ITEM 1. FINANCIAL STATEMENTS
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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, 2017 has been summarized from the audited balance sheet contained in the Annual Report on Form 10-K for the year ended December 31, 2017. 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, 2017.
2. New Accounting Pronouncements
In August 2018, the Securities and Exchange Commission (“SEC”) issued SEC Release No. 33-10532, “Disclosure Update and Simplification”, which
expanded the interim period disclosure requirements for stockholders' equity. Under the release, a reconciliation of the changes in each caption of stockholders' equity must be provided in a note or separate statement for each period that an income statement is required to be filed. The Company will reflect the requirements of this release in its unaudited condensed consolidated financial statements for the period ended March 31, 2019.
In August 2017, the Financial Accounting Standards Board (“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. The Company adopted this ASU effective January 1, 2018 and the Company reclassified a $3.6 million unrealized gain, net of tax, from retained earnings to accumulated other comprehensive loss upon adoption.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation – Retirement Benefits (Topic 715)”, in order to improve the presentation of net periodic pension and postretirement costs. The amendment requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendments in this update related to income statement activity are applied. As a practical expedient, the Company has used the amounts disclosed in its pension and post-retirement benefits footnote as the estimation basis for applying the retrospective presentation requirements. The Company adopted this ASU effective January 1, 2018,
and for retrospective presentation, reclassified $0.1 and $0.6 million
from cost of goods sold and $0.2 and $0.7 million from selling, general and administrative expenses to other income for the three and nine months ended September 30, 2017, respectively.
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 date
of adoption, with early adoption permitted. The Company adopted this ASU effective January 1, 2018.
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 adopted this ASU effective January 1, 2018
. The impact was not material to the Company’s condensed consolidated statement of cash flows.
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. The standard is effective January 1, 2019 and recognition, measurement and presentation of expenses will depend on classification as a finance or operating
5
lease.
In July 2018, the FASB issued ASU
No.
2018-11, Leases (Topic 842): Targeted Improvements, which provides clarifications and improvements to ASU 2016-02 including allowing
entities to elect an additional transition method with which to adopt ASU 2016-02. The approved transition method enables entities to apply the transition requirements in this ASU at the effective date of ASU 2016-02 (rather than at the beginning of the ea
rliest comparative period presented) with the effect of initially applying ASU 2016-02 recognized as a cumulative-effect adjustment to retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in
the year of adoption would continue to be in accordance with ASC 840, Leases (Topic 840) (“ASC 840”), including the disclosure requirements of ASC 840. We plan to adopt ASU 2016-02 effective at the beginning of 2019 using the modified retrospective approa
ch
with no restatement of comparative periods presented
. Practical expedients are available for election as a package and if applied consistently to all leases
.
The Company has a project team analyzing all of its leases and we have selected our leasing software solution and are in the process of identifying changes to our business processes, systems and controls to support adoption of the new standard in 2019. The Company will elect the practical expedient to retain its current classification of leases, and as a result, anticipates that the initial impact of adopting this new standard on its consolidated statement of income and consolidated statement of cash flows will not be material. The Company is still in the process of determining the impact of this adoption on the balance sheet and expects this analysis will be completed during the fourth quarter of 2018. While we are unable to quantify the impact at this time we expect that the adoption of the new standard to result in a material effect on total assts and total liabilities.
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 were effective for annual reporting periods beginning after December 15, 2017. The Company elected to use the modified retrospective method for transition in which the cumulative effect was recognized at its January 1, 2018 date of adoption with no restatement of comparative periods presented. The implementation of the guidance had no material impact on the measurement of recognition of revenue of prior periods; however, additional disclosures have been added in accordance with the ASU.
3. Plant Closures and Divestitures
Over the past four 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:
|
•
|
The anticipated cessation of naphthalene refining activities at the Company’s Follansbee, West Virginia coal tar distillation facility in the fourth quarter of 2018 subsequent to commissioning of a new naphthalene refining plant in Stickney, Illinois.
|
|
•
|
In September 2018, the Company sold its UK-based specialty chemicals business.
|
|
•
|
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 October 2018, the Company sold the facility and will recognize a loss on the transaction of $6.1 million during the three months ended December 31, 2018. As part of the transaction, the Company transferred cash to the buyer and the buyer assumed decommissioning, demolition and site restoration responsibilities.
|
|
•
|
In March 2016, the Company discontinued production at its 60-percent owned CMC plant located in Tangshan, China.
|
|
•
|
In February 2016, the Company ceased 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.
|
|
•
|
In August 2015, the Company closed its RUPS plant located in Green Spring, West Virginia.
|
6
|
•
|
In July 2015, the Company sold the assets of its 50-percent interest in KSA Limited Partnership, a concrete
crosstie manufacturer.
|
|
•
|
In January 2015, the Company 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 “Income (Loss) from discontinued operations” on the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income.
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, 2016
|
|
$
|
1.4
|
|
|
$
|
1.5
|
|
|
$
|
10.0
|
|
|
$
|
3.2
|
|
|
$
|
16.1
|
|
Accrual
|
|
|
0.9
|
|
|
|
2.1
|
|
|
|
4.7
|
|
|
|
6.9
|
|
|
|
14.6
|
|
Cost charged against assets
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(6.3
|
)
|
|
|
(6.3
|
)
|
Reversal of accrued charges
|
|
|
(0.3
|
)
|
|
|
0.0
|
|
|
|
(1.8
|
)
|
|
|
0.0
|
|
|
|
(2.1
|
)
|
Cash paid
|
|
|
(0.3
|
)
|
|
|
(1.1
|
)
|
|
|
(2.4
|
)
|
|
|
(1.0
|
)
|
|
|
(4.8
|
)
|
Currency translation
|
|
|
0.0
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
0.8
|
|
Reserve at December 31, 2017
|
|
$
|
1.7
|
|
|
$
|
2.7
|
|
|
$
|
10.6
|
|
|
$
|
3.3
|
|
|
$
|
18.3
|
|
Accrual
|
|
|
0.0
|
|
|
|
0.9
|
|
|
|
1.6
|
|
|
|
2.2
|
|
|
|
4.7
|
|
Cost charged against assets
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(2.1
|
)
|
|
|
(2.1
|
)
|
Cash paid
|
|
|
0.0
|
|
|
|
(3.4
|
)
|
|
|
(6.3
|
)
|
|
|
(0.1
|
)
|
|
|
(9.8
|
)
|
Currency translation
|
|
|
0.0
|
|
|
|
(0.2
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(0.2
|
)
|
Reserve at September 30, 2018
|
|
$
|
1.7
|
|
|
$
|
0.0
|
|
|
$
|
5.9
|
|
|
$
|
3.3
|
|
|
$
|
10.9
|
|
4. Acquisitions
On April 10, 2018, Koppers Inc. acquired Cox Industries, Inc. (“Cox”) for net cash consideration of $201.2 million. The transaction was funded by borrowings on Koppers Inc.’s revolving credit facility discussed in “Note 14 - Debt.” Cox was renamed Koppers Utility and Industrial Products Inc. (“UIP”) subsequent to the acquisition. UIP is a manufacturer of treated wood transmission and distribution poles for utility companies and cooperative utility companies. It is also a manufacturer of treated wood pilings used for construction and marine applications. UIP manufactures and sells its treated wood poles and pilings through a network of eight manufacturing facilities and 19 distribution yards located throughout the United States. UIP treats its products with a variety of wood protection chemicals, including copper chromium arsenate and creosote, which are produced by the Company’s Performance Chemicals and CMC segments, respectively. UIP’s revenues were $147 million for the year ended December 31, 2017.
On
February 28, 2018, Koppers Inc. acquired M.A. Energy Resources, LLC (“MAER”) for net cash consideration of $62.8 million. The purchase price was funded by
borrowings on Koppers Inc.’s
revolving
credit facility. MAER is a vertically-integrated company that provides material recovery services for crossties that have been taken out of service and other biomass material. MAER converts
this recovered material into alternative fuels, such as crosstie-derived fuel or biomass-derived fuel, that is used as a substitute for conventional higher-cost carbon-based fuel. MAER currently operates two processing facilities, each of which is located to serve its Class I railroad customer base. MAER’s revenues were $30 million for the year ended December 31, 2017.
The Company has completed a preliminary valuation analysis to determine the fair values of UIP’s and MAER’s acquired assets and liabilities. Accordingly, the unaudited condensed consolidated financial statements include a preliminary fair value determination based on assumptions and estimates that, while considered reasonable, are subject to changes, which may be material.
Upon completion of detailed valuation analyses, there may be additional increases or decreases to the recorded fair values of the acquired assets and liabilities. This includes, but is not limited to customer contracts, other intangible assets; property, plant and equipment that could give rise to future amounts of depreciation and amortization expense; and changes in related deferred taxes that are not reflected in the information contained in this unaudited condensed consolidated information. Accordingly, once the necessary valuation analyses have been performed and the final fair value determination has been completed, actual results may differ materially from the information presented in the unaudited condensed consolidated financial statements.
The preliminary valuation of identifiable assets acquired and liabilities assumed upon the acquisition of UIP and MAER are shown in the table below.
7
|
|
UIP
|
|
|
MAER
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1.5
|
|
|
$
|
3.2
|
|
Accounts receivable
|
|
|
20.2
|
|
|
|
4.9
|
|
Inventory
|
|
|
43.1
|
|
|
|
0.0
|
|
Other current assets
|
|
|
1.2
|
|
|
|
0.3
|
|
Property, plant and equipment
|
|
|
19.8
|
|
|
|
6.6
|
|
Intangible assets, net
|
|
|
59.4
|
|
|
|
19.3
|
|
Goodwill
|
|
|
76.9
|
|
|
|
34.0
|
|
Other non-current assets
|
|
|
0.2
|
|
|
|
0.0
|
|
Total assets acquired
|
|
|
222.3
|
|
|
|
68.3
|
|
Accounts payable & accrued expenses
|
|
|
18.7
|
|
|
|
2.3
|
|
Other non-current liabilities
|
|
|
0.8
|
|
|
|
0.0
|
|
Net assets acquired
|
|
$
|
202.8
|
|
|
$
|
66.0
|
|
Goodwill for both acquisitions
has been allocated to the Company’s Railroad and Utility Products and Services segment.
The Company expects the goodwill recognized will be deductible for tax purposes. Recognized goodwill is attributable to the assembled workforce, expected synergies and other intangible assets that do not qualify for separate recognition. Net assets acquired include identifiable intangible assets with respect to customer contracts, non-compete agreements and trademarks as summarized in the following table.
|
|
UIP
|
|
MAER
|
(Dollars in millions)
|
|
Amount
|
|
Remaining Life
|
|
Amount
|
|
Remaining Life
|
Customer contracts
|
|
$
|
58.2
|
|
15 years
|
|
$
|
18.7
|
|
15 years
|
Non-compete agreements
|
|
|
1.2
|
|
5 years
|
|
|
|
|
|
Trademarks
|
|
|
|
|
|
|
|
0.6
|
|
2 years
|
Total
|
|
$
|
59.4
|
|
|
|
$
|
19.3
|
|
|
Combined costs related to these two acquisitions were $0.6 million and $6.2 million for the three and nine months ended September 30, 2018, respectively, and are charged to selling, general and administrative expenses.
Net sales of $50.5 million and $97.4 million and income (loss) before taxes of $0.5 million and $(3.8) million, including $0.5 million and $6.0 million of inventory fair value purchase price accounting adjustments, was attributable to UIP and included in the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income for the three and nine months ended September 30, 2018, respectively.
The following unaudited pro forma information presents a summary of the Company’s revenues and income from continuing operations as if the UIP acquisition occurred on January 1, 2017 (the first day of the most recently completed fiscal year). The unaudited pro forma information is not necessarily indicative of operating results that would have been achieved had the acquisition been completed as of January 1, 2017 and is not intended to project the future financial results of the Company after the acquisition. The unaudited pro forma information is based on certain assumptions, which management believes are reasonable, and does not reflect the cost of any integration activities or the benefits from the acquisition and synergies that may be derived from any integration activities.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma revenue
|
|
$
|
442.7
|
|
|
$
|
422.7
|
|
|
$
|
1,335.5
|
|
|
$
|
1,221.6
|
|
Pro forma income from continuing operations
attributable to Koppers
|
|
|
7.9
|
|
|
|
19.9
|
|
|
|
34.5
|
|
|
|
42.6
|
|
Pro forma income per share - continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic -
|
|
$
|
0.38
|
|
|
$
|
0.96
|
|
|
$
|
1.64
|
|
|
$
|
2.05
|
|
Diluted -
|
|
$
|
0.36
|
|
|
$
|
0.91
|
|
|
$
|
1.58
|
|
|
$
|
1.94
|
|
5. Revenue Recognition
On January 1, 2018, the Company adopted Topic 606, the accounting standard for recognized revenue from contracts with customers, using the modified retrospective method. The Company recognized the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has
8
not been restated and continues to be reported under the accounting standards in effect for
those periods.
