<PAGE>
As filed with the Securities and Exchange Commission on May 8, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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KOPPERS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 2491 25-1588399
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
436 SEVENTH AVENUE
PITTSBURGH, PENNSYLVANIA 15219-1800
(412) 227-2001
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
DONALD P. TRAVISS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KOPPERS INDUSTRIES, INC.
436 SEVENTH AVENUE
PITTSBURGH, PENNSYLVANIA 15219-1800
(412) 227-2001
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
---------------
COPIES TO:
CLAYTON A. SWEENEY, ESQUIRE E. WAIDE WARNER, JR., ESQUIRE
DICKIE, MCCAMEY & CHILCOTE, P.C. DAVIS POLK & WARDWELL
TWO PPG PLACE, SUITE 400 450 LEXINGTON AVENUE
PITTSBURGH, PENNSYLVANIA 15222-5402 NEW YORK, NEW YORK 10017
(412) 281-7272 (212) 450-4000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................... 8,052,210 $17.00 $136,887,570 $47,203
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</TABLE>
(1) Includes 1,050,288 shares subject to an over-allotment option granted to
the U.S. Underwriters.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
KOPPERS INDUSTRIES, INC.
Cross-Reference Sheet Showing Location in Prospectus of Information Pursuant to
Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND CAPTION LOCATION OR HEADING IN PROSPECTUS
---------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the
Registration Statement
and Outside Front Cover
Page of
Prospectus............. Outside Front Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Inside Front and Outside Back Cover Pages of
Pages of Prospectus.... Prospectus
3. Summary Information and
Risk Factors............ Prospectus Summary; Risk Factors
4. Use of Proceeds......... Use of Proceeds
Determination of
5. Offering Price.......... Outside Front Cover Page of Prospectus; Underwriting
6. Dilution................ Not Applicable
Selling Security
7. Holders................. Principal and Selling Stockholders
8. Plan of Distribution.... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of
Securities to be
Registered............. Description of Capital Stock
10. Interests of Named
Experts and
Counsel................ Legal Matters; Experts
11. Information with Respect
to the Outside Front Cover Page of Prospectus;
Registrant............. Prospectus Summary; Risk Factors; The Company;
Use of Proceeds; Dividend Policy; Capitalization;
Selected Historical Financial Data; Pro Forma
Condensed Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Relationships and
Related Transactions; Principal and Selling
Stockholders; Description of Capital Stock; Shares
Eligible for Future Sale; Certain United States Tax
Considerations Applicable to Non-U.S. Holders of the
Common Stock; Description of Certain
Indebtedness; Financial Statements
12. Disclosure of Commission
Position
on Indemnification for
Securities
Act Liabilities........ Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 8, 1996
PROSPECTUS
, 1996
7,001,922 SHARES
[LOGO OF KOPPERS INDUSTRIES]
COMMON STOCK
Of the 7,001,922 shares of common stock ("Common Stock") being offered
hereby, 1,800,000 shares are being sold by Koppers Industries, Inc. (the
"Company") and 5,201,922 shares are being sold by certain stockholders (the
"Selling Stockholders"). See "Principal and Selling Stockholders". The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Stockholders.
Of the 7,001,922 shares of Common Stock being offered, 5,601,537 shares are
initially being offered for sale in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering") and 1,400,385 shares are initially being
offered for sale outside of the United States and Canada in a concurrent
offering by the International Managers (the "International Offering" and,
together with the U.S. Offering, the "Offerings"). See "Underwriting".
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $15.00 and $17.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
Application has been made for the Common Stock to be listed on the New York
Stock Exchange ("NYSE") under the symbol "KOP".
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (3)............... $ $ $ $
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</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting expenses of the Offerings payable by the Company estimated
at $ .
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to 1,050,288 additional shares of Common Stock on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
all such shares are purchased, the total Price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $ , $
and $ , respectively. See "Underwriting".
The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them and subject to various
prior conditions, including their right to reject orders in whole or in part.
It is expected that delivery of share certificates will be made against payment
in New York, New York on or about , 1996.
DONALDSON, LUFKIN & JENRETTE DILLON, READ & CO. INC.
SECURITIES CORPORATION
<PAGE>
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
[MAP ILLUSTRATING THE LOCATIONS OF THE COMPANY'S DOMESTIC FACILITIES AS WELL
AS ITS JOINT VENTURE FACILITIES IN AUSTRALIA AND DENMARK]
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements of the Company, including
the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information contained in this Prospectus (i) assumes that the
over-allotment option granted by the Company to the U.S. Underwriters is not
exercised and (ii) has been adjusted to give effect to a 3-for-1 stock split of
the Common Stock which will occur prior to consummation of the Offerings.
THE COMPANY
The Company is a leading integrated producer of carbon compounds and treated
wood products for use in a variety of markets including the chemical, railroad,
aluminum and steel industries. The "Koppers" name has been associated with the
carbon compounds and wood treating businesses for over 70 years, and the
Company has leading market positions in most of its products. The Company
operates 24 facilities in the United States and maintains indirect ownership
interests in 14 facilities overseas. The Company recorded net sales and net
income of $525.7 million and $24.4 million, respectively, for the year ended
December 31, 1995. In 1995, the Company's three divisions, Coke Products,
Carbon Materials & Chemicals and Railroad & Utility Products, accounted for
15.2%, 37.6% and 47.2% of net sales, respectively.
Through its Coke Products division, the Company is the largest independent
merchant producer of coke and coke by-products in the United States. The Coke
Products division converts coal into coke for sale to integrated steel
producers and foundries that use coke in the production of iron and steel. The
Company's Carbon Materials & Chemicals division distills coal tar into a
variety of intermediate products, including carbon pitch, phthalic anhydride
("PAA") and creosote, which are basic materials necessary in the production of
aluminum, polyester resins and plasticizers, and the pressure treatment of
wood. The Company's Railroad & Utility Products division is the largest
supplier of treated wood products, such as railroad crossties and utility
poles, to the United States railroad and utility industries.
The Company's operations are substantially vertically integrated, providing
it with significant cost savings. Coal tar, a by-product of the Company's coke
production, is the primary raw material used in the distillation process of the
Carbon Materials & Chemicals division. Creosote, a major product of the coal
tar distillation process, is used as a raw material in the treatment of wood by
the Company's Railroad & Utility Products division. Other areas in which the
Company is vertically integrated include the production of PAA through the use
of a by-product of coal tar distillation and the utilization of coke oven gas
and recycled wood products to fulfill a portion of its energy needs.
The Company believes it has achieved leading positions in each of its markets
as a result of the following strengths:
Vertical Integration--The Company's ability to utilize by-products
produced in its Coke Products and Carbon Materials & Chemicals divisions,
as well as its ability to generate much of its own energy through the
burning of wood waste and coke oven gas, provides the Company with
significant operating flexibility and cost savings.
Continuous Investment In Facilities--Since 1988, the Company has invested
over $145 million to modernize its facilities and to meet or exceed
environmental compliance standards.
Strong Customer Relationships--The "Koppers" name has been associated
with quality and reliability since the 1920's and its reputation has
enabled the Company to count among its customers many of the premier
companies in each of its markets. The Company and its predecessors have
supplied many of these companies for decades and many of the Company's
facilities are strategically located to service its
3
<PAGE>
customers' requirements. In order to enhance these relationships, the
Company continually has instituted programs to ensure quality and customer
satisfaction.
Annual and Multi-Year Sales Contracts--Historically, the Company has
sought to reduce its exposure to industry fluctuations and general economic
conditions by diversifying its customer base and securing commitments for a
large portion of its planned production through annual and multi-year
contracts. In each year since it was formed in 1988, the Company has been
able to secure over 50% of its following year's sales through such
contracts.
Strong Relationships With Multiple Suppliers--The Company and its
predecessors have maintained long-term relationships, in some cases over 50
years, with their major suppliers. The Company's ability to source high-
quality coal, coal tar and wood from multiple suppliers provide it with a
significant competitive advantage in meeting customer requirements in a
timely and economically advantageous manner.
Global Presence--Directly and through its international joint ventures,
the Company serves the North American, European, Asian and Australian
markets with carbon materials and chemical products. The Company works
closely with its joint ventures in Denmark and Australia on marketing
strategy, raw material sourcing and technology sharing. Through its
international joint ventures, the Company has completed several
acquisitions and has entered into marketing agreements enabling the Company
to expand its presence into new and emerging markets, including the
People's Republic of China and other Pacific Rim nations.
The Company's strategy for future growth and enhanced profitability includes
the use of its cash flow for strategic acquisitions, productivity and cost
reduction initiatives and the expansion of existing facilities. The Company
also intends to develop, market and sell new products and broaden its customer
base in new and existing markets. In 1995, the Company initiated a strategic
review which identified opportunities to increase capacity at several of its
facilities and to expand services offered, such as plant-assembled track
sections, freight car cleaning and used tie disposal. This review also
identified several areas where logistics, manufacturing processes and
management systems can be improved.
ACQUISITION STRATEGY
As part of its growth strategy, the Company intends to pursue strategic
acquisitions. Over the past three years, the Company has completed five
acquisitions, including the purchase of the largest railroad crosstie treating
facility in the United States, which is located in Somerville, Texas (the
"Somerville Facility"); a coke facility in Monessen, Pennsylvania (the
"Monessen Facility"), which is now one of the most modern coking facilities in
the United States; and the coal chemical business of Aristech Chemical
Corporation ("Aristech"), which included a low-cost coal tar processing
facility in Clairton, Pennsylvania (such business and facility hereinafter
referred to as "Clairton"). The Company believes each of these acquisitions
will provide the Company with significant financial and strategic benefits, as
they will allow the Company to further integrate and rationalize its businesses
and facilities and gain access to high-quality, low-cost raw materials. As part
of these acquisitions, the Company was also able to secure significant long-
term contracts with customers prior to closing.
The Monessen Facility, acquired in 1995, was an idled facility. After
refurbishment by the Company, the Monessen Facility was restarted in late 1995
and reached full production capacity in the second quarter of 1996. In addition
to improving the Company's strategic position in the merchant coke market, the
Company's investment in the Monessen Facility provides an advantageous energy
tax credit based on the production of coke as an alternative energy product.
The credit is available through December 31, 2002 and is expected to provide a
tax benefit to the Company of approximately $8 million in 1996 (after offset of
a previously taken energy credit) and $9 million per year thereafter,
unadjusted for inflation and assuming full production at the Monessen Facility.
4
<PAGE>
On April 1, 1996, the Company completed the Clairton acquisition for a cash
purchase price of approximately $40 million and the assumption of certain
liabilities. The Clairton facility is a low-cost coal tar processing facility
producing carbon pitch and related distillates. As part of the purchase
agreement, the Company received a long-term coal tar supply contract with USX
Corporation ("USX"), the largest North American coal tar producer. In 1995,
this business generated over $64 million of sales, excluding sales to the
Company. The Company has obtained a term loan of $35 million to effect the
acquisition, with remaining funding requirements obtained from its existing
working capital revolving credit line.
THE OFFERINGS
Of the 7,001,922 shares of Common Stock being offered, 5,601,537 shares are
being offered in the U.S. Offering and 1,400,385 shares are being offered in
the International Offering.
<TABLE>
<S> <C>
Common Stock Offered:
By the Company....................................... 1,800,000 shares
By the Selling Stockholders.......................... 5,201,922 shares
-----------------
Total.............................................. 7,001,922 shares
-----------------
-----------------
Common Stock to be outstanding after the Offerings (1). 10,154,280 shares
Use of Proceeds........................................ Repayment of indebtedness and for general
corporate purposes.
Dividend Policy........................................ The Company currently intends to pay
quarterly dividends of $0.12 per share of
Common Stock, subject to general business
conditions, the effect on the Company's
financial condition and compliance with the
covenants governing the Company's long-term
debt. See "Dividend Policy" and
"Description of Certain Indebtedness".
Proposed NYSE symbol................................... KOP
</TABLE>
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(1) Excludes 1,125,000 shares of the 2,250,000 shares of Common Stock held by a
subsidiary of Koppers Australia Pty. Limited, a company in which the
Company holds a 50% interest, and 690,012 shares of Common Stock issuable
upon exercise of outstanding employee stock options under the stock option
plan of the Company (the "Stock Option Plan"). See "Principal and Selling
Stockholders" and "Management--Option Exercises and Fiscal Year End
Values".
RISK FACTORS
Prospective purchasers of the Common Stock should consider carefully the
matters set forth herein under "Risk Factors" as well as the other information
set forth in this Prospectus.
------------------------
5
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
DATA:
Net sales............. $ 451,242 $ 444,255 $ 461,219 $ 476,448 $ 525,730 $ 122,201 $ 126,701
Gross profit (1)...... 69,252 73,667 64,088 68,196 84,984 19,434 15,446
Operating profit...... 30,592 31,799 25,104 25,709 39,848 9,723 4,247
Equity in earnings of
affiliates........... 5,663 4,666 4,578 5,314 9,239 1,265 1,791
Other income.......... 3,516 324 468 531 376 15 8
Litigation judgment
(2).................. -- -- -- -- -- -- (10,946)
Interest expense...... 17,413 13,949 13,177 13,620 15,060 3,572 3,734
--------- ---------- ---------- ---------- ---------- ---------- ---------
Income (loss) before
taxes................ 22,358 22,840 16,973 17,934 34,403 7,431 (8,634)
Income taxes
(benefit)............ 7,335 8,104 6,508 5,017 9,963 2,320 (894)
--------- ---------- ---------- ---------- ---------- ---------- ---------
Income (loss) before
extraordinary item
and cumulative effect
of changes in
accounting methods... 15,023 14,736 10,465 12,917 24,440 5,111 (7,740)
Net income (loss) (3). 15,023 14,736 4,748 11,102 24,440 5,111 (7,740)
Payment-in-kind
dividends on
preferred stock (4).. 5,382 6,244 7,242 944 -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ---------
Net income (loss)
available to common
stockholders......... $ 9,641 $ 8,492 $ (2,494) $ 10,158 $ 24,440 $ 5,111 $ (7,740)
========= ========== ========== ========== ========== ========== =========
Earnings (loss) per
common share (5)..... $ 0.98 $ 0.85 $ (0.25) $ 0.96 $ 2.36 $ 0.50 $ (0.78)
========= ========== ========== ========== ========== ========== =========
Average common shares
outstanding (5)...... 9,809,775 10,019,799 10,034,406 10,570,971 10,376,658 10,300,812 9,911,202
Cash dividends per
common share......... $ -- $ -- $ -- $ -- $ 0.25 $ -- $ 0.08
OTHER DATA:
EBITDA (6)............ $ 52,786 $ 51,761 $ 46,443 $ 44,342 $ 60,699 $ 13,825 $ 9,198
Dividends received
from affiliates (6).. 756 787 1,446 1,422 2,943 -- --
Depreciation and
amortization (7)..... 17,922 18,851 19,425 16,680 17,532 4,087 4,943
Capital expenditures
(8).................. 18,538 12,912 14,661 16,326 50,141 12,787 6,647
BALANCE SHEET DATA (END
OF PERIOD):
Working capital....... $ 28,030 $ 61,082 $ 83,856 $ 79,078 $ 80,095 $ 91,839
Total assets.......... 279,013 271,390 282,520 294,193 348,955 361,432
Total debt (4)........ 130,892 114,652 113,461 159,000 174,000 203,000
Preferred stock (4)... 39,282 45,526 52,768 260 260 --
Redeemable common
stock (9)............ 100 550 800 15,450 23,715 15,735
Common equity (9)..... 35,235 41,209 36,864 36,490 54,255 43,750
</TABLE>
- --------------------
(1) Reflects a change in accounting method effective January 1, 1992, from the
first-in, first-out ("FIFO") method of inventory valuation to the last-in,
first-out ("LIFO") method. The adoption of LIFO decreased gross profit by
$1.3 million for the year ended December 31, 1992.
(2) Consists of a charge related to a legal judgment rendered against the
Company in connection with the OCF Litigation (as hereinafter defined) in
1996. See "Risk Factors--Legal Proceedings" and "Business--Legal
Proceedings".
(3) Net income for 1993 includes effects of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" of $(5.2)
million net of tax, and SFAS No. 109, "Accounting for Income Taxes" of
$(0.5) million. See Notes 7 and 8 of the Notes to Consolidated Financial
Statements of the Company. Net income for 1994 includes extraordinary loss
on early extinguishment of debt of $1.8 million.
(4) On February 10, 1994 the Company issued $110 million of unsecured ten-year,
8 1/2% senior notes, of which $53.5 million was used to redeem all the
Series A exchangeable preferred stock of the Company. See "Description of
Certain Indebtedness".
6
<PAGE>
(5) In accordance with generally accepted accounting principles, average common
shares outstanding have been reduced by 1,125,000 of the 2,250,000 shares
held by a subsidiary Koppers Australia Pty. Limited to reflect the
Company's 50% ownership interest therein. See Note 9 of the Notes to
Consolidated Financial Statements of the Company.
(6) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is presented because it is a component of a ratio included in a covenant in
the Company's Bank Credit Facilities (as hereinafter defined). For this
purpose, EBITDA is defined as net income plus interest expense, income
taxes, depreciation and amortization; less equity income or losses, non-
cash extraordinary gains and non-cash foreign currency gains; plus cash
dividends received from affiliates, non-cash extraordinary losses and non-
cash foreign currency losses. EBITDA should not be considered by an
investor as an alternative to net income, as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity.
(7) The 1994 results reflect a $1.4 million reduction in depreciation expense
for change in estimate of useful lives of certain assets effective July 1,
1994. See Note 1 of the Notes to Consolidated Financial Statements.
(8) Includes approximately $35 million related to acquisitions in 1995.
(9) The Company's Stockholders' Agreement (as hereinafter defined) requires the
Company, subject to limitations under the terms of covenants contained in
the Bank Credit Facilities, to redeem stock held by Management Investors
(as hereinafter defined) upon termination of their employment with the
Company. Pursuant to its terms, the Stockholders' Agreement will terminate
upon consummation of the Offerings and, as a result, the number of shares
of Common Stock subject to redemption shall be reduced to the number of
shares owned by Management Investors who will have retired or otherwise
terminated employment with the Company prior to the consummation of the
Offerings. If the Offerings had been consummated on March 31, 1996, the
value of such shares on that date would have been approximately $4.0
million, and the remaining $11.7 million would have been reclassified to
common equity. See "Management--Board of Directors; Stockholders'
Agreement".
7
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus.
CYCLICALITY OF MARKETS
The Company's products are sold primarily into mature industries which
historically have been cyclical. The principal customers for the Company's
coke are United States integrated steel producers, whose consumption of coke
has been cyclical in the past and may be so in the future. The prices at which
the Company will be able to sell its coke in the future will be greatly
affected by the demand for coke from the iron and steel industries and the
supply of coke from the United States integrated steel producers' own coke
production and from foreign sources.
In 1995, the Company sold 51% of its total coke production pursuant to long-
term contracts. Approximately 62% of its furnace coke production was sold
pursuant to two contracts with LTV Steel Company, Inc. ("LTV"). Although the
Company believes that entering into such long-term contracts ameliorates some
of the short-term fluctuations in its sales of coke, the price and terms
obtainable by the Company under such contracts generally depend on relevant
market conditions in effect at the time that such contracts are negotiated,
and the price remains subject to periodic adjustments during the terms of the
contracts. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Coke Products".
The principal customers of the Company's pitch, the most significant product
of its Carbon Materials & Chemicals division, are United States primary
aluminum smelters. Although the aluminum industry has experienced growth on a
long-term basis, it generally is cyclical in nature and experiences
fluctuations in production levels. Sales of the Company's products have
historically been affected adversely by weakness in the aluminum industry. In
1993, United States aluminum producers reduced production by approximately 25%
in anticipation of a memorandum of understanding ("MOU") entered into by
several aluminum producing nations. The MOU was entered into in order to
reduce worldwide aluminum inventories which had increased to unprecedented
levels following the fall of the Soviet Union and its subsequent increased
level of exports. In 1995, as a result of the MOU and increased levels of
worldwide aluminum consumption, inventory levels were reduced to a more
sustainable level. Although the long-term outlook for United States aluminum
production is favorable, cyclical weakness in demand could result in decreased
United States primary aluminum production.
A principal market for the Company's PAA is in the production of flexible
vinyl used mainly in the automobile industry. Therefore, fluctuations in
domestic and international automobile production affect the demand for PAA.
Finally, the markets for the Company's railroad and utility products are
subject to cyclical demand depending upon, among other things, the financial
ability of domestic railroads and utility companies to implement capital
maintenance and improvement programs.
DEPENDENCE ON INTEGRATED STEEL PRODUCERS
The principal customers for the Company's coke are United States integrated
steel producers. Demand for and pricing of coke in the United States relate
directly to the volume of iron consumed by integrated steel producers which
has historically fluctuated with general economic activity. Due to ongoing
advances in blast furnace steel production technology, including pulverized
coal injection ("PCI"), the proportion of coke consumed per ton of iron
produced by United States integrated steel producers has declined by
approximately 14% since 1985. In addition, the demand for coke in the future
may be affected adversely by the idling of United States blast furnace steel
production capacity due to increases in electric arc furnace production
facilities in the United States and more stringent environmental compliance
standards. Although the Company believes future declines in domestic coke
demand will be offset by additional reductions in domestic coking capacity,
there can be no assurance that this will occur.
8
<PAGE>
DEPENDENCE ON MAJOR CUSTOMERS
For the year ended December 31, 1995, the Company's top five customers
represented approximately 27% of the Company's net sales. During this period,
the Company's two largest customers, CSX Transportation, Inc. ("CSX") and LTV,
accounted for approximately 20% and 45% of Railroad & Utility Products and
Coke Products net sales, respectively, and approximately 9% and 7% of the
Company's total net sales, respectively. The permanent loss of, or a
significant decrease in the level of purchases by, one or more of the
Company's major customers would have a material adverse effect on the
Company's results of operations.
McLouth Steel Products Corp. ("McLouth"), an integrated steel manufacturer
which accounted for 10% of net sales of the Coke Products division and 2% of
the Company's total net sales in 1995, filed a petition for bankruptcy
protection in September 1995 and ceased steel production in March 1996. As a
result, the Company has negotiated with LTV to sell through July 1996
approximately half of the resulting 10,000 tons of surplus coke production per
month at prices lower than those set in the McLouth contract with the Company.
The Company is currently seeking to sell the remaining portion of its
production through the spot market or under new contracts, but no assurances
can be given that it will succeed in doing so.
On April 2, 1996, an explosion disabled a blast furnace in the Gary, Indiana
plant of U.S. Steel, which is serviced by the Company's facility in Woodward,
Alabama (the "Woodward Facility"). As a result of the explosion, U.S. Steel
suspended coke shipments from the Company. The Company has been unable to
place with alternative customers the surplus coke produced. The Company
expects that it will resume shipments to U.S. Steel in June 1996 and that it
will have approximately 30,000 tons of surplus coke available as a result of
the explosion by the beginning of that month. However, no assurance can be
given that the Company will resume such shipments to U.S. Steel at such time.
PRICE AND AVAILABILITY OF RAW MATERIAL
An inability by the Company to source high quality raw materials in a timely
fashion and pass through price increases to its customers could have a
material adverse impact on the Company. In the Coke Products division,
metallurgical coal is the primary raw material used in the production of coke.
An increase in the price of metallurgical coal, or a prolonged interruption in
supply, would have a material adverse effect on the Company.
The primary raw material used by the Carbon Materials & Chemicals division
is coal tar, a by-product of coke production. Following the Clean Air Act
Amendments of 1990 (the "Clean Air Act Amendments") and other environmental
regulations, there have been significant reductions in the United States
coking capacity. Due to potential additional shutdowns of United States coking
capacity, future coal tar availability is a concern for the Company. A
shortage in the supply of domestic coal tar could require the Company to
increase imports of coal tar and the use of petroleum substitutes to meet
future carbon pitch demand; such increases could have a material adverse
effect on the Company's financial condition and results of operations.
The Company has the ability to use two raw materials interchangeably in its
production of PAA: naphthalene, which is a by-product of its carbon pitch
production, and orthoxylene, which is a petroleum derivative. The Company is
the only domestic producer capable of using naphthalene interchangeably with
orthoxylene as a feedstock. PAA pricing is based primarily on a spread over
orthoxylene and, therefore, the Company's price realization and profit margin
for PAA historically have fluctuated with the spot price of orthoxylene and
its relationship to the Company's cost to produce naphthalene. Although the
price of orthoxylene was relatively stable prior to 1994, due to strong
demand, the price of orthoxylene increased from $0.14 per pound in March 1994
to $0.38 per pound in May 1995. As a result, PAA prices increased by
approximately 101% during that period, providing the Company with a
significant cost advantage over its competition and a temporary expansion of
its margins. In the first quarter of 1996, however, the price for orthoxylene
declined to approximately $0.16 per pound, resulting in a corresponding
decline in PAA prices and margins.
9
<PAGE>
The availability and cost of softwood and of hardwood lumber are critical
elements in the Company's production of pole products and railroad crossties,
respectively. The supply of trees of acceptable size for the production of
utility poles has decreased in recent years in relation to the demand, and the
Company accordingly has been required to pay a higher price for these
materials. Historically, the supply and cost of hardwood for railroad
crossties have also been subject to availability and price pressures. There
can be no assurance that the Company will be able to source wood raw materials
at economical prices in the future.
RISKS ASSOCIATED WITH ACQUISITIONS AND EXPANSION
In the future, the Company intends to pursue acquisitions as a part of its
growth strategy. The success of this strategy depends upon, among other
things, the ability of the Company and its management to identify attractive
acquisition prospects, consummate acquisitions on favorable terms, operate
acquired businesses effectively and integrate new personnel, operations,
products and technologies into its organization, and to retain customers of
acquired businesses. In addition, the Company is evaluating opportunities at
its existing facilities to expand production capacity, which will require a
period of construction and start-up testing, and to rationalize unneeded
capacity.
There can be no assurance that the Company will be able to identify and
consummate attractive acquisitions, start-up such operations or integrate
acquired businesses into its existing operations effectively. For example, the
Company expended significantly more than anticipated in the refurbishment of
the Monessen Facility, an idled facility it acquired in 1995. Part of the
refurbishment included the purchase of new boilers, which enable the Company
to use coke oven gas as opposed to purchasing natural gas. However, due to
delays in the start-up of such boilers, the Company had to continue purchasing
natural gas from external sources until April 20, 1996. In addition, adverse
weather conditions in the winter months of 1996 impaired the ordinary handling
of coal in the facility, which required the purchase of additional coal. As a
result of these and other unforeseen circumstances, the start-up period took
longer and the Company spent significantly more in start-up costs than it had
estimated at the time of acquisition.
Acquisitions by the Company may involve certain other risks, including
potentially dilutive issuances of equity and debt securities, the realization
of goodwill and the diversion of management's attention from other business
concerns.
SEASONALITY; EFFECTS OF WEATHER
The Company's quarterly operating results fluctuate due to a variety of
factors that are outside the Company's control, including inclement weather
conditions, which in the past have affected negatively the Company's operating
results. Operations at several of the Company's facilities have been halted
for short periods of time during the winter months. Moreover, demand for many
of the Company's products declines during periods of inclement weather. As a
result of the foregoing, the Company anticipates that it may experience
material fluctuations in quarterly results of operations.
LABOR RELATIONS
As of April 2, 1996, approximately 1,250 of the Company's 2,104 employees
were represented by nine different unions and covered under 21 separate labor
contracts. Labor negotiations are conducted on a plant-by-plant basis and
approximately one-fourth of the outstanding contracts are renegotiated in any
one year. Although the Company believes that it generally enjoys satisfactory
relations with its unions, there can be no assurance that new agreements will
be reached without union action or on terms satisfactory to the Company. A
material work stoppage could adversely affect the Company's results of
operations. See "Business--Employees and Employee Relations".
COMPETITION
The markets that the Company serves are highly competitive. Although
management believes that the Company has significant competitive advantages
due to its market share, sourcing, strategically located facilities
10
<PAGE>
and reputation for quality products and services, selling price is the most
significant element in the market for the Company's principal products. In
addition, some of the purchasers of the Company's coke are capable of
supplying a portion of their needs from their own coke production as well as
from suppliers outside the United States who are able to import coke into the
United States and sell it at prices competitive with those of United States
suppliers. There can be no assurances that competitive pressures on the price
of the Company's products will not materially and adversely affect its
business, results of operations, cash flow and financial condition.
SUBSTANTIAL INDEBTEDNESS
As of March 31, 1996, on a pro forma basis after giving effect to the
Clairton acquisition, indebtedness of the Company was approximately $242
million. The Company's indebtedness could limit its ability to finance
expenditures required to compete effectively, to operate successfully under
adverse economic conditions and to pay dividends. A significant portion of the
Company's assets are encumbered to secure the Company's indebtedness. The
ability of the Company to meet its obligations, to comply with covenants
contained in the Indenture (as hereinafter defined) and to comply with
financial covenants contained in, and to maintain available revolving credit
and long-term facilities under, the Bank Credit Facilities (as hereinafter
defined), depends on the Company's future financial performance, which will be
subject to financial, business and other factors, including the outcome of
pending litigation and the possible rationalization of existing facilities.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Pending Litigation" and
"Business--Legal Proceedings". To the extent that cash flow from operations is
insufficient to satisfy the Company's fixed charges, the Company may obtain
funds from additional borrowings (which ability may be restricted by the
Indenture and the Bank Credit Facilities), seek to sell a portion of its
business or raise additional equity capital. There can be no assurance that
any of these sources of funds would be available in amounts sufficient for the
Company to meet its obligations. In addition, certain of the Company's
borrowings are and will continue to be at variable rates of interest, which
causes the Company to be vulnerable to increases in interest rates. See
"Description of Certain Indebtedness".
LEGAL PROCEEDINGS
On May 11, 1990 Owens-Corning Fiberglas Corporation ("OCF") filed a
Complaint (the "OCF Litigation") against the Company seeking damages allegedly
resulting from the sale by Old Koppers (as hereinafter defined) of coal-tar
bitumen ("CTB") from the mid 1970's to the mid 1980's. The OCF Litigation
related to problems experienced with roofing systems sold by OCF which
contained CTB sold by Old Koppers. OCF identified 11 roofs it alleged were
built using defective Old Koppers' CTB. On April 3, 1996 a jury verdict was
returned against the Company for a total of $10.3 million including $0.5
million in punitive damages. The Company will appeal the judgment. In addition
to damages, OCF has sought approximately $3 million in attorney's fees, as
well as prejudgment interest for an amount estimated by the Company to be
approximately $5 million, alleging that the Company failed to engage in good
faith settlement negotiations. The Company had provided reserves of $14
million at March 31, 1996 ($11 million in the first quarter of 1996 and $3
million in prior periods) in connection with the OCF Litigation.
It is the opinion of management, that the ultimate resolution of this
matter, to the extent not previously provided for, will not have a material
adverse effect on the financial condition of the Company. However, depending
on the amount and timing of an unfavorable resolution of this matter, it is
possible that results of operations and cash flow of the Company could be
materially adversely affected in a particular period and that the Company's
ability to incur additional debt could be reduced. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Pending Litigation".
The Company is involved in various other proceedings incidental to the
ordinary conduct of its business. The Company believes that none of these
other proceedings will have a material adverse effect on the financial
condition or results of operations of the Company.
11
<PAGE>
ENVIRONMENTAL MATTERS
The Company is subject to a number of federal, state and local environmental
laws and regulations, including those concerning the treatment, storage and
disposal of wastes, the discharge of effluents into waterways, the emissions
of substances into the air, and various other health and safety matters. The
Clean Air Act Amendments directly affect the operations of many of the
Company's facilities. Under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), and comparable
state laws, an owner or operator of property at which releases of hazardous
substances have occurred may be liable for investigation and remediation of
any resulting contamination. In addition, the generator of hazardous
substances may be responsible for all or a portion of any required
investigation or remediation at offsite disposal locations. Under the Resource
Conservation and Recovery Act, as amended ("RCRA"), a facility that treats,
stores or disposes of hazardous wastes on-site may be liable for corrective
action costs. In addition, any facility that holds a RCRA Part B permit (or
has submitted a RCRA Part A permit application) may have to incur costs
relating to the closure of certain "hazardous" or "solid" waste management
units.
Five of the sites owned by the Company are listed on the National Priorities
List ("NPL") promulgated pursuant to CERCLA. In addition, many of the
Company's sites are or have been operated under RCRA permits. The Company was
formed in conjunction with the acquisition (the "Acquisition") by management,
Beazer, Inc. and KAP Investments, Inc. ("KAP") of certain assets of Koppers
Company, Inc., now known as Beazer East, Inc. ("Beazer East," but referred to
herein as "Old Koppers" for periods prior to the Acquisition) in 1988. Old
Koppers was acquired in June 1988 by BNS Acquisitions, Inc., a wholly-owned
indirect subsidiary of Beazer PLC, now known as Beazer Limited ("Beazer
Limited"). Under the agreement entered into in connection with the
Acquisition, Beazer East retained responsibility for and indemnified the
Company against certain liabilities, damages, losses and costs, to the extent
attributable to acts or omissions occurring prior to the Acquisition,
including, with certain limited exceptions, liabilities and costs of
compliance with environmental law (the "Indemnity"). Beazer Limited
unconditionally guaranteed Beazer East's performance of the Indemnity pursuant
to a guarantee (the "Guarantee"). See "Business--Environmental Matters".
Currently, at the Company's properties acquired from Beazer East, which
include all of the NPL sites and most of the RCRA permitted sites,
substantially all investigative and cleanup activities are being handled and
paid for by Beazer East pursuant to the Indemnity. Since 1991, Beazer East and
Beazer Limited have been wholly-owned indirect subsidiaries of Hanson PLC and
do not make their financial information publicly available. Hanson PLC has
announced its intention to reorganize by spinning-off its chemicals, tobacco
and energy subsidiaries. The Company has been informed that Beazer East and
Beazer Limited will remain wholly-owned indirect subsidiaries of Hanson PLC.
However, the Company has not received any additional information as to the
impact, if any, of this spin-off on Beazer East and Beazer Limited.
Although Beazer East and Beazer Limited have performed their respective
obligations under the Indemnity and the Guarantee since 1989, no assurances
can be given that Beazer East and Beazer Limited or their successors will
continue to perform such obligations. If the Company were required to pay
remedial and investigative costs covered by the Indemnity without
reimbursement, it would have a material adverse effect on the business,
financial condition, cash flow or results of operations of the Company.
Furthermore, if the Company were required to record a contingent liability in
respect of environmental matters covered by the Indemnity on its balance
sheets, the result could be that the Company would have significant negative
net worth.
The Company is aware of environmental contamination at the Somerville
Facility and the Clairton facility. The Company has received indemnities for
pre-closing environmental contamination from the seller of the Somerville
Facility and from both the seller and the predecessor of the seller of the
Clairton facility. The Company believes that the indemnitors will handle most
investigative and cleanup activities at such sites directly. See "Business--
Environmental Matters". Although the Company is not aware of any reason why
such indemnification obligations will not be performed, no assurances can be
given that the sellers or their predecessors will fulfill their respective
indemnification obligations. If the Company were required to pay costs
associated with such environmental contamination, it could have a material
adverse effect on the business, financial condition, cash flow or results of
operations of the Company.
12
<PAGE>
INFLUENCE OF CERTAIN STOCKHOLDERS AND POSSIBLE ANTI-TAKEOVER EFFECTS
Upon consummation of the Offerings, 22.7% of the Company's outstanding
Common Stock will be beneficially owned by certain members of management of
the Company and 20.0% by KAP, a wholly-owned subsidiary of a company 50% of
whose common stock is owned by a subsidiary of the Company. As a result of
this ownership, KAP and management will have significant influence over the
management policies and corporate affairs of the Company. Concentration of
large amounts of the Company's common stock in the hands of KAP and management
may also make more difficult any takeover or change of control of the Company
not approved by such stockholders.
It is an event of default under the Bank Credit Facilities (as hereinafter
defined) (i) if any person other than the Management Investors (as hereinafter
defined) and their affiliates becomes the beneficial owner of more than 50% of
the voting stock of the Company or obtains the power to nominate or elect at
least a majority of the Board of Directors, (ii) if the Management Investors
as a group cease to own at least 10% of the voting stock of the Company, or
(iii) if a Change of Control occurs as defined in the Indenture (as
hereinafter defined). See "Description of Certain Indebtedness".
BENEFITS TO CURRENT STOCKHOLDERS
The Company's current stockholders will benefit from the Offerings through
the creation of a public market for the Common Stock and the potential
unrealized gains in the value of the Common Stock held by them. Based upon the
difference between $16.00 per share (the midpoint of the estimated range of
the initial public offering price set forth on the cover page of this
Prospectus) and the average price per share of $1.77 paid by such current
stockholders, the current stockholders will have potential unrealized gains of
$14.23 per share, or an aggregate of $60.8 million.
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Company has restated and amended its Articles of Incorporation (the
"Restated Articles") and Bylaws (the "Restated Bylaws") which will take effect
upon the consummation of the Offerings.
Pursuant to the terms of its Restated Articles, the Company's Board of
Directors has the authority to issue up to 10,000,000 shares of preferred
stock and to determine the price, rights, preferences, privileges and
restrictions including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock will
be subject to, and may be affected adversely by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has no current plans to
issue preferred stock.
Certain other provisions of the Restated Articles and of the Pennsylvania
Business Corporation Law of 1988, as amended (the "BCL"), which govern the
Company, may have the effect of discouraging a third party from making an
acquisition proposal for the Company or otherwise inhibiting a change in
control of the Company under circumstances that could give the stockholders an
opportunity to realize a premium over the then prevailing market price for the
Common Stock. These provisions include various sections of the BCL restricting
certain business combinations. See "Description of Capital Stock--Pennsylvania
Anti-Takeover Law Provisions" and "Description of Capital Stock--Certain
Corporate Anti-Takeover Provisions".
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offerings, or the perception that such sales could occur, could
affect adversely the prevailing market price for the Common Stock and the
Company's ability to raise capital through an offering of its equity
securities. Upon consummation
13
<PAGE>
of the Offerings, the Company will have outstanding 11,279,280 shares of
Common Stock, assuming no exercise of outstanding options. Of such shares, the
7,001,922 shares of Common Stock sold in the Offerings will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), unless such shares are owned by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act. An additional 311,058 shares of the 11,279,280
shares of Common Stock outstanding are held by former employees of the Company
and are subject to mandatory resale to and redemption by the Company pursuant
to the Stockholders' Agreement (as hereinafter defined). Of the remaining
3,966,300 shares of Common Stock, 751,329 shares have been registered under
the Securities Act and sold by the Company to certain of its employees and
3,214,971 shares are "restricted securities" as that term is defined under
Rule 144 and, accordingly, may not be sold unless they are registered under
the Securities Act or sold pursuant to an applicable exemption from
registration, including Rule 144. Of such 3,966,300 shares of Common Stock,
shares are subject to lock-up agreements with the Underwriters and will become
available for resale 180 days after the date of this Prospectus, subject to
the provisions of Rule 144 under the Securities Act. The Company is unable to
estimate the number of shares which may be sold, including under Rule 144 or
any other applicable exemption, since this will depend upon the market price
of the Common Stock, the individual circumstances of the sellers and other
factors. See "Shares Eligible for Future Sale" and "Underwriting".
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or
that the purchasers of the Common Stock will be able to resell their Common
Stock at prices equal to or greater than the initial public offering price.
The initial public offering price of the Common Stock will be determined
through negotiations among the Company, the Selling Stockholders and the
Representatives (as hereinafter defined) of the Underwriters (as hereinafter
defined) and may not reflect the market price of the Common Stock after the
Offerings. See "Underwriting" for a discussion of factors to be considered in
determining the initial public offering price. The trading price of the Common
Stock could be subject to wide fluctuations in response to quarterly
variations in operating results, announcements of technological innovations or
new products by the Company or its competitors, changes in financial estimates
by securities analysts and other events or factors.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company,
including the Company's expectations of its future operating performance as a
result of the Clairton acquisition and the unfavorable outcome of pending
litigation against the Company. Prospective investors are cautioned that such
statements are only predictions and that actual events or results may differ
materially. In evaluating such statements, prospective investors should
consider specifically the various factors identified in this Prospectus,
including the risk factors set forth herein, which could cause actual results
to differ materially from those indicated by such forward-looking statements.
14
<PAGE>
THE COMPANY
The Company is a leading integrated producer of carbon compounds and treated
wood products for use in a variety of markets including the chemical,
railroad, aluminum and steel industries. The "Koppers" name has been
associated with the carbon compounds and wood treating businesses for over 70
years, and the Company has leading market positions in most of its products.
The Company operates 24 facilities in the United States and maintains indirect
ownership interests in 14 facilities overseas. The Company recorded net sales
and net income of $525.7 million and $24.4 million, respectively, for the year
ended December 31, 1995. In 1995, the Company's three divisions, Coke
Products, Carbon Materials & Chemicals and Railroad & Utility Products,
accounted for 15.2%, 37.6% and 47.2% of net sales, respectively.
Through its Coke Products division, the Company is the largest independent
merchant producer of coke and coke by-products in the United States. The Coke
Products division converts coal into coke for sale to integrated steel
producers and foundries that use coke in the production of iron and steel. The
Company's Carbon Materials & Chemicals division distills coal tar into a
variety of intermediate products, including carbon pitch, PAA and creosote,
which are basic materials necessary in the production of aluminum, polyester
resins and plasticizers, and the pressure treatment of wood. The Company's
Railroad & Utility Products division is the largest supplier of treated wood
products, such as railroad crossties and utility poles, to the United States
railroad and utility industries.
The Company was formed in October 1988 by management, Beazer, Inc. and KAP,
to facilitate the acquisition of certain assets of Old Koppers for a purchase
price of $226.8 million subject to closing adjustments. The assets acquired
from Old Koppers included the Woodward Facility and certain assets of its
Chemicals and Allied Products Group which then became the Coke Products,
Carbon Materials & Chemicals and Railroad & Utility Products divisions of the
Company. The purchase was financed through (i) the issuance of $35.2 million
of common and preferred stock, (ii) term and working capital loans of $161.6
million, with attached warrants, and (iii) a subordinated bridge loan of $30.0
million. In February 1994, the Company issued $110 million of Senior Notes (as
hereinafter defined) to refinance existing indebtedness and to redeem $53.5
million of preferred stock. See "Description of Certain Indebtedness--The
Senior Notes".
The Company's principal executive offices are located at 436 Seventh Avenue,
Pittsburgh, Pennsylvania 15219-1800, and its telephone number is (412) 227-
2001.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby (after deduction of estimated underwriting discounts and commissions
and offering expenses payable by the Company) are estimated to be
approximately $26.0 million ($41.6 million if the over-allotment option
granted to the U.S. Underwriters is exercised in full). The Company intends to
use the net proceeds to reduce the aggregate indebtedness under the Bank
Credit Facilities (as hereinafter defined). See "Business--Carbon Materials &
Chemicals". The indebtedness, to be reduced with the net proceeds of the
Offerings, matures on March 18, 2001 and bears interest at one percent (1%)
over the London Inter-Bank Offered Rate ("LIBOR").
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders".
