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10-Q
KOPPERS HOLDINGS INC. filed this Form 10-Q on 08/03/2017
Entire Document
 
kop-10q_20170630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

Commission file number 1-32737

KOPPERS HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 

Pennsylvania

20-1878963

(State of incorporation)

(IRS Employer Identification No.)

436 Seventh Avenue

Pittsburgh, Pennsylvania 15219

(Address of principal executive offices)

(412) 227-2001

(Registrant’s telephone number, including area code)

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  No 

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  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   Accelerated filer   Non-accelerated filer   Smaller reporting company Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

Common Stock, par value $0.01 per share, outstanding at July 31, 2017 amounted to 20,745,461 shares.

 

 

 


 

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(Dollars in millions, except per share amounts)

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Net sales

 

$

378.0

 

 

$

385.1

 

 

$

724.6

 

 

$

731.9

 

Cost of sales (excluding items below)

 

 

294.7

 

 

 

303.8

 

 

 

570.0

 

 

 

592.3

 

Depreciation and amortization

 

 

11.7

 

 

 

13.1

 

 

 

22.9

 

 

 

28.2

 

Impairment and restructuring charges

 

 

2.1

 

 

 

6.0

 

 

 

3.6

 

 

 

11.1

 

Selling, general and administrative expenses

 

 

31.9

 

 

 

30.2

 

 

 

62.9

 

 

 

60.5

 

Operating profit

 

 

37.6

 

 

 

32.0

 

 

 

65.2

 

 

 

39.8

 

Other income

 

 

0.7

 

 

 

0.4

 

 

 

2.7

 

 

 

2.0

 

Interest expense

 

 

10.8

 

 

 

14.3

 

 

 

21.4

 

 

 

26.6

 

Loss on extinguishment of debt

 

 

0.0

 

 

 

0.0

 

 

 

13.3

 

 

 

0.0

 

Income before income taxes

 

 

27.5

 

 

 

18.1

 

 

 

33.2

 

 

 

15.2

 

Income tax provision

 

 

6.6

 

 

 

6.8

 

 

 

7.6

 

 

 

6.3

 

Income from continuing operations

 

 

20.9

 

 

 

11.3

 

 

 

25.6

 

 

 

8.9

 

(Loss) income from discontinued operations, net of tax

   benefit (expense) of $0.6, $0.0, $0.6 and $(0.4)

 

 

(1.1

)

 

 

0.0

 

 

 

(1.2

)

 

 

0.6

 

Net income

 

 

19.8

 

 

 

11.3

 

 

 

24.4

 

 

 

9.5

 

Net income (loss) attributable to noncontrolling interests

 

 

0.1

 

 

 

(0.8

)

 

 

0.3

 

 

 

(1.3

)

Net income attributable to Koppers

 

$

19.7

 

 

$

12.1

 

 

$

24.1

 

 

$

10.8

 

Earnings (loss) per common share attributable to Koppers

   common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

1.00

 

 

$

0.58

 

 

$

1.22

 

 

$

0.49

 

Discontinued operations

 

 

(0.06

)

 

 

0.00

 

 

 

(0.06

)

 

 

0.03

 

Earnings per basic common share

 

$

0.94

 

 

$

0.58

 

 

$

1.16

 

 

$

0.52

 

Diluted -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.95

 

 

$

0.57

 

 

$

1.15

 

 

$

0.49

 

Discontinued operations

 

 

(0.05

)

 

 

0.00

 

 

 

(0.06

)

 

 

0.03

 

Earnings per diluted common share

 

$

0.90

 

 

$

0.57

 

 

$

1.09

 

 

$

0.52

 

Comprehensive income

 

$

24.7

 

 

$

9.9

 

 

$

36.9

 

 

$

17.3

 

Comprehensive income (loss) attributable to noncontrolling

   interests

 

 

0.2

 

 

 

(1.0

)

 

 

0.4

 

 

 

(1.5

)