The Company has identified certain contracts with customers where revenue has been accelerated upon adoption of
Topic 606
as the related performance obligations under the contract have been satisfied and control of the goods or services have been transferred to the customer.
The Company calculated the cumulative effect to the opening balance of retained earnings recognized at January 1, 2018 to be an increase of $0.3 million, including $5.3 million in revenue and $5.0 million in cost of goods sold not previously recognized during the year ended December 31, 2017. Revenue recognized during the nine months ended September 30, 2018 from the adoption of Topic 606 was $3.2 million and, as such, the net impact of adopting Topic 606 for the three and nine months ending September 30, 2018 was a decrease in sales and cost of sales as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2018
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
(0.1
|
)
|
|
$
|
(2.1
|
)
|
Cost of sales
|
|
|
(0.1
|
)
|
|
|
(2.0
|
)
|
Topic 606 impacted the timing of revenue recognized related to certain services to untreated cross-ties within the Company’s RUPS segment where those specific performance obligations were fulfilled prior to shipment and were historically not recognized as revenue until shipped. Refer to “Note 9 – Segment Information” for relevant disclosures regarding the disaggregation of revenue.
Revenue is recognized upon the completion of performance obligations under the Company’s contracts with customers and when control of a good or service is transferred to the customer. Substantially all of the Company’s contracts with its customers are ship and invoice arrangements where revenue is recognized when the Company transfers control to the customer which is at the time
of shipment or delivery.
Revenue recognition generally occurs at the point of shipment; however in certain circumstances as shipping terms dictate, the Company transfers control and revenue is recognized at the point of destination. Shipping and handling costs are included as a component of cost of sales.
Contract Balances
The timing of revenue recognition in accordance with Topic 606 and subsequent billings related to such revenue recognized results in both billed accounts receivable and unbilled receivables (contract assets), both classified as accounts receivable, net of allowance within the condensed consolidated balance sheet. Certain contracts with customers within the Company’s RUPS and CMC segments have agreed-upon contractual terms for the timing of billing. In some instances, amounts are not billed at the time specific performance obligations are fulfilled. For these contracts with customers, revenue is recognized prior to billings, resulting in contract assets. Contract assets recorded within accounts receivable, net of allowance within the condensed consolidated balance sheet as of September 30, 2018 and January 1, 2018 due to performance obligations being fulfilled prior to billing was $11.4 million and $5.3 million, respectively.
6. Comprehensive (Loss) Income and Equity
Total comprehensive (loss) income for the three and nine months ended September 30, 2018 and 2017 is summarized in the table below:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6.9
|
|
|
$
|
19.9
|
|
|
$
|
31.6
|
|
|
$
|
44.3
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in currency translation adjustment
|
|
|
(2.9
|
)
|
|
|
6.3
|
|
|
|
(18.9
|
)
|
|
|
17.2
|
|
Unrealized (loss) gain on cash flow hedges, net
of tax (benefit) expense of $(3.7), $1.1, $(12.0) and $1.4
|
|
|
(6.3
|
)
|
|
|
4.1
|
|
|
|
(20.3
|
)
|
|
|
5.0
|
|
Change in accounting standard
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.3
|
|
|
|
0.0
|
|
Unrecognized pension net loss, net of tax
expense of $0.1, $0.2, $0.3 and $0.4
|
|
|
0.3
|
|
|
|
6.5
|
|
|
|
0.8
|
|
|
|
7.2
|
|
Total comprehensive (loss) income
|
|
|
(2.0
|
)
|
|
|
36.8
|
|
|
|
(6.5
|
)
|
|
|
73.7
|
|
Less: Comprehensive (loss) income attributable to
noncontrolling interests
|
|
|
(1.1
|
)
|
|
|
0.2
|
|
|
|
4.7
|
|
|
|
0.6
|
|
Comprehensive (loss) income attributable to Koppers
|
|
$
|
(0.9
|
)
|
|
$
|
36.6
|
|
|
$
|
(11.2
|
)
|
|
$
|
73.1
|
|
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 loss is included in the computation
9
of net periodic pensio
n 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 $
1.1
million and
$
6.5
million
for
the three and
nine
months ended
September
30, 2018, respectively, and $
2.3
million and $
4.9
million for the
three and
nine
months ended
September
30, 2017, respectively.
The following tables present the change in equity for the nine months ended September 30, 2018 and 2017, respectively:
(Dollars in millions)
|
|
Total Koppers
Shareholders’
Equity
|
|
|
Noncontrolling
Interests
|
|
|
Total Equity
|
|
Balance at December 31, 2017
|
|
$
|
99.9
|
|
|
$
|
5.9
|
|
|
$
|
105.8
|
|
Net income
|
|
|
26.0
|
|
|
|
5.6
|
|
|
|
31.6
|
|
Issuance of common stock
|
|
|
2.5
|
|
|
|
0.0
|
|
|
|
2.5
|
|
Employee stock plans
|
|
|
9.3
|
|
|
|
0.0
|
|
|
|
9.3
|
|
Other comprehensive loss
|
|
|
(37.2
|
)
|
|
|
(0.9
|
)
|
|
|
(38.1
|
)
|
Repurchases of common stock
|
|
|
(31.7
|
)
|
|
|
0.0
|
|
|
|
(31.7
|
)
|
Balance at September 30, 2018
|
|
$
|
68.8
|
|
|
$
|
10.6
|
|
|
$
|
79.4
|
|
(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
|
|
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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
(Dollars in millions, except share amounts, in thousands, and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Koppers
|
|
$
|
7.6
|
|
|
$
|
19.8
|
|
|
$
|
26.0
|
|
|
$
|
43.9
|
|
Less: Income (loss) from discontinued operations
|
|
|
0.0
|
|
|
|
(0.1
|
)
|
|
|
0.4
|
|
|
|
(1.3
|
)
|
Income from continuing operations attributable to
Koppers
|
|
$
|
7.6
|
|
|
$
|
19.9
|
|
|
$
|
25.6
|
|
|
$
|
45.2
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
20,946
|
|
|
|
20,746
|
|
|
|
20,992
|
|
|
|
20,750
|
|
Effect of dilutive securities
|
|
|
754
|
|
|
|
1,165
|
|
|
|
900
|
|
|
|
1,177
|
|
Diluted
|
|
|
21,700
|
|
|
|
21,911
|
|
|
|
21,892
|
|
|
|
21,927
|
|
Income per common share – continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share
|
|
$
|
0.36
|
|
|
$
|
0.96
|
|
|
$
|
1.22
|
|
|
$
|
2.17
|
|
Diluted income per common share
|
|
|
0.35
|
|
|
|
0.91
|
|
|
|
1.17
|
|
|
|
2.06
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive securities excluded from computation of
diluted earnings per common share
|
|
|
571
|
|
|
|
543
|
|
|
|
214
|
|
|
|
482
|
|
8. Stock-based Compensation
The Company has outstanding stock-based compensation awards that were granted under the amended and restated 2005 Long-Term Incentive Plan (the “2005 LTIP”) and the 2018 Long-Term Incentive Plan (the “2018 LTIP”). Both the 2005 LTIP and the 2018 LTIP are collectively referred to as the ”LTIP”. On May 3, 2018, the 2018 LTIP was approved by our shareholders and the 2005 LTIP was frozen. Similar to the 2005 LTIP, the 2018 LTIP provides for the grant to eligible
10
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, 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.
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 2015 exceeded the maximum value creation and vested at 200 percent in March 2018.
Performance stock units granted in 2016 and thereafter 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 & Poor’s 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:
|
|
May
2018
Grant
|
|
|
March
2018
Grant
|
|
|
March
2017
Grant
|
|
|
March 2016 Grant
|
|
Grant date price per share
|
|
$
|
39.10
|
|
|
$
|
41.60
|
|
|
$
|
44.10
|
|
|
$
|
18.11
|
|
Expected dividend yield per share
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
39.40
|
%
|
|
|
39.40
|
%
|
|
|
43.50
|
%
|
|
|
40.86
|
%
|
Risk-free interest rate
|
|
|
2.35
|
%
|
|
|
2.35
|
%
|
|
|
1.54
|
%
|
|
|
0.96
|
%
|
Look-back period in years
|
|
|
2.84
|
|
|
|
2.84
|
|
|
|
2.83
|
|
|
|
2.84
|
|
Grant date fair value per share
|
|
$
|
44.29
|
|
|
$
|
47.12
|
|
|
$
|
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, 2018:
Performance Period
|
|
Minimum
Shares
|
|
|
Target
Shares
|
|
|
Maximum
Shares
|
|
2016 – 2018
|
|
|
0
|
|
|
|
255,172
|
|
|
|
510,344
|
|
2017 – 2019
|
|
|
0
|
|
|
|
113,675
|
|
|
|
227,350
|
|
2018 – 2020
|
|
|
0
|
|
|
|
130,782
|
|
|
|
261,564
|
|
11
The fo
llowing table shows a summary of the status and activity of non-vested stock units for the
nine
months ended
September
30, 2018:
|
|
Restricted
Stock Units
|
|
|
Performance
Stock Units
|
|
|
Total
Stock Units
|
|
|
Weighted
Average
Grant Date Fair
Value per Unit
|
|
Non-vested at December 31, 2017
|
|
|
238,140
|
|
|
|
581,551
|
|
|
|
819,691
|
|
|
$
|
29.14
|
|
Granted
|
|
|
118,297
|
|
|
|
134,351
|
|
|
|
252,648
|
|
|
$
|
43.91
|
|
Performance share adjustment
|
|
|
0
|
|
|
|
204,866
|
|
|
|
204,866
|
|
|
$
|
17.57
|
|
Vested
|
|
|
(94,589
|
)
|
|
|
(409,732
|
)
|
|
|
(504,321
|
)
|
|
$
|
19.41
|
|
Forfeited
|
|
|
(7,094
|
)
|
|
|
(11,407
|
)
|
|
|
(18,501
|
)
|
|
$
|
38.77
|
|
Non-vested at September 30, 2018
|
|
|
254,754
|
|
|
|
499,629
|
|
|
|
754,383
|
|
|
$
|
37.20
|
|
Stock Options
Stock options to most executive officers vest and become exercisable in four equal annual installments. The stock options have a term of ten years. In the event of termination of employment, other than retirement, death or disability, any non-vested options are forfeited. In the event of termination of employment due to retirement, death or disability, pro-rata vesting of the options over the service period will result. There are special vesting provisions for the stock options related to a change in control.
Compensation expense for non-vested stock options is recorded over the vesting period based on the fair value at the date of grant. The Company calculated the fair value of stock options on the date of grant using the Black-Scholes-Merton model and the assumptions listed below:
|
|
May
2018
Grant
|
|
|
March
2018
Grant
|
|
|
March
2017
Grant
|
|
|
March 2016 Grant
|
|
|
March 2015 Grant
|
|
Grant date price per share
|
|
$
|
39.10
|
|
|
$
|
41.60
|
|
|
$
|
44.10
|
|
|
$
|
18.11
|
|
|
$
|
17.57
|
|
Expected dividend yield per share
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
3.40
|
%
|
Expected life in years
|
|
|
5.73
|
|
|
|
5.73
|
|
|
|
5.77
|
|
|
|
5.96
|
|
|
|
5.75
|
|
Expected volatility
|
|
|
37.05
|
%
|
|
|
37.05
|
%
|
|
|
39.70
|
%
|
|
|
40.86
|
%
|
|
|
42.27
|
%
|
Risk-free interest rate
|
|
|
2.82
|
%
|
|
|
2.67
|
%
|
|
|
2.13
|
%
|
|
|
1.45
|
%
|
|
|
1.73
|
%
|
Grant date fair value per share
|
|
$
|
15.48
|
|
|
$
|
16.38
|
|
|
$
|
17.90
|
|
|
$
|
7.41
|
|
|
$
|
5.20
|
|
The Company suspended its dividend in February 2015 and does not expect to declare any dividends for the foreseeable future. The expected life in years is based on historical exercise data of options previously granted by the Company. Expected volatility is based on the historical volatility of the Company’s common stock and the historical volatility of certain other similar public companies. The risk-free interest rate is based on U.S. Treasury bill rates for the expected life of the option.