DIVIDEND POLICY
The Company currently intends to pay quarterly dividends of $0.12 per share
of Common Stock. The decision whether to apply legally available funds to the
payment of dividends on the Common Stock in the future will be made by the
Board of Directors of the Company from time to time in the exercise of its
prudent business judgment, taking into account, among other things, the
Company's results of operations and financial condition, any then existing or
proposed commitments for the use by the Company of available funds, and the
Company's obligations with respect to any then outstanding class or series of
its preferred stock. In addition, the amount of cash dividends payable by the
Company is limited by the terms of the Bank Credit Facilities and the Senior
Notes (as hereinafter defined; see "Description of Certain Indebtedness"), and
the Company may in the future enter into loan or other agreements or issue
debt securities or preferred stock that restrict the payment of cash
dividends. After giving pro forma effect to the issuance of the Common Stock
and the Clairton acquisition and the financing thereof, such agreements would
have permitted dividend payments of $33.7 million as of March 31, 1996.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
March 31, 1996, (ii) on a pro forma basis to reflect the Clairton acquisition
and the financing thereof, and (iii) as adjusted to reflect such acquisition
and the issuance and sale by the Company of 1,800,000 shares of Common Stock
offered hereby, after deducting underwriting discounts and commissions and
estimated offering expenses of $2.8 million, and the application of the
estimated net proceeds of $26.0 million therefrom. This table should be read
in conjunction with the Consolidated Financial Statements of the Company,
including the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
<S> <C> <C> <C>
Short-term debt................................ $ 4,000 $ 4,000 $ 4,000
======== ======== ========
Long-term debt:
Revolving Credit Facility (1)................ $ 68,000 $ 72,000 $ 46,000
Term loans (1)............................... 21,000 56,000 56,000
Unsecured senior notes due 2004.............. 110,000 110,000 110,000
-------- -------- --------
Total long-term debt....................... 199,000 238,000 212,000
Common Stock value subject to redemption (2)... 15,735 15,735 3,987
Common Stock, par value $.01 per share;
10,000,000 shares authorized, actual and pro
forma; 40,000,000 shares authorized, as
adjusted; 5,385,909 shares issued and
outstanding, actual and pro forma;
10,269,879 shares issued and outstanding, as
adjusted...................................... 66 66 114
Non-voting common stock, par value $.01 per
share; 10,000,000 shares authorized; 3,628,200
shares issued and outstanding, actual and pro
forma; 0 shares authorized issued and
outstanding, as adjusted...................... 36 36 --
Additional capital............................. 11,676 11,676 37,664
Retained earnings (2).......................... 34,782 34,782 46,530
Cumulative translation adjustment.............. 473 473 473
Treasury stock at cost, 1,322,043 shares (3)... (3,283) (3,283) (3,283)
-------- -------- --------
Total capitalization........................... $258,485 $297,485 $297,485
======== ======== ========
</TABLE>
- ---------------------
(1) Of these pro forma amounts, $39.0 million was incurred in connection with
the Clairton acquisition: $35.0 million was borrowed under the Clairton
Term Loan (as hereinafter defined) and $4.0 million was borrowed under the
Amended and Restated Bank Credit Agreement (as hereinafter defined; see
"Description of Certain Indebtedness").
(2) The Company's Stockholders' Agreement (as hereinafter defined) requires
the Company, subject to limitations under the terms of covenants contained
in the Bank Credit Facilities (as hereinafter defined), to redeem stock
held by Management Investors (as hereinafter defined) upon termination of
their employment with the Company. Pursuant to its terms, the
Stockholders' Agreement will terminate upon consummation of the Offerings
and, as a result, the number of shares of Common Stock subject to
redemption shall be reduced to the number of shares owned by Management
Investors who will have retired or otherwise terminated employment with
the Company prior to the consummation of the Offerings. If the Offerings
had been consummated on March 31, 1996, the value of such shares on that
date would have been approximately $4.0 million, and the remaining $11.7
million would have been reclassified to common equity. See "Management--
Board of Directors; Stockholders Agreement".
(3) Includes 1,125,000 shares of Common Stock held by a subsidiary of Koppers
Australia Pty. Limited, a company in which the Company holds a 50%
interest.
17
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1995, are derived from the Consolidated Financial Statements of the Company,
which have been audited by Ernst & Young LLP, independent auditors. The
selected financial data for the three months ended March 31, 1995 and 1996 are
derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
the financial position and results of operations for these periods. Operating
results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1996. The selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and with the Consolidated Financial Statements, related notes,
and other financial information included herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $ 451,242 $ 444,255 $ 461,219 $ 476,448 $ 525,730 $ 122,201 $ 126,701
Cost of sales (1)..... 381,990 370,588 397,131 408,252 440,746 102,767 111,255
Depreciation and 17,922 18,851 19,425 16,680 17,532 4,087 4,943
amortization (2).....
Selling, general and
administrative....... 20,738 23,017 19,559 25,807 27,604 5,624 6,256
--------- ---------- ---------- ---------- ---------- ---------- ---------
Operating profit........ 30,592 31,799 25,104 25,709 39,848 9,723 4,247
Equity in earnings of 5,663 4,666 4,578 5,314 9,239 1,265 1,791
affiliates.............
Other income............ 3,516 324 468 531 376 15 8
Litigation judgment (3). -- -- -- -- -- -- (10,946)
Interest expense........ 17,413 13,949 13,177 13,620 15,060 3,572 3,734
--------- ---------- ---------- ---------- ---------- ---------- ---------
Income (loss) before 22,358 22,840 16,973 17,934 34,403 7,431 (8,634)
taxes..................
Income taxes (benefit).. 7,335 8,104 6,508 5,017 9,963 2,320 (894)
--------- ---------- ---------- ---------- ---------- ---------- ---------
Income (loss) before
extraordinary item and
cumulative effect of
changes in accounting
methods................ 15,023 14,736 10,465 12,917 24,440 5,111 (7,740)
Net income (loss) (4)... 15,023 14,736 4,748 11,102 24,440 5,111 (7,740)
Payment-in-kind
dividends on preferred
stock (5).............. 5,382 6,244 7,242 944 -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ---------
Net income (loss)
available to common
stockholders........... $ 9,641 $ 8,492 $ (2,494) $ 10,158 $ 24,440 $ 5,111 $ (7,740)
========= ========== ========== ========== ========== ========== =========
Earnings (loss) per $ 0.98 $ 0.85 $ (0.25) $ 0.96 $ 2.36 $ 0.50 $ (0.78)
common share (6).......
========= ========== ========== ========== ========== ========== =========
Average common shares 9,809,775 10,019,799 10,034,406 10,570,971 10,376,658 10,300,812 9,911,202
outstanding (6)........
Cash dividends per $ -- $ -- $ -- $ -- $ 0.25 $ -- $ 0.08
common share...........
OTHER DATA:
EBITDA (7).............. $ 52,786 $ 51,761 $ 46,443 $ 44,342 $ 60,699 $ 13,825 $ 9,198
Dividends received from 756 787 1,446 1,422 2,943 -- --
affiliates (7).........
Capital expenditures 18,538 12,912 14,661 16,326 50,141 12,787 6,647
(8)....................
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ 28,030 $ 61,082 $ 83,856 $ 79,078 $ 80,095 $ 91,839
Total assets............ 279,013 271,390 282,520 294,193 348,955 361,432
Total debt (5).......... 130,892 114,652 113,461 159,000 174,000 203,000
Preferred stock (5)..... 39,282 45,526 52,768 260 260 --
Redeemable common stock 100 550 800 15,450 23,715 15,735
(9)....................
Common equity (9)....... 35,235 41,209 36,864 36,490 54,255 43,750
</TABLE>
- ---------------------
(1) Reflects a change in accounting method effective January 1, 1992, from the
FIFO method of inventory valuation to the LIFO method. The adoption of
LIFO decreased gross profit by $1.3 million for the year ended December
31, 1992.
(2) The 1994 results reflect a $1.4 million reduction in depreciation expense
for change in estimate of useful lives of certain assets effective July 1,
1994. See Note 1 of the Notes to Consolidated Financial Statements.
18
<PAGE>
(3) Consists of a charge related to a legal judgment rendered against the
Company in connection with the OCF Litigation in 1996. See "Risk Factors--
Legal Proceedings" and "Business--Legal Proceedings".
(4) Net income for 1993 includes effects of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" of $(5.2)
million net of tax, and SFAS No. 109, "Accounting for Income Taxes" of
$(0.5) million. See Notes 7 and 8 of the Notes to Consolidated Financial
Statements of the Company. Net income for 1994 includes extraordinary loss
on early extinguishment of debt of $1.8 million.
(5) On February 10, 1994 the Company issued $110 million of unsecured ten-
year, 8 1/2% senior notes, of which $53.5 million was used to redeem all
the Series A exchangeable preferred stock of the Company. See "Description
of Certain Indebtedness".
(6) In accordance with generally accepted accounting principles, average
common shares outstanding have been reduced by 1,125,000 of the 2,250,000
shares held by a subsidiary of Koppers Australia Pty. Limited to reflect
the Company's 50% ownership interest therein. See Note 9 of the Notes to
Consolidated Financial Statements of the Company.
(7) EBITDA is presented because it is a component of a ratio included in a
covenant in the Company's Bank Credit Facilities (as hereinafter defined).
For this purpose, EBITDA is defined as net income plus interest expense,
income taxes, depreciation and amortization; less equity income or losses,
non-cash extraordinary gains and non-cash foreign currency gains; plus
cash dividends received from affiliates, non-cash extraordinary losses and
non-cash foreign currency losses. EBITDA should not be considered by an
investor as an alternative to net income, as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity.
(8) Includes approximately $35 million related to acquisitions in 1995.
(9) The Company's Stockholders' Agreement (as hereinafter defined) requires
the Company, subject to limitations under the terms of covenants contained
in the Bank Credit Facilities, to redeem stock held by Management
Investors (as hereinafter defined) upon termination of their employment
with the Company. Pursuant to its terms, the Stockholders' Agreement will
terminate upon consummation of the Offerings and, as a result, the number
of shares of Common Stock subject to redemption shall be reduced to the
number of shares owned by Management Investors who will have retired or
otherwise terminated employment with the Company prior to the consummation
of the Offerings. If the Offerings had been consummated on March 31, 1996,
the value of such shares on that date would have been approximately $4.0
million, and the remaining $11.7 million would have been reclassified to
common equity. See "Management--Board of Directors; Stockholders'
Agreement".
19
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
Set forth below are the pro forma condensed consolidated statements of
operations of the Company for the year ended December 31, 1995 and the three
months ended March 31, 1996 and the pro forma condensed consolidated balance
sheet as of March 31, 1996. The pro forma condensed consolidated statements of
operations give effect to the Clairton acquisition and the Offerings (at an
assumed initial public offering price of $16.00 per share, the mid-point of
the range set forth on the cover page of this Prospectus) as if they occurred
as of January 1, 1995. The pro forma condensed consolidated balance sheet as
of March 31, 1996 gives effect to the Clairton acquisition and the Offerings
(at an assumed initial public offering price of $16.00 per share, the mid-
point of the range set forth on the cover page of this Prospectus) as if they
occurred on that date.
The pro forma condensed consolidated statement of operations for the year
ended December 31, 1995 is based on the audited historical condensed
consolidated statements of operations of the Company and Clairton for the year
then ended included elsewhere herein. The pro forma condensed consolidated
balance sheet as of March 31, 1996 and the pro forma condensed consolidated
statement of operations for the three months then ended are based on the
unaudited condensed Consolidated Financial Statements for the three months
ended March 31, 1996 of the Company and Clairton included elsewhere herein.
The pro forma condensed consolidated financial data presented herein are not
necessarily indicative of the Company's results of operations that might have
occurred had such transactions been completed at the beginning of the period
specified, and do not purport to represent what the Company's consolidated
results of operations might be for any future period.
The Clairton acquisition has been accounted for using the purchase method of
accounting. The pro forma adjustments described in the notes to the pro forma
condensed consolidated financial statements reflect the estimated allocation
of the purchase price to assets and liabilities. Additional information,
primarily related to the actuarial valuations for pension and post-retirement
benefits, and clarification of currently available information may result in
revisions to this estimated allocation. The pro forma financial statements and
accompanying notes should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and with the
historical condensed consolidated financial statements and related notes
thereto appearing elsewhere herein.
20
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------
HISTORICAL
----------------- PRO FORMA COMPANY
COMPANY CLAIRTON ADJUSTMENTS PRO FORMA
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents............... $ 4,816 $ -- $ -- $ 4,816
Accounts receivable (net of
allowance)........................ 59,969 10,062 -- 70,031
Inventories........................ 78,279 4,682 347 (1) 83,308
Other.............................. 8,345 846 (846)(2) 8,345
-------- ------- -------- --------
Total current assets............. 151,409 15,590 (499) 166,500
Investments.......................... 51,783 -- -- 51,783
Fixed assets (net)................... 148,947 28,200 1,513 (1) 178,660
Other assets......................... 9,293 -- 12,994 (1) 22,287
-------- ------- -------- --------
Total assets....................... $361,432 $43,790 $ 14,008 $419,230
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................... $ 27,420 $ 8,287 $ 1,912 (1) $ 37,619
Accrued liabilities................ 28,150 1,101 (831)(2)
260 (1) 28,680
Current portion of long-term debt.. 4,000 -- -- 4,000
-------- ------- -------- --------
Total current liabilities........ 59,570 9,388 1,341 70,299
Long-term debt....................... 199,000 -- 39,000 (1)
(26,000)(3) 212,000
Deferred income taxes................ 14,085 10,419 (10,419)(2) 14,085
Intercompany liability............... -- 21,835 (32,239)(1)
10,404 (2) --
Other liabilities.................... 29,292 2,148 5,921 (1) 37,361
-------- ------- -------- --------
Total liabilities.................. 301,947 43,790 (11,992) 333,745
Common stock subject to redemption... 15,735 -- (11,748)(4) 3,987
Common stock, voting and non-voting.. 102 -- 11 (3) 114
Retained earnings.................... 34,782 -- 11,748 (4) 46,530
Other stockholders' equity........... 8,866 -- 25,989 (3) 34,854
-------- ------- -------- --------
Total liabilities and stockholders'
equity............................ $361,432 $43,790 $ 14,008 $419,230
======== ======= ======== ========
</TABLE>
- ---------------------
(1) Adjusted to reflect the preliminary allocation of the approximately $40
million purchase price and related transaction costs to the fair value of
assets acquired and the assumption of certain liabilities. Liabilities
assumed by the Company include certain pension and post-retirement benefit
costs, and estimated costs for the demolition of unused facilities and
tank cleaning. The acquisition, primarily financed by additional
borrowings of $39 million under the Bank Credit Facilities (as hereinafter
defined), resulted in goodwill of approximately $13.0 million.
(2) Adjusted to reflect the elimination of deferred tax assets, accrued taxes
payable and deferred tax liabilities not assumed by the Company.
(3) Adjusted to reflect the consummation of the Offerings, with estimated net
proceeds to the Company of approximately $26 million used to reduce
aggregate indebtedness under the Bank Credit Facilities (as hereinafter
defined).
(4) Adjusted to reflect the termination of the Stockholders' Agreement (as
hereinafter defined) upon consummation of the Offerings and, as a result,
the reduction in the number of shares of Common Stock subject to
redemption pursuant to such agreement to the number of shares owned by the
Management Investors (as hereinafter defined) who will have retired prior
to that date.
21
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------
HISTORICAL
----------------- PRO FORMA COMPANY
COMPANY CLAIRTON ADJUSTMENTS PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................ $525,730 $75,984 $(11,638)(1) $590,076
Cost of sales...................... 440,746 62,291 (11,638)(1) 491,399
Depreciation and amortization...... 17,532 1,969 415 (2) 19,916
Selling, general and
administrative.................... 27,604 3,355 (2,036)(3) 28,923
-------- ------- -------- --------
Operating profit..................... 39,848 8,369 1,621 49,838
Equity in earnings of affiliates..... 9,239 -- -- 9,239
Other income......................... 376 14 -- 390
Interest expense..................... 15,060 -- 975 (4) 16,035
-------- ------- -------- --------
Income before taxes.................. 34,403 8,383 646 43,432
Income taxes......................... 9,963 3,479 (274)(5) 13,168
-------- ------- -------- --------
Net income........................... $ 24,440 $ 4,904 $ (920) $ 30,264
======== ======= ======== ========
Earnings per share................... $ 2.36 N/A N/A $ 2.92
======== ======= ======== ========
</TABLE>
- ---------------------
(1) Adjusted to reflect the elimination of purchases by the Company from
Clairton.
(2) Adjusted to reflect increased depreciation and amortization expense
resulting from recording the assets acquired at estimated fair value. The
Company records depreciation and amortization using the straight-line
method, over estimated useful lives of 15 years for buildings and
machinery and 25 years for goodwill.
(3) Adjusted to reflect the reversal of corporate overhead costs allocated to
Clairton by its former parent.
(4) Adjusted to reflect increased interest expense to the Company related to
$39 million of borrowings under the Bank Credit Facilities (as hereinafter
defined) in connection with the acquisition of Clairton further adjusted
to reflect the application of an estimated $26 million of net proceeds to
the Company from the Offerings to reduce aggregate borrowings. Interest is
calculated at an assumed rate of 7.5% (LIBOR plus 1.0%).
(5) Adjusted to reflect the Company's estimated marginal tax rate of 35.5%,
which differs from the statutory rate primarily as a result of non-cash
equity in earnings of affiliates for which no tax expense is provided.
22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------
HISTORICAL
------------------ PRO FORMA COMPANY
COMPANY CLAIRTON ADJUSTMENTS PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................... $126,701 $19,132 $(2,932)(1) $142,901
Cost of sales..................... 111,255 16,093 (2,932)(1) 124,416
Depreciation and amortization..... 4,943 460 136 (2) 5,539
Selling, general and
administrative................... 6,256 926 (483)(3) 6,699
-------- ------- ------- --------
Operating profit.................... 4,247 1,653 (347) 6,247
Equity in earnings of affiliates.... 1,791 -- -- 1,791
Other income........................ 8 6 -- 14
Interest expense.................... 3,734 -- 214 (4) 3,948
Litigation judgment................. (10,946) -- -- (10,946)
-------- ------- ------- --------
Income (loss) before taxes.......... (8,634) 1,659 (133) (6,842)
Income taxes (benefit).............. (894) 678 (492)(5) (708)
-------- ------- ------- --------
Net income (loss)................... $ (7,740) $ 981 $ 625 $ (6,134)
======== ======= ======= ========
Earnings (loss) per share........... $ (0.78) N/A N/A $ (0.62)
======== ======= ======= ========
</TABLE>
- ---------------------
(1) Adjusted to reflect the elimination of purchases by the Company from
Clairton and purchases by Clairton from the Company.
(2) Adjusted to reflect increased depreciation and amortization expense
resulting from recording the assets acquired at estimated fair value. The
Company records depreciation and amortization using the straight-line
method, over estimated useful lives of 15 years for buildings and
machinery and 25 years for goodwill.
(3) Adjusted to reflect the reversal of corporate overhead costs allocated to
Clairton by its former parent.
(4) Adjusted to reflect increased interest expense to the Company related to
$39 million of borrowings under the Bank Credit Facilities (as hereinafter
defined) in connection with the acquisition of Clairton further adjusted
to reflect the application of an estimated $26 million of net proceeds to
the Company from the Offerings to reduce aggregate borrowings. Interest is
calculated at an assumed rate of 6.6% (LIBOR plus 1.0%).
(5) Adjusted to reflect the Company's estimated pro forma effective tax rate
of 10.3%, which differs from the statutory rate primarily as a result of
projected non-cash equity earnings of affiliates and tax credits earned
beginning in 1996 at the Company's Monessen Facility.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company is a leading integrated producer of carbon compounds and treated
wood products for use in a variety of markets. The Company's products and
operations are divided into three divisions: Coke Products, Carbon Materials &
Chemicals and Railroad & Utility Products.
RESULTS OF OPERATIONS
The following table sets forth certain sales and operating data, net of all
inter-segment transactions, for the Company's businesses for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ------------------
1993 1994 1995 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES:
Coke Products............. $ 73,608 $ 72,363 $ 80,084 $ 19,279 $ 28,218
Carbon Materials &
Chemicals................ 167,000 164,489 197,434 46,099 44,278
Railroad & Utility
Products................. 220,611 239,596 248,212 56,823 54,205
-------- -------- -------- -------- --------
Total................... $461,219 $476,448 $525,730 $122,201 $126,701
======== ======== ======== ======== ========
SEGMENT SALES AS PERCENTAGE
OF TOTAL:
Coke Products............. 16.0% 15.2% 15.2% 15.8% 22.3%
Carbon Materials &
Chemicals................ 36.2% 34.5% 37.6% 37.7% 34.9%
Railroad & Utility
Products................. 47.8% 50.3% 47.2% 46.5% 42.8%
-------- -------- -------- -------- --------
Total................... 100.0% 100.0% 100.0% 100.0% 100.0%
GROSS MARGIN BY SEGMENT:
Coke Products............. 12.8% 11.5% 7.6% 11.9% 8.8%
Carbon Materials &
Chemicals................ 19.8% 19.0% 21.3% 20.6% 14.5%
Railroad & Utility
Products................. 9.8% 11.9% 14.8% 13.4% 12.1%
-------- -------- -------- -------- --------
Total................... 13.9% 14.3% 16.2% 15.9% 12.2%
OPERATING MARGIN BY SEGMENT:
Coke Products............. 2.2% 3.6% 0.0% 4.3% 2.1%
Carbon Materials &
Chemicals................ 11.6% 10.3% 13.9% 13.0% 5.5%
Railroad & Utility
Products................. 4.8% 6.8% 9.1% 7.8% 5.2%
Corporate Unallocated
Overhead................. (1.4%) (2.1%) (1.9%) (1.3%) (1.3%)
-------- -------- -------- -------- --------
Total................... 5.4% 5.4% 7.6% 8.0% 3.4%
</TABLE>
COKE PRODUCTS
The Coke Products division's profitability is primarily dependent on the
pricing and demand for coke in the United States and its cost of metallurgical
coal. The Company has entered into two long-term contracts with LTV covering
approximately 50% of the production at the Company's Woodward and Monessen
Facilities. Both supply contracts are for 240,000 tons per year, plus or minus
10% at LTV's option. Under one of these contracts, which is a four-year
contract ending on December 31, 1997 and can be extended for an additional
year by LTV, the annual base price for 1997 and, if extended, 1998, will be
fixed by the Company at not more than 6% above or below the base price for the
preceding year. If LTV does not find the base price to be satisfactory, it can
terminate the agreement on six months notice. The second contract is a seven-
year contract expiring on December 31, 2002 and is automatically renewed
annually unless six months notice of termination is given by either party on
or before July 1 of the prior year. The annual base price is fixed by LTV
within a stated range per net ton with reference to increases or decreases in
the selling price of base steel products. Both contracts
24
<PAGE>
excuse performance by either party in the event of unforeseeable
circumstances. The Company typically negotiates additional short-term
agreements with other customers to sell a significant portion of its remaining
production at prices based upon the spot market.
Although the spot price for coke generally fluctuates with the coke demand
generated by United States integrated steel producers and foundries, due to
the contract nature of a large proportion of the Company's business, the
Company's average price realized per ton has remained in a relatively narrow
range of $107 to $117 between 1993 and 1995. Due to the strength of the United
States integrated steel market in 1995, the Company's average price
realization for coke increased from $112 per ton in the first quarter of 1995
to $118 per ton in the first quarter of 1996. Over the last three years, the
Company's metallurgical coal costs, the most significant cost component of
coke production, have remained relatively stable.
Since initiating an oven rebuilding program at its Woodward Facility in
1991, the Company's effective capacity has fluctuated based on the number of
ovens being rebuilt at one time. The Company has operated the Woodward
Facility, which currently has an annual capacity of approximately 700,000
tons, at 90% to 95% of its total capacity. With the completion of the start-up
of the newly acquired Monessen Facility in April 1996, the Company's annual
production capacity has been increased to over 1 million tons. In connection
with the refurbishment of the facility, the Company incurred substantial
start-up expenses which it has expensed in the third and fourth quarters of
1995 and the first quarter of 1996.
CARBON MATERIALS & CHEMICALS
The Company's Carbon Materials & Chemicals division distills coal tar into a
variety of intermediate products, including carbon pitch, PAA and creosote.
The Carbon Materials & Chemicals division's profitability is primarily
influenced by its cost to purchase coal tar and its prices obtained for carbon
pitch, PAA and creosote.
The primary product produced through coal tar distillation is carbon pitch.
The Company sells carbon pitch principally to primary aluminum smelters, who
use carbon pitch as a binding agent in the manufacture of carbon anodes.
Smaller quantities of carbon pitch are also sold to graphite electrode
producers. Since 1993, the Company's sales volume of carbon pitch has
increased from 263,000 tons in 1993 to 279,000 tons in 1995, due to improved
aluminum market conditions, while pricing has remained relatively stable.
As part of the distillation of coal tar into carbon pitch, by-products
including creosote and chemical oils are obtained. Creosote is used as a wood
preservative in the treatment of railroad crossties and utility poles. The
Company sells approximately 40% of its creosote production to its Railroad &
Utility Products division. The remaining 60% is sold to other wood treating
companies or into the carbon black market for use in the manufacture of rubber
tires. Since 1993, the price obtained by the Company for creosote has
increased approximately 8%, reflecting the increased cost to purchase coal
tar, and volumes have remained relatively flat.
Chemical oils produced during coal tar distillation are further refined by
the Company primarily into naphthalene, which is a basic ingredient used in
the production of PAA. PAA is used in the production of polyester resins,
paints and coatings and plasticizers. On a worldwide basis, naphthalene and
orthoxylene, a petroleum derivative, are both used in the manufacture of PAA
and are considered to be interchangeable. In the United States, however, the
Company is the only PAA producer capable of utilizing naphthalene as a
feedstock. Historically, the Company's cost to produce naphthalene has been
lower than its cost to purchase orthoxylene, which is generally a higher cost
feedstock. The Company's price realizations and profit margins for PAA have
historically fluctuated with the price of orthoxylene and its relationship to
the Company's cost to produce naphthalene. Although the price of orthoxylene
was relatively stable prior to 1994, due to increased demand, the price of
orthoxylene increased from $0.14 per pound in March 1994 to $0.38 per pound in
May 1995. As a result, PAA prices increased by approximately 101% during that
period, providing the Company with a significant cost advantage over its
competition and a temporary expansion of margins. In the first quarter of
1996, however, the price for orthoxylene declined to approximately $0.16 per
pound, resulting in a corresponding decline in PAA prices and margins. The
Company's cost to produce naphthalene and PAA is primarily driven by its cost
to procure coal tar.
25
<PAGE>
On April 1, 1996, the Company completed the acquisition of Clairton. This
acquisition will increase the Company's production of carbon pitch and
creosote by approximately 44% and 38%, respectively, based on Clairton's
production of such products in 1995. Clairton had 1995 sales of approximately
$64 million, excluding sales to the Company. As a result of this acquisition,
the Company is conducting a review of its Carbon Materials & Chemicals
division in order to identify possible efficiencies that could be achieved,
including the possible rationalization of certain of its facilities. Any such
rationalization could involve substantial cash and non-cash charges that could
materially adversely affect the results of operations or cash flows of the
Company in a particular period.
RAILROAD & UTILITY PRODUCTS
The Company's Railroad & Utility Products division is the largest supplier
of treated wood products to the United States railroad and utility industries
and also provides services such as track assembly and the burning of wood
waste for energy. The Railroad & Utility Products division's profitability is
primarily influenced by the demand for railroad products and services by Class
I railroads, demand for transmission and distribution poles by electric
utilities and its cost to procure wood. Historically, sales of railroad
products and services have represented approximately two-thirds of the
Railroad & Utility Products division's net sales.
The railroad crosstie market is a mature market with approximately 14.5
million replacement crossties purchased per year. The demand for crossties is
only partially affected by economic conditions and has been relatively stable
since 1993. Pricing historically has fluctuated with the underlying cost to
purchase hardwood lumber, which accounts for approximately 60% of a finished
crosstie's cost. The Company obtains its hardwood supply from more than 900
small sawmills throughout the northeastern and southern areas of the United
States. Hardwood prices fluctuate with demand from competing hardwood lumber
markets such as flooring and pallets. In 1993, the price of hardwood increased
significantly, which resulted in a temporary reduction of the Company's
margins. Since 1993, hardwood prices have decreased to more normal levels,
which has resulted in improved margins. Historically, over three-fourths of
the Company's net sales to railroads have been based on annual or multi-year
contracts.
The market for utility poles is highly fragmented, and demand has remained
relatively stable for several years. Utility poles are produced primarily from
softwoods, such as pine and fir, which have been subject to steady price
increases since 1993 primarily due to increased demand for softwood materials
in the paper and construction markets. In 1993 and 1994, the increased price
for wood had a negative impact on the Company's pole volumes and margins. In
order to improve results, in 1995 the Company increased sales prices of its
pole products. While this strategy has resulted in lower sales volumes, price
realizations have increased and gross margins have improved from 8.8% in 1994
to 11.0% in 1995.
In April 1995, the Company completed the acquisition of the Somerville
Facility, which is the largest railroad crosstie treating facility in the
United States. This acquisition increased the production capacity of the
Company's Railroad & Utility Products division by 20% and resulted in an
increase of $11.5 million in net sales in 1995.
Comparison of Results of Operations for the Three Months Ended March 31, 1996
and 1995.
NET SALES. Net sales for the three months ended March 31, 1996 were 3.7%
higher than the same period in 1995, due primarily to an increase of 46.4% in
sales of Coke Products which offset decreases of 4.0% for Carbon Materials &
Chemicals and 4.6% for Railroad & Utility Products. The increase in net sales
for Coke Products was due primarily to sales of approximately $10 million from
the Monessen Facility, which started production in the fourth quarter of 1995,
coupled with a 5.6% increase in coke price realizations, offset to some extent
by lower production at the Woodward Facility due to oven wall rebuilding. The
reduction in net sales for Carbon Materials & Chemicals was due primarily to a
reduction in PAA prices of 34.0% compared to the same period in the prior
year, more than offsetting a 6.3% increase in carbon pitch volumes coupled
with a 4.0% increase in carbon pitch prices. The reduction in net sales for
Railroad & Utility Products was due primarily
26
<PAGE>
to a 19.7% reduction in volumes for utility poles, which resulted from a 10.2%
increase in selling prices for utility poles as compared to the same period
last year.
GROSS PROFIT. As a percent of sales, gross profit decreased to 12.2% in the
first quarter of 1996 from 15.9% in the same period last year. This decrease
was due to decreases in gross margins to 8.8% from 11.9% for Coke Products, to
14.5% from 20.6% for Carbon Materials & Chemicals, and to 12.1% from 13.4% for
Railroad & Utility Products. The decrease for Coke Products was due primarily
to weather and operational startup expenses at the Monessen Facility in
January and February 1996, as well as higher operating costs at the Woodward
and Monessen Facilities as a result of severe winter weather in 1996.
Excluding expenses of $0.9 million associated with the Monessen startup, the
gross margin would have been 11.8%. The decrease in gross margin for Carbon
Materials & Chemicals was due primarily to a 34.0% reduction in PAA prices. In
addition, gross margin in the Carbon Materials & Chemicals division was
negatively impacted by a number of other factors: increased plant costs
associated with inclement winter weather; a greater proportion of creosote
sold in the lower margin carbon black market as a result of decreased
shipments to creosote customers, who slowed wood treating operations during
the severe winter; and the utilization of higher priced orthoxylene
inventories which were purchased prior to the sharp decline in orthoxylene
prices. The decrease in gross margin for Railroad & Utility Products was due
primarily to higher unit costs from reduced sales volumes for utility poles,
as well as $0.4 million of higher operating costs at the Company's Somerville
Facility as a result of a strike which lasted approximately one month and was
settled in early April 1996. Railroad & Utility Products costs were also
negatively affected by severe winter weather.
DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization
for 1996 as compared to the prior year is due to the acquisitions of the
Somerville and Monessen Facilities, both of which were acquired in April 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the three months ended March 31, 1996 increased to
4.9% of net sales from 4.6% of net sales in the same period last year
primarily as a result of higher costs related to the integration of the
acquisition of the Monessen and Clairton facilities and the implementation of
newly initiated logistics improvements in all of the Company's divisions.
EQUITY IN EARNINGS OF AFFILIATES. Equity earnings increased to $1.8 million
for the three months ended March 31, 1996 compared to $1.3 million for the
same period last year as all three affiliates recorded moderately higher
earnings.
INTEREST EXPENSE. Interest expense increased $0.2 million in the first
quarter of 1996 as compared to the prior year as the result of a higher
average debt level coupled with an increase in the average interest rate of
1.3%.
INCOME TAXES. The Company's effective income tax rate for the three months
ended March 31, 1996 decreased to 10.4% from 31.2% in the prior year period
due primarily to projected tax credits for fiscal year 1996 for the recently
acquired Monessen Facility.
NET INCOME (LOSS). The net loss of $7.7 million for the three months ended
March 31, 1996 compared to net income of $5.1 million for the same period last
year was the result of an $11.0 million litigation charge in 1996, as well as
lower operating profits for the businesses due to an increase in costs of
sales in excess of the increase in net sales for this period.
Comparison of Results of Operations for the Years Ended December 31, 1995 and
1994.
NET SALES. Net sales for the year ended December 31, 1995, were 10.3% higher
than the corresponding period in 1994, as net sales of Coke Products increased
by 10.7%, net sales of Carbon Materials & Chemicals increased by 20.0%, and
net sales of Railroad & Utility Products increased by 3.6%. The increase in
net sales of Coke Products was due to a 6.4% increase in coke prices, as well
as a 6.1% increase in coke volumes primarily due to shipments of coke in
November and December from the newly acquired Monessen Facility. The increase
in net sales of Carbon Materials & Chemicals for 1995 primarily reflects a
52.7% increase in PAA prices and a 13.0% increase in carbon pitch volumes. The
increase in net sales of Railroad & Utility Products for 1995 reflects higher
sales volumes of 10.7% for railroad crossties primarily as a result of sales
from the newly acquired
27
<PAGE>
Somerville Facility, offset by a 13.9% decline in volumes for utility poles.
Prices for railroad crossties decreased 2.2%, while pricing for utility poles
increased 9.3% in 1995 compared to the prior year.
GROSS PROFIT. As a percent of net sales, gross profit increased to 16.2% in
1995 from 14.3% in 1994. The decrease in gross margin for Coke Products to
7.6% from 11.5% was more than offset by an increase in Carbon Materials &
Chemicals gross margin to 21.3% from 19.0%, and an increase in Railroad &
Utility Products gross margin to 14.8% from 11.9% as compared to the prior
year. The decrease in Coke Products gross margin for 1995 was primarily a
result of $5.5 million of start-up expenses, which were not capitalized, at
the Monessen Facility in 1995. Excluding the start-up expenses, gross margin
would have increased to 14.8% of sales, reflecting a 6.4% price increase for
coke. The increase in gross margin for Carbon Materials & Chemicals was
primarily a result of a 52.7% increase in selling prices for PAA. This
increase was partially offset by a $1.8 million provision for the effect of a
coal tar spill at a Carbon Materials & Chemicals facility. The increase in
Railroad & Utility Products gross margin was primarily a result of lower raw
materials costs coupled with lower freight costs from logistics improvements
and an increase in selling prices for utility poles.
DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization
in 1995 compared to the prior year is primarily due to approximately $0.8
million of depreciation related to the acquisition of the Somerville Facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for 1995 decreased to 5.3% of sales from 5.4% of sales
in 1994, primarily due to increased sales and the absence of $3.6 million of
non-recurring legal and severance expenses incurred in 1994.
EQUITY IN EARNINGS OF AFFILIATES. Equity in earnings of affiliates increased
to $9.2 million in 1995 from $5.3 million in 1994, primarily as a result of
stronger carbon pitch and chemicals markets in Australia and Europe.
INTEREST EXPENSE. Interest expense for 1995 increased by $1.4 million as a
result of higher average debt levels due to acquisitions coupled with slightly
higher interest rates.
INCOME TAXES. The Company's effective income tax rate for 1995 increased to
29.0% from 28.0% in 1994. The difference between the effective rates and the
statutory rate is primarily a result of earnings in foreign equity affiliates
not taxed in the United States. Income taxes on equity earnings in foreign
affiliates are limited to the amount of cash dividends received.
NET INCOME BEFORE EXTRAORDINARY ITEM. Net income before extraordinary item
for 1995 increased 89.2% compared to net income before extraordinary item from
the prior year, primarily as a result of a higher level of business activity,
and generally favorable market conditions as detailed in the discussions of
sales and cost of sales for the businesses.
Comparison of Results of Operations for the Years Ended December 31, 1994 and
1993.
NET SALES. Net sales for the year ended December 31, 1994 were 3.3% higher
than the same period in 1993, as reductions of 1.7% for Coke Products and 1.5%
for Carbon Materials & Chemicals were more than offset by an increase of 8.6%
for Railroad & Utility Products. The decrease in net sales of Coke Products
for 1994 reflected a 3.0% reduction in coke sales volumes coupled with a 2.4%
reduction in coke prices. The decrease in net sales of Carbon Materials &
Chemicals was due to a 6.0% reduction in carbon pitch volumes as a result of
the decreased demand from the domestic aluminum industry, the primary consumer
of carbon pitch. Partially offsetting this reduction was an increase of 6.9%
in PAA prices, which more than offset a 5.5% reduction in PAA volumes. The
increase in net sales of Railroad & Utility Products for 1994 was due to a
6.3% increase in volumes coupled with a 5.6% increase in selling prices for
railroad crossties. Sales volumes for utility poles were 3.8% lower in 1994
than in 1993, but were more than offset by a 5.3% increase in utility pole
prices.
28
<PAGE>
GROSS PROFIT. As a percent of net sales, gross profit increased in 1994 to
14.3% from 13.9% in 1993. The decreases in gross margin for Coke Products to
11.5% from 12.8%, and for Carbon Materials & Chemicals to 19.0% from 19.8%
were more than offset by an increase in Railroad & Utility Products gross
margin to 11.9% from 9.8% in the prior year. The decrease in gross margin for
Coke Products was due primarily to a 2.4% reduction in coke prices. The
decrease in gross margin for Carbon Materials & Chemicals was due primarily to
an increase in per unit manufacturing costs for carbon pitch. The increase in
gross margin for Railroad & Utility Products for 1994 was primarily a result
of a $2.5 million lower LIFO inventory effect as a result of stabilizing raw
material hardwood costs during the latter half of 1994.
DEPRECIATION AND AMORTIZATION. The reduction in depreciation and
amortization for 1994 is due primarily to the expiration of a long-term coke
supply contract at the end of 1993, as well as a change in the depreciable
lives of certain fixed assets during 1994. See Note 1 of the Notes to
Consolidated Financial Statements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for 1994 increased to 5.4% of sales from 4.2% of sales
in 1993 due to an increase in legal expense of $2.1 million as a result of an
adverse arbitration ruling in 1994, severance charges of $1.7 million and the
payment of $1.9 million under the incentive compensation program compared to
no payment in 1993.
EQUITY IN EARNINGS OF AFFILIATES. Equity earnings increased to $5.3 million
in 1994 from $4.6 million in the prior year primarily as a result of higher
profits from Koppers Australia Pty. Limited.
INTEREST EXPENSE. Interest expense for 1994 increased by $0.4 million, with
significantly higher debt levels being partially offset by lower interest
rates.
INCOME TAXES. The Company's effective income tax rate for 1994 decreased to
28.0% from 38.3% in 1993 primarily as a result of an increase in the ratio of
non-taxable foreign equity earnings to pretax income. Income taxes on equity
earnings in foreign affiliates are limited to the amount of cash dividends
received, which resulted in a lower effective tax rate for the Company in 1994
because the non-cash foreign earnings constituted a higher proportion of
pretax income than in the prior year.
NET INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES. Net income before extraordinary item and cumulative effect of
accounting changes in 1994 increased 23.4% over net income before
extraordinary item and cumulative effect of accounting changes in 1993
primarily as a result of increased equity earnings and the lower effective tax
rate in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs are primarily for debt service, acquisitions
and capital maintenance. The Company believes that its cash flows from
operations and available borrowings under the Bank Credit Facilities (as
hereinafter defined) will be sufficient to fund its anticipated liquidity
requirements. In the event that the foregoing sources are not sufficient to
fund the Company's expenditures and service its indebtedness, the Company
would be required to raise additional funds.
As of March 31, 1996, the Company had cash and cash equivalents of $4.8
million and $17.4 million of availability under the Bank Credit Facilities
including the Revolving Credit Facility (as hereinafter defined) available for
working capital purposes and letters of credit subject to an aggregate
sublimit of $15.0 million and possible restrictions in particular periods.
Letters of credit from time to time are required by the Company, primarily to
support obligations of the Company such as payment guarantees for insurance
and claims, bid and performance bonds for export sales and general corporate
guarantees. As of March 31, 1996, $8.9 million of commitments were utilized by
outstanding standby letters of credit and there were $68.0 million in
outstanding borrowings under the Credit Agreement (as hereinafter defined) for
working capital purposes. At March 31, 1996 the Company had outstanding under
the Amended Somerville/Monessen Loan Agreement (as hereinafter
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<PAGE>
defined), a loan of $25.0 million which was incurred to finance the
acquisitions of the Somerville and Monessen Facilities. The amortization
schedule for this loan requires payments of $4.0 million, $7.0 million, $9.0
million and $5.0 million in 1996, 1997, 1998 and 1999, respectively. See "Risk
Factors--Substantial Indebtedness".
The Company also negotiated the Clairton Term Loan (as hereinafter defined)
on March 18, 1996 in the amount of $35.0 million for the Clairton acquisition,
with repayments of $17.5 million required in both 2000 and 2001. The
additional $4.0 million required for the acquisition was financed through the
Revolving Credit Facility.
Interest on the Company's term loans and working capital facilities is based
upon prevailing floating rates, while interest on the Senior Notes (as
hereinafter defined) is fixed. In addition, the Company is party to an
interest rate collar agreement with respect to a $10.0 million notional
amount. The collar agreement expires in October 1996.
The following table sets forth cash flows from operating, investing and
financing activities for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- -----------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities.......... $ 13,574 $ 39,249 $ 35,276 $ (3,219) $(5,428)
Net cash used in investing
activities.................... (14,133) (16,016) (50,343) (13,130) (6,754)
Net cash provided by (used in)
financing activities.......... (2,066) (20,447) 13,710 14,743 15,380
-------- -------- -------- -------- -------
Net increase (decrease) in
cash.......................... $ (2,625) $ 2,786 $ (1,357) $ (1,606) $ 3,198
======== ======== ======== ======== =======
</TABLE>
Cash provided by (used in) operations was $(5.4) million, $35.3 million,
$39.2 million and $13.6 million for the first three months of 1996 and for
1995, 1994 and 1993, respectively. A $7.7 million net loss in the first three
months of 1996 coupled with increased working capital needs (excluding accrued
liabilities) of approximately $13 million were partially offset by an increase
of $11.4 million in accrued liabilities, with the increase in accrued
liabilities reflecting a provision of approximately $11 million as a result of
the OCF Litigation. An increase in working capital due to higher sales was the
primary use of cash in operations for the first three months of 1995. Net cash
provided by operating activities declined in 1995, despite an increase in net
income of $13.3 million, primarily due to increased working capital
requirements associated with the Monessen and Somerville Facilities. In
particular, accounts receivable increased by $5.8 million and inventories
increased by $9.7 million. These cash outflows were partially offset by an
increase in accounts payable of $11.5 million. In addition, equity income of
affiliated companies net of dividends received increased by $2.7 million.