Comprehensive income attributable to Koppers

 

$

24.5

 

 

$

10.9

 

 

$

36.5

 

 

$

18.8

 

Weighted average shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

20,782

 

 

 

20,640

 

 

 

20,752

 

 

 

20,611

 

Diluted

 

 

21,883

 

 

 

20,944

 

 

 

21,898

 

 

 

20,798

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

June 30,

2017

 

 

December 31,

2016

 

(Dollars in millions, except per share amounts)

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

40.0

 

 

$

20.8

 

Accounts receivable, net of allowance of $3.0 and $3.8

 

 

180.1

 

 

 

136.8

 

Income tax receivable

 

 

4.5

 

 

 

3.8

 

Inventories, net

 

 

229.7

 

 

 

228.7

 

Loan to related party

 

 

0.0

 

 

 

8.9

 

Other current assets

 

 

46.7

 

 

 

39.1

 

Total current assets

 

 

501.0

 

 

 

438.1

 

Property, plant and equipment, net

 

 

303.4

 

 

 

280.8

 

Goodwill

 

 

187.9

 

 

 

186.4

 

Intangible assets, net

 

 

136.2

 

 

 

141.9

 

Deferred tax assets

 

 

26.7

 

 

 

27.1

 

Other assets

 

 

13.2

 

 

 

13.2

 

Total assets

 

$

1,168.4

 

 

$

1,087.5

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

148.4

 

 

$

144.2

 

Accrued liabilities

 

 

116.4

 

 

 

106.3

 

Current maturities of long-term debt

 

 

12.5

 

 

 

42.6

 

Total current liabilities

 

 

277.3

 

 

 

293.1

 

Long-term debt

 

 

680.4

 

 

 

619.8

 

Accrued postretirement benefits

 

 

50.4

 

 

 

51.6

 

Deferred tax liabilities

 

 

6.7

 

 

 

6.3

 

Other long-term liabilities

 

 

80.1

 

 

 

82.1

 

Total liabilities

 

 

1,094.9

 

 

 

1,052.9

 

Commitments and contingent liabilities (Note 18)

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Senior Convertible Preferred Stock, $0.01 par value per share; 10,000,000

   shares authorized; no shares issued

 

 

0.0

 

 

 

0.0

 

Common Stock, $0.01 par value per share; 80,000,000 shares authorized;

   22,350,838 and 22,140,680 shares issued

 

 

0.2

 

 

 

0.2

 

Additional paid-in capital

 

 

183.7

 

 

 

176.5

 

Accumulated deficit

 

 

(0.8

)

 

 

(24.7

)

Accumulated other comprehensive loss

 

 

(56.1

)

 

 

(68.6

)

Treasury stock, at cost, 1,605,377 and 1,475,792 shares

 

 

(58.1

)

 

 

(53.0

)

Total Koppers shareholders’ equity

 

 

68.9

 

 

 

30.4

 

Noncontrolling interests

 

 

4.6

 

 

 

4.2

 

Total equity

 

 

73.5

 

 

 

34.6

 

Total liabilities and equity

 

$

1,168.4

 

 

$

1,087.5

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

(Dollars in millions)

 

(Unaudited)

 

 

(Unaudited)

 

Cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

24.4

 

 

$

9.5

 

Adjustments to reconcile net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

22.9

 

 

 

28.2

 

Loss on extinguishment of debt

 

 

13.3

 

 

 

0.0

 

Gain on disposal of investment

 

 

(1.4

)

 

 

0.0

 

Deferred income taxes

 

 

0.2

 

 

 

0.3

 

Equity loss, net of dividends received

 

 

0.0

 

 

 

0.7

 

Change in other liabilities

 

 

(6.7

)

 

 

(5.2

)

Non-cash interest expense

 

 

1.0

 

 

 

3.9

 

Stock-based compensation

 

 

5.0

 

 

 

3.4

 

Other - net

 

 

0.0

 

 

 

2.8

 