The following table shows a summary of the status and activity of stock options for the nine months ended September 30, 2018:
|
|
Options
|
|
|
Weighted
Average
Exercise Price
per Option
|
|
|
Weighted Average
Remaining
Contractual Term
(in years)
|
|
|
Aggregate
Intrinsic
Value (in millions)
|
|
Outstanding at December 31, 2017
|
|
|
942,537
|
|
|
$
|
27.59
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
144,825
|
|
|
$
|
41.50
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(70,307
|
)
|
|
$
|
27.75
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(12,329
|
)
|
|
$
|
30.49
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2018
|
|
|
1,004,726
|
|
|
$
|
29.54
|
|
|
|
6.14
|
|
|
$
|
6.6
|
|
Exercisable at September 30, 2018
|
|
|
617,361
|
|
|
$
|
28.49
|
|
|
|
4.89
|
|
|
$
|
4.2
|
|
12
Stock Compensation Expense
Total stock-based compensation expense recognized under the Company’s LTIP and employee stock purchase plan for three and nine months ended September 30, 2018 and 2017 is as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
3.2
|
|
|
$
|
2.7
|
|
|
$
|
9.3
|
|
|
$
|
7.8
|
|
Less related income tax benefit
|
|
|
1.2
|
|
|
|
0.6
|
|
|
|
3.5
|
|
|
|
1.7
|
|
Decrease in net income attributable to Koppers
|
|
$
|
2.0
|
|
|
$
|
2.1
|
|
|
$
|
5.8
|
|
|
$
|
6.1
|
|
Intrinsic value of exercised stock options
|
|
$
|
0.1
|
|
|
$
|
0.0
|
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
Cash received from the exercise of stock options
|
|
$
|
0.3
|
|
|
$
|
0.0
|
|
|
$
|
2.5
|
|
|
$
|
1.9
|
|
As of September 30, 2018, total future gross compensation expense related to non-vested stock-based compensation arrangements, which are expected to vest, totaled $18.7 million and the weighted-average period over which this cost is expected to be recognized is approximately 26 months.
9. Segment Information
The Company has three reportable segments: Railroad and Utility Products and Services, Performance Chemicals and Carbon Materials and Chemicals. The Company’s reportable segments contain multiple aggregated business units since management believes the long-term financial performance of these business units is affected by similar economic conditions. The reportable segments are each managed separately because they manufacture and distribute distinct products with different production processes.
The Company’s Railroad and Utility Products and Services segment sells treated and untreated wood products, manufactured products and services primarily to the railroad and public utility markets. Railroad products and services include procuring and treating items such as crossties, switch ties and various types of lumber used for railroad bridges and crossings and the manufacture of rail joint bars. The segment also operates a railroad services business that conducts engineering, design, repair and inspection services for railroad bridges and a business related to the recovery of used crossties. Utility products include the treating of transmission and distribution poles and pilings. In April 2018, the Company acquired UIP, a manufacturer of treated wood utility transmission and distribution poles for utility companies and cooperative utility companies. It is also a manufacturer of treated wood pilings used for construction and marine applications.
In February 2018, the Company acquired MAER,
a vertically-integrated provider of crosstie recovery and disposal services. MAER converts
recovered material into alternative fuels, such as crosstie-derived fuel or biomass-derived fuel, that is used as a substitute for conventional higher-cost carbon-based fuel.
The Company’s Performance Chemicals segment develops, manufactures, and markets wood preservation chemicals and wood treatment technologies and services a diverse range of end-markets including infrastructure, residential and commercial construction, and agriculture.
The Company’s Carbon Materials and Chemicals segment is primarily a manufacturer of creosote, carbon pitch, naphthalene, phthalic anhydride and carbon black feedstock. Creosote is used in the treatment of wood and carbon black feedstock is used in the production of carbon black. Carbon pitch is a critical raw material used in the production of aluminum and for the production of steel in electric arc furnaces. Naphthalene is used for the production of phthalic anhydride and as a surfactant in the production of concrete. Phthalic anhydride is used in the production of plasticizers, polyester resins and alkyd paints.
The Company evaluates performance and determines resource allocations based on a number of factors, the primary measure being operating profit or loss from operations. Operating profit does not include equity in earnings of affiliates, other (loss) income, interest expense, income taxes or operating costs of Koppers Holdings Inc. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Refer to “Note 5 – Revenue Recognition” for accounting policies specific to revenue recognition. Intersegment transactions are eliminated in consolidation.
13
The following table sets forth certain sales and operating data, net of all intersegment transactions, for the Company’s segments for the periods indicated:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railroad and Utility Products and Services
|
|
$
|
185.0
|
|
|
$
|
131.7
|
|
|
$
|
470.6
|
|
|
$
|
403.1
|
|
Performance Chemicals
|
|
|
108.2
|
|
|
|
109.7
|
|
|
|
320.7
|
|
|
|
318.2
|
|
Carbon Materials and Chemicals
|
|
|
149.5
|
|
|
|
143.4
|
|
|
|
493.5
|
|
|
|
388.1
|
|
Total
|
|
$
|
442.7
|
|
|
$
|
384.8
|
|
|
$
|
1,284.8
|
|
|
$
|
1,109.4
|
|
Intersegment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Chemicals
|
|
$
|
3.8
|
|
|
$
|
1.8
|
|
|
$
|
8.0
|
|
|
$
|
5.0
|
|
Carbon Materials and Chemicals
|
|
|
21.4
|
|
|
|
22.1
|
|
|
|
58.8
|
|
|
|
60.0
|
|
Total
|
|
$
|
25.2
|
|
|
$
|
23.9
|
|
|
$
|
66.8
|
|
|
$
|
65.0
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railroad and Utility Products and Services
|
|
$
|
4.9
|
|
|
$
|
2.9
|
|
|
$
|
12.8
|
|
|
$
|
8.8
|
|
Performance Chemicals
|
|
|
4.4
|
|
|
|
4.4
|
|
|
|
13.3
|
|
|
|
13.3
|
|
Carbon Materials and Chemicals
|
|
|
3.7
|
|
|
|
4.8
|
|
|
|
12.4
|
|
|
|
12.9
|
|
Total
|
|
$
|
13.0
|
|
|
$
|
12.1
|
|
|
$
|
38.5
|
|
|
$
|
35.0
|
|
Operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railroad and Utility Products and Services
(a)
|
|
$
|
5.8
|
|
|
$
|
9.5
|
|
|
$
|
5.9
|
|
|
$
|
30.1
|
|
Performance Chemicals
|
|
|
11.0
|
|
|
|
18.4
|
|
|
|
28.2
|
|
|
|
56.6
|
|
Carbon Materials and Chemicals
|
|
|
14.9
|
|
|
|
16.3
|
|
|
|
64.6
|
|
|
|
24.9
|
|
Corporate
(b)
|
|
|
(0.5
|
)
|
|
|
(9.2
|
)
|
|
|
(1.9
|
)
|
|
|
(10.4
|
)
|
Total
|
|
$
|
31.2
|
|
|
$
|
35.0
|
|
|
$
|
96.8
|
|
|
$
|
101.2
|
|
|
(a)
|
Operating profit for the three and nine months ended September 30, 2018 includes $0.5 million and $6.0 million of inventory fair value purchase price adjustment related to the
Company’s UIP acquisition, respectively.
|
|
(b)
|
Operating loss for Corporate includes primarily general and administrative costs for Koppers Holdings Inc., the parent company of Koppers Inc.
|
The following table sets forth revenues for significant product lines, net of all intersegment transactions, for the Company’s segments for the periods indicated:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railroad and Utility Products and Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railroad treated products
|
|
$
|
96.7
|
|
|
$
|
96.1
|
|
|
$
|
259.8
|
|
|
$
|
299.8
|
|
Utility poles
|
|
|
59.5
|
|
|
|
12.9
|
|
|
|
129.9
|
|
|
|
34.0
|
|
Rail joints
|
|
|
8.5
|
|
|
|
7.1
|
|
|
|
26.5
|
|
|
|
22.1
|
|
Railroad infrastructure services
|
|
|
10.0
|
|
|
|
9.0
|
|
|
|
26.2
|
|
|
|
27.0
|
|
Other products
|
|
|
10.3
|
|
|
|
6.6
|
|
|
|
28.2
|
|
|
|
20.2
|
|
|
|
|
185.0
|
|
|
|
131.7
|
|
|
|
470.6
|
|
|
|
403.1
|
|
Performance Chemicals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wood preservative products
|
|
|
101.5
|
|
|
|
101.7
|
|
|
|
299.0
|
|
|
|
295.5
|
|
Other products
|
|
|
6.7
|
|
|
|
8.0
|
|
|
|
21.7
|
|
|
|
22.7
|
|
|
|
|
108.2
|
|
|
|
109.7
|
|
|
|
320.7
|
|
|
|
318.2
|
|
Carbon Materials and Chemicals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pitch and related products
|
|
|
88.9
|
|
|
|
78.6
|
|
|
|
304.1
|
|
|
|
195.4
|
|
Creosote and distillates
|
|
|
19.2
|
|
|
|
21.6
|
|
|
|
61.3
|
|
|
|
61.0
|
|
Phthalic anhydride and other chemicals
|
|
|
23.3
|
|
|
|
24.5
|
|
|
|
64.0
|
|
|
|
69.3
|
|
Naphthalene
|
|
|
8.8
|
|
|
|
9.9
|
|
|
|
31.5
|
|
|
|
27.8
|
|
Other products
|
|
|
9.3
|
|
|
|
8.8
|
|
|
|
32.6
|
|
|
|
34.6
|
|
|
|
|
149.5
|
|
|
|
143.4
|
|
|
|
493.5
|
|
|
|
388.1
|
|
Total
|
|
$
|
442.7
|
|
|
$
|
384.8
|
|
|
$
|
1,284.8
|
|
|
$
|
1,109.4
|
|
14
The following table sets forth certain tangible and intangible assets allocated to each of the Company’s segments as of the dates indicated:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
Railroad and Utility Products and Services
(a)
|
|
$
|
556.3
|
|
|
$
|
249.7
|
|
Performance Chemicals
|
|
|
472.0
|
|
|
|
494.0
|
|
Carbon Materials and Chemicals
|
|
|
469.3
|
|
|
|
414.2
|
|
All other
|
|
|
38.0
|
|
|
|
42.3
|
|
Total
|
|
$
|
1,535.6
|
|
|
$
|
1,200.2
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
Railroad and Utility Products and Services
(a)
|
|
$
|
120.8
|
|
|
$
|
10.5
|
|
Performance Chemicals
|
|
|
175.7
|
|
|
|
177.7
|
|
Total
|
|
$
|
296.5
|
|
|
$
|
188.2
|
|
|
(a)
|
The increase in RUPS assets and goodwill as of September 30, 2018 includes $279.3 million and $110.9 million, respectively, attributable to the Company’s acquisitions of UIP and MAER during 2018.
|
10. Income Taxes
Effective Tax Rate
The income tax provision for interim periods is comprised of an estimated annual effective income tax rate applied to current year ordinary income and tax associated with discrete items. These discrete items generally relate to excess stock compensation deductions, changes in tax laws, adjustments to uncertain tax positions and changes of estimated tax to the actual liability determined upon filing tax returns. To determine the annual effective tax rate, management is required to make estimates of annual pretax income in each domestic and foreign jurisdiction in which the Company conducts business. Entities that have historical pre-tax losses and current year estimated pre-tax losses that are not projected to generate a future benefit are excluded from the estimated annual effective income tax rate.
On December 22, 2017, the Tax Cut and Jobs Act (“Tax Act”) was signed into law. The Tax Act significantly revised the U.S. corporate
income tax system with changes that are effective in 2017 and 2018.
The Tax Act lowered the corporate income tax rate to 21 percent from 35 percent and imposed a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries.
Changes in tax rates and tax laws and their impact on deferred taxes are accounted for in the period of legislative enactment.
As of September 30, 2018, the Company has completed its accounting for the one-time transition tax.
The Company recorded income tax expense of $21.2 million for this one-time transition tax. In its December 31, 2017 income tax provision, the Company provisionally recorded income tax expense of $13.1 million. In both of the three months ended June 30, 2018 and September 30, 2018, the Company revised its original estimate and recorded additional income tax expense as a result of additional guidance issued by the IRS. The increase in the transition tax was partially offset by revisions to the carrying value of its deferred tax assets and liabilities of $3.8 million. Due to the availability of net operating losses, the Company’s cash payments for this one-time transition tax is approximately $5.0 million. The Company elected to pay this amount in pre-defined installments through 2024.
If the IRS releases additional guidance regarding the one-time transition tax, the ultimate impact of the Tax Act may differ from the current estimates, possibly materially, due to changes in interpretations and assumptions that the Company has made, future guidance that may be issued, and actions that the Company may take as a result.
The Tax Act introduced a new provision that imposes a minimum tax on earnings of a foreign corporation that are deemed to exceed a certain threshold return relative to the underlying business investment. These earnings are referred to as global intangible low-taxed income (“GILTI”) and this GILTI provision is effective for 2018. The Company has elected to treat the effect of this GILTI provision as a period expense in the year incurred and has included an estimate of the impact in its estimated annual effective income tax rate. The Company will continue to analyze this GILTI provision and it is possible that
the Company’s
current estimate of the impact of this GILTI provision may materially change.
The Tax Act introduces other new provisions that are effective for 2018 and changes how certain provisions are calculated beginning in 2018. Other than the GILTI provision, the Company does not expect that any of these new provisions or changes will have a material impact to the Company’s income tax expense.
15
The estimated annual effective income tax
rate, excluding discrete items discussed above, was
37.