Operating activities provided $39.2 million and $13.6 million for 1994 and
1993, respectively. The large increase in operating cash flows during fiscal
1994 resulted primarily from an increase in net income of $6.4 million and a
reduction in net working capital requirements of $12.3 million. In 1994,
accounts receivable decreased $3.2 million and accrued payroll and
compensation costs increased $4.0 million, including $2.0 million of accrued
severance charges and $1.9 million of management incentives in excess of the
prior year. In addition, accrued liabilities increased $4.9 million, of which
approximately $4.0 million reflected accrued interest on the Senior Notes
issued in February 1994. Operating cash flows during fiscal 1993 included a
$17.6 million net cash outflow due to increased accounts receivable and
inventories.
The Company's investing activities have included both acquisition-related
and maintenance-related capital expenditures. During fiscal 1995, acquisition-
related expenditures for the Monessen and Somerville Facilities were $23.6 and
$11.3 million, respectively. There were no significant acquisition-related
capital expenditures in the first three months of 1996, or in 1994 or 1993.
Capital expenditures, excluding acquisitions, were $6.6 million, $15.2
million, $16.3 million and $14.7 million for the first three months of 1996,
and for 1995, 1994 and 1993, respectively. The Company's capital
30
<PAGE>
expenditures were directed toward capital maintenance, increased operating
efficiency and environmental compliance. The Company anticipates that its
capital expenditures for 1996, excluding acquisitions, will be approximately
$23.0 million, with the increase due primarily to capital expenditures
required to bring the recently acquired Monessen Facility to full operating
efficiency.
The Company currently owns or leases facilities at which there is
contamination. At most of these facilities, the costs of substantially all
investigative and cleanup activities are being paid for directly by the
sellers of such facilities or their predecessors pursuant to indemnity
agreements between such entities and the Company. Although the Company
believes that the sellers or their predecessors will continue to pay such
costs pursuant to these indemnity agreements, if the Company were required to
pay such costs, it could have a material adverse effect on the Company's
financial condition, results of operations, cash flow and liquidity. See "Risk
Factors--Environmental Matters" and "Business--Environmental Matters".
The Company's financing activities have represented principally drawdowns
and repayments on its Bank Credit Facilities. In the first three months of
1996, financing activities provided $15.4 million compared to $14.7 million in
1995 and usages of $20.5 million in 1994 and $2.1 million in 1993,
respectively. Cash supplied by financing in the first three months of 1996 was
primarily the result of a net increase of $39.0 million in the Revolving
Credit Facility, partially offset by the $10.0 million repayment under the
Term Loan (as hereinafter defined), a $0.8 million quarterly dividend and a
$12.3 million repurchase of 1,050,000 shares of non-voting common stock at
$11.67 per share in equal amounts from Cornerstone-Spectrum, Inc. (formerly
Beazer, Inc.) and APT Holdings Corporation, a wholly owned subsidiary of
Mellon Bank Corporation, the parent of Mellon Bank, N.A. Cash supplied by
financing activities in 1995 was primarily the result of an increase in long-
term borrowings of $25.0 million to finance the acquisitions of the Monessen
and Somerville Facilities, partially offset by a $5.0 million repayment under
the Term Loan and a net decrease of $5.0 million to the Revolving Credit
Facility. In September 1995, APT Holdings Corporation exercised warrants to
purchase 2,338,200 shares of non-voting common stock of the Company for $2.6
million. The Company also paid $2.3 million in dividends to voting and non-
voting common and Series B Preferred shareholders.
Cash used by financing activities in 1994 was primarily due to the purchase
of Common Stock for $3.8 million and repayment of outstanding debt of $16.0
million under the Revolving Credit Facility. Cash used by financing activities
in 1993 was primarily due to the repayment of outstanding long-term debt of
$18.0 million under the term loan existing at the Company's inception, offset
in large part by $16.0 million of additional borrowings under a revolving
credit facility.
The Company decreased the discount rate used to determine the projected
benefit obligation for the funded status of the pension plans from 8.25% at
December 31, 1994 to 7.25% at December 31, 1995. Due to this lower discount
rate, the Company's obligations for 1996 pension expenses are expected to
increase.
Stock Redemptions
The Company was required to purchase approximately $0.7 million, $2.2
million and $1.2 million in the first three months of 1996 and in 1995 and
1994, respectively, of Common Stock from former employees, pursuant to the
provisions of the Stockholders' Agreement (as hereinafter defined). The
amounts include $0.2, $0.5 and $0.4 million in the first three months of 1996
and in 1995 and 1994, respectively, related to the purchase of shares which
were issued as the result of the exercise of vested stock options. Under the
terms of the Stockholders' Agreement, the Company is required to repurchase
the shares of terminated employees over a period not to exceed three years.
Management estimates the purchase requirement for 1996 to be approximately
$3.6 million, which includes approximately $0.5 million related to stock
options. See Notes 5 and 6 of the Notes to Consolidated Financial Statements.
In March 1996, Cornerstone-Spectrum, Inc. exercised its option to convert
all of the Series B convertible preferred stock of the Company into 2,340,000
shares of non-voting common stock of the Company. Subsequent
31
<PAGE>
to the exercise, the Company repurchased 1,050,000 shares of non-voting common
stock at $11.67 per share in equal amounts from Cornerstone-Spectrum, Inc. and
APT Holdings Corporation.
Pending Litigation
On May 11, 1990, OCF filed the OCF Litigation against the Company seeking
damages allegedly resulting from the sale by Old Koppers of CTB from the mid
1970's to the mid 1980's. The OCF Litigation relates to problems experienced
with roofing systems sold by OCF which contained CTB sold by Old Koppers. OCF
identified 11 roofs it alleges were built using defective Old Koppers' CTB. On
April 3, 1996 a jury verdict was returned against the Company for a total of
$10.3 million including $0.5 million in punitive damages. The Company will
appeal this judgment. In addition to damages, OCF has sought approximately $3
million in attorney's fees, as well as prejudgment interest for an amount
estimated by the Company to be approximately $5 million, alleging that the
Company failed to engage in good faith settlement negotiations. The Company has
provided reserves of $14 million at March 31, 1996 ($11 million in the first
quarter of 1996 and $3 million in prior periods) in connection with the OCF
Litigation. The Company has obtained from the lenders under the Bank Credit
Facilities (as hereinafter defined) consents to exclude for the first two
quarters of 1996 the $11 million charge to earnings from the calculation of
ratios contained in certain financial covenants under such facilities. In
addition, the Indenture (as hereinafter defined) restricts the Company's
ability to incur certain types of indebtedness unless the ratio of cash flow to
fixed charges in each of the four quarters preceding the incurrence of such
indebtedness is greater than 2.5 to 1. The Company's $11 million charge to
earnings in the first quarter of 1996 will adversely affect the Company's
ability to incur additional indebtedness until the second quarter of 1997.
It is the opinion of management that the ultimate resolution of this matter,
to the extent not previously provided for, will not have a material adverse
effect on the financial condition of the Company. However, depending on the
amount and timing of an unfavorable resolution of this matter, it is possible
that results of operations and cash flow of the Company as well as its ability
to remain in compliance with certain financial covenants contained in the Bank
Credit Facilities (as hereinafter defined) could be materially adversely
affected in a particular period and that the Company's ability to incur
additional debt could be reduced.
SEASONALITY; EFFECTS OF WEATHER
The Company's quarterly operating results fluctuate due to a variety of
factors that are outside the Company's control, including inclement weather
conditions, which in the past have affected negatively the Company's operating
results. Operations at several of the Company's facilities have been halted for
short periods of time during the winter months. Moreover, demand for many of
the Company's products declines during periods of inclement weather. As a
result of the foregoing, the Company anticipates that it may experience
material fluctuations in quarterly operating results.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In the first quarter of 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The effect of adoption was not material.
32
<PAGE>
BUSINESS
INTRODUCTION
The Company is a leading integrated producer of carbon compounds and treated
wood products for use in a variety of markets including the chemical,
railroad, aluminum and steel industries. The "Koppers" name has been
associated with the carbon compounds and wood treating businesses for over 70
years, and the Company has leading market positions in most of its products.
The Company operates 24 facilities in the United States and maintains indirect
ownership interests in 14 facilities overseas. The Company recorded net sales
and net income of $525.7 million and $24.4 million, respectively, for the year
ended December 31, 1995. In 1995, the Company's three divisions, Coke
Products, Carbon Materials & Chemicals and Railroad & Utility Products,
accounted for 15.2%, 37.6% and 47.2% of net sales, respectively.
Through its Coke Products division, the Company is the largest independent
merchant producer of coke and coke by-products in the United States. The Coke
Products division converts coal into coke for sale to integrated steel
producers and foundries that use coke in the production of iron and steel. The
Company's Carbon Materials & Chemicals division distills coal tar into a
variety of intermediate products, including carbon pitch, PAA and creosote,
which are basic materials necessary in the production of aluminum, polyester
resins and plasticizers, and the pressure treatment of wood. The Company's
Railroad & Utility Products division is the largest supplier of treated wood
products, such as railroad crossties and utility poles, to the United States
railroad and utility industries.
The Company's operations are substantially vertically integrated, providing
it with significant cost savings. Coal tar, a by-product of the Company's coke
production, is the primary raw material used in the distillation process of
the Carbon Materials & Chemicals division. Creosote, a major product of the
coal tar distillation process, is used as a raw material in the treatment of
wood by the Company's Railroad & Utility Products division. Other areas in
which the Company is vertically integrated include the production of PAA
through the use of a by-product of coal tar distillation and the utilization
of coke oven gas and recycled wood products to fulfill a portion of its energy
needs.
The Company believes it has achieved leading positions in each of its
markets as a result of the following strengths:
Vertical Integration--The Company's ability to utilize by-products
produced in its Coke Products and Carbon Materials & Chemicals divisions,
as well as its ability to generate much of its own energy through the
burning of wood waste and coke oven gas, provides the Company with
significant operating flexibility and cost savings.
Continuous Investment In Facilities--Since 1988, the Company has invested
over $145 million to modernize its facilities and to meet or exceed
environmental compliance standards.
Strong Customer Relationships--The "Koppers" name has been associated
with quality and reliability since the 1920's and its reputation has
enabled the Company to count among its customers many of the premier
companies in each of its markets. The Company and its predecessors have
supplied many of these companies for decades and many of the Company's
facilities are strategically located to service its customers'
requirements. In order to enhance these relationships, the Company
continually has instituted programs to ensure quality and customer
satisfaction.
Annual and Multi-Year Sales Contracts--Historically, the Company has
sought to reduce its exposure to industry fluctuations and general economic
conditions by diversifying its customer base and securing commitments for a
large portion of its planned production through annual and multi-year
contracts. In each year since it was formed in 1988, the Company has been
able to secure 50% of its following year's sales through such contracts.
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<PAGE>
Strong Relationships With Multiple Suppliers--The Company and its
predecessors have maintained long-term relationships, in some cases over 50
years, with their major suppliers. The Company's ability to source high-
quality coal, coal tar and wood from multiple suppliers provides it with a
significant competitive advantage in meeting customer requirements in a
timely and economically advantageous manner.
Global Presence--Directly and through its international joint ventures,
the Company serves the North American, European, Asian and Australian
markets with carbon materials and chemical products. The Company works
closely with its joint ventures in Denmark and Australia on marketing
strategy, raw material sourcing and technology sharing. Through its
international joint ventures, the Company has completed several
acquisitions and has entered into marketing agreements enabling the Company
to expand its presence into new and emerging markets, including the
People's Republic of China and other Pacific Rim nations.
The Company's strategy for future growth and enhanced profitability includes
the use of its cash flow for strategic acquisitions, productivity and cost
reduction initiatives and the expansion of existing facilities. The Company
also intends to develop, market and sell new products and broaden its customer
base in new and existing markets. In 1995, the Company initiated a strategic
review which identified opportunities to increase capacity at several of its
facilities and to expand services offered, such as plant-assembled track
sections, freight car cleaning and used tie disposal. This review also
identified several areas where logistics, manufacturing processes and
management systems can be improved.
ACQUISITION STRATEGY
As part of its growth strategy, the Company intends to pursue strategic
acquisitions. Over the past three years, the Company has completed five
acquisitions, including the purchase of the Somerville Facility, the largest
railroad crosstie treating facility in the United States; the Monessen
Facility, one of the most modern coking facilities in the United States; and
Clairton, a low-cost coal tar processing facility. The Company believes each
of these acquisitions will provide the Company with significant financial and
strategic benefits, as they will allow the Company to further integrate and
rationalize its businesses and facilities and gain access to high-quality,
low-cost raw materials. As part of these acquisitions, the Company was also
able to secure significant long-term contracts with customers prior to
closing.
The Monessen Facility, acquired in 1995, was an idled facility. After
refurbishment by the Company, the Monessen Facility was restarted in late 1995
and reached full production capacity in the second quarter of 1996. In
addition to improving the Company's strategic position in the merchant coke
market, the Company's investment in the Monessen Facility provides an
advantageous energy tax credit based on the production of coke as an
alternative energy product. The credit is available through December 31, 2002
and is expected to provide a tax benefit to the Company of approximately $8
million in 1996 (after offset of a previously taken energy credit) and $9
million per year thereafter, unadjusted for inflation and assuming full
production at the Monessen Facility.
On April 1, 1996, the Company completed the Clairton acquisition for a cash
purchase price of approximately $40 million and the assumption of certain
liabilities. The Clairton facility is a low-cost coal tar processing facility
producing carbon pitch and related distillates. As part of the purchase
agreement, the Company received a long-term coal tar supply contract with USX,
the largest North American coal tar producer. In 1995, this business generated
over $64 million of sales, excluding sales to the Company. The Company has
obtained a term loan of $35 million to effect the acquisition, with remaining
funding requirements obtained from its existing working capital revolving
credit line. The Company intends to use the net proceeds from the Offerings to
reduce the aggregate indebtedness under the Bank Credit Facilities (as
hereinafter defined).
34
<PAGE>
MANUFACTURING PROCESSES
The Company's operations are substantially vertically integrated and employ a
variety of processes as illustrated in the following flow diagram:
[FLOW CHART ILLUSTRATING THE RAW MATERIALS AND PROCESSES USED IN THE
MANUFACTURE OF THE COMPANY'S PRINCIPAL PRODUCTS]
35
<PAGE>
The following table sets forth for the years ended December 31, 1993, 1994
and 1995 the net sales of the Company in each of its segment divisions, net of
any sales among such segments, and as a percentage of total net sales.
<TABLE>
<CAPTION>
SEGMENT SALES THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coke Products........... $ 73,608 16.0% $ 72,363 15.2% $ 80,084 15.2% $ 19,279 15.8% $ 28,218 22.3%
Carbon Materials &
Chemicals.............. 167,000 36.2 164,489 34.5 197,434 37.6 46,099 37.7 44,278 34.9
Railroad & Utility 220,611 47.8 239,596 50.3 248,212 47.2 56,823 46.5 54,205 42.8
Products................
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total................... $461,219 100.0% $476,448 100.0% $525,730 100.0% $122,201 100.0% $126,701 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
COKE PRODUCTS
The Company is the largest independent merchant producer of coke in the
United States. Coke is produced through the carbonization of metallurgical
coal in oxygen-free ovens. During the coking process, coal tar is produced as
a by-product. Coke is used as a carbon and fuel source in the manufacture of
iron and steel by integrated steel producers. The Company operates the
Woodward and Monessen Facilities, which have an aggregate annual coking
capacity of over one million tons.
Coke is consumed in three markets: steel mill blast furnaces, foundries, and
other industrial operations. There are two basic types of coke which are
produced: furnace and foundry coke. Furnace coke, produced from different coal
blends, requires shorter heating periods than foundry coke, is generally
formed in smaller pieces than foundry coke and is used in blast furnaces to
make steel by acting as a reducing agent for the iron ore. Foundry coke is
used predominantly by automobile and pipe manufacturers in the metal forming
process. In 1995, furnace coke comprised approximately 74% of total Coke
Products sales, foundry coke 15%, other coke 8%, and by-products, including
coal tar, the remaining 3%.
The Company's Woodward Facility produces furnace and foundry coke as well as
coal tar and other related chemicals. The Woodward Facility consists of 224
ovens arranged in five batteries and currently has annual production capacity
of approximately 700,000 tons. All ovens have a capacity of 12 tons of coal
per charge. One hundred of the ovens were built in 1979, 38 in 1970, 30 in
1952 and 56 in 1950. In order to meet Clean Air Act Amendments requirements
and prolong the lives of its oven batteries, the Company initiated an ongoing
oven refurbishment program in 1991, which when completed in approximately two
years, will allow the Company to operate at approximately 100% of total
production capacity. Since the oven refurbishment program was initiated, the
Company has operated the Woodward Facility at 90% to 95% of total production
capacity. Upon completion of this program in 1998, the Company expects to have
rebuilt 68 of the ovens at its Woodward Facility. The Woodward Facility is
energy self-sufficient and also produces power for the adjacent Woodward tar
facility, with surplus electricity being sold to a local utility.
The Company has made capital expenditures of approximately $22 million to
modernize the Monessen Facility since its purchase in 1995. The Monessen
Facility was restarted in late 1995 and reached full production in April 1996.
The plant consists of two batteries with a total of 56 ovens and has a total
capacity of approximately 350,000 tons of coke per year. All of the ovens were
rebuilt in 1980 and 1981, which, together with the Company's recent
improvements, makes the Monessen coke battery one of the most modern coking
facilities in the United States. The Monessen Facility is self-sufficient in
all its energy needs other than electricity. The Monessen Facility qualifies
for an advantageous tax credit based on its production of coke as an
alternative energy product and its sale to an unrelated third party. The tax
credit generated per ton of coke is tied to a per-barrel of oil equivalent
determined on a BTU basis and adjusted annually for inflation. In 1995, the
approximate value of this tax credit per ton of coke was $26.00. The credit is
available through December 31, 2002 and is expected to provide a tax benefit
to the Company of approximately $8 million in 1996 (after offset of a
previously taken energy credit) and $9 million per year thereafter, unadjusted
for inflation and assuming full production at the Monessen Facility. The
credit will be used to offset other corporate income taxes.
36
<PAGE>
The Company has two long-term contracts with LTV covering production at both
the Woodward and Monessen Facilities. The Woodward Facility contract is a
four-year agreement through December 31, 1997 with an LTV option to extend one
additional year, while the Monessen contract is a separate seven-year contract
through 2002 with year-to-year extensions upon mutual agreement. Both supply
contracts are for 240,000 tons per year, plus or minus 10% at LTV's option at
prices subject to periodic adjustments (see "Management Discussion and
Analysis of Financial Condition and Results of Operations--Coke Production").
In 1996, the Company expects LTV to take approximately 48% and 70% of the
Woodward and Monessen Facilities' production capacity, respectively. The
Company has negotiated short-term agreements with other customers to sell a
significant portion of the production from both of its coke facilities for
1996.
In 1995, sales to the ten largest customers accounted for more than 90% of
Coke Products net sales. The Company's sales force for coke consists of one
manager in Pittsburgh, Pennsylvania and another manager for foundry coke sales
at the Woodward Facility. The Company competes primarily with United States
integrated steel producers, some of whom have excess coking capacity, and with
imports primarily from Japan and the People's Republic of China.
The Company purchases metallurgical coal in large quantities from a small
number of suppliers in Alabama and West Virginia in order to obtain volume
discounts. Requirements are generally filled through annual supply contracts
which are subject to price renegotiation during the term of the contract in
the event of market fluctuations.
The United States coke industry production capacity has decreased over the
last ten years due to high capital costs for coke oven maintenance and
rebuilding, high operating costs and expenditures resulting from new
environmental compliance standards. As a result of the decrease in coke
industry capacity, industry operating rates have improved significantly over
the past decade and the Company believes most domestic coke producers operated
at or near their effective capacities in 1995. In the future, the Company
anticipates additional capacity to be idled due to the costs associated with
more stringent environmental compliance standards.
In order to reduce their production costs, integrated steel producers have
continually sought alternatives to using coke in iron production, including
the use of PCI. These alternatives have reduced the amount of coke consumed
per ton of iron produced by approximately 14% over the past ten years from
0.44 tons to 0.38 tons. However, since 1985, United States coke demand has
been relatively steady at 24 to 26 million tons annually as a result of a 22%
increase in the amount of iron produced by integrated steel producers over the
same period. The Company believes that any future reductions in coke demand
resulting from the use of alternative technologies will be offset by a decline
in domestic coke production capacity.
The Company's strategy is to take advantage of the relative shortage in
United States coke supply by negotiating strategic long-term contracts,
subject to certain price adjustments, while continually reinvesting in
existing facilities to prolong the lives of their ovens and to meet
anticipated environmental requirements.
CARBON MATERIALS & CHEMICALS
The Company's Carbon Materials & Chemicals business manufactures three
principal products: carbon pitch, PAA and creosote. These products, used in
the production of aluminum, steel, flexible vinyl, polyester resins and
treated wood, are produced through the distillation of coal tar, a by-product
of the transformation of coal into coke. The Company believes that, together
with its joint ventures in Australia and Denmark, it is one of the two largest
producers of carbon pitch in the world. The Company has six facilities in the
United States strategically located to provide low cost access to coal tar and
to better service its customers with a consistent supply of high quality
products. In 1995, sales of the Company's carbon pitch, PAA and creosote (to
outside customers only) accounted for approximately 38%, 37% and 6% of the
Carbon Materials & Chemicals division's net sales, respectively.
The Company's strategy is to maintain its leading market positions by
expanding capacity both internally and through acquisitions and by developing
new markets for its products. The Company believes it has a strategic
37
<PAGE>
advantage over its competitors based on its ability to access coal tar from
many United States and foreign suppliers and its ability to blend coal tar
with different specifications to produce carbon pitch with the consistent
quality important in manufacturing quality anodes for the aluminum industry.
The Company's six facilities give it the ability to offer customers multiple-
sourcing and consistent supply of high quality products. Management believes
that this ability to purchase coal tar from a variety of sources and trade
supplies among its six facilities affords it a significant competitive
advantage over producers who are more dependent on few suppliers and whose
production might be more adversely affected by supply disruptions or raw
materials quality problems. In anticipation of potential shut-downs of United
States coke capacity, the Company has sought to secure coal tar supply through
long-term contracts and acquisitions. The Company also benefits from its
ability to use a carbon pitch by-product, naphthalene, as a low-cost feedstock
for PAA production and from its ability to sell a large portion of its
creosote production internally to the Railroad & Utility Products business.
The following flow diagram illustrates the manufacturing processes in the
Carbon Materials & Chemicals division:
[FLOW CHART ILLUSTRATING PRODUCTS AND BY-PRODUCTS PRODUCED IN THE DISTILLATION
OF COAL TAR]
Carbon pitch, the primary product produced in the distillation of coal tar,
is used as a binding agent in the production of carbon anodes and graphite
electrodes for use by primary aluminum smelters and electric arc furnace steel
producers. Carbon anodes are used in the electro-chemical process required in
aluminum smelting. Over 75% of the Company's carbon pitch is sold to the
aluminum industry under long-term contracts ranging from 3 to 7 years. Demand
for carbon pitch by the aluminum industry has fluctuated historically with
United States production of primary aluminum. There are currently no known
viable substitutes for carbon pitch in the production of carbon anodes. The
Carbon Materials & Chemicals division's two largest customers represented
approximately 20% of Carbon Materials & Chemicals net sales in 1995. The
Company's three main competitors in the production of carbon pitch are
AlliedSignal, Inc., VFT Canada, and Reilly Industries, Inc.
As part of the distillation of coal tar into carbon pitch, several by-
products are created, including creosote and chemical oils. Chemical oils
produced during coal tar distillation are further refined by the Company
primarily into naphthalene, which is a basic ingredient in the production of
PAA. The primary uses of PAA are in the production of polyester resins, paints
and coatings and plasticizers. On a worldwide basis, naphthalene and
orthoxylene, a petroleum derivative, can both be used in the manufacture of
PAA and are considered to be interchangeable. In the United States, however,
the Company is the only PAA producer capable of utilizing naphthalene,
generally a lower cost feedstock, in its manufacturing process. The Company's
four principal PAA competitors, Exxon Chemical Company, Aristech, BASF
Corporation and Stepan Company, can use only orthoxylene in the production of
PAA.
Creosote is used as a wood preservative for railroad crossties and lumber,
utility poles and pilings. Management estimates that 72 million gallons of
creosote were used in the United States in the treating of wood products in
1995. The Carbon Materials & Chemicals division produced 25.5 million gallons
of creosote in 1995, approximately 40% of which was sold to the Railroad &
Utility Products division. Over the last 6 years the Railroad & Utility
Products division received all of its requirements of creosote from the Carbon
Materials & Chemicals division. The Company is the only competitor in this
market that is integrated in this fashion. The remainder of its creosote
materials are sold to other wood treaters or into the carbon black market as a
component in the manufacture of rubber tires. Principal competitors in the
creosote market are AlliedSignal, Inc. and Reilly Industries, Inc.
38
<PAGE>
Other Carbon Materials & Chemicals products include bitumen, or roofing
pitch, used in the construction of built-up roofing systems and refined tars,
sold to manufacturers of pavement sealers for driveways and parking lots.
Coal tar is purchased from a number of outside sources as well as the
Company's Woodward and Monessen Facilities. Primary suppliers are Bethlehem
Steel Corporation, LTV, USX and Wheeling-Pittsburgh Steel Corporation. The
Woodward Facility currently provides approximately 5% of the Company's coal
tar, and the Monessen Facility provides approximately 3%. In 1995, the Company
distilled 108 million gallons of coal tar representing approximately 57% of
designed capacity.
On April 1, 1996, the Company completed the Clairton acquisition for a cash
purchase price of approximately $40 million and the assumption of certain
liabilities. The Clairton facility is a low-cost coal tar processing facility
producing carbon pitch and related distillates. This acquisition was
strategically significant to the Company, as it strengthens the Company's
leading market position and provides it with a large and stable source of coal
tar. As part of the purchase agreement, the Company received a long-term coal
tar supply contract with USX, the largest North American coal tar producer. In
1995, this business generated over $64 million of sales, excluding sales to
the Company.
The Company's international joint ventures, Koppers Australia Pty. Limited
("Koppers Australia") and Tarconord A/S ("Tarconord"), based in Australia and
Denmark, respectively, are major regional producers of carbon pitch and
related products. These joint ventures are strategically important to the
Company, because they enable the Company to access global markets for its
carbon pitch and related products. See "Equity Investments".
RAILROAD & UTILITY PRODUCTS
The Company believes it is the largest supplier of high quality treated wood
crossties and poles in the world. These products are marketed almost
exclusively to the railroad and public utility markets, primarily in the
United States. Railroad products and services account for approximately two-
thirds of the division's net sales, with utility products accounting for the
balance. Railroad products include items such as crossties, switch ties and
various types of lumber used for railroad bridges and crossings. Utility
products include transmission and distribution poles for electric and
telephone utilities, and pilings used in industrial foundations, beach
housing, docks and piers. The Railroad & Utility Products division operates 15
wood treating plants and 14 pole distribution yards located throughout the
United States, and the Company also has one used crosstie burning cogeneration
plant. The Company's plant network is strategically located near timber
supplies to enable it to access raw materials and service customers
effectively. Crosstie treating plants are located along railroad customers'
track lines, and pole distribution yards are located near the Company's
utility customers in the Northeast and Midwest.
Railroad Products & Services
The Railroad Products & Services business supplies treated crossties and
other products and services to the United States railroad industry. The
Company has an estimated 45% share of the United States market for treated
wood products sold to the railroad industry. The Company's largest customer
base is the Class I railroad market (defined as the 10 largest railroad
systems in the United States with a total installed base of 558 million
crossties), which buys 78% of all crossties produced in the United States. The
Company is also expanding key relationships with the 500 short-line and
regional rail lines. In 1995, the Company treated approximately 6.6 million
crossties for its Class I railroad customers. The Company currently has
contracts with 9 of the 10 United States Class I railroads and, with its
predecessors, has enjoyed long standing relationships, some of more than 50
years, with this important customer base. These relationships, coupled with a
growing interest on the part of railroads to outsource non-core activities,
have enabled the Company to position itself for growth by offering new
services to railroads from treating plants at a cost lower than the railroads'
internal cost. Such new services include assembling 39-foot track sections and
affixing fastening devices at the treating plant rather than field locations;
39
<PAGE>
removing debris from railroad freight cars; and disposing of discarded ties in
an environmentally safe manner in high temperature boilers. In 1995,
approximately 5.4% of Railroad Products & Services net sales were derived from
these types of services to railroads. The Company intends to capitalize on its
relationships with railroads by expanding its current service offerings and
acquiring additional facilities that fit with its strategic plan.
The Company's top 10 railroad accounts, which comprised approximately 52% of
Railroad & Utility Products net sales in 1995, are serviced through long-term
contracts ranging from one to 12 years on a requirements basis. CSX, the
Company's largest customer in 1995, represented 20% of Railroad and Utility
Products net sales and has a seven-year contract expiring at the end of 1996.
The Company expects to negotiate a new contract with CSX on satisfactory
business terms and conditions. The Company's sales to the railroad industry
are coordinated through its office in Pittsburgh, Pennsylvania. The Company's
principal competitor in the railroad products market is Kerr-McGee Chemical
Corp.
The Company's strategy is to be the highest quality, largest volume supplier
of treated wood products, track maintenance and construction products and
services to the railroad industry. In 1995, the Company's acquisition of the
Somerville Facility from the Atchison, Topeka and Santa Fe Railway Company
("AT&SF") complemented this strategy by adding a new customer, increasing the
Company's production capacity by 20% and building market share. The
acquisition included a 12-year contract with the AT&SF, now a part of the
combined Burlington Northern/AT&SF organization, for a minimum of 1 million
crossties per year. The Company will continue to review selected opportunities
to expand its leading position in the treated crosstie market through
acquisition, internal expansion and new product and service offerings.
Hardwood lumber accounts for approximately 60% of a finished crosstie's
cost. The Company obtains its hardwood supply from more than 900 small
sawmills throughout the northeastern and southern areas of the United States.
The wood is taken by either truck or rail from Company-operated collection
points directly into its treating plants, where it is pressure treated with
creosote, a product of the Carbon Materials & Chemicals division. Over the
last six years, the Railroad & Utility Products division received all of its
creosote requirements from the Carbon Materials & Chemicals division,
providing the Company with a significant cost advantage over its competitors.
In addition, several railroads procure their own raw materials through lumber
brokers and ship them into the Company's plants for treating services. Pricing
and supply of raw materials have stabilized during the past few years due to
decreased demand from competing hardwood lumber markets such as flooring and
pallets.
The Company believes that the threat of substitution for the wood crosstie
is low due to the higher cost of alternative materials. Concrete ties,
however, have been identified by the railroads as a feasible alternative to
crossties in limited circumstances. In 1991, the Company acquired a 50%
partnership interest in a concrete crosstie manufacturing facility in
Portsmouth, Ohio in order to take advantage of this growth opportunity. In
1994, an estimated 675,000 concrete crossties, or 6% of total tie insertions,
were installed by Class I Railroads. This facility produced approximately
145,000 concrete crossties in 1995, or 21% of the estimated concrete tie
market. The Company believes that concrete ties will continue to command
approximately this level of market share. While the cost of material and
installation of a concrete tie is much higher than that of a wood tie, the
product performs well in high weight bearing, high traffic areas and is
attractive to the railroads for these purposes.
The Railroad & Utility Products business generates a significant portion of
its own energy from the burning of wood waste. Approximately 60% of the steam
energy required to operate the plants is derived from wood waste burning
boilers. Railroad & Utility Products operates a used crosstie burning plant in
Muncy, Pennsylvania, which uses old crossties and utility poles as fuel and
sells electricity to the local utility under a long-term fixed-price contract.
Utility & Construction Products
The Company believes it is the largest domestic producer of treated wood
pole products. With rapid consolidation in the electric and phone utility
markets, the Company's strategy is to maintain its position as the industry
leader in the supply of utility poles, offering the highest quality products
and services, while continuing to cut costs.
40
<PAGE>
Utility poles are produced primarily from softwoods such as pine and fir,
which have been subject to steady price increases in recent years due
primarily to increased demand for softwood materials in the paper and
construction industries. Unlike the hardwood purchased for railroad crossties,
which originates with a large number of individual sawmills, the softwood used
in poles is purchased from large timber owners and individual landowners and
shipped to one of the Company's pole-peeling facilities. While crossties are
treated exclusively with creosote, poles are treated with a variety of
preservatives including pentachlorophenol ("Penta"), chromated copper arsenate
("CCA") and creosote.
The market for utility pole products is characterized by a large number of
smaller, highly competitive producers selling into a price-sensitive industry
with capacity rationalization partially stimulated by more stringent
government environmental regulations. The utility pole market is highly
fragmented with over 300 investor-owned electric and telephone utilities and
1,800 smaller, local utilities and Rural Electric Associations ("REAs").
Approximately 2.8 million poles are purchased annually, and there are
approximately 100 million poles currently in use. The demand for utility poles
has remained stable for the past several years and management believes that
industry demand will remain at the present maintenance level for the next
several years.
In 1995, pole products comprised approximately 33% of Railroad & Utility
Products net sales. The Company's sales to its ten largest pole customers
accounted for approximately 10% of Railroad & Utility Products net sales in
1995. Principal competitors in the utility products market are International
Paper Company, North Pacific Lumber and Atlantic Wood Industries Inc.
EQUITY INVESTMENTS
As part of its growth strategy, the Company intends to expand geographically
through its three joint ventures in Australia, Denmark and the United States.
The Company owns a 50% interest in each of the three joint ventures which
collectively generated $9.2 million dollars in equity income in 1995. The
following table summarizes key products and markets of each of the joint
ventures.
<TABLE>
<CAPTION>
JOINT VENTURE KEY PRODUCTS MARKETS
- ------------- ------------------------------------- --------------------------
<S> <C> <C>
Koppers Carbon Pitch & Distillates Australia
Australia Carbon Black New Zealand
Treated Poles & Lumber Pacific Rim countries
Wood Preservatives
Tarconord Carbon Pitch & Distillates Europe, Middle East, India
KSA Concrete Crossties & Related Products United States
</TABLE>
Overseas Joint Ventures
The Company's overseas joint ventures, Koppers Australia and Tarconord, have
enabled the Company to expand its geographic presence and explore new market
opportunities in Europe and Asia. Taken together, these ventures help to
position the Company as not only one of the two largest carbon pitch suppliers
in the world, but also as the only such supplier operating on a world-wide
basis. Management believes that this global presence represents a significant
competitive advantage in serving multinational aluminum manufacturers, such as
Aluminum Company of America, as well as manufacturers in the United States.
The Company, Koppers Australia and Tarconord form what has informally and
collectively come to be known as the "Koppers Group" in the world-wide
business of tar distillation and the production of carbon pitch and
accompanying by-products. These companies meet regularly and cooperate
actively in the sharing of technology and operating experience, reviewing
research and development projects, raw materials sourcing and marketing
strategy. The Company believes that, together with its joint venture
affiliates, it has a 22% world market share in carbon pitch excluding the
People's Republic of China, the states of the former Soviet Union and Eastern
Europe, for which data is not available.
41
<PAGE>
Koppers Australia
Koppers Australia is Australia's largest manufacturer of carbon pitch, wood
preservatives and treated timber. Koppers Australia markets these products, as
well as carbon black, in Australia, New Zealand and other Pacific Rim nations.
Operations in coal tar processing, chemically treated timber, and carbon
black together accounted for 37%, 20% and 19% of Koppers Australia's net sales
in 1995, respectively. Koppers Australia also has a 51% interest in a wood
preservative chemicals company, accounting for the remaining 24% of net sales.
Koppers Australia has operations in seven countries, enjoys sizable market
shares in each of its businesses and is well positioned to take advantage of
anticipated growth in the aluminum industries in Australia, China and
Southeast Asia.
Products and services provided by Koppers Australia's coal tar division are
similar to those provided by the Company's Carbon Materials & Chemicals
operations, with the exception that Koppers Australia does not have captive
PAA capabilities. Koppers Australia is the only coal tar distiller in
Australia, providing it with a significant competitive advantage in serving
the large Australian aluminum market. Koppers Australia has entered into a
marketing agreement with a carbon pitch producer located in the People's
Republic of China to export carbon pitch from China to world markets. The wood
preservation operations of Koppers Australia are generally pole related and
are similar to those of the Company's Railroad & Utility Products division.
Koppers Australia is the Australian pole market leader, with an estimated 40%
market share. In 1995, Koppers Australia purchased the remaining 49% of
Continental Carbon, a major Australian carbon black producer, making it a
wholly-owned entity and thus allowing Koppers Australia to take full advantage
of significant growth potential in the Asian carbon black market.
Koppers Australia also owns a 51% stake in Koppers-Hickson, a joint venture
formed in 1989 with Hickson International PLC (Leeds, England), the world's
largest supplier of wood preservatives. Koppers-Hickson has exclusive rights
to marketing, production and distribution of wood preservatives developed by
Hickson (primarily copper chrome arsenic) throughout the Australian, South
Pacific and East Asian regions.
The Company's partner in the 29-year-old Koppers Australia joint venture,
The Broken Hill Proprietary Company Limited, is the largest corporation in
Australia, with interests in metals, energy and minerals.
Tarconord
Tarconord, located in Nyborg, Denmark, produces and markets carbon pitch,
naphthalene and related products for the European and Middle Eastern markets.
Tarconord's strategy is to grow through acquisitions as opportunities arise,
expand access to secure long-term coal tar supplies, and gain additional
market share.
Tarconord markets its primary product, carbon pitch, to aluminum producers
in Norway, the Netherlands, the states of the former Soviet Union and northern
Germany. Coal tar supplies are primarily purchased from steel producers in
Scandinavia, Poland, the states of the former Soviet Union and Germany.
Tarconord has a strategic location with respect to its largest customer
country, Norway, where liquid pitch shipments move directly by ship from the
tar distillation facility at Nyborg to Norwegian smelters located at deep
water sites.
On April 4, 1996, Tarconord made an offer to purchase 100% of the capital
stock of Bitmac, Ltd. ("Bitmac"), a United Kingdom company engaged in tar
distillation. Bitmac operates four plants in the United Kingdom and its sales
in 1995 were approximately $65 million. Tarconord's offer is subject to
approval by Tarconord and Bitmac shareholders and the negotiation of certain
terms and conditions. The Company believes that, if completed, this
acquisition would more than double Tarconord's capacity and sales and
strengthen its strategic position as a supplier to northern European aluminum
smelters.
The Company's 50% partner in this 9-year-old venture is Tarco A/S, a road
paving and industrial piping company also located in Denmark.
42
<PAGE>
Domestic Joint Venture: KSA
KSA Limited Partnership ("KSA"), located in Portsmouth, Ohio, produces
concrete crossties, a complementary product to the Company's treated wood
crosstie business.
Other interests are held by Sherman International Corp. (24%), Abetong
America, Inc. (24%) and Sherman Abetong, Inc. (2%). KSA was formed to
construct, own and operate a concrete railroad crosstie manufacturing facility
located in Portsmouth, Ohio. KSA's major customer is CSX, which has a contract
with the joint venture for 1.75 million concrete ties, approximately 650,000
of which have been supplied since the start-up of operations in 1992. KSA
sells ties to various metropolitan transit systems including MARTA (Atlanta),
the Florida Department of Transportation, Metro North Commuter Railroad (New
York and Connecticut) and the Maryland Mass Transit Authority. It has also
expanded its product offerings to include concrete turnouts, used in rail
traffic switching.
The following table presents total sales, equity in earnings and dividends
received with respect to each of the Company's joint ventures for fiscal years
ended 1993, 1994 and 1995.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
KOPPERS AUSTRALIA
Total sales (1).................................... $103,462 $109,624 $116,469
Equity in earnings................................. 2,353 3,614 4,998
Dividends received................................. -- 360 712
TARCONORD
Total sales (1).................................... $ 44,131 $ 45,778 $ 72,419
Equity in earnings................................. 976 738 3,139
Dividends received................................. 1,246 562 731
KSA
Total sales (1).................................... $ 14,290 $ 11,249 $ 14,751
Equity in earnings................................. 1,249 962 1,102
Dividends received................................. 200 500 1,500
</TABLE>
- ---------------------
(1) Sales figures are based on the fiscal years ended June 30, December 31 and
December 31, for Koppers Australia, Tarconord and KSA, respectively.
RESEARCH AND DEVELOPMENT
As of December 31, 1995, the Company had thirteen full-time employees
engaged in research and development and technical service activities. The
Company's research efforts are directed toward further development and
utilization of products and technology surrounding carbon-based products
developed from coal tar and technical service efforts to promote further use
of creosote. The Company believes the research and technical efforts currently
expended in these areas are adequate to maintain a leadership position in the
technology related to these products. Expenditures for research and
development for fiscal 1993, 1994 and 1995 were $0.9 million for each year.
TECHNOLOGY AND LICENSING
Pursuant to the Acquisition, the Company acquired the patents, patent
applications, trademarks, copyrights, transferable licenses, inventories,
trade secrets, and proprietary processes used in the businesses acquired. The
most important trademark acquired is the name "Koppers". The association of
the name with the coke, chemical, building, and wood preservation industries
is beneficial to the Company, as it represents longstanding, high quality
products. Included in the patents that were acquired by the Company were
patents for refuse burners, pitch quality controls, both in tar plants and
aluminum plants, wood preservatives and additives, and tar refining.
43
<PAGE>
ENVIRONMENTAL MATTERS
The Company is subject to a number of federal, state, and local
environmental laws and regulations, including those concerning the treatment,
storage and disposal of wastes, the discharge of effluents into waterways, the
emissions of substances into the air, and various health and safety matters.
The Clean Air Act Amendments impose stringent standards on air emissions.
Under CERCLA and comparable state laws, an owner or operator of property at
which releases of hazardous substances have occurred may be liable for
investigation and remediation of any resulting contamination. In addition, the
generator of hazardous substances may be responsible for all or a portion of
any required investigation or remediation at offsite disposal locations. Under
RCRA, a facility that treats, stores or disposes of hazardous waste on-site
may be liable for corrective action costs. In addition, any facility that
holds a RCRA Part B permit (or has submitted a RCRA Part A permit application)
may have to incur costs relating to the closure of certain "hazardous" or
"solid" waste management units.
For each of the last three fiscal years, the Company's average environmental
costs related to capital expenditures and operating expenses including
depreciation amounted to $5.6 million and $14.6 million, respectively.
Environmental operating costs are not expected to change materially. The
Company currently estimates that capital expenditures in connection with
matters relating to environmental control will be approximately $4.7 million
and $4.5 million for 1996 and 1997, respectively. Since environmental laws
have traditionally become increasingly more stringent, costs and expenses
relating to environmental matters may increase in the future.