Changes in working capital:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(39.2

)

 

 

(19.5

)

Inventories

 

 

4.6

 

 

 

6.0

 

Accounts payable

 

 

1.8

 

 

 

4.8

 

Accrued liabilities

 

 

8.3

 

 

 

3.3

 

Other working capital

 

 

(2.9

)

 

 

(3.9

)

Net cash provided by operating activities

 

 

31.3

 

 

 

34.3

 

Cash (used in) provided by investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(34.2

)

 

 

(21.3

)

Repayments of loan

 

 

9.5

 

 

 

0.0

 

Net cash provided by divestitures and asset sales

 

 

0.8

 

 

 

0.6

 

Net cash used in investing activities

 

 

(23.9

)

 

 

(20.7

)

Cash provided by (used in) financing activities:

 

 

 

 

 

 

 

 

Borrowings of revolving credit

 

 

523.3

 

 

 

290.3

 

Repayments of revolving credit

 

 

(455.9

)

 

 

(288.2

)

Borrowings of long-term debt

 

 

500.0

 

 

 

0.0

 

Repayments of long-term debt

 

 

(541.4

)

 

 

(15.0

)

Issuances of Common Stock

 

 

1.9

 

 

 

0.1

 

Repurchases of Common Stock

 

 

(5.2

)

 

 

(0.3

)

Payment of debt issuance costs

 

 

(11.0

)

 

 

(1.4

)

Net cash provided by (used in) financing activities

 

 

11.7

 

 

 

(14.5

)

Effect of exchange rate changes on cash

 

 

0.1

 

 

 

(4.5

)

Net increase (decrease) in cash and cash equivalents

 

 

19.2

 

 

 

(5.4

)

Cash and cash equivalents at beginning of period

 

 

20.8

 

 

 

21.8

 

Cash and cash equivalents at end of period

 

$

40.0

 

 

$

16.4

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4


 

KOPPERS HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related disclosures have been prepared in accordance with accounting principles generally accepted in the United States applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of Koppers Holdings Inc.’s and its subsidiaries’ (“Koppers”, “Koppers Holdings” or the “Company”) financial position and interim results as of and for the periods presented have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Because the Company’s business is seasonal, results for interim periods are not necessarily indicative of those that may be expected for a full year. The Condensed Consolidated Balance Sheet for December 31, 2016 has been summarized from the audited balance sheet contained in the Annual Report on Form 10-K for the year ended December 31, 2016. Certain prior period amounts in the notes to the consolidated financial statements have been reclassified to conform to the current period’s presentation.  

The financial information included herein should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2016.

2. New Accounting Pronouncements

The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” effective January 1, 2017. This ASU makes several modifications related to the accounting for forfeitures of share-based awards, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. The Company elected to account for forfeitures when they occur. The impact of adoption was a decrease to retained earnings of $0.2 million, an increase to deferred tax assets of $0.1 million and an increase to additional paid in capital of $0.3 million.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 requires an entity to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Subsequent to the issuance of ASU 2014-09, the FASB issued multiple ASUs which either amended or clarified ASU 2014-09. Collectively, the revenue recognition ASUs are effective for annual reporting periods beginning after December 15, 2017 and allow for the use of either the full retrospective or modified retrospective transition method. The Company has decided to use the modified retrospective method for transition in which the cumulative effect will be recognized at the date of adoption with no restatement of comparative periods presented. The Company has a project team that has made substantial progress in analyzing significant contracts with customers across all major business units to determine the impact of the adoption of the ASUs on the Company’s financial statements and disclosures. The Company will continue to assess the impact the ASU updates will have on its revenue arrangements with a final evaluation of the impact of adopting these ASU updates expected to be completed during the third quarter of 2017.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU 2016-02 requires an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than one year. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The standard is effective January 1, 2019 and early adoption is permitted. The guidance requires a modified retrospective adoption. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The update clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flow. The amendments in this update are effective for periods beginning after December 15, 2017. The Company is in the process of assessing the impact the adoption of this ASU will have on its consolidated financial statements.