1
percent and
21.7
percent for the
nine
months ended
September
30, 2018 and 2017, respectively. The estimated annual effective income tax rate differs from the U.S. federal statutory tax rate due to:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Federal income tax rate
|
|
|
21.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
(0.8
|
)
|
|
|
1.1
|
|
Foreign earnings taxed at different rates
|
|
|
1.8
|
|
|
|
(16.8
|
)
|
GILTI inclusion (net of foreign tax credits)
|
|
|
16.7
|
|
|
|
0.0
|
|
Valuation allowance adjustments
|
|
|
(11.5
|
)
|
|
|
0.0
|
|
Interest expense deduction limitation
|
|
|
7.7
|
|
|
|
0.0
|
|
Nondeductible expenses
|
|
|
2.6
|
|
|
|
1.6
|
|
Change in tax contingency reserves
|
|
|
0.2
|
|
|
|
0.2
|
|
Other
|
|
|
(0.6
|
)
|
|
|
0.6
|
|
Estimated annual effective income tax rate
|
|
|
37.1
|
%
|
|
|
21.7
|
%
|
The estimated annual effective income tax rate included a benefit related to the release of a valuation allowance adjustment for a subsidiary in China. Management determined that sufficient positive evidence exists to support that this entity’s net operating losses are more likely than not to be realized.
Income taxes as a percentage of pretax income were 55.5 percent for the three months ended September 30, 2018.
This was higher than the estimated annual effective income tax rate primarily due to an increase in the estimated annual effective income tax rate when compared to the previous quarter’s estimate due to a higher estimated interest expense deduction limitation.
Discrete items included in income taxes for the three months ended September 30, 2018 were a net cost of $1.0 million, which includes additional income tax expense to account for the filing of the Company’s 2017 domestic and foreign tax returns.
Income taxes as a percentage of pretax income were 19.4 percent for the three months ended September 30, 2017.
This was lower than the estimated annual effective income tax rate primarily due to a reduction in the estimated annual effective income tax rate when compared to the previous quarter’s estimate. As a result, income tax expense for the previous quarter was favorably adjusted in the three months ended September 30, 2017. Discrete items included in income taxes for the three months ended September 30, 2017 were not material.
Income taxes as a percentage of pretax income were 43.9 percent for the nine months ended September 30, 2018. This is higher than the estimated annual effective income tax rate due to discrete items. Discrete items included in income taxes for the nine months ended September 30, 2018 were a net cost of $3.8 million. Discrete items of $6.1 million include income tax expense related to the impact of the Tax Act and based on the filings of the Company’s 2017 domestic and foreign tax returns. This expense is offset by $2.3 million of excess tax benefits for stock-based compensation and an income tax benefit of $0.5 million for the
reversal of uncertain tax positions due to statute expirations.
Income taxes as a percentage of pretax income were 21.4 percent for the nine months ended September 30, 2017.
This was lower than the estimated annual effective tax rate due to discrete items. Discrete items included in income taxes for the nine months ended September 30, 2017 were a net benefit of $0.2 million. This discrete benefit primarily relates to excess tax benefits for stock-based compensation of $0.9 million, a benefit of $0.5 million for the reversal of uncertain tax positions due to statute expirations partially offset by additional accruals of $0.8 million for uncertain tax positions and $0.4 million for adjustments to deferred tax assets.
During the year, management regularly updates estimates of pre-tax income and income tax expense based on changes in pre-tax income projections by taxable jurisdiction, repatriation of foreign earnings, uncertain tax positions and other tax matters. To the extent that actual results vary from these estimates, the actual annual effective income tax rate at the end of the year could be materially different from the estimated annual effective income tax rate for the nine months ended September 30, 2018.
Uncertain Tax Positions
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, individual U.S. state jurisdictions and non-U.S. jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2014.
Unrecognized tax benefits totaled $8.5 million and $8.7 million as of September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018 and December 31, 2017, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate, was approximately $4.2 million and $4.4 million, respectively. The
16
Company recognizes interest expense and any related penalties
from uncertain tax positions in income tax expense. As of
September
30, 2018
and December 31, 2017, the Company had accrued approximately $
4.3
million and $3.6 million for interest and penalties, respectively
.
The Company believes that it is reasonably possible that the amount of unrecognized tax benefits will decrease in the next twelve months by approximately $2 million due to the expirations of certain foreign and state statutes of limitations and potential audit resolutions. The Company does not anticipate significant increases to the amount of unrecognized tax benefits within the next twelve months.
11. Inventories
Net inventories as of September 30, 2018 and December 31, 2017 are summarized in the table below:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
203.4
|
|
|
$
|
173.6
|
|
Work in process
|
|
|
14.8
|
|
|
|
11.2
|
|
Finished goods
|
|
|
123.9
|
|
|
|
98.4
|
|
|
|
$
|
342.1
|
|
|
$
|
283.2
|
|
Less revaluation to LIFO
|
|
|
52.8
|
|
|
|
46.3
|
|
Net
|
|
$
|
289.3
|
|
|
$
|
236.9
|
|
12. Property, Plant and Equipment
Property, plant and equipment as of September 30, 2018 and December 31, 2017 are summarized in the table below:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
17.0
|
|
|
$
|
17.6
|
|
Buildings
|
|
|
61.9
|
|
|
|
63.4
|
|
Machinery and equipment
|
|
|
835.2
|
|
|
|
756.6
|
|
|
|
$
|
914.1
|
|
|
$
|
837.6
|
|
Less accumulated depreciation
|
|
|
515.7
|
|
|
|
509.6
|
|
Net
|
|
$
|
398.4
|
|
|
$
|
328.0
|
|
Impairments
– There were no impairment charges incurred for the nine months ended September 30, 2018 and 2017.
13. Pensions and Post-Retirement Benefit Plans
The Company and its subsidiaries maintain a number of defined benefit and defined contribution plans to provide retirement benefits for employees in the U.S., as well as employees outside the U.S. These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”), local statutory law or as determined by the board of directors. The defined benefit pension plans generally provide benefits based upon years of service and compensation. Pension plans are funded except for three domestic non-qualified defined benefit pension plans for certain key executives.
In the U.S., all qualified and two of the non-qualified defined benefit pension plans for salaried and hourly employees have been closed to new participants and have been frozen. Accordingly, these pension plans no longer accrue additional years of service or recognize future increases in compensation for benefit purposes.
The defined contribution plans generally provide retirement assets to employee participants based upon employer and employee contributions to the participant’s individual investment account. The Company also provides retiree medical insurance coverage to certain U.S. employees and a life insurance benefit to most U.S. employees. For salaried employees, the retiree medical and retiree insurance plans have been closed to new participants.
The following table provides the components of net periodic benefit cost for the pension plans for the three and nine months ended September 30, 2018 and 2017:
17
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
1.4
|
|
|
$
|
1.5
|
|
Interest cost
|
|
|
1.8
|
|
|
|
2.1
|
|
|
|
5.6
|
|
|
|
7.0
|
|
Expected return on plan assets
|
|
|
(2.1
|
)
|
|
|
(2.4
|
)
|
|
|
(6.4
|
)
|
|
|
(7.4
|
)
|
Amortization of net loss
|
|
|
0.4
|
|
|
|
0.5
|
|
|
|
1.1
|
|
|
|
1.5
|
|
Settlements
|
|
|
0.0
|
|
|
|
8.8
|
|
|
|
0.0
|
|
|
|
8.8
|
|
Net periodic benefit cost
|
|
$
|
0.6
|
|
|
$
|
9.5
|
|
|
$
|
1.7
|
|
|
$
|
11.4
|
|
Defined contribution plan expense
|
|
$
|
1.3
|
|
|
$
|
2.1
|
|
|
$
|
5.5
|
|
|
$
|
6.1
|
|
14. Debt
Debt as of September 30, 2018 and December 31, 2017 was as follows:
|
|
Weighted
Average
Interest Rate
|
|
|
Maturity
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan
|
|
|
5.16
|
%
|
|
2023
|
|
$
|
95.0
|
|
|
$
|
0.0
|
|
Revolving Credit Facility
|
|
|
5.16
|
%
|
|
2023
|
|
|
437.8
|
|
|
|
155.0
|
|
Construction and other loans
|
|
|
4.69
|
%
|
|
2020
|
|
|
24.9
|
|
|
|
33.7
|
|
Senior Notes due 2025
|
|
|
6.00
|
%
|
|
2025
|
|
|
500.0
|
|
|
|
500.0
|
|
Debt
|
|
|
|
|
|
|
|
|
1,057.7
|
|
|
|
688.7
|
|
Less short-term debt and current maturities of
long-term debt
|
|
|
|
|
|
|
|
|
15.1
|
|
|
|
11.4
|
|
Less unamortized debt issuance costs
|
|
|
|
|
|
|
|
|
12.8
|
|
|
|
11.7
|
|
Long-term debt
|
|
|
|
|
|
|
|
$
|
1,029.8
|
|
|
$
|
665.6
|
|
Senior Notes due 2025
The 2025 Notes are senior obligations, are unsecured and are guaranteed by Koppers Holdings Inc. and certain of Koppers Inc.’s domestic subsidiaries. The 2025 Notes pay interest semi-annually in arrears on February 15 and August 15 beginning on August 15, 2017 and will mature on February 15, 2025 unless earlier redeemed or repurchased. On or after February 15, 2020, the Company is entitled to redeem all or a portion of the 2025 Senior Notes at a redemption price of 104.5 percent of principal value, declining to a redemption price of 101.5 percent on or after February 15, 2022 until the redemption price is equivalent to the principal value on April 15, 2023.
The indenture governing the 2025 Senior Notes includes customary covenants that restrict, among other things, the ability of Koppers Inc. and its restricted subsidiaries to incur additional debt, pay dividends or make certain other restricted payments, incur liens, merge or sell all or substantially all of the assets of Koppers Inc. or its subsidiaries or enter into various transactions with affiliates.
Revolving Credit Facility
On April 10, 2018, the Company amended its $600 million Revolving Credit Facility to enter into a
new Secured Term Loan Facility. The new Secured Term Loan Facility includes the $600 million Revolving Credit Facility and a secured term loan of $100 million with a quarterly amortization of $2.5 million and a five-year maturity. In addition, the maturity date of the amended Revolving Credit Facility was extended one year to April 2023. The interest rate on the amended Revolving Credit Facility is variable and is based on LIBOR. The initial average borrowing rates under both facilities were expected to be approximately five percent. Terms under the amended Revolving Credit Facility are substantially consistent with the original Revolving Credit Facility.
Borrowings under the Revolving Credit Facility are secured by a first priority lien on substantially all of the assets of Koppers Inc., Koppers Holdings and their material domestic subsidiaries. The Revolving Credit Facility contains certain covenants for Koppers Inc. and its restricted subsidiaries that limit capital expenditures, additional indebtedness, liens, dividends, investments or acquisitions. In addition, such covenants give rise to events of default upon the failure by Koppers Inc. and its restricted subsidiaries to meet certain financial ratios.
As of September 30, 2018, the Company had $131.3 million of unused revolving credit availability for working capital purposes after restrictions from certain letter of credit commitments and other covenants. As of September 30, 2018, $32.0 million of commitments were utilized by outstanding letters of credit.
18
Loss on Extinguishment of Debt
In February 2017, all of the outstanding Koppers Inc. senior notes due 2019 were repurchased at a premium to carrying value and accordingly, the Company realized a loss on extinguishment of debt totaling $10.0 million consisting of $7.3 million for bond premium and bond tender expenses and $2.7 million for the write-off of unamortized debt issuance costs.
Also in February 2017, Koppers Inc. repaid its term loan in full and entered into a new Revolving Credit Facility. Accordingly, the Company realized a loss of $3.3 million for the write-off of unamortized debt issuance costs.
Construction Loans
The Company’s 75-percent owned subsidiary, Koppers (Jiangsu) Carbon Chemical Company Limited (“KJCC”) entered into committed loan facility agreements with a third-party bank and the 25-percent non-controlling shareholder in KJCC. Borrowings under the third-party bank facility, which includes a construction loan and a working capital facility, totaled $22.2 million at September 30, 2018 and are secured by a letter of credit issued by a bank under the Revolving Credit Facility. KJCC will repay the construction loan portion of the third-party commitment in six installments every six months starting in June 2018 with a final repayment on December 21, 2020, the maturity date of the loans.