Five of the sites owned by the Company are listed on the NPL. In addition,
many the Company's sites are or have been operated under RCRA permits and RCRA
remedial and closure activities are being conducted on several such sites.
Currently, at the properties acquired from Beazer East (which include all of
the NPL sites and most of the RCRA-permitted sites), substantially all
investigative and cleanup activities are being handled and paid for by Beazer
East pursuant to the terms of the Indemnity. The Indemnity provides that, with
certain limited exceptions, Beazer East will be responsible for and indemnify
the Company against any liability, damage, loss, cost, expense and any related
fine or penalty, including liabilities for personal injury to employees
resulting from exposure to toxic or hazardous substances, arising under any
federal, state, or local environmental law in connection with any condition or
activity at the properties purchased or leased in connection with the
Acquisition from Beazer East existing on or prior to the closing of the
Acquisition (the "Closing"), provided that the claim is asserted by the
Company within 12 years after the Closing. Beazer Limited has unconditionally
guaranteed the Indemnity obligations of Beazer East pursuant to the Guarantee.
Cost and liabilities associated with investigative activities, cleanup
and/or closure at the NPL sites and RCRA-permitted facilities acquired from
Beazer East are expected to be significant. While Beazer East has retained and
accepted responsibility for cleanup and remedial activities relating to pre-
Closing contamination at such properties (including, being the signatory on
several consent agreements relating to such sites) and has paid, to date, for
all such remedial, investigative and closure costs, the government has the
right under applicable federal and state laws to seek relief directly from the
Company for any and all such pre-Closing obligations and liabilities at or on
facilities owned or operated by the Company. Although Beazer East and Beazer
Limited have performed their respective obligations since 1989, there can be
no assurances that Beazer East and Beazer Limited will continue to meet their
obligations under the Indemnity and the Guarantee, respectively. Since 1991,
Beazer East and Beazer Limited have been wholly-owned indirect subsidiaries of
Hanson PLC and do not make their financial statements publicly available.
Hanson PLC has announced its intention to reorganize by spinning-off its
chemicals, tobacco and energy subsidiaries. The Company has been informed that
Beazer East and Beazer Limited will remain wholly-owned indirect subsidiaries
of Hanson PLC. However, the Company has not received any additional
information as to the impact, if any, of this spin-off on Beazer East and
Beazer Limited.
In the event that Beazer East and Beazer Limited do not continue to fulfill
their commitment under the Indemnity and the Guarantee, the Company may be
required to pay costs covered by the Indemnity. Since the time of the
Acquisition through 1995, the Company has been informed by Beazer East that
amounts paid by Beazer East under the Indemnity have averaged approximately
$12 million per year. The requirement to pay
44
<PAGE>
such costs without reimbursement would have a material adverse effect on the
business, financial condition and results of operations of the Company.
Furthermore, if the Company were required to record a contingent liability in
respect of environmental matters covered by the Indemnity on its balance
sheets, the result could be that the Company would have significant negative
net worth.
In addition Beazer East has defended and is presently defending certain
toxic tort actions arising from the pre-closing operation of assets which the
Company acquired from Beazer East. These tort actions were not assumed by the
Company under the Acquisition agreement and, in any event, are within the
scope of the Indemnity.
The Indemnity does not afford the Company indemnification against
environmental costs and liabilities relating to activities or conditions
occurring or arising after the Closing, nor does the Indemnity cover
liabilities arising in connection with post-Closing acquisitions. The Company
is aware of environmental contamination at the Somerville Facility and the
Clairton facility. Pursuant to the terms of the asset purchase agreement for
the Somerville Facility, the seller, has indemnified the Company for certain
pre-Closing violations of environmental laws. In connection with the Clairton
facility, the Company is the beneficiary of an indemnity which Aristech, the
seller, received from USX, the entity from which it purchased the plant. In
addition, Aristech has indemnified the Company for certain pre-Closing
liabilities. The Company believes that the sellers (or their predecessors) at
both of these sites will handle and pay for most investigative and cleanup
activities directly. Although the Company is not aware of any reason why such
indemnification obligations will not be performed, if the Company were
required to pay costs associated with environmental contamination at these
sites, it could have a material adverse effect on the Company's business,
financial condition or results of operations.
The Company is aware of environmental contamination at another site
purchased by the Company after the Closing. In addition, the Company has
operated the sites acquired from Beazer East for several years and is liable
for any post-Closing contamination at such properties. The Company might be
required to expend certain monies for cleanup and other activities at one of
the Company's leased facilities (previously leased by Old Koppers). The
Company believes, however, that with respect to cleanup costs, all or a
substantial portion of such contamination was present prior to the Closing and
thus, will be the responsibility of Beazer East pursuant to the Indemnity.
Based on current information, the Company does not believe that liabilities
associated with such matters will have a material adverse effect on its
business, financial condition or results of operations.
EMPLOYEES AND EMPLOYEE RELATIONS
As of April 2, 1996, the Company employed 584 salaried employees and 1,520
hourly employees. Listed below is a breakdown of employees by business
segment, including administration.
<TABLE>
<CAPTION>
NON-
DIVISION SALARIED SALARIED TOTAL
- -------- -------- -------- -----
<S> <C> <C> <C>
Coke Products........................................... 77 488 565
Carbon Materials & Chemicals............................ 128 339 467
Railroad & Utility Products............................. 216 669 885
Administration.......................................... 163 24 187
--- ----- -----
Total Employees..................................... 584 1,520 2,104
=== ===== =====
</TABLE>
Of the Company's 2,104 employees, approximately 1,250 are represented by
nine different unions and covered under 21 separate labor contracts. The
United Steelworkers of America, covering workers at six facilities, accounts
for the largest membership with more than 500 employees. Another significant
affiliation is the Oil, Chemical, and Atomic Workers Union, with approximately
300 employees at four facilities. Labor negotiations are conducted on a plant-
by-plant basis and approximately one-fourth of the outstanding contracts are
renegotiated in any one year.
45
<PAGE>
Since its formation in 1988, the Company has had three work stoppages due to
strikes at its Follansbee, Somerville and Galesburg facilities. The Follansbee
strike occurred in November 1993 and the Somerville and Galesburg strikes
occurred in March 1996. In each instance, the Company was able to continue
operation of the respective facilities at approximately 85% of capacity and to
reach agreement with each of the unions on terms satisfactory to the Company.
There can be no assurance that the Company would be able to continue operating
facilities in the event of further work stoppages or union disputes in the
future. There are no additional material union contracts scheduled to expire
in 1996.
PROPERTIES
The principal fixed assets of the Company consist of its production,
treatment, and storage facilities and its transportation and plant vehicles.
Its numerous production facilities consist of the Woodward and Monessen
Facilities, six Carbon Materials & Chemicals facilities, 15 wood treating
facilities, 14 pole distribution yards, and 12 pole-peeling yards. See "Coke
Products," "Carbon Materials & Chemicals," and "Railroad & Utility Products".
As of March 31, 1996, vehicles and equipment represented approximately 40% of
the Company's total assets, as reflected in its consolidated balance sheet.
The following chart sets forth information regarding the Company's facilities:
<TABLE>
<CAPTION>
DESCRIPTION OF
DIVISION/PLANT LOCATION ACREAGE PROPERTY INTEREST
- -------------- -------- ------- -----------------
<S> <C> <C> <C>
COKE PRODUCTS
Carrollton Carrollton, OH 25 Owned
Monessen Monessen, PA 32 Owned
Woodward Dolomite, AL 175 Owned
CARBON MATERIALS &
CHEMICALS
Clairton Clairton, PA 14 Owned
Follansbee Follansbee, WV 33 Owned
Houston Houston, TX 11 Leased through 7/5/97 with
an option to renew
Portland Portland, OR 6 Leased through 12/31/98
Stickney Cicero, IL 36 Owned
Woodward Dolomite, AL 25 Owned
RAILROAD & UTILITY
PRODUCTS
Denver Denver, CO 64 Owned
Feather River Oroville, CA 200 Owned
Florence Florence, SC 200 Owned
Gainesville Gainesville, FL 89 Owned
Galesburg South Galesburg, IL 115 Leased year to year
Green Spring Green Spring, WV 96 Owned
Grenada Tie Plant, MS 131 Owned
Guthrie Guthrie, KY 150 Owned
Logansport Logansport, LA 30 Owned
Montgomery Montgomery, AL 95 Owned
North Little Rock N. Little Rock, AR 120 Owned
Roanoke Valley Salem, VA 95 Owned
Somerville Somerville, TX 244 Owned
Superior Superior, WI 120 Owned
Susquehanna Montgomery, PA 90 Owned
</TABLE>
The Company's corporate headquarters is located in approximately 47,000
square feet of leased office space in the Koppers Building, Pittsburgh,
Pennsylvania. The office space is leased from Axiom Real Estate Management,
Inc. pursuant to an 11-year lease, with the initial term expiring December 31,
2003. The lease provides for an additional five-year renewal option.
46
<PAGE>
LEGAL PROCEEDINGS
On May 11, 1990 OCF filed the OCF Litigation against the Company seeking
damages allegedly resulting from the sale by Old Koppers of defective CTB from
the mid-1970's to the mid-1980's. The OCF Litigation related to problems
experienced with roofing systems sold by OCF which contained CTB sold by Old
Koppers. OCF identified 11 roofs it alleged were built using defective Old
Koppers' CTB. On April 3, 1996 a jury verdict was returned against the Company
for a total of $10.3 million, including $0.5 million in punitive damages. The
Company will appeal the judgment. In addition to damages, OCF has sought
approximately $3 million in attorney's fees as well as prejudgment interest
for an amount estimated by the Company to be approximately $5 million,
alleging that the Company failed to engage in good faith settlement
negotiations. The Company has provided reserves of $14 million at March 31,
1996 ($11 million in the first quarter of 1996 and $3 million in prior
periods) in connection with the OCF Litigation. In order to comply with
certain financial covenants under the Bank Credit Facilities (as hereinafter
defined), the Company has obtained from the lenders under such facilities
consents to exclude for the first two quarters of 1996 the $11 million charge
to earnings from the calculation of ratios contained in such covenants.
It is the opinion of management that the ultimate resolution of this matter,
to the extent not previously provided for, will not have a material adverse
effect on the financial condition of the Company. However, depending on the
amount and timing of an unfavorable resolution of this matter, it is possible
that results of operations and cash flow of the Company as well as its ability
to remain in compliance with certain financial covenants contained in the Bank
Credit Facilities (as hereinafter defined) could be materially adversely
affected in a particular period and that the Company's ability to incur
additional debt could be reduced. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Pending Litigation".
The Company is involved in various other proceedings incidental to the
ordinary conduct of its business. The Company believes that none of these
other proceedings will have a material adverse effect on the financial
condition or results of operations of the Company.
47
<PAGE>
MANAGEMENT
The following table sets forth the names and ages of the executive officers
and Directors of the Company and the positions which they hold. Directors hold
their positions until the annual meeting of the stockholders at which their
term expires or until their respective successors are elected and qualified.
Executive officers hold their positions until the annual meeting of the Board
of Directors or until their respective successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
<S> <C> <C>
Robert K. Wagner........ 64 Chairman and Director
Donald P. Traviss....... 51 President and Chief Executive Officer and Director (non-voting)
Brian C. Beazer......... 61 Director
Clayton A. Sweeney...... 64 Director
Brooks C. Wilson........ 63 Director
N. H. Prater............ 67 Director
Donald V. Borst......... 60 Director (non-voting)
Donald E. Davis......... 39 Vice President and Chief Financial Officer
Thomas D. Loadman....... 41 Vice President and General Manager, Railroad Products & Services
William R. Donley....... 39 Vice President and General Manager, Utility & Construction Products
Lawrence F. Flaherty.... 59 Vice President, Total Quality and Technology
Walter W. Turner........ 49 Vice President and General Manager, Carbon Materials & Chemicals
Donald N. Sweet, Jr..... 49 Vice President and General Manager, Coke Products
Randall D. Collins...... 43 Vice President and Secretary
Joseph E. Boan.......... 49 Vice President, Human Resources
M. Claire Schaming...... 42 Treasurer and Assistant Secretary
</TABLE>
Mr. Wagner resigned his position as Chief Executive Officer effective March
1, 1996, retaining his responsibilities as Chairman and Director. Mr. Wagner
had been elected Chairman and Chief Executive Officer of the Company in
November 1994, having served as President and Chief Executive Officer from
1988 through 1994. He has been a Director of the Company since January 1989.
He joined Old Koppers in 1953 and after an early career in communications,
moved into the forest products business in 1968 and held sales, marketing and
raw materials posts until being appointed Vice President and Manager of the
Pressure-Treated Products unit in 1975. Mr. Wagner became Vice President and
General Manager of this division in 1978 and was named Vice President and
General Manager of the Tar and Wood Products Sector in 1986. Mr. Wagner has
also served as a Director of Integra Financial Corporation of Pittsburgh,
Pennsylvania since 1992 and as a Director of Trion, Inc. of Sanford, North
Carolina from 1978 until his resignation in April 1995. He is also a Director
of Koppers Australia and, until March 1, 1996, was a Director of Tarconord.
Mr. Traviss was elected Chief Executive Officer effective March 1, 1996. Mr.
Traviss had been named President and Chief Operating Officer and elected as a
non-voting Director of the Company on November 1, 1994. Mr. Traviss is also a
director of Koppers Australia. He had served as Vice President, Refining and
Petrochemicals at Universal Oil Products, Des Plaines, Illinois since 1992.
Prior to 1992, he was Vice President, Engineered Products Group. From 1985 to
1988, Mr. Traviss served as Vice President, Engineering Products and Processes
at Union Carbide Corporation, Danbury, Connecticut. Mr. Traviss is also a
Director of Tarconord.
Mr. Beazer has been a Director of the Company since January 1989. He joined
Beazer Limited in 1956 as a builder's apprentice and spent his early working
years on construction sites, later moving into the supervisory and management
facets of the business. Mr. Beazer was named Chief Executive Officer of Beazer
Limited in 1968 and was Chairman from 1983-1991. He is currently Chairman of
Beazer Homes USA Inc., Jade Holdings Pte. Ltd. (Singapore) and Sealmint Ltd.
(UK), and serves as a Director of Beazer (Japan) Co. Ltd. (registered in
Japan).
Mr. Sweeney has been a Director of the Company since January 1989. Mr.
Sweeney has been a shareholder and Director of Dickie, McCamey & Chilcote,
P.C. since 1987 and in 1988 was named Managing Director and
48
<PAGE>
served in that position until he resigned in September 1993. Mr. Sweeney
remains a shareholder and Director of the firm. Mr. Sweeney previously served
as Executive Vice President, Chief Administrative Officer, Vice Chairman, and
a Director of Allegheny International, Inc., as Senior Vice President and a
Director of Allegheny Ludlum Industries, and as a Director of Wilkinson Sword
Group, Ltd. U.K., Landmark Savings and Loan Association, Halbouty Energy
Company and Liquid Air Corporation. Mr. Sweeney currently serves as a Director
of Schaefer Manufacturing Inc., Schaefer Equipment, Inc., and Schaefer Marine
Inc., and as Chairman of the Boards of St. Francis Health System, St. Francis
Medical Center, and as President of DePaul Institute.
Mr. Wilson has been a Director of the Company since January 1989. Mr. Wilson
has been the Managing Director of Koppers Australia since 1970 having joined
Old Koppers in 1965 as a member of the Koppers International Far East Office
(Sydney, Australia). He is currently a Director of Pacific Power and the State
Transit Authority of New South Wales. He is also Chairman of Trustees,
Australian Trade Union Program at Harvard Foundation and a member of the
Advisory Council, Australian Graduate School of Management, University of New
South Wales.
Mr. Prater has been a Director of the Company since May 1989. Mr. Prater
retired from Mobay Corporation, where he had served as the President and Chief
Executive Officer since July 1986. He currently serves as a Director of Calgon
Carbon Corporation, Melamine Chemical Inc. and Harsco Corporation. He is a
member of the Board of Trustees of Robert Morris College, Georgia Institute of
Technology, a special trustee of the University of Pittsburgh and a Director
of the University of Pittsburgh Medical Center, Pittsburgh Presbyterian
Hospital, and is Chairman of the Board of Visitors of the University of
Pittsburgh Graduate School of Public and International Affairs.
Mr. Borst is Chairman, President and Chief Executive Officer of SCM
Chemicals, a global chemical manufacturing company headquartered in Baltimore,
Maryland. SCM Chemicals is a member of the Hanson group of companies. Mr.
Borst joined SCM Chemicals in 1984 as Vice President, United States,
responsible for the company's titanium dioxide and related businesses in the
United States. Following that company's acquisition by Hanson in 1986, he was
promoted to President with overall responsibility for SCM Chemicals' business
worldwide. Mr. Borst was appointed to his present position in January 1990.
Mr. Davis was elected Vice President and Chief Financial Officer in November
1994. Mr. Davis had been general manager of the Recovery Resources Group from
June 1992 to March 1996 and had served as Treasurer from 1988 until 1992. He
joined Old Koppers in 1978 and had held various positions in the corporate
accounting and auditing departments until being named General Manager, Finance
of the Chemical Systems Sector in 1988. Mr. Davis is a certified public
accountant.
Mr. Loadman was elected Vice President and Manager, Railroad Products &
Services in November 1994. Mr. Loadman had been transportation plants
operations manager since January 1989. He joined Old Koppers in 1979 and
served in various management assignments including plant manager and
cogeneration plant manager. Mr. Loadman is a Director of Koppers Sherman
Abetong, a Director of Koppers Timber Preservation Pty Limited, a subsidiary
of Koppers Australia, and a Director and President of Koppers Concrete
Products Inc. He is also a member of the American Wood Preservers Association
and the Railway Tie Association.
Mr. Donley was appointed General Manager of Utility & Construction Products
in September 1995 and elected Vice President in November 1995. He joined Old
Koppers in 1979, serving the Company in positions of increasing responsibility
within the Railroad & Utility Products business. Mr. Donley is a board member
of the American Wood Preservers Institute and serves on their Governmental
Affairs Committee.
Mr. Flaherty was appointed Vice President, Total Quality and Technology in
January 1995. Mr. Flaherty had been Vice President and Manager, Carbon
Materials & Chemicals since January 1989. Mr. Flaherty was Production Manager,
Tar and Chemical Operations for Old Koppers' Tar and Wood Products Sector. He
joined Old Koppers in 1955 and has served as chemist, sales representative,
plant manager, and production manager until being appointed production manager
in the Tar and Wood Products Sector in 1986.
49
<PAGE>
Mr. Turner was appointed Vice President and General Manager, Carbon
Materials & Chemicals division in early 1995. Mr. Turner had been elected Vice
President and Manager, Marketing & Development, Industrial Pitches and Related
Products in February 1992. Mr. Turner was Marketing Manager, Industrial
Pitches and Creosote Oils for Old Koppers' Tar and Wood Products Sector. Mr.
Turner joined Old Koppers in 1969 and has served in various positions in the
controller's department and as product manager, tar operations.
Mr. Sweet has been Vice President and General Manager, Coke Products since
January 1989. Mr. Sweet was Manager of Planning and Procurement, Tar and
Chemical Operations of Old Koppers' Tar and Wood Products Sector. He joined
Old Koppers in 1969 and has held management assignments in engineering, plant
operations, financial planning, and product procurement for tar operations and
sales until being named manager of planning and procurement in 1986. Mr. Sweet
is Chairman and a Director of Tarconord. He is also a Director and the former
Chairman of the American Coke and Coal Chemicals Institute.
Mr. Collins was elected Vice President and Secretary in November 1994, and
has been Secretary of the Company since January 1989. Mr. Collins was Manager
of Loss Control for Old Koppers. He joined Old Koppers in 1974 and held
various line and staff assignments including personnel, industrial relations,
and plant operations. Currently Mr. Collins serves the Company as Risk
Manager, legal services coordinator, claims manager, and more recently,
environmental affairs officer. His role as Corporate Secretary includes board
of Directors and shareholder communications. Mr. Collins is a member of the
American Society of Corporate Secretaries.
Mr. Boan has been Vice President, Human Resources since January 1989. Mr.
Boan was Manager, Labor Relations for Old Koppers. He joined Old Koppers in
1969. Prior to 1987, Mr. Boan held the position of Director, Human Resources,
for three Old Koppers subsidiaries in the Construction Materials and Services
Group. In 1987, he was named Manager, Labor Relations for Old Koppers. Mr.
Boan is a member of the Pennsylvania Bar.
Ms. Schaming was elected Treasurer in May 1992. Her previous position was
assistant treasurer and manager of cash operations. Ms. Schaming joined Old
Koppers in 1976, where she held various positions in corporate and Chemical
Systems Sector accounting, including controller for the Polyester Resins
Division. Ms. Schaming is a certified cash manager.
BOARD OF DIRECTORS; STOCKHOLDERS' AGREEMENT
The Company is a party to a Stockholders' Agreement by and among the
Company, KAP, Cornerstone-Spectrum, Inc., APT Holdings Corporation and the
Management Investors referred to therein (the "Management Investors") dated
December 28, 1988, as amended on June 30, 1991, February 9, 1994 and as of
August 16, 1995 (the "Stockholders' Agreement"). The Stockholders' Agreement
sets forth, among other things, certain provisions with respect to the
nomination and election of the Board of Directors and restrictions on transfer
of shares of stock, and also obligates the Company to redeem shares from
Management Investors over a period not to exceed three years from the date of
termination of their employment with the Company. Pursuant to its terms, the
Stockholders' Agreement will terminate upon the consummation of the Offerings.
The Company is governed by its Board of Directors, which is comprised of
five voting members and two non-voting members.
The current Board of the Company consists of the following members:
<TABLE>
<CAPTION>
NAME OF DIRECTOR TYPE OF NOMINEE
---------------- ---------------
<S> <C>
Brian C. Beazer Cornerstone-Spectrum, Inc. Director
Brooks C. Wilson Koppers Australia Director
Robert K. Wagner Management Director
Clayton A. Sweeney Management Director
N. H. Prater Independent Director
Donald V. Borst Non-voting Director
Donald P. Traviss Non-voting Director
</TABLE>
50
<PAGE>
The Restated Bylaws provide that the Board of Directors will consist of at
least five and no more than fifteen members. The number of Directors
constituting the entire Board of Directors may be changed by resolution of the
Board of Directors. The Board of Directors, acting by majority vote of the
Directors then in office, may fill any newly created Directorships or
vacancies on the Board of Directors. Effective as of the completion of the
Offerings, Brian C. Beazer and Donald V. Borst intend to resign as directors
and the Board of Directors intends to increase its membership, pursuant to the
Restated Bylaws, to nine members. The resulting vacancies shall be filled by
the Board of Directors. The Restated Bylaws provide for a Board of Directors
divided into three classes of Directors serving staggered three-year terms.
The classification of Directors has the effect of making it more difficult for
stockholders to change the composition of the Board of Directors in a
relatively short period of time. At least two annual meetings of stockholders,
instead of one, will generally be required to effect a change in a majority of
the Board of Directors.
DIRECTOR COMPENSATION
The Company does not pay compensation to Directors who are also employees of
the Company. Each Director who is not an employee of the Company is paid a fee
of $21,000 per year.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the compensation for
services in all capacities to the Company, including options and stock
appreciation rights ("SARS"), for the years ended December 31, 1995, 1994 and
1993, of those persons who were at December 31, 1995 (i) the Chief Executive
Officer and (ii) each of the other four most highly compensated executive
officers of the Company who earned more than $100,000 in salary and bonus in
1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ------------
OTHER SECURITIES ALL
NAME AND ANNUAL UNDERLYING OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION(1)
- ------------------ ---- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert K. Wagner 1995 $380,000 $228,000 $ 32,320 -- $4,649
Chairman 1994 344,750 98,102 27,518 -- 3,000
1993 333,000 -- 5,625 -- 3,537
Donald P. Traviss 1995 251,000 138,000 126,341(2) 45,000 3,861
President and Chief 1994 38,333 40,000 28,492 -- 1,567
Executive Officer
Donald N. Sweet, Jr. 1995 135,000 59,670 575 -- 4,255
Vice President and
General Manager, 1994 129,800 36,491 -- -- 2,283
Coke Products 1993 124,200 -- -- -- 2,607
Donald E. Davis 1995 132,860 61,446 -- 7,500 4,038
Vice President and
Chief Financial 1994 106,590 24,305 -- -- 1,888
Officer 1993 93,600 -- -- -- 1,964
Lawrence F. Flaherty 1995 127,100 59,850 694 -- 4,204
Vice President, Total 1994 124,000 29,460 666 -- 1,023
Quality and Technology 1993 120,000 -- 630 -- 2,541
</TABLE>
- ---------------------
(1) All other compensation consists of regular and supplemental matches to the
Company's 401(k) plan.
(2) Includes $116,410 of reimbursement of moving expenses under Company
relocation program.
51
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS (1)
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE PRESENT
OPTIONS IN FISCAL OR BASE EXPIRATION VALUE OF
NAME GRANTED YEAR PRICE DATE OPTIONS (2)
- ---- ---------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Donald P. Traviss......... 45,000 40.0% $10.56 2/28/05 $127,950
Donald E. Davis........... 7,500 6.7 10.56 2/28/05 21,325
</TABLE>
- ---------------------
(1) The exercise price of the options granted was the fair market value of the
voting Common Stock on the grant date. The options become exercisable in
one-third increments, on March 1, 1996, March 1, 1997 and March 1, 1998,
respectively, except that the options for Mr. Traviss have an accelerated
vesting schedule in accordance with the terms of his employment contract.
These options become exercisable in one-third increments on October 31,
1995, October 31, 1996 and October 31, 1997, respectively.
(2) Option values reflect Black-Scholes model output for options. The
assumptions used in the model were expected volatility of 0.18, risk-free
rate of return of 6.0%, dividend yield of 2.7%, and time to exercise of
ten years.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to unexercised options granted in
1995 and prior years under the Stock Option Plan. There were no options
exercised in 1995 by any of the individuals named in the Summary Compensation
Table. No SARS were granted to any of the named executive officers and none of
the named executive officers held any unexercised SARS at the end of the
fiscal year.
AGGREGATED OPTION/SARS EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
---------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
OPTIONS/SARS SARS(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald P. Traviss........... 15,000 shs. 30,000 shs. $ 26,650 $53,300
Donald N. Sweet, Jr......... 34,200 -- 346,590 --
Donald E. Davis............. 18,900 7,500 180,453 13,325
Lawrence F. Flaherty........ 28,800 -- 293,432 --
</TABLE>
- ---------------------
(1) The value of unexercised in-the-money options is calculated by subtracting
the exercise price from $12.33, which was the market value (based on
appraisals) at December 31, 1995.
BENEFIT PLANS
PENSION PLAN. All executive officers of the Company are covered by the
Retirement Plan of Koppers Industries, Inc. and Subsidiaries for Salaried
Employees (the "Salaried Plan"). Annual normal retirement benefits are
computed at the rate of 1.2% of Terminal Salary (as defined in the Salaried
Plan) not in excess of $16,000, plus 1.6% of Terminal Salary in excess of
$16,000, all multiplied by years of Credited Service (as defined in the
Salaried Plan). A participant's Terminal Salary equals the average annual
amount of compensation (which includes basic annual salary defined as of each
January 1 plus one-half the total amount, if any, of incentive payments and
bonuses plus sales commissions paid and overtime payments, provided annual
compensation does not exceed IRS annual limits) for the 5 consecutive years in
the 10 years of Credited Service prior to retirement affording the highest
such average, or during all of the years of Credited Service, if less than
52
<PAGE>
5 years. As of January 1, 1989, Credited Service under the Salaried Plan for
each of the individuals named in the cash compensation table was zero. The
following table contains approximate retirement benefits payable under the
salaried plan, assuming retirement at age 65, payments made on the straight-
life annuity basis and no election of a co-annuitant option.
ESTIMATED ANNUAL RETIREMENT BENEFIT UNDER THE SALARIED RETIREMENT PLAN
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE AT RETIREMENT
TERMINAL --------------------------------------------------------------------------------
SALARY 5 10 15 20 25 30
- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 7,680 $15,360 $23,040 $30,720 $38,400 $46,080
125,000 9,680 19,360 29,040 38,720 48,400 58,080
150,000 11,680 23,360 35,040 46,720 58,400 70,080
or more
</TABLE>
RETIREMENT INCOME RESTORATION PLAN. In 1991, the Company implemented a
Retirement Income Restoration Plan that allows the Company to pay the
difference between the actual pension benefits earned under the terminal
salary formula of the Koppers Industries Salaried Employees Pension Plan and
Terminal Salary Limitations imposed by Section 401(a)(17) of the Internal
Revenue Code.
The following table sets forth the benefits earned through the year ending
December 31, 1995 for each of the executive officers named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
ANNUAL
BENEFIT
PAYABLE AT
NAME RETIREMENT
---- ----------
<S> <C>
Robert K. Wagner................................................ $18,177
Donald P. Traviss............................................... 1,493
</TABLE>
SURVIVOR BENEFIT PLAN. The Company has established a plan (the "Survivor
Benefit Plan") for the purpose of providing a postretirement survivor benefit
for all officers of the Company. Under the terms of the Survivor Benefit Plan,
a benefit equal to three times the participant's annual compensation,
calculated as of the last day of the calendar month in which their retirement
date fell, will be paid to the participant's beneficiaries or their estate.
Such benefit may not exceed $750,000.
EMPLOYMENT CONTRACTS. In February 1996, the Company entered into an
agreement with Robert K. Wagner, Chairman and Director, under which in
exchange for consulting services and continuing in the position as Chairman of
the Board of Directors, the Company will pay consulting fees and Director fees
totaling $150,000 per year. The initial contract term is one year; however,
the contract will automatically renew for four additional one year periods
unless either party elects to cancel the contract. Mr. Wagner has agreed not
to engage in any business activity that competes with the Company during the
term of this consulting agreement.
In October 1994, the Company entered into an agreement with Donald P.
Traviss, President and Chief Executive Officer, which provides for an initial
base salary of $230,000, an incentive bonus of up to 60% of base salary, and a
one time bonus of $40,000 paid in common stock of the Company in lieu of 1994
incentive. Additionally, he received a grant of options to purchase 45,000
shares of common stock vesting over a three year period in accordance with the
terms of the Company's stock option plan, and an interest-free loan of
$115,000 to be repaid over a five year period, the proceeds of which were used
to purchase shares of Company common stock at the market value of $10.56 per
share. The contract's original term is two years. Either party may terminate
the contract by giving twelve months notice of non-renewal prior to the
contract's termination. If no termination notice is received, the contract is
automatically extended for an additional one-year period.
53
<PAGE>
The following table sets forth the terminal salary and years of service
accrued to date for each executive officer named in the Summary Compensation
Table:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
TERMINAL YEARS OF
NAME SALARY SERVICE
---- -------- --------
<S> <C> <C>
Robert K. Wagner......................................... $359,685 7
Donald P. Traviss........................................ 230,000 1
Donald N. Sweet, Jr...................................... 132,584 7
Donald E. Davis.......................................... 106,976 7
Lawrence F. Flaherty..................................... 127,752 7
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Borst, Mr. Sweeney, Mr. Wilson and Mr. Prater serve on the Human
Resources and Compensation Committee of the Board of Directors of the Company,
which establishes compensation levels for the Company's three most highly paid
executive officers.
Mr. Wagner, Chairman and a Director of the Company, is a member of the
Compensation Committee of the Board of Directors of Koppers Australia. This
Committee reviews the compensation of Mr. Wilson, a Managing Director of
Koppers Australia.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dickie, McCamey & Chilcote, P.C. of Pittsburgh, Pennsylvania, has been
retained as general counsel to the Company. Clayton A. Sweeney, a shareholder
and Director of the Company, is also a shareholder and Director of Dickie,
McCamey & Chilcote, P.C. Mr. Sweeney is one of two Representatives of the
Management Investors appointed pursuant to the Stockholders' Agreement and, as
such, was granted an irrevocable proxy for the term of the Stockholders'
Agreement to vote the shares of the Management Investors. See "Management--
Board of Directors; Stockholders' Agreement".
Pursuant to a resolution of the Board of Directors, the Company redeemed on
April 2, 1996 25% of the shares of Common Stock then held by Mr. Wagner at
$12.33 per share in exchange for his agreement not to offer, sell or otherwise
dispose of the remaining shares of Common Stock then held by him, until the
date which is 180 days after the date of this Prospectus, unless earlier
agreed to by Donaldson, Lufkin & Jenrette Securities Corporation. See
"Underwriting".
On March 13, 1996, Cornerstone-Spectrum, Inc. (formerly Beazer, Inc.)
converted all of its shares of Series B Junior Convertible Preferred Stock
into shares of non-voting common stock, $.01 par value of the Company, in
accordance with Section 8(e) of the Certificate of Designation of the Series B
Preferred Stock. On March 22 and March 25, 1996, the Company redeemed
1,050,000 shares of the non-voting common stock at $11.67 per share, 525,000
shares each from Cornerstone-Spectrum, Inc. and APT Holdings Corp. In
connection with the Offerings by the Selling Stockholders, the Company and
each of Cornerstone-Spectrum, Inc. and APT Holdings Corp. intend to convert
all remaining non-voting common stock into Common Stock, at a conversion ratio
of 1.00 shares of non-voting common stock to 0.85 shares of Common Stock,
which shares of Common Stock will be sold in the Offerings. See "Principal and
Selling Stockholders".
In May 1995 the Company extended a loan of $115,000 to Donald P. Traviss,
President and Chief Executive Officer, to facilitate the purchase of voting
common stock of the Company. The loan, which is interest free, is payable in
monthly installments over a five-year period. The outstanding loan balance at
April 30, 1996 was approximately $90,000.
54
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus,
except as otherwise indicated below, by (i) each person known to the Company
to beneficially own more than five percent of the outstanding shares of Common
Stock, (ii) each Director of the Company, (iii) each officer named in the
Summary Compensation Table under the heading "Management--Summary of Cash and
Certain Other Compensation," (iv) all officers and Directors of the Company as
a group, and (v) each Selling Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
THE OFFERING (1) OFFERING (1)
-------------------------- --------------------
SHARES
BEING
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------ ----------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Cornerstone-Spectrum, Inc. (2)..... 3,660,702(3) 38.62%(3) 3,660,702 0 --
1001 Koppers Building
436 Seventh Avenue
Pittsburgh, PA 15219
KAP Investments, Inc. (4).......... 2,250,000 23.74% 2,250,000 19.95%
15 Blue Street
North Sydney
NSW, Australia
Robert K. Wagner (5)............... 2,642,370 26.18% 2,717,370 22.70%
Koppers Industries, Inc.
436 Seventh Avenue
Pittsburgh, PA 15219
Donald N. Sweet, Jr. (6)........... 97,740 1.03% 97,740 *
Lawrence F. Flaherty (7)........... 76,221 * 76,221 *
Donald P. Traviss (8).............. 35,274 * 65,274 *
Donald E. Davis (9)................ 41,166 * 46,167 *
Clayton A. Sweeney (5)............. 2,642,370 26.18% 2,717,370 22.70%
Dickie, McCamey & Chilcote, P.C.
Two PPG Place, Suite 400
Pittsburgh, PA 15222
Brian C. Beazer.................... 0 -- 0 --
N. H. Prater....................... 25,416 * 25,416 *
Donald V. Borst.................... 0 -- 0 --
Brooks C. Wilson................... 96,579 * 96,579 *
All Directors and officers as a
group (16 persons)................ 1,131,435 11.68% 1,182,492 10.25%
OTHER SELLING STOCKHOLDERS:
APT Holdings Corporation (10)...... 1,541,220(11) 16.26%(11) 1,541,220 0 --
</TABLE>
- ---------------------
* 1% or less.
(1) Pursuant to the rules of the Securities and Exchange Commission (the
"Commission"), certain shares of the Company's Common Stock which a
beneficial owner set forth in this table has a right to acquire within 60
days of the date hereof pursuant to the exercise of stock options, are
deemed to be outstanding for the purpose of computing the percentage
ownership of that owner but are not deemed outstanding for the purpose of
computing percentage ownership of any other beneficial owner shown in the
table. Except as indicated in the footnotes to this table, the persons
named in this table have sole voting and investment power with respect to
the shares of Common Stock shown as beneficially owned by them.
(2) Cornerstone-Spectrum Inc. (formerly Beazer, Inc.) is a wholly owned,
indirect subsidiary of Hanson PLC.
55
<PAGE>
(3) Includes 1,542,750 shares of Common Stock to be converted from 1,815,000
shares of non-voting common stock in connection with the Offerings
pursuant to registration rights under the Stockholders' Agreement at a
conversion ratio of 1.00 shares of non-voting common stock to 0.85 shares
of Common Stock. Prior to the exercise of such registration rights and
conversion, Cornerstone-Spectrum beneficially owned 2,117,952 or 30.21% of
the total voting shares of Common Stock.
(4) KAP Investments, Inc. is a wholly owned subsidiary of Koppers Australia.
See "Business--Carbon Materials & Chemicals".
(5) Mr. Wagner and Mr. Sweeney, as representatives of the Management
Investors, have been granted irrevocable proxies for the term of the
Stockholders' Agreement to vote the 2,027,358 shares of Common Stock owned
by the Management Investors. Mr. Wagner directly owns 348,165 shares and
Mr. Sweeney directly owns 138,960 shares of the 2,027,358 total. See
"Certain Relationships and Related Transactions".
(6) Includes 63,540 shares held directly and options to purchase 34,200 shares
which are fully vested.
(7) Includes 47,421 shares held directly and options to purchase 28,800 shares
which are fully vested.
(8) Includes 20,274 shares held directly and options to purchase 15,000 shares
which are fully vested.
(9) Includes 19,767 shares held directly and options to purchase 21,399 shares
which are fully vested.
(10) APT Holdings Corporation is a wholly owned subsidiary of Mellon Bank
Corporation.
(11) Includes 1,541,220 shares of Common Stock to be converted from 1,813,200
shares of non-voting common stock in connection with the Offerings
pursuant to registration rights under the Stockholders' Agreement at a
conversion ratio of 1.00 shares of non-voting common stock to 0.85 shares
of Common Stock. Prior to the exercise of such registration rights and
conversion, APT Holdings Corporation did not beneficially own any voting
shares of Common Stock.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of April 15, 1996 an aggregate of 6,393,621 shares of Common Stock were
outstanding and held of record by 138 stockholders. As of April 15, 1996, no
shares of preferred stock were outstanding. As of the consummation of the
Offerings, the Company will restate and amend its articles of incorporation
and bylaws.
COMMON STOCK
Pursuant to the Restated Articles, the Company is authorized to issue up to
40,000,000 shares of Common Stock, $.01 par value per share. Holders of Common
Stock are entitled to one vote for each share held on all matters submitted to
a vote of stockholders and have cumulative voting rights. Accordingly, holders
of a majority of the shares of Common Stock entitled to vote in any election
of directors may elect all of the directors standing for election. Holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor,
subject to any preferential dividend rights of outstanding preferred stock.
Upon the liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive ratably the net assets of the Company
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of the Common
Stock have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares offered by the Company
in the Offerings will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which the Company may
designate and issue in the future. See "--Preferred Stock".
PREFERRED STOCK
Pursuant to the terms of the Restated Articles, the Company is authorized to
issue up to 10,000,000 shares of preferred stock, $.01 par value per share.
The Board of Directors is authorized, subject to any limitations prescribed by
law, without further stockholder approval, to issue such shares of preferred
stock in one or more series. Each such series of preferred stock shall have
such rights, preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be determined by the Board of Directors.
The purpose of authorizing the Board of Directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of the outstanding voting stock of the
Company. The existence of the authorized but undesignated preferred stock may
have a depressive effect on the market price of the Company's Common Stock.
The Company has no present plans to issue any shares of preferred stock. See
"Risk Factors--Effect of Certain Charter Provisions".
CERTAIN CORPORATE ANTI-TAKEOVER PROVISIONS
The Company's Restated Articles and Restated Bylaws contain a number of
provisions relating to corporate governance and to the rights of shareholders.
Certain of these provisions may be deemed to have a potential "anti-takeover"
effect in that such provisions may delay, defer or prevent a change of control
of the Company. These provisions include (1) the authority of the Board of
Directors to issue series of preferred stock with such voting rights and other
powers as the Board of Directors may determine, as described above, and (2)
notice requirements in the Restated Bylaws relating to nominations to the
Board of Directors and to the raising of business matters at shareholder
meetings.
In addition, the BCL provides that directors may, in discharging their
duties, consider the interests of a number of suppliers, customers, creditors
and the community in which it is located. Directors are not required to
57
<PAGE>
consider the interests of shareholders to a greater degree than other
constituencies' interests. The BCL expressly provides that directors do not
violate their fiduciary duties solely by relying on "poison pills" or the
anti-takeover provisions of the BCL. The Company does not currently have a
"poison pill" and does not presently plan to adopt one.
PENNSYLVANIA ANTI-TAKEOVER LAW PROVISIONS
Upon the consummation of the Offerings, and pursuant to the terms of its
Restated Articles and Bylaws, the Company will become subject to various
statutory "anti-takeover" provisions of the BCL, including Subchapters 25E, F,
G, H, I and J of the BCL. Pursuant to the Restated Articles, the Company will
elect out of Subchapters 25E, F, G, H, I and J of the BCL.
Subchapter 25E (relating to control transactions) provides that if any
person or group acquires 20% or more of the voting power of a covered
corporation, the remaining shareholders may demand from such person or group
the fair value of their shares, including a proportionate amount of any
control premium. Subchapter 25E contains a wide variety of transactional and
status exemptions, exclusions and safe harbors. While the Company has elected
out of Subchapter 25E, it has adopted identical provisions in its Restated
Articles based upon a 30% threshold.
Subchapter 25H (relating to disgorgement) applies in the event that (i) any
person or group publicly discloses that the person or group may acquire
control of the corporation or (ii) a person or group acquires (or publicly
discloses an offer or intent to acquire) 20% or more of the voting power of
the corporation and, in either case, sells shares within 18 months thereafter.
Any profits from sales of equity securities of the corporation by the person
or group during the 18-month period belong to the corporation if the
securities that were sold were acquired during the 18-month period or within
24 months prior thereto. Subchapter 25H contains a wide variety of
transactional and status exemptions, exclusions and safe harbors. While the
Company has elected out of Subchapter 25H, it has adopted identical provisions
in its Restated Articles which specifically exclude KAP from its provisions.
In addition, the BCL permits an amendment of the corporation's articles or
other corporate action, if approved by shareholders generally, to provide
mandatory special treatment for specified groups of nonconsenting shareholders
of the same class by providing, for example, that shares of common stock held
only by designated shareholders of record, and no other shares of common
stock, shall be cashed out at a price determined by the corporation, subject
to applicable dissenters' rights.
SPECIAL PROVISIONS OF THE RESTATED ARTICLES AND RESTATED BYLAWS
The Company's Restated Bylaws contain certain provisions permitted under the
BCL regarding liability of directors. These provisions eliminate the personal
liabilities of Directors to the Company and its stockholders for monetary
damages unless the Director has breached or failed to perform the duties of
his office under Subchapter 17B of the BCL and the breach constitutes self-
dealing, willful misconduct or recklessness. These provisions do not eliminate
a Director's duty of care and do not affect the availability of equitable
remedies such as an action to enjoin or rescind a transaction involving a
breach of fiduciary duty. The Company's Restated Bylaws further provide that
the Company shall indemnify its Directors and officers, and may indemnify any
employee and agent of the Company, to the fullest extent permitted by the BCL.
