Item 1. Consolidated Financial Statements

SunCoke Energy, Inc.

Notes to the Consolidated Financial Statements

1. General

Description of Business

SunCoke Energy, Inc. (“SunCoke Energy,” “Company,” "we," "our" and "us") is an independent owner and operator of five cokemaking facilities in the United States ("U.S."), which consists of our Haverhill Coke Company LLC ("Haverhill"), Middletown Coke Company, LLC ("Middletown"), Gateway Energy and Coke Company, LLC ("Granite City"), Jewell Coke Company, L.P. ("Jewell") and Indiana Harbor Coke Company ("Indiana Harbor") cokemaking facilities. Internationally, we operate a cokemaking facility in Brazil, in which we have a preferred stock investment. We also own and operate a Coal Logistics business, which provides coal handling and/or mixing services to third-party customers as well as to our own cokemaking facilities. Our Coal Logistics business consists of Convent Marine Terminal ("CMT"), Kanawha River Terminals LLC ("KRT") and SunCoke Lake Terminal, LLC ("Lake Terminal").

We have a cokemaking joint venture with VISA Steel Limited in India called VISA SunCoke Limited ("VISA SunCoke"). In 2015 we impaired our 49 percent investment in VISA SunCoke to zero , and consequently, beginning in the fourth quarter of 2015, we no longer include our share of VISA SunCoke in our financial results.

Our consolidated financial statements include SunCoke Energy Partners, L.P. (the "Partnership"), a publicly-traded partnership. At March 31, 2016 , we owned the general partner of the Partnership, which consists of a 2.0 percent ownership interest and incentive distribution rights, and owned a 53.9 percent limited partner interest in the Partnership. The remaining 44.1 percent interest in the Partnership was held by public unitholders. SunCoke is considered the primary beneficiary of the Partnership as it has the power to direct the activities that most significantly impact the Partnership's economic performance.

Incorporated in Delaware in 2010 and headquartered in Lisle, Illinois, we became a publicly-traded company in 2011 and our stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “SXC.”

Basis of Presentation

The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim reporting. Certain information and disclosures normally included in financial statements have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. The results of operations for the period ended March 31, 2016 are not necessarily indicative of the operating results expected for the entire year. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 .    

New Accounting Pronouncements

In April 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-10, "Revenue From Contracts With Customers (Topic 606): Identifying Performance Obligations and Licensing." ASU 2016-10 clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. It is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period and permits early adoption on a limited basis. The Company is currently evaluating this ASU to determine its potential impact on the Company's financial condition, results of operations, or cash flows.

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 simplifies the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. It is effective for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating this ASU to determine its potential impact on the Company's financial condition, results of operations, or cash flows.

In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)." ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. It is effective for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating this ASU to determine its potential impact on the Company's financial condition, results of operations, or cash flows.     

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. It is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating this ASU to determine its potential impact on the Company's financial condition, results of operations, or cash flows.

Reclassifications

Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current year presentation.

2. Coal Mining Business

During 2016, the Company successfully disposed of its coal mining business to Revelation Energy, LLC ("Revelation") who assumed substantially all of the Company's remaining coal mining assets, mineral leases, real estate and a substantial portion of our mining reclamation obligations.

Under the terms of the divestiture agreement, which closed in April of 2016, Revelation received $10.3 million from the Company to take ownership of the assets and associated costs. See Note 18 . The terms of this agreement were approved by the Company's Board of Directors in March 2016, and as a result, the assets and liabilities to be disposed of, or the disposal group, were presented as held for sale on the Consolidated Balance Sheet as of March 31, 2016 . The Consolidated Balance Sheet as of December 31, 2015 has been reclassified to conform with current period presentation. During the first quarter of 2016, the Company recognized $9.2 million in net losses associated with this divestiture. This loss included an impairment charge of $10.7 million , which reduced the carrying value of the long-lived assets to be disposed of to zero based on the value implied by the terms of the divestiture agreement with Revelation. Partially offsetting the $10.7 million charge was a $1.5 million gain recognized in connection with the disposal of certain coal mining permits and related reclamation obligations in exchange for a $1.8 million payment made to Revelation in March 2016. This gain was recorded as a reduction to costs of products sold and operating expenses on the Consolidated Statements of Operations.