15. Asset Retirement Obligations
The Company recognizes asset retirement obligations for the removal and disposal of residues; dismantling of certain tanks required by governmental authorities; cleaning and dismantling costs for owned rail cars; cleaning costs for leased rail cars and barges; and site demolition, when required by governmental authorities or by contract. The following table reflects changes in the carrying values of asset retirement obligations:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Asset retirement obligation at beginning of year
|
|
$
|
37.1
|
|
|
$
|
36.0
|
|
Accretion expense
|
|
|
1.3
|
|
|
|
2.4
|
|
Revision in estimated cash flows
|
|
|
1.4
|
|
|
|
9.4
|
|
Cash expenditures
|
|
|
(10.4
|
)
|
|
|
(10.9
|
)
|
Currency translation
|
|
|
0.0
|
|
|
|
0.2
|
|
Balance at end of period
|
|
$
|
29.4
|
|
|
$
|
37.1
|
|
16. Deferred Revenue
In 2015, KJCC received a cash advance payment of $30 million as part of an amendment to a soft pitch supply agreement with its customer. Also, the Company defers revenues associated with extended product warranty liabilities based on historical loss experience and sales of extended warranties on certain products. The following table reflects changes in the carrying values of deferred revenue:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
28.1
|
|
|
$
|
27.2
|
|
Revenue earned
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
Currency translation
|
|
|
(1.6
|
)
|
|
|
1.6
|
|
Balance at end of period
|
|
$
|
26.0
|
|
|
$
|
28.1
|
|
Deferred revenue classified in other long-term liabilities in the consolidated balance sheet totaled $25.2 million as of September 30, 2018 and $27.2 million as of December 31, 2017 with the remainder classified in accrued liabilities.
19
17. Derivative Financial Instruments
The Company utilizes derivative instruments to manage exposures to risks that have been identified and measured and are capable of being controlled. The primary risks managed by the Company by using derivative instruments are commodity price risk associated with copper and foreign currency exchange risk associated with a number of currencies, principally the U.S. dollar, the Canadian dollar, the New Zealand dollar, the Euro and British pounds. Swap contracts on copper are used to manage the price risk associated with forecasted purchases of materials used in the Company’s manufacturing processes. Generally, the Company will not hedge cash flow exposures for durations longer than 36 months and the Company has hedged certain volumes of copper through December 2020. The Company enters into foreign currency forward contracts to manage foreign currency risk associated with the Company’s receivable and payable balances and foreign currency denominated sales. Generally, the Company enters into master netting arrangements with the counterparties and offsets net derivative positions with the same counterparties. Currently, the Company’s agreements do not require cash collateral.
ASC Topic 815-10, “Derivatives and Hedging,” requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. Derivative instruments’ fair value is determined using significant other observable inputs, or Level 2 in the fair value hierarchy. In accordance with ASC Topic 815-10, the Company designates certain of its commodity swaps as cash flow hedges of forecasted purchases of commodities and certain of its foreign currency swaps as cash flow hedges of forecasted sales. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. The amount of hedge ineffectiveness charged to profit and loss is reported in the table below.
For those commodity and foreign currency swaps which are not designated as cash flow hedges, the fair value of the swap is recognized as an asset or liability in the consolidated balance sheet and the related gain or loss on the derivative is reported in current earnings.
As of September 30, 2018 and December 31, 2017, the Company had outstanding copper swap contracts of the following amounts:
|
|
Units Outstanding (in Pounds)
|
|
Net Fair Value - (Liability) Asset
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
39.6
|
|
37.8
|
|
$
|
(0.2
|
)
|
|
$
|
25.5
|
|
Not designated as hedges
|
|
16.9
|
|
11.3
|
|
|
(1.0
|
)
|
|
|
4.5
|
|
Total
|
|
56.5
|
|
49.1
|
|
$
|
(1.2
|
)
|
|
$
|
30.0
|
|
As of September 30, 2018 and December 31, 2017, the fair value of the outstanding copper swap contracts is recorded in the balance sheet as follows:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
1.2
|
|
|
$
|
21.8
|
|
Other assets
|
|
|
0.5
|
|
|
|
8.2
|
|
Accrued liabilities
|
|
|
(2.6
|
)
|
|
|
0.0
|
|
Other long-term liabilities
|
|
|
(0.3
|
)
|
|
|
0.0
|
|
Net (liability) asset on balance sheet
|
|
$
|
(1.2
|
)
|
|
$
|
30.0
|
|
Accumulated other comprehensive gain (loss), net of tax
|
|
$
|
(0.3
|
)
|
|
$
|
15.8
|
|
Based upon contracts outstanding at September 30, 2018, in the next twelve months the Company estimates that $0.1 million of unrealized losses, net of tax benefit, related to commodity price hedging will be reclassified from other comprehensive loss into earnings.
20
See Note 6 – Comprehensive Income
(Loss)
and Equity, for amounts recorded in other comprehensive income and for amounts reclassified from accumulated ot
her comprehensive
loss
to net income for the periods specified below. For the three and
nine
months ended
September
30, 2018
and 2017, the following amounts were recognized in earnings related to copper swap contracts:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain from ineffectiveness of cash flow hedges
|
|
$
|
0.0
|
|
|
$
|
(2.5
|
)
|
|
$
|
0.0
|
|
|
$
|
0.5
|
|
(Loss) gain from contracts not designated as hedges
|
|
|
(1.0
|
)
|
|
|
1.0
|
|
|
|
(5.5
|
)
|
|
|
2.0
|
|
Net
|
|
$
|
(1.0
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
(5.5
|
)
|
|
$
|
2.5
|
|
The fair value associated with forward contracts related to foreign currency that are not designated as hedges are immediately charged to earnings. These amounts are classified in cost of sales in the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income.
As of September 30, 2018 and December 31, 2017, the fair value of outstanding foreign currency forward contracts is recorded in the balance sheet as follows:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
0.7
|
|
|
$
|
0.3
|
|
Accrued liabilities
|
|
|
(1.1
|
)
|
|
|
(0.2
|
)
|
Net (liability) asset on balance sheet
|
|
$
|
(0.4
|
)
|
|
$
|
0.1
|
|
As of September 30, 2018 and December 31, 2017, the net currency units outstanding for these contracts were:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
(In millions)
|
|
|
|
|
|
|
|
|
British Pounds
|
|
|
GBP 5.7
|
|
|
|
GBP 7.0
|
|
New Zealand Dollars
|
|
|
NZD 16.0
|
|
|
|
NZD 15.5
|
|
United States Dollars
|
|
|
USD 4.6
|
|
|
|
USD 12.5
|
|
Canadian Dollars
|
|
|
CAD 2.5
|
|
|
|
CAD 2.5
|
|
Euro
|
|
|
EUR 1.3
|
|
|
|
EUR 0.0
|
|
18. Commitments and Contingent Liabilities
The Company and its subsidiaries are involved in litigation and various proceedings relating to environmental laws and regulations, product liability and other matters. Certain of these matters are discussed below. The ultimate resolution of these contingencies is subject to significant uncertainty and should the Company or its subsidiaries fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company or its subsidiaries in the same reporting period, these legal matters could, individually or in the aggregate, be material to the consolidated financial statements.
Legal Proceedings
Coal Tar Pitch Cases
.
Koppers Inc. is one of several defendants in lawsuits filed in two states in which the plaintiffs claim they suffered a variety of illnesses (including cancer) as a result of exposure to coal tar pitch sold by the defendants. There are 87 plaintiffs in 48 cases pending as of September 30, 2018, which is unchanged from December 31, 2017. As of September 30, 2018, there are 47 cases pending in state court in Pennsylvania, and 1 case pending in state court in Tennessee.
The plaintiffs in all 48 pending cases seek to recover compensatory damages. Plaintiffs in 43 of those cases also seek to recover punitive damages. The plaintiffs in the 47 cases filed in Pennsylvania seek unspecified damages in excess of the court’s minimum jurisdictional limit. The plaintiff in the Tennessee state court case seeks damages of $15.0 million. The other defendants in these lawsuits vary from case to case and include companies such as Beazer East, Inc. (“Beazer East”), Honeywell International Inc., Graftech International Holdings, Dow Chemical Company, UCAR Carbon Company, Inc., and SGL Carbon Corporation. Discovery is proceeding in these cases. No trial dates have been set in any of these cases.
The Company has not provided a reserve for these lawsuits because, at this time, the Company cannot reasonably determine the probability of a loss, and the amount of loss, if any, cannot be reasonably estimated. The timing of
21
resolution of these cases cannot be reasonably determined. Although Koppers Inc. is vigorously defending these cases, an unfavorable resolution of these matters may have a material ad
verse effect on the Company’s business, financial condition, cash flows and results of operations.
Environmental and Other Litigation Matters
The Company and its subsidiaries are subject to federal, state, local and foreign laws and regulations and potential liabilities relating to the protection of the environment and human health and safety including, among other things, the cleanup of contaminated sites, the treatment, storage and disposal of wastes, the discharge of effluent into waterways, the emission of substances into the air and various health and safety matters. The Company’s subsidiaries expect to incur substantial costs for ongoing compliance with such laws and regulations. The Company’s subsidiaries may also face governmental or third-party claims, or otherwise incur costs, relating to cleanup of, or for injuries resulting from, contamination at sites associated with past and present operations. The Company accrues for environmental liabilities when a determination can be made that a liability is probable and reasonably estimable.
Environmental and Other Liabilities Retained or Assumed by Others.
The Company’s subsidiaries have agreements with former owners of certain of their operating locations under which the former owners retained, assumed and/or agreed to indemnify such subsidiaries against certain environmental and other liabilities. The most significant of these agreements was entered into at Koppers Inc.’s formation on December 29, 1988 (the “Acquisition”). Under the related asset purchase agreement between Koppers Inc. and Beazer East, subject to certain limitations, Beazer East retained the responsibility for and agreed to indemnify Koppers Inc. against certain liabilities, damages, losses and costs, including, with certain limited exceptions, liabilities under and costs to comply with environmental laws to the extent attributable to acts or omissions occurring prior to the Acquisition and liabilities related to products sold by Beazer East prior to the Acquisition (the “Indemnity”). Beazer Limited, the parent company of Beazer East, unconditionally guaranteed Beazer East’s performance of the Indemnity pursuant to a guarantee (the “Guarantee”).
The Indemnity provides different mechanisms, subject to certain limitations, by which Beazer East is obligated to indemnify Koppers Inc. with regard to certain environmental, product and other liabilities and imposes certain conditions on Koppers Inc. before receiving such indemnification, including, in some cases, certain limitations regarding the time period as to which claims for indemnification can be brought. In July 2004, Koppers Inc. and Beazer East agreed to amend the environmental indemnification provisions of the December 29, 1988 asset purchase agreement to extend the indemnification period for pre-closing environmental liabilities through July 2019. As consideration for the amendment, Koppers Inc. paid Beazer East a total of $7.0 million and agreed to share toxic tort litigation defense costs arising from any sites acquired from Beazer East. The July 2004 amendment did not change the provisions of the Indemnity with respect to indemnification for non-environmental claims, such as product liability claims, which claims may continue to be asserted after July 2019.
Qualified expenditures under the Indemnity are not subject to a monetary limit. Qualified expenditures under the Indemnity include (i) environmental cleanup liabilities required by third parties, such as investigation, remediation and closure costs, relating to pre-December 29, 1988 (“Pre-Closing”) acts or omissions of Beazer East or its predecessors; (ii) environmental claims by third parties for personal injuries, property damages and natural resources damages relating to Pre-Closing acts or omissions of Beazer East or its predecessors; (iii) punitive damages for the acts or omissions of Beazer East and its predecessors without regard to the date of the alleged conduct and (iv) product liability claims for products sold by Beazer East or its predecessors without regard to the date of the alleged conduct. If the third-party claims described in sections (i) and (ii) above are not made by July 2019, Beazer East will not be required to pay the costs arising from such claims under the Indemnity. However, with respect to any such claims which are made by July 2019, Beazer East will continue to be responsible for such claims under the Indemnity beyond July 2019. The Indemnity provides for the resolution of issues between Koppers Inc. and Beazer East by an arbitrator on an expedited basis upon the request of either party. The arbitrator could be asked, among other things, to make a determination regarding the allocation of environmental responsibilities between Koppers Inc. and Beazer East. Arbitration decisions under the Indemnity are final and binding on the parties.
Contamination has been identified at most manufacturing and other sites of the Company’s subsidiaries. One site currently owned and operated by Koppers Inc. in the United States is listed on the National Priorities List promulgated under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”). Currently, at the properties acquired from Beazer East (which includes the National Priorities List site and all but one of the sites permitted under the Resource Conservation and Recovery Act (“RCRA”)), a significant portion of all investigative, cleanup and closure activities are being conducted and paid for by Beazer East pursuant to the terms of the Indemnity. In addition, other of Koppers Inc.’s sites are or have been operated under RCRA and various other environmental permits, and remedial and closure activities are being conducted at some of these sites.
To date, the parties that retained, assumed and/or agreed to indemnify the Company against the liabilities referred to above, including Beazer East, have performed their obligations in all material respects. The Company believes that, for
22
the last three years ended December 31, 2017, amounts paid by Beazer East as a result of its environmenta
l remediation obligations under the Indemnity have averaged, in total, approximately
$10
million per year. Periodically, issues have arisen between Koppers Inc. and Beazer East and/or other indemnitors that have been resolved without arbitration. Koppers I
nc. and Beazer East engage in discussions from time to time that involve, among other things, the allocation of environmental costs related to certain operating and closed facilities.
