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10-Q
KOPPERS HOLDINGS INC. filed this Form 10-Q on 11/09/2017
Entire Document
 
kop-10q_20170930.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 September 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 October 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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(Dollars in millions, except per share amounts)

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Net sales

 

$

384.8

 

 

$

371.1

 

 

$

1,109.4

 

 

$

1,103.0

 

Cost of sales (excluding items below)

 

 

293.6

 

 

 

294.1

 

 

 

863.6

 

 

 

886.4

 

Depreciation and amortization

 

 

12.1

 

 

 

13.8

 

 

 

35.0

 

 

 

42.0

 

Gain on sale of business

 

 

0.0

 

 

 

(2.1

)

 

 

0.0

 

 

 

(2.1

)

Impairment and restructuring charges

 

 

2.2

 

 

 

5.0

 

 

 

5.8

 

 

 

16.1

 

Loss on pension settlement

 

 

8.8

 

 

 

0.0

 

 

 

8.8

 

 

 

0.0

 

Selling, general and administrative expenses

 

 

33.4

 

 

 

32.6

 

 

 

96.3

 

 

 

93.1

 

Operating profit

 

 

34.7

 

 

 

27.7

 

 

 

99.9

 

 

 

67.5

 

Other income

 

 

0.6

 

 

 

0.2

 

 

 

3.3

 

 

 

2.2

 

Interest expense

 

 

10.5

 

 

 

11.7

 

 

 

31.9

 

 

 

38.3

 

Loss on extinguishment of debt

 

 

0.0

 

 

 

0.0

 

 

 

13.3

 

 

 

0.0

 

Income before income taxes

 

 

24.8

 

 

 

16.2

 

 

 

58.0

 

 

 

31.4

 

Income tax provision

 

 

4.8

 

 

 

4.2

 

 

 

12.4

 

 

 

10.5

 

Income from continuing operations

 

 

20.0

 

 

 

12.0

 

 

 

45.6

 

 

 

20.9

 

(Loss) income from discontinued operations, net of tax

   benefit (expense) of $0.0, $0.0, $0.4 and $(0.3)

 

 

(0.1

)

 

 

(0.1

)

 

 

(1.3

)

 

 

0.5

 

Net income

 

 

19.9

 

 

 

11.9

 

 

 

44.3

 

 

 

21.4

 

Net income (loss) attributable to noncontrolling interests

 

 

0.1

 

 

 

(0.2

)

 

 

0.4

 

 

 

(1.5

)

Net income attributable to Koppers

 

$

19.8

 

 

$

12.1

 

 

$

43.9

 

 

$

22.9

 

Earnings (loss) per common share attributable to Koppers

   common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.96

 

 

$

0.59

 

 

$

2.17

 

 

$

1.08

 

Discontinued operations

 

 

0.00

 

 

 

0.00

 

 

 

(0.06

)

 

 

0.03

 

Earnings per basic common share

 

$

0.96

 

 

$

0.59

 

 

$

2.11

 

 

$

1.11

 

Diluted -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.91

 

 

$

0.58

 

 

$

2.06

 

 

$

1.07

 

Discontinued operations

 

 

0.00

 

 

 

0.00

 

 

 

(0.06

)

 

 

0.02

 

Earnings per diluted common share

 

$

0.91

 

 

$

0.58

 

 

$

2.00

 

 

$

1.09

 

Comprehensive income

 

$

36.8

 

 

$

14.1

 

 

$

73.7

 

 

$

31.4

 

Comprehensive income (loss) attributable to noncontrolling

   interests

 

 

0.2

 

 

 

(0.2

)

 

 

0.6

 

 

 

(1.7

)

Comprehensive income attributable to Koppers

 

$

36.6

 

 

$

14.3

 

 

$

73.1

 

 

$

33.1

 

Weighted average shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

20,746

 

 

 

20,657

 

 

 

20,750

 

 

 

20,627

 

Diluted

 

 

21,911

 

 

 

21,163

 

 

 