The assets of the disposal group were previously reported as part of the Coal Mining reportable segment. Certain coal mining assets and liabilities, primarily coal inventory, were retained by the Company and continue to be included in the Coal Mining segment.  Summarized below are the assets and liabilities of our coal business presented as held for sale on our Consolidated Balance Sheets:

	March 31, 2016				December 31, 2015
	(Dollars in millions)
Assets
Receivables	$	0.6			$	0.6
Inventories	0.2				0.3
Properties, plants and equipment, net	10.7				—
Valuation allowance	(10.7		)		—
Total current assets held for sale	0.8				0.9
Properties, plants and equipment, net	—				11.4
Total assets held for sale	$	0.8			$	12.3
Liabilities
Accounts payable	$	0.1			$	0.1
Accrued liabilities	0.7				0.8
Asset retirement obligations	5.9				—
Total current liabilities held for sale	6.7				0.9
Asset retirement obligations	—				5.9
Total liabilities held for sale	$	6.7			$	6.8

3. Related Party Transactions

Our Coal Logistics business provides coal handling and storage services to Murray Energy Corporation ("Murray") and Foresight Energy LP ("Foresight"), who are related parties with The Cline Group. The Cline Group currently owns a 10.3 percent interest in the Partnership as part of the CMT acquisition. Additionally, Murray also holds a significant interest in Foresight. Coal Logistics recorded revenues derived from services provided to these related parties of $5.1 million for the three months ended March 31, 2016. At March 31, 2016, receivables from Murray and Foresight were $13.5 million , which were recorded in receivables on the Consolidated Balance Sheet, and deferred revenue for minimum volume payments was $ 8.7 million , which was recorded in accrued liabilities on the Consolidated Balance Sheet. Deferred revenue on take-or-pay contracts is recognized into GAAP income annually based on the terms of the contract.

As part of the CMT acquisition, the Partnership withheld $21.5 million in cash to fund the completion of capital improvements at CMT. The cash withheld was recorded as restricted cash on the Consolidated Balance Sheet. During the first quarter of 2016, the Partnership amended an agreement with The Cline Group, which unrestricted $6.0 million of the restricted cash and relieved any obligation of the Partnership to repay these amounts to The Cline Group. The remaining restricted cash balance as of March 31, 2016 of $10.3 million is primarily related to the new state-of-the-art ship loader, which will allow for faster coal loading onto larger ships.

Additionally, the Partnership amended the contingent consideration terms with The Cline Group, which reduced the fair value of the contingent consideration liability from $7.9 million at December 31, 2015 to $4.2 million at March 31, 2016 , with the resulting $3.7 million gain recognized as a reduction to costs of products sold and operating expenses on the Consolidated Statements of Operations during the three months ended March 31, 2016 . See Note 15 .

4. Inventories

The components of inventories were as follows:

5. Goodwill and Other Intangible Assets

Goodwill allocated to SunCoke's reportable segments as of March 31, 2016 and changes in the carrying amount of goodwill during the three months ended March 31, 2016 were as follows:

	Domestic Coke				Coal Logistics				Total
	(Dollars in millions)
Net balance at December 31, 2015	$	3.4			$	67.7			$	71.1
Adjustments (1)	—				(0.6		)		(0.6		)
Net balance at March 31, 2016	$	3.4			$	67.1			$	70.5

Goodwill, which represents the excess of the purchase price over the fair value of net assets acquired, is tested for impairment as of October 1 of each year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit to below its carrying value. There were no events or circumstances in the first quarter of 2016 that would, more likely than not, reduce the fair value of a reporting unit to below its carrying value.

The components of gross and net intangible assets were as follows:

    

Total amortization expense for intangible assets subject to amortization was $2.7 million and $0.4 million for the three months ended March 31, 2016 and 2015 , respectively. Based on the carrying value of the finite-lived intangible assets as of March 31, 2016 , we estimated amortization expense for each of the next five years as follows:

	Amount
	(Dollars in millions)
2016 (1)	$	8.4
2017	11.1
2018	11.1
2019	10.9
2020	10.7
2021-Thereafter	135.3
Total	$	187.5

(1) Excludes amortization expense recorded during three months ended March 31, 2016.

