foresight Energy LP and Murray American Coal. These agreements require such customers either to purchase all of our contracted coal handling services or to pay the contract prices for the coal handling services they do not accept. We expect these two customers to continue to account for a significant portion of the revenues of our coal logistics business for the foreseeable future.  If either or both of these customers were to significantly reduce its purchases of coal terminalling, mixing or transportation services from us, or to default on their agreements with us, or fail to renew or terminate their agreements with us, or if we were unable to sell such coal logistics services to these customers on terms as favorable to us as the terms under our current agreements, the cash flows and results of our coal logistics operations could be materially and adversely affected.  We also are exposed to the credit risk of these customers, and any significant unanticipated deterioration of their creditworthiness and resulting increase in nonpayment or nonperformance by them could have a material adverse effect on the cash flows and/or results of our coal logistics operations.
The growth and success of our coal logistics business depends upon our ability to find and contract for adequate throughput volumes, and an extended decline in demand for coal could adversely affect the customers for our coal logistics business. As a consequence, the operating results and cash flows of our coal logistics business could be materially and adversely affected.
The financial results of our Coal Logistics business segment are significantly affected by the demand for both thermal coal and metallurgical coal. An extended decline in our customers’ demand for either thermal or metallurgical coals could result in a reduced need for the coal mixing, terminalling and transloading services we offer, thus reducing throughput and utilization of our coal logistics assets. Demand for such coals may fluctuate due to factors beyond our control:
The demand for thermal coal can be impacted by changes in the energy consumption pattern of industrial consumers, electricity generators and residential users, as well as weather conditions and extreme temperatures. The amount of thermal coal consumed for electric power generation is affected primarily by the overall demand

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for electricity, the availability, quality and price of competing fuels for power generation, and governmental regulation. Natural gas-fueled generation has the potential to displace coal-fueled generation, particularly from older, less efficient coal-powered generators. For example, over the past few years, production of natural gas in the U.S. has increased dramatically, which has resulted in lower natural gas prices. As a result of sustained low natural gas prices, coal-fuel generation plants have been displaced by natural-gas fueled generation plants. In addition, state and federal mandates for increased use of electricity from renewable energy sources, or the retrofitting of existing coal-fired generators with pollution control systems, also could adversely impact the demand for thermal coal. Finally, unusually warm winter weather may reduce the commercial and residential needs for heat and electricity which, in turn, may reduce the demand for thermal coal; and
The demand for metallurgical coal for use in the steel industry may be impacted adversely by economic downturns resulting in decreased demand for steel and an overall decline in steel production. A decline in blast furnace production of steel may reduce the demand for furnace coke, an intermediate product made from metallurgical coal. Decreased demand for metallurgical coal also may result from increased steel industry utilization of processes that do not use, or reduce the need for, furnace coke, such as electric arc furnaces, or blast furnace injection of pulverized coal or natural gas.

Our CMT is impacted by seaborne export market dynamics.  Fluctuations in the benchmark price for coal delivery into northwest Europe, as referenced in the API2 index price, influence our customers' decisions to place tons into the export market and thus impact transloading volumes through our terminal facility. 
Additionally, fluctuations in the market price of coal can greatly affect production rates and investments by third-parties in the development of new and existing coal reserves. Mining activity may decrease as spot coal prices decrease. We have no control over the level of mining activity by coal producers, which may be affected by prevailing and projected coal prices, demand for hydrocarbons, the level of coal reserves, geological considerations, governmental regulation and the availability and cost of capital. A material decrease in coal mining production in the areas of operation for our coal logistics business, whether as a result of depressed commodity prices or otherwise, could result in a decline in the volume of coal processed through our coal logistics facilities, which would reduce our revenues and operating income.
Decreased demand for thermal or metallurgical coals, and extended or substantial price declines for coal could adversely affect our operating results for future periods and our ability to generate cash flows necessary to improve productivity and expand operations. The cash flows associated with our coal logistics business may decline unless we are able to secure new volumes of coal by attracting additional customers to these operations. Future growth and profitability of our coal logistics business segment will depend, in part, upon whether we can contract for additional coal volumes at a rate greater than that of any decline in volumes from existing customers. Accordingly, decreased demand for coal, or a decrease in the market price of coal, could have a material adverse effect on the results of operations or financial condition of our coal logistics business.
Our failure to obtain or renew surety bonds on acceptable terms could adversely affect our ability to secure certain reclamation obligations related to our coal logistics business.
Certain reclamation obligations associated with our coal logistics business are unfunded, and federal and state laws require us to obtain surety bonds to secure performance or payment of such long-term obligations. These bonds are typically renewable annually. Declarations of bankruptcy by various coal companies may lead to changes in the types and amounts of surety bonds that are required. Surety bond issuers and holders may not continue to renew the bonds or may demand higher fees, additional collateral, including letters of credit or other terms less favorable to us upon those renewals. We are also subject to increases in the amount of surety bonds required by federal and state laws as these laws, or interpretations of these laws, change. Because we are required to have these bonds in place, our failure to maintain (or inability to acquire) these bonds could have an adverse impact on us. That failure could result from a variety of factors, including lack of availability, higher expense or unfavorable market terms of new bonds; restrictions on availability of collateral for current and future third-party surety bond issuers under the terms of future indebtedness; our inability to meet certain financial tests with respect to a portion of the reclamation bonds; and the exercise by third-party surety bond issuers of their right to refuse to renew or issue new bonds.
Our coal logistics business is subject to operating risks, some of which are beyond our control, that could result in a material increase in our operating expenses.
Factors beyond our control could disrupt our coal logistics operations, adversely affect our ability to service the needs of our customers, and increase our operating costs, all of which could have a material adverse effect on our results of operations. Such factors could include:
geological, hydrologic, or other conditions that may cause damage to infrastructure or personnel;

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a major incident that causes all or part of the coal logistics operations at a site to cease for a period of time;
processing and plant equipment failures and unexpected maintenance problems;
adverse weather and natural disasters, such as heavy rains or snow, flooding, extreme temperatures and other natural events affecting coal logistics operations, transportation, or customers;
possible legal challenges to the renewal of key permits, which may lead to their renewal on terms that restrict our terminalling operations, or impose additional costs on our operations.
If any of these conditions or events occur, our coal logistics operations may be disrupted, operating costs could increase significantly, and we could incur substantial losses in this business segment. Disruptions in our coal logistics operations could seriously and adversely affect our financial condition, or results of operations.
Deterioration in the global economic conditions in any of the industries in which our customers operate, or sustained uncertainty in financial markets, may have adverse impacts on our business and financial condition that we currently cannot predict.
Economic conditions in a number of industries in which our customers operate, such as electric power generation and steel making, have substantially deteriorated in recent years and reduced the demand for coal. Factors that could materially impact our business include:
demand for electricity in the U.S. and globally is impacted by industrial production, which if weakened would negatively impact the revenues, margins and profitability of our coal logistics business;
demand for metallurgical coal depends on steel demand in the U.S. and globally, which if weakened would negatively impact the revenues, margins and profitability of our coal logistics business;
the tightening of credit or lack of credit availability to our customers could adversely affect our ability to collect our trade receivables; and
our ability to access the capital markets may be restricted at a time when we would like, or need, to raise capital for our business including for potential acquisitions, or other growth opportunities.
The geographic location of the Convent Marine Terminal could expose us to potential significant liabilities, including operational hazards and unforeseen business interruptions, that could substantially and adversely affect our future financial performance.
Our Convent Marine Terminal is located in the Gulf Coast region, and its operations are subject to operational hazards and unforeseen interruptions, including interruptions from hurricanes or floods, which have historically impacted the region with some regularity. If any of these events were to occur, we could incur substantial losses because of personal injury or loss of life, severe damage to and destruction of property and equipment, and pollution or other environmental damage resulting in curtailment or suspension of our related operations.
Risks Inherent in an Investment in Us
Our credit facilities and the indenture governing our senior notes each contains restrictions and financial covenants that may restrict our business and financing activities.
Our credit facilities and the indenture governing our senior notes contain, and any other future financing agreements that we may enter into will likely contain, operating and financial restrictions and covenants that may restrict our ability to finance future operations or capital needs, to engage in, expand or pursue our business activities or to make distributions to our unitholders.
Our ability to comply with any such restrictions and covenants is uncertain and will be affected by the levels of cash flow from our operations and events or circumstances beyond our control. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we violate any of the restrictions, covenants, ratios or tests in our credit facilities or the indenture, a significant portion of our indebtedness may become immediately due and payable and our lenders’ commitment to make further loans to us may terminate. We might not have, or be able to obtain, sufficient funds to make these accelerated payments.
Restrictions in the agreements governing our indebtedness and other factors could limit our ability to make distributions to our unitholders.
The indenture governing the senior notes and our credit facilities prohibit us from making distributions to unitholders if certain defaults exist, subject to certain exceptions.  In addition, both the indenture and the credit facilities contain additional

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restrictions limiting our ability to pay distributions to unitholders.  Accordingly, we may be restricted by our debt agreements from distributing all of our available cash to our unitholders.  Please read “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.”   Declaration and payment of future distributions to unitholders will depend upon several factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of such distributions, and such other considerations that the Board of Directors of our general partner deems relevant.
Our level of indebtedness may increase, reducing our financial flexibility.
In the future, we may incur significant indebtedness in order to make future acquisitions or to develop or expand our facilities. Our level of indebtedness could affect our operations in several ways, including the following:
a significant portion of our cash flows could be used to service our indebtedness;
a high level of debt would increase our vulnerability to general adverse economic and industry conditions;
the covenants contained in the agreements governing our outstanding indebtedness will limit our ability to borrow additional funds, dispose of assets, pay distributions and make certain investments;
a high level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged, and therefore may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing;
our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and our industry; and
a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, distributions or for general corporate or other purposes.
A high level of indebtedness increases the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of indebtedness depends on our future performance. General economic conditions and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our units or a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need capital.
Our sponsor owns and controls our general partner, which has sole responsibility for conducting our business and managing our operations. Our general partner and its affiliates, including our sponsor, have conflicts of interest with us and may favor their own interests to the detriment of us and our unitholders.
Our sponsor owns and controls our general partner and appoints the directors of our general partner. Although our general partner has a duty to manage us in a manner it believes to be in our best interests, the executive officers and directors of our general partner have a fiduciary duty to manage our general partner in a manner beneficial to our sponsor. Therefore, conflicts of interest may arise between our sponsor or any of its affiliates, including our general partner, on the one hand, and us or any of our unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of its affiliates over the interests of our common unitholders. These conflicts include the following situations, among others:
our general partner is allowed to take into account the interests of parties other than us, such as our sponsor, in exercising certain rights under our partnership agreement, which has the effect of limiting its duty to our unitholders;
neither our partnership agreement nor any other agreement requires our sponsor to pursue a business strategy that favors us;
our partnership agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing its duties, limits our general partner’s liabilities and restricts the remedies available to our unitholders for actions that, without such limitations, might constitute breaches of fiduciary duty;
except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval;

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our general partner determines the amount and timing of asset purchases and sales, borrowings, issuances of additional partnership securities and the level of reserves, each of which can affect the amount of cash that is distributed to our unitholders;
our general partner determines the amount and timing of any capital expenditure and whether a capital expenditure is classified as an ongoing capital expenditure, which reduces operating surplus, or a replacement capital expenditure, which does not reduce operating surplus. This determination can affect the amount of cash that is distributed to our unitholders which, in turn, may affect the ability of the subordinated units to convert;
our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make IDRs;
our partnership agreement permits us to distribute up to $26.5 million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions on our subordinated units or the IDRs;
our general partner determines which costs incurred by it and its affiliates are reimbursable by us;
our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with its affiliates on our behalf;
our general partner intends to limit its liability regarding our contractual and other obligations;
our general partner may exercise its right to call and purchase common units if it and its affiliates own more than 80 percent of the common units;
our general partner controls the enforcement of obligations that it and its affiliates owe to us;
our general partner decides whether to retain separate counsel, accountants or others to perform services for us; and
our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our general partner’s IDR without the approval of the conflicts committee of the Board of Directors of our general partner or the unitholders. This election may result in lower distributions to the common unitholders in certain situations.
In addition, we may compete directly with our sponsor for acquisition opportunities. Please read “Our sponsor and other affiliates of our general partner may compete with us.”
We expect to distribute substantially all of our available cash, which could limit our ability to grow and make acquisitions.
We expect that we will distribute substantially all of our available cash to our unitholders and will rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund our acquisitions and expansion capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow.
In addition, because we distribute substantially all of our available cash, we may not grow as quickly as businesses that reinvest their cash to expand ongoing operations. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional commercial borrowings or other debt to finance our growth strategy would result in increased interest expense, which, in turn, may impact the cash that we have available to distribute to our unitholders.
Our preferential right over our sponsor to pursue certain growth opportunities and our right of first offer to acquire certain of our sponsor’s assets are subject to risks and uncertainties, and ultimately we may not pursue those opportunities or acquire any of those assets.
Our omnibus agreement provides us with preferential rights to pursue certain growth opportunities in the U.S. and Canada identified by our sponsor and a right of first offer to acquire certain of our sponsor’s cokemaking assets located in the U.S. and Canada for so long as our sponsor or its controlled affiliate controls our general partner. The consummation and timing of any future acquisitions of such assets will depend upon, among other things, our sponsor’s ability to identify such growth opportunities, our sponsor’s willingness to offer such assets for sale, our ability to negotiate acceptable customer contracts and other agreements with respect to such assets and our ability to obtain financing on acceptable terms. We can