 

 

3. Plant Closures and Divestitures

Over the past three years, the Company has been restructuring its Carbon Materials and Chemicals (“CMC”) business unit in order to concentrate its facilities in regions where the Company believes it holds key competitive advantages to better serve its global customers. These closure activities include:

 

In January 2017, the Company entered into an agreement to lease its Follansbee, West Virginia coal tar distillation facility to a third party. It is anticipated that the Company will cease naphthalene refining activities at

5


 

 

the facility within the next nine to 12 months upon commissioning of a new naphthalene refining plant in Stickney, Illinois.  

 

In November 2016, the Company sold its 30-percent interest in Tangshan Kailuan Koppers Carbon Chemical Company Limited (“TKK”) located in the Hebei Province in China.

 

In July 2016, the Company discontinued coal tar distillation activities at its CMC plant located in Clairton, Pennsylvania.

 

In March 2016, the Company discontinued production at its 60-percent owned CMC plant located in Tangshan, China.

 

In February 2016, the Company announced plans to cease coal tar distillation and specialty pitch operations at both of its United Kingdom CMC facilities. In July 2016, the Company sold substantially all of its CMC tar distillation properties and assets in the United Kingdom. In exchange, the Company transferred cash to the buyer and the buyer assumed historical environmental and asset retirement obligations.

 

In April 2014, the Company ceased its coal tar distillation activities at its CMC facility located in Uithoorn, the Netherlands.

 

In 2011, the Company ceased carbon black production at its CMC facility located in Kurnell, Australia.

Other closure and divestiture activity relates to the Company’s Railroad Utility Products and Services (“RUPS”) business unit. These actions include:

 

In October 2016, the Company agreed to a long-term lease of its wood treatment facility in Houston, Texas to a third party. The facility, owned by the Company’s wholly-owned subsidiary, Wood Protection L.P., was engaged in the manufacturing and sale of pressure-treated dimensional lumber.

 

In August 2015, the Company closed its RUPS plant located in Green Spring, West Virginia.

 

In July 2015, the Company sold the assets of its 50-percent interest in KSA Limited Partnership, a concrete crosstie manufacturer.  

 

In January 2015, Koppers Inc. sold its RUPS North American utility pole business.

Details of the restructuring activities and related reserves are as follows:

 

 

 

Severance and

employee benefits

 

 

Environmental

remediation

 

 

Site

demolition

 

 

Other

 

 

Total

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve at December 31, 2015

 

$

2.0

 

 

$

4.3

 

 

$

21.9

 

 

$

0.0

 

 

$

28.2

 

Accrual

 

 

2.4

 

 

 

0.1

 

 

 

5.6

 

 

 

5.6

 

 

 

13.7

 

Cost charged against assets

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(1.9

)

 

 

(1.9

)

Reversal of accrued charges

 

 

(1.9

)

 

 

(0.5

)

 

 

(8.7

)

 

 

(0.1

)

 

 

(11.2

)

Cash paid

 

 

(1.0

)

 

 

(2.4

)

 

 

(8.1

)

 

 

(0.2

)

 

 

(11.7

)

Currency translation

 

 

(0.1

)

 

 

0.0

 

 

 

(0.7

)

 

 

(0.2

)

 

 

(1.0

)

Reserve at December 31, 2016

 

$

1.4

 

 

$

1.5

 

 

$

10.0

 

 

$

3.2

 

 

$

16.1

 

Accrual

 

 

0.1

 

 

 

2.1

 

 

 

0.0

 

 

 

3.5

 

 

 

5.7

 

Cost charged against assets

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(3.2

)

 

 

(3.2

)

Reversal of accrued charges

 

 

(0.1

)

 

 

0.0

 

 

 

(0.3

)

 

 

0.0

 

 

 

(0.4

)

Cash paid

 

 

(0.1

)