6. Income Taxes

At the end of each interim period, we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year and the impact of discrete items, if any, and adjust the rate as necessary.

The Company's effective tax rate for the three months ended March 31, 2016 was 20.8 percent , as compared to the 35 percent federal statutory rate, primarily due to the impact of earnings attributable to noncontrolling ownership interests in partnerships, partially offset by income tax expense of $0.8 million related to the reversal of the deferred tax asset for equity compensation previously recorded.

The Company’s effective tax rate for three months ended March 31, 2015 was 50.0 percent , as compared to the 35 percent federal statutory rate, primarily due to income tax expense of $2.2 million related to additional valuation allowances associated with state and local taxes, offset by income tax benefit of $1.4 million related to the January 2015 dropdown of a 75 percent interest in Granite City ("Granite City Dropdown") and the impact of earnings attributable to noncontrolling ownership interests in partnerships.

On January 17, 2012 , SunCoke Energy and Sunoco, Inc. entered into a tax sharing agreement that governs the parties’ respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes. SunCoke Energy will continue to monitor the utilization of all tax attributes subject to the tax sharing agreement as applicable tax returns are filed or as tax examinations progress and will record additional adjustments when necessary, consistent with the terms of the tax sharing agreement.

7. Accrued Liabilities

Accrued liabilities consisted of the following:

8. Debt

Total debt, including the current portion of long-term debt, consisted of the following:

		March 31, 2016				December 31, 2015
		(Dollars in millions)
7.625% senior notes, due 2019 ("Notes")		$	44.6			$	44.6
SunCoke's revolving credit facility, due 2019 ("Revolving Facility")		60.4				60.4
7.375% senior notes, due 2020 (“Partnership Notes”)		499.7				552.5
Partnership's revolving credit facility, due 2019 ("Partnership Revolver")		182.0				182.0
Partnership's promissory note payable, due 2021 ("Promissory Note")		114.0				114.3
Partnership's term loan, due 2019 ("Partnership Term Loan")		50.0				50.0
Total borrowings		$	950.7			$	1,003.8
Original issue premium		10.2				12.1
Debt issuance costs		(15.0		)		(17.1		)
Total debt		945.9				998.8
Less: current portion of long-term debt		1.1				1.1
Total long-term debt		$	944.8			$	997.7

During the first quarter of 2016 , the Partnership continued de-levering its balance sheet and repurchased $52.8 million face value of outstanding Partnership Notes for $32.6 million in the open market. This resulted in a $20.4 million gain on extinguishment of debt, which included a write-off of $0.2 million of unamortized original issue premium, net of unamortized debt issuance costs.

During the first quarter of 2016, as a result of continued overall depressed coal market conditions and the Company’s credit downgrade in late 2015, the Company issued $30.8 million of letters of credit as collateral to its surety providers. These letters of credit were issued in connection with certain contractual obligations, including reclamation obligations, black lung, workers’ compensation, general liability and other financial guarantee obligations.   These letters of credit lower the Company's borrowing availability under the Revolving Facility. As of March 31, 2016 , the Revolving Facility had letters of credit outstanding of $33.6 million and an outstanding balance of $60.4 million , leaving $56.0 million available subject to the terms of the Credit Agreement.

During the first quarter of 2016 , the Partnership issued $1.5 million of letters of credit as collateral to its surety providers in connection with workers' compensation, general liability and other financial guarantee obligations. These letters of credit lower the Partnership's borrowing availability under the Partnership Revolver. At March 31, 2016 , the Partnership Revolver had $1.5 million of letters of credit outstanding and an outstanding balance of $182.0 million , leaving $66.5 million available.

The Partnership repaid $0.3 million of the Promissory Note on March 31, 2016 , in accordance with the Promissory Note repayment schedule.

