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10-Q
KOPPERS HOLDINGS INC. filed this Form 10-Q on 08/03/2017
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were offset in part by higher customer development costs, which are reflected as a reduction of net sales, compared to the prior year period.

CMC net sales increased by $18.0 million or 16 percent compared to the prior year period due mainly to higher sales volumes for carbon pitch and carbon black feedstock with higher sales prices for carbon pitch, carbon black feedstock, phthalic anhydride and other coal tar products, partially offset by lower creosote pricing and volumes. Our strategy is to sell as much distillate production to the higher value wood preservative market, however there was a reduction in creosote volume driven by lower demand for treated crossties. The excess distillate was sold as carbon black feedstock. Carbon pitch sales volumes were higher in most regions. Sales of coal tar chemicals increased over the prior year period due to an increase in pricing of phthalic anhydride. The increase was driven by the effect of higher orthoxylene prices, which impact phthalic anhydride market prices. Higher sales prices for carbon pitch and carbon black feedstock in China were driven primarily by reduced supply in that region.

Cost of sales as a percentage of net sales was 78 percent for the quarter ended June 30, 2017 compared to 79 percent in the prior year quarter due mainly to a sales mix shift for PC as higher gross margins were driven by increased sales volumes and lower costs. In addition, higher gross margins for CMC were driven by lower raw material and shipping costs in North America and higher sales prices in Europe and Australasia. This more than offset lower sales volumes and gross margins from RUPS due to reduced sales volumes of crossties, utility poles, and railroad services combined with reduced margins in the commercial crosstie market as a result of inventory over-supply in the non-class I market.

Depreciation and amortization for the quarter ended June 30, 2017 was $1.4 million lower when compared to the prior year period due mainly to a reduction in assets, excluding assets under construction, related to our shutdown of distillation facilities in the United States and United Kingdom.

Impairment and restructuring expenses for the quarter ended June 30, 2017 were $3.9 million lower when compared to the prior year period due mainly to a prior year accrual for exited real estate lease obligations, net of estimated sublease revenue, at our closed coal tar distillation facility in Uithoorn, the Netherlands, as well as severance charges related to our closed coal tar distillation CMC facilities in the United Kingdom and impairment charges for the remaining fixed assets at our coal tar distillation facility in Clairton, Pennsylvania. Current year charges consist of restructuring-related storage tank decommissioning costs and accelerated depreciation for the remaining fixed assets at our coal tar distillation facilities in Clairton, Pennsylvania and Follansbee, West Virginia.

Selling, general and administrative expenses for the quarter ended June 30, 2017 were $1.7 million higher when compared to the prior year period due mainly to increases in consulting and stock-based compensation expense.

Other income for the quarter ended June 30, 2017 was $0.3 million higher when compared to the prior year period. In the quarter ended June 30, 2016, we incurred equity method losses of $0.3 million for CMC related to our TKK facility in China. This facility was sold in the first quarter of 2017.

Interest expense for the quarter ended June 30, 2017 was $3.5 million lower than the prior year period as a result of reduced average debt levels and reduced interest rates related to our new 2025 Notes and our new Revolving Credit Facility.

Income taxes for the quarter ended June 30, 2017 were $6.6 million, a decrease of $0.2 million when compared to the prior year period. The decrease in tax expense is due to a decrease in the effective income tax rate partially offset by pre-tax earnings that are greater than the prior period. The effective income tax rates for the quarters ended June 30, 2017 and June 30, 2016 were 24.0 percent and 37.6 percent, respectively. The decrease in the effective income tax rate is partially due to an increase in foreign pre-tax earnings that are taxed at more favorable rates. Additionally, in the prior period, we incurred losses in certain foreign subsidiaries that did not generate a tax benefit, which increased our effective tax rate for that prior period.

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