21,927

 

 

 

20,975

 

 

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

2


 

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

September 30,

2017

 

 

December 31,

2016

 

(Dollars in millions, except per share amounts)

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

50.2

 

 

$

20.8

 

Accounts receivable, net of allowance of $2.0 and $3.8

 

 

180.5

 

 

 

136.8

 

Income tax receivable

 

 

3.7

 

 

 

3.8

 

Inventories, net

 

 

226.6

 

 

 

228.7

 

Loan to related party

 

 

0.0

 

 

 

8.9

 

Other current assets

 

 

53.0

 

 

 

39.1

 

Total current assets

 

 

514.0

 

 

 

438.1

 

Property, plant and equipment, net

 

 

312.3

 

 

 

280.8

 

Goodwill

 

 

188.6

 

 

 

186.4

 

Intangible assets, net

 

 

133.5

 

 

 

141.9

 

Deferred tax assets

 

 

20.0

 

 

 

27.1

 

Other assets

 

 

12.5

 

 

 

13.2

 

Total assets

 

$

1,180.9

 

 

$

1,087.5

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

133.2

 

 

$

144.2

 

Accrued liabilities

 

 

108.2

 

 

 

106.3

 

Current maturities of long-term debt

 

 

12.8

 

 

 

42.6

 

Total current liabilities

 

 

254.2

 

 

 

293.1

 

Long-term debt

 

 

688.0

 

 

 

619.8

 

Accrued postretirement benefits

 

 

41.3

 

 

 

51.6

 

Deferred tax liabilities

 

 

7.1

 

 

 

6.3

 

Other long-term liabilities

 

 

77.2

 

 

 

82.1

 

Total liabilities

 

 

1,067.8

 

 

 

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

 

 

186.5

 

 

 

176.5

 

Retained earnings (accumulated deficit)

 

 

19.0

 

 

 

(24.7

)

Accumulated other comprehensive loss

 

 

(39.3

)

 

 

(68.6

)

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

 

 

(58.1

)

 

 

(53.0

)

Total Koppers shareholders’ equity

 

 

108.3

 

 

 

30.4

 

Noncontrolling interests

 

 

4.8

 

 

 

4.2

 

Total equity

 

 

113.1

 

 

 

34.6

 

Total liabilities and equity

 

$

1,180.9

 

 

$

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

 

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

(Dollars in millions)

 

(Unaudited)

 

 

(Unaudited)

 

Cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

44.3

 

 

$

21.4

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

35.0

 

 

 

42.0

 

Impairment charges

 

 

0.0

 

 

 

3.5

 

Loss on extinguishment of debt

 

 

13.3

 

 

 

0.0

 

Gain on disposal of assets and investment

 

 

(1.4

)

 

 

0.0

 

Gain on sale of business

 

 

0.0

 

 

 

(2.1

)

Deferred income taxes

 

 

0.8

 

 

 

(0.5

)

Equity loss, net of dividends received

 

 

0.0

 

 

 

1.0

 

Change in other liabilities

 

 

(18.6

)

 

 

(7.6

)

Non-cash interest expense

 

 

1.5

 

 

 

4.8

 

Stock-based compensation

 

 

7.8

 

 

 

5.7

 

Loss on pension settlement

 

 

8.8

 

 

 

0.0

 

Other - net

 

 

2.0

 

 

 

3.3

 

Changes in working capital:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(37.6

)

 

 

(17.9

)

Inventories

 

 

10.5

 

 

 

13.8

 

Accounts payable

 

 

(14.4

)

 

 

0.9

 

Accrued liabilities

 

 

(1.1

)

 

 

15.4

 

Other working capital

 

 

(2.4

)

 

 

(1.2

)

Net cash provided by operating activities

 

 

48.5

 

 

 

82.5

 

Cash (used in) provided by investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(48.6

)

 

 

(32.2

)

Repayments received on loan

 

 

9.5

 

 

 

0.0

 

Net cash provided by divestitures and asset sales

 

 

1.1

 