 

 

(0.7

)

 

 

(0.9

)

 

 

(0.3

)

 

 

(2.0

)

Currency translation

 

 

0.0

 

 

 

0.1

 

 

 

0.0

 

 

 

0.0

 

 

 

0.1

 

Reserve at June 30, 2017

 

$

1.3

 

 

$

3.0

 

 

$

8.8

 

 

$

3.2

 

 

$

16.3

 

 

 

4. Related Party Transactions

 

As of December 31, 2016 the Company had loaned $10.0 million, gross of accumulated equity losses of $1.1 million, to TKK, including interest. The Company had a 30-percent interest in TKK until its sale to TKK’s controlling shareholder in November 2016. The loan and interest has been fully repaid and the Company recorded a gain of $1.3 million in the six months ended June 30, 2017.

 

 

6


 

5. Fair Value Measurements

Carrying amounts and the related estimated fair values of the Company’s financial instruments as of June 30, 2017 and December 31, 2016 are as follows:

 

 

 

June 30, 2017

 

 

December 31, 2016

 

 

 

Fair Value

 

 

Carrying

Value

 

 

Fair Value

 

 

Carrying

Value

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, including restricted cash

 

$

40.0

 

 

$

40.0

 

 

$

20.8

 

 

$

20.8

 

Investments and other assets(a)

 

 

1.1

 

 

 

1.1

 

 

 

1.1

 

 

 

1.1

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt (including current portion)

 

$

722.9

 

 

$

692.9

 

 

$

669.6

 

 

$

662.4

 

(a)

Excludes equity method investments.

Cash and cash equivalents – The carrying amount approximates fair value because of the short maturity of those instruments.

Investments and other assets – Represents the broker-quoted cash surrender value on universal life insurance policies. This asset is classified as Level 2 in the valuation hierarchy and is measured from values received from financial institutions.

Debt – The fair value of the Company’s long-term debt is estimated based on the market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities (Level 2). The fair value of the Company’s revolving credit facility approximates carrying value due to the variable rate nature of this instrument.

 

 

6. Comprehensive Income and Equity (Deficit)

Total comprehensive income for the three and six months ended June 30, 2017 and 2016 is summarized in the table below:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

19.8

 

 

$

11.3

 

 

$

24.4

 

 

$

9.5

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in currency translation adjustment

 

 

4.9

 

 

 

(3.0

)

 

 

10.9

 

 

 

3.4

 

Unrealized (losses) gains on cash flow hedges,

   net of tax (benefit) expense of $(0.3), $0.9, $0.6

   and $2.5

 

 

(0.4

)

 

 

1.3

 

 

 

0.9

 

 

 

3.7

 

Change in unrecognized pension net loss,

   net of tax expense of $0.2, $0.1, $0.4 and $0.3

 

 

0.4

 

 

 

0.3

 

 

 

0.7

 

 

 

0.7

 

Total comprehensive income

 

 

24.7

 

 

 

9.9

 

 

 

36.9

 

 

 

17.3

 

Less: Comprehensive income (loss) attributable to

   noncontrolling interests

 

 

0.2

 

 

 

(1.0

)

 

 

0.4

 

 

 

(1.5

)

Comprehensive income attributable to Koppers

 

$

24.5

 

 

$

10.9

 

 

$

36.5

 

 

$

18.8

 

 

Amounts reclassified from accumulated other comprehensive loss to net income consist of amounts shown for changes in unrecognized pension net loss and unrecognized prior service cost. These components of accumulated other comprehensive income are included in the computation of net periodic pension cost as disclosed in Note 13 – Pensions and Postretirement Benefit Plans. Other amounts reclassified from accumulated other comprehensive income include income related to derivative financial instruments, net of tax, of $1.3 million and $2.6 million for the three and six months ended June 30, 2017, respectively, and losses of $1.7 million and $3.2 million for the three and six months ended June 30, 2016, respectively.