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offer no assurance that we will be able to successfully consummate any future acquisitions pursuant to our rights under the omnibus agreement, and our sponsor is under no obligation to identify growth opportunities or to sell any assets that would be subject to our right of first offer. For these or a variety of other reasons, we may decide not to exercise our preferential right to pursue growth opportunities or our right of first offer when any opportunities are identified or assets are offered for sale, and our decision will not be subject to unitholder approval. Please read “Part III. Item 13. Certain Relationships and Related Transactions, and Director Independence-Agreements with Affiliates-Omnibus Agreement.”
Our partnership agreement contains provisions that eliminate and replace the fiduciary duty standards to which our general partner otherwise would be held by state law.
Our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, or otherwise free of fiduciary duties to us and our unitholders. This entitles our general partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples of decisions that our general partner may make in its individual capacity include:
how to allocate business opportunities among us and its affiliates;
whether to exercise its call right;
how to exercise its voting rights with respect to the units it owns;
whether to exercise its registration rights;
whether to elect to reset target distribution levels; and
whether or not to consent to any merger or consolidation of the partnership or amendment to the partnership agreement.
By purchasing a common unit, a unitholder is treated as having consented to the provisions in the partnership agreement, including the provisions discussed above.
Our partnership agreement restricts the remedies available to our unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.
Our partnership agreement provides that:
whenever our general partner makes a determination or takes, or declines to take, any action in its capacity as our general partner, it must do so in good faith, and will not be subject to any other standard imposed by our partnership agreement, or any law, rule or regulation, or at equity;
our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long as it acted in good faith, meaning that it believed that the decision was in the best interest of our partnership;
our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its officers and directors, as the case may be, acted in bad faith or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and
our general partner will not be in breach of its obligations under the partnership agreement or its duties to us or our limited partners if a transaction with an affiliate, or the resolution of a conflict of interest, is:
approved by the conflicts committee of the Board of Directors of our general partner, although our general partner is not obligated to seek such approval; or
approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner and its affiliates.
In connection with a situation involving a transaction with an affiliate or a conflict of interest, any determination by our general partner must be made in good faith. If an affiliate transaction or the resolution of a conflict of interest is not approved by our common unitholders or the conflicts committee then it will be presumed that, in making its decision, taking any action or failing to act, the Board of Directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.

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Our sponsor and other affiliates of our general partner may compete with us.
Pursuant to the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, does not apply to our general partner or any of its affiliates, including its executive officers and directors and our sponsor. Except as described under “Part III. Item 13. Certain Relationships and Related Transactions, and Director Independence-Agreements Entered Into with Affiliates in Connection with our Initial Public Offering-Omnibus Agreement.” any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. This may create actual and potential conflicts of interest between us and affiliates of our general partner and result in less than favorable treatment of us and our unitholders.
Our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to its IDRs, without the approval of the conflicts committee of its Board of Directors or the holders of our common units. This could result in lower distributions to holders of our common units.
Our general partner has the right, as the initial holder of our IDRs, at any time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (48.0 percent) for the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our distributions at the time of the exercise of the reset election. Following a reset election by our general partner, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.
If our general partner elects to reset the target distribution levels, it will be entitled to receive a number of common units. The number of common units to be issued to our general partner will equal the number of common units that would have entitled the holder to an aggregate quarterly cash distribution in the two-quarter period prior to the reset election equal to the distribution to our general partner on the IDRs in the quarter prior to the reset election. Our general partner’s general partner interest in us (currently 2 percent) will be maintained at the percentage that existed immediately prior to the reset election. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion. It is possible, however, that our general partner could exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its IDR and may, therefore, desire to be issued common units rather than retain the right to receive incentive distributions based on the initial target distribution levels. This risk could be elevated if our IDRs have been transferred to a third-party. As a result, a reset election may cause our common unitholders to experience a reduction in the amount of cash distributions that our common unitholders would have otherwise received had we not issued new common units to our general partner in connection with resetting the target distribution levels.
Holders of our common units have limited voting rights and are not entitled to appoint our general partner or its directors, which could reduce the price at which our common units will trade.
Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders will have no right on an annual or ongoing basis to appoint our general partner or its Board of Directors. The Board of Directors of our general partner, including the independent directors, is chosen entirely by our sponsor, as a result of it owning our general partner, and not by our unitholders. Unlike publicly-traded corporations, we will not conduct annual meetings of our unitholders to appoint directors or conduct other matters routinely conducted at annual meetings of stockholders of corporations.
Even if holders of our common units are dissatisfied, they cannot initially remove our general partner without its consent.
If our unitholders are dissatisfied with the performance of our general partner, they will have limited ability to remove our general partner. Unitholders initially will be unable to remove our general partner without its consent because our general partner and its affiliates will own sufficient units to be able to prevent its removal. The vote of the holders of at least 66 2/3 percent of all outstanding common and subordinated units voting together as a single class is required to remove our general partner. Our sponsor currently owns an aggregate of 55.9 percent of our outstanding units. Also, if our general partner is removed without cause during the subordination period and no units held by the holders of the subordinated units or their affiliates are voted in favor of that removal, all remaining subordinated units will automatically be converted into common units and any existing arrearages on the common units will be extinguished. Cause is narrowly defined in our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our general

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partner liable for actual fraud or willful or wanton misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor management of the business.
Our general partner's interest or the control of our general partner may be transferred to a third-party without unitholder consent.
Our general partner may transfer its general partner interest to a third-party in a merger or in a sale of all or substantially all of its assets without the consent of our unitholders. Furthermore, our partnership agreement does not restrict the ability of the members of our general partner to transfer their respective membership interests in our general partner to a third-party. The new members of our general partner would then be in a position to replace the Board of Directors and executive officers of our general partner with their own designees and thereby exert significant control over the decisions taken by the Board of Directors and executive officers of our general partner. This effectively permits a “change of control” without the vote or consent of the unitholders.
The IDRs held by our general partner, or indirectly held by our sponsor, may be transferred to a third-party without unitholder consent.
Our general partner or our sponsor may transfer the IDRs to a third-party at any time without the consent of our unitholders. If our sponsor transfers the IDRs to a third-party but retains its ownership interest in our general partner, our general partner may not have the same incentive to grow our partnership and increase quarterly distributions to unitholders over time as it would if our sponsor had retained ownership of the IDRs. For example, a transfer of IDRs by our sponsor could reduce the likelihood of our sponsor accepting offers made by us relating to assets owned by it, as it would have less of an economic incentive to grow our business, which in turn would impact our ability to grow our asset base.
Our general partner has a call right that may require unitholders to sell their common units at an undesirable time or price.
If at any time our general partner and its affiliates own more than 80 percent of the common units, our general partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. As a result, unitholders may be required to sell their common units at an undesirable time or price and may receive no return or a negative return on their investment. Unitholders may also incur a tax liability upon a sale of their units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its call right. If our general partner exercised its limited call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act. Upon consummation of our IPO, our sponsor owned an aggregate of 57.0 percent of our common and subordinated units. At the end of the subordination period, assuming no additional issuances of units (other than upon the conversion of the subordinated units), our sponsor will own 57.0 percent of our common units.
We may issue additional units without unitholder approval, which would dilute existing unitholder ownership interests.
Our partnership agreement does not limit the number of additional limited partner interests we may issue at any time without the approval of our unitholders. The issuance of additional common units or other equity interests of equal or senior rank will have the following effects:
our existing unitholders’ proportionate ownership interest in us will decrease;
the amount of earnings per unit may decrease;
because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;
the ratio of taxable income to distributions may increase;
the relative voting strength of each previously outstanding unit may be diminished; and
the market price of the common units may decline.

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There are no limitations in our partnership agreement on our ability to issue units ranking senior to the common units.
In accordance with Delaware law and the provisions of our partnership agreement, we may issue additional partnership interests that are senior to the common units in right of distribution, liquidation and voting. The issuance by us of units of senior rank may reduce or eliminate the amounts available for distribution to our common unitholders, diminish the relative voting strength of the total common units outstanding as a class, or subordinate the claims of the common unitholders to our assets in the event of our liquidation.
The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public or private markets, including sales by our sponsor or other large holders.
Sales by our sponsor or other large holders of a substantial number of our common units in the public markets, or the perception that such sales might occur, could have a material adverse effect on the price of our common units or could impair our ability to obtain capital through an offering of equity securities. In addition, we have provided registration rights to our sponsor. Under our agreement, our general partner and its affiliates have registration rights relating to the offer and sale of any units that they hold, subject to certain limitations.
Our partnership agreement restricts the voting rights of unitholders owning 20 percent or more of our common units.
Our partnership agreement restricts unitholders’ voting rights by providing that any units held by a person or group that owns 20 percent or more of any class of units then outstanding, other than our general partner and its affiliates, their transferees and persons who acquired such units with the prior approval of the Board of Directors of our general partner, cannot vote on any matter.
Cost reimbursements due to our general partner and its affiliates for services provided to us or on our behalf will reduce our earnings and therefore our ability to distribute cash to our unitholders. The amount and timing of such reimbursements will be determined by our general partner.
Prior to making any distribution on the common units, we will reimburse our general partner and its affiliates for all expenses they incur and payments they make on our behalf. Our partnership agreement does not set a limit on the amount of expenses for which our general partner and its affiliates may be reimbursed. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our general partner by its affiliates. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us. The reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates will reduce our earnings and therefore our ability to distribute cash to our unitholders. Please read “Part II. Item 5. The Partnership's Distribution Policy”
The amount of estimated replacement capital expenditures our general partner is required to deduct from operating surplus each quarter could increase in the future, resulting in a decrease in available cash from operating surplus that could be distributed to our unitholders.
Our partnership agreement requires our general partner to deduct from operating surplus each quarter estimated replacement capital expenditures as opposed to actual replacement capital expenditures in order to reduce disparities in operating surplus caused by fluctuating replacement capital expenditures, which are capital expenditures required to replace our major capital assets. The amount of annual estimated replacement capital expenditures for purposes of calculating operating surplus is based upon our current estimates of the reasonable expenditures we will be required to make in the future to replace our major capital assets, including all or a major portion of a plant or other facility, at the end of their working lives. Our partnership agreement does not cap the amount of estimated replacement capital expenditures that our general partner may designate. The amount of our estimated replacement capital expenditures may be more than our actual replacement capital expenditures, which will reduce the amount of available cash from operating surplus that we would otherwise have available for distribution to unitholders. The amount of estimated replacement capital expenditures deducted from operating surplus is subject to review and change by the Board of Directors of our general partner at least once a year, with any change approved by the conflicts committee.

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The amount of cash we have available for distribution to holders of our units depends primarily on our cash flow and not solely on profitability, which may prevent us from making cash distributions during periods when we record net income.
The amount of cash we have available for distribution depends primarily upon our cash flow, including cash flow from reserves and working capital or other borrowings, and not solely on profitability, which will be affected by non-cash items. As a result, we may pay cash distributions during periods when we record net losses for financial accounting purposes and may not pay cash distributions during periods when we record net income.
Unitholder liability may not be limited if a court finds that unitholder action constitutes control of our business.
A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law, and we conduct business in Ohio, Illinois, West Virginia and Louisiana. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some jurisdictions. You could be liable for our obligations as if you were a general partner if a court or government agency were to determine that:
we were conducting business in a state but had not complied with that particular state’s partnership statute; or
your right to act with other unitholders to remove or replace the general partner, to approve some amendments to our partnership agreement or to take other actions under our partnership agreement constitute “control” of our business.
Unitholders may have liability to repay distributions and in certain circumstances may be personally liable for the obligations of the partnership.
Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, or the Delaware Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Liabilities to partners on account of their partnership interests and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.
For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.
The Jumpstart Our Business Startups Act ("JOBS Act"), signed into law in April 2012, relaxes certain reporting requirements for emerging growth companies like us. For as long as we are an emerging growth company, which may be up to five full fiscal years, we will not be required to, among other things:
provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes Oxley Act of 2002
comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer,
comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise,
provide certain disclosure regarding executive compensation required of larger public companies; or
hold unitholder advisory votes on executive compensation.
We are choosing to “opt out” of the extended transition period for complying with new or revised accounting standards, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
We cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common units less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain temporary exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth

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companies” including but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We cannot predict if investors will find our common units less attractive if we rely on this exemption. If some investors find our common units less attractive as a result, there may be a less active trading market for our common units and our common unit price may be more volatile.
If we fail to maintain effective internal control over financial reporting, our ability to accurately report our financial results could be adversely affected.
We are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes Oxley Act of 2002, which require our management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. To comply with the requirements of being a publicly-traded partnership, we will need to implement additional internal controls, reporting systems and procedures and hire additional accounting, finance and legal staff. Furthermore, we are not required to have our independent registered public accounting firm attest to the effectiveness of our internal controls until our first annual report subsequent to our ceasing to be an emerging growth company within the meaning of Section 2(a)(19) of the Securities Act. Accordingly, we may not be required to have our independent registered public accounting firm attest to the effectiveness of our internal controls until our annual report for the fiscal year ending December 31, 2017. Once it is required to do so, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed, operated or reviewed.
If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential unitholders could lose confidence in our financial reporting, which would harm our business and the trading price of our units.
Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. We cannot be certain that our efforts to develop and maintain our internal controls will be successful, that we will be able to maintain adequate controls over our financial processes and reporting in the future or that we will be able to comply with our obligations under Section 404 of the Sarbanes Oxley Act of 2002. Any failure to develop or maintain effective internal controls, or difficulties encountered in implementing or improving our internal controls, could harm our operating results or cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our units.
The New York Stock Exchange, or NYSE, does not require a publicly-traded partnership like us to comply with certain of its corporate governance requirements.
Because we are a publicly-traded partnership, the NYSE will not require that we have a majority of independent directors on our general partner’s Board of Directors or compensation and nominating and corporate governance committees. Accordingly, unitholders will not have the same protections afforded to certain corporations that are subject to all of the NYSE corporate governance requirements.
Tax Risks to Common Unitholders
Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. The IRS has issued final regulations which would result in our being treated as a corporation for federal income tax purposes and subject to entity-level taxation beginning January 1, 2028. In addition, the IRS may challenge our status as a partnership for federal income tax purposes from the time of our initial public offering. If the IRS were to treat us as a corporation for federal income tax purposes or we were to become subject to material additional amounts of entity-level taxation for state tax purposes, then our ability to distribute cash to you could be substantially reduced.
The anticipated after-tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for federal income tax purposes. Despite the fact that we are organized as a limited partnership under Delaware law, a partnership such as ours would be treated as a corporation for federal income tax purposes unless more than 90 percent of our income is from certain specified sources (the "Qualifying Income Exception") under Section 7704 of the Internal Revenue Code of 1986, as amended (the “Code”).
On January 19, 2017, the IRS and the US Department of Treasury issued qualifying income regulations (the “Final Regulations”) regarding the Qualifying Income Exception.  The Final Regulations were published in the Federal Register on January 24, 2017, and apply to taxable years beginning on or after January 19, 2017.  Under the Final

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Regulations, our cokemaking operations have been excluded from the definition of qualifying income activities, subject to a ten-year transition period.  As a result, the following consequences might ensue:
If our income from cokemaking operations “was qualified income under the statute as reasonably interpreted prior to May 6, 2015,” then we will have a transition period ending on December 31, 2027, during which we can treat income from our existing cokemaking activities as qualifying income. Our transitional status during this period is likely to impair our growth prospects, and we do not expect to acquire additional cokemaking operations without receipt of an IRS private letter ruling confirming the availability of the transition period as applied to the income from such an acquisition. 
The IRS might challenge our treatment of income from our cokemaking operations as qualifying income by asserting that such treatment did not rely upon a reasonable interpretation of the statute prior to May 6, 2015. If so, nothing would preclude the IRS from challenging our status as a partnership for federal income tax purposes from the time of our initial public offering.  If this challenge were to occur and prevail, (i) we would be taxed retroactively as if it were a corporation at federal and state tax rates, likely resulting in a material amount of taxable income and taxes in certain open years, (ii) historical and future distributions would generally be taxed again as corporate distributions and (iii) no income, gains, losses, deductions or credits recognized by us would flow to our unitholders. This would result in a material reduction in our cash flow and after-tax return to our unitholders and the recording of an income tax provision and a reduction in net income.
If, notwithstanding our confidence regarding our eligibility to use the transition period based on our belief and a legal opinion from outside counsel, the IRS were to challenge the our eligibility to qualify for the transition period or our position that we have satisfied the Qualifying Income Exception from the time of its IPO, we would vigorously disagree with such a challenge, although we can provide no assurance of our likelihood of, or costs associated with, prevailing. For more information, see “Management’s Discussion and Analysis-Final Regulations.” 
If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 35 percent, and would likely pay state income tax at varying rates. Distributions to you would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits recognized by us would flow through to you. Because tax would be imposed upon us as a corporation, our after tax earnings and therefore our ability to distribute cash to you would be substantially reduced. Therefore, treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to the unitholders, likely causing a substantial reduction in the value of our common units.
Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on us.
The tax treatment of publicly traded partnerships or an investment in our units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. From time to time, members of Congress propose and consider such substantive changes to the existing federal income tax laws that affect publicly traded partnerships. Although there is no current legislative proposal, a prior legislative proposal would have eliminated the qualifying income exception to the treatment of all publicly traded partnerships as corporations upon which we rely for our treatment as a partnership for U.S. federal income tax purposes.
In addition, as discussed above, on January 24, 2017, Final Regulations were published in the Federal Register and apply to taxable years beginning on or after January 19, 2017. The Final Regulations will likely affect our ability to continue to qualify as a publicly traded partnership.
Any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any of these changes or other proposals will ultimately be enacted. Any such changes could negatively impact the value of an investment in our common units.

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You will be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.
Because our unitholders will be treated as partners to whom we will allocate taxable income that could be different in amount than the cash we distribute, you will be required to pay federal income taxes and, in some cases, state and local income taxes on your share of our taxable income whether or not you receive cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax liability that result from that income.
We anticipate engaging in transactions to reduce the Partnership’s indebtedness and manage our liquidity that generate taxable income (including cancellation of indebtedness income) allocable to unitholders, and income tax liabilities arising therefrom may exceed the amount of cash distributions from us, and/or the value of your investment in the Partnership.
In response to current market conditions, we anticipate engaging in transactions to reduce the Partnership’s indebtedness and manage our liquidity that could result in income and gain to our unitholders without a corresponding cash distribution.  Further, we anticipate pursuing opportunities to reduce our existing debt that could result in “cancellation of indebtedness income” (also referred to as “COD income”) being allocated to our unitholders as ordinary taxable income.  Unitholders may be allocated COD income, and the income tax liabilities arising therefrom may exceed the amount of cash distributions from us, and/or the value of your investment in the Partnership.
Entities taxed as corporations may have net operating losses to offset COD income or may otherwise qualify for an exception to the recognition of COD income, such as the bankruptcy or insolvency exceptions.  In the case of partnerships like ours, however, these exceptions are not available to the partnership and are only available to a unitholder if the unitholder itself is insolvent or in bankruptcy.  As a result, these exceptions generally would not apply to prevent the taxation of COD income allocated to our unitholders.  The ultimate tax effect of any such income allocations will depend on the unitholder's individual tax position, including, for example, the availability of any suspended passive losses that may offset some portion of the allocable COD income.  Unitholders may, however, be allocated substantial amounts of ordinary income subject to taxation, without any ability to offset such allocated income against any capital losses attributable to the unitholder’s ultimate disposition of its units. Unitholders are encouraged to consult their tax advisors with respect to the consequences to them of COD income.
The sale or exchange of 50 percent or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.
We will be considered to have terminated as a partnership for federal income tax purposes if there is a sale or exchange of 50 percent or more of the total interests in our capital and profits within a twelve-month period. Our sponsor directly and indirectly owns more than 50 percent of the total interests in our capital and profits. Therefore, a transfer by our sponsor of all or a portion of its interests in us could result in a termination of us as a partnership for federal income tax purposes. Our termination would, among other things, result in the closing of our taxable year for all unitholders and could result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than the calendar year, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our classification as a partnership for federal income tax purposes, but instead, after our termination we would be treated as a new partnership for federal income tax purposes. If treated as a new partnership, we must make new tax elections and could be subject to penalties if we are unable to determine that a termination occurred.
Tax gain or loss on the disposition of our common units could be more or less than expected.
If you sell your common units, you will recognize a gain or loss equal to the difference between the amount realized and your tax basis in those common units. Because distributions in excess of your allocable share of our net taxable income result in a decrease in your tax basis in your common units, the amount, if any, of such prior excess distributions with respect to the units you sell will, in effect, become taxable income to you if you sell such units at a price greater than your tax basis in those units, even if the price you receive is less than your original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture of depreciation deductions and certain other items. In addition, because the amount realized includes a unitholder’s share of our liabilities, if you sell your units, you may incur a tax liability in excess of the amount of cash you receive from the sale.

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Tax-exempt entities and non-U.S. persons face unique tax issues from owning common units that may result in adverse tax consequences to them.
Investments in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts, or IRAs, and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes, and non-U.S. persons will be required to file federal tax returns and pay tax on their shares of our taxable income. If you are a tax-exempt entity or a non-U.S. person, you should consult your tax advisor before investing in our common units.
If the IRS contests the federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRS contest will reduce our earnings and therefore our ability to distribute cash to you.
We have not requested a ruling from the IRS with respect to our treatment as a partnership for U.S. federal income tax purposes. The IRS may adopt positions that differ from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest by the IRS may materially and adversely impact the market for our common units and the price at which they trade. Our costs of any contest by the IRS will be borne indirectly by our unitholders and our general partner because the costs will reduce our earnings and therefore our ability to distribute cash.
If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us, in which case our cash available for distribution to our unitholders might be substantially reduced.
Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes audit adjustments to our income tax returns, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us. To the extent possible under the new rules, our general partner may elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS or, if we are eligible, issue a revised Schedule K-1 to each unitholder with respect to an audited and adjusted return. Although our general partner may elect to have our unitholders take such audit adjustment into account in accordance with their interests in us during the tax year under audit, there can be no assurance that such election will be practical, permissible or effective in all circumstances. As a result, our current unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if such unitholders did not own units in us during the tax year under audit. If, as a result of any such audit adjustment, we are required to make payments of taxes, penalties and interest, our cash available for distribution to our unitholders might be substantially reduced. These rules are not applicable for tax years beginning on or prior to December 31, 2017.
We will treat each purchaser of our common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.
Because we cannot match transferors and transferees of common units, we will adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. It also could affect the timing of these tax benefits or the amount of gain from your sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns.
We will prorate our items of income, gain, loss and deduction between transferors and transferees of our units based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our common units based upon the ownership of our common units on the first day of each month (the “Allocation Date”), instead of on the basis of the date a particular common unit is transferred. Similarly, we generally allocate certain deductions for depreciation of capital additions, gain or loss realized on a sale or other disposition of our assets and, in the discretion of the general partner, any other extraordinary item of income, gain, loss or deduction based upon ownership on the Allocation Date. Treasury Regulations allow a similar monthly simplifying convention, but such regulations do not specifically authorize all aspects of our proration method. If the IRS were to challenge our proration method, we may be required to change the allocation of items of income, gain, loss and deduction among unitholders.

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A unitholder whose common units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of common units) may be considered as having disposed of those common units. If so, he would no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.
Because there is no tax concept of loaning a partnership interest, a unitholder whose common units are the subject of a securities loan may be considered as having disposed of the loaned units. In that case, he may no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those common units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller should modify any applicable brokerage account agreements to prohibit their brokers from borrowing their common units.
Unitholders will likely be subject to state and local taxes and return filing requirements in states where you do not live as a result of investing in our common units.
In addition to federal income taxes, you will likely be subject to other taxes in the states in which we own assets and conduct business, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or own property now or in the future, even if you do not live in any of those jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements. We currently own assets and conduct business in Ohio, Illinois, Indiana, Virginia, and West Virginia. As we make acquisitions or expand our business, we may own assets or conduct business in additional states or foreign jurisdictions that impose a personal income tax. It is your responsibility to file all U.S. federal, foreign, state and local tax returns.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
We own the following real property:
Approximately 400 acres in Franklin Furnace (Scioto County), Ohio, on which the Haverhill cokemaking facility (both first and second phases) is located.
Approximately 250 acres in Middletown (Butler County), Ohio near AK Steel’s Middletown Works facility, on which the Middletown cokemaking facility is located.
Approximately 41 acres in Granite City (Madison County), Illinois, adjacent to the U.S. Steel Granite City Works facility, on which the Granite City cokemaking facility is located. Upon the earlier of ceasing production at the facility or the end of 2044, U.S. Steel has the right to repurchase the property, including the facility, at the fair market value of the land. Alternatively, U.S. Steel may require us to demolish and remove the facility and remediate the site to original condition upon exercise of its option to repurchase the land.
Approximately 180 acres in Ceredo (Wayne County), West Virginia on which KRT has one coal terminal and one liquids terminal for its coal mixing and/or handling services along the Ohio and Big Sandy Rivers.
Approximately 174 acres in Convent (St. James Parish), Louisiana, on which CMT is located.
We lease the following real property:
Approximately 45 acres of land located in East Chicago (Lake County), Indiana, through a sublease from SunCoke to Lake Terminal for the coal handling and mixing facilities that service SunCoke's Indiana Harbor cokemaking facility. The leased property is inside ArcelorMittal’s Indiana Harbor Works facility and is part of an enterprise zone.
Approximately 25 acres in Belle (Kanawha County), West Virginia on which KRT has a coal terminal for its coal mixing and handling services along the Kanawha River.