 

 

(4.5

)

Net cash used in investing activities

 

 

(38.0

)

 

 

(36.7

)

Cash provided by (used in) financing activities:

 

 

 

 

 

 

 

 

Borrowings of revolving credit

 

 

624.2

 

 

 

457.9

 

Repayments of revolving credit

 

 

(550.1

)

 

 

(477.9

)

Borrowings of long-term debt

 

 

500.0

 

 

 

0.0

 

Repayments of long-term debt

 

 

(541.4

)

 

 

(23.4

)

Issuances of Common Stock

 

 

1.9

 

 

 

0.5

 

Repurchases of Common Stock

 

 

(5.1

)

 

 

(0.3

)

Payment of debt issuance costs

 

 

(11.0

)

 

 

(1.4

)

Net cash provided by (used in) financing activities

 

 

18.5

 

 

 

(44.6

)

Effect of exchange rate changes on cash

 

 

0.4

 

 

 

(5.3

)

Net increase (decrease) in cash and cash equivalents

 

 

29.4

 

 

 

(4.1

)

Cash and cash equivalents at beginning of period

 

 

20.8

 

 

 

21.8

 

Cash and cash equivalents at end of period

 

$

50.2

 

 

$

17.7

 

 

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.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 substantially completed its analysis of significant contracts with customers across all major business units to assess the impact of the adoption of the ASUs on the Company’s financial statements and disclosures. Substantially all of the Company’s contracts with its customers are standard ship and invoice arrangements where revenue is recognized at the time of shipment or delivery. The Company has identified certain arrangements where revenue will be accelerated upon adoption as the related performance obligations under the contract have been satisfied and control of the goods or services have been transferred to the customer prior to shipment. After assessing the results of the analysis completed to date, the Company currently does not believe this ASU will have a significant impact on its consolidated financial position, results of operations and cash flows. The Company will continue to update its assessment through the fourth quarter of 2017 for existing customer contracts and more recently executed customer contracts.

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.

In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment (Topic 350).” The update is intended to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The amendments in this update are effective for periods beginning after December 15, 2019. Entities are required to apply the amendments in this update prospectively from the

5


 

date of adoption. The Company intends to early adopt this ASU and does not anticipate that will impact our financial statements as there is a sufficient excess between the fair value and carrying value of our goodwill.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” This ASU amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. ASU No. 2017-12 is effective for periods beginning after December 15, 2019, and earlier adoption is permitted. The Company is currently reviewing the effect of this ASU to its 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 the facility within the next nine 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.

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.

In addition, in 2011, the Company ceased carbon black production at its CMC facility located in Kurnell, Australia. Costs associated with this closure are included in “(Loss) income from discontinued operations” on the Condensed Consolidated Statement of Operations and Comprehensive Income.

6


 

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

 

 

0.9

 

 

 

2.1

 

 

 

0.0

 

 

 

4.9

 

 

 

7.9

 

Cost charged against assets

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(4.5

)

 

 

(4.5

)

Reversal of accrued charges

 

 

(0.3

)

 

 

0.0

 

 

 

(0.4

)

 

 

0.0

 

 

 

(0.7

)

Cash paid

 

 

(0.1

)

 

 

(1.0

)

 

 

(1.8

)

 

 

(0.4

)

 

 

(3.3

)

Currency translation

 

 

0.0

 

 

 

0.2

 

 

 

0.1

 

 

 

0.0

 

 

 

0.3

 

Reserve at September 30, 2017

 

$

1.9

 

 

$

2.8

 

 

$

7.9

 

 

$

3.2

 

 

$

15.8

 

 

 

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 nine months ended September 30, 2017.

 

 

5. Fair Value Measurements

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

 

 

 

September 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

 

$

50.2

 

 

$

50.2

 

 

$

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)

 

$

730.8

 

 

$

700.8

 

 

$

669.6

 

 

$

662.4

 

(a)

Excludes equity method investments.

Cash and cash equivalents – The carrying value 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.

 

 

7


 

6. Comprehensive Income and Equity (Deficit)

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

19.9

 

 

$

11.9

 

 

$

44.3

 

 

$

21.4

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in currency translation adjustment

 

 

6.3

 

 

 

0.7

 

 

 

17.2

 

 

 

4.1

 

Unrealized gains on cash flow hedges, net

   of tax expense of $1.1, $1.0, $1.4 and $3.4

 

 

4.1

 

 

 

1.7

 

 

 

5.0

 

 

 

5.5

 

Unrecognized pension net loss (gain), net of tax

   (benefit) expense of $(3.9), $0.1, $(4.3) and $(0.3)

 

 

6.5

 

 

 

(0.2

)

 

 

7.2

 

 

 

0.4

 

Total comprehensive income

 

 

36.8

 

 

 

14.1

 

 

 

73.7

 

 

 

31.4

 

Less: Comprehensive income (loss) attributable to

   noncontrolling interests

 

 

0.2

 

 

 

(0.2

)

 

 

0.6

 

 

 

(1.7

)

Comprehensive income attributable to Koppers

 

$

36.6

 

 

$

14.3

 

 

$

73.1

 

 

$

33.1

 

 

Amounts reclassified from accumulated other comprehensive loss to net income consist of amounts shown for changes in unrecognized pension net loss. This component of accumulated other comprehensive income is 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 loss include income related to derivative financial instruments, net of tax, of $2.3 million and $4.9 million for the three and nine months ended September 30, 2017, respectively, and losses of $1.6 million and $4.8 million for the three and nine months ended September 30, 2016, respectively.

The following tables present the change in equity (deficit) for the nine months ended September 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

 

 

43.9

 

 

 

0.4

 

 

 

44.3

 

Issuance of common stock

 

 

1.9

 

 

 

0.0

 

 

 

1.9

 

Employee stock plans

 

 

8.0

 

 

 

0.0

 

 

 

8.0

 

Other comprehensive income

 

 

29.2

 

 

 

0.2

 

 

 

29.4

 

Repurchases of common stock

 

 

(5.1

)

 

 

0.0

 

 

 

(5.1

)

Balance at September 30, 2017

 

$

108.3

 

 

$

4.8

 

 

$

113.1

 

 

(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)

 

 

22.9

 

 

 

(1.5

)

 

 

21.4

 

Employee stock plans

 

 

6.0

 

 

 

0.0

 

 

 

6.0

 

Other comprehensive income (loss)

 

 

10.2

 

 

 

(0.2

)

 

 

10.0

 

Repurchases of common stock

 

 

(0.3

)

 

 

0.0

 

 

 

(0.3

)

Balance at September 30, 2016

 

$

20.3

 

 

$

4.4

 

 

$

24.7

 

 

 

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.

8


 

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Koppers

 

$

19.8

 

 

$

12.1

 

 

$

43.9

 

 

$

22.9

 

Less: (Loss) income from discontinued operations

 

 

(0.1

)

 

 

(0.1

)

 

 

(1.3

)

 

 

0.5

 

Income from continuing operations attributable to

   Koppers

 

$

19.9

 

 

$

12.2

 

 

$

45.2

 

 

$

22.4

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

20,746

 

 

 

20,657

 

 

 

20,750

 

 

 

20,627

 

Effect of dilutive securities

 

 

1,165

 

 

 

506

 

 

 

1,177

 

 

 

348

 

Diluted

 

 

21,911

 

 

 

21,163

 

 

 

21,927

 

 

 

20,975

 

Income per common share – continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per common share

 

$

0.96

 

 

$

0.59

 

 

$

2.17

 

 

$

1.08

 

Diluted income per common share

 

 

0.91

 

 

 

0.58

 

 

 

2.06

 

 

 

1.07

 

Other data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Antidilutive securities excluded from computation of

   diluted earnings per common share

 

 

543

 

 

 

339

 

 

 

482

 

 

 

421

 

 

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.

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.

9


 

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 September 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