7


 

The following tables present the change in equity (deficit) for the six months ended June 30, 2017 and 2016, respectively:

 

(Dollars in millions)

 

Total Koppers

Shareholders’

Equity

 

 

Noncontrolling

Interests

 

 

Total Equity

 

Balance at December 31, 2016

 

$

30.4

 

 

$

4.2

 

 

$

34.6

 

Net income

 

 

24.1

 

 

 

0.3

 

 

 

24.4

 

Issuance of common stock

 

 

1.9

 

 

 

0.0

 

 

 

1.9

 

Employee stock plans

 

 

5.3

 

 

 

0.0

 

 

 

5.3

 

Other comprehensive income

 

 

12.4

 

 

 

0.1

 

 

 

12.5

 

Repurchases of common stock

 

 

(5.2

)

 

 

0.0

 

 

 

(5.2

)

Balance at June 30, 2017

 

$

68.9

 

 

$

4.6

 

 

$

73.5

 

 

(Dollars in millions)

 

Total Koppers

Shareholders’

Equity (Deficit)

 

 

Noncontrolling

Interests

 

 

Total Equity (Deficit)

 

Balance at December 31, 2015

 

$

(18.5

)

 

$

6.1

 

 

$

(12.4

)

Net income (loss)

 

 

10.8

 

 

 

(1.3

)

 

 

9.5

 

Employee stock plans

 

 

3.4

 

 

 

0.0

 

 

 

3.4

 

Other comprehensive income (loss)

 

 

8.0

 

 

 

(0.2

)

 

 

7.8

 

Repurchases of common stock

 

 

(0.3

)

 

 

0.0

 

 

 

(0.3

)

Balance at June 30, 2016

 

$

3.4

 

 

$

4.6

 

 

$

8.0

 

 

 

7. Earnings per Common Share

The computation of basic earnings per common share for the periods presented is based upon the weighted average number of common shares outstanding during the periods. The computation of diluted earnings per common share includes the effect of non-vested nonqualified stock options and restricted stock units assuming such options and stock units were outstanding common shares at the beginning of the period. The effect of antidilutive securities is excluded from the computation of diluted loss per common share, if any.

The following table sets forth the computation of basic and diluted earnings per common share:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(Dollars in millions, except share amounts, in thousands, and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Koppers

 

$

19.7

 

 

$

12.1

 

 

$

24.1

 

 

$

10.8

 

Less: (Loss) income from discontinued operations

 

 

(1.1

)

 

 

0.0

 

 

 

(1.2

)

 

 

0.6

 

Income from continuing operations attributable to

   Koppers

 

$

20.8

 

 

$

12.1

 

 

$

25.3

 

 

$

10.2

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

20,782

 

 

 

20,640

 

 

 

20,752

 

 

 

20,611

 

Effect of dilutive securities

 

 

1,101

 

 

 

304

 

 

 

1,146

 

 

 

187

 

Diluted

 

 

21,883

 

 

 

20,944

 

 

 

21,898

 

 

 

20,798

 

Income per common share – continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per common share

 

$

1.00

 

 

$

0.58

 

 

$

1.22

 

 

$

0.49

 

Diluted income per common share

 

 

0.95

 

 

 

0.57

 

 

 

1.15

 

 

 

0.49

 

Other data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Antidilutive securities excluded from computation of

   diluted earnings per common share

 

 

509

 

 

 

424

 

 

 

344

 

 

 

572

 

 

8. Stock-based Compensation

The amended and restated 2005 Long-Term Incentive Plan (the “LTIP”) provides for the grant to eligible persons of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance awards, dividend equivalents and other stock-based awards, which are collectively referred to as the awards.

8


 

Restricted Stock Units and Performance Stock Units

Under the LTIP, the board of directors grants restricted stock units and performance stock units to certain employee participants (collectively, the “stock units”). For grants to most employees in 2015 and thereafter, the restricted stock units vest in four equal annual installments. Restricted stock units that have one-year vesting periods are also issued under the LTIP to members of the board of directors in connection with annual director compensation and, from time to time, are issued to employees in connection with employee compensation with vesting periods of two years or less typically.

Compensation expense for non-vested stock units is recorded over the vesting period based on the fair value at the date of grant. The fair value of restricted stock units and performance stock units with a performance condition is the market price of the underlying common stock on the date of grant.

Performance stock units granted prior to 2016 have vesting based upon a performance condition. These performance stock units generally have three-year performance objectives and all performance stock units have a three-year period for vesting (if the applicable performance objective is achieved). For awards granted prior to 2016, the applicable performance objective is based upon a multi-year cumulative value creation calculation that considers the Company’s financial performance commencing on the first day of each grant year. The number of performance stock units granted represents the target award and participants have the ability to earn between zero and 200 percent (depending on the grant date) of the target award based upon actual performance. If minimum performance criteria are not achieved, no performance stock units will vest. Performance stock units granted in 2014 did not meet the value creation threshold and were forfeited in February 2017.

Performance stock units granted in 2016 and 2017 have vesting based upon a market condition. These performance stock units have a three-year performance objective and a three-year period for vesting (if the applicable performance objective is achieved). The applicable performance objective is based on the Company’s total shareholder return relative to the Standard & Poors SmallCap 600 Materials Index. The number of performance stock units granted represents the target award and participants have the ability to earn between zero and 200 percent of the target award based upon actual performance. If minimum performance criteria are not achieved, no performance stock units will vest. The Company has the discretion to settle the award in cash rather than shares, although the Company currently expects that all awards will be settled by the issuance of shares.

Compensation expense for non-vested performance stock units with a market condition is recorded over the vesting period based on the fair value at the date of grant. The Company calculated the fair value of the awards on the date of grant using the Monte Carlo valuation model and the assumptions listed below:

 

 

 

March 2017 Grant

 

 

March 2016 Grant

 

Grant date price per share of performance award

 

$

44.10

 

 

$

18.11

 

Expected dividend yield per share

 

 

0.00

%

 

 

0.00

%

Expected volatility

 

 

43.50

%

 

 

40.86

%

Risk-free interest rate

 

 

1.54

%

 

 

0.96

%

Look-back period in years

 

 

2.83

 

 

 

2.84

 

Grant date fair value per share of performance award

 

$

64.02

 

 

$

23.70

 

 

Dividends declared, if any, on the Company’s common stock during the period prior to vesting of the stock units are credited at equivalent value as additional stock units and become payable as additional common shares upon vesting. In the event of termination of employment, other than retirement, death or disability, any non-vested stock units are forfeited, including additional stock units credited from dividends. In the event of termination of employment due to retirement, death or disability, pro-rata vesting of the stock units over the service period will result. There are special vesting provisions for the stock units related to a change in control. 

The following table shows a summary of the performance stock units as of June 30, 2017:

 

Performance Period

 

Minimum

Shares

 

 

Target

Shares

 

 

Maximum

Shares

 

2015 – 2017

 

 

0

 

 

 

203,953

 

 

 

407,906

 

2016 – 2018

 

 

0

 

 

 

260,588

 

 

 

521,176

 

2017 – 2019

 

 

0

 

 

 

117,010

 

 

 

234,020

 

 

9


 

The following table shows a summary of the status and activity of non-vested stock units for the six months ended June 30, 2017:

 

 

 

Restricted

Stock Units

 

 

Performance

Stock Units

 

 

Total

Stock Units

 

 

Weighted Average

Grant Date Fair

Value per Unit

 

Non-vested at December 31, 2016

 

 

279,807

 

 

 

554,388

 

 

 

834,195

 

 

$

23.09

 

Granted

 

 

82,279

 

 

 

117,010

 

 

 

199,289

 

 

$

55.32

 

Vested

 

 

(127,443

)

 

 

0

 

 

 

(127,443

)

 

$