Covenants

The Company and the Partnership are subject to certain debt covenants that, among other things, limit the Company's and Partnership’s ability and the ability of certain of the Company's and the Partnership’s subsidiaries to (i) incur indebtedness, (ii) pay dividends or make other distributions, (iii) prepay, redeem or repurchase certain debt, (iv) make loans and investments, (v) sell assets, (vi) incur liens, (vii) enter into transactions with affiliates and (viii) consolidate or merge. These covenants are subject to a number of exceptions and qualifications set forth in the respective agreements. Additionally, under the terms of the credit agreement, the Company is subject to a maximum consolidated leverage ratio of 3.25 to 1.00 , calculated by dividing total debt by EBITDA as defined by the credit agreement, and a minimum consolidated interest coverage ratio of 2.75 to 1.00 , calculated by dividing EBITDA by interest expense as defined by the credit agreement. Under the terms of the Partnership Revolver, the Partnership is subject to a maximum consolidated leverage ratio of 4.50 to 1.00 , calculated by dividing total debt by EBITDA as defined by the Partnership Revolver, and a minimum consolidated interest coverage ratio of 2.50 to 1.00 , calculated by dividing EBITDA by interest expense as defined by the Partnership Revolver. The Partnership Term Loan has the same covenants as the previously discussed Partnership Revolver covenants.

Under the terms of the promissory agreement, Raven Energy LLC, a wholly-owned subsidiary of the Partnership, is subject to a maximum leverage ratio of 5.00 : 1.00 for any fiscal quarter ending prior to August 12, 2018, calculated by dividing total debt by EBITDA as defined by the promissory agreement. For any fiscal quarter ending on or after August 12, 2018, the maximum leverage ratio is 4.50 : 1.00 . Additionally, in order to make restricted payments, Raven Energy LLC is subject to a fixed charge ratio of greater than 1.00 : 1.00 , calculated by dividing EBITDA by fixed charges as defined by the promissory agreement.

If we fail to perform our obligations under these and other covenants, the lenders' credit commitment could be terminated and any outstanding borrowings, together with accrued interest, under the Revolving Facility, Partnership Revolver, Partnership Term Loan and Promissory Note could be declared immediately due and payable. The Partnership has a cross-default provision that applies to our indebtedness having a principal amount in excess of $20 million . We do not anticipate any violation of these covenants nor do we anticipate that any of these covenants will restrict our operations or our ability to obtain additional financing.

As of March 31, 2016 , the Company and the Partnership were in compliance with all applicable debt covenants contained in the credit agreement and promissory agreement. We do not anticipate violation of these covenants nor do we anticipate that any of these covenants will restrict our operations or our ability to obtain additional financing.

9. Retirement Benefits Plans

The Company has plans which provide health care and life insurance benefits for many of its retirees (“postretirement benefit plans”). The postretirement benefit plans are unfunded and the costs are borne by the Company.

The termination of coal mining employees during the first quarter of 2015 triggered a postretirement benefit plan curtailment gain of $4.0 million , which represented accelerated amortization of prior service credits previously recorded in accumulated other comprehensive income. Postretirement benefit plans expense (benefit) consisted of the following components:

		Three Months Ended March 31,
		2016				2015
		(Dollars in millions)
Interest cost on benefit obligations		$	0.3			$	0.3
Amortization of:
Actuarial losses		0.2				0.2
Prior service benefit		(0.2		)		(0.4		)
Curtailment gain		—				(4.0		)
Total expense (benefit)		$	0.3			$	(3.9	)

Defined Contribution Plans

The Company has defined contribution plans which provide retirement benefits for certain of its employees. The Company’s contributions, which are principally based on the Company’s pretax income and the aggregate compensation levels of participating employees and are charged against income as incurred, amounted to $1.6 million and $1.8 million for the three months ended March 31, 2016 and 2015 , respectively.

10. Commitments and Contingent Liabilities

SunCoke Energy is party to an omnibus agreement pursuant to which we will provide remarketing efforts to the Partnership upon the occurrence of certain potential adverse events under certain coke sales agreements, indemnification of certain environmental costs and preferential rights for growth opportunities.