If for any reason (including disputed coverage or financial incapability) one or more of such parties fail to perform their obligations and the Company or its subsidiaries are held liable for or otherwise required to pay all or part of such liabilities without reimbursement, the imposition of such liabilities on the Company or its subsidiaries could have a material adverse effect on its business, financial condition, cash flows and results of operations. Furthermore, the Company could be required to record a contingent liability on its balance sheet with respect to such matters, which could result in a negative impact to the Company’s business, financial condition, cash flows and results of operations.
Domestic Environmental Matters.
On June 4, 2018, Koppers Inc. received a letter from the U.S. Environmental Protection Agency ("EPA") concerning potential violations of the Clean Water Act observed during inspections and review of Spill Prevention, Control and Countermeasure Plans and Facility Response Plans at the Company’s facilities in Follansbee, WV; Green Spring, WV; and Clairton, PA. In addition, the EPA reviewed one facility’s compliance with an earlier consent order regarding above ground storage tank integrity testing. The Company continues to meet and correspond with the EPA to discuss and present relevant information related to the allegations. The Company currently cannot estimate the potential penalties, fines or other expenditures, if any, that may result from any EPA actions relating to the alleged potential violations and, therefore, the Company cannot determine if the ultimate outcome of this matter will have a material impact on the Company's financial position, results of operations or cash flows.
Koppers Inc. has been named as one of the potentially responsible parties (“PRPs”) at the Portland Harbor CERCLA site located on the Willamette River in Oregon. Koppers Inc. operated a coal tar pitch terminal near the site. Koppers Inc. has responded to an Environmental Protection Agency (“EPA”) information request and has executed a PRP agreement which outlines a private process to develop an allocation of past and future costs among more than 80 parties to the site. Koppers Inc. believes it is a
de minimis
contributor at the site.
The EPA issued its Record of Decision (“ROD”) in January 2017 for the Portland Harbor CERCLA site. The selected remedy includes a combination of sediment removal, capping, enhanced and monitored natural recovery and riverbank improvements. The ROD does not determine who is responsible for remediation costs. The net present value and undiscounted costs of the selected remedy as estimated in the ROD are approximately $1.1 billion and $1.7 billion, respectively. Responsibility for implementing and funding that work will be decided in the separate private allocation process, which is ongoing.
Additionally, the Company is involved in two separate natural resource damages assessments at the Portland Harbor site. An assessment is intended to identify damages to natural resources caused by the releases of hazardous substances to the Willamette River and to serve as the foundation to estimate liabilities for settlements of natural resource damages claims or litigation to recover from those who do not settle with the trustee groups. One of the natural resource damage assessments was filed in
January 2017 by the Yakama Nation in Oregon federal court. Yakama Nation seeks recovery for future response costs and the costs of assessing injury to natural resources and recovery for past costs of overseeing investigations conducted on the site. Motions to dismiss the case are pending.
In September 2009, Koppers Inc. received a general notice letter notifying it that it may be a PRP at the Newark Bay CERCLA site. In January 2010, Koppers Inc. submitted a response to the general notice letter asserting that Koppers Inc. is a
de minimis
party at this site.
The Company has accrued the estimated costs of participating in the PRP group at the Portland Harbor and Newark Bay CERCLA sites and estimated
de minimis
settlement amounts at the sites totaling $2.1 million at September 30, 2018. The actual cost could be materially higher as there has not been a determination of how those costs will be allocated among the PRPs at the sites. Accordingly, an unfavorable resolution of these matters may have a material adverse effect on the Company’s business, financial condition, cash flows and results of operations.
There are two plant sites in the United States related to the Performance Chemicals business where the Company has recorded an environmental remediation liability for soil and groundwater contamination which occurred prior to the Company’s acquisition of the business. As of September 30, 2018, the Company’s estimated environmental remediation liability for these acquired sites totals $4.9 million.
There is one plant site in the United States related to the Utility and Industrial Products business where the Company has recorded an environmental remediation liability for soil and groundwater contamination which occurred prior to the Company’s acquisition of the business. As of September 30, 2018, the Company’s estimated environmental remediation liability for the acquired site totals $1.9 million.
23
Foreign Environmental Matters
.
There are two plant sites related to the Performance Chemicals business located in the United Kingdom and
Australia where the Company has recorded an environmental remediation liability for soil and groundwater contamination which occurred prior to the acquisition of the business. As of
September
30, 2018
, the Company’s estimated environmental remediation lia
bility for these acquired sites totals $
2.5
million.
In December 2011, the Company ceased manufacturing operations at its Continental Carbon facility located in Kurnell, Australia. As of September 30, 2018, the Company believes it has fully satisfied all site remediation responsibilities resulting from the closure.
Environmental Reserves Rollforward.
The following table reflects changes in the accrued liability for environmental matters, of which $3.7 million and $5.1 million are classified as current liabilities at September 30, 2018 and December 31, 2017, respectively:
|
|
Period ended
|
|
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
13.9
|
|
|
$
|
12.9
|
|
Expense
|
|
|
1.0
|
|
|
|
3.2
|
|
Reversal of reserves
|
|
|
(0.1
|
)
|
|
|
(0.7
|
)
|
Cash expenditures
|
|
|
(3.8
|
)
|
|
|
(1.8
|
)
|
Acquisition
|
|
|
1.9
|
|
|
|
0.0
|
|
Currency translation
|
|
|
(0.2
|
)
|
|
|
0.3
|
|
Balance at end of period
|
|
$
|
12.7
|
|
|
$
|
13.9
|
|
19. Subsidiary Guarantor Information for Koppers Inc. Shelf Registration
Under a registration statement on Form S-3, Koppers Holdings may sell a combination of securities, including common stock, debt securities, preferred stock, depository shares, warrants, purchase contracts and units, from time to time in one or more offerings. In addition, Koppers Inc. may sell debt securities from time to time under the registration statement. Debt securities may be fully and unconditionally guaranteed, on a joint and several basis, by Koppers Holdings, Koppers Inc., Koppers Asia LLC, Koppers World-Wide Ventures Corporation, Koppers Concrete Products, Inc., Concrete Partners, Inc., Koppers Delaware, Inc., Koppers Ventures, Inc., Koppers Performance Chemicals Inc., Koppers-Nevada Limited Liability Company, Koppers NZ LLC, Koppers Railroad Structures Inc., Wood Protection LP and Wood Management LLC. Non-guarantor subsidiaries are owned directly or indirectly by Koppers Inc. or are owned directly or indirectly by Koppers World-Wide Ventures Corporation. The guarantor subsidiaries that issue guarantees, if any, will be determined when a debt offering actually occurs under the registration statement and accordingly, the condensed consolidating financial information for subsidiary guarantors will be revised to identify the subsidiaries that actually provided guarantees. These guarantees will be governed pursuant to a supplemental indenture which the trustee and the issuing company would enter into concurrent with the debt offering.
Reliance of Koppers Holdings on Earnings of Koppers Inc. and its Subsidiaries
Koppers Holdings depends on the dividends from the earnings of Koppers Inc. and its subsidiaries to generate the funds necessary to meet its financial obligations, including the payment of any declared dividend of Koppers Holdings. The Revolving Credit Facility prohibits Koppers Inc. from making dividend payments to Koppers Holdings unless (1) such dividend payments are permitted by the indenture governing Koppers Inc.’s 2025 Notes, (2) no event of default or potential default has occurred or is continuing under the credit agreement, and (3) the Company is in pro forma compliance with the Company’s fixed charge coverage ratio covenant after giving effect to such dividend. The indenture governing the 2025 Notes restricts Koppers Inc.’s ability to finance the Company’s payment of dividends if (1) a default has occurred or would result from such financing, (2) Koppers Inc., or a restricted subsidiary of Koppers Inc. which is not a guarantor under the applicable indenture is not able to incur additional indebtedness (as defined in the applicable indenture), and (3) the sum of all restricted payments (as defined in the applicable indenture) have exceeded the permitted amount (which the Company refers to as the “basket”) at such point in time.
The Koppers Inc. Revolving Credit Facility agreement provides for a revolving credit facility at variable rates. Borrowings under the Revolving Credit Facility are secured by a first priority lien on substantially all of the assets of Koppers Inc. and its material domestic subsidiaries. The revolving credit facility agreement contains certain covenants for Koppers Inc. and its restricted subsidiaries that limit capital expenditures, additional indebtedness, liens, dividends, investments or acquisitions. In addition, such covenants give rise to events of default upon the failure by Koppers Inc. and its restricted subsidiaries to meet certain financial ratios.
As of September 30, 2018, Koppers Inc.’s assets exceeded its liabilities by $93.0 million. The amount of restricted net assets unavailable for distribution to Koppers Holdings Inc. by Koppers Inc. totals $38.5 million as of September 30, 2018.
24
Cash dividends paid to Koppers Holdings Inc. by its subsidiaries tot
aled $
8
.
2
million and $
3.7
million for the
nine
months ended
September
30, 2018
and 2017, respectively.
25
Condensed Consolidating Statement of Operations
For the Three Months Ended September 30, 2018
|
|
Parent
|
|
|
Koppers Inc.
|
|
|
Domestic
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
0.0
|
|
|
$
|
158.3
|
|
|
$
|
92.1
|
|
|
$
|
216.9
|
|
|
$
|
(24.6
|
)
|
|
$
|
442.7
|
|
Cost of sales including depreciation
and amortization
|
|
|
0.0
|
|
|
|
145.3
|
|
|
|
71.5
|
|
|
|
181.1
|
|
|
|
(24.3
|
)
|
|
|
373.6
|
|
Selling, general and administrative
|
|
|
0.5
|
|
|
|
12.0
|
|
|
|
9.9
|
|
|
|
15.5
|
|
|
|
0.0
|
|
|
|
37.9
|
|
Operating profit (loss)
|
|
|
(0.5
|
)
|
|
|
1.0
|
|
|
|
10.7
|
|
|
|
20.3
|
|
|
|
(0.3
|
)
|
|
|
31.2
|
|
Other (loss) income
|
|
|
0.0
|
|
|
|
(0.4
|
)
|
|
|
0.5
|
|
|
|
(0.7
|
)
|
|
|
0.0
|
|
|
|
(0.6
|
)
|
Equity income (loss) of subsidiaries
|
|
|
8.0
|
|
|
|
15.6
|
|
|
|
14.8
|
|
|
|
0.1
|
|
|
|
(38.5
|
)
|
|
|
0.0
|
|
Interest expense
|
|
|
0.0
|
|
|
|
14.4
|
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
0.0
|
|
|
|
15.1
|
|
Income taxes
|
|
|
(0.1
|
)
|
|
|
(6.2
|
)
|
|
|
10.6
|
|
|
|
4.3
|
|
|
|
0.0
|
|
|
|
8.6
|
|
Income from continuing operations
|
|
|
7.6
|
|
|
|
8.0
|
|
|
|
15.3
|
|
|
|
14.8
|
|
|
|
(38.8
|
)
|
|
|
6.9
|
|
Noncontrolling interests
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(0.7
|
)
|
|
|
0.0
|
|
|
|
(0.7
|
)
|
Net income attributable to Koppers
|
|
$
|
7.6
|
|
|
$
|
8.0
|
|
|
$
|
15.3
|
|
|
$
|
15.5
|
|
|
$
|
(38.8
|
)
|
|
$
|
7.6
|
|
Comprehensive income
attributable to Koppers
|
|
$
|
(0.9
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
6.5
|
|
|
$
|
13.0
|
|
|
$
|
(19.2
|
)
|
|
$
|
(0.9
|
)
|
Condensed Consolidating Statement of Operations
For the Three Months Ended September 30, 2017
|
|
Parent
|
|
|
Koppers Inc.