39



Item 3.
Legal Proceedings
The information presented in Note 13 to our combined and consolidated financial statements within this Annual Report on Form 10-K is incorporated herein by reference.
Many legal and administrative proceedings are pending or may be brought against us arising out of our current and past operations, 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 proceedings cannot be ascertained at this time, it is reasonably possible that some of them could be resolved unfavorably to us. Our management believes that any liabilities that may arise from such matters would not be material in relation to our business or our combined and consolidated financial position, results of operations or cash flows at December 31, 2016.
Item 4.
Mine Safety Disclosures
Certain coal logistics assets are subject to Mine Safety and Health Administration regulatory purview. The information concerning mine safety violations and other regulatory matters that we are required to report in accordance with Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.014) is included in Exhibit 95.1 to this Annual Report on Form 10-K.


40



PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities
Market for the Partnership’s Common Equity
The Partnership's common units, representing limited partnership interests, have been trading under the trading symbol “SXCP” on the New York Stock Exchange since January 18, 2013. At the close of business on February 10, 2017, there were three holders of record of the Partnership’s common units, including Sun Coal & Coke LLC (which owns 100 percent of our general partner) with 25,415,696 of our common units registered in its name. The number of record holders does not include holders of shares in “street name” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depositories.
The high and low closing sales price ranges (composite transactions) and distributions declared by quarter for 2016 and 2015 were as follows:
 
 
2016
 
2015
 
 
High
 
Low
 
Distributions Earned(1)
 
High
 
Low
 
Distributions Earned(2)
First Quarter
 
$
9.16

 
$
5.29

 
$
0.59400

 
$
27.86

 
$
19.20

 
$
0.57150

Second Quarter
 
$
12.61

 
$
6.97

 
$
0.59400

 
$
23.63

 
$
16.83

 
$
0.58250

Third Quarter
 
$
15.75

 
$
10.97

 
$
0.59400

 
$
17.37

 
$
10.30

 
$
0.59400

Fourth Quarter
 
$
21.95

 
$
14.76

 
$
0.59400

 
$
14.33

 
$
5.16

 
$
0.59400

(1)
Distributions were declared in April 2016, July 2016, October 2016 and January 2017 and were or will be paid on or around the first day of June 2016, September 2016, December 2016 and March 2017.
(2)
Distributions were declared in April 2015, July 2015, October 2015 and January 2016 and were paid on or around the last day of May 2015, August 2015, November 2015 and February 2016.
Upon payment of the cash distribution for the fourth quarter of 2015, the financial requirements for the conversion of all subordinated units were satisfied. As a result, the 15,709,697 subordinated units converted into common units on a one-for-one basis. For purpose of calculating net income per unit, the conversion of the subordinated units is deemed to have occurred on January 1, 2016. The conversion did not impact the amount of the cash distribution paid or the total number of the Partnership's outstanding units representing limited partner interest.
The Partnership's Distribution Policy
The Partnership distributes available cash on or about the last day of each of February, May, August and November to the holders of record of common units on or about the 15th day of each such month. Available cash is generally all cash on hand, less reserves established by the general partner in its discretion. Our general partner has broad discretion to establish cash reserves that it determines are necessary or appropriate for the proper conduct of Partnership’s business.
The Partnership will make minimum quarterly distributions of $0.41250 per common unit, to the extent there is sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to the general partner.
In general, the Partnership, pays cash distributions each quarter in the following manner:
First, 98 percent to all unitholders, pro rata, and 2 percent to the general partner, until the Partnership distributes for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and
Thereafter, as described in the paragraph and table below.
As presented in the table below, if cash distributions exceed $0.474375 per unit in a quarter, the general partner will receive increasing percentages, up to 50 percent, of the cash distributed in excess of that amount. These distributions are referred to as “incentive distributions,” or "IDRs." The amounts shown in the table below under “Percentage of Distributions” are the percentage interests of the general partner and the unitholders in any available cash from operating surplus that is distributed up to and including the corresponding amount in the column “Quarterly Distribution Amount per

41



Unit,” until the available cash that is distributed reaches the next target distribution level, if any. The percentage interests shown for the unitholders and the general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution.
 
 
Percentage of Distributions
 
Quarterly Distribution Amount per Unit
 
Unitholders
 
General Partner
Minimum Quarterly Distribution
 
$0.412500
 
98%
 
2%
First Target Distribution
 
above $0.412500
 
up to $0.474375
 
98%
 
2%
Second Target Distribution
 
above $0.474375
 
up to $0.515625
 
85%
 
15%
Third Target Distribution
 
above $0.515625
 
up to $0.618750
 
75%
 
25%
Thereafter
 
above $0.618750
 
50%
 
50%
In connection with the focus on creating greater liquidity to reduce debt at the Partnership, during the first quarter of 2016, SunCoke returned its $1.4 million IDR cash distribution to the Partnership ("IDR giveback") as a capital contribution. During the second quarter of 2016, SunCoke provided the Partnership with deferred payment terms until April 2017 on the $1.4 million IDR cash distribution.
The Partnership anticipates maintaining the existing distribution during ongoing negotiations with SunCoke for the proposed Simplification Transaction. However, there is no guarantee that the Partnership will pay the minimum quarterly distribution on the common units in any quarter, and the Partnership will be prohibited from making any distributions to unitholders if it would cause an event of default, or an event of default exists, under the credit facility or the senior notes. See Note 12 to our combined and consolidated financial statements for further discussion.
Market Repurchase Program
On July 20, 2015, the Partnership's Board of Directors authorized a program for the Partnership to repurchase up to $50.0 million of its common units. At December 31, 2016, there was $37.2 million available under the authorized unit repurchase program. There were no unit repurchases during 2016.

42



Item 6.
Selected Financial Data
The following table presents summary combined and consolidated operating results and other information of the Partnership and should be read in conjunction with "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" and our combined and consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K.
Our combined and consolidated financial statements include amounts allocated from SunCoke for corporate and other costs attributable to our operations. These allocated costs are for services provided to us by SunCoke. SunCoke centrally provides engineering, operations, procurement and information technology support to its and our facilities. In addition, allocated costs include legal, accounting, tax, treasury, insurance, employee benefit costs, communications and human resources. All corporate costs that were specifically identifiable to a particular operating facility of SunCoke or the Partnership have been allocated to that facility. Where specific identification of charges to a particular operating facility was not practicable, a reasonable method of allocation was applied to all remaining corporate and other costs. The allocation methodology for all remaining corporate and other costs is based on management’s estimate of the proportional level of effort devoted by corporate resources that is attributable to each of SunCoke’s and the Partnership's operating facilities.
The combined and consolidated financial statements do not necessarily reflect what our financial position and results of operations would have been if we had operated as an independent, publicly-traded partnership during the periods shown. In addition, the combined and consolidated financial statements are not necessarily indicative of our future results of operations or financial condition.
 
Years Ended December 31,
 
2016(1)
 
2015(1)
 
2014
 
2013
 
2012
 
(Dollars in millions, except per unit amounts)
Operating Results:
 
 
 
 
 
 
 
 
 
Total revenues
$
779.7

 
$
838.5

 
$
873.0

 
$
931.7

 
$
1,013.9

Operating income
$
146.1

 
$
137.2

 
$
135.1

 
$
141.4

 
$
116.4

Net income
$
121.4

 
$
92.2

 
$
87.5

 
$
124.2

 
$
82.8

Net income attributable to SunCoke Energy Partners, L.P.(2)
$
119.1

 
$
85.4

 
$
56.0

 
$
58.6

 
 
Net income per common unit (basic and diluted)
$
2.07

 
$
1.92

 
$
1.58

 
$
1.81

 
 
Net income per subordinated unit (basic and diluted)(3)
$

 
$
1.71

 
$
1.43

 
$
1.81

 
 
Distributions declared per unit
$
2.3760

 
$
2.2888

 
$
2.0175

 
$
1.1621

 
 
Balance Sheet Data (at period end):
 
 
 
 
 
 
 
 
 
Total assets
$
1,696.0

 
$
1,768.9

 
$
1,417.0

 
$
1,409.3

 
$
1,284.9

Long-term debt
$
805.7

 
$
894.5

 
$
399.0

 
$
143.2

 
$
220.3

(1)
The results of CMT have been included in the combined and consolidated financial statements since it was acquired on August 12, 2015. CMT added combined assets of $411.7 million and $426.1 million at December 31, 2016 and 2015, respectively. During 2016 and 2015, CMT contributed revenues of $62.7 million and $28.6 million, as well as operating income of $46.5 million and $18.4 million, respectively.
(2)
On January 13, 2015 and on August 12, 2015 the Partnership acquired ownership interests in SunCoke's Granite City cokemaking facility of 75 percent and 23 percent, respectively. Additionally, on January 24, 2013, in conjunction with the Partnership's initial public offering, and on May 9, 2014, the Partnership acquired ownership interests in each of SunCoke's Haverhill and Middletown cokemaking facilities of 65 percent and 33 percent, respectively.
(3)
Upon payment of the cash distribution for the fourth quarter of 2015, the financial requirements for the conversion of all subordinated units were satisfied. As a result, the 15,709,697 subordinated units converted into common units on a one-for-one basis. For purpose of calculating net income per unit, the conversion of the subordinated units is deemed to have occurred on January 1, 2016.


43



Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Annual Report on Form 10-K contains certain forward-looking statements of expected future developments, as defined by the Private Securities Litigation Reform Act of 1995. This discussion contains forward-looking statements about our business, operations and industry that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations and intentions. Our future results and financial condition may differ materially from those we currently anticipate as a result of the factors we describe under “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors.”
This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is based on financial data derived from the financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and certain other financial data that is prepared using non-GAAP measures. For a reconciliation of these non-GAAP measures to the most comparable GAAP components, see “Non-GAAP Financial Measures” at the end of this Item and Note 16 to our Consolidated Financial Statements.
The combined and consolidated financial statements pertain to the operations of the Partnership and the operations of Gateway Energy and Coke Company, LLC ("Granite City"), as Granite City and the Partnership were under common control for all periods presented. The transfers of net assets between entities under common control were accounted for as if the transfer occurred at the beginning of the period, and prior year periods were recast to furnish comparative information.
These statements reflect significant assumptions and allocations and include all expenses allocable to our business, but may not be indicative of those that would have been achieved had we operated as a separate public entity for all periods presented or of future results.
Our MD&A is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. Our results of operation include reference to our business operations and market conditions, which are further described in Part I of this document.
2016 Overview
Our consolidated results of operations were as follows:
 
Years Ended December 31,
 
 
 
2016
 
2015
 
Increase
 
(Dollars in millions)
Net income attributable to SunCoke Energy Partners, L.P.
$
119.1

 
$
85.4

 
$
33.7

Net cash provided by operating activities
$
183.6

 
$
149.4

 
$
34.2

Adjusted EBITDA attributable to SunCoke Energy Partners, L.P.
$
209.7

 
$
191.5

 
$
18.2

During 2016, the Partnership's strategies and accomplishments were as follows:
Achieved financial objectives and strengthened our balance sheet;
Managed through challenging market conditions; and
Delivered operational excellence and optimized our asset base.
Achieved financial objectives and strengthened our balance sheet
In 2016,     we delivered solid Adjusted EBITDA attributable to the Partnership of $209.7 million, within our guidance range of $207 million to $217 million. Additionally, we generated strong operating cash flows of $183.6 million, well above our guidance of $149 million to $163 million, driven largely by coal inventory management and lower coal prices.
Entering 2016, the Partnership anticipated utilizing excess liquidity of at least $60 million, including sponsor support, to meaningfully de-lever the Partnership's balance sheet in 2016. During the year, we reduced total consolidated debt outstanding by approximately $85 million, including repurchases of approximately $90 million of the Partnership Notes for approximately $65 million of cash. As a result, we reduced our total Gross Debt / Adjusted EBITDA leverage to 3.88x, within our 2016 targeted range of 3.5x to 4.0x.

44



Managed through challenging market conditions
In 2016, we successfully managed through various market challenges, including those in the coal and steel industries as well as the broader industrial and energy markets as a whole.
In recent years, our steel customers have been challenged by lower prices driven in part by unfairly traded imports and the strong U.S. dollar. As a result, in late 2015, United States Steel Corporation ("U.S. Steel") and AK Steel Holding Corporation ("AK Steel") idled their Granite City and Ashland blast furnace operations, respectively. We reduced production at our Haverhill II facility by 75 thousand tons, for which we were made whole by AK Steel under our take-or-pay contract. We also shifted production levels at our Granite City facility to the second half of the year to accommodate U.S. Steel's needs. Neither of these actions impacted earnings from these facilities or our annual consolidated Adjusted EBITDA.
During 2016, our Coal Logistics' export coal customers faced global headwinds of oversupply and a strong U.S. dollar. The Argus/McCloskey's Coal Price Index report ("API2 index price"), the benchmark price used for U.S. thermal coal exports to Europe, fell to multi-year lows, challenging the profitability of our customers' coal exports. As a result, we reached an agreement with Murray American Coal ("Murray") and Foresight Energy LP ("Foresight"), our two primary Convent Marine Terminal ("CMT") customers, to provide certain volume-based, incentives in the form of ancillary revenue rebates, in exchange for a limited one-year contract extension. These rebates, which phase out as API2 index prices rise, are only in place for 2016 and 2017, and are intended to provide incentives to our customers to ship more coal through CMT during periods of low API2 index prices. By late 2016, the API2 index price had rebounded, resulting in the elimination of the new rebate incentive should prices stay at or above the year end level. The improvement in the API2 index price also improved the profitability of our customers' coal exports and resulted in a significant increase in volumes through CMT during the fourth quarter 2016. Our Coal Logistics' domestic coal customers were also challenged with lower coal prices throughout most of 2016 as well as mild weather conditions, driving down volumes across the segment. We responded by aggressively managing costs, primarily at our Kanawha River Terminals, LLC ("KRT") terminals, to partially mitigate the impacts of these lower volumes.
While conditions across the coal and steel industries have significantly improved in the second half of 2016, we are committed to remaining flexible and responsive to the evolving industry landscape.
Delivered operational excellence and optimized our asset base
Despite facing challenging headwinds upon entering 2016, we remained committed to delivering strong performance across our operations, and we achieved Adjusted EBITDA attributable to the Partnership of $209.7 million. We also remained committed to maintaining a safe work environment and ensuring compliance with applicable laws and regulations, and in 2016, we again achieved top-tier safety ratings in our coke and coal logistics operations.
Domestic Coke performance contributed Adjusted EBITDA results of $167.0 million, reflecting 2.3 million tons of coke sales and Adjusted EBITDA of approximately $71 per ton during 2016, achieving the high end of our guidance range of $68 to $71 per ton. Sales tons reflect our agreement to reduce production at our Haverhill facility by 75 thousand tons, for which we were made whole by AK Steel. Results for 2016 also reflect record performance at our Middletown facility.
Our Coal Logistics segment delivered Adjusted EBITDA of $63.2 million and was impacted by lower than anticipated throughput tons across the segment. CMT contributed $50.5 million, within our guidance of $50 million to $55 million, reflecting the strength of its take-or-pay contracts. The fourth quarter brought a significant improvement in throughput tons across the segment, including new domestic thermal coal business at CMT. We also commissioned our new ship loader, increasing the capacity of CMT from 10 million to 15 million tons annually.
Our Focus and Outlook for 2017
In 2017, we expect to deliver consolidated Adjusted EBITDA attributable to the Partnership of $210 million to $220 million. Our primary focus will be to:
Deliver operational excellence and optimize our asset base;
Begin execution of the Granite City gas sharing project; and
Accomplish our 2017 financial objectives.

45



Deliver operational excellence and optimize our asset base
Our customers experienced improving market conditions in the latter half of 2016, with steel and coal markets showing increased pricing and higher coal utilization rates. In 2017, we will remain committed to working with our existing customers, as well as potential new customers, in a continuing effort to fully utilize our existing cokemaking and coal logistics capacity.
We anticipate that our Domestic Coke segment will produce between 2.3 million and 2.35 million tons of coke during 2017 and achieve Adjusted EBITDA of approximately $163 million to $168 million based on expected solid ongoing operations across the fleet. Excluding the impact of the continued 75 thousand ton turn down at our Haverhill facility, for which we will again be made whole by AK Steel, we expect our Domestic Coke fleet will deliver contract maximum volumes to our take-or-pay customers. We expect the increase in metallurgical coal prices will result in a higher yield gains across our domestic coke fleet. Finally, while we do not anticipate incremental spot sales during the year, we remain positioned to deliver spot tons to the market should coke demand rise throughout 2017.
We believe our Coal Logistics assets are well positioned to further serve the thermal and metallurgical coal markets as these industries continue to recover, and we expect year-over-year improvement in Adjusted EBITDA. In 2017, we expect Adjusted EBITDA of approximately $67 million to $72 million, up from $63.2 million in 2016. Our CMT export facility is uniquely positioned to serve customers via direct rail access and has the ability to load multi-category vessels with a new, state-of-the-art ship loader. Given the significant improvement in API2 index prices, we expect CMT will handle approximately 8 million tons of coal in 2017 on behalf of our two long-term, take-or-pay customers, Foresight Energy and Murray Energy, an improvement of approximately 4 million tons versus 2016. We expect merchant volumes at CMT will continue in 2017, and we will continue to seek additional opportunities to optimize the facility by securing additional merchant business. Additionally, at our remaining coal logistics terminals, we anticipate continued volume recovery due to the recent strengthening of domestic coal fundamentals.
We remain committed to maintaining a safe work environment and ensuring compliance with applicable laws and regulations.
Begin execution of the Granite City gas sharing project
In response to United States Environmental Protection Agency (the "EPA") allegations of violations of air operating permits at our Haverhill and Granite City cokemaking facilities, we entered into a consent decree in 2013, which includes capital projects underway to improve the reliability of the energy recovery systems and enhance environmental performance at the Haverhill and Granite City cokemaking facilities.
In 2017, we expect to begin the construction of our gas sharing environmental remediation project at our Granite City facility. Similar to the projects completed at our Haverhill facilities in recent years, we expect this project will significantly reduce the amount of venting at the facility and will cost approximately $50 million in total between 2017 and 2018. These projects, at both our Haverhill and Granite City cokemaking facilities, were previously funded by SunCoke with total proceeds of $119 million from our initial public offering as well as subsequent dropdowns, of which approximately $86 million has been spent by the Partnership to date. SunCoke will reimburse the Partnership for the estimated spending of approximately $17 million beyond what has previously been funded.
Accomplish our 2017 financial objectives
In 2017, we will remain focused on accomplishing our financial objectives and expect to deliver consolidated Adjusted EBITDA attributable to the Partnership of between $210 million and $220 million. This increase reflects higher Coal Logistics volumes, partially offset by expected Middletown facility performance at contract levels as compared to its record performance in 2016. We enter 2017 in a significantly improved, but continuously challenged market, and we remain focused on executing on our commitments to unitholders by achieving these full-year financial targets.

46



Items Impacting Comparability
Convent Marine Terminal Acquisition. Comparability between periods was impacted by the acquisition of CMT on August 12, 2015. CMT results in periods presented were as follows:    
 
Years Ended December 31,
 
2016
 
2015
 
(Dollars in millions)
Sales and other operating revenue
$
62.7

 
$
28.6

Cost of products sold and operating expenses(1)
1.3

 
4.7

Depreciation and amortization expense
14.8

 
5.4

Adjusted EBITDA
50.5

 
20.6

(1)
Includes $10.1 million of favorable fair value adjustment to our contingent consideration liability in 2016.
Debt Activities. During 2016, debt balances decreased approximately $85 million, driven primarily by the repurchase of Partnership Notes. During 2015, debt balances increased approximately $500 million in connection with the acquisition of CMT and the Granite City dropdowns discussed below, net of the Partnership's repurchase of approximately $48 million of Partnership Notes. Significant comparability impacts of these debt activities are discussed below:
Gains and Losses on Extinguishment of Debt. Gain on extinguishment of debt was $25.0 million and $0.7 million for the years ended December 31, 2016 and 2015, respectively, and the net loss on extinguishment of debt was $15.4 million for the year ended December 31, 2014. The redemption of Partnership Notes resulted in gains on extinguishment of debt of $25.0 million and $12.1 million in 2016 and 2015, respectively.  The Partnership’s gain on de-levering activities in 2015 was offset by losses on debt extinguishment of $11.4 million associated with the debt activities related to the Granite City dropdowns. In 2014, debt activities associated with the dropdown of additional interest in our Haverhill and Middletown facilities generated a loss on extinguishment of debt of $15.4 million.
Interest Expense, net. Interest expense, net was $47.7 million, $48.2 million and $21.7 million for the years ended December 31, 2016, 2015 and 2014, respectively. Debt activities throughout 2016, 2015 and 2014 resulted in weighted average debt balances of $843.1 million, $722.0 million and $330.3 million, respectively.  Higher average debt balances in 2016 were the result of a full year of debt outstanding in connection with the acquisition of CMT and dropdowns of our Granite City cokemaking facility in 2015, partially offset by de-levering activities.  The decrease in interest expense, net in 2016 was the result of the higher average debt balance, more than offset by favorable interest rates on new debt as compared to rates on debt repurchased.  The increase in interest expense, net in 2015 was the result of the higher debt balances discussed above.
Haverhill Energy Arrangement. Prior to the second quarter of 2015, Haverhill I sold steam to Haverhill Chemicals LLC ("Haverhill Chemicals"), which filed for relief under Chapter 11 of the U.S. Bankruptcy Code during 2015. Beginning in the fourth quarter of 2015, Haverhill I provided steam, at no cost, to Altivia Petrochemicals, LLC ("Altivia"), which purchased the facility from Haverhill Chemicals. While the Partnership is not currently generating revenues from providing steam to Altivia, the current arrangement, which may be renegotiated beginning in 2018, mitigates costs associated with disposing of steam. The absence of steam sales to Haverhill Chemicals resulted in lower energy revenues of $2.6 million and $4.9 million in 2016 and 2015, respectively, as compared to the prior year periods. The net impact of lower energy revenues and incremental operating and maintenance costs incurred in 2015 prior to our arrangement with Altivia decreased Adjusted EBITDA $1.1 million and $6.4 million in 2016 and 2015, respectively, as compared to the prior year periods.
Dropdowns. On May 9, 2014, we completed the acquisition of an additional 33 percent interest in the Haverhill and Middletown cokemaking facilities ("Haverhill and Middletown Dropdown"). During 2015, we acquired a 98 percent interest in Granite City, 75 percent of which was acquired on January 13, 2015 ("Granite City Dropdown") and 23 percent of which was acquired on August 12, 2015 ("Granite City Supplemental Dropdown"). Significant comparability impacts of the dropdowns are discussed below:

47



Financing. As a part of the Granite City Dropdown, Granite City Supplemental Dropdown and the Haverhill and Middletown Dropdown, the Partnership assumed and repaid $135.0 million, $44.6 million and $160.0 million of SunCoke's senior notes, respectively, resulting in losses on extinguishment of debt of $9.4 million and $2.0 million in 2015 and $15.4 million in 2014.
Income Taxes. Income tax expense was $2.0 million and $10.5 million in 2016 and 2014, respectively, while 2015 had an income tax benefit of $2.5 million. The periods presented are not comparable, as earnings from our Granite City operations include federal and state income taxes calculated on a theoretical separate-return basis until January 13, 2015, the date of the Granite City Dropdown. See Note 7 to our combined and consolidated financial statements for the components of income tax disaggregated between the Partnership and our Granite City facility prior to the Granite City Dropdown. The 2015 income tax benefit relates to the tax impacts of the Granite City Dropdown.
Noncontrolling Interest. Net income attributable to noncontrolling interest represents SunCoke's retained ownership interest in our cokemaking facilities. Net income attributable to noncontrolling interest was $2.3 million, $6.2 million and $15.7 million during 2016, 2015 and 2014, respectively. The decrease in noncontrolling interest each year was the result of the Partnership's increased ownership interest in its facilities as a result of these dropdowns.
Consolidated Results of Operations
The following section includes analysis of consolidated results of operations for the years ended December 31, 2016, 2015 and 2014. See "Analysis of Segment Results" later in this section for further details of these results.
 
Years Ended December 31,
 
Increase (Decrease)
 
2016
 
2015
 
2014
 
2016 vs. 2015
 
2015 vs. 2014
 
(Dollars in millions)
Revenues
 
 
 
 
 
 
 
 
 
Sales and other operating revenue
$
779.7

 
$
838.5

 
$
873.0

 
$
(58.8
)
 
$
(34.5
)
Costs and operating expenses
 
 
 
 
 
 
 
 
 
Cost of products sold and operating expenses
517.2

 
599.6

 
656.3

 
(82.4
)
 
(56.7
)
Selling, general and administrative expenses
38.7

 
34.3

 
27.3

 
4.4

 
7.0

Depreciation and amortization expense
77.7

 
67.4

 
54.3

 
10.3

 
13.1

Total costs and operating expenses
633.6

 
701.3

 
737.9

 
(67.7
)
 
(36.6
)
Operating income
146.1

 
137.2

 
135.1

 
8.9

 
2.1

Interest expense, net(1)
47.7

 
48.2

 
21.7

 
(0.5
)
 
26.5

(Gain) loss on extinguishment of debt, net(1)
(25.0
)
 
(0.7
)
 
15.4

 
(24.3
)
 
(16.1
)
Income before income tax (benefit) expense
123.4

 
89.7

 
98.0

 
33.7

 
(8.3
)
Income tax (benefit) expense(1)
2.0

 
(2.5
)
 
10.5

 
4.5

 
(13.0
)
Net income
$
121.4

 
$
92.2

 
$
87.5

 
$
29.2

 
$
4.7

Less: Net income attributable to noncontrolling interests(1)
2.3

 
6.2

 
15.7

 
(3.9
)
 
(9.5
)
Net income attributable to SunCoke Energy Partners, L.P./
Previous Owner
$
119.1

 
$
86.0

 
$
71.8

 
$
33.1

 
$
14.2

Less: Net income attributable to Previous Owner

 
0.6

 
15.8

 
(0.6
)
 
(15.2
)
Net income attributable to SunCoke Energy Partners, L.P.
$
119.1

 
$
85.4

 
$
56.0

 
$
33.7

 
$
29.4

(1)
See year-over-year changes described in "Items Impacting Comparability."
Sales and Other Operating Revenue. The decrease in total revenues in 2016 and 2015 primarily reflects the pass-through of lower coal prices in our Domestic Coke segment as well as lower sales volumes in both our Domestic Coke and Coal Logistics segments, excluding volumes at CMT. These decreases were partly offset by the contributions from CMT of $62.7 million and $28.6 million in 2016 and 2015, respectively.

48



Cost of Products Sold and Operating Expenses. The decrease in cost of products sold and operating expense in 2016 and 2015 was primarily the result of reduced coal costs in our Domestic Coke segment.
Selling, General and Administrative Expenses. The increase in selling, general and administrative expense in 2016 was driven by a higher allocation of costs from SunCoke with the acquisition of CMT as well as a $1.5 million impact of unfavorable mark-to-market adjustments on deferred compensation driven by changes in the Partnership's unit price. These impacts were partially offset by lower spending on professional services of $1.2 million. The increase in selling, general and administrative expense in 2015 was primarily driven by a full year impact of a higher allocation of costs from SunCoke in conjunction with the Haverhill and Middletown Dropdown as well as higher spending on professional services of $2.9 million.
Depreciation and Amortization Expense. The increase in depreciation and amortization expense in 2016 and 2015 was driven by the depreciation of CMT assets of $14.8 million and $5.4 million, respectively. Also, certain environmental remediation assets were placed in service at our Haverhill cokemaking facility, which increased depreciation expense in 2015 compared to 2014. Depreciation and amortization expense in each year was also impacted by additional depreciation on certain assets as a result of revisions in estimated useful lives of $4.8 million and $4.2 million, or $0.07 and $0.08 per common unit, during 2016 and 2015, respectively. See Note 16 to our consolidated financial statements.
Net Income Attributable to Previous Owner. Net income attributable to Previous Owner reflects our Granite City facility's net income for periods prior to the Granite City Dropdown.
Results of Reportable Business Segments
We report our business results through two segments:
Domestic Coke consists of the Haverhill Coke Company LLC ("Haverhill"), Middletown Coke Company, LLC ("Middletown") and Gateway Energy and Coke Company, LLC ("Granite City") located in Franklin Furnace, Ohio; Middletown, Ohio; and Granite City, Illinois, respectively.
Coal Logistics consists of CMT, KRT and SunCoke Lake Terminal, LLC ("Lake Terminal") coal handling and/or mixing service operations in Convent, Louisiana; Ceredo and Belle, West Virginia; and East Chicago, Indiana, respectively. Lake Terminal is located adjacent to our Indiana Harbor cokemaking facility.
The operations of our Domestic Coke and Coal Logistics segments are described in Part I of this document.
Corporate and other expenses that can be identified with a segment have been included as deductions in determining operating results of our business segments and the remaining expenses have been included in Corporate and Other.
Management believes Adjusted EBITDA is an important measure of operating performance and liquidity and uses it as the primary basis for the chief operating decision maker to evaluate the performance of each of our reportable segments. Adjusted EBITDA should not be considered a substitute for the reported results prepared in accordance with GAAP. See “Non-GAAP Financial Measures” near the end of this Item and Note 16 to our consolidated financial statements.


49



Segment Operating Data
The following tables set forth financial and operating data by segment for the years ended December 31, 2016, 2015 and 2014:
 
Years Ended December 31,
 
Increase (Decrease)
 
2016
 
2015
 
2014
 
2016 vs. 2015
 
2015 vs. 2014
 
(Dollars in millions, except per ton amounts)
Sales and other operating revenue:
 
 

 
 
 
 
 
 
Domestic Coke
$
681.8

 
$
763.8

 
$
823.7

 
$
(82.0
)
 
$
(59.9
)
Coal Logistics
97.9

 
74.7

 
49.3

 
23.2

 
25.4

Coal Logistics intersegment sales
6.1

 
6.5

 
5.7

 
(0.4
)
 
0.8

Elimination of intersegment sales
(6.1
)
 
(6.5
)
 
(5.7
)
 
0.4

 
(0.8
)
Total
$
779.7

 
$
838.5

 
$
873.0

 
$
(58.8
)
 
$
(34.5
)
Adjusted EBITDA(1):
 
 
 
 
 
 
 
 
 
Domestic Coke
$
167.0

 
$
177.1

 
$
181.8

 
$
(10.1
)
 
$
(4.7
)
Coal Logistics
63.2

 
38.0

 
14.3

 
25.2

 
23.7

Corporate and Other
(17.2
)
 
(13.8
)
 
(7.2
)
 
(3.4
)
 
(6.6
)
Total
$
213.0

 
$
201.3

 
$
188.9

 
$
11.7

 
$
12.4

Coke Operating Data:
 
 
 
 
 
 
 
 
 
Domestic Coke capacity utilization (%)
101

 
105

 
106

 
(4
)
 
(1
)
Domestic Coke production volumes (thousands of tons)
2,334

 
2,423

 
2,435

 
(89
)
 
(12
)
Domestic Coke sales volumes (thousands of tons)
2,336

 
2,409

 
2,443

 
(73
)
 
(34
)
Domestic Coke Adjusted EBITDA per ton(2)
$
71.49

 
$
73.52

 
$
74.42

 
$
(2.03
)
 
$
(0.90
)
Coal Logistics Operating Data:
 
 
 
 
 
 
 
 
 
Tons handled, excluding CMT (thousands of tons)(3)
12,976

 
16,652

 
19,037

 
(3,676
)
 
(2,385
)
Tons handled by CMT (thousands of tons)(3)
4,493

 
2,212

 

 
2,281

 
2,212

(1)
See definition of Adjusted EBITDA and reconciliation to the most comparable GAAP measures at the end of this Item.
(2)
Reflects Domestic Coke Adjusted EBITDA divided by Domestic Coke sales volumes.
(3)
Reflects inbound tons handled during the period.

50



Analysis of Segment Results
Domestic Coke
The following table explains year-over-year changes in our Domestic Coke segment's sales and other operating revenues and Adjusted EBITDA results:
 
Sales and other operating revenue
 
Adjusted EBITDA
 
2016 vs. 2015
 
2015 vs. 2014
 
2016 vs. 2015
 
2015 vs. 2014
 
(Dollars in millions)
Beginning
$
763.8

 
$
823.7

 
$
177.1

 
$
181.8

Volumes(1)
(11.4
)
 
(10.2
)
 
0.2

 
(1.7
)
Pass through coal costs
(63.7
)
 
(47.5
)
 

 

Coal gains(2)

 

 
(3.6
)
 
2.3

Operating and maintenance costs

 
6.0

 
1.0

 
1.1

Haverhill energy arrangement(3)
(2.6
)
 
(4.9
)
 
(1.1
)
 
(6.4
)
Haverhill turbine outage(4)
(0.9
)
 

 
(3.5
)
 

Energy and other(5)
(3.4
)
 
(3.3
)
 
(3.1
)
 

Ending
$
681.8

 
$
763.8

 
$
167.0

 
$
177.1

(1)
The decrease in 2016 revenues was driven by the $11.4 million impact of lower sales volumes of 75 thousand tons to AK Steel, for which AK Steel provided make-whole payments. The decrease in 2015 revenues was due to lower overall sales volumes across the fleet.
(2)
Lower yield gains in 2016, primarily driven by lower coal prices, were partially offset by record yield performance at our Middletown facility. In 2015, improved yield performance at our Haverhill facility more than offset the impacts of lower coal prices.
(3)
See discussion of our Haverhill energy arrangement in "Items Impacting Comparability."
(4)
In October 2016, the Partnership sustained a turbine failure at its Haverhill II facility, the impact of which was partially mitigated by insurance recoveries. The Haverhill II turbine was fully restored in January 2017, and we continue to pursue additional insurance recoveries.
(5)
Results in 2016 included lower energy sales as compared to the prior year as a result of planned maintenance outages in 2016. Results in 2015 included lower transportation costs, which were passed through to our customer.
Coal Logistics
The following table explains year-over-year changes in our Coal Logistics segment's sales and other operating revenues and Adjusted EBITDA results:
 
Sales and other operating revenue, inclusive of intersegment sales
 
Adjusted EBITDA
 
2016 vs. 2015
 
2015 vs. 2014
 
2016 vs. 2015
 
2015 vs. 2014
 
(Dollars in millions)
Beginning
$
81.2

 
$
55.0

 
$
38.0

 
$
14.3

CMT(1)
34.1

 
28.6

 
29.9

 
20.6

Transloading volumes(2)
(10.5
)
 
(6.4
)
 
(5.6
)
 
(2.9
)
Price/margin impact of mix in transloading services
(1.4
)
 
3.3

 

 
3.8

Fixed operating and maintenance costs

 

 
0.4

 
1.5

Other
0.6

 
0.7

 
0.5

 
0.7

Ending
$
104.0

 
$
81.2

 
$
63.2

 
$
38.0

(1)
Results in 2016 reflect a full year's contribution of CMT, which was acquired in August 2015, while 2015 includes only a partial year of results.

51



(2)
In both 2016 and 2015, lower transloading volumes were driven by challenging market conditions in both the thermal and metallurgical coal markets.
Corporate and Other
2016 compared to 2015
Corporate expenses increased $3.4 million to $17.2 million in 2016 compared to $13.8 million in 2015. The increase in corporate expenses in 2016 reflects a higher allocation of costs from SunCoke as well as a $1.5 million impact of unfavorable mark-to-market adjustments in deferred compensation driven by changes in the Partnership's unit price. These impacts were partially offset by lower spending on professional services of $1.2 million.
2015 compared to 2014
Corporate expenses increased $6.6 million to $13.8 million in 2015 compared to $7.2 million in 2014. The increase in corporate expenses in 2015 reflects a full year impact of a higher allocation of costs from SunCoke in conjunction with the Haverhill and Middletown Dropdown as well as higher spending on professional services of $2.9 million.
Liquidity and Capital Resources
Our primary liquidity needs are to finance the replacement of partially or fully depreciated assets and other capital expenditures, service our debt, fund investments, fund working capital, maintain cash reserves, and pay distributions. Our sources of liquidity include cash generated from operations, borrowings under our revolving credit facility and, from time to time, debt and equity offerings. We believe our current resources are sufficient to meet our working capital requirements for our current business for the foreseeable future. We may be required to access the capital markets for funding related to the maturities of our long-term borrowings beginning in 2019. As of December 31, 2016, we had $41.8 million of cash and cash equivalents and $76.6 million of borrowing availability under the Partnership Revolver.
Distributions
During 2016, the Partnership returned $116.4 million to unitholders through distributions. We paid total cash distributions of $2.3760 per unit, which amounted to $49.2 million in distributions to public unitholders. On January 23, 2017, our Board of Directors declared a quarterly cash distribution of $0.5940 per unit. This distribution will be paid on March 1, 2017, to unitholders of record on February 15, 2017. The Partnership anticipates maintaining the existing distribution during ongoing negotiations with SunCoke for the proposed Simplification Transaction.
Borrowings
Entering 2016, the Partnership anticipated utilizing excess liquidity of at least $60 million, including sponsor support, to meaningfully de-lever the Partnership's balance sheet in 2016. Utilizing cash generated by the business, the Partnership successfully reduced debt by $85.4 million during 2016. The de-levering activities included the repayment of $10.0 million on the Partnership Revolver as well as the repurchase of $89.5 million face value of outstanding Partnership Notes for $65.0 million of cash payments in the open market during the year ended December 31, 2016.
In the first half of 2016, SunCoke took certain actions to support the Partnership's strategy to de-lever its balance sheet and maintain a solid liquidity position. During the first quarter of 2016, SunCoke provided a "reimbursement holiday" on the $7.0 million of corporate costs allocated to the Partnership and also returned its $1.4 million IDR cash distribution to the Partnership ("IDR giveback"), resulting in capital contributions of $8.4 million. During the second quarter of 2016, SunCoke provided the Partnership with deferred payment terms until April 2017 on the reimbursement of the $6.9 million of allocated corporate costs to the Partnership and the $1.4 million IDR cash distribution, resulting in an outstanding payable to SunCoke of $8.3 million included in payable to affiliate, net on the Consolidated Balance Sheets as of December 31, 2016. SunCoke did not provide sponsor support in the third and fourth quarter of 2016.
On July 22, 2016, the Partnership entered into a sale-leaseback arrangement of certain equipment from the Domestic Coke and Coal Logistics segments for total proceeds of $16.2 million. The leaseback agreement has an initial lease period of 60 months, with an effective interest rate of 5.82 percent and an early buyout option after 48 months to purchase the equipment at 34.5 percent of the original lease equipment cost. The arrangement is accounted for as a financing transaction, resulting in a financing obligation on the Consolidated Balance Sheets. The Partnership repaid $1.0 million of the financing obligation during 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.
During the first quarter of 2016, the Partnership issued $1.4 million of letters of credit as collateral to its surety companies and insurance underwriters in connection with workers' compensation, general liability and other financial guarantee obligations.

52



Our ability to access the debt markets, and the related cost of these borrowings, is affected by our credit rating and market conditions. On February 8, 2017, S&P Global Ratings reaffirmed the Partnership's corporate credit rating of 'BB-.' On November 2, 2016, Moody's Corporation changed the outlook on the ratings of SunCoke and the Partnership to "positive" from "stable." The outlook change reflects the recent improvement in the steel markets, the Partnership's declining leverage trend over the past year and SunCoke's recent proposal to acquire all of the Partnership's publicly traded common units.
Covenants
As of December 31, 2016, the Partnership was in compliance with all applicable debt covenants. 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. See Note 12 to the combined and consolidated financial statements for details on debt covenants.
IRS Final Regulations on Qualifying Income
In January 2017, the Internal Revenue Service announced its decision to exclude cokemaking as a qualifying income generating activity. The Partnership and its outside legal counsel believe that income from its cokemaking operations will be considered qualifying income for the purpose of maintaining our Partnership status during the 10-year transition period contemplated by the final regulations. Subsequent to the 10-year transition period, certain cokemaking entities in the Partnership will become taxable as corporations. Therefore, the Partnership expects to record deferred tax expense of between approximately $127 million and $136 million in 2017 related to the future tax expense expected to be owed related to projected book to tax differences at the end of the 10-year transition period. We are evaluating our options for engaging with the appropriate parties to address our concerns with the scope of these final regulations. See "Part I. Item 1. Business" for further discussion of this regulation.
Cash Flow Summary
The following table sets forth a summary of the net cash provided by (used in) operating, investing and financing activities for the years ended December 31, 2016, 2015 and 2014:
 
Years Ended December 31,
 
2016
 
2015
 
2014
 
(Dollars in millions)
Net cash provided by operating activities
$
183.6

 
$
149.4

 
$
126.5

Net cash used in investing activities
(17.8
)
 
(251.7
)
 
(67.6
)
Net cash (used in) provided by financing activities
(172.6
)
 
117.6

 
(71.9
)
Net (decrease) increase in cash and cash equivalents
$
(6.8
)
 
$
15.3

 
$
(13.0
)
Cash Provided by Operating Activities
Net cash provided by operating activities increased by $34.2 million in 2016 as compared to the prior year, primarily due to CMT's net increase in cash provided by operating activities of $35.0 million. Larger decreases to coal inventory levels and coal prices in 2016 as compared to 2015 as well as timing of payments for coal purchases in 2015 provided additional operating cash flow of approximately $10 million in 2016. These increases were partially offset by lower Partnership operating performance, excluding CMT.
Net cash provided by operating activities increased by $22.9 million in 2015 as compared to the prior year, primarily due to working capital changes associated with lower inventory due to lower coal prices as well as the wind down in 2015 of a strategic build in inventory levels from the second half of 2014 and the settlement of $13.1 million of accrued sales discounts at the Granite City facility in 2014. These increases were partially offset by decreased accounts payable due to timing of payments and lower operating performance in 2015.
Cash Used in Investing Activities
Net cash used in investing activities decreased $233.9 million to $17.8 million for the year ended December 31, 2016 compared to prior year. The decrease is primarily due to the absence of the investing cash outflow of $191.7 million from the acquisition of CMT in 2015. In 2016, the Partnership amended an agreement with The Cline Group, which unrestricted $6.0 million of previously restricted cash and relieved the Partnership of any obligation to repay these amounts to The Cline Group. The cash outflows were a result of capital expenditures, excluding the CMT capital expansion costs,

53



which was funded from restricted cash. The decrease in capital expenditures in 2016 compared to 2015 related to lower spending on the environmental remediation project at Haverhill during 2016.
Net cash used in investing activities increased $184.1 million to $251.7 million for the year ended December 31, 2015 as compared to the prior year due to the acquisition of CMT resulting in a cash payment of $191.7 million and the restriction of an additional $17.7 million of cash withheld to fund the completion of capital expansion improvements. The $17.7 million of restricted cash was net of capital expenditures on the project since the acquisition and the cash withheld was included in restricted cash on the Combined and Consolidated Balance Sheets. The increase was partially offset by higher capital expenditures related to the environmental remediation project at Haverhill in 2014.
Cash (Used in) Provided by Financing Activities    
Net cash used in financing activities was $172.6 million for the year ended December 31, 2016. In 2016, primarily in connection with the Partnership's de-levering activities, the Partnership made repayments of debt, net of proceeds from the sale-leaseback arrangement, of $61.1 million. Additionally, during 2016, the Partnership paid distributions to unitholders and noncontrolling interest of $119.9 million. The repayments of debt and distributions were partially offset by capital contributions from SunCoke of $8.4 million from the reimbursement holiday and IDR giveback. See Note 12 to our combined and consolidated financial statements for further discussion of debt activities.
Net cash provided by financing activities was $117.6 million for the year ended December 31, 2015. In 2015, primarily in connection with the Granite City Dropdown and the acquisition of CMT, we received $30.0 million from issuance of common units and $206.2 million from the issuance of debt, net of repayments. These net cash inflows were partially offset by distributions to unitholders and to SunCoke related to its noncontrolling interest of $108.1 million and common public unit repurchases of $12.8 million.
Net cash used in financing activities was $71.9 million for the year ended December 31, 2014. In connection with the Haverhill and Middletown Dropdown, we received $90.5 million from issuance of common units and made repayments of debt, net of proceeds from issuance of debt of $54.0 million. Additionally, during 2014, the Partnership made distributions to unitholders and to SunCoke related to its noncontrolling interest of $95.6 million. Lastly, the year ended December 31, 2014, included net transfers to parent of $13.1 million, further described below.
The Previous Owner's operations were funded with cash from our operations and funding from SunCoke. As a result, none of SunCoke’s cash has been assigned to us in the combined financial statements. Transfers of cash to SunCoke’s financing and cash management program directly impact the Previous Owner's cash flow from financing activities. 
Capital Requirements and Expenditures
Our cokemaking operations are capital intensive, requiring significant investment to upgrade or enhance existing operations and to meet environmental and operational regulations. The level of future capital expenditures will depend on various factors, including market conditions and customer requirements, and may differ from current or anticipated levels. Material changes in capital expenditure levels may impact financial results, including but not limited to the amount of depreciation, interest expense and repair and maintenance expense.
Our capital requirements have consisted, and are expected to consist, primarily of:
Ongoing capital expenditures required to maintain equipment reliability, ensure the integrity and safety of our coke ovens and steam generators and to comply with environmental regulations. Ongoing capital expenditures are made to replace partially or fully depreciated assets in order to maintain the existing operating capacity of the assets and/or to extend their useful lives and also include new equipment that improves the efficiency, reliability or effectiveness of existing assets. Ongoing capital expenditures do not include normal repairs and maintenance expenses, which are expensed as incurred;
Environmental remediation project expenditures required to implement design changes to ensure that our existing facilities operate in accordance with existing environmental permits; and
Expansion capital expenditures to acquire and/or construct complementary assets to grow our business and to expand existing facilities as well as capital expenditures made to enable the renewal of a coke sales agreement and/or coal logistics service agreement and on which we expect to earn a reasonable return.
    

54



The following table summarizes ongoing, environmental remediation project and expansion capital expenditures:
 
Years Ended December 31,
 
2016
 
2015
 
2014
 
(Dollars in millions)
Ongoing capital
$
15.8

 
$
16.8

 
$
21.2

Environmental remediation project(1)
7.8

 
20.9

 
46.4

Expansion capital(2)
13.5

 
4.6

 

Total
$
37.1

 
$
42.3

 
$
67.6

(1)
Includes $2.7 million, $2.9 million, and $3.2 million of capitalized interest in connection with the environmental gas sharing projects for the years ended December 31, 2016, 2015 and 2014, respectively.
(2)
Represents capital expenditures at CMT for the ship loader expansion project funded with cash withheld in conjunction with the acquisition. Additionally, this includes capitalized interest of $2.3 million and $0.8 million for the years ended December 31, 2016, and 2015, respectively.
In 2017, we expect our capital expenditures to be approximately $45 million, which is comprised of the following:
Total ongoing capital expenditures of approximately $17 million;
Total capital expenditures on environmental remediation projects of approximately $25 million; and
Total expansion capital of approximately $3 million in our Coal Logistics segment.
We expect that capital expenditures will remain at this level in 2018, including capital expenditures of approximately $25 million to complete the remediation project.
We retained $119 million in proceeds from the our initial public offering and subsequent dropdowns to fund our environmental remediation projects to comply with the expected terms of a consent decree at the Haverhill and Granite City cokemaking operations. Pursuant to the omnibus agreement, any amounts that we spend on these projects in excess of the $119 million will be reimbursed by SunCoke. Prior to our formation, SunCoke spent approximately $7 million related to these projects. The Partnership has spent approximately $86 million to date and the remaining capital is expected to be spent through the first quarter of 2019.
Contractual Obligations
The following table summarizes our significant contractual obligations as of December 31, 2016:
 
 
 
Payment Due Dates
 
Total
 
2017
 
2018-2019
 
2020-2021
 
Thereafter
 
(Dollars in millions)
Total borrowings:(1)
 
 
 
 
 
 
 
 
 
Principal
$
813.4

 
$
4.9

 
$
241.7

 
$
566.8

 
$

Interest
167.9

 
52.0

 
91.1

 
24.8

 

Operating leases(2)
5.7

 
2.0

 
3.3

 
0.4

 

Purchase obligations:
 
 
 
 
 
 
 
 
 
Coal(3)
195.0

 
195.0

 

 

 

       Transportation and coal handling(4)
149.0

 
16.1

 
33.6

 
30.3

 
69.0

       Other(5)
7.9

 
1.3

 
2.1

 
1.8

 
2.7

Total
$
1,338.9

 
$
271.3

 
$
371.8

 
$
624.1

 
$
71.7

(1)
At December 31, 2016, debt consists of $463.0 million of Partnership Notes, $113.2 million of Partnership Promissory Note, $172.0 million of Partnership Revolver, $15.2 million of Partnership Financing Obligation and $50.0 million of Partnership Term Loan. Projected interest costs on variable rate instruments were calculated using market rates at December 31, 2016.
(2)
Our operating leases include leases for office space, land, locomotives, office equipment and other property and equipment. Operating leases include all operating leases that have initial noncancelable terms in excess of one year.

55



(3)
Certain coal procurement contracts were not executed at December 31, 2016. We estimate these contracts to be approximately $100 million of additional purchase obligations in 2017 and expect these to be finalized in the first quarter of 2017.
(4)
Transportation and coal handling services consist primarily of railroad and terminal services attributable to delivery and handling of coke sales. Long-term commitments generally relate to locations for which limited transportation options exist and match the length of the related coke sales agreement.
(5)
Primarily represents open purchase orders for materials, supplies and services.
A purchase obligation is an enforceable and legally binding agreement to purchase goods or services that specifies significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our principal purchase obligations in the ordinary course of business consist of coal and transportation and coal handling services, including railroad services. Our coal purchase obligations are generally for terms of one or two years and are based on fixed prices. These purchase obligations generally include fixed or minimum volume requirements. Transportation and coal handling obligations also typically include required minimum volume commitments and are for long-term agreements. The purchase obligation amounts in the table above are based on the minimum quantities or services to be purchased at estimated prices to be paid based on current market conditions. Accordingly, the actual amounts may vary significantly from the estimates included in the table.
Off-Balance Sheet Arrangements
We have off-balance sheet arrangements, which include letters of credit disclosed in Note 12 to the consolidated financial statements as well as operating leases disclosed in Note 13 to the consolidated financial statements. We had outstanding surety bonds with third parties of approximately $2 million as of December 31, 2016 to secure reclamation and other performance commitments. Other than these arrangements, the Partnership has not entered into any transactions, agreements or other contractual arrangements that would result in material off-balance sheet liabilities.
Impact of Inflation
Although the impact of inflation has been relatively low in recent years, it is still a factor in the U.S. economy and may increase the cost to acquire or replace properties, plants, and equipment and may increase the costs of labor and supplies. To the extent permitted by competition, regulation and existing agreements, we have generally passed along increased costs to our customers in the form of higher fees. We expect to continue this practice.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon the combined and consolidated financial statements of SunCoke Energy Partners, L.P., which have been prepared in accordance with GAAP. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions consist of properties, plants and equipment and accounting for impairments. Although our management and our Previous Owners base our respective estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results may differ to some extent from the estimates on which our combined and consolidated financial statements have been prepared at any point in time. Despite these inherent limitations, our management believes the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and combined and consolidated financial statements and footnotes provide a meaningful and fair perspective of our financial condition.
Properties, Plants and Equipment
The cost of plants and equipment is generally depreciated on a straight-line basis over the estimated useful lives of the assets. Useful lives of assets which are depreciated on a straight-line basis are based on historical experience and are adjusted when changes in the expected physical life of the asset, its planned use, technological advances, or other factors show that a different life would be more appropriate. Changes in useful lives that do not result in the impairment of an asset are recognized prospectively. Throughout the periods presented, we revised the estimated useful lives of certain assets at our cokemaking facilities and coal logistics business. See Note 16 to the combined and consolidated financial statements for further discussion on the revised useful lives impact.
Normal repairs and maintenance costs are expensed as incurred. Direct costs, such as outside labor, materials, internal payroll and benefit costs, incurred as a part of capital projects that extend an asset's useful life, increase its productivity or add production capacity at our facilities are capitalized; indirect costs are not capitalized. Repairs and

56



maintenance costs, which are generally reimbursed as part of the pass-through nature of our contracts, were $67.2 million, $63.0 million and $61.8 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Accounting for Impairments
Goodwill
Goodwill, which represents the excess of the purchase price over the fair value of the 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 the reporting unit to below its carrying value. The analysis of potential goodwill impairment employs a two-step process. The first step involves the estimation of fair value of our reporting units. If step one indicates that impairment of goodwill potentially exists, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the estimated implied fair value of goodwill is less than its carrying value.
The Coal Logistics reporting unit has $73.5 million of goodwill at December 31, 2016. The step one analysis as of October 1st resulted in the fair value of the Coal Logistics reporting unit, which was determined based on a discounted cash flow analysis, exceeding its carrying value by approximately 6 percent. A significant portion of our coal logistics business holds long-term, take-or-pay contracts with Murray and Foresight. Key assumptions in our goodwill impairment test include continued customer performance against long-term, take-or-pay contracts, renewal of future long-term, take-or-pay contracts, incremental merchant business and an 18 percent discount rate representing the estimated weighted average cost of capital for this business line. The use of different assumptions, estimates or judgments, such as the estimated future cash flows of Coal Logistics and the discount rate used to discount such cash flows, could significantly impact the estimated fair value of a reporting unit, and therefore, impact the excess fair value above carrying value of the reporting unit. A 100 basis point change in the discount rate would not have reduced the fair value of the reporting unit below its carrying value.
To the extent changes in factors or circumstances occur that impact our future cash flow projections, such as a loss of either Murray or Foresight as customers, significant reductions in volume or pricing beyond our existing contract term or lower incremental merchant business, future assessments of goodwill and intangible assets may result in material impairment charges.
Finite-Lived Intangible Assets
Intangible assets are primarily comprised of customer contracts, customer relationships, and permits. Intangible assets are amortized over their useful lives in a manner that reflects the pattern in which the economic benefit of the asset is consumed.
We test the carrying amount of our finite-lived intangible assets for recoverability whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. This assessment employs a two-step approach. The first step is used to determine if a potential impairment exists while the second step measures the associated impairment loss, if any. An impairment loss is recognized if, in performing the impairment review, it is determined that the carrying amount of an asset or asset group exceeds the estimated undiscounted future cash flows expected to result from the use of the asset or asset group and its eventual disposition.
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. A long-lived asset, or group of assets, is considered to be impaired when the undiscounted net cash flows expected to be generated by the asset are less than its carrying amount. Such estimated future cash flows are highly subjective and are based on numerous assumptions about future operations and market conditions. The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the impaired asset, or group of assets. It is also difficult to precisely estimate fair market value because quoted market prices for our long-lived assets may not be readily available. Therefore, fair market value is generally based on the present values of estimated future cash flows using discount rates commensurate with the risks associated with the assets being reviewed for impairment. We have had no significant asset impairments during the years ended December 31, 2016, 2015 and 2014.
Recent Accounting Standards
See Note 2 to the combined and consolidated financial statements.

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Non-GAAP Financial Measures
In addition to the GAAP results provided in the Annual Report on Form 10-K, we have provided a non-GAAP financial measure, Adjusted EBITDA. Our management, as well as certain investors, uses this non-GAAP measure to analyze our current and expected future financial performance and liquidity. This measure is not in accordance with, or a substitute for, GAAP and may be different from, or inconsistent with, non-GAAP financial measures used by other companies. See Note 16 in our combined and consolidated financial statements for both the definition of Adjusted EBITDA and the reconciliations from GAAP to the non-GAAP measurement for 2016, 2015 and 2014.
Below is a reconciliation of 2017 estimated Adjusted EBITDA from its closest GAAP measures:
 
 
2017
 
 
Low
 
High
 
 
(Dollars in millions)
Net Cash Provided by Operating Activities
 
$
142

 
$
162

Subtract:
 
 
 
 
Depreciation and amortization expense
 
86

 
86

Changes in working capital and other
 
(17
)
 
(11
)
Net income
 
$
73

 
$
87

Add:
 
 
 
 
Depreciation and amortization expense
 
86

 
86

Interest expense, net
 
52

 
48

Income tax expense
 
2

 
2

Adjusted EBITDA
 
$
213

 
$
223

Subtract: Adjusted EBITDA attributable to noncontrolling interest(1)
 
3

 
3

Adjusted EBITDA attributable to SunCoke Energy Partners, L.P.
 
$
210

 
$
220

(1)
Reflects net income attributable to noncontrolling interest adjusted for noncontrolling interest's share of interest, taxes, depreciation and amortization.


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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this Annual Report on Form 10-K, including, among others, in the sections entitled “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Such forward-looking statements are based on management’s beliefs and assumptions and on information currently available. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and may be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “will,” “should” or the negative of these terms or similar expressions. In particular, statements in this Annual Report on Form 10-K concerning future distributions are subject to approval by our Board of Directors and will be based upon circumstances then existing.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements. We do not have any intention or obligation to update any forward-looking statement (or its associated cautionary language), whether as a result of new information or future events, after the date of this Annual Report on Form 10-K, except as required by applicable law.
The risk factors discussed in “Risk Factors” could cause our results to differ materially from those expressed in the forward-looking statements made in this Annual Report on Form 10-K. There also may be other risks that we are unable to predict at this time. Such risks and uncertainties include, without limitation:
changes in levels of production, production capacity, pricing and/or margins for coal and coke;
variation in availability, quality and supply of metallurgical coal used in the cokemaking process, including as a result of non-performance by our suppliers;
changes in the marketplace that may affect our coal logistics business, including the supply and demand for thermal and metallurgical coals;
changes in the marketplace that may affect our cokemaking business, including the supply and demand for our coke, as well as increased imports of coke from foreign producers;
competition from alternative steelmaking and other technologies that have the potential to reduce or eliminate the use of coke;
our dependence on, relationships with, and other conditions affecting, our customers;
severe financial hardship or bankruptcy of one or more of our major customers, or the occurrence of a customer default or other event affecting our ability to collect payments from our customers;
volatility and cyclical downturns in the coal market, in the carbon steel industry, and other industries in which our customers and/or suppliers operate;
our ability to enter into new, or renew existing, long-term agreements upon favorable terms for the sale of coke steam, or electric power, or for coal handling services (including transportation, storage and blending);
our ability to identify acquisitions, execute them under favorable terms and integrate them into our existing business operations;
our ability to realize expected benefits from investments and acquisitions;
our ability to consummate investments under favorable terms, including with respect to existing cokemaking facilities, which may utilize by-product technology, in the U.S. and Canada, and integrate them into our existing businesses and have them perform at anticipated levels;
our ability to develop, design, permit, construct, start up or operate new cokemaking facilities in the U.S.;
our ability to successfully implement our growth strategy;
age of, and changes in the reliability, efficiency and capacity of the various equipment and operating facilities used in our cokemaking and/or Coal Logistics operations, and in the operations of our major customers, business partners and/or suppliers;
changes in the expected operating levels of our assets;

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our ability to meet minimum volume requirements, coal-to-coke yield standards and coke quality standards in our coke sales agreements;
changes in the level of capital expenditures or operating expenses, including any changes in the level of environmental capital, operating or remediation expenditures;
our ability to service our outstanding indebtedness;
our ability to comply with the restrictions imposed by our financing arrangements;
our ability to comply with federal or state environmental statutes, rules or regulations;
nonperformance or force majeure by, or disputes with, or changes in contract terms with, major customers, suppliers, dealers, distributors or other business partners;
availability of skilled employees for our cokemaking and/or coal logistics operations, and other workplace factors;
effects of railroad, barge, truck and other transportation performance and costs, including any transportation disruptions;
effects of adverse events relating to the operation of our facilities and to the transportation and storage of hazardous materials (including equipment malfunction, explosions, fires, spills, and the effects of severe weather conditions);
effects of adverse events relating to the business or commercial operations of our customers and/or suppliers;
disruption in our information technology infrastructure and/or loss of our ability to securely store, maintain, or transmit data due to security breach by hackers, employee error or malfeasance, terrorist attack, power loss, telecommunications failure or other events;
our ability to enter into joint ventures and other similar arrangements under favorable terms;
our ability to consummate assets sales, other divestitures and strategic restructuring in a timely manner upon favorable terms, and/or realize the anticipated benefits from such actions;
changes in the availability and cost of equity and debt financing;
impacts on our liquidity and ability to raise capital as a result of changes in the credit ratings assigned to our indebtedness;
changes in credit terms required by our suppliers;
risks related to labor relations and workplace safety;
proposed or final changes in existing, or new, statutes, regulations, rules, governmental policies and taxes, or their interpretations, including those relating to environmental matters and taxes;
the existence of hazardous substances or other environmental contamination on property owned or used by us;
receipt of required permits and other regulatory approvals and compliance with contractual obligations in connection with our cokemaking and /or Coal Logistics operations;
claims of noncompliance with any statutory and regulatory requirements;
the accuracy of our estimates of any necessary reclamation and/or remediation activities;
proposed or final changes in accounting and/or tax methodologies, laws, regulations, rules, or policies, or their interpretations, including those affecting inventories, leases, post-employment benefit, income, or other matters;
historical combined and consolidated financial data may not be reliable indicator of future results;
public company costs;
our indebtedness and certain covenants in our debt documents;
changes in product specifications for the coke that we produce or the coals that we mix, store and transport;
changes in insurance markets impacting costs and the level and types of coverage available, and the financial ability of our insurers to meet their obligations;

60



changes in accounting rules and/or tax laws or their interpretations, including the method of accounting for inventories, leases, post employment benefit and/or other items;
changes in financial markets impacting pension expense and funding requirements;
inadequate protection of our intellectual property rights; and
effects of geologic conditions, weather, natural disasters and other inherent risks beyond our control.    
The factors identified above are believed to be important factors, but not necessarily all of the important factors, that could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Other factors not discussed herein could also have material adverse effects on us. All forward-looking statements included in this Annual Report on Form 10-K are expressly qualified in their entirety by the foregoing cautionary statements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Our primary areas of market risk include changes in the price of coal, which is the key raw material for our cokemaking business and interest rates. We do not enter into any market risk sensitive instruments for trading purposes.
Price of coal
We do not use derivatives to hedge any of our coal purchases. Although we have not previously done so, we may enter into derivative financial instruments from time to time in the future to economically manage our exposure related to these market risks.
The largest component of the price of our coke is coal cost. However, under the coke sales agreements at all of our cokemaking facilities, coal costs are a pass-through component of the coke price, provided that we are able to realize certain targeted coal-to-coke yields. As such, when targeted coal-to-coke yields are achieved, the price of coal is not a significant determining factor in the profitability of these facilities.
The provisions of our coke sales agreements require us to meet minimum production levels and generally require us to secure replacement coke supplies at the prevailing contract price if we do not meet contractual minimum volumes. Because market prices for coke are generally highly correlated to market prices for metallurgical coal, to the extent any of our facilities are unable to produce their contractual minimum volumes, we are subject to market risk related to the procurement of replacement supplies.
Interest Rates
We are exposed to changes in interest rates as a result of our borrowing activities and our cash balances. The daily average outstanding balance on borrowings with variable interest rates was $229.6 million and $80.1 million during the years ended December 31, 2016 and 2015, respectively. Assuming a 50 basis point change in LIBOR, interest expense would have been impacted by $1.1 million and $0.4 million in 2016 and 2015, respectively. At December 31, 2016, we had outstanding borrowings with variable interest rates of $172.0 million and $50.0 million under the Partnership Revolver and the Partnership Term Loan, respectively.
At December 31, 2016 and 2015, we had cash and cash equivalents of $41.8 million and $48.6 million, respectively, which accrues interest at various rates. Assuming a 50 basis point change in the rate of interest associated with our cash and cash equivalents, interest income would have been impacted by $0.2 million for the years ended December 31, 2016 and 2015, respectively.

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Item 8.
Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
 
 
Page
SUNCOKE ENERGY PARTNERS, L.P.
 
 
 
COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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