The United States Environmental Protection Agency (the “EPA”) has issued Notices of Violations (“NOVs”) for our Haverhill and Granite City cokemaking facilities which stem from alleged violations of our air emission operating permits for these facilities. We are working in a cooperative manner with the EPA, the Ohio Environmental Protection Agency and the Illinois Environmental Protection Agency to address the allegations, and have entered into a consent decree in federal district court with these parties. The consent decree includes a $2.2 million civil penalty payment, which was paid in December 2014, as well as capital projects already underway to improve the reliability of the energy recovery systems and enhance environmental performance at the Haverhill and Granite City facilities. We anticipate spending approximately $130 million related to these projects, of which we have spent approximately $90 million to date. The remaining capital is expected to be spent through the first quarter of 2019 . A portion of the proceeds from the Partnership offering and subsequent dropdowns are being used to fund $119 million of these environmental remediation projects.

SunCoke Energy has also received NOVs, a Finding of Violation ("FOV"), and information requests from the EPA related to our Indiana Harbor cokemaking facility. After initial discussions with the EPA and the Indiana Department of Environmental Management (“IDEM”), resolution of the NOVs was postponed by mutual agreement because of ongoing discussions regarding the NOVs at Haverhill and Granite City. In January 2012, the Company began working in a cooperative manner to address the allegations with the EPA, the IDEM and Cokenergy, Inc., an independent power producer that owns and operates an energy facility, including heat recovery equipment and a flue gas desulfurization system, that processes hot flue gas from our Indiana Harbor facility to produce steam and electricity and to reduce the sulfur and particulate content of such flue gas. The parties are meeting regularly in 2016. Capital projects are underway to address items that may be required in conjunction with a settlement of the NOVs. Settlement may require payment of a penalty for alleged past violations as well as undertaking capital projects to enhance reliability and environmental performance. At this time, SunCoke Energy cannot yet assess any additional injunctive relief or potential monetary penalty and any potential future citations. The Company is unable to determine a range of probable or reasonably possible loss.

The Company is a party to certain other pending and threatened claims, including matters related to commercial and tax disputes, product liability, employment claims, personal injury claims, premises-liability claims, allegations of exposures to toxic substances and general environmental claims.  Although the ultimate outcome of these claims cannot be ascertained at this time, it is reasonably possible that some portion of these claims could be resolved unfavorably to the Company. Management of the Company believes that any liability which may arise from claims would not have a material adverse impact on our consolidated financial statements.

11. Restructuring

    In connection with the restructuring of our Coal Mining business, the Company recorded $10.2 million of employee-related restructuring costs prior to December 31, 2015 within our Coal Mining segment. An additional $0.2 million of severance was recorded in the first quarter of 2016 in connection with the disposition of the coal business in April 2016 .

In the third and fourth quarter of 2015, we reduced the workforce in our corporate office and incurred total charges of  $2.3 million  and  $1.8 million , respectively, in Corporate and Other.

The following table presents accrued restructuring and related activity for Coal Mining and Corporate and Other as of and for the three months ended March 31, 2016 , which is included in accrued liabilities on the Consolidated Balance Sheet:

12. Share-Based Compensation

Equity Awards

During the three months ended March 31, 2016 , we granted share-based compensation to eligible participants under the SunCoke Energy, Inc. Long-Term Performance Enhancement Plan (“SunCoke LTPEP”).

Stock Options

We granted the following stock options to purchase shares of common stock during the three months ended March 31, 2016 with an exercise price equal to the closing price of our common stock on the date of grant.

The stock options vest in three equal annual installments beginning one year from the date of grant. In order to become exercisable, the performance based options also require the closing price of the Company's common stock to reach or exceed $9.50 for any 15 trading days during the three -year period beginning on the grant date. The stock options expire ten  years from the date of grant. All awards vest immediately upon a change in control and a qualifying termination of employment as defined by the SunCoke LTPEP.

The Company calculates the value of each employee stock option, estimated on the date of grant, using the Black-Scholes option pricing model with a Monte Carlo simulation for the performance based options. The weighted-average fair value of employee stock options granted during the three months ended March 31, 2016 was based on using the following weighted-average assumptions: