Koppers Holdings Inc. [KOP] Filings

10-Q 1 kop-20240630.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2024

Commission file number 1-32737

KOPPERS HOLDINGS INC.

(Exact name of registrant as specified in its charter)


Pennsylvania	20-1878963
(State of incorporation)	(IRS Employer Identification No.)

436 Seventh Avenue

Pittsburgh, Pennsylvania 15219

(Address of principal executive offices)

(412) 227-2001

(Registrant’s telephone number, including area code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	KOP	The New York Stock Exchange

Securities registered pursuant to Section 12(b) of the Act. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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

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

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

Common Stock, par value $0.01 per share, outstanding at July 31, 2024 amounted to 20,519,296 shares.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS


	Three Months Ended June 30,					Six Months Ended June 30,
	2024		2023			2024		2023
(Dollars in millions, except share and per share amounts)	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Net sales	$	563.2	$	577.2		$	1,060.8	$	1,090.6
Cost of sales		441.6		464.7			843.0		874.0
Depreciation and amortization		18.2		14.4			34.3		28.4
Selling, general and administrative expenses		45.9		43.7			91.4		85.3
(Gain) on sale of assets		0.0		0.0			0.0		(1.8	)
Operating profit		57.5		54.4			92.1		104.7
Other income, net		0.1		0.2			0.0		0.0
Interest expense		20.6		20.3			37.7		34.3
Income before income taxes		37.0		34.3			54.4		70.4
Income tax provision		10.2		9.9			14.6		19.8
Net income		26.8		24.4			39.8		50.6
Net income (loss) attributable to noncontrolling interests		0.0		(0.1	)		0.0		0.6
Net income attributable to Koppers	$	26.8	$	24.5		$	39.8	$	50.0
Earnings per common share attributable to Koppers common shareholders:
Basic	$	1.29	$	1.17		$	1.90	$	2.40
Diluted	$	1.25	$	1.15		$	1.83	$	2.34
Weighted average shares outstanding (in thousands):
Basic		20,901		20,843			20,983		20,842
Diluted		21,559		21,351			21,709		21,366

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME


	Three Months Ended June 30,					Six Months Ended June 30,
	2024		2023			2024			2023
(Dollars in millions)	(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)
Net income	$	26.8	$	24.4		$	39.8		$	50.6
Changes in other comprehensive income (loss):
Currency translation adjustment		0.5		(2.2	)		(13.4	)		0.5
Cash flow hedges, net of tax of $(1.3), $1.5, $(4.0) and $(0.4)		3.4		(3.8	)		10.4			0.9
Pension adjustments, net of tax of $0.1, $0.0, $0.1 and $0.1		0.3		0.3			0.7			0.6
Comprehensive income		31.0		18.7			37.5			52.6
Comprehensive income (loss) attributable to noncontrolling interests		0.0		(0.3	)		0.0			0.4
Comprehensive income attributable to Koppers	$	31.0	$	19.0		$	37.5		$	52.2

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

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEET


	June 30, 2024			December 31, 2023
(Dollars in millions, except share and per share amounts)	(Unaudited)
Assets
Cash and cash equivalents	$	48.9		$	66.5
Accounts receivable, net of allowance of $6.9 and $6.5		224.1			202.4
Inventories, net		402.3			395.7
Derivative contracts		16.0			7.1
Other current assets		30.1			27.3
Total current assets		721.4			699.0
Property, plant and equipment, net of accumulated depreciation of $493.0 and $473.2		671.3			631.7
Goodwill		319.0			294.4
Intangible assets, net		127.2			102.2
Operating lease right-of-use assets		89.0			90.5
Deferred tax assets		9.4			10.4
Other assets		10.7			7.3
Total assets	$	1,948.0		$	1,835.5
Liabilities
Accounts payable	$	184.0		$	202.9
Accrued liabilities		72.1			95.1
Current operating lease liabilities		23.8			22.9
Current maturities of long-term debt		5.0			5.0
Total current liabilities		284.9			325.9
Long-term debt		986.7			835.4
Operating lease liabilities		65.2			67.4
Accrued postretirement benefits		27.6			31.6
Deferred tax liabilities		28.9			25.9
Other long-term liabilities		41.4			46.3
Total liabilities		1,434.7			1,332.5
Commitments and contingent liabilities (Note 13)
Equity
Senior Convertible Preferred Stock, $0.01 par value per share; 10,000,000 shares authorized; no shares issued		0.0			0.0
Common Stock, $0.01 par value per share; 80,000,000 shares authorized; 25,695,602 and 25,163,238 shares issued		0.3			0.3
Additional paid-in capital		306.1			291.1
Retained earnings		480.7			444.0
Accumulated other comprehensive loss		(91.1	)		(88.8	)
Treasury stock, at cost, 5,176,306 and 4,302,996 shares		(186.8	)		(147.7	)
Total Koppers shareholders’ equity		509.2			498.9
Noncontrolling interests		4.1			4.1
Total equity		513.3			503.0
Total liabilities and equity	$	1,948.0		$	1,835.5

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

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


	Six Months Ended June 30,
	2024			2023
(Dollars in millions)	(Unaudited)			(Unaudited)
Cash provided by (used in) operating activities:
Net income	$	39.8		$	50.6
Adjustments to reconcile net cash used in operating activities:
Depreciation and amortization		34.3			28.4
Stock-based compensation		10.9			7.8
Change in derivative contracts		(3.0	)		0.0
Non-cash interest expense		1.6			3.3
(Gain) on sale of assets		(0.1	)		(1.8	)
Insurance proceeds		(1.0	)		(0.1	)
Deferred income taxes		0.5			0.9
Change in other liabilities		(5.6	)		(0.9	)
Other - net		0.8			0.7
Changes in working capital:
Accounts receivable		(20.7	)		(41.8	)
Inventories		3.1			(17.2	)
Accounts payable		(17.1	)		(7.5	)
Accrued liabilities		(25.0	)		(18.7	)
Other working capital		(3.6	)		(5.8	)
Net cash provided by (used in) operating activities		14.9			(2.1	)
Cash (used in) provided by investing activities:
Capital expenditures		(43.4	)		(62.6	)
Insurance proceeds received		1.0			0.1
Acquisitions		(99.8	)		0.0
Cash provided by sale of assets		0.6			1.9
Net cash (used in) investing activities		(141.6	)		(60.6	)
Cash provided by (used in) financing activities:
Borrowings of credit facility		475.7			764.3
Repayments of credit facility		(421.9	)		(561.2	)
Borrowings of long-term debt		100.0			388.0
Repayments of long-term debt		(3.2	)		(501.0	)
Issuances of Common Stock		4.1			1.8
Repurchases of Common Stock		(39.1	)		(5.9	)
Payment of debt issuance costs		(0.9	)		(4.9	)
Dividends paid		(3.1	)		(2.5	)
Net cash provided by financing activities		111.6			78.6
Effect of exchange rate changes on cash		(2.5	)		(1.0	)
Net (decrease) increase in cash and cash equivalents		(17.6	)		14.9
Cash and cash equivalents at beginning of period		66.5			33.3
Cash and cash equivalents at end of period	$	48.9		$	48.2
Supplemental disclosure of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities	$	9.0		$	8.6
Accrued capital expenditures		3.5			6.0
Acquisition non-cash consideration		2.7			0.0

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

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
(Dollars in millions, except per share amounts)	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Common Stock
Balance at beginning and end of period	$	0.3		$	0.2		$	0.3		$	0.2
Additional paid-in capital
Balance at beginning of period		300.0			269.2			291.1			263.9
Employee stock plans		5.5			3.9			10.9			7.9
Issuance of common stock		0.6			0.6			4.1			1.9
Balance at end of period		306.1			273.7			306.1			273.7
Retained earnings
Balance at beginning of period		455.4			384.2			444.0			360.2
Net income attributable to Koppers		26.8			24.5			39.8			50.0
Common Stock dividends ($0.07, $0.06, $0.14 and $0.12 per share)		(1.5	)		(1.4	)		(3.1	)		(2.9	)
Balance at end of period		480.7			407.3			480.7			407.3
Accumulated other comprehensive loss
Balance at beginning of period		(95.3	)		(89.6	)		(88.8	)		(97.3	)
Currency translation adjustment		0.5			(2.0	)		(13.4	)		0.7
Cash flow hedges, net of tax(1)		3.4			(3.8	)		10.4			0.9
Pension adjustments, net of tax(2)		0.3			0.3			0.7			0.6
Balance at end of period		(91.1	)		(95.1	)		(91.1	)		(95.1	)
Treasury stock
Balance at beginning of period		(154.6	)		(133.4	)		(147.7	)		(127.6	)
Purchases		(32.2	)		(0.1	)		(39.1	)		(5.9	)
Balance at end of period		(186.8	)		(133.5	)		(186.8	)		(133.5	)
Noncontrolling interests
Balance at beginning of period		4.1			4.3			4.1			3.6
Net income (loss) attributable to noncontrolling interests		0.0			(0.1	)		0.0			0.6
Currency translation adjustment		0.0			(0.2	)		0.0			(0.2	)
Balance at end of period		4.1			4.0			4.1			4.0
Total equity – beginning of period	$	509.9		$	434.9		$	503.0		$	403.0
Total equity – end of period	$	513.3		$	456.6		$	513.3		$	456.6

