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10-Q
KOPPERS HOLDINGS INC. filed this Form 10-Q on 11/09/2017
Entire Document
 

 

Results of Operations – Comparison of Three Months Ended September 30, 2017 and 2016

Consolidated Results

Net sales for the three months ended September 30, 2017 and 2016 are summarized by segment in the following table:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2017

 

 

2016

 

 

Net Change

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

Railroad and Utility Products and Services

 

$

131.7

 

 

$

145.7

 

 

 

-10

%

Performance Chemicals

 

 

109.7

 

 

 

107.6

 

 

 

2

%

Carbon Materials and Chemicals

 

 

143.4

 

 

 

117.8

 

 

 

22

%

 

 

$

384.8

 

 

$

371.1

 

 

 

4

%

RUPS net sales decreased by $14.0 million or ten percent compared to the prior year period. The sales decrease was primarily due to lower sales volumes of crossties and railroad bridge services, partially offset by higher sales volumes of utility products. Sales of crossties and railroad bridge services declined by $13.7 million and $2.6 million, respectively. The reduction in treated crossties and structure services is attributed to lower spending in the rail industry due to the impact of reduced freight car loadings and rail traffic across both the Class I and commercial markets. In addition, commercial crosstie pricing has been reduced due to an over-supply of crossties in the non-Class I market. Sales of utility products increased by $3.5 million due to increased demand for structural timber in Australia.

PC net sales increased by $2.1 million or two percent compared to the prior year period. The sales increase was due primarily to higher North American sales volumes for some copper-based wood preservatives and additives. Higher sales volumes were driven primarily by favorable market trends in the repair and remodeling markets and existing home sales as well as treated wood dealers stocking and selling treated wood with higher preservative retention levels. These gains were offset in part by higher customer development costs, which are reflected as a reduction of net sales.

CMC net sales increased by $25.6 million or 22 percent compared to the prior year period due mainly to higher sales volumes for carbon black feedstock and phthalic anhydride with higher sales prices for carbon pitch and carbon black feedstock, partially offset by lower carbon pitch and creosote 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 prices were higher in all regions. Higher sales prices for carbon pitch and carbon black feedstock in Australasia and Europe were driven primarily by reduced supply in those regions.

Cost of sales as a percentage of net sales was 76 percent for the quarter ended September 30, 2017 compared to 79 percent in the prior year quarter due mainly to higher gross margins for CMC driven by lower raw material and shipping costs in North America and higher sales prices in Europe and Australasia. In addition, a sales mix shift for PC improved our results as higher gross margins were driven by increased sales volumes and lower costs. This more than offset lower sales volumes and gross margins from RUPS due to reduced sales volumes of crossties 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 September 30, 2017 was $1.7 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 September 30, 2017 were $2.8 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.

Loss on pension settlement for the quarter ended September 30, 2017 was $8.8 million higher when compared to the prior year period. On July 31, 2017, the Company completed an irrevocable transaction with an insurance company to annuitize approximately $33 million of retiree pension obligations in its U.S. qualified defined benefit pension plan for a selected group of retirees. The transaction was funded by transferring a similar amount of assets from the pension plan to the insurance company. Subsequent to this transfer, the insurance company has assumed all remaining pension obligations associated with these retirees. This represents approximately 20 percent of the plan’s discounted pension obligation as of that date and the Company recorded a pension settlement loss of $8.8 million in the third quarter of 2017.

Selling, general and administrative expenses for the quarter ended September 30, 2017 were $0.8 million higher when compared to the prior year period due mainly to increases in consulting and stock-based compensation expense.

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