|
|
|
Domestic
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
0.0
|
|
|
$
|
151.1
|
|
|
$
|
92.0
|
|
|
$
|
162.9
|
|
|
$
|
(21.2
|
)
|
|
$
|
384.8
|
|
Cost of sales including depreciation
and amortization
|
|
|
0.0
|
|
|
|
136.2
|
|
|
|
64.6
|
|
|
|
128.2
|
|
|
|
(21.2
|
)
|
|
|
307.8
|
|
Loss on pension settlement
|
|
|
0.0
|
|
|
|
8.8
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
8.8
|
|
Selling, general and administrative
|
|
|
0.5
|
|
|
|
12.1
|
|
|
|
10.2
|
|
|
|
10.4
|
|
|
|
0.0
|
|
|
|
33.2
|
|
Operating profit (loss)
|
|
|
(0.5
|
)
|
|
|
(6.0
|
)
|
|
|
17.2
|
|
|
|
24.3
|
|
|
|
0.0
|
|
|
|
35.0
|
|
Other income (loss)
|
|
|
0.0
|
|
|
|
(0.1
|
)
|
|
|
0.6
|
|
|
|
0.1
|
|
|
|
(0.3
|
)
|
|
|
0.3
|
|
Equity income (loss) of subsidiaries
|
|
|
19.9
|
|
|
|
29.4
|
|
|
|
17.0
|
|
|
|
0.1
|
|
|
|
(66.4
|
)
|
|
|
0.0
|
|
Interest expense
|
|
|
(0.1
|
)
|
|
|
9.8
|
|
|
|
0.1
|
|
|
|
1.1
|
|
|
|
(0.4
|
)
|
|
|
10.5
|
|
Income taxes
|
|
|
(0.3
|
)
|
|
|
(6.4
|
)
|
|
|
6.5
|
|
|
|
5.0
|
|
|
|
0.0
|
|
|
|
4.8
|
|
Income (loss) from continuing operations
|
|
|
19.8
|
|
|
|
19.9
|
|
|
|
28.2
|
|
|
|
18.4
|
|
|
|
(66.3
|
)
|
|
|
20.0
|
|
Discontinued operations
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(0.1
|
)
|
|
|
0.0
|
|
|
|
(0.1
|
)
|
Noncontrolling interests
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
0.1
|
|
Net income (loss) attributable to Koppers
|
|
$
|
19.8
|
|
|
$
|
19.9
|
|
|
$
|
28.2
|
|
|
$
|
18.2
|
|
|
$
|
(66.3
|
)
|
|
$
|
19.8
|
|
Comprehensive income (loss)
attributable to Koppers
|
|
$
|
36.6
|
|
|
$
|
36.8
|
|
|
$
|
38.7
|
|
|
$
|
24.4
|
|
|
$
|
(99.9
|
)
|
|
$
|
36.6
|
|
26
Condensed Consolidating Statement of Operations
For the Nine Months Ended September 30, 2018
|
|
Parent
|
|
|
Koppers Inc.
|
|
|
Domestic
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
0.0
|
|
|
$
|
429.6
|
|
|
$
|
265.5
|
|
|
$
|
651.4
|
|
|
$
|
(61.7
|
)
|
|
$
|
1,284.8
|
|
Cost of sales including depreciation
and amortization
|
|
|
0.0
|
|
|
|
397.5
|
|
|
|
205.9
|
|
|
|
525.4
|
|
|
|
(62.6
|
)
|
|
|
1,066.2
|
|
Selling, general and administrative
|
|
|
1.9
|
|
|
|
39.3
|
|
|
|
33.8
|
|
|
|
46.8
|
|
|
|
0.0
|
|
|
|
121.8
|
|
Operating profit (loss)
|
|
|
(1.9
|
)
|
|
|
(7.2
|
)
|
|
|
25.8
|
|
|
|
79.2
|
|
|
|
0.9
|
|
|
|
96.8
|
|
Other (loss) income
|
|
|
0.0
|
|
|
|
(3.2
|
)
|
|
|
1.3
|
|
|
|
0.8
|
|
|
|
0.0
|
|
|
|
(1.1
|
)
|
Equity income (loss) of subsidiaries
|
|
|
27.5
|
|
|
|
74.0
|
|
|
|
64.7
|
|
|
|
0.0
|
|
|
|
(166.2
|
)
|
|
|
0.0
|
|
Interest expense
|
|
|
0.0
|
|
|
|
38.2
|
|
|
|
0.1
|
|
|
|
1.8
|
|
|
|
0.0
|
|
|
|
40.1
|
|
Income taxes
|
|
|
(0.4
|
)
|
|
|
(2.1
|
)
|
|
|
14.2
|
|
|
|
12.7
|
|
|
|
0.0
|
|
|
|
24.4
|
|
Income from continuing operations
|
|
|
26.0
|
|
|
|
27.5
|
|
|
|
77.5
|
|
|
|
65.5
|
|
|
|
(165.3
|
)
|
|
|
31.2
|
|
Discontinued operations
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.4
|
|
|
|
0.0
|
|
|
|
0.4
|
|
Noncontrolling interests
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
5.6
|
|
|
|
0.0
|
|
|
|
5.6
|
|
Net income attributable to Koppers
|
|
$
|
26.0
|
|
|
$
|
27.5
|
|
|
$
|
77.5
|
|
|
$
|
60.3
|
|
|
$
|
(165.3
|
)
|
|
$
|
26.0
|
|
Comprehensive income
attributable to Koppers
|
|
$
|
(11.2
|
)
|
|
$
|
(9.7
|
)
|
|
$
|
39.2
|
|
|
$
|
41.7
|
|
|
$
|
(71.2
|
)
|
|
$
|
(11.2
|
)
|
Condensed Consolidating Statement of Operations
For the Nine Months Ended September 30, 2017
|
|
Parent
|
|
|
Koppers Inc.
|
|
|
Domestic
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
0.0
|
|
|
$
|
455.2
|
|
|
$
|
267.4
|
|
|
$
|
451.1
|
|
|
$
|
(64.3
|
)
|
|
$
|
1,109.4
|
|
Cost of sales including depreciation
and amortization
|
|
|
0.0
|
|
|
|
425.7
|
|
|
|
183.7
|
|
|
|
357.0
|
|
|
|
(62.6
|
)
|
|
|
903.8
|
|
Loss on pension settlement
|
|
|
0.0
|
|
|
|
8.8
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
8.8
|
|
Selling, general and administrative
|
|
|
1.5
|
|
|
|
33.8
|
|
|
|
30.5
|
|
|
|
29.8
|
|
|
|
0.0
|
|
|
|
95.6
|
|
Operating profit (loss)
|
|
|
(1.5
|
)
|
|
|
(13.1
|
)
|
|
|
53.2
|
|
|
|
64.3
|
|
|
|
(1.7
|
)
|
|
|
101.2
|
|
Other income
|
|
|
0.0
|
|
|
|
(0.9
|
)
|
|
|
1.8
|
|
|
|
1.9
|
|
|
|
(0.8
|
)
|
|
|
2.0
|
|
Equity income of subsidiaries
|
|
|
44.8
|
|
|
|
81.2
|
|
|
|
47.3
|
|
|
|
0.0
|
|
|
|
(173.3
|
)
|
|
|
0.0
|
|
Interest expense
|
|
|
(0.1
|
)
|
|
|
29.5
|
|
|
|
0.1
|
|
|
|
3.2
|
|
|
|
(0.8
|
)
|
|
|
31.9
|
|
Loss on extinguishment of debt
|
|
|
0.0
|
|
|
|
13.3
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
13.3
|
|
Income taxes
|
|
|
(0.5
|
)
|
|
|
(20.4
|
)
|
|
|
20.2
|
|
|
|
13.1
|
|
|
|
0.0
|
|
|
|
12.4
|
|
Income (loss) from continuing operations
|
|
|
43.9
|
|
|
|
44.8
|
|
|
|
82.0
|
|
|
|
49.9
|
|
|
|
(175.0
|
)
|
|
|
45.6
|
|
Discontinued operations
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(1.3
|
)
|
|
|
0.0
|
|
|
|
(1.3
|
)
|
Noncontrolling interests
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.4
|
|
|
|
0.0
|
|
|
|
0.4
|
|
Net income (loss) attributable to Koppers
|
|
$
|
43.9
|
|
|
$
|
44.8
|
|
|
$
|
82.0
|
|
|
$
|
48.2
|
|
|
$
|
(175.0
|
)
|
|
$
|
43.9
|
|
Comprehensive income (loss)
attributable to Koppers
|
|
$
|
73.1
|
|
|
$
|
74.2
|
|
|
$
|
104.5
|
|
|
$
|
66.4
|
|
|
$
|
(245.1
|
)
|
|
$
|
73.1
|
|
27
Condensed Consolidating Balance Sheet
September 30, 2018
|
|
Parent
|
|
|
Koppers Inc.
|
|
|
Domestic
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
0.0
|
|
|
$
|
0.0
|
|
|
$
|
0.1
|
|
|
$
|
62.4
|
|
|
$
|
0.0
|
|
|
$
|
62.5
|
|
Receivables, net
|
|
|
0.0
|
|
|
|
70.7
|
|
|
|
31.7
|
|
|
|
119.9
|
|
|
|
0.0
|
|
|
|
222.3
|
|
Affiliated receivables
|
|
|
(22.7
|
)
|
|
|
39.4
|
|
|
|
17.3
|
|
|
|
4.8
|
|
|
|
(38.8
|
)
|
|
|
0.0
|
|
Inventories, net
|
|
|
0.0
|
|
|
|
98.3
|
|
|
|
39.0
|
|
|
|
153.0
|
|
|
|
(1.0
|
)
|
|
|
289.3
|
|
Other current assets
|
|
|
0.0
|
|
|
|
7.0
|
|
|
|
5.3
|
|
|
|
18.9
|
|
|
|
0.3
|
|
|
|
31.5
|
|
Total current assets
|
|
|
(22.7
|
)
|
|
|
215.4
|
|
|
|
93.4
|
|
|
|
359.0
|
|
|
|
(39.5
|
)
|
|
|
605.6
|
|
Equity investments
|
|
|
91.5
|
|
|
|
1,020.8
|
|
|
|
322.9
|
|
|
|
0.1
|
|
|
|
(1,435.3
|
)
|
|
|
0.0
|
|
Property, plant and equipment, net
|
|
|
0.0
|
|
|
|
203.6
|
|
|
|
47.6
|
|
|
|
147.2
|
|
|
|
0.0
|
|
|
|
398.4
|
|
Goodwill
|
|
|
0.0
|
|
|
|
0.8
|
|
|
|
153.1
|
|
|
|
142.6
|
|
|
|
0.0
|
|
|
|
296.5
|
|
Intangible assets, net
|
|
|
0.0
|
|
|
|
6.7
|
|
|
|
89.1
|
|
|
|
97.7
|
|
|
|
0.0
|
|
|
|
193.5
|
|
Deferred tax assets
|
|
|
0.0
|
|
|
|
23.6
|
|
|
|
(7.1
|
)
|
|
|
1.9
|
|
|
|
0.0
|
|
|
|
18.4
|
|
Affiliated loan receivables
|
|
|
0.0
|
|
|
|
45.5
|
|
|
|
159.1
|
|
|
|
9.5
|
|
|
|
(214.1
|
)
|
|
|
0.0
|
|
Other assets
|
|
|
0.0
|
|
|
|
4.6
|
|
|
|
6.4
|
|
|
|
12.2
|
|
|
|
0.0
|
|
|
|
23.2
|
|
Total assets
|
|
$
|
68.8
|
|
|
$
|
1,521.0
|
|
|
$
|
864.5
|
|
|
$
|
770.2
|
|
|
$
|
(1,688.9
|
)
|
|
$
|
1,535.6
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
0.0
|
|
|
|
75.8
|
|
|
|
35.2
|
|
|
|
55.2
|
|
|
|
0.0
|
|
|
|
166.2
|
|
Affiliated payables
|
|
|
0.0
|
|
|
|
23.7
|
|
|
|
3.4
|
|
|
|
11.8
|
|
|
|
(38.9
|
)
|
|
|
0.0
|
|
Accrued liabilities
|
|
|
0.0
|
|
|
|
50.1
|
|
|
|
14.8
|
|
|
|
36.8
|
|
|
|
0.0
|
|
|
|
101.7
|
|
Current maturities of long-term debt
|
|
|
0.0
|
|
|
|
10.0
|
|
|
|
0.1
|
|
|
|
5.0
|
|
|
|
0.0
|
|
|
|
15.1
|
|
Total current liabilities
|
|
|
0.0
|
|
|
|
159.6
|
|
|
|
53.5
|
|
|
|
108.8
|
|
|
|
(38.9
|
)
|
|
|
283.0
|
|
Long-term debt
|
|
|
0.0
|
|
|
|
1,010.0
|
|
|
|
0.1
|
|
|
|
19.7
|
|
|
|
0.0
|
|
|
|
1,029.8
|
|
Affiliated debt
|
|
|
0.0
|
|
|
|
168.6
|
|
|
|
37.7
|
|
|
|
7.8
|
|
|
|
(214.1
|
)
|
|
|
0.0
|
|
Other long-term liabilities
|
|
|
0.0
|
|
|
|
89.8
|
|
|
|
14.1
|
|
|
|
39.5
|
|
|
|
0.0
|
|
|
|
143.4
|
|
Total liabilities
|
|
|
0.0
|
|
|
|
1,428.0
|
|
|
|
105.4
|
|
|
|
175.8
|
|
|
|
(253.0
|
)
|
|
|
1,456.2
|
|
Koppers shareholders’ equity
|
|
|
68.8
|
|
|
|
93.0
|
|
|
|
759.1
|
|
|
|
583.8
|
|
|
|
(1,435.9
|
)
|
|
|
68.8
|
|
Noncontrolling interests
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
10.6
|
|
|
|
0.0
|
|
|
|
10.6
|
|
Total liabilities and equity
|
|
$
|
68.8
|
|
|
$
|
1,521.0
|
|
|
$
|
864.5
|
|
|
$
|
770.2
|
|
|
$
|
(1,688.9
|
)
|
|
$
|
1,535.6
|
|
28
Condensed Consolidating Balance Sheet
December 31, 2017
|
|
Parent
|
|
|
Koppers Inc.
|
|
|
Domestic
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
0.0
|
|
|
$
|
0.7
|
|
|
$
|
0.0
|
|
|
$
|
59.6
|
|
|
$
|
0.0
|
|
|
$
|
60.3
|
|
Receivables, net
|
|
|
0.0
|
|
|
|
48.6
|
|
|
|
27.7
|
|
|
|
84.6
|
|
|
|
0.0
|
|
|
|
160.9
|
|
Affiliated receivables
|
|
|
0.6
|
|
|
|
19.4
|
|
|
|
(83.0
|
)
|
|
|
(12.1
|
)
|
|
|
75.1
|
|
|
|
0.0
|
|
Inventories, net
|
|
|
0.0
|
|
|
|
80.4
|
|
|
|
40.5
|
|
|
|
117.9
|
|
|
|
(1.9
|
)
|
|
|
236.9
|
|
Deferred tax assets
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
0.0
|
|
Other current assets
|
|
|
0.0
|
|
|
|
6.6
|
|
|
|
23.0
|
|
|
|
18.8
|
|
|
|
0.2
|
|
|
|
48.6
|
|
Total current assets
|
|
|
0.6
|
|
|
|
155.7
|
|
|
|
8.2
|
|
|
|
268.7
|
|
|
|
73.5
|
|
|
|
506.7
|
|
Equity investments
|
|
|
99.3
|
|
|
|
716.3
|
|
|
|
276.8
|
|
|
|
(0.1
|
)
|
|
|
(1,092.3
|
)
|
|
|
0.0
|
|
Property, plant and equipment, net
|
|
|
0.0
|
|
|
|
155.2
|
|
|
|
47.3
|
|
|
|
125.5
|
|
|
|
0.0
|
|
|
|
328.0
|
|
Goodwill
|
|
|
0.0
|
|
|
|
0.8
|
|
|
|
153.1
|
|
|
|
34.3
|
|
|
|
0.0
|
|
|
|
188.2
|
|
Intangible assets, net
|
|
|
0.0
|
|
|
|
7.2
|
|
|
|
96.7
|
|
|
|
25.7
|
|
|
|
0.0
|
|
|
|
129.6
|
|
Deferred tax assets
|
|
|
0.0
|
|
|
|
29.4
|
|
|
|
(13.2
|
)
|
|
|
2.2
|
|
|
|
0.0
|
|
|
|
18.4
|
|
Affiliated loan receivables
|
|
|
0.0
|
|
|
|
34.9
|
|
|
|
224.3
|
|
|
|
21.4
|
|
|
|
(280.6
|
)
|
|
|
0.0
|
|
Other assets
|
|
|
0.0
|
|
|
|
4.4
|
|
|
|
15.3
|
|
|
|
9.6
|
|
|
|
0.0
|
|
|
|
29.3
|
|
Total assets
|
|
$
|
99.9
|
|
|
$
|
1,103.9
|
|
|
$
|
808.5
|
|
|
$
|
487.3
|
|
|
$
|
(1,299.4
|
)
|
|
$
|
1,200.2
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
0.0
|
|
|
$
|
65.1
|
|
|
$
|
32.4
|
|
|
$
|
44.4
|
|
|
$
|
0.0
|
|
|
$
|
141.9
|
|
Affiliated payables
|
|
|
0.0
|
|
|
|
(90.3
|
)
|
|
|
13.8
|
|
|
|
2.2
|
|
|
|
74.3
|
|
|
|
0.0
|
|
Accrued liabilities
|
|
|
0.0
|
|
|
|
59.9
|
|
|
|
16.4
|
|
|
|
51.6
|
|
|
|
0.0
|
|
|
|
127.9
|
|
Current maturities of long-term debt
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
11.3
|
|
|
|
0.0
|
|
|
|
11.4
|
|
Total current liabilities
|
|
|
0.0
|
|
|
|
34.8
|
|
|
|
62.6
|
|
|
|
109.5
|
|
|
|
74.3
|
|
|
|
281.2
|
|
Long-term debt
|
|
|
0.0
|
|
|
|
643.3
|
|
|
|
0.0
|
|
|
|
22.3
|
|
|
|
0.0
|
|
|
|
665.6
|
|
Affiliated debt
|
|
|
0.0
|
|
|
|
233.7
|
|
|
|
19.3
|
|
|
|
27.6
|
|
|
|
(280.6
|
)
|
|
|
0.0
|
|
Other long-term liabilities
|
|
|
0.0
|
|
|
|
92.0
|
|
|
|
14.4
|
|
|
|
41.2
|
|
|
|
0.0
|
|
|
|
147.6
|
|
Total liabilities
|
|
|
0.0
|
|
|
|
1,003.8
|
|
|
|
96.3
|
|
|
|
200.6
|
|
|
|
(206.3
|
)
|
|
|
1,094.4
|
|
Koppers shareholders’ equity
|
|
|
99.9
|
|
|
|
100.1
|
|
|
|
712.2
|
|
|
|
280.8
|
|
|
|
(1,093.1
|
)
|
|
|
99.9
|
|
Noncontrolling interests
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
5.9
|
|
|
|
0.0
|
|
|
|
5.9
|
|
Total liabilities and equity
|
|
$
|
99.9
|
|
|
$
|
1,103.9
|
|
|
$
|
808.5
|
|
|
$
|
487.3
|
|
|
$
|
(1,299.4
|
)
|
|
$
|
1,200.2
|
|
29
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2018
|
|
Parent
|
|
|
Koppers Inc.
|
|
|
Domestic
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating
activities
|
|
$
|
29.2
|
|
|
$
|
(68.3
|
)
|
|
$
|
17.1
|
|
|
$
|
38.2
|
|
|
$
|
(8.2
|
)
|
|
$
|
8.0
|
|
Cash provided by (used in) investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and
acquisitions
|
|
|
0.0
|
|
|
|
(326.8
|
)
|
|
|
(3.9
|
)
|
|
|
(14.7
|
)
|
|
|
0.0
|
|
|
|
(345.4
|
)
|
Repayments (loans to) from
affiliates
|
|
|
0.0
|
|
|
|
(4.5
|
)
|
|
|
(18.1
|
)
|
|
|
(5.5
|
)
|
|
|
28.1
|
|
|
|
0.0
|
|
Insurance proceeds received
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
1.5
|
|
|
|
0.0
|
|
|
|
1.5
|
|
Net cash provided by
divestitures and asset sales
|
|
|
0.0
|
|
|
|
(2.0
|
)
|
|
|
0.0
|
|
|
|
4.3
|
|
|
|
0.0
|
|
|
|
2.3
|
|
Net cash (used in) provided by
investing activities
|
|
|
0.0
|
|
|
|
(333.3
|
)
|
|
|
(22.0
|
)
|
|
|
(14.4
|
)
|
|
|
28.1
|
|
|
|
(341.6
|
)
|
Cash provided by (used in) financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings (repayments) of
long-term debt
|
|
|
0.0
|
|
|
|
377.7
|
|
|
|
(0.1
|
)
|
|
|
(7.7
|
)
|
|
|
0.0
|
|
|
|
369.9
|
|
Borrowings (repayments) of
affiliated debt
|
|
|
0.0
|
|
|
|
34.3
|
|
|
|
5.1
|
|
|
|
(11.3
|
)
|
|
|
(28.1
|
)
|
|
|
0.0
|
|
Debt issuance costs
|
|
|
0.0
|
|
|
|
(2.9
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(2.9
|
)
|
Dividends paid
|
|
|
0.0
|
|
|
|
(8.2
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
8.2
|
|
|
|
0.0
|
|
Stock repurchased
|
|
|
(29.2
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(29.2
|
)
|
Net cash provided by (used in)
financing activities
|
|
|
(29.2
|
)
|
|
|
400.9
|
|
|
|
5.0
|
|
|
|
(19.0
|
)
|
|
|
(19.9
|
)
|
|
|
337.8
|
|
Effect of exchange rates on cash
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(2.0
|
)
|
|
|
0.0
|
|
|
|
(2.0
|
)
|
Net increase in cash and cash
equivalents
|
|
|
0.0
|
|
|
|
(0.7
|
)
|
|
|
0.1
|
|
|
|
2.8
|
|
|
|
0.0
|
|
|
|
2.2
|
|
Cash and cash equivalents at
beginning of year
|
|
|
0.0
|
|
|
|
0.7
|
|
|
|
0.0
|
|
|
|
59.6
|
|
|
|
0.0
|
|
|
|
60.3
|
|
Cash and cash equivalents at end of
period
|
|
$
|
0.0
|
|
|
$
|
0.0
|
|
|
$
|
0.1
|
|
|
$
|
62.4
|
|
|
$
|
0.0
|
|
|
$
|
62.5
|
|
30
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2017
|
|
Parent
|
|
|
Koppers Inc.
|
|
|
Domestic
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating
activities
|
|
$
|
3.2
|
|
|
$
|
(15.9
|
)
|
|
$
|
33.9
|
|
|
$
|
31.0
|
|
|
$
|
(3.7
|
)
|
|
$
|
48.5
|
|
Cash provided by (used in) investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and
acquisitions
|
|
|
0.0
|
|
|
|
(32.0
|
)
|
|
|
(11.3
|
)
|
|
|
(5.3
|
)
|
|
|
0.0
|
|
|
|
(48.6
|
)
|
Repayments (loans to) from
affiliates
|
|
|
0.0
|
|
|
|
2.0
|
|
|
|
(19.1
|
)
|
|
|
0.6
|
|
|
|
16.5
|
|
|
|
0.0
|
|
Repayment of loan
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
9.5
|
|
|
|
0.0
|
|
|
|
9.5
|
|
Net cash proceeds from
divestitures and asset sales
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.7
|
|
|
|
0.4
|
|
|
|
0.0
|
|
|
|
1.1
|
|
Net cash (used in) provided by
investing activities
|
|
|
0.0
|
|
|
|
(30.0
|
)
|
|
|
(29.7
|
)
|
|
|
5.2
|
|
|
|
16.5
|
|
|
|
(38.0
|
)
|
Cash provided by (used in) financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
0.0
|
|
|
|
36.7
|
|
|
|
0.0
|
|
|
|
(4.0
|
)
|
|
|
0.0
|
|
|
|
32.7
|
|
Borrowings (repayments) of
affiliated debt
|
|
|
0.0
|
|
|
|
23.9
|
|
|
|
(4.2
|
)
|
|
|
(3.2
|
)
|
|
|
(16.5
|
)
|
|
|
0.0
|
|
Deferred financing cost
|
|
|
0.0
|
|
|
|
(11.0
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(11.0
|
)
|
Dividends paid
|
|
|
0.0
|
|
|
|
(3.7
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
3.7
|
|
|
|
0.0
|
|
Stock repurchased
|
|
|
(3.2
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(3.2
|
)
|
Net cash provided by (used in)
financing activities
|
|
|
(3.2
|
)
|
|
|
45.9
|
|
|
|
(4.2
|
)
|
|
|
(7.2
|
)
|
|
|
(12.8
|
)
|
|
|
18.5
|
|
Effect of exchange rates on cash
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.4
|
|
|
|
0.0
|
|
|
|
0.4
|
|
Net increase in cash and
cash equivalents
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
29.4
|
|
|
|
0.0
|
|
|
|
29.4
|
|
Cash and cash equivalents at
beginning of year
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
20.8
|
|
|
|
0.0
|
|
|
|
20.8
|
|
Cash and cash equivalents at end of
period
|
|
$
|
0.0
|
|
|
$
|
0.0
|
|
|
$
|
0.0
|
|
|
$
|
50.2
|
|
|
$
|
0.0
|
|
|
$
|
50.2
|
|
20. Related Party Transactions
During 2016, the Company sold its 30 percent interest in TKK.
The Company had loaned $10.0 million, gross of accumulated equity losses of $1.1 million, to TKK, including interest. The loan and interest was fully repaid and the Company recorded a gain of $1.3 million in 2017.
As disclosed in “Note 14 – Debt”, KJCC has an outstanding loan from its 25-percent non-controlling shareholder. The loan totals $2.5 million and matures in November 2018.
21. Fair Value Measurements
Carrying amounts and the related estimated fair values of the Company’s financial instruments as of September 30, 2018 and December 31, 2017 are as follows:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
Fair Value
|
|
|
Carrying
Value
|
|
|
Fair Value
|
|
|
Carrying
Value
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, including restricted cash
|
|
$
|
62.5
|
|
|
$
|
62.5
|
|
|
$
|
60.3
|
|
|
$
|
60.3
|
|
Investments and other assets
(a)
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
1.1
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt (including current portion)
|
|
$
|
1,049.1
|
|
|
$
|
1,057.7
|
|
|
$
|
706.9
|
|
|
$
|
688.7
|
|
31
(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.
32