The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as Directors and
officers.
CLASSIFIED BOARD OF DIRECTORS. The Restated Bylaws provide for a Board of
Directors divided into three classes of Directors serving staggered three-year
terms. The classification of Directors has the effect of making it more
difficult for stockholders to change the composition of the Board of Directors
in a relatively short period of time. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
a majority of the Board of Directors.
NUMBER OF DIRECTORS; FILLING VACANCIES; REMOVAL. The Restated Bylaws provide
that the Board of Directors will consist of at least five and no more that
fifteen members. The number of Directors constituting the entire Board of
Directors may be changed by resolution of the Board of Directors. The Board of
Directors, acting by majority vote of the Directors then in office, may fill
any newly created Directorships or vacancies on the
58
<PAGE>
Board of Directors. The provision of the Restated Bylaws authorizing the Board
of Directors to fill vacant Directorships would preclude a stockholder from
removing incumbent Directors without cause and simultaneously gaining control
of the Board of Directors by filling the vacancies created by such removal
with its own nominees.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINEES. The Restated Bylaws establish an advance notice procedure with
regard to business proposed to be submitted by a stockholder at any annual or
special meeting of stockholders of the Company, including the nomination of
candidates for election as Directors. The procedure provides that a notice of
proposed stockholder business must be timely given in writing to the Secretary
of the Company prior to the meeting. In all cases, to be timely, notice
relating to an annual meeting must be received at the principal executive
office of the Company not less than 60 days before the first anniversary of
the prior year's annual meeting.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services, L.L.C.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have 11,279,280 shares of
Common Stock outstanding. Of these shares, the 7,001,922 shares sold in the
Offerings will be immediately eligible for resale in the public market without
restriction under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (as that term is defined under the rules and
regulations of the Securities Act). An additional 311,058 shares of the
11,279,280 shares of Common Stock outstanding are held by former employees of
the Company and are subject to mandatory resale to and redemption by the
Company pursuant to the Stockholders' Agreement. Of the remaining 3,966,300
shares of Common Stock, 751,329 shares have been registered under the
Securities Act and sold by the Company to certain of its employees and
3,214,971 shares are "restricted securities", as that term is defined under
Rule 144 and, accordingly, may not be sold unless they are registered under
the Securities Act or sold pursuant to an applicable exemption from
registration, including Rule 144. Of such 3,966,300 shares of Common Stock,
shares are subject to lock-up agreements with the Underwriters and will become
available for resale 180 days after the date of this Prospectus, subject to
the provisions of Rule 144 under the Securities Act.
In general, under Rule 144, as currently in effect, a stockholder (or
stockholders whose shares are aggregated), including an affiliate of the
Company, who has beneficially owned his or her restricted securities (as that
term is defined in Rule 144) for at least two years from the later of the date
such securities were acquired from the Company or (if applicable) the date
they were acquired from an affiliate, is entitled to sell, within any three-
month period, a number of such shares that does not exceed the greater of 1%
of the then outstanding shares of Common Stock (112,793 shares immediately
after the Offerings) or the average weekly trading volume in the Common Stock
during the four calendar weeks preceding the date on which notice of such sale
was filed under Rule 144, provided certain requirements concerning
availability of public information, manner of sale and notice of sale are
satisfied. In addition, affiliates of the Company must comply with the
restrictions and requirements of Rule 144, other than the two-year holding
period requirement, in order to sell shares of Common Stock which are not
restricted securities. Under Rule 144(k), if a period of at least three years
has elapsed between the later of the date restricted securities were acquired
from the Company and the date they were acquired from an affiliate of the
Company, a stockholder who is not an affiliate of the Company at the time of
sale and has not been an affiliate at any time during the 90 days prior to the
sale would be entitled to sell the shares immediately without compliance with
the foregoing requirements under Rule 144, other than the requirements as to
the availability of current public information about the Company.
Upon the completion of the Offerings, options to purchase 690,012 shares of
Common Stock will be outstanding, all of which will be exercisable at that
time. Within six months following consummation of the Offerings, the Company
intends to file a registration statement on Form S-8 to register shares issued
pursuant to the Option Plan. See "Management--Employee Stock Option Plan".
Prior to the Offerings there has been no market for the Common Stock of the
Company. The Company can make no predictions as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price prevailing from time to time. Nevertheless,
sales of significant numbers of shares of the Common Stock in the public
market, could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of
its equity securities. See "Risk Factors--Shares Eligible for Future Sale".
60
<PAGE>
CERTAIN UNITED STATES TAX CONSIDERATIONS APPLICABLE
TO NON-U.S. HOLDERS OF THE COMMON STOCK
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a "Non-U.S. Holder". A "Non-U.S. Holder" is a person or entity that,
for United States federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign partnership, or a non-resident
fiduciary of a foreign estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of United States federal income and
estate taxation that may be relevant to Non-U.S. Holders in light of their
particular circumstances and does not address any tax consequences arising
under the laws of any state, local or foreign jurisdiction.
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, would affect the United States
taxation of dividends paid to a Non-United States Holder on Common Stock. The
Proposed Regulations are proposed generally to be effective with respect to
dividends paid after December 31, 1997, subject to certain transition rules.
The discussion below is not intended to be a complete discussion of the
provisions of the Proposed Regulations, and prospective investors are urged to
consult their tax advisors with respect to the effect the Proposed Regulations
would have if adopted.
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION.
ACCORDINGLY, EACH PROSPECTIVE NON-U.S. HOLDER IS URGED TO CONSULT A TAX
ADVISOR WITH RESPECT TO THE UNITED STATES FEDERAL TAX CONSEQUENCES OF HOLDING
AND DISPOSING OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE
UNDER THE LAWS OF ANY UNITED STATES STATE, LOCAL OR OTHER NON-UNITED STATES
TAXING JURISDICTION.
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-U.S. Holder of
Common Stock generally will be subject to withholding of United States federal
income tax at a 30% rate unless such rate is reduced by an applicable income
tax treaty. For purposes of determining whether tax is to be withheld at a 30%
rate or at a reduced rate as specified by an income tax treaty, the Company
ordinarily will presume that dividends paid to an address in a foreign country
are paid to a resident of such country absent knowledge that such presumption
is not warranted.
Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-U.S. Holder would be required to provide an Internal
Revenue Service Form W-8 certifying such Non-U.S. Holder's entitlement to
benefits under a treaty. The Proposed Regulations would also provide special
rules to determine whether, for purposes of determining the applicability of a
tax treaty, dividends paid to a Non-U.S. Holder that is an entity should be
treated as paid to the entity or to those holding an interest in that entity.
Dividends that effectively are connected with a Non-U.S. Holder's conduct of
a trade or business in the United States are generally subject to United
States federal income tax at regular rates and are not generally subject to
withholding if the Non-U.S. Holder files a valid Form 4224 (or, if and when
the Proposed Regulations become effective, a Form W-8) with the payor. A non-
United States corporation receiving effectively connected dividends may also,
under certain circumstances, be subject to an additional "branch profits tax"
which is imposed, under certain circumstances, at a 30% rate (or such lower
rate as may be applicable under an income tax treaty) of the non-United States
corporation's effectively connected earnings and profits, subject to certain
adjustments.
Generally, the Company must report to the United States Internal Revenue
Service the amount of dividends paid, the name and address of the recipient,
and the amount, if any, of tax withheld. A similar report is sent to the
holder. Pursuant to tax treaties or certain other agreements, the United
States Internal Revenue Service may make its reports available to tax
authorities in the recipient's country of residence.
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Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the Non-U.S.
Holder fails to establish that it is entitled to an exemption or fails to
provide a correct taxpayer identification number and certain other
information.
GAIN ON DISPOSITION OF COMMON STOCK
Except as described below, a Non-U.S. Holder generally will not be subject
to United States federal income tax with respect to gain realized on a sale or
other disposition of Common Stock unless (i) the gain is connected with such
holder's United States trade or business; (ii) in the case of certain Non-U.S.
Holders who are non-resident alien individuals and hold the Common Stock as a
capital asset, such individuals are present in the United States for 183 or
more days in the taxable year of the disposition, (iii) the Non-U.S. Holder is
subject to tax pursuant to the provisions of the Code regarding the taxation
of United States expatriates; or (iv) the Company is or has been a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code at any time within the shorter of the five-year period
preceding such disposition or such holder's holding period. The Company is
not, and does not anticipate becoming, a United States real property holding
corporation. However, no assurance can be given that the Company will not be a
United States real property holding corporation when a Non-U.S. Holder sells
its shares of Common Stock.
FEDERAL ESTATE TAXES
In general, an individual Non-U.S. Holder who is treated as the owner of, or
has made certain lifetime transfers of, an interest in the Common Stock will
be required to include the value thereof in his gross estatement for United
States federal estate tax purposes, and may be subject to United States
federal estate tax unless an applicable estate tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of
a disposition of Common Stock paid to or through a United States office of a
broker unless the disposing holder certifies as to its non-United States
status or otherwise establishes an exemption. Generally, United States
information reporting and backup withholding will not apply to a payment of
disposition proceeds if the payment is made outside the United States through
a non-United States office of a non-United States broker. However, United
States information reporting requirements (but not backup withholding) will
apply to a payment of disposition proceeds outside the United States if (A)
the payment is made through an office outside the United States of a broker
that is either (i) a United States person, (ii) a foreign person which derives
50% or more of its gross income for certain periods from the conduct of a
trade or business in the United States or (iii) a "controlled foreign
corporation" for United States federal income tax purposes and (B) the broker
fails to maintain documentary evidence that the holder is a Non-U.S. Holder
and that certain conditions are met, or that the holder otherwise is entitled
to an exemption.
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-U.S. Holder would be subject to backup
withholding in the absence of certification from the holder as to non-United
States status.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
GENERAL
In connection with the issuance of the Senior Notes (as hereinafter defined)
in February 1994, the Company entered into a credit agreement (the "Credit
Agreement") with Mellon Bank, N.A. ("Mellon"), as agent, along with a
syndicate of other lenders to establish a revolving credit facility (the
"Revolving Credit Facility") and a four-year term loan (the "Term Loan"). On
March 31, 1995 the Company entered into a standby term loan agreement (the
"Somerville/Monessen Loan Agreement") with Mellon, as agent, along with a
syndicate of other lenders to establish four-year term loans to finance the
acquisitions of the Somerville and the Monessen Facilities. On March 18, 1996,
in connection with the acquisition of the Clairton facility, the Company (i)
amended and restated the Credit Agreement (the "Amended and Restated Credit
Agreement") to provide for an increase in the borrowing limit of the Revolving
Credit Facility, prepayment of the Term Loan, amendment of certain financial
covenants and a decrease in margins (ii) amended the Somerville/Monessen Loan
Agreement (the "Amended Somerville/Monessen Loan Agreement") to amend certain
financial covenants and to decrease the margins and (iii) entered into a five-
year term loan agreement (the "Clairton Loan Agreement") with Mellon, as
agent, along with a syndicate of other lenders to establish a five-year term
loan (the "Clairton Term Loan") to finance the acquisition of the Clairton
facility. The credit facilities established under the Amended and Restated
Credit Agreement, the Amended Somerville/Monessen Loan Agreement and the
Clairton Term Loan are collectively referred to as the "Bank Credit
Facilities". The Company also has commitments from the state of Pennsylvania
to provide low interest financing for the Monessen Facility (the "State
Loans").
THE BANK CREDIT FACILITIES
The Revolving Credit Facility has a five-year term with a maximum borrowing
limit of $100 million, subject to availability as described below. Up to
$15,000,000 of the Revolving Credit Facility is available for letters of
credit. The letter of credit fee for trade letters of credit is .50% per annum
and, for standby letters of credit, it is the LIBOR-based margin for loans
under the Revolving Credit Facility, plus, in each case, a facing fee of .125%
per annum. The Company may borrow pursuant to the Revolving Credit Facility
for working capital and other general corporate purposes, subject to
limitations with respect to general corporate purpose borrowings which are not
also working capital borrowings. Borrowings pursuant to the Revolving Credit
Facility are available to the extent that borrowings do not exceed the sum of
85% of accounts receivable and 50% of inventory as shown on the Company's
balance sheet. Availability under the Revolving Credit Facility is subject to
customary conditions precedent, including the absence of default and no
material adverse change.
The Amended Somerville/Monessen Loan Agreement has a four-year term, with an
outstanding principal value of $25.0 million to be repaid in seven semi-annual
installments.
The Clairton Term Loan is for $35 million with a five-year term and is to be
repaid in two equal annual installments of $17.5 million in 2000 and 2002.
Borrowings pursuant to the Bank Credit Facilities bear interest at a
variable rate, selected by the Company, which will be either (i) a one, two,
three or six month reserve-adjusted LIBOR plus 1.00%, or (ii) the base rate
which is the higher of Mellon's prime rate or the federal funds rate, plus
0.50%. The margins are subject to adjustment upward or downward based on a
quarterly calculation of the debt/EBITDA ratio, with the first calculation to
be based on December 31, 1996 unaudited financial statements. The Amended and
Restated Credit Agreement provides for a commitment fee of .25% on the unused
amount of the revolving credit commitments.
SECURITY. The Revolving Credit Facility is secured by an assignment by the
Company of its accounts receivable and inventory and the real, personal and
intangible property of the Company's Carbon Materials & Chemicals division
(except for those relating to the Clairton facility), including, without
limitation, its patents, trademarks and trade names. The Amended
Somerville/Monessen Loan Agreement is secured by the Company's interest in
real and tangible personal property located at the Somerville and Monessen
Facilities. The Clairton
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Term Loan is secured by Company's interest in the real and tangible personal
property located at the Clairton facility.
Covenants
The Bank Credit Facilities contain substantial limitations on acquisition
and investment activities and on capital expenditures; limitations on
indebtedness and guarantees; limitations on mergers and sales of assets,
restrictions on liens; restrictions on leases; restrictions on transactions
with affiliates; restrictions on changes in the nature of business;
restrictions on changes to its charter documents or to the Indemnity or the
Guarantee; restrictions on prepayment of the Senior Notes (including any
repurchase pursuant to Section 3.10 of the Indenture (as hereinafter defined)
unless the loans under the Bank Credit Facilities have first been paid in
full) or changes to the terms of the Senior Notes; and restrictions on
entering into other agreements that limit the ability of the Company to grant
further security in favor of, or modify any term of, the Bank Credit
Facilities, or the ability of the Company's subsidiaries to pay distributions
and other amounts to the Company.
The Bank Credit Facilities contain the following financial covenants: a
minimum net worth requirement ranging from $45 million for 1996 to $75 million
for years 1999 and beyond; a minimum ratio of after-tax operating cash flow to
cash interest for each period of four quarters of 3.0 to 1; a minimum ratio of
after-tax operating cash flow to debt service for each period of four quarters
of 1.75 to 1; and a maximum ratio of debt to EBITDA for each period of four
quarters of 4 to 1. Under the Bank Credit Facilities the Company is permitted
to pay dividends and make other purchases of, or other payments with respect
to its stock if it would be in compliance with the financial covenants and if
there is and would be no other default under the Bank Credit Facilities.
An event of default under the Bank Credit Facilities occurs (i) if any
person other than the Management Investors and their affiliates becomes the
beneficial owner of more than 50% of the voting stock of the Company or
obtains the power to nominate or elect at least a majority of the Board of
Diectors, (ii) if the Management Investors as a group cease to own at least
10% of the voting stock of the Company, or (iii) if a Change of Control occurs
as defined in the Indenture (as hereinafter defined).
THE STATE LOANS
The Company has commitments from the Commonwealth of Pennsylvania to provide
low interest financing in an aggregate principal amount of $2.6 million at a
rate of 2% per annum for the purchase and construction of the Monessen
Facility. The funds will be distributed through three separate state programs
upon completion of audits of qualifying expenditures. The loans will be
secured by liens on the Monessen Facility assets.
THE SENIOR NOTES
The Company issued $110 million aggregate principal amount of senior notes
(the "Senior Notes") under the Indenture dated February 10, 1994 between the
Company and Integra Trust Company, National Association, as Trustee (the
"Indenture"). Interest on the Senior Notes is payable semi-annually on
February 1 and August 1 of each year at a rate of 8 1/2% per annum. The Senior
Notes mature on February 1, 2004. Except as described below, the Company may
not redeem the Senior Notes prior to February 1, 1999. On or after such date,
the Company may redeem the Senior Notes, in whole or in part, at specified
redemption prices beginning at 104.25% for the year commencing February 1,
1999 and reducing to 100% for the years 2001 and thereafter, in each case
together with accrued and unpaid interest thereon.
In addition, at any time prior to February 1, 1997, the Company may, at its
option, redeem up to $30 million aggregate principal amount of Senior Notes in
connection with an underwritten primary public offering of the common stock of
the Company resulting in net proceeds to the Company in excess of $30 million
at a redemption price equal to 108.50% of the principal amount redeemed, plus
accrued interest, if any, to the date of such redemption. Only one redemption
may be made pursuant to the provisions described in this paragraph.
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Upon a Change of Control, the Company may be required to repurchase all of
the then outstanding Senior Notes at a purchase price of 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase. "Change of Control" means the occurrence of the following events:
(x) a person or entity or group (as the term is used in Section 13(d) (3) of
the Securities Exchange Act of 1934 (the "Exchange Act")) of persons or
entities shall have become the beneficial owner of securities of the Company
representing a majority of the combined voting power of the outstanding
securities of the Company ordinarily having the right to vote in the election
of director; and (y) a Rating Decline occurs. A "Rating Decline" means the
decrease of one gradation with respect to the rating of the Senior Notes by
either S&P or Moodys if the Senior Notes are below Investment Grade and, in
the event the Senior Notes are rated by either Rating Agency as Investment
Grade, a rating below Investment Grade.
COVENANTS. The Indenture contains certain covenants which impose certain
limitations and restrictions on the activities of the Company, including but
not limited to; (i) restrictions on the amount of certain types of
indebtedness that may be incurred by the Company unless the Company's
Consolidated Fixed Charge Ratio (as defined in the Indenture) for the four
full fiscal quarters prior to the date such indebtedness is incurred, after
giving effect to the incurrence of such debt and the application of the
proceeds therefrom, is greater than 2.5 to 1; (ii) restrictions on the payment
of dividends or the purchase or redemption of Capital Stock in excess of the
sum of (A) 50% of the Consolidated Net Income (as defined in the Indenture) of
the Company accrued from January 1, 1994 plus (B) the net proceeds of certain
issuance of Capital Stock and other additions to capital plus (C) $10 million;
(iii) restrictions on asset disposition unless the proceeds are reinvested in
the business or used to repay debt; (iv) limitations on the ability of the
Company and its subsidiaries to create or permit to exist restrictions on
distributions from such subsidiary; (v) limitations on liens; and (vi)
restrictions on transactions between the Company and its subsidiaries, on the
one hand, and affiliates of the Company or holders of more than 5% or more of
the Capital Stock of the Company, on the other, unless such transactions are
on terms no less favorable to the Company or any such subsidiary than could be
obtained in a comparable arm's length transaction.
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UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement), the United States Underwriters named below (the
"Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities Corporation
and Dillon, Read & Co. Inc. are acting as representatives (the
"Representatives"), and the international managers named below (the
"International Managers" and together with the U.S. Underwriters, the
"Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities Corporation
and Dillon, Read & Co. Inc. are acting as representatives (the "International
Representatives" and, together with the U.S. Representatives, the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Stockholders an aggregate of shares of Common Stock. The number of
shares that each Underwriter has agreed to purchase is set forth opposite its
name below:
<TABLE>
<S> <C>
NUMBER OF
U.S. UNDERWRITERS SHARES
Donaldson, Lufkin & Jenrette Securities Corporation...................
Dillon, Read & Co. Inc................................................
U.S. Offering Subtotal..............................................
=========
INTERNATIONAL MANAGERS
Donaldson, Lufkin & Jenrette Securities Corporation...................
Dillon, Read & Co. Inc................................................
International Offering Subtotal.....................................
=========
Total.............................................................
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their
counsel and to certain other conditions. If any shares of Common Stock are
purchased by the Underwriters pursuant to the Underwriting Agreement, all such
shares (other than shares covered by the over-allotment option described
below) must be purchased. The offering price and underwriting discounts and
commissions per share for the U.S. Offering and the International Offering
will be identical.
Prior to the Offerings, there has been no established trading market for the
Common Stock. The initial price to the public for the Common Stock will be
determined by negotiation among the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in determining the initial
price to the public include the history of and the prospects for the industry
in which the Company competes, the past and present operations of the Company,
the historical results of operations of the Company, the prospects for future
earnings of the Company, the general condition of the securities market at the
time of the Offerings and the recent market prices of securities of generally
comparable companies.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act and other
applicable securities laws, or to contribute to payments the Underwriters may
be required to make in respect thereof.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public initially at the price to the public set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such prices less a concession not to exceed $
per share. The Underwriters may allow, and such dealers may reallow, discounts
not in excess of $ per share on sales to
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any other Underwriter and certain other dealers. After the initial public
offering, the price to the public, the concession and the discount to dealers
may be changed by the Representatives.
The Company has granted to the U.S. Underwriters an option to purchase up to
an aggregate of 1,050,288 additional shares of Common Stock, at the initial
public offering price less underwriting discounts and commissions, solely to
cover over-allotments. Such option may be exercised at any time within 30 days
after the date of this Prospectus. To the extent that the U.S. Underwriters
exercise such option, each of the U.S. Underwriters will be committed, subject
to certain conditions, to purchase a number of option shares proportionate to
such U.S. Underwriter's initial commitment as indicated in the preceding
table.
Application has been made to have the Common Stock listed on the New York
Stock Exchange. The Underwriters intend to sell the shares of Common Stock to
a minimum of 2,000 beneficial owners in lots of 100 or more so as to meet the
distribution requirements of such listing.
The Company and certain stockholders, officers and directors have agreed not
to offer, sell, contract to sell, grant any option to purchase, or otherwise
dispose of any common stock of the Company or any securities convertible into
or exercisable or exchangeable for such common stock, except to the
Underwriters pursuant to the Underwriting Agreement, for a period of 180 days
after the date of the Prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding the
foregoing, during such period (i) the Company may grant stock or stock options
pursuant to the Company's existing benefit plans and (ii) the Company may
issue shares of its common stock upon the exercise of an option or warrant or
the conversion of a security outstanding on the date hereof.
Pursuant to an Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented and agreed that, with respect
to the shares included in the U.S. Offering and with certain exceptions, (a)
it is not purchasing any Common Stock for the account of anyone other than a
United States or Canadian Person (as defined below) and (b) it has not offered
or sold, and will not offer or sell, directly or indirectly, any Common Stock
or distribute this Prospectus outside of the United States or Canada or to
anyone other than a United States or Canadian Person. Pursuant to the
Agreement Between U.S. Underwriters and International Managers, each
International Manager has represented and agreed that, with respect to the
shares included in the International Offering and with certain exceptions, (a)
it is not purchasing any Common Stock for the account of any United States or
Canadian Person and (b) it has not offered or sold, and will not offer or
sell, directly or indirectly, any Common Stock or distribute this Prospectus
within the United States or Canada or to any United States or Canadian Person.
The foregoing limitations do not apply to stabilization transactions and to
certain other transactions among the International Managers and the U.S.
Underwriters. As used herein, "United States or Canadian Person" means any
individual who is a resident of the United States or Canada or any
corporation, pension, profit-sharing or other trust or other entity organized
under or governed by the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States or Canada of any United States or Canadian Person) and includes any
United States or Canadian branch of a person other than a United States or
Canadian Person, and "United States" means the United States of America, its
territories, its possessions and all areas subject to its jurisdiction.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between the U.S. Underwriters and the
International Managers of any number of shares of Common Stock to be purchased
pursuant to the Underwriting agreement as may be mutually agreed. The per
share price and currency of settlement of any shares so sold shall be the
public offering price set forth on the cover page of this Prospectus, in
United States dollars, less an amount not greater than the per share amount of
the concession to the dealers set forth below.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any Common Stock, directly or
indirectly in Canada in contravention of the securities law of Canada or any
province or territory thereof and has represented that any offer of Common
Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S.
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Underwriter has further agreed to send to any dealer who purchases from it any
Common Stock a notice stating in substance that, by purchasing such Common
Stock, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, directly or indirectly, any of such Common Stock in
Canada or to or for the benefit of any resident of Canada in contravention of
the securities law of Canada or any province or territory thereof and that any
offer of Common Stock in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of
Canada in which such offer is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Common Stock a notice to the
foregoing effect.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each International Manager has represented that (i) it has not
offered or sold and during the period of six months from the date of this
Prospectus will not offer or sell any shares of Common Stock to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
which do not constitute an offer to the public in the United Kingdom within
the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 of the United Kingdom and the
Regulations with respect to anything done by it in relation to the Common
Stock in, from or otherwise involving the United Kingdom; and (iii) it has
only issued or passed on and will only issue or pass on in the United Kingdom
any document received by it in connection with the issue of the Common Stock
to any person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995 of the
United Kingdom or is a person to whom such document may otherwise lawfully be
issued or passed on.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby and certain
other legal matters in connection with the Offerings will be passed upon for
the Company by Dickie, McCamey & Chilcote, P.C., Pittsburgh, Pennsylvania.
Clayton A. Sweeney, a shareholder of Dickie, McCamey & Chilcote, P.C., is a
director of the Company and owns 138,960 shares of the Common Stock of the
Company. See "Certain Relationships and Related Transactions". Certain legal
matters in connection with the Offerings will be passed upon for the
Underwriters by Davis Polk & Wardwell, New York, New York. With respect to
matters governed by Pennsylvania law, Davis Polk & Wardwell may rely on the
opinion of Dickie, McCamey & Chilcote, P.C.
EXPERTS
The Consolidated Financial Statements and schedules of the Company at
December 31, 1994 and 1995, and for each of the three years in the period
ended December 31, 1995, appearing in this Prospectus and the registration
statement on Form S-1 (together with all amendments and exhibits thereto, the
"Registration Statement") have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement. The consolidated financial statements of
Koppers Australia at June 30, 1995 and 1994 and for the years then ended
appearing in the Registration Statement have been audited by Ernst & Young,
independent auditors, as set forth in their report thereon appearing in the
Registration Statement. The financial statements referred to above are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The financial statements of the coal chemical business of Aristech as of
December 31, 1994 and 1995 and for the years then ended included in this
Prospectus and Registration Statement have been audited by Deloitte & Touche
LLP, independent auditors, as set forth in their report appearing herein and
elsewhere in the Registration Statement, and have been included in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
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ADDITIONAL INFORMATION
The Company has filed the Registration Statement with the Commission under
the Securities Act, with respect to the shares offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect
to the Company and the shares offered hereby, reference is made to the
Registration Statement which may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and at 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material may also be obtained upon payment of the
fees prescribed by the Commission from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each case reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each statement being qualified in all respects by such
reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports and other information with the
Commission. Such reports and other information may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and at 7 World Trade Center, 13th Floor, New
York, New York 10048, and copies may be obtained at the prescribed rates from
the Public Reference Section of the Commission at its principal office in
Washington, D.C. Following the completion of the Offerings, the Company will
also file such reports and information with the NYSE, and the reports and
information will be available for inspection at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Koppers Industries, Inc.
Consolidated Financial Statements for the Years Ended December 31, 1993,
1994 and 1995
Report of Independent Auditors.......................................... F-2
Consolidated Statement of Operations for the Years Ended December 31,
1993, 1994 and 1995................................................. F-3
Consolidated Balance Sheet at December 31, 1994 and 1995................ F-4
Consolidated Statement of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995................................................. F-6
Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 1993, 1994 and 1995.................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
Condensed Consolidated Financial Statements (Unaudited) for the Three
Months Ended March 31, 1995 and 1996
Condensed Consolidated Statement of Operations (Unaudited) for the Three
Months Ended March 31, 1995 and 1996................................ F-21
Condensed Consolidated Balance Sheet (Unaudited) at March 31, 1996...... F-22
Condensed Consolidated Statement of Cash Flows (Unaudited) for the Three
Months Ended March 31, 1995 and 1996................................ F-24
Notes to Condensed Consolidated Financial Statements (Unaudited)........ F-25
Coal Chemical Business of Aristech Chemical Corporation
Financial Statements for the Years Ended December 31, 1994 and 1995
Report of Independent Auditors.......................................... F-26
Statements of Income for the Years Ended December 31, 1994 and 1995..... F-27
Balance Sheets at December 31, 1994 and 1995............................ F-28
Statements of Net Cash Flows for the Years Ended December 31, 1994 and
1995................................................................ F-29
Notes to Financial Statements........................................... F-30
Financial Statements (Unaudited) for the Three Months Ended March 31,
1995 and 1996
Statements of Income (Unaudited) for the Three Months Ended March 31,
1995 and 1996....................................................... F-36
Balance Sheet at March 31, 1996 (Unaudited)............................. F-37
Statements of Net Cash Flows (Unaudited) for the Three Months Ended
March 31, 1995 and 1996............................................. F-38
Notes to Financial Statements (Unaudited)............................... F-39
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Koppers Industries, Inc.
We have audited the accompanying consolidated balance sheets of Koppers
Industries, Inc. at December 31, 1994 and 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Koppers Industries, Inc. at December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in the accompanying notes to the financial statements, the
Company changed its method of accounting for retiree health care and life
insurance benefits and income taxes in 1993.
Pittsburgh, Pennsylvania Ernst & Young LLP
January 25, 1996, except for
Notes 3 and 12, as to which the date
is March 25, 1996, and Note 1, as to which the date is May , 1996
The foregoing report is in the form that will be signed upon the completion
of the restatement of capital accounts, described in Note 1 to the
consolidated financial statements.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania May 8, 1996
F-2
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1994 1995
<S> <C> <C> <C>
Net sales......................................... $461,219 $476,448 $525,730
Operating expenses:
Cost of sales................................... 397,131 408,252 440,746
Depreciation and amortization................... 19,425 16,680 17,532
Selling, research, general and administrative... 19,559 25,807 27,604
-------- -------- --------
Total operating expenses...................... 436,115 450,739 485,882
-------- -------- --------
Operating profit.................................. 25,104 25,709 39,848
Equity in earnings of affiliates................ 4,578 5,314 9,239
Other income.................................... 468 531 376
-------- -------- --------
Total other income............................ 5,046 5,845 9,615
-------- -------- --------
Income before interest expense and provision for
income taxes..................................... 30,150 31,554 49,463
Interest expense.................................. 13,177 13,620 15,060
-------- -------- --------
Income before provision for income taxes.......... 16,973 17,934 34,403
Provision for income taxes........................ 6,508 5,017 9,963
-------- -------- --------
Income before extraordinary item and cumulative
effect of changes in accounting methods.......... 10,465 12,917 24,440
Extraordinary loss on early extinguishment of
debt, net of income taxes........................ -- (1,815) --
Cumulative effect of accounting changes:
Retiree benefits, net of income taxes........... (5,210) -- --
Income taxes.................................... (507) -- --
-------- -------- --------
Net income........................................ 4,748 11,102 24,440
Payment-in-kind dividends on preferred stock...... 7,242 944 --
-------- -------- --------
Net income (loss) applicable to common stock...... $ (2,494) $ 10,158 $ 24,440
======== ======== ========
Earnings (loss) per share of common stock:
Earnings before extraordinary item and
cumulative effect of accounting changes...... $ 0.32 $ 1.13 $ 2.36
Extraordinary item.............................. -- (0.17) --
Cumulative effect of accounting changes......... (0.57) -- --
-------- -------- --------
Earnings (loss) per share of common stock......... $ (0.25) $ 0.96 $ 2.36
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 2,975 $ 1,618
Accounts receivable less allowance for doubtful accounts
of $296 in 1994 and $342 in 1995..................... 51,809 57,583
Inventories:
Raw materials......................................... 34,389 38,584
Work in process....................................... 2,075 2,419
Finished goods........................................ 37,844 44,363
LIFO reserve.......................................... (6,857) (8,191)
-------- ---------
Total inventories................................... 67,451 77,175
Deferred tax benefit.................................... 5,404 5,896
Other................................................... 1,034 1,732
-------- ---------
Total current assets................................ 128,673 144,004
Investments:
Koppers Australia Pty. Limited.......................... 26,499 30,223
Tarconord............................................... 11,658 15,149
Koppers Sherman-Abetong................................. 4,077 3,669
-------- ---------
Total investments................................... 42,234 49,041
Fixed assets:
Land.................................................... 5,320 5,523
Buildings............................................... 9,490 9,736
Machinery and equipment................................. 184,942 233,652
-------- ---------
199,752 248,911
Less: accumulated depreciation........................ (86,048) (102,388)
-------- ---------
Net fixed assets.................................... 113,704 146,523
Other assets.............................................. 9,582 9,387
-------- ---------
Total assets........................................ $294,193 $ 348,955
======== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 21,763 $ 33,237
Payroll and compensation costs........................... 9,882 8,956
Accrued liabilities...................................... 11,621 12,387
Current portion of deferred revenue...................... 1,329 329
Current portion of term loan............................. 5,000 9,000
-------- --------
Total current liabilities.............................. 49,595 63,909
Long-term debt:
Revolving credit......................................... 34,000 29,000
Senior Notes............................................. 110,000 110,000
Term loan................................................ 10,000 26,000
-------- --------
Total long-term debt................................... 154,000 165,000
Deferred income tax........................................ 8,461 12,788
Product warranty and insurance reserves.................... 13,265 14,492
Accrued postretirement benefits obligation................. 11,604 12,275
Other...................................................... 5,068 2,261
-------- --------
Total liabilities...................................... 241,993 270,725
Commitments and contingencies--See Note 10
Series B Junior Convertible Preferred Stock; 2,600 shares
designated and issued; liquidation value of $100 per
share..................................................... 260 260
Common stock value subject to redemption................... 15,450 23,715
Warrants to purchase common stock.......................... 873 --
Voting Common Stock, $.01 par value:
10,000,000 shares authorized, 6,707,952 total shares
issued in 1994 and 1995................................... 67 67
Non-Voting Common Stock, $.01 par value:
10,000,000 shares authorized, 0 total shares issued in
1994 and 2,338,200 in 1995................................ -- 23
Capital in excess of par value............................. 6,875 12,964
Retained earnings.......................................... 32,750 45,828
Cumulative translation adjustment.......................... (623) (384)
Treasury stock, at cost, 1,355,301 shares in 1994 and
1,433,961 shares in 1995................................... (3,452) (4,243)
-------- --------
Total liabilities and stockholders' equity............. $294,193 $348,955
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1993 1994 1995
<S> <C> <C> <C>
Cash provided by operating activities:
Net income................................... $ 4,748 $ 11,102 $ 24,440
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation and amortization.............. 20,234 16,884 17,639
Deferred income taxes...................... 1,717 349 3,835
Equity income of affiliated companies, net
of dividends received.................... (3,132) (3,902) (6,568)
Cumulative effect of accounting changes...... 5,717 -- --
Extraordinary loss on early extinguishment of
debt...................................... -- 1,815 --
Increase in reserves......................... 986 677 955
(Increase) decrease in working capital:
Accounts receivable........................ (12,284) 3,165 (5,774)
Inventories................................ (5,295) 841 (9,724)
Accounts payable........................... 3,403 (2,323) 11,474
Payroll and compensation costs............. (2,588) 4,045 (926)
Accrued liabilities........................ 862 4,924 766
Other...................................... (794) 1,672 (841)
-------- --------- ---------
Net cash provided by operating
activities............................. 13,574 39,249 35,276
-------- --------- ---------
Cash used in investing activities:
Acquisitions and related capital
expenditures............................... -- -- (34,948)
Capital expenditures......................... (14,661) (16,326) (15,193)
Other........................................ 528 310 (202)
-------- --------- ---------
Net cash used in investing activities...... (14,133) (16,016) (50,343)
-------- --------- ---------
Cash used in financing activities:
Borrowings of revolving credit............... 112,000 110,000 150,000
Repayments of revolving credit............... (96,000) (126,000) (155,000)
Repayment of long term debt.................. (18,000) (51,750) (5,000)
Proceeds from long term debt................. -- -- 25,000
Proceeds from issuance of Senior Notes....... -- 110,000 --
Retirement of preferred stock................ -- (53,452) --
Payments of deferred financing costs......... -- (5,425) --
Net purchases of voting common stock......... (66) (3,820) (1,637)
Proceeds from exercise of warrants........... -- -- 2,667
Dividends on common stock.................... -- -- (2,320)
-------- --------- ---------
Net cash provided by (used in) financing
activities................................... (2,066) (20,447) 13,710
-------- --------- ---------
Net increase (decrease) in cash................ (2,625) 2,786 (1,357)
Cash at beginning of year...................... 2,814 189 2,975
-------- --------- ---------
Cash at end of year............................ $ 189 $ 2,975 $ 1,618
======== ========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest................................... $ 13,110 $ 9,551 $ 15,135
Income taxes............................... 3,816 3,692 7,399
</TABLE>
See accompanying notes.
F-6
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON FOREIGN
STOCK VALUE VOTING CAPITAL IN CURRENCY NON-VOTING
SUBJECT TO STOCK COMMON EXCESS OF RETAINED TRANSLATION TREASURY COMMON
REDEMPTION WARRANTS STOCK PAR VALUE EARNINGS ADJUSTMENT STOCK STOCK
----------- -------- ------ ---------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992.................... $ 550 $ 873 $67 $ 9,039 $ 35,814 $(3,270) $(1,314) $--
Net loss to common for
year 1993............... -- -- -- -- (2,494) -- -- --
Foreign currency
translation............. -- -- -- -- -- (1,535) -- --
Net change in common
stock value subject to
redemption.............. 250 -- -- (250) -- -- -- --
Options exercised, stock
purchased and retired,
7,353 shares............ -- -- -- -- (12) -- -- --
Treasury stock
purchases, 14,175
shares.................. -- -- -- -- -- -- (54) --
------- ----- --- ------- -------- ------- ------- ---
Balance at December 31,
1993.................... 800 873 67 8,789 33,308 (4,805) (1,368) --
Net income to common for
year 1994............... -- -- -- -- 10,158 -- -- --
Foreign currency
translation............. -- -- -- -- -- 4,182 -- --
Net change in common
stock value subject to
redemption.............. 14,650 -- -- (1,767) (12,883) -- -- --
Redemption of preferred
stock................... -- -- -- -- 3,756 -- -- --
Options exercised, stock
purchased and retired,
38,304 shares........... -- -- -- -- (342) -- -- --
Treasury stock
purchases, 197,388
shares.................. -- -- -- -- -- -- (2,084) --
Redemption of voting
common stock............ -- -- -- (147) (1,247) -- -- --
------- ----- --- ------- -------- ------- ------- ---
Balance at December 31,
1994.................... 15,450 873 67 6,875 32,750 (623) (3,452) --
Net income to common for
year 1995............... -- -- -- -- 24,440 -- -- --
Foreign currency
translation............. -- -- -- -- -- 239 -- --
Net change in common
stock value subject to
redemption.............. 8,265 -- -- -- (8,265) -- -- --
Options exercised, stock
purchased and retired,
46,749 shares........... -- -- -- -- (435) -- -- --
Treasury stock
purchases, 161,013
shares.................. -- -- -- -- -- -- (1,707) --
Treasury stock sales,
82,353 shares........... -- -- -- -- -- -- 916 --
Warrants exercised,
2,399,850 shares........ -- (873) -- 6,158 -- -- -- 23
Common stock repurchased
and retired, 61,650
shares.................. -- -- -- (69) (342) -- -- --
Dividends on common
stock, net of equity
interest................ -- -- -- -- (2,320) -- -- --
------- ----- --- ------- -------- ------- ------- ---
Balance at December 31,
1995.................... $23,715 $ -- $67 $12,964 $ 45,828 $ (384) $(4,243) $23
======= ===== === ======= ======== ======= ======= ===
</TABLE>
See accompanying notes.
F-7
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Organization
Koppers Industries, Inc. (the "Company") is an integrated producer of carbon
compounds and treated wood products for use in a variety of industrial
applications. The Company's Coke Products division produces foundry and
furnace coke and coke by-products, including coal tars, gases, oils and
chemicals for sale to steel mill blast furnaces, foundries and other
industrial operations. The Company's Carbon Materials & Chemicals division is
a supplier of carbon pitch, which is used primarily by the aluminum industry
as a binder in the manufacture of anodes. Carbon Materials & Chemicals also
produces several by-products, including creosote, a chemical preservative used
to pressure treat wood for the railroad and utility markets; phthalic
anhydride, used in the production of plasticizers and polyester resins; and
roofing pitch, or bitumen, used in the manufacture of built-up roofing
systems. The Company's Railroad and Utility Products division treats railroad
crossties, utility poles and pilings with preservatives for various uses.
Basis of Financial Statements
The accompanying consolidated financial statements include all necessary
intercompany eliminations.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Inventories
Carbon materials & chemicals and railroad & utility products inventories are
valued at the lower of cost, utilizing the last-in, first-out ("LIFO") basis,
or market. Market represents replacement cost for raw materials and net
realizable value for work in process and finished goods. Carbon materials &
chemicals and railroad & utility products inventories constituted
approximately 90% of total inventory value at December 31, 1995.
Investments
Following is a combined financial summary of the equity investments of the
Company (all 50% owned) for their respective years ended 1993, 1994 and 1995.
The fiscal year end for Koppers Australia Pty. Limited is June 30 and,
accordingly, the equity numbers reflected in the table will not equal the
amounts shown in the financial statements.
<TABLE>
<CAPTION>
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................................ $161,883 $166,652 $203,639
Operating profit..................................... 15,974 16,980 28,303
Net income........................................... 12,352 11,901 19,154
Equity in earnings................................... 6,176 5,951 9,577
Current assets....................................... 68,067 68,679 88,776
Total assets......................................... 170,306 152,519 171,550
Current liabilities.................................. 29,292 27,721 41,437
Net assets........................................... 79,899 94,347 106,162
Non-current liabilities.............................. 61,115 30,451 23,951
</TABLE>
F-8
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following describes activity related to the Company's significant equity
investments:
TARCONORD A/S (TARCONORD)
The Company owns a 50% equity interest in Tarconord, a Danish tar operation.
<TABLE>
<CAPTION>
EQUITY INCOME DIVIDENDS RECEIVED
<S> <C> <C>
1993........................................... $ 976,000 $1,246,000
1994........................................... 738,000 562,000
1995........................................... 3,139,000 731,000
</TABLE>
KOPPERS AUSTRALIA PTY. LIMITED (KOPPERS AUSTRALIA)
The Company holds a 50% investment in Koppers Australia, a wood treating and
tar operation.
<TABLE>
<CAPTION>
EQUITY INCOME DIVIDENDS RECEIVED
<S> <C> <C>
1993........................................... $2,353,000 $ --
1994........................................... 3,614,000 360,000
1995........................................... 4,998,000 712,000
</TABLE>
KSA LIMITED PARTNERSHIP (KSA)
The Company holds a 50% investment in KSA, a concrete crosstie operation.
<TABLE>
<CAPTION>
EQUITY INCOME DIVIDENDS RECEIVED
<S> <C> <C>
1993........................................... $1,249,000 $ 200,000
1994........................................... 962,000 500,000
1995........................................... 1,102,000 1,500,000
</TABLE>
The Company is guarantor on KSA debt in the amount of $2.5 million at
December 31, 1995.
At December 31, 1995 consolidated retained earnings of the Company include
$22 million of undistributed earnings from these investments.
Depreciation and amortization
Buildings, machinery, and equipment are recorded at purchased cost and
depreciated over their estimated useful lives (3 to 20 years) using the
straight-line method.
Effective July 1, 1994 the Company extended the estimated useful lives of
certain fixed assets to conform to the Company's actual experience with fixed
asset lives. This change resulted in a reduction to depreciation expense for
1994 of approximately $1.35 million.
Amortization charges for 1993 related to the coke supply contract, which
expired on December 31, 1993, amounted to $2.2 million.
Accrued insurance
The Company is self-insured for property and casualty insurance up to
various stop loss coverages.
Interest rate protection agreements
The Company has previously entered into interest rate protection agreements,
including an interest rate swap and collar, as a hedge against interest
exposure of its variable rate long-term debt. At December 31, 1995 the
F-9
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's only outstanding rate protection agreement is a $10 million collar
which expires in October 1996. The differences to be paid or received on these
agreements, which are all designated as hedges, are included in interest
expense as payments are made or received. Any fees associated with the
establishment of these agreements are recorded as deferred financing costs and
amortized over the terms of the agreements.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and, accordingly,
recognizes no compensation expense for stock option grants.
Restatement of Capital Accounts
On May , 1996, the Board of Directors declared a three-for-one stock split
effective as of that date. All share and per share amounts in the financial
statements have been adjusted to give effect to the split. The Board of
Directors also restated and amended the Company's articles of incorporation to
provide for the authorization of 40 million shares of common stock, effective
upon the consummation of a public offering for the Company's Common Stock.
Reclassification
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the current year presentation. Such
reclassification had no effect on net income.
Impact of Recently Issued Accounting Standards
In March 1995 the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of 1996 and, based on
current circumstances, does not believe the effect of adoption will be
material.
2. SEVERANCE CHARGES
Results for 1994 include a $2.5 million expense related to a voluntary
severance plan initiated by the Company as part of a general corporate
restructuring. The total charge reflects salaries and benefits for 55
participating employees and consists of a $1.7 million charge to general and
administrative expense, with the remaining $0.8 million included as cost of
sales. At December 31, 1995 approximately $0.1 million of the total charge
remains as an accrued liability.
3. ACQUISITIONS
In March 1995, the Company acquired a wood treating plant and certain assets
located in Somerville, Texas for $9.8 million. In April 1995, the Company
acquired a coke plant and certain assets located in Monessen, Pennsylvania for
$5 million. The Somerville plant began production in April 1995, and the
Monessen plant began production in November 1995. Both were accounted for as
purchases, and results of operations have been included since the dates of
acquisition. The pro forma effect of these acquisitions on the 1994 and 1995
results of the Company is not material.
In March 1996, the Company signed an asset purchase agreement with Aristech
Chemical Corporation to purchase a tar distillation plant and certain assets
located in Clairton, Pennsylvania for approximately $40 million in cash
subject to post-closing working capital adjustments. In 1995, this business
generated over $64 million of net sales, excluding sales to the Company.
F-10
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Term Loans.................................................... $ 15,000 $ 35,000
Senior Notes.................................................. 110,000 110,000
Revolving Credit.............................................. 34,000 29,000
-------- --------
$159,000 $174,000
======== ========
</TABLE>
On February 10, 1994 the Company issued $110 million of 8.5% Senior Notes
maturing in 2004 and carrying a fixed rate of 8.5% per annum. Semiannual
interest payments to the Note holders are due every February 1 and August 1.
Concurrent with the issuance of the Senior Notes, the Company entered into a
new credit agreement to provide for a term loan in the principal amount of $20
million and a revolving credit facility of $75 million which includes letters
of credit subject to an aggregate sublimit of $15 million.
In March 1995 the Company entered into a standby term loan agreement to
finance the acquisitions and improvements of the Monessen coke plant and the
Somerville wood treating plant. The agreement provided for a $14 term loan for
the Monessen plant and an $11 term loan for the Somerville plant. The loan
requires repayments of $4 million in 1996, $7 million in 1997, $9 million in
1998, and $5 million in 1999.
The term loans provide for interest at variable rates. At December 31, 1995
the effective rate on the term loans was 8.1%. The average rates on the term
loans for the years ended December 31, 1994 and 1995 were 9.1% and 9.3%,
respectively.
The Company has Revolving Credit Notes which provide for revolving credit
loans up to $75 million, based upon a percentage of accounts receivable and
inventory, until February 10, 1998. Commitment fees of 0.5% per annum on the
unborrowed amounts are required. The note provides for interest at variable
rates. At December 31, 1995, the effective interest rate on the Revolving
Credit Notes was 7.8%, and the average rates during the years ended December
31, 1994 and 1995 were 6.6% and 8.5%, respectively.
Substantially all of the Company's current assets (including accounts
receivable and inventories), as well as the fixed assets of the Carbon
Materials & Chemicals division, are pledged as collateral for the term loan
and the revolving credit loan.
At December 31, 1995 the aggregate debt maturities for the next five years
are as follows:
<TABLE>
<S> <C>
1996................................................................ $ 9,000,000
1997................................................................ 12,000,000
1998................................................................ 38,000,000
1999................................................................ 5,000,000
2000................................................................ --
</TABLE>
To limit the effect of a rise in interest rates, the Company had previously
entered into two interest rate protection agreements covering the term debt
and a portion of the revolving credit loan. The most significant of these was
an interest rate swap agreement covering $75 million of the Company's floating
rate long-term debt. This swap agreement expired on December 29, 1993. The
remaining collar agreement, which expires in October 1996, currently covers
$10 million of the debt balance and establishes an interest rate cap of 10%
and a floor of 8.75%. The total cost to the Company as a result of these
arrangements was $5.6 million, $0.6 million and $0.3 million for the years
ended December 31, 1993, 1994 and 1995, respectively.
F-11
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The prepayment of debt on February 10, 1994 resulted in an extraordinary
loss of $1.8 million on a net-of-tax basis, comprised of write-offs of $1.9
million of original issue discount and $1.5 million of deferred financing
costs, net of a reduction of $1.6 million in put warrant liability. Deferred
financing costs associated with the refinancing totaled $5.3 million and are
being amortized over the life of the related debt.
Deferred financing costs (net of accumulated amortization of $7.5 million at
December 31, 1993, $0.8 million at December 31, 1994 and $1.6 million at
December 31, 1995) were $2.7 million, $4.8 million and $4.3 million at
December 31, 1993, 1994 and 1995, respectively, and are included in other
assets.
The carrying amounts reported in the balance sheet for long and short-term
debt including the collar agreement approximate fair value.
At December 31, 1995, the Company had $9.4 million of standby letters of
credit outstanding, with terms ranging from one to two years.
5. STOCK ACTIVITY
Warrants held by lenders to purchase 2,399,850 shares of non-voting common
stock in connection with previous debt financings of the Company were
exercised during 1995 for $1.11 each. The Company repurchased and retired
61,650 of these shares for $0.4 million. The effect of the exercise of the
remaining 2,338,200 warrants resulted in a reduction to put warrant liability
of $2.6 million and a reduction in equity warrants of $0.9 million. Total
stockholders' equity was increased by $5.2 million as a result of the exercise
of warrants. There were no warrants outstanding at December 31, 1995.
On June 30, 1994 the Company repurchased 234,000 shares of common stock at
$10.56 per share in accordance with the provisions of the Stockholders'
Agreement. Of the total paid for the shares, approximately $1.39 million was
paid to Cornerstone-Spectrum, Inc. with the remainder paid to the Management
Investors. The Cornerstone-Spectrum, Inc. portion of the redemption consisted
of approximately 132,000 shares, which were retired and canceled in accordance
with the provisions of the Stockholders' Agreement.
Series B preferred shares are convertible into Non-Voting Common Stock on a
one-for-nine hundred basis. Series B Shareholders share on a pro rata basis in
any dividend paid on the Voting Common Stock.
All outstanding Series A preferred shares were redeemed in the amount of
$53.5 million in February 1994 by the Company, using a portion of the proceeds
from the Refinancing. In 1993 and 1994 prior to the redemption, the Company
accrued additional Series A dividends of $7.2 million and $0.9 million,
respectively.
In prior years the Company recorded payments to Koppers Australia Pty.
Limited (KAP) on the Series A Exchangeable Preferred Stock held by Koppers
Australia as paid-in-kind dividends. A portion of these payments represented
an additional investment by the Company in Koppers Australia, as opposed to a
dividend which would have been eliminated under equity accounting.
Accordingly, in connection with the redemption of the Series A Exchangeable
Preferred Stock in February 1994, the investment in Koppers Australia was
increased by $3.75 million, with a related increase to retained earnings. The
effect on earnings available to common stock and earnings per common share
over the period from 1988 through the redemption date in 1994 is not material
in any individual year. Treasury stock includes 1,125,000 shares held by a
subsidiary of Koppers Australia to reflect the Company's 50% equity interest
in Koppers Australia.
Stock Option Plan
The Company has authorized the issuance of options to employees to purchase
802,800 shares of Voting Common Stock. As of December 31, 1995, the Company's
Board of Directors has awarded the options authorized to certain key
executives, at various exercise prices, as follows:
F-12
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
OPTION GRANTING DATE OPTIONS AWARDED EXERCISE PRICE
<S> <C> <C>
5/15/90 135,000 $1.11
9/4/90 139,500 2.00
3/22/91 133,425 2.77
1/1/92 227,250 3.59
6/29/92 55,125 3.57
3/1/95 112,500 10.56
</TABLE>
Each stock option awarded gives the executives the right to purchase an
equal amount of common stock at the listed exercise price. All awarded options
become exercisable in installments commencing one year after award date and
expire if not exercised within 10 years from the date of grant. During 1995,
46,749 options were exercised at prices ranging from $1.11 to $10.56 per
share. At December 31, 1995, approximately 93,000 options have been exercised
and an additional 594,000 options are exercisable.
6. COMMON STOCK VALUE SUBJECT TO REDEMPTION
The Company has a Stockholders' Agreement (the "Agreement") in place which
requires the Company, subject to cash payment limitations under the terms of
existing debt covenants, to redeem certain shares of common stock owned by
members of management upon a "termination event" relative to a management
employee. A termination event is defined as retirement, death, disability or
resignation. At December 31, 1994 and 1995 the maximum redemptions which could
be paid under the Agreement, subject to existing debt covenants, were $15.5
million and $23.7 million, respectively. The value of shares subject to
redemption under the terms of the Agreement is segregated from other common
stock on the face of the balance sheet. There were approximately 2,109,000 and
1,965,000 shares of common stock at December 31, 1994 and 1995, respectively,
subject to the provisions of this Agreement. The Agreement expires on December
28, 1998, or upon an initial public offering (IPO) of common stock in which
more than 35% of the post-IPO voting common stock is sold, whichever is
earlier.
The aggregate redemption amounts under the Agreement for the next four years
based on termination events which have already occurred are as follows:
<TABLE>
<S> <C>
1996............................................................... $3.2 million
1997............................................................... $1.7 million
1998............................................................... $0.6 million
1999............................................................... $0.1 million
</TABLE>
7. BENEFIT PLANS
Pension
The Company has established benefit plans for its salaried employees and is
the sponsor of single employer defined benefit plans for the hourly employees.
Benefits under the plans are based upon employees' compensation and years of
service.
F-13
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the pension plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits............................................. $36,272 $42,025
Non-vested benefits......................................... 353 2,949
------- -------
Accumulated benefit obligation.............................. 36,625 44,974
Effect of future wage increases............................. 3,004 4,548
------- -------
Projected benefit obligation................................ 39,629 49,522
Plan assets at fair value..................................... 37,148 46,306
------- -------
Plan assets less than projected benefit obligation............ (2,481) (3,216)
Unrecognized prior service costs.............................. 134 324
Unrecognized net loss......................................... 5,026 4,695
------- -------
Prepaid pension costs (net of liabilities provided)........... $ 2,679 $ 1,803
======= =======
</TABLE>
The components of pension expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the year..... $ 1,809 $ 2,273 $ 2,176
Interest cost on projected benefit obligation..... 2,663 2,951 3,252
(Gain) loss on plan assets........................ (5,435) 1,347 (9,969)
Other............................................. 2,450 (4,658) 6,861
-------- -------- --------
$ 1,487 $ 1,913 $ 2,320
======== ======== ========
</TABLE>
In determining the projected benefit obligation for funded status purposes,
discount rates of 8.25% and 7.25% were used for December 31, 1994 and 1995,
respectively. In 1994 and 1995, the assumed increase in future compensation
was 4% for salaried employees and 3.5% for hourly employees. The long-term
rate of return on plan assets is assumed to be 9% annually. Plan assets
consist of common stock, fixed income securities and short-term investments.
The Company funds the plans currently based on ERISA requirements. The change
in the discount rate in 1995 increased the accumulated benefit obligation by
approximately $5 million.
Postretirement Benefits
The Company sponsors a defined postretirement benefit plan to provide
medical and life insurance benefits to employees who retire after attaining
the required years of service with the Company, including their spouses.
Medical benefits are provided through a comprehensive indemnity plan and
community-rated health maintenance organizations.
Currently, the Company pays a portion of the cost of such plans, but
reserves the right to modify cost-sharing provisions in the future. Life
insurance benefits are based primarily on the employee's compensation and are
also partially paid for by retiree contributions, which vary based upon
coverage chosen by the retiree.
On January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions," which requires the accrual of postretirement health care
and life insurance benefits during the years an employee earns vested
benefits. The Company elected to immediately recognize the cumulative effect
of the change in accounting principle of $10.1 million, which represents the
accumulated postretirement benefit obligation existing at the date of
adoption.
F-14
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In determining the accumulated postretirement benefit obligation at December
31, 1994 and 1995, the Company used discount rates of 8.25% and 7.25%,
respectively. The change in the discount rate for 1995 increased the
accumulated postretirement benefit obligation by approximately $1.6 million.
Inflation factors for the different types of medical costs were assumed to
range from 8.2% to 11.1% for 1996 and to decrease gradually to 6.7% per year
within 13 years.
The following summarizes the Company's accrued obligation:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Active employees........................................... $ 8,387 $ 9,920
Retired employees.......................................... 1,319 1,571
------- -------
Total.................................................... 9,706 11,491
Plan assets.................................................. -- --
------- -------
Accumulated postretirement benefit obligation in excess of
plan assets.................................................. 9,706 11,491
Unrecognized prior service cost.............................. 3,395 2,979
Unrecognized net gain........................................ (1,206) (2,063)
------- -------
Accrued postretirement benefit obligation, including current
portion...................................................... $11,895 $12,407
======= =======
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost......................................... $ 449 $ 410 $ 345
Interest cost........................................ 848 747 739
Net amortization and deferrals....................... -- (192) (368)
-------- ------- -------
Net periodic postretirement benefit cost............. $1,297 $ 965 $ 716
======== ======= =======
</TABLE>
An increase of 1% in the assumed medical cost inflation rate as of the
beginning of the projection period would increase the accumulated
postretirement benefit obligation by 9.2% and would increase the net
postretirement benefit cost by 14.4%.
Incentive Plan
The Company has established a Management Incentive Plan based on established
target award levels for each participant if certain Company performance and
individual goals are met. The charge to operating expense for this Plan was
$0.3 million in 1993, $2.2 million in 1994, and $4.1 million in 1995. For
incentive related to 1995 operating results, participating employees may elect
to receive up to 50% of their incentive compensation in voting common stock of
the Company.
Employee Savings Plan
The Company has established an Employee Savings Plan for all eligible
salaried employees that conforms to Section 401(k) of the Internal Revenue
Code. Under the plan, participating employees can elect to contribute up to
16% of their salaries with a regular Company matching contribution equivalent
to 100% of the first 1% plus 50% of the next 2% of tax-saver contributions.
The Company's regular contributions amounted to $0.3 million in 1993, $0.4
million in 1994 and $0.6 million in 1995. The Company may also make a
supplemental contribution at the end of each Plan Year subject
F-15
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to Board approval. Supplemental contributions of $0.2 million and $1.1 million
were made in 1994 and 1995, respectively. The Company did not make a
supplemental contribution in 1993. Effective in January 1995, all regular and
supplemental matching contributions are made in voting common stock of the
Company.
8. INCOME TAXES
Components of the Company's provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal........................................... $3,897 $3,707 $5,133
State and foreign................................. 894 961 995
-------- -------- --------
Total current tax provision..................... 4,791 4,668 6,128
Deferred
Federal........................................... 1,326 632 3,592
State............................................. 391 (283) 243
-------- -------- --------
Total deferred tax provision.................... 1,717 349 3,835
-------- -------- --------
Total provision for income taxes.................... $6,508 $5,017 $9,963
======== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets (including deferred items
reflected as extraordinary loss) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation.................................... $21,564 $23,751
Other......................................................... 1,741 1,780
------- -------
Total deferred tax liabilities.............................. 23,305 25,531
Deferred tax assets:
Alternative minimum tax credits............................... 3,620 1,288
OPEB obligation............................................... 4,086 4,892
Reserves, including insurance and product warranty............ 4,622 6,999
Book/tax inventory accounting................................. 1,903 2,133
Accrued vacation pay.......................................... 1,218 1,254
Other......................................................... 4,799 2,073
------- -------
Total deferred tax assets................................... 20,248 18,639
------- -------
Net deferred tax liabilities................................ $ 3,057 $ 6,892
======= =======
</TABLE>
F-16
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes is reconciled with the federal statutory rate
as follows:
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Federal....................................................... 35.0% 35.0% 35.0%
State, net of federal tax benefit............................. 4.2 3.2 2.1
Equity earnings of foreign subsidiaries....................... (6.9) (8.5) (8.3)
Foreign taxes................................................. 1.2 0.6 0.4
Prior year deferred tax rate change adjustment................ 1.7 (0.8) --
Other......................................................... 3.1 (1.5) (0.2)
---- ---- ----
38.3% 28.0% 29.0%
==== ==== ====
</TABLE>
The Company has not provided any U.S. tax on undistributed earnings of
foreign subsidiaries or joint ventures that are reinvested indefinitely.
The Company has an alternative minimum tax credit carryforward of
approximately $1.3 million. The credit has no expiration date.
9. EARNINGS PER SHARE
Earnings per share have been computed on the basis of the average number of
common shares outstanding. Earnings per share assume that all granted warrants
and options were exercised with proceeds used to repurchase shares of common
stock at average market value. Shares held by a subsidiary of Koppers
Australia are reduced to reflect the Company's 50% ownership interest.
For purposes of determining earnings per share, all Series B Junior
Convertible Preferred Stock is assumed to have been converted into non-voting
Common Stock.
Common Stock considered to be outstanding:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
<S> <C> <C> <C>
Voting Common Stock............................ 5,686,029 5,545,230 5,351,907
Non-voting Common Stock (includes conversion
of Series B Convertible Preferred Stock)...... 2,340,000 2,340,000 4,678,200
Common Stock Equivalents....................... 2,008,377 2,685,741 346,551
---------- ---------- ----------
10,034,406 10,570,971 10,376,658
========== ========== ==========
</TABLE>
Common shares outstanding have been computed assuming the exercise of
warrants and management stock options, using the treasury stock method.
F-17
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
Environmental Matters
The facilities of the Company are subject to a number of federal, state and
local laws and regulations governing, among other things, 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.
These laws and regulations are subject to frequent amendment. The Company
expects to incur substantial costs for ongoing compliance with such laws and
regulations. In addition, it is possible that the Company may face third-party
claims for cleanup or for injuries resulting from contamination. Under the
terms of the Asset Purchase Agreement in 1988, Beazer East assumed the
liability for and indemnified the Company against cleanup liabilities for past
contamination occurring prior to the purchase date at properties acquired from
Beazer East, as well as third-party claims arising from such past
contamination. Beazer Limited unconditionally guaranteed Beazer East's
performance of the indemnity pursuant to a guarantee. However, if such
indemnification was not available for any reason, including the inability of
Beazer East and/or Beazer Limited to make such indemnification payments, the
Company may not have sufficient resources to meet such liabilities.
Beazer East has adhered to the terms of the indemnity agreement and is
actively fulfilling its obligations to conduct investigative and remedial
programs at the properties which the Company acquired from Beazer East in
accordance with the requirements of regulatory authorities. The Beazer East
indemnification is not applicable to sites acquired since the formation of the
Company, for which separate indemnifications have been negotiated where
appropriate. At the properties which the Company acquired subsequent to the
acquisition of the Beazer East properties, all remedial actions are being
performed in accordance with applicable regulations and all indemnification
obligations are being honored.
Coal Tar Spill In September 1995 a pipe burst at one of the Company's
operations, resulting in the spill of coal tar. The Company promptly notified
all regulatory agencies and commenced cleanup operations. The Company believes
this is an insurable event and is seeking insurance coverage. The Company has
provided $1.8 million in 1995 for deductibles and potentially nonrecoverable
costs.
Pending Litigation
On May 11, 1990 Owens-Corning Fiberglas Corporation ("OCF") filed a
Complaint (the "OCF Litigation") against the Company seeking damages allegedly
resulting from the sale by the predecessor to the Company ("Old Koppers") of
coal-tar bitumen ("CTB") from the early to mid 1970's to the early to mid
1980's. The Complaint relates to problems experienced with roofing systems
sold by OCF. OCF has identified 11 roofs which it alleges were built using
defective Old Koppers' CTB. While it is not possible to predict the outcome of
the litigation at this date, the total cost of replacing or repairing all the
identified roofs is estimated to be $10 million. Punitive damages were also
pleaded in the Complaint.
The trial began on February 6, 1996 and is continuing. The Company provides
for costs related to contingencies when a loss is probable and the amount is
reasonably determinable. It is the opinion of management, based on advice of
counsel, that the ultimate resolution of this contingency, to the extent not
previously provided for, will not have a material effect on the financial
condition of the Company; however, depending on the amount and timing of an
unfavorable resolution of this contingency, it is possible that the future
results of operations or cash flows could be materially affected in a
particular period.
Rents
Rent expense for 1993, 1994 and 1995 was $9.2 million, $10.3 million, and
$11.1 million, respectively. Commitments during the next five years under
operating leases approximate $11.2 million per year.
F-18
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. OPERATIONS BY BUSINESS SEGMENT
The Company's operations are carried out in three business segments.
Financial information about each business segment is provided in the following
table:
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
------------------------------
CARBON RAILROAD
COKE MATERIALS & UTILITY
PRODUCTS & CHEMICALS PRODUCTS CORPORATE TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Net sales.................... $73,608 $167,000 $220,611 $ -- $461,219
Operating profit............. 1,640 19,328 10,578 (6,442) 25,104
Identifiable assets.......... 44,963 86,162 112,090 39,305 282,520
Depreciation and
amortization................. 6,498 6,966 4,857 1,104 19,425
Capital expenditures......... 2,557 5,997 6,107 -- 14,661
YEAR ENDED DECEMBER 31, 1994:
Net sales.................... $72,363 $164,489 $239,596 $ -- $476,448
Operating profit............. 2,627 17,019 16,203 (10,140) 25,709
Identifiable assets.......... 45,501 90,578 105,594 52,520 294,193
Depreciation and
amortization................. 4,111 6,739 4,989 841 16,680
Capital expenditures......... 2,599 8,729 4,998 -- 16,326
YEAR ENDED DECEMBER 31, 1995:
Net sales.................... $80,084 $197,434 $248,212 $ -- $525,730
Operating profit............. 33 27,358 22,621 (10,164) 39,848
Identifiable assets.......... 70,824 98,334 121,162 58,635 348,955
Depreciation and
amortization................. 4,132 6,694 5,832 874 17,532
Capital expenditures......... 26,289 7,623 16,229 -- 50,141
</TABLE>
Intersegment sales of $11.3 million, $12.8 million and $12.1 million have
been eliminated in 1993, 1994 and 1995, respectively, from the schedule of
segment information.
12. SUBSEQUENT EVENTS
Offer to Repurchase Non-Voting Common Stock
In March 1996 Cornerstone-Spectrum, Inc. exercised its option to convert all
of the Series B Convertible Preferred Stock into 2,340,000 shares of non-
voting common stock of the Company. Subsequent to the exercise, the Company
repurchased 1,050,000 shares of non-voting common stock at $11.67 per share in
equal amounts from Cornerstone-Spectrum, Inc. and APT Holdings Corporation.
New Debt Agreement
In March 1996 the Bank Credit Agreement was amended to increase the
revolving credit facility to $100 million, which includes letters of credit
subject to an aggregate sublimit of $15 million. Proceeds from this facility
were used to repay the outstanding $10 million term loan. A new term loan was
also established in the amount of $35 million for the purchase of the tar
distillation plant and certain other assets from Aristech Chemical
Corporation, with repayments of $17.5 million due for both 2000 and 2001. The
additional $4 million required for the acquisition will be financed through
the revolving credit facility.
F-19
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
-------------- ------------- ------------- -------------
1994 1995 1994 1995 1994 1995 1994 1995
(IN MILLIONS EXCEPT, PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $108.7 $122.2 $125.8 $135.6 $127.5 $140.9 $114.4 $127.0
Operating profit........ 1.7 9.7 8.3 13.4 9.7 11.0 6.0 5.7
Income before
extraordinary item...... 0.3 5.1 3.5 8.7 4.5 6.4 4.6 4.2
Extraordinary loss on
early extinguishment
of debt, net of
income taxes........... (1.8) -- -- -- -- -- -- --
Net income (loss)....... $ (1.5) $ 5.1 $ 3.5 $ 8.7 $ 4.5 $ 6.4 $ 4.6 $ 4.2
Earnings (loss) per
share of common stock:
Income before
extraordinary
item................. $(0.06) $ 0.50 $ 0.33 $ 0.84 $ 0.43 $ 0.62 $ 0.44 $ 0.40
Extraordinary loss on
early extinguishment
of debt, net of
income taxes......... (0.17) -- -- -- -- -- -- --
Earnings (loss) per
share of
common stock........... $(0.23) $ 0.50 $ 0.33 $ 0.84 $ 0.43 $ 0.62 $ 0.44 $ 0.40
</TABLE>
F-20
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1995 1996
<S> <C> <C>
Net sales................................................. $ 122,201 $ 126,701
Operating expenses:
Cost of sales........................................... 102,767 111,255
Depreciation and amortization........................... 4,087 4,943
Selling, research, general and administrative........... 5,624 6,256
--------- ---------
Total operating expenses.............................. 112,478 122,454
--------- ---------
Operating profit.......................................... 9,723 4,247
Equity in earnings of affiliates.......................... 1,265 1,791
Other income.............................................. 15 8
Litigation judgment....................................... -- (10,946)
--------- ---------
Income (loss) before interest expense and
provision for income taxes............................... 11,003 (4,900)
Interest expense.......................................... 3,572 3,734
--------- ---------
Income (loss) before provision for income taxes........... 7,431 (8,634)
Provision for income taxes (credit)....................... 2,320 (894)
--------- ---------
Net income (loss)......................................... $ 5,111 $ (7,740)
========= =========
Earnings (loss) per share of common stock................. $ 0.50 $ (0.78)
========= =========
</TABLE>
See accompanying notes.
F-21
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
MARCH 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash.............................................................. $ 4,816
Accounts receivable less allowance for doubtful accounts of $341.. 59,969
Inventories:
Raw materials................................................... 40,284
Work in process................................................. 2,257
Finished goods.................................................. 44,140
LIFO reserve.................................................... (8,402)
---------
Total inventories............................................. 78,279
Other........................................................... 8,345
---------
Total current assets.......................................... 151,409
Investments......................................................... 51,783
Fixed assets........................................................ 256,142
Less: accumulated depreciation.................................... (107,195)
---------
Net fixed assets................................................ 148,947
Other assets........................................................ 9,293
---------
Total assets.................................................... $ 361,432
=========
</TABLE>
See accompanying notes.
F-22
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
MARCH 31, 1996
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 27,420
Accrued liabilities................................................. 28,150
Current portion of term loans....................................... 4,000
--------
Total current liabilities......................................... 59,570
Long-term debt:
Revolving credit.................................................... 68,000
Term loans.......................................................... 21,000
Senior Notes........................................................ 110,000
--------
Total long-term debt.............................................. 199,000
Other long-term reserves.............................................. 43,377
--------
Total liabilities................................................. 301,947
Common stock value subject to redemption.............................. 15,735
Voting Common stock, $.01 par value:
10,000,000 shares authorized, 6,707,952 shares issued............... 66
Non-Voting Common Stock, $.01 par value:
10,000,000 shares authorized, 3,628,200 total shares issued......... 36
Capital in excess of par value........................................ 11,676
Retained earnings..................................................... 34,782
Cumulative translation adjustment..................................... 473
Treasury stock, at cost, 1,322,043 shares............................. (3,283)
--------
Total liabilities and stockholders' equity........................ $361,432
========
</TABLE>
See accompanying notes.
F-23
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1995 1996
<S> <C> <C>
Cash used by operating activities........................ $ (3,219) $ (5,428)
Cash used in investing activities:
Acquisition of wood treating plant..................... (9,765) --
Capital expenditures................................... (3,022) (6,647)
Other.................................................. (343) (107)
--------- ---------
Net cash used in investing activities................ (13,130) (6,754)
Cash provided by (used in) financing activities:
Borrowings from revolving credit....................... 44,000 65,500
Repayments of revolving credit......................... (39,000) (26,500)
Repayment of long-term debt............................ -- (10,000)
Proceeds from long-term debt........................... 10,000 --
Net purchases of voting common stock................... (257) (532)
Purchase of Non-Voting Common Stock.................... -- (12,250)
Dividends on Common Stock.............................. -- (838)
--------- ---------
Net cash provided by financing activities............ 14,743 15,380
--------- ---------
Net increase (decrease) in cash.......................... (1,606) 3,198
Cash at beginning of period.............................. 2,975 1,618
--------- ---------
Cash at end of period.................................... $ 1,369 $ 4,816
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 5,774 $ 6,086
Income taxes........................................... (95) (906)
</TABLE>
See accompanying notes.
F-24
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") which is contained in this Prospectus
contains additional information on the results of operations and the
financial position of the Company. Those comments should be read in
conjunction with these notes. The Company's audited financial statements
for the years ended December 31, 1993, 1994, and 1995 include additional
information about the Company, its operations, and its financial position,
and should be read in conjunction with this quarterly financial
information.
(2) The results for the interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.
(3) In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
(4) First quarter 1996 results reflect a legal judgment against the Company
for approximately $11 million. On April 3, 1996 a jury verdict was
returned against the Company for a total of $10.3 million, including $0.5
million in punitive damages. In addition to damages, the plaintiff has
sought approximately $3.0 million in attorney's fees as well as
prejudgment interest for an amount estimated by the Company to be
approximately $5 million. The Company has provided a total of $14.0
million at March 31, 1996 ($11.0 million in the first quarter of 1996 and
$3.0 million in prior periods).
(5) In March 1996, the Company purchased 1,050,000 shares of non-voting common
stock of the Company for $11.67 per share. See Note 12 of the Notes to
Consolidated Financial Statements contained in the audited financial
statements of the Company for the years ended December 31, 1993, 1994, and
1995.
(6) In April 1996, the Company purchased a tar distillation plant and certain
assets for approximately $39 million cash. See Notes 3 and 12 of the Notes
to Consolidated Financial Statements contained in the audited financial
statements of the Company for the years ended December 31, 1993, 1994, and
1995.
(7) Common stock value subject to redemption decreased by approximately $8
million as a result of cash payment limitations under the terms of
existing debt covenants. See Note 6 of the Notes to Consolidated Financial
Statements contained in the audited financial statements of the Company
for the years ended December 31, 1993, 1994, and 1995.
(8) The Company's effective income tax rate for the three months ended March
31, 1996 decreased to 10.4% from 31.2% in the prior year period due
primarily to the effect of first quarter earnings and projected tax
credits for fiscal year 1996 from the recently acquired Monessen facility
of approximately $8.0 million.
(9) In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in the first quarter of 1996 and the effect
of adoption was not material.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors Aristech Chemical Corporation:
We have audited the accompanying balance sheets of the Coal Chemical
Business of Aristech Chemical Corporation as of December 31, 1994 and 1995 and
the related statements of income and net cash flows for the years then ended.
These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying financial statements have been prepared from the separate
records maintained by the Coal Chemical Business and may not necessarily be
indicative of the conditions that would have existed or the results of
operations if the Coal Chemical Business had been operated as an unaffiliated
company. Portions of certain income and expenses represent allocations made
from corporate items applicable to Aristech Chemical Corporation as a whole.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Coal Chemical Business of Aristech
Chemical Corporation as of December 31, 1994 and 1995, and the results of its
operations and its net cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
April 16, 1996 Pittsburgh, Pennsylvania
F-26
<PAGE>
COAL CHEMICAL BUSINESS OF ARISTECH CHEMICAL CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1994 1995
<S> <C> <C>
Sales.......................................................... $69,075 $75,984
Operating costs:
Cost of sales................................................ 56,531 62,291
Selling, general and administrative expenses................. 3,412 3,355
Depreciation................................................. 1,972 1,969
------- -------
Total operating costs...................................... 61,915 67,615
------- -------
Operating income............................................... 7,160 8,369
Other income................................................... 16 14
------- -------
Income before provision for taxes on income.................... 7,176 8,383
Provision for taxes on income.................................. 2,978 3,479
------- -------
Net income..................................................... $ 4,198 $ 4,904
======= =======
</TABLE>
See accompanying notes.
F-27
<PAGE>
COAL CHEMICAL BUSINESS OF ARISTECH CHEMICAL CORPORATION
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents......................................... $ 2 $ 1
Receivables (less allowance for doubtful accounts of $30 for
1994 and 1995)................................................. 8,884 10,249
Inventories.................................................. 4,678 4,754
Deferred income taxes........................................ 649 846
------- -------
Total current assets....................................... 14,213 15,850
Property, plant and equipment, net of accumulated depreciation. 28,820 28,181
------- -------
Total assets............................................... $43,033 $44,031
======= =======
<CAPTION>
LIABILITIES
<S> <C> <C>
Current liabilities:
Accounts payable and other current liabilities............... $ 8,226 $ 8,966
Payroll and benefits payable................................. 461 474
Accrued taxes ............................................... 14 16
------- -------
Total current liabilities.................................. 8,701 9,456
Deferred income taxes.......................................... 10,552 10,419
Other liabilities.............................................. 1,564 2,039
Intercompany liability......................................... 22,216 22,117
Commitments and contingencies (See Note 10).................... -- --
------- -------
Total liabilities.......................................... $43,033 $44,031
======= =======
</TABLE>
See accompanying notes.
F-28
<PAGE>
COAL CHEMICAL BUSINESS OF ARISTECH CHEMICAL CORPORATION
STATEMENTS OF NET CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1994 1995
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 4,198 $ 4,904
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 1,972 1,969
Receivables............................................. (621) (1,365)
Inventories............................................. (1,208) (76)
Deferred income taxes................................... (112) (330)
Current liabilities..................................... 1,584 755
Other liabilities....................................... (24) 475
Other--net.............................................. (169) (117)
------- -------
Net cash flows provided by operations................. 5,620 6,215
Cash flows from investing activities:
Capital expenditures.................................. (265) (1,212)
------- -------
Net cash used in investing activities................. (265) (1,212)
------- -------
Net cash flow to aristech chemical corporation........ $ 5,355 $ 5,003
======= =======
</TABLE>
See accompanying notes.
F-29
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared for the purpose of
presenting the balance sheets of the Coal Chemical Business (the "Business")
of Aristech Chemical Corporation (the "Company") at December 31, 1994 and 1995
and its income and net cash flows to the Company for each of the two years in
the period ended December 31, 1995, in accordance with generally accepted
accounting principles.
During the periods covered by the statement of income, the Business was
operated as an integral part of the Company's overall operations. The
financial statements also include various allocated costs and expenses (see
Note 5) which are not necessarily indicative of the costs and expenses which
would have resulted had the Business been operated as a separate company. All
of the allocations and estimates reflected in the financial statements are
based on assumptions that management believes are reasonable.
The Company has not completed the process of evaluating the impact that will
result from adopting Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The Company is therefore unable to disclose the
impact that adopting SFAS No. 121 will have on net assets and results of
operations of the Business when such statement is adopted.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Cash
The Business participates in the Company's cash management system and,
accordingly, does not maintain cash balances other than minimal imprest
amounts.
Inventories
Inventories are stated at the lower of aggregate cost or market. Cost is
determined primarily by the last-in, first-out ("LIFO") method. Inventory
costs include direct and indirect manufacturing costs associated with the
production of product.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Major replacements and
improvements which extend the life of the property are capitalized, while
maintenance and repairs are expensed as incurred. Depreciation of plant and
equipment is computed on the straight-line method.
When a plant or major facility within a plant is sold or otherwise disposed
of, any gain or loss is reflected in the statement of income. Proceeds from
the sale of other facilities depreciated on a group basis are credited to the
depreciation reserve.
Pensions
Employees of the Business are covered by Company defined benefit and defined
contribution pension plans. Benefits are based on compensation and/or years of
service for substantially all of its employees. The Company's
F-30
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
funding practice is to contribute annually not less than the actuarially
determined minimum funding requirements of the Employee Retirement Income
Security Act of 1974 nor more than the maximum funding limitation under the
Internal Revenue Code. Contributions are intended to provide benefits for
service to date and for benefits expected to be earned in the future (see Note
4).
Income Taxes
Income taxes are accounted for in accordance with SFAS No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred income taxes are recognized
for the estimated taxes ultimately payable or recoverable based on enacted tax
law. The deferred income taxes are computed annually for differences between
book and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future. Significant basis differences are due to
depreciation and other liabilities (see Note 6).
Debt
The Business participates in the Company's treasury system and, accordingly,
does not record debt other than the intercompany liability.
Income Recognition
Sales and related costs of sales are included in income when goods are
shipped or services are rendered to the customer.
Intercompany Liability
The Coal Chemical Business is an unincorporated division of Aristech
Chemical Corporation. The equity of the Company in the net assets of the
Business is reflected as an intercompany liability to the Company. The Company
allocates certain income and expenses to the Business via the intercompany
liability (see Note 5).
2. LINES OF BUSINESS
The Business operates one tar distillation production facility and a light
oil storage terminal at Clairton, PA. This facility is located adjacent to the
USX Corporation's (USX) Clairton coking facility which supplies approximately
75% of its tar feedstock and light oil requirement under a seven-year
agreement.
The primary product derived from the tar distillation process is liquid and
solid pitch which is sold to aluminum manufacturers under contract basis.
Other products obtained in the tar distillation process include creosote used
in wood treating of railroad ties and utility poles and carbon black sold to
the rubber goods industry.
The light oil terminal, which stores light oil for shipment under contract
to one customer, will be transferred to USX at the end of 1996. Light oil
sales for 1994 and 1995 were $14,233,000 and $13,337,000, respectively. The
net book value of the light oil terminal was $2,261,000 and $2,144,000 at
December 31, 1994 and 1995, respectively.
In 1994 and 1995, the Business exported coal chemical products with a total
sales value of $1,884,000 and $1,722,000, respectively. Sales to the
Business's top four customers represented 19%, 13%, 13% and 10% of total 1994
sales and 17%, 16%, 12% and 11% of total 1995 sales.
F-31
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
3. INTERCOMPANY LIABILITY
Change in the intercompany liability reflect the results of operations and
cash generated by the Business. The changes in the intercompany liability were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Beginning balance....................................... $23,373 $22,216
Add: Net income......................................... 4,198 4,904
Less: Net cash flows.................................... (5,355) (5,003)
------- -------
Ending Balance.......................................... $22,216 $22,117
======= =======
</TABLE>
4. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Substantially, all of the Business employees participate in various defined
benefit or defined contribution plans sponsored by the Company. The Business
recognized pension expense of $293,000 in 1994 and $345,000 in 1995. These
amounts represent an allocation of the Company's total pension expense based
on the ratio of compensation and the number of eligible employees of the
Business to the total compensation and number of eligible employees of the
Company.
Reconciliation of the funded status of the hourly pension plan allocated to
the Business as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................................. $ (798) $(1,331)
======= =======
Accumulated benefit obligation............................. $ (942) $(1,525)
======= =======
Projected benefit obligation............................... $(2,036) $(3,109)
Plan assets at fair value.................................... 1,124 1,334
------- -------
Plan assets less than projected benefit obligation........... (912) (1,775)
Unrecognized net loss........................................ 217 773
Unrecognized prior service cost.............................. 127 264
------- -------
Accrued pension cost recognized in the balance sheets........ $ (568) $ (738)
======= =======
Assumptions
Discount rate, projected benefit obligation.................. 8.5% 7.25%
Rate of increase in compensation levels, projected benefit
obligation................................................... 3.0 4.0
</TABLE>
Plan assets are invested primarily in stocks and bonds.
In addition to providing pension benefits, the Company provides certain
medical and life insurance benefits to eligible retired employees. Under the
terms of the benefit plans, which are unfunded, the Company reserves the right
to modify or discontinue the plans.
F-32
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the postretirement benefit liability of the
hourly employees as allocated to the Business:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................... $ (400) $ (450)
Fully eligible active plan participants.................... (64) (117)
Other active plan participants............................. (591) (850)
------- -------
Total.................................................... (1,055) (1,417)
Unrecognized loss............................................ 341 360
Unrecognized transition obligation........................... 46 81
------- -------
Accrued postretirement benefit liability recognized in the
balance sheet................................................ $ (668) $ (976)
======= =======
</TABLE>
The discount rates used for calculating the present value of postretirement
benefit liabilities for the hourly employees were 8.75% and 7.25% as of
December 31, 1994 and 1995, respectively.
A health care cost trend rate starting at 8.0% and declining to 4% over a
six-year period to the year 2002 was assumed for 1995. A 1% increase in the
health care cost trend rate would increase the accumulated postretirement
benefit obligation as of December 31, 1995 by 6.1% and the sum of the service
and interest costs in 1995 by 7.4%.
The expense recognized by the Business for other postretirement benefits was
$124,000 and $204,000 in 1994 and 1995, respectively. The expense represents
an allocation of the Company's total other postretirement expense based on the
number of eligible employees of the Business to the Company's total number of
employees.
5. ALLOCATED EXPENSES
General administrative and other expenses are allocated to the Business
using methods deemed appropriate for the nature of the expenses involved. The
methods include various allocation bases such as relative investment, number
of employees and related payroll costs, and direct effort expended. Management
of the Company believes the allocations are reasonable, but they are not
necessarily indicative of the costs that would have been incurred had the
Business been a stand-alone entity. Such amounts totaled $2,192,000 in 1994
and $2,036,000 in 1995.
6. TAX PROVISION
Provision for taxes on income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Current federal income taxes.................................. $ 2,628 $ 3,264
Current state and local income taxes.......................... 466 545
Deferred income taxes......................................... (116) (330)
------- -------
Total provision............................................. $ 2,978 $ 3,479
======= =======
</TABLE>
F-33
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the differences between income taxes computed at the
federal statutory rate of 35% to the total provision for income taxes is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Statutory rate applied to income before tax.................... $ 2,512 $ 2,934
State income taxes after federal income tax benefit.......... 466 545
------- -------
Total provision for income taxes........................... $ 2,978 $ 3,479
======= =======
</TABLE>
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Accruals different than payments........................... $ 649 $ 846
------- -------
Gross deferred tax assets.................................. 649 846
------- -------
Deferred tax liabilities:
Property................................................... 10,458 10,168
Accrual different than payments............................ -- 119
Other...................................................... 94 132
------- -------
Gross deferred tax liabilities............................. 10,552 10,419
------- -------
Net deferred tax liabilities............................... $ 9,903 $ 9,573
======= =======
</TABLE>
7. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Raw materials................................................. $ 2,338 $ 2,375
Finished products............................................. 2,340 2,379
------- -------
Net Inventory............................................... $ 4,678 $ 4,754
======= =======
</TABLE>
The current cost of inventories at December 31, 1994 and 1995 was $4,812,000
and $5,100,000, respectively.
8. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Land......................................................... $ 625 $ 625
Buildings.................................................... 4,385 4,367
Machinery and equipment...................................... 31,650 32,823
------- -------
Total property, plant and equipment........................ 36,660 37,815
Less accumulated depreciation.............................. 7,840 9,634
------- -------
Net property, plant and equipment.......................... $28,820 $28,181
======= =======
</TABLE>
F-34
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense for 1994 and 1995 was $1,972,000 and $1,969,000,
respectively.
9. LEASE COMMITMENTS
The Business has operating leases, primarily for railway equipment.
Minimum annual rentals for operating leases with initial or remaining lease
terms in excess of one year were as follows at December 31, 1995:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, (IN THOUSANDS)
<S> <C>
1996.................................... $1,993
1997.................................... 1,369
1998.................................... 1,156
1999.................................... 894
2000.................................... 572
Later years............................. 570
------
Total minimum lease payments............ $6,554
======
</TABLE>
Operating lease rental expense for 1994 and 1995 was $1,282,000 and
$1,270,000, respectively.
10. COMMITMENTS AND CONTINGENCIES
Contract commitments for capital expenditures for property, plant and
equipment totaled $104,000 and $333,000 at December 31, 1994 and 1995,
respectively.
USX has retained responsibility for environmental liabilities relating to
occurrences at the operating facility located in Clairton, Pennsylvania during
USX's ownership prior to December, 1986. The Company has agreed to share in
certain costs relating to this site providing the Company's share does not
exceed $500,000. Such liability has been provided for in the financial
statements.
The Business is subject to pervasive environmental laws and regulations
concerning the production, handling, storage, transportation, emission, and
disposal of waste materials and is also subject to other federal and state
laws and regulations regarding health and safety matters. These laws and
regulations are constantly evolving, and it is impossible to predict
accurately the effect these laws and regulations will have on the Business in
the future.
The Business is also the subject of, or party to, a number of other pending
or threatened legal actions involving a variety of matters. In the opinion of
management, any ultimate liability arising from these contingencies, to the
extent not otherwise provided for, should not have a material adverse effect
on the financial position or results of operations of the Business.
11. SUBSEQUENT EVENTS
Effective April 1, 1996, the Company sold the Business to Koppers
Industries, Inc. for $39 million, plus assumption of certain liabilities and
adjustments for working capital changes.
F-35
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1995 1996
<S> <C> <C>
Sales......................................................... $19,236 $19,132
Operating costs:
Cost of sales............................................... 15,852 16,093
Selling, general and administrative expenses................ 783 926
Depreciation................................................ 494 460
------- -------
Total operating costs..................................... 17,129 17,479
------- -------
Operating income.............................................. 2,107 1,653
Other income.................................................. (4) 6
------- -------
Income before provision for taxes on income................... 2,103 1,659
Provision for taxes on income................................. 872 678
------- -------
Net income.................................................... $ 1,231 $ 981
======= =======
</TABLE>
See accompanying notes.
F-36
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
BALANCE SHEETS (UNAUDITED)
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents................................................. $ --
Receivables (less allowance for doubtful accounts of $30)............ 10,062
Inventories.......................................................... 4,682
Deferred income taxes................................................ 846
-------
Total current assets............................................... 15,590
Property, plant and equipment, net of accumulated depreciation......... 28,200
-------
Total assets....................................................... $43,790
=======
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities....................... $ 8,287
Payroll and benefits payable......................................... 400
Accrued taxes........................................................ 701
-------
Total current liabilities.......................................... 9,388
Deferred income taxes.................................................. 10,419
Other liabilities...................................................... 2,148
Intercompany liability................................................. 21,835
Commitments and contingencies.......................................... --
-------
Total liabilities.................................................. $43,790
=======
</TABLE>
See accompanying notes.
F-37
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
STATEMENTS OF NET CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------
1995 1996
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $1,231 $ 981
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................... 494 460
Receivables................................................ (176) 187
Inventories................................................ 71 72
Current liabilities........................................ 1,443 (68)
Other liabilities.......................................... 57 109
------ ------
Net cash flows provided by operations.................... 3,120 1,741
Cash flows from investing activities:
Capital expenditures......................................... (221) (478)
------ ------
Net cash used in investing activities.................... (221) (478)
------ ------
Net cash flow to Aristech Chemical Corporation................. $2,899 $1,263
====== ======
</TABLE>
See accompanying notes.
F-38
<PAGE>
COAL CHEMICAL BUSINESS OF ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
(1) The interim financial statements include all adjustments which, in the
opinion of management, are necessary to present fairly the financial
position and the results of operations and net cash flows for the quarter
ended March 31, 1995 and 1996. All such adjustments are of a normal,
recurring nature.
(2) The Coal Chemical Business is an unincorporated division of Aristech
Chemical Corporation. The equity of the Aristech Chemical Corporation in
the net assets of the Business is reflected as an intercompany liability
to Aristech Coal Chemical Corporation. The financial statements also
include various allocated costs and expenses (see Note 6) which are not
necessarily indicative of the costs and expenses which would have resulted
had the Business been operated as a separate company. All of the
allocations and estimates reflected in the financial statements are based
on assumptions that management believes are reasonable.
(3) Effective January 1, 1996, the Business adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and Assets to be Disposed Of." Adoption of SFAS 121 had
no effect on the Business' financial position or results of operations.
(4) At March 31, 1996, inventory consisted of $2.1 million of raw materials
and $2.6 million of finished products. The current cost of these
inventories was approximately $5 million.
(5) Effective April 1, 1996, the Company sold the Business to Koppers
Industries, Inc. for $39 million, plus the assumption of certain
liabilities and adjustments for working capital changes.
(6) General administrative and other expenses are allocated to the Business
using methods deemed appropriate for the nature of the expenses involved.
The methods include various allocation bases such as relative investment,
number of employees and related payroll costs, and direct effort expended.
Management of the Company believes the allocations are reasonable, but
they are not necessarily indicative of the costs that would have been
incurred had the Business been a stand-alone entity. Such amounts totaled
$482,000 and $483,000 for the quarters ended March 31, 1995 and 1996,
respectively.
F-39
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERINGS MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITA-
TION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
The Company............................................................... 15
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Selected Historical Financial Data........................................ 18
Pro Forma Condensed Consolidated
Financial Data........................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 33
Management................................................................ 48
Certain Relationships and Related Transactions............................ 54
Principal and Selling Stockholders........................................ 55
Description of Capital Stock.............................................. 57
Shares Eligible for Future Sale........................................... 60
Certain U.S. Tax Considerations Applicable to
Non-U.S. Holders of Common Stock......................................... 61
Description of Certain Indebtedness....................................... 63
Underwriting.............................................................. 66
Legal Matters............................................................. 68
Experts................................................................... 68
Additional Information.................................................... 69
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7,001,922 SHARES
LOGO
COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DILLON, READ & CO. INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be incurred in connection with the Offerings
described in this Registration Statement are:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $47,203
NASD filing fee..................................................... 14,198
NYSE listing fee.................................................... *
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Blue Sky fees and expenses (including legal fees)................... 20,000
Transfer agent and rights agent and registrar fees and expenses..... *
Miscellaneous....................................................... *
-------
Total............................................................. *
=======
</TABLE>
- --------
* To be filed by amendment.
All of the above expenses will be paid by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 1741 and 1742 of the BCL provide that a business corporation shall
have the power to indemnify any person who was or is a party, or is threatened
to be made a party, to any proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was servicing at the
request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. In the case of an action by or in
the right of the corporation, such indemnification is limited to expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person has been adjudged to be liable to the corporation unless,
and only to the extent that, a court determines upon application that, despite
the adjudication of liability but in view of all the circumstances, such
person is fairly and reasonably entitled to indemnity for the expenses that
the court deems proper.
BCL Section 1744 provides that, unless ordered by a court, any
indemnification referred to above shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct. Such determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding; or
(2) if such a quorum is not obtainable, or if obtainable and a majority
vote of a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion; or
(3) by the shareholders.
Notwithstanding of the above, BCL Section 1743 provides that to the extent
that a director, officer, employee or agent of a business corporation is
successful on the merits or otherwise in defense of any proceeding
II-1
<PAGE>
referred to above, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
BCL Section 1745 provides that expenses (including attorney's fees) incurred
by an officer, director, employee or agent of a business corporation in
defending any proceeding may be paid by the corporation in advance of the
final deposition of the proceeding upon receipt of an undertaking to repay the
amount advanced if it is ultimately determined that the indemnitee is not
entitled to be indemnified by the corporation.
BCL Section 1746 provides that the indemnification and advancement of
expenses provided by, or granted pursuant to, the foregoing provisions are not
exclusive of any other rights to which a person seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or directors or
otherwise, and that indemnification may be granted under any bylaw, agreement,
vote of shareholders or disinterested directors or otherwise for any action
taken or any failure to take any action whether or not the corporation would
have the power to indemnify the person under any other provision of law and
whether or not the indemnified liability arises or arose form any action by or
in the right of the corporation, provided, however, that no indemnification is
determined by a court to have constituted willful misconduct or recklessness.
BCL Section 1747 permits a Pennsylvania business corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or other enterprise, against any liability asserted against such
person and incurred by him in any such capacity, or arising out of his status
as such, whether or not the corporation would have the power to indemnify the
person against such liability under the provisions described above.
The Registrant's Articles of Incorporation and Bylaws provide for (i)
indemnification of directors, officers, employees and agents of the registrant
and its subsidiaries and (ii) the elimination of a director's liability for
monetary damages, to the maximum extent permitted by the BCL. The Registrant
also maintains directors' and officers' liability insurance covering its
director and officers with respect to liabilities, including liabilities under
the Securities Act of 1933, as amended, which they may incur in connection
with their serving as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Act:
To be filed by amendment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <C> <S>
*1.1 -- Form of Underwriting Agreement.
*3.1 -- Restated and Amended Articles of Incorporation of the Company.
*3.2 -- Restated and Amended Bylaws of the Company.
4.1 -- Indenture between the Company and Integra Trust Company,
National Association, as Trustee (Incorporated by reference to
respective exhibits to the Company's Form 10-K for the year
ended December 31, 1993).
*4.2 -- Specimen stock certificate representing the Common Stock.
*5.1 -- Opinion of Dickie, McCamey & Chilcote, P.C.
*8.1 -- Opinion Regarding Tax Matters.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <C> <S>
*9.1 -- Stockholders' Agreement by and among Koppers Industries, Inc.,
KAP Investments, Inc., Cornerstone-Spectrum, Inc., APT
Holdings Corporation and the Management Investors referred to
therein, as amended, the most recent amendment dated as of
August 16, 1995.
9.2 -- Stock Subscription Agreement dated as of December 26, 1988
(Incorporated by reference to respective exhibits to the
Company's Prospectus filed February 7, 1994 pursuant to Rule
424(b) of the Securities Act of 1933, as amended, in
connection with the offering of the 8 1/2% Senior Notes due
2004).
10.1 -- Asset Purchase Agreement, dated as of December 28, 1988,
between the Company and Koppers Company, Inc. (Incorporated by
reference to respective exhibits to the Company's Prospectus
filed February 7, 1994 pursuant to Rule 424(b) of the
Securities Act of 1933, as amended, in connection with the
offering of the 8 1/2% Senior Notes due 2004).
10.2 -- Asset Purchase Agreement Guarantee, dated as of December 28,
1988, provided by Beazer PLC (Incorporated by reference to
respective exhibits to the Company's Prospectus filed February
7, 1994 pursuant to Rule 424(b) of the Securities Act of 1933,
as amended, in connection with the offering of the 8 1/2%
Senior Notes due 2004).
10.3 -- Credit Agreement, dated as of February 10, 1994 by and between
the Company, the Banks from time to time parties thereto and
Mellon Bank, N.A., as agent (Incorporated by reference to
respective exhibits to the Company's Form 10-K for the year
ended December 31, 1993).
10.4 -- Revolving Credit Note, dated as of February 10, 1994, from the
Company to the Banks and Mellon Bank, N.A. (Incorporated by
reference to respective exhibits to the Company's Form 10-K
for the year ended December 31, 1993).
10.5 -- Term Loan Note, dated as of February 10, 1994, from the
Company to the Banks and Mellon Bank, N.A. (Incorporated by
reference to respective exhibits to the Company's Form 10-K
for the year ended December 31, 1993).
10.6 -- Retirement Plan of Koppers Industries, Inc. and Subsidiaries
for Salaried Employees (Incorporated by reference to
respective exhibits to the Company's Prospectus filed February
7, 1994 pursuant to Rule 424(b) of the Securities Act of 1933,
as amended, in connection with the offering of the 8 1/2%
Senior Notes due 2004).
10.7 -- Koppers Industries, Inc. Non-contributory Long Term Disability
Plan for Salaried Employees (Incorporated by reference to
respective exhibits to the Company's Prospectus filed February
7, 1994 pursuant to Rule 424(b) of the Securities Act of 1933,
as amended, in connection with the offering of the 8 1/2%
Senior Notes due 2004).
10.8 -- Koppers Industries, Inc. Employee Savings Plan (Incorporated
by reference to respective exhibits to the Company's
Prospectus filed February 7, 1994 pursuant to Rule 424(b) of
the Securities Act of 1933, as amended, in connection with the
offering of the 8 1/2% Senior Notes due 2004).
10.9 -- Koppers Industries, Inc. 1989 Salaried Incentive Plan
(Incorporated by reference to respective exhibits to the
Company's Prospectus filed February 7, 1994 pursuant to Rule
424(b) of the Securities Act of 1933, as amended, in
connection with the offering of the 8 1/2% Senior Notes due
2004).
10.10 -- Koppers Industries, Inc. Survivor Benefit Plan (Incorporated
by reference to respective exhibits to the Company's
Prospectus filed February 7, 1994 pursuant to Rule 424(b) of
the Securities Act of 1933, as amended, in connection with the
offering of the 8 1/2% Senior Notes due 2004).
10.11 -- Koppers Industries, Inc. Stock Option Plan (Incorporated by
reference to respective exhibits to the Company's Prospectus
filed February 7, 1994 pursuant to Rule 424(b) of the
Securities Act of 1933, as amended, in connection with the
offering of the 8 1/2% Senior Notes due 2004).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <C> <S>
10.12 -- Treatment Agreement CSX-Koppers dated as of December 15, 1988
(Incorporated by reference to respective exhibits to the
Company's Prospectus filed February 7, 1994 pursuant to Rule
424(b) of the Securities Act of 1933, as amended, in
connection with the offering of the 8 1/2% Senior Notes due
2004).
10.13 -- Alcoa/Koppers Solid Pitch Supply Agreement Warrick, Indiana;
Rockdale, Texas; Point Comfort, Texas and Wenatchee,
Washington dated as of July 1, 1991 (Incorporated by reference
to respective exhibits to the Company's Prospectus filed
February 7, 1994 pursuant to Rule 424(b) of the Securities Act
of 1933, as amended, in connection with the offering of the 8
1/2% Senior Notes due 2004).
10.14 -- Bethlehem Steel Corporation Furnace Coke Sales Agreement dated
as of May 1, 1990 (Incorporated by reference to respective
exhibits to the Company's Prospectus filed February 7, 1994
pursuant to Rule 424(b) of the Securities Act of 1933, as
amended, in connection with the offering of the 8 1/2% Senior
Notes due 2004).
10.15 -- LTV Steel Company, Inc. Coke Sales Agreement dated as of
December 10, 1993 (Incorporated by reference to respective
exhibits to the Company's Prospectus filed February 7, 1994
pursuant to Rule 424(b) of the Securities Act of 1933, as
amended, in connection with the offering of the 8 1/2% Senior
Notes due 2004).
10.16 -- Alcoa/Koppers Solid Pitch Supply Agreement Warrick, Indiana;
Rockdale, Texas; Point Comfort, Texas; and Wenatchee,
Washington dated as of January 1, 1994 (Incorporated by
reference to respective exhibits to the Company's Form 10-K
for the year ended December 31, 1993).
10.17 -- Koppers Industries, Inc. Voluntary Severance Plan
(Incorporated by reference to respective exhibits to the
Company's Form 10-K for the year ended December 31, 1994).
10.18 -- Employment Contract for Donald P. Traviss dated October 17,
1994 (Incorporated by reference to respective exhibits to the
Company's 10-K for the year ended December 31, 1995).
10.19 -- Employment Contract for Robert K. Wagner dated February 29,
1996 (Incorporated by reference to respective exhibits to the
Company's 10-K for the year ended December 31, 1995).
10.20 -- Standby Term Loan Note, dated as of March 31, 1995 from the
Company to the Banks and Mellon Bank, N.A. (Incorporated by
reference to respective exhibits to the Company's 10-K for the
year ended December 31, 1995).
10.21 -- Amendment to Standby Term Loan Note, dated as of March 18,
1996 from the Company to the Banks and Mellon Bank, N.A.
(Incorporated by reference to respective exhibits to the
Company's 10-K for the year ended December 31, 1995).
10.22 -- Amendment to Revolving Credit Notes, dated as of March 18,
1996 from the Company to the Banks and Mellon Bank, N.A.
(Incorporated by reference to respective exhibits to the
Company's 10-K for the year ended December 31, 1995).
10.23 -- Asset Purchase Agreement, dated as of March 11, 1996, between
the Company and Aristech Chemicals Corporation (Incorporated
by reference to respective exhibits to the Company's 10-K for
the year ended December 31, 1995).
10.24 -- Term Loan Note, dated as of March 18, 1996 from the Company to
the Banks and Mellon Bank, N.A. (Incorporated by reference to
respective exhibits to the Company's 10-K for the year ended
December 31, 1995).
*10.25 -- Restated and Amended Employee Stock Option Plan.
11.1 -- Statement Regarding Computation of Per Share Earnings.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <C> <S>
*15.1 -- Letters regarding unaudited interim financial information.
*21.1 -- Amended List of Subsidiaries of the Company.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Ernst & Young.
23.3 -- Consent of Deloitte & Touche LLP.
*23.4 -- Consent of Dickie, McCamey & Chilcote, P.C. (included in
Exhibit 5.1).
24.1 -- Power of Attorney (included on signature page).
27.1 -- Financial Data Schedule.
99.1 -- Consolidated Financial Statements of Koppers Australia Pty.
Limited for the years ended June 30, 1994 and 1995.
99.2 -- Condensed Consolidated Financial Statements of Koppers
Australia Pty. Limited for the six months ended December 31,
1994 and 1995 (unaudited).
</TABLE>
- --------
*To be filed by amendment.
(B) FINANCIAL STATEMENTS SCHEDULES:
(i) Report of independent auditor on financial statement schedule.
(ii) Schedule II
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes that
(a) (1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted for directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred
II-5
<PAGE>
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Pittsburgh, Pennsylvania on May 8,
1996.
KOPPERS INDUSTRIES, INC.
/s/ Robert K. Wagner
By:----------------------------------
Robert K. Wagner
Chairman
/s/ Clayton A. Sweeney
By:----------------------------------
Clayton A. Sweeney
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Koppers Industries, Inc.,
hereby severally constitute and appoint Robert K. Wagner and Clayton A.
Sweeney, and each of them singly, our true and lawful attorneys, with full
power to them and each of them singly, to sign for us in our names in the
capacities indicated below, all pre-effective and post-effective amendments to
this registration statement, and generally to do all things in our names and
on our behalf in such capacities to enable Koppers Industries, Inc. to comply
with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
/s/ Robert K. Wagner Chairman and Director May 8, 1996
Robert K. Wagner
/s/ Donald P. Traviss Chief Executive Officer and Director
(Principal Executive Officer)
May 8, 1996
Donald P. Traviss
/s/ Donald E. Davis Chief Financial Officer (Principal
Financial Officer, Principal Accounting
Officer)
May 8, 1996
Donald E. Davis
/s/ Clayton A. Sweeney Director May 8, 1996
Clayton A. Sweeney
/s/ Brooks C. Wilson Director May 8, 1996
Brooks C. Wilson
/s/ Brian C. Beazer Director May 8, 1996
Brian C. Beazer
/s/ N.H. Prater Director May 8, 1996
N.H. Prater
/s/ Donald V. Borst Director May 8, 1996
Donald V. Borst
II-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors Koppers Industries, Inc.
We have audited the consolidated financial statements of Koppers Industries,
Inc. as of December 31, 1994 and 1995, and for each of the three years in the
period ended December 31, 1995, and have issued our report thereon dated
January 25, 1996 (except for Notes 3 and 12, as to which the date is March 25,
1996, and Note 1, as to which the date is May , 1996) (included elsewhere in
this Registration Statement.) Our audits also included the financial statement
schedule listed in Item 16(b)(ii) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Pittsburgh, Pennsylvania Ernst & Young LLP
January 25, 1996, except for
Notes 3 and 12, as to which the date
is March 25, 1996, and Note 1, as to which the date is May , 1996
The foregoing report is in the form that will be signed upon the completion
of the restatement of capital accounts, described in Note 1 to the
consolidated financial statements.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania May 8, 1996
1
<PAGE>
SCHEDULE II
KOPPERS INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED AT CLOSE
OF YEAR TO INCOME DEDUCTIONS OF YEAR
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
1993
Allowance for doubtful accounts........ $283 $118 $154 $247
==== ==== ==== ====
1994
Allowance for doubtful accounts........ $247 $150 $101 $296
==== ==== ==== ====
1995
Allowance for doubtful accounts........ $296 $241 $195 $342
==== ==== ==== ====
</TABLE>
2
<PAGE>
EXHIBIT 11.1
KOPPERS INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER
SHARE:
Voting common stock
outstanding............ 5,715,000 5,715,225 5,686,029 5,545,030 5,351,907
Non-Voting common stock
outstanding............ -- -- -- -- 2,338,200
Series B Junior
Convertible Preferred
Stock.................. 2,340,000 2,340,000 2,340,000 2,340,000 2,340,000
Common stock
equivalents............ 1,754,775 1,964,574 2,008,377 2,685,741 346,551
---------- ----------- ----------- ----------- -----------
Common stock
outstanding, including
convertible securities. 9,809,775 10,019,799 10,034,406 10,570,971 10,376,658
Net income (loss) to
common stockholders
(000's)................ $ 9,641 $ 8,492 $ (2,494) $ 10,158 $ 24,440
Primary earnings (loss)
per common share....... $ 0.98 $ 0.85 $ (0.25) $ 0.96 $ 2.36
========== =========== =========== =========== ===========
FULLY DILUTED EARNINGS
PER SHARE:
Voting common stock
outstanding............ 5,715,000 5,715,225 5,686,029 5,545,230 5,351,907
Non-Voting common stock
outstanding............ -- -- -- -- 2,338,200
Series B Junior
Convertible Preferred
Stock.................. 2,340,000 2,340,000 2,340,000 2,340,000 2,340,000
Common stock
equivalents............ 1,879,407 2,042,802 1,955,466 2,685,741 371,616
---------- ----------- ----------- ----------- -----------
Common stock
outstanding, including
convertible securities. 9,934,407 10,098,027 9,981,495 10,570,971 10,401,723
Net income (loss) to
common stockholders
(000's)................ $ 9,641 $ 8,492 $ (2,494) $ 10,158 $ 24,440
Fully diluted earnings
(loss) per common
share.................. $ 0.97 $ 0.84 $ (.25) $ 0.96 $ 2.35
========== =========== =========== =========== ===========
</TABLE>
Each share of the Series B Junior Convertible Preferred Stock is convertible
into non-voting common stock on a one-for-nine hundred basis. All Series B
Junior Convertible Preferred Stock is assumed to have been converted into Non-
Voting Common Stock. Common stock equivalents include stock options granted to
management, and stock warrants granted to certain lenders prior to 1995. Each
stock option awarded to management gives the holder the right to purchase
three shares of common stock at the listed exercise price and becomes
exercisable one year after the date of grant. During 1995 all of the remaining
stock warrants were exercised in exchange for 2,399850 shares of non-voting
common stock for $1.11 each, 61,650 of which were subsequently repurchased and
retired. Net income available to common stockholders prior to 1995 is net of
dividends accrued on the Series A Exchangeable Preferred Stock.
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1995 1996
(UNAUDITED)
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Voting common stock outstanding........................ 5,344,587 5,319,540
Non-Voting common stock outstanding.................... -- 4,591,662
Series B Junior Convertible Preferred Stock............ 2,340,000 --
Common stock equivalents............................... 2,616,225 --
----------- ----------
Common stock outstanding, including convertible
securities.......................................... 10,300,812 9,911,202
Net income (loss) to common stockholders (000's)....... $ 5,111 $ (7,740)
Primary earnings (loss) per common share............. $ 0.50 $ (0.78)
=========== ==========
FULLY DILUTED EARNINGS PER SHARE:
Voting common stock outstanding........................ 5,344,587 5,319,540
Non-Voting common stock outstanding.................... -- 4,591,662
Series B Junior Convertible Preferred Stock............ 2,340,000 --
Common stock equivalents............................... 2,616,225 --
----------- ----------
Common stock outstanding, including convertible
securities.......................................... 10,300,812 9,911,202
Net income (loss) to common stockholders (000's)....... $ 5,111 $ (7,740)
Fully diluted earnings (loss) per common share....... $ 0.50 $ (0.78)
=========== ==========
</TABLE>
All shares of Series B Junior Convertible Preferred Stock were converted
into non-voting common stock on a one-for-nine hundred basis in March 1996.
Common stock equivalents include stock options granted to management and stock
warrants granted to certain lenders. Each stock option awarded to management
gives the holder the right to purchase an equal amount of common stock at the
listed exercise price and becomes exercisable one year after the date of
grant. All stock warrants were exercised during 1995.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the captions "Selected
Historical Financial Data" and "Experts" and to the use of our reports dated
January 25, 1996 (except for Notes 3 and 12 of the consolidated financial
statements, as to which the date is March 25, 1996 and Note 1 of the
consolidated financial statements, as to which the date is May , 1996) in the
Registration Statement (Form S-1) and the related Prospectus of Koppers
Industries, Inc. for the registration of its common stock
Pittsburgh, Pennsylvania Ernst & Young LLP
The foregoing consent is in the form that will be signed upon the completion
of the restatement of capital accounts, described in Note 1 to the consolidated
financial statements.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania May 8, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 11, 1995 with respect to the financial
statements of Koppers Australia Pty. Limited in the Registration Statement
(Form S-1) and the related Prospectus of Koppers Industries, Inc. for the
registration of its common stock.
Ernst & Young
Sydney, Australia May 8, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Koppers Industries,
Inc. on Form S-1 of our report dated April 16, 1996 (which expresses an
unqualified opinion and includes an explanatory paragraph stating that the
financial statements have been prepared from separate records maintained by
the Coal Chemical Business and may not necessarily be indicative of the
conditions that would have existed or the results of operations if the Coal
Chemical Business had been operated as an unaffiliated company, and that
certain income and expenses represent allocations made from corporate items
applicable to Aristech Chemical Corporation as a whole), on the financial
statements of the Coal Chemical Business of Aristech Chemical Corporation as
of December 31, 1995 and 1994 and for each of the two years in the period
ended December 31, 1995 and to the reference to us under the heading "Experts"
in the Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 8, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1995
<PERIOD-START> JAN-01-1994 JAN-01-1995
<PERIOD-END> DEC-31-1994 DEC-31-1995
<CASH> 2 1
<SECURITIES> 0 0
<RECEIVABLES> 8,914 10,279
<ALLOWANCES> (30) (30)
<INVENTORY> 4,678 4,754
<CURRENT-ASSETS> 14,213 15,850
<PP&E> 36,660 37,815
<DEPRECIATION> 7,840 9,634
<TOTAL-ASSETS> 43,033 44,031
<CURRENT-LIABILITIES> 8,701 9,456
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 43,033 44,031
<SALES> 69,075 75,984
<TOTAL-REVENUES> 0 0
<CGS> 56,531 62,291
<TOTAL-COSTS> 61,915 67,615
<OTHER-EXPENSES> (16) (14)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 7,176 8,383
<INCOME-TAX> 2,978 3,479
<INCOME-CONTINUING> 4,198 4,904
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,198 4,904
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> MAR-31-1995 MAR-31-1996
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 10,092
<ALLOWANCES> 0 (30)
<INVENTORY> 0 4,682
<CURRENT-ASSETS> 0 15,590
<PP&E> 0 38,294
<DEPRECIATION> 0 10,094
<TOTAL-ASSETS> 0 43,790
<CURRENT-LIABILITIES> 0 9,388
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 43,790
<SALES> 19,236 19,132
<TOTAL-REVENUES> 0 0
<CGS> 15,852 16,093
<TOTAL-COSTS> 17,129 17,479
<OTHER-EXPENSES> 4 (6)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 2,103 1,659
<INCOME-TAX> 872 678
<INCOME-CONTINUING> 1,231 981
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,231 981
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
Exhibit 99.1
KOPPERS AUSTRALIA PTY. LIMITED
(A.C.N. 000 566 629)
FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 1995
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
DIRECTORS' REPORT
-----------------
Your directors submit their report for the year ended 30 June 1995.
DIRECTORS
The names and details of the directors of the company in office at the date of
this report are:
Names and qualifications.
Directors Qualifications, Experience and Special
- --------- --------------------------------------
Responsibilities
----------------
M. J. Burns Managing Director, BHP New Zealand Steel
B. K. E. Jensen Managing Director, TarcoNord A/S
P. J. Laver Corporate General Manager, External Affairs,
BHP International Group
C. E. Smith BHP Corporate General Manager and President
(Indonesia), BHP Indonesia
D. P. Traviss Chief Operating Officer, Koppers Industries Inc.
R. K. Wagner Chairman and Chief Executive Officer, Koppers
Industries Inc.
Alternate Directors
- -------------------
E. S. Bryon General Manager, Koppers Coal Tar Products Pty. Ltd.
(For D. P. Traviss)
C. R. Newell General Manager, Koppers Timber Preservation Pty. Ltd.
(For B. K. Jensen)
A. Purnell Manager, Broken Hill Proprietary Company
(For M. J. Burns,
P. J. Laver,
C. E. Smith)
B. C. Wilson Managing Director, Koppers Australia Pty. Limited
(For R. K. Wagner)
1
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
DIRECTORS' REPORT(Cont'd.)
-----------------
PRINCIPAL ACTIVITIES
The principal activities during the year of entities within the economic entity
were:-
* refinement and distribution of coal tar by-products
* manufacture of wood preservation chemicals
* preservation of timber products
* manufacture of carbon black
RESULTS AND DIVIDENDS (Australian dollars)
<TABLE>
<S> <C>
Consolidated economic entity profit after tax and outside
equity interest for the financial year $11,366,000
Share of associated company results (less dividends $254,000) 5,006,000
-----------
16,372,000
-----------
</TABLE>
The contribution of the various economic entities to this result is detailed in
note 5 to these financial statements.
The chief entity did not pay a dividend during the year (1994 - $1,000,000).
REVIEW OF OPERATIONS
Profits were higher than last year which was mainly attributable to generally
improved market conditions and internal efficiencies.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There has been no significant change in the state of affairs.
SIGNIFICANT EVENTS AFTER THE BALANCE DATE
There has been no significant event since balance date.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
The existing businesses of the economic entity are expected to continue
profitable trading activities.
DIRECTORS' BENEFITS
During or since the financial year, no director of the company has received or
become entitled to receive a benefit, other than a benefit included in the
aggregate amount of emoluments received or due and receivable by the directors
shown in the consolidated accounts, by reason of a contract entered into by the
company or an entity that the company controlled or a body corporate that was
related to the company when the contract was made or when the director received,
or become entitled to receive, the benefit with:
* a director; or
* a firm of which a director is a member; or
* an entity in which a director has a substantial financial interest.
2
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
DIRECTORS' REPORT(Cont'd.)
-----------------
INDEMNIFICATION AND INSURANCE OF DIRECTOR
During the financial year, the company has paid no premiums in respect of
insuring any director against a liability incurred in their role as director of
the company, nor has the company indemnified any director for costs and expenses
incurred in defending proceedings brought against any director for a breach of a
low by the company.
Signed in accordance with a resolution of the directors.
ROUNDING
The amounts contained in this report and in the financial statements have been
rounded off under the option available to the company under S311 and Regulation
3.6.05 of the Corporations Law and Regulations.
Signed in accordance with a resolution of the directors.
Director
---------------------
B. C. Wilson
Director
---------------------
P. J. Laver
3
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF KOPPERS AUSTRALIA PTY. LIMITED
Scope
We have audited the financial statements of Koppers Australia Pty. Limited for
the financial year ended 30 June 1995, as set out on pages 5 to 43, including
the Statement by Directors. The financial statements include the accounts of
Koppers Australia Pty. Limited and the entities it controlled at year's end or
from time to time during the financial year. The company's directors are
responsible for the preparation and presentation of the financial statements and
the information they contain. We have conducted an independent audit of these
financial statements in order to express an opinion on them to the members of
the company.
Our audit has been conducted in accordance with Australian Auditing Standards to
provide reasonable assurance as to whether the financial statements are free of
material misstatement. Our procedures included examination, on a test basis, of
evidence supporting the amounts and other disclosures in the financial
statements, and the evaluation of accounting policies and significant accounting
estimates. These procedures have been undertaken to form an opinion as to
whether, in all material respects, the financial statements are presented fairly
in accordance with Australian accounting standards, other mandatory professional
reporting requirements and statutory requirements, so as to present a view which
is consistent with our understanding of the company's and the economic entity's
financial position, the results of their operations and their cash flows.
The names of the entities controlled during all or part of, or at the end of,
the financial year, but of which we have not acted as auditor are disclosed in
note 29. We have, however, received sufficient information and explanations
concerning these controlled entities to enable us to form an opinion on the
consolidated accounts.
The audit opinion expressed in this report has been formed on the above basis.
Audit Opinion
In our opinion, the financial statements of Koppers Australia Pty Limited are
properly drawn up:
(a) so as to give a true and fair view of:
(i) the state of affairs as at 30 June 1995, and of the profit
and cash flows for the financial year ended on that date of the
company and of the economic entity; and
(ii) the other matters required by Divisions 4, 4A and 4B or Part 3.6
of the Corporations Law to be dealt with in the financial statements;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable Accounting Standards
ERNST & YOUNG
4
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
STATEMENT BY DIRECTORS
----------------------
In accordance with a resolution of the directors of Koppers Australia Pty.
Limited, we state that-
(1) In the opinion of the directors:
(a) the profit and loss account is drawn up so as to give a
true and fair view of the profit of the company for the financial
year ended 30 June 1995;
(b) the balance sheet is drawn up so as to give a true and fair view of
the state of affairs of the company as at 30 June 1995; and
(c) at the date of this statement there are reasonable grounds to
believe that the company will be able to pay its debts as and when
they fall due;
(2) In the opinion of the directors the consolidated accounts:
(a) give a true and fair view of:-
(i) the profit of the economic entity, constituted by
the company and the entities it controlled from time to time
during the financial year, for the financial year ended 30
June 1995; and
(ii) the state of affairs of the economic entity,
constituted by the company and the entities that it controls
at the year's end, as at 30 June 1995; and
(b) have been made out in accordance with Divisions 4A and 4B or Part 3.6
of the Corporations Law.
(3) In the opinion of the directors at the date of this statement:
(a) there are reasonable grounds to believe that the closed group
comprising the company and the controlled entities identified in
note 29 will be able to meet any obligation or liabilities to
which it is, or may become, subject by virtue of the deed of cross
guarantee disclosed in note 29; and
(b) the company and the wholly owned controlled entities obtaining
relief under the class order remain within the class of companies
affected by the class order.
On behalf of the Board
Director
---------------------
B. C. Wilson
Director
---------------------
P. J. Laver
Sydney 11 October 1995
5
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
CONSOLIDATED PROFIT AND LOSS ACCOUNT
------------------------------------
YEAR ENDED 30 JUNE 1995
-----------------------
<TABLE>
<CAPTION>
Notes 1995 1994
A$,000 A$,000
<S> <C> <C> <C>
OPERATING REVENUE 2 157,093 158,097
======= =======
OPERATING PROFIT 2 22,718 18,947
INCOME TAX ATTRIBUTE TO OPERATING
PROFIT 4 8,346 6,283
------- -------
OPERATING PROFIT AFTER INCOME TAX 14,372 12,664
OUTSIDE EQUITY INTERESTS IN OPERATING
PROFIT AFTER INCOME TAX 3,006 2,801
------- -------
OPERATING PROFIT AFTER INCOME TAX
Attributable to members of Koppers
Australia Pty. Limited 5 11,366 9,863
RETAINED PROFITS
At the beginning of the financial year 54,240 45,377
Adjustments Resulting from Adoption of
New Accounting Standard 611 -
------- -------
TOTAL AVAILBABLE FOR APPROPRIATION 64,995 55,240
DIVIDENDS PAID 6 - 1,000
------- -------
RETAINED PROFITS
At the end of the financial year 64,995 54,240
======= =======
</TABLE>
The profit and loss account should be read in conjunction with the accompanying
notes.
6
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
CONSOLIDATED BALANCE SHEET
--------------------------
AT 30 JUNE 1995
---------------
<TABLE>
<CAPTION>
Notes 1995 1994
A$,000 A$,000
<S> <C> <C> <C>
CURRENT ASSETS
Cash 5,619 3,398
Receivables 7 23,561 21,648
Inventories 8 35,023 27,892
Other 9 813 1,391
------- -------
TOTAL CURRENT ASSETS 65,016 54,329
------- -------
NON-CURRENT ASSETS
Receivables 10 6,355 6,366
Investments 11 3,538 3,496
Property, plant and equipment 12 69,681 69,456
Intangibles 13 1,539 1,513
Other 14 2,092 1,997
------- -------
TOTAL NON-CURRENT ASSETS 83,205 82,828
------- -------
TOTAL ASSETS 148,221 137,157
------- -------
CURRENT LIABILITES
Creditors and borrowings 15 17,238 12,278
Provisions 16 10,500 7,978
------- -------
TOTAL CURRENT LIABILITIES 27,738 20,256
------- -------
NON-CURRENT LIABILITES
Creditors and borrowings 17 14,500 24,638
Provisions 18 5,022 3,975
------- -------
TOTAL NON-CURRENT LIABILITIES 19,522 28,613
------- -------
TOTAL LIABILITIES 47,260 48,869
------- -------
NET ASSETS 100,961 88,288
======= =======
SHAREHOLDER'S EQUITY
Share capital 19 14,559 14,559
Reserves 20 5,889 5,080
Retained profits 64,995 54,240
------- -------
Shareholder's equity attributable to members of
Koppers Australia Pty. Limited 85,443 73,879
Outside equity interest in controlled entities 21 15,518 14,409
------- -------
TOTAL SHAREHOLDER'S EQUITY 100,961 88,288
======= =======
</TABLE>
The balance sheet should be read in conjunction with the accompanying notes.
7
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
YEAR ENDED 30 JUNE 1995
-----------------------
<TABLE>
<CAPTION>
Notes 1995 1994
A$,000 A$,000
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 154,657 155,265
Payments to suppliers and employees (122,440) (124,045)
Interest received 269 306
Interest and other costs of finance paid (2,668) (4,974)
Income tax paid (6,715) (6,392)
------- --------
NET CASH FLOWS FROM/(USED IN)
OPERATING ACTIVITIES 22 23,103 20,160
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from redemption of preference shares in
Koppers Industries, Inc. - 36,838
Acquisition of property, plant and equipment (10,516) (9,369)
Proceeds from sale of property, plant and equipment 737 833
Dividends received 254 -
-------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES (9,525) 28,302
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (1,832) (2,301)
Gross (Payment)/Receipts to/from Bank (10,111) (49,904)
------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES (11,943) (52,205)
-------- --------
NET INCREASE/(DECREASE) IN CASH HELD 1,635 (3,743)
Add opening cash brought forward 1,991 5,734
-------- --------
CLOSING CASH CARRIED FORWARD 22 3,626 1,991
======== ========
</TABLE>
The statement of cash flows should be read in conjunction with the accompanying
notes.
8
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
PROFIT AND LOSS ACCOUNT
-----------------------
YEAR ENDED 30 JUNE 1995
-----------------------
<TABLE>
<CAPTION>
Notes 1995 1994
A$'000 A$'000
<S> <C> <C> <C>
OPERATING REVENUE 2 4,334 3,304
====== ======
OPERATING PROFIT 2 2,344 1,609
INCOME TAX EXPENSE ATTRIBUTABLE TO
OPERATING PROFIT 4 111 37
------ ------
OPERATING PROFIT AFTER INCOME TAX 2,233 1,572
RETAINED PROFITS
At the beginning of the financial year 9,677 9,105
Adjustment Resulting from Adoption of New
Accounting Standard 203 -
------ ------
TOTAL AVAILABLE FOR APPROPRIATION 11,707 10,677
DIVIDENDS PAID 6 - 1,000
------ ------
RETAINED PROFITS
At the end of the financial year 11,707 9,677
====== ======
</TABLE>
The profit and loss account should be read in conjunction with the accompanying
notes.
9
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
BALANCE SHEET
-------------
AT 30 JUNE 1995
---------------
<TABLE>
<CAPTION>
Notes 1995 1994
A$'000 A$'000
<S> <C> <C> <C>
CURRENT ASSETS
Cash 940 -
Receivables 7 1,563 458
Other 9 3 4
------ ------
TOTAL CURRENT ASSETS 2,506 462
------ ------
NON-CURRENT ASSETS
Receivables 10 - -
Investments 11 38,696 38,712
Property, plant and equipment 12 133 108
Other 14 164 60
------ ------
TOTAL NON-CURRENT ASSETS 38,993 38,880
------ ------
TOTAL ASSETS 41,499 39,342
------ ------
CURRENT LIABILITIES
Creditors and borrowings 15 202 487
Provisions 16 566 242
------ ------
TOTAL CURRENT LIABILITIES 768 729
------ ------
NON-CURRENT LIABILITIES
Provisions 18 107 19
------ ------
TOTAL NON-CURRENT LIABILITIES 107 19
------ ------
TOTAL LIABILITIES 875 748
------ ------
NET ASSETS 40,624 38,594
====== ======
SHAREHOLDERS' EQUITY
Share capital 19 14,559 14,559
Reserves 20 14,358 14,358
Retained profits 11,707 9,677
------ ------
TOTAL SHAREHOLDERS' EQUITY 40,624 38,594
====== ======
</TABLE>
The balance sheet should be read in conjunction with the accompanying notes.
10
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
STATEMENT OF CASH FLOWS
-----------------------
YEAR ENDED 30 JUNE 1995
-----------------------
<TABLE>
<CAPTION>
Notes 1995 1994
A$'000 A$'000
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Receipts from customers 1,504 1,225
Dividends received 2,133 1,773
Payments to suppliers and employees (2,152) (1,299)
Income tax paid (74) -
------ ------
NET CASH FLOWS FROM OPERATING ACTIVITIES 22 1,411 1,699
------ ------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (47) (57)
Purchase of shares - (991)
Receipt from winding up controlled entity 16 -
------ ------
NET CASH FLOWS FROM/ (USED IN) INVESTING
ACTIVITIES (31) (1,048)
------ ------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid - (1,000)
------ ------
NET CASH FLOWS USED IN FINANCING
ACTIVITIES - (1,000)
------ ------
NET INCREASE/(DECREASE) IN CASH HELD 1,380 (349)
Add opening cash brought forward (440) (91)
------ ------
CLOSING CASH CARRIED FORWARD 22 940 (440)
====== ======
</TABLE>
The statement of cash flows should be read in conjunction with the accompanying
notes.
11
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of accounting
The financial statements have been prepared in accordance with the
historical cost convention, except for certain assets which are at
valuation. Cost in relation to assets represents the cash amount paid
or the fair value of the asset given in exchange.
The financial statements have been made out in accordance with the
requirements of the Corporations Law which include disclosures
required by Schedule 5 and applicable accounting standards and
mandatory reporting requirements (Urgent Issues Group Consensus
Views).
b) Changes in accounting policies
The accounting policies adopted are consistent with those of the
previous year except for the accounting policy with respect to certain
employee entitlements as from 1 July 1994.
In accordance with the new applicable accounting standard AASB 1028:
Accounting for Employee Entitlements, the economic entity has
recognised for the first time, liabilities and expenses in relation to
vested sick leave entitlement of employees not settled as at 30 June
1995. Expenses which were consequential to the employment of the
employees but which are not employee entitlements, for example,
payroll tax and other on- costs associated with leave entitlements,
have also been recognised as liabilities where the entitlements, to
which they relate have been recognised as liabilities and expenses in
accordance with AASB 1028. The effect of the new policy has been to
reduce retained profits at the beginning of the year by A$611,000. The
change in accounting policy has, however, had no material effect on
profit for the year ended 30 June 1995.
The above change in accounting policy has also meant that comparative
information has not been provided for certain employee entitlement
disclosures.
c) Principals of consolidation
The consolidated accounts are those of the economic entity, comprising
Koppers Australia Pty. Limited (the chief entity) and all entities
which Koppers Australia Pty. Limited controlled from time to time
during the year and at year's end.
12
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
c) Principals of consolidation (cont'd)
The consolidated accounts include the information contained in the
financial statements of Koppers Australia Pty. Limited and each of its
controlled entities as from the date the chief entity obtains control
until such time as control ceases.
Where there is a loss of control of a controlled entity the
consolidated accounts include the results for the part of the
reporting period during which the chief entity had control.
The accounts of controlled entities are prepared for the same
reporting period as the chief entity, using consistent accounting
policies. Adjustments are made to bring into line any dissimilar
accounting policies which may exist.
All intercompany balances and transactions, and unrealised profits
arising from intra-economic entity transactions, have been eliminated
in full.
d) Foreign currencies
Translation of foreign currency transactions
Transactions in foreign currencies of entities within the economic
entity are converted to local currency at the rate of exchange ruling
at the date of the transaction.
Amounts payable to and by the entities within the economic entity that
are outstanding at the balance date and are denominated in foreign
currencies have been converted to local currency using rates of
exchange ruling at the end of the financial year.
Except for certain specific hedges and hedges of foreign currency
operations, all resulting exchange differences arising on settlement
or restatement are brought to account in determining the profit or
loss for the financial year, and transaction costs, premiums and
discounts on forward currency contracts are deferred and amortized
over the life of the contract.
Specific hedges
Where a purchase or sale is specifically hedged, exchange gains or
losses on the hedging transaction arising up to the date of purchase
or sale and costs, premiums and discounts relative to the hedging
transaction are included with the purchase or sale. Exchange gains and
losses arising on the hedge transaction after that date are taken to
the profit and loss account.
Hedges of foreign operations
Exchange gains and losses on transactions hedging investments in
foreign operations are taken to the foreign currency translation
reserve on consolidation.
13
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
d) Foreign currencies (cont'd)
Translation of accounts of overseas operations
All overseas operations are deemed self-sustaining as each is
financially and operationally independent of Koppers Australia Pty.
Limited. The accounts of overseas operations are translated using the
current rate method and any exchange differences are taken directly to
the foreign currency translation reserve.
e) Cash
For the purposes of the statement of cash flows, cash includes cash on
hand and in banks, and money market investments readily convertible to
cash within two working days, net of outstanding bank overdrafts.
f) Investments
Long-term investments
Long-term investments are stated at cost. Where the cost exceeds the
recoverable amount, the investment has been written down to this
recoverable amount.
Associated Companies
The economic entity's shareholding in Koppers Industries, Inc.,
represents 18.8% of the ownership interest and is stated at cost. This
shareholding is accounted for in accordance with the equity method in
note 11 to the financial statements.
g) Inventories
Inventories are valued at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and
condition are accounted for as follows:
* Raw material - purchase cost on a first-in-first-out
basis; and
* Finished goods and work-in-progress - cost of direct
material and labour and a proportion of manufacturing
overheads based on operating capacity.
h) Recoverable Amount
Non-current assets are not revalued to an amount above their
recoverable amount, and where carrying values exceed this recoverable
amount assets are written down. In determining recoverable amount the
expected net cash flows have not been discounted to their present
value using a market determined risk adjusted discount rate.
14
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
i) Property, plant and equipment
Cash and valuation
Property, plant and equipment are carried at cost or at independent
valuation. Any surplus on revaluation is credited directly to the
asset revaluation reserve and excluded from the profit and loss
account.
Where assets have been revalued, the potential effect on the capital
gains tax on disposal has not been taken into account in the
determination of the revalued carrying amount. Where it is expected
that a liability for capital gains tax will arise, the expected amount
is disclosed by way of note.
Any gain or loss on the disposal of revalued assets is determined as
the difference between the carrying value of the asset at the time of
disposal and the proceeds from disposal, and is included in the
results of the company or economic entity in the year of disposal.
Depreciation
Depreciation is provided on a straight line basis on all property,
plant and equipment, other than freehold land, at rates calculated to
allocate the cost or valuation, less estimated residual value at the
end of the useful lives of the assets, against revenue over those
estimated useful lives.
Major depreciation periods are:
Plant and equipment - 5 to 15 years
Buildings on freehold land - 20 years
Leasehold improvements - the lease term or the estimated
useful life of the improvement,
whichever is shorter.
j) Leases
Finance leases, which effectively transfer to the economic entity
substantially all of the risks and benefits incidental to ownership of
the leased item, are capitalised at the present value of the minimum
lease payments, disclosed as leased property, plant and equipment, and
amortised over the period the economic entity is expected to benefit
from the use of the leased assets.
Operating lease payments, where the lessor effectively retains
substantially all of the risks and benefits of ownership of the leased
items, are included in the determination of the operating profit in
equal installments over the lease term.
The cost of improvements to or on leasehold property is capitalised,
disclosed as leasehold improvements and amortised over the unexpired
period of the lease or the estimated useful lives of the improvements,
whichever is the shorter.
15
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
k) Intangibles
Goodwill
Goodwill represents the excess of the purchase consideration over the
fair value of identifiable net assets acquired at the time of
acquisition of a business or shares in a controlled entity.
Goodwill is amortised by the straight line method over the period
during which benefits are expected to be received. This is taken as
being 20 years.
l) Other non-current assets
Expenditure carried forward
Significant items of carry forward expenditure having a benefit or
relationship to more than one period are written off over the periods
to which such expenditure relates.
m) Income tax
Tax-effect accounting is applied using the liability method whereby
income tax is regarded as an expense and is calculated on the
accounting profit after allowing for permanent differences. To the
extent timing differences occur between the time items are recognised
in the accounts and when items are taken into account in determining
taxable income, the net related taxation benefit or liability,
calculated at current rates, is disclosed as a future income tax
benefit or a provision for deferred income tax. The net future income
tax benefit relating to tax losses and timing differences is not
carried forward as an asset unless the benefit is virtually certain of
being realised.
Where assets are revalued no provision for potential capital gains tax
has been made.
Where the earnings of overseas controlled entities are subject to
taxation under the Controlled Foreign Companies rules, this tax has
been provided for in the accounts.
The income tax expense for the year is calculated using the 33% income
tax rate, however the deferred tax balances have been adjusted for the
increased corporate tax rate of 36%. The adjustment recognises that
reversal of timing differences will occur within the 1995-96 or later
income tax year, at which time tax will be attributable at a rate of
36%. The corresponding adjustment has been charged to income tax
expense.
n) Employee Entitlements
Provision is made for employee entitlement benefits accumulated as a
result of employees rendering services up to the reporting date. These
benefits include wages and salaries, annual leave, sick leave and long
service leave.
Liabilities arising in respect of wages and salaries, annual leave,
sick leave and any other employee entitlements expected to be settled
within twelve months of the reporting date are measured at their
16
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
n) Employee Entitlements (cont'd)
nominal amounts. All other employee entitlement liabilities are
measured at the present value of the estimated future cash outflows to
be made in respect of services provided by employees up to the
reporting date. In determining the present value of future cash
outflows, the interest rates attaching to government guaranteed
securities which have terms to maturity approximating the terms of the
related liability are used.
Employee entitlement expenses and revenues arising in respect to the
following categories:
* wages and salaries, non-monetary benefits, annual leave,
long service leave, sick leave and other leave
entitlements; and
* other types of employee entitlements
are charged against profits on a net basis in their respective
categories.
Some companies in the economic entity offer an employee incentive
scheme to all full time permanent employees. Benefits are payable
after a qualifying period of six years service with the companies and
three years membership in the scheme. Provision is based on the
estimated amount payable to employees.
A trust scheme has been established which offers benefits to full time
permanent staff. Benefits are payable after three years membership in
the scheme. Charges have been made against profits for amounts
expected to be paid to staff on entry in the scheme. A provision for
the full liability has been made.
Employee-contributory superannuation funds exist to provide benefits
for group's employees and their dependents on retirement, disability
or death. The contributions made to these funds by entities within the
economic entity are charged against profits.
17
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
2. OPERATING PROFIT
The operating profit before income tax
includes the following items of operating revenue:
Sales revenue 155,449 153,136 - -
Other revenue 384 510 2,098 1,503
Dividends -
Related bodies corporate - - 2,217 1,801
Other Corporations 254 3,312 - -
Interest -
Other persons/Corporations 269 306 19 -
------- ------- ----- ------
156,356 157,264 4,334 3,304
Proceeds on sale of non-current assets 737 833 - -
------- ------- ----- ------
Operating revenue 157,093 158,097 4,334 3,304
======= ======= ===== ======
The operating profit before income tax
is arrived at after charging/(crediting) the
following items:
Amortisation of expenditure carried
forward 18 17 - -
Amortisation of goodwill 139 130 - -
Amortisation and depreciation of
property, plant and equipment 9,713 8,894 22 19
Diminution in value of inventories 50 (102) - -
Bad and doubtful debts - Trade debtors
Other persons/bodies corporate 89 (38) - -
Interest expense -
Other persons/Corporations 2,209 4,527 - -
Finance charges -
Lease liability 10 18 - -
Rental - operating lease 449 429 - -
Loss on sale of non-current assets 18 321 - -
Net foreign currency (gains)/losses 221 153 (32) 3
Provisions for employee entitlements 2,227 2,001 95 163
Profit on sale of non-current assets (177) (404) - -
Superannuation Contributions 875 448 20 2
</TABLE>
18
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
3. ABNORMAL ITEMS
Included in the operating profit are the
following abnormal items:
Item charged
Write down of investment in Koppers
Power Poles (Australia) Pty. Limited - - - (209)
Applicable income tax - - - -
------- ------- ----- ------
- - - (209)
======= ======= ===== ======
</TABLE>
19
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
4. INCOME TAX
The prima facie tax, using tax rates applicable
in the country of operation, on operating profit
differs from the income tax provided in the
accounts as follows:
Prima facie tax on operating profit 8,073 6,708 774 531
Tax effect of permanent differences -
Exempt Income (777) (1,831) (707) (585)
Research and development (65) (91) - -
Depreciation of buildings 242 307 - -
Fringe benefits tax - 45 - 3
Entertainment 37 58 2 8
Amortisation of goodwill 95 93 - -
Writedown of investment - - - 69
Redemption of preference shares - 2,661 - -
Tax losses brought to account not
previously recognised - (1,758) - -
Other items (net) - 32 56 11
Future income tax benefit not brought to
account 58 34 - -
Under/(over) provision of previous year 518 25 - -
Net gain from change in income tax rate
from 33% to 36% 165 - (14) -
------- ------- ----- ------
Income tax expense attributable to
operating profit 8,346 6,283 111 37
======= ======= ===== ======
Income tax provided comprises:
Provision attributable to current year 8,308 7,237 215 74
Under/(over) provision of previous year 513 25 (1) -
Tax losses brought to account not
previously recognised - (1,758) - -
Provision attributable to future years
Deferred income tax liability (160) 693 - -
Future income tax benefit (315) 86 (103) (37)
------- ------- ----- ------
8,346 6,283 111 37
======= ======= ===== ======
Future income tax benefit arising from
tax losses of a controlled entity not
brought to account at balance date as
realisation of the benefit is not regarded
as virtually certain.
129 77 - -
======= ======= ===== ======
</TABLE>
20
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
4. INCOME TAX (cont'd)
This future income tax benefit will only
be obtained if:
a) future assessable income is
derived of a nature and of an
amount sufficient to enable the
benefit to be realised;
b) the conditions for deductibility
imposed by tax legislation
continue to be complied with; and
c) no changes in tax legislation
adversely affect the economic
entity in realising the benefit.
</TABLE>
21
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
5. CONTRIBUTIONS TO PROFIT
Contribution to group profit after tax:
Koppers Australia Pty. Limited 35 (11) - -
Koppers Coal Tar Products Pty. Ltd. 6,677 3,886 - -
Koppers Shipping Pty. Ltd. (365) 276 - -
Koppers Timber Preservation Pty. Ltd. 893 1,114 - -
Koppers Power Poles (Australia) Pty.
Limited 11 (238) - -
KAP Investments Inc. 634 1,568 - -
Continental Carbon Australia Pty.
Limited 1,145 1,348 - -
Koppers-Hickson Investments Pty.
Limited - - - -
Koppers-Hickson Timber Protection
Pty. Limited 753 731 - -
Koppers-Hickson Timber Protection
(NZ) Limited 1,340 862 - -
Koppers-Hickson Timber Protection
(PNG) Limited (106) 98 - -
Koppers-Hickson Timber Protection
(Fiji) Limited 102 81 - -
Koppers-Hickson Timber Protection
(Malaysia) SDN BHD 251 57 - -
Koppers-Hickson Timber Protection
(S) Pte Ltd (4) 91 - -
------ ----- ------- -------
11,366 9,863 - -
====== ===== ======= =======
6. DIVIDENDS PAID OR PROVIDED FOR
Dividends paid during the year
Franked dividends - 1,000 - 1,000
Unfranked dividends - - - -
------ ----- ------- -------
- 1,000 - 1,000
====== ===== ======= =======
No dividends have been proposed (1994:ANil)
</TABLE>
22
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
7. RECEIVABLES (CURRENT)
Trade debtors 21,577 20,894 - -
Provision for doubtful debts receivable (410) (346) - -
------ ------ ----- ------
21,167 20,548 - -
Amounts other than trade debts
receivable
Controlled Entity - - 1,068 455
Related body corporate 408 8 408 -
Short-term deposits 1,531 814 - -
Other 455 278 87 3
------ ------ ----- ------
23,561 21,648 1,563 458
====== ====== ===== ======
Australian dollar equivalent of amounts
receivable in foreign currencies not
effectively hedged:
- United States dollars 1,227 2,955 - -
- United Kingdom pounds - 2 - -
- Singapore dollars 163 608 - -
- Malaysian Ringgit - 1,128 - -
------ ------ ----- ------
1,390 4,693 - -
====== ====== ===== ======
8. INVENTORIES (CURRENT)
Raw materials and work in progress 16,274 13,579 - -
Finished goods 19,142 14,752 - -
Provision for diminution in value (393) (439) - -
------ ------ ----- ------
Total inventories at lower of cost and
net realisable value. 35,023 27,892 - -
====== ====== ===== ======
9. OTHER CURRENT ASSETS
Prepayments 645 1,345 3 4
Other 168 46 - -
------ ------ ----- ------
813 1,391 3 4
====== ====== ===== ======
</TABLE>
23
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C> <C> <C>
10. RECEIVABLES (NON-CURRENT)
Loans and advances
Related body corporate - 11 - -
Other 6,355 6,355 - -
------ ----- ------- -------
6,355 6,366 - -
====== ===== ======= =======
11. INVESTMENTS (NON-CURRENT)
Investments at costs compromise:
a) Unlisted controlled entities - - 38,646 38,662
Investments in unlisted controlled
entities are detailed in note 29
b) Unlisted associated entity
Percentage
Held by Group
1995 1994
% %
<S> <C> <C> <C> <C> <C> <C>
Koppers Industries, Inc. 18.8 18.8 3,488 3,446 - -
c) Other unlisted entities
Tar Tech International A/S 12.5 12.5 50 50 50 50
Koppers SEUT Pty. Limited 60 60 - - - -
------ ----- ------- -------
3,538 3,496 50 50
------ ----- ------- -------
3,538 3,496 38,696 38,712
====== ===== ======= =======
</TABLE>
Included in unlisted shares in other entities is an investment of A$3 in respect
of 60% of the issued capital of Koppers SEUT Pty. Limited. As this company acts
solely as the trustee for the Koppers Senior Executive Unit Trust, it is not
controlled by Koppers Australia Pty. Limited and has not been consolidated.
24
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
d) Investment in associated company
<TABLE>
<CAPTION>
Name Economic % held by Dividend
Entity Interest Economic Revenue
Entity
1995 1994 1995 1994 1995 1994
A$'000 A$'000 % % A$'000 A$'000
<S> <C> <C> <C> <C> <C> <C>
Koppers
Industries,
Inc. 3,488 3,446 18.8 18.8 254 3,312
</TABLE>
The balance date of Koppers Industries, Inc. is 31 December.
The equity-accounted amount of the investment in Koppers Industries,
Inc. is A$10,713,000 (1994: 5,384,000)
<TABLE>
<CAPTION>
1995 1994
A$'000 A$'000
<S> <C> <C>
Retained Profits attributable to Koppers Industries, Inc.
Balance at the beginning of the financial year 660 4,419
Share of operating profit and extraordinary
items after income tax expense 5,260 (447)
------ ------
5,920 3,972
Dividends received from associated company (254) (3,312)
------ ------
Balance at the end of the financial year 5,666 660
====== ======
Koppers Australia Pty. Limited's share of Koppers Industries, Inc.
reserves increments/(decrements), other than retained profits,
arising
during the year was A$281,000 (1994: A$(1,874,000)
Koppers Australia Pty. Limited's share or reserves in Koppers
Industries, Inc. A$1,559,000 (1994: A$1,278,000)
Carrying value of investments in Koppers Industries, Inc. 3,488 3,446
Add share of retained profits 5,666 660
Add share of reserves 1,559 1,278
-------- --------
Equity accounted amount of investment in
Koppers Industries, Inc. 10,713 5,384
======== ========
</TABLE>
Comparative equity information has been recalculated to reflect consistent
determination of ownership interest of 18.8% as disclosed in 1995.
25
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
d) Investment in associated company (cont'd)
The economic entity's share in the retained profits and
reserves of Koppers Industries, Inc. is not available for
payment of dividends to shareholders of Koppers
Australia Pty. Limited until such time as those profits
and reserves are distributed by Koppers Industries, Inc.
Principal activities of Koppers Industries, Inc. are:
Producer of Tar Products
carbon pitch
creosote
phthalic anhydride (PAA)
roofing pitch/bitumen
Producer of Wood Products
treats railroad crossties, poles and
pilings for various uses.
Producer of Coke Products
foundry & furnace coke and
marketable by-products including coal
tars, gases, oils and chemicals
No adjustment has been made to reflect the dissimilar
accounting policy adopted by the associate company in
relation to valuation of inventory. In particular the last-
in-first-out method of inventory valuation has been
adopted by the associate.
The associate company holds a reciprocal shareholding
in Koppers Australia Pty. Limited of 42.5%. No dividend
has been paid to the associate by Koppers Australia Pty.
Limited.
There are no substantial subsequent events affecting
Koppers Industries, Inc. profits for the ensuing year.
</TABLE>
26
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
12. PROPERTY, PLANT AND EQUIPMENT
Freehold land:
At cost 388 386 - -
At directors' valuation 1 July 1983 1,217 1,217 - -
------- ------- ------ ------
1,605 1,603 - -
------- ------- ------ ------
Buildings on freehold land:
At cost 5,120 4,031 - -
At directors' valuation 1 July 1983 2,671 2,679 - -
------- ------- ------ ------
7,791 6,710 - -
------- ------- ------ ------
Provision for depreciation of
buildings on freehold land:
At cost 888 713 - -
At directors' valuation 1 July 1983 1,276 994 - -
------- ------- ------ ------
2,164 1,707 - -
------- ------- ------ ------
Written down amount of buildings
on freehold land:
At cost 4,232 3,318 - -
At directors' valuation 1 July 1983 1,395 1,685 - -
------- ------- ------ ------
5,627 5,003 - -
------- ------- ------ ------
Leasehold improvements:
At cost 2,131 1,617 - -
Provision for amortisation 420 312 - -
------- ------- ------ ------
1,711 1,305 - -
------- ------- ------ ------
Plant and equipment:
At cost 83,475 75,783 174 127
At directors' valuation 1 July 1983 14,779 15,074 - -
Provision for depreciation 39,077 30,034 41 19
------- ------- ------ ------
59,177 60,823 133 108
------- ------- ------ ------
Plant and equipment under lease:
At cost - 70 - -
Provision for amortisation - 35 - -
------- ------- ------ ------
- 35 - -
------- ------- ------ ------
</TABLE>
27
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
12. PROPERTY, PLANT AND
EQUIPMENT (cont'd)
Assets under construction
At cost 1,561 687 - -
------- ------- ------ -------
Total property, plant and equipment:
At cost 92,675 82,574 174 127
At directors' valuation 1 July 1983 18,667 18,970 - -
------- ------- ------ -------
111,342 101,544 174 127
Provision for depreciation and
amortisation 41,661 32,088 41 19
------- ------- ------ -------
Total written down amount 69,681 69,456 133 108
======= ======= ====== =======
</TABLE>
Valuations
All valuations are estimates of the amounts for which the assets could be
exchanged between a knowledgeable willing buyer and a knowledgeable willing
seller in an arm's length transaction at the valuation date. The economic
entity does not have a set policy for regular revaluation of freehold land and
buildings.
As at 30 June 1995 management have valued interests in land and buildings which
have not been revalued within the last three years as follows:-
<TABLE>
<S> <C>
Freehold land 1,700
=======
Buildings 5,700
=======
</TABLE>
These interests are recorded in the accounts above at cost and at directors
valuation on 1 July 1983.
<TABLE>
<S> <C> <C> <C> <C>
13. INTANGIBLES
Goodwill 2,371 2,151 _ _
Provision for amortisation 832 638 _ _
------- ------- ------ -------
1,539 1,513 _ _
======= ======= ====== =======
</TABLE>
28
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
14. OTHER NON-CURRENT ASSETS
Expenditure carried forward 1,549 1,612 - -
Provision for amortisation (209) (52) - -
------ ------ ------ ------
1,340 1,560 - -
Future income tax benefits 752 437 164 60
------ ------ ------ ------
2,092 1,997 164 60
====== ====== ====== ======
15. CREDITORS AND BORROWINGS
(CURRENT)
Bank overdrafts 3,524 2,221 - 440
Trade creditors 12,804 9,218 202 47
Lease liability 31 63 - -
Related Bodies Corporate 209 - - -
Other 670 776 - -
------ ------ ------ ------
17,238 12,278 202 487
====== ====== ====== ======
Australian dollar equivalents of amounts payable
in foreign currencies not effectively hedged:
- - United States dollars 1,944 838 - -
- - United Kingdom pounds 268 375 - -
- - Singapore dollars 27 1,140 - -
- - New Zealand dollars 449 379 - -
- - Malaysian ringgit - 579 - -
- - Fijian dollars 92 58 - -
------ ------ ------ ------
2,780 3,369 - -
====== ====== ====== ======
Refer to note 25 for details of security held over
borrowings.
16. PROVISIONS (CURRENT)
Taxation 6,715 4,609 215 74
Employee entitlements 3,303 3,157 351 168
Other 482 212 - -
------ ------ ------ ------
10,500 7,978 566 242
====== ====== ====== ======
17. CREDITORS AND BORROWINGS
(NON-CURRENT)
Bills of Exchange and Bank Loans 14,500 24,611 - -
Lease liability - 27 - -
------ ------ ------ ------
14,500 24,638 - -
====== ====== ====== ======
</TABLE>
Refer to note 25 for details of security held over borrowings.
29
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
18. PROVISIONS (NON-CURRENT)
Employee entitlements 2,405 1,198 107 19
Deferred income tax liability 2,617 2,777 - -
------ ------ ------ ------
5,022 3,975 107 19
====== ====== ====== ======
19. SHARE CAPITAL
Authorised capital
6,187,500 'A' class shares of $1 each 6,188 6,188 6,188 6,188
6,187,500 'B' class shares of $1 each 6,188 6,188 6,188 6,188
2,183,824 'C' class shares of $1 each 2,183 2,183 2,183 2,183
6,441,170 ordinary shares of $1 each 5,441 5,441 5,441 5,441
------ ------ ------ ------
20,000 20,000 20,000 20,000
------ ------ ------ ------
Issued and fully paid up capital
6,187,500 'A' class shares of $1 each 6,188 6,188 6,188 6,188
6,187,500 'B' class shares of $1 each 6,188 6,188 6,188 6,188
2,183,824 'C' class shares of $1 each 2,183 2,183 2,183 2,183
------ ------ ------ ------
14,559 14,559 14,559 14,559
====== ====== ====== ======
20. RESERVES
Reserves comprise:
Share premium account 2,330 2,330 2,330 2,330
Asset revaluation 1,625 1,625 12,028 12,028
Foreign currency translation 1,934 1,125 - -
------ ------ ------ ------
Total reserves 5,889 5,080 14,358 14,358
====== ====== ====== ======
Movement in reserve
Foreign currency translation
balance at beginning of year 5,080 6,633 14,358 14,358
gain/(loss) on translation of overseas
controlled entities 809 (1553) - -
------ ------ ------ ------
Balance at end of year 5,889 5,080 14,358 14,358
====== ====== ====== ======
</TABLE>
30
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
21. OUTSIDE EQUITY INTEREST
Analysis of outside equity in
controlled entities:
- - Share capital 6,860 6,860 - -
- - Retained profits 8,658 7,549 - -
------ ------ ------ ------
15,518 14,409 - -
====== ====== ====== ======
Reconciliation of outside equity interest
in controlled entities:
- - Opening balance 14,409 12,909 - -
- - Add share of operating profit 3,006 2,800 - -
- - Less adjustment for accounting
standard (65) - - -
- - Less dividends (1,832) (1,300) - -
------ ------ ------ ------
- - Closing balance 15,518 14,409 - -
====== ====== ====== ======
22. STATEMENT OF CASH FLOWS
a) Reconciliation of cash
Cash balance comprises:
- cash on hand 7,150 4,212 940 -
- bank overdraft (3524) (2,221) - (440)
------ ------ ------ ------
Closing cash balance 3,626 1,991 940 (440)
====== ====== ====== ======
b) Reconciliation of the operating
profit after tax to the net cash flows
from operations
Operating profit after tax 14,372 12,664 2,233 1,572
Depreciation and amortisation
- property, plant and equipment 9,713 8,894 22 19
- intangibles 139 130 - -
Diminution in value of inventories 50 (102) - -
Provision for diminution in the value
of investments - - - 209
Provision for employee entitlements 2,227 1,333 95 163
Proceeds from the sale of non-current
assets (737) (833) - -
Book value of non-current assets sold 578 750 - -
</TABLE>
31
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
22. STATEMENT OF CASH FLOWS (cont'd)
Changes in assets and liabilities
Trade receivables (619) 218 - -
Inventory (7,181) 1,589 - -
Other Current Assets (953) (201) (1,105) (278)
Goodwill (165) (27) - -
Other Non-Current Assets 998 182 - -
Trade Creditors 3,586 (2,186) 155 15
Other Current Liabilities (1,209) (1,985) (27) (11)
Other Non-Current Liabilities (27) (45) - -
Tax Provision 2,106 (756) 141 74
Deferred income tax liability (160) 561 - -
Future income tax benefit (315) 86 (104) (60)
Prepayments 700 (112) 1 (4)
------ ------ ------ -----
Net cash flow from operating
activities 23,103 20,160 1,411 1,699
====== ====== ====== =====
</TABLE>
c) Bank overdraft facility
Refer to note 25 for details of group bank facility
32
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
23. EXPENDITURE COMMITMENTS
Capital expenditure commitments
Estimated capital expenditure contracted
for at balance date but not provided for
- payable not later than one year 64 61 - -
===== ===== ====== ======
Lease expenditure commitments
Operating leases (non-cancelable):
- Not later than one year 387 364 - -
- Later than one year and not later
than two years 203 181 - -
- Later than two years and not later
than five years 577 532 - -
- Later than five years 247 381 - -
----- ----- ------ ------
Aggregate lease expenditure contracted
for at balance date but not provided for 1,414 1,458 - -
===== ===== ====== ======
Finance leases:
- Not later than one year 31 46 - -
- Later than one year and not later
than two years - 27 - -
- Later than two years and not later
than five years - - - -
- Later than five years - - - -
----- ----- ------ ------
Total minimum lease payments 31 73 - -
Future finance charges - - - -
----- ----- ------ ------
Lease liability 31 73 - -
===== ===== ====== ======
Current liability 31 46 - -
Non-current liability - 27 - -
----- ----- ------ ------
31 73 - -
===== ===== ====== ======
</TABLE>
33
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
CONSOLIDATED
KOPPERS AUSTRALIA
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
24. EMPLOYEE ENTITLEMENTS AND
SUPERANNUATION COMMITMENTS
Employee Entitlements
The aggregate employee entitlement
liability is comprised of:
Accrued wages, salaries and oncosts 53 30 - -
Provisions (current) 3,303 3,157 351 168
Provisions (non-current) 2,405 1,198 107 19
----- ----- ---- ------
5,761 4,385 458 187
===== ===== ==== ======
</TABLE>
34
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
24. EMPLOYEE ENTITLEMENTS AND SUPERANNUATION COMMITMENTS (cont'd)
Superannuation Commitments
All employees are entitled to varying levels of benefits on retirement,
disability or death. The superannuation plan provides defined benefits based on
years of service and final average salary. Employees contribute to the plans at
various percentages of their wages and salaries. Up until the year ended 30
June 1994, the economic entity did not contribute to the plan. Commencing this
year, the economic entity has contributed to the plan amounts advised by the
plan manager. These contributions are not of a systematic and long-term nature
as the plan has sufficient funds to satisfy all benefits vested under the plan
as at 30 June 1995.
Details of the superannuation fund as extracted from the fund's 1992 Actuarial
Review are as follows:
<TABLE>
<CAPTION>
A$'000
<S> <C>
Accrued benefits 1,046,636
Net market value of plan assets 1,280,800
---------
Surplus of net market value of plan assets over accrued benefits 234,164
=========
Vested benefits 998,700
=========
</TABLE>
Actuarial assessment of the plan was made in 1992 by William M. Mercer Pty. Ltd.
35
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
25. CONTINGENT LIABILITIES
Related bodies corporate
Bank guarantees covering security deposits,
contract performance and autopay 1,638 1,316 1,638 1,316
===== ====== ===== =====
</TABLE>
Koppers Australia Pty. Limited and related companies, namely Koppers Power Poles
(Australia) Pty. Limited, Koppers Coal Tar Products Pty. Ltd., Koppers Timber
Preservation Pty. Ltd. and Koppers Investments (Aust.) Pty. Limited have
collectively unrestricted access to borrowing facilities to a maximum of
$47,850,000.
The amount of credit unused at 30 June 1995 totaled $29,826,000.
The security held by the bank over the above facilities include registered
mortgages over certain freehold property and registered equitable mortgages over
the assets and undertakings including unpaid and uncalled capital of the company
and related companies.
In addition, a fully interlocking guarantee has been provided by the above-
mentioned related companies, to provide security over the borrowing facilities
of the company and its related companies. Under the terms of an ASC Class Order
these above mentioned companies have guaranteed any deficiency of funds if any
of the companies is wound up. No such deficiency exists. Refer to note 29.
<TABLE>
<S> <C> <C> <C> <C>
26. AUDITORS' REMUNERATION
Amounts received or due and receivable by the
auditors, from entities in the economic entity or
related entities
Auditing accounts
Auditors of chief entity 234 215 35 30
Other auditors 32 33 - -
Other services
Auditors of chief entity 102 89 20 72
Other auditors 10 11 - -
----- ------ ----- -----
378 348 55 102
===== ====== ===== =====
</TABLE>
36
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
27. SUBSEQUENT EVENTS
There has been no significant event since balance date.
28. RELATED PARTY DISCLOSURES
a) The directors of Koppers Australia Pty. Limited during the financial
year were:
D.P. Traviss;
E.S. Bryon;
M.J. Burns;
E.A. Clendaniel;
B.K. Jensen;
P.J. Laver;
C.E. Smith;
R.K. Wagner;
T.G. Mullen;
C.R. Newell;
A. Purnell; and
B.C. Wilson
b) The following related party transactions occurred during the financial
year:
Transactions with related parties
i) Dividends received of A$253,550. (1994: A$1,792,006)
ii) Professional fees of A$408,000 (1994: nil) paid on behalf of
related party and oncharged. Refer to note 7.
c) Transactions with the Directors of Koppers Australia Pty. Limited and
the economic entity:
During 1992 Koppers Australia Pty Limited caused to be issued units in
a management incentive scheme to various executives of the group. Unit
holders are entitled, but not obliged, to exchange all or some of
their units for cash after holding units for a qualifying period of
three years. The executives are obliged to exchange all units for cash
on their resignation, retirement or dismissal from employment.
37
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
28. RELATED PARTY DISCLOSURES (cont'd)
The growth in value of these units, and the resulting benefit to the
executives, is determined by reference to the profitability after tax of
the Koppers Australia group. Benefits from this scheme are funded by
companies within the Koppers Australia group. Three directors of Koppers
Australia Pty. Limited, namely B.C. Wilson, C.R. Newell and E.S. Bryon were
issued units in this scheme in 1992 and 1994. As at 30 June 1995, the
combined value of the units issued to the above directors is $91,200.
There have been no other transaction concerning shares between entities in
the reporting entity and directors of the reporting entity or their
director-related entities.
All financial benefits provided by Koppers Australia Pty. Limited or its
controlled entities to related parties were provided at arms' length terms.
d) Koppers Australia Pty. Limited is the ultimate Australian holding
company.
38
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
29. INVESTMENTS (NON-CURRENT)
Investment in unlisted controlled entities comprises:
<TABLE>
<CAPTION>
Name County Beneficial Investment
of Incorp- percentage held Koppers Australia
oration by economic Pty. Limited
entity
1995 1994 1995 1994
% % A$'000 A$'000
<S> <C> <C> <C> <C> <C> <C>
Koppers Investments (Aust.) Pty.
Limited (i) Australia 100 100 6,355 6,355
KAP (UK) Limited U.K. 100 100 - 16
Koppers-Hickson Investments Pty
Limited Australia 51 51 3,060 3,060
Koppers Power Poles (Australia)
Pty. Limited (i) Australia 100 100 955 955
Continental Carbon Australia Pty.
Limited Australia 51 51 1,526 1,526
KAP Investments Inc. U.S.A. 100 100 10,846 10,846
Koppers Timber Preservation Pty.
Ltd. (i) Australia 100 100 6,899 6,899
Koppers Coal Tar Products Pty. Ltd (i) Australia 100 100 9,005 9,005
Koppers Shipping Pty. Ltd. (i) Australia 100 100 - -
------ ------
38,646 38,662
====== ======
</TABLE>
39
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
29. INVESTMENTS (NON-CURRENT) (cont'd)
(i) Pursuant to a Class order dated 19 December 1991, relief has been
granted to this controlled entity of Koppers Australia Pty. Limited
form the Corporations Law requirements for preparation, audit and
publication of accounts.
As a condition of the class order, Koppers Australia Pty. Limited and
the controlled entity subject to the class order, entered into a deed
of indemnity on May 18 1995. The effect of the deed is that Koppers
Australia Pty. Limited has guaranteed to pay any deficiency in the
event of winding up of the controlled entity. The controlled entity
has also given a similar guarantee in the event that Koppers Australia
Pty. Limited is wound up. The aggregate assets and liabilities of the
companies subject to the deed, and the aggregate result of these
companies are as follows:
<TABLE>
<CAPTION>
1995 1994
A$'000 A$'000
<S> <C> <C>
Total assets 103,426 135,256
Total liabilities 55,532 61,992
------- -------
Net assets 47,894 73,264
======= =======
Profit after income tax 7,216 5,027
======= =======
</TABLE>
Overseas unlisted controlled entities carrying on business in the country
of incorporation.
<TABLE>
<CAPTION>
Name Country Percentage held
of Incorp- by Controlled
oration Entities of
Koppers
Australia Pty.
Limited
1995 1994
% %
<S> <C> <C> <C> <C>
Koppers-Hickson Timber Protection Pty.
Limited Australia 51 51
Koppers-Hickson (PNG) Pty. Limited P.N.G. 51 51
Koppers-Hickson Timber Protection (NZ) (ii) New
Limited Zealand 51 51
Koppers-Hickson Timber Protection (Fiji)
Limited (ii) Fiji 51 51
Koppers-Hickson Timber Protection
(Malaysia) SDN BHD (ii) Malaysia 51 51
Koppers-Hickson Timber Protection (S) Pte
Ltd (ii) Singapore 51 51
</TABLE>
(ii) Controlled entities which are audited by other member firms of Ernst &
Young International.
40
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
<TABLE>
<CAPTION>
Notes Timber Chemicals Carbon Cool Tar Other Eliminations Consolidation
Preservation Black Products
A$'000 A$'000 A$'000 A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30. SEGMENT INFORMATION
(a) Industry Segments
Operating Revenue
Sales to customers outside the
economic entity 31,391 36,952 30,367 57,503 880 - 157,093
Intersegment Sales 2 244 3,227 - 14,353 4,767 (22,591) -
------- ------ ------ ------ ------ ------- -------
31,635 40,179 30,367 71,856 5,647 (22,591) 157,093
======= ====== ====== ====== ====== ======= =======
Consolidated Operating Profit/(Loss) 2 904 4,152 1,983 6,312 2,654 (1,633) 14,372
======= ====== ====== ====== ====== ======= =======
Segment Assets 29,721 25,695 20,584 67,349 70,373 (65,501) 148,221
======= ====== ====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
(b) Geographical Segments Australia P.N.G. New Zealand South East
& Fiji Asia
Operating Revenue A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to customers outside the
economic entity 131,044 550 18,792 6,707 - - 157,093
Intersegment Sales 22,356 45 190 - - (22,591) -
------- ------ ------ ------ ------ ------- -------
2 153,400 595 18,982 6,707 - (22,591) 157,093
======= ====== ====== ====== ====== ======= =======
Consolidated Operating Profit 2 12,951 (207) 2,779 482 - (1,633) 14,372
======= ====== ====== ====== ====== ======= =======
Segment Assets 203,469 661 12,801 2,477 - (71,187) 48,221
======= ====== ====== ====== ====== ======= =======
</TABLE>
41
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------
30 JUNE 1995
------------
30. SEGMENT INFORMATION (cont'd)
----------------------------
The economic entity operates predominantly in four industries - timber
preservation, chemicals, carbon black and coal tar products, and in four
geographical areas - Australia, P.N.G., New Zealand and Fiji and South East
Asia. The manufacturing operations comprise the refinement and distribution
of coal tar products, the manufacture of wood preservation chemicals, the
preservation of timber products and carbon black.
<TABLE>
<CAPTION>
CONSOLIDATED KOPPERS AUSTRALIA
PTY. LIMITED
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
31. REMUNERATION OF DIRECTORS
Amounts received or due and receivable by the
directors of the economic entity from corporations
of which they are directors or related bodies
corporate or entities controlled by the chief entity. 1,612 1,695
===== =====
The directors have applied ASC Class Order 94/1529,
in the disclosure of directors' remuneration and
benefits.
Amounts received or due and receivable by the
directors of Koppers Australia Pty. Limited from
that company and related bodies corporate. 753 853
=== ===
The number of directors of Koppers Australia
Pty. Limited whose remuneration (including
superannuation contributions) falls within the
following bands:
$0 - $ 9,999 8 7
$100,000 - $109,999 - 1
$170,000 - $179,999 - 1
$190,000 - $199,999 2 -
$200,000 - $209,999 - 1
$350,000 - $359,999 1 -
$370,000 - $379,999 - 1
--- ---
11 11
=== ===
</TABLE>
In the opinion of the directors, remuneration paid to directors is considered
reasonable.
42
<PAGE>
Exhibit 99.2
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
CONSOLIDATED PROFIT AND LOSS ACCOUNT
------------------------------------
(In thousands of Australian dollars)
SIX MONTHS ENDED 31 DECEMBER 1995
---------------------------------
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
(Unaudited)
SALES $82,130 $75,314
GROSS PROFIT 28,288 22,471
SELLING GENERAL & ADMINISTRATIVE 6,871 6,732
DEPRECIATION 5,291 4,976
------- -------
EARNINGS BEFORE INTEREST & TAXES 16,126 10,763
INTEREST EXPENSE 781 1,162
EQUITY INCOME 3,102 -
INCOME TAX 6,658 3,445
------- ------
NET INCOME BEFORE MINORITY INTEREST 11,789 6,156
MINORITY INTEREST 1,906 1,562
------- ------
NET INCOME $ 9,883 $ 4,594
======= =======
</TABLE>
See accompanying notes.
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
CONSOLIDATED BALANCE SHEET
--------------------------
(In thousands of Australian dollars)
AT 31 DECEMBER 1995
-------------------
<TABLE>
<CAPTION>
1995
----
<S> <C>
(Unaudited)
Cash $ 2,606
Receivables 33,427
Inventory 36,173
Other Current Assets 2,714
Net Fixed Assets 68,073
Investments 2,550