(1)

Amounts reclassified from accumulated other comprehensive income to net income related to derivative financial instruments, net of tax, were $5.2 million and $0.6 million during the three months ended June 30, 2024 and 2023, respectively, and $6.3 million and $2.3 million during the six months ended June 30, 2024 and 2023, respectively.

(2)

Amounts reclassified from accumulated other comprehensive income to net income consist of amounts shown for pension adjustments. This component of accumulated other comprehensive income is included in the computation of net periodic pension cost as disclosed in Note 10 – Pensions and Post-Retirement Benefit Plans.

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

KOPPERS HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Basis of Presentation and New Accounting Pronouncements

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, the Company, we or us) 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 our 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 as of December 31, 2023 has been summarized from the audited balance sheet contained in the Annual Report on Form 10-K as of and for the year ended December 31, 2023. Certain prior period amounts in the condensed consolidated financial statements and notes to the condensed 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 our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023.

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU updates reportable segment disclosures by expanding the frequency and extent of segment disclosures. ASU No. 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating this ASU to determine its impact on our disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU updates income tax disclosures by requiring annual disclosures of consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. ASU No. 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis. We are currently evaluating this ASU to determine its impact on our disclosures.

2. Acquisition

On April 1, 2024, we completed our acquisition of substantially all of the assets of Brown Wood Preserving Company, Inc. and certain of its affiliates (Brown Wood) for approximately $100 million in cash, subject to a post-closing working capital adjustment to be determined. We financed the acquisition with cash and available borrowings under our Credit Facility (as defined in Note 11 – Debt). Brown Wood is a utility pole treating business with principal operating locations in Alabama and Mississippi. The business we acquired, as well as the sales function, has been operationally integrated into our existing network of utility pole plants and distribution yards. We believe the acquisition, which is included in our RUPS segment, increased our presence in existing markets and offers an attractive entry point to new geographic markets for our utility pole business. Transaction costs, revenue and profit related to the acquisition were not material for the three months ended June 30, 2024.

We accounted for the transaction as a business combination. The following table summarizes the preliminary purchase price and estimated fair value of assets acquired and liabilities assumed as of April 1, 2024. Certain information necessary to complete the purchase price allocation is not yet available, including, but not limited to, final appraisals of assets acquired and liabilities assumed. We expect to finalize the purchase price allocation once we have received all necessary information, at which time the value of the assets acquired and liabilities assumed will be revised, if necessary. 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.


(Dollars in millions)
Cash consideration(1)	$	102.5

Accounts receivable		5.2
Inventories		14.4
Property, plant and equipment		28.0
Customer relationship intangible assets		32.3
Operating lease right-of-use assets		2.4
Fair value of assets acquired		82.3
Accounts payable and accrued liabilities		3.1
Current operating lease liabilities		1.1
Operating lease liabilities		1.3
Fair value of liabilities assumed		5.5

Goodwill	$	25.7

(1)

The difference between total cash consideration and cash paid on the condensed consolidated statement of cash flows relates to the settlement of pre-existing relationships with our PC segment and Brown Wood, as the settlement was deemed additional consideration.

The customer relationship intangible assets have a useful life of 15 years and are amortized on a straight-line basis. Goodwill has been allocated to the Company’s RUPS segment. The Company expects the goodwill recognized will be deductible for tax purposes. Recognized goodwill is attributable to the expected synergies and other intangible assets that do not qualify for separate recognition.

3. Fair Value Measurements

The following table presents the estimated fair values and the related carrying amounts of our financial instruments:


	June 30, 2024				December 31, 2023
	Fair Value		Carrying Value		Fair Value		Carrying Value
(Dollars in millions)
Financial assets:
Investments and other assets	$	1.3	$	1.3	$	1.3	$	1.3
Financial liabilities:
Long-term debt (including current portion)	$	1,010.9	$	1,000.6	$	860.4	$	849.4

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.

Debt – The fair value of our long-term debt is estimated based on the market prices for the same or similar issuances or on the current rates offered to us for debt of the same remaining maturities (Level 2). The fair value of our Credit Facility approximates carrying value due to the variable rate nature of this instrument.

See Note 12 – Derivative Financial Instruments, for the fair value of our derivative financial instruments.

4. Common Stock

The following table presents changes in common stock and treasury stock:


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
(Shares in thousands)
Common Stock:
Balance at beginning of period		25,630			24,785			25,163			24,547
Issued for employee stock plans		66			53			533			291
Balance at end of period		25,696			24,838			25,696			24,838
Treasury Stock:
Balance at beginning of period		(4,442	)		(3,962	)		(4,303	)		(3,784	)
Shares repurchased		(734	)		(3	)		(873	)		(181	)
Balance at end of period		(5,176	)		(3,965	)		(5,176	)		(3,965	)
Common Stock Outstanding		20,520			20,873			20,520			20,873

5. Earnings and Dividends per Common Share

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
(Dollars in millions, except share and per share amounts)
Net income attributable to Koppers	$	26.8	$	24.5	$	39.8	$	50.0
Weighted average common shares outstanding (in thousands):
Basic		20,901		20,843		20,983		20,842
Effect of dilutive securities		658		508		726		524
Diluted		21,559		21,351		21,709		21,366
Earnings per common share:
Basic	$	1.29	$	1.17	$	1.90	$	2.40
Diluted		1.25		1.15		1.83		2.34
Other data:
Antidilutive securities excluded from computation of diluted earnings per common share		76		494		52		619

On August 8, 2024, we declared a quarterly dividend of $0.07 per common share, payable on September 16, 2024 to shareholders of record as of August 30, 2024.

6. Stock-based Compensation

The board of directors granted restricted stock units and performance stock units (collectively, the stock units) to certain employee participants in January 2024. No stock options were granted in 2024. Starting in 2023, most grants of restricted stock units vest in three years. Performance stock units have vesting based upon either a performance condition or a market condition. Performance stock units granted with a performance condition have a cumulative three-year performance objective based on adjusted EBITDA (see Note 7 – Segment Information). For performance stock units granted with a market condition, the applicable objective is based on our total shareholder return relative to the Standard & Poor’s SmallCap 600 Materials Index and has multi-year performance objectives. Both types of performance stock units have a three-year period for vesting, if the applicable performance objectives are achieved.

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. For the awards granted in January 2024, target shares for units with a market condition totaled 56,796 and target shares for units with a performance condition totaled 125,174.

We calculated the fair value of the restricted stock units and performance stock units with a performance condition using the market price of the underlying common stock on the date of grant. We calculated the fair value of the performance stock units with a market condition on the date of grant using a Monte Carlo valuation model and the assumptions listed below:


	January 2024 Grant
Grant date price per share of performance award	$	46.68
Expected volatility		38.14	%
Risk-free interest rate		4.14	%
Look-back period in years		3.00
Grant date fair value per share	$	59.41

The following table shows a summary of the status and activity of non-vested stock units:


	Restricted Stock Units			Performance Stock Units			Total Stock Units			Weighted Average Grant Date Fair Value per Unit
Non-vested at December 31, 2023		531,339			580,763			1,112,102		$	33.62
Granted		145,627			182,196			327,823		$	48.95
Credited from dividends		190			0			190		$	43.52
Vested		(222,736	)		(136,560	)		(359,296	)	$	30.99
Forfeited		(6,842	)		(2,629	)		(9,471	)	$	33.54
Non-vested at June 30, 2024		447,578			623,770			1,071,348		$	39.19

The following table shows a summary of the status and activity of stock options:

         
        Options

        Weighted Average
Exercise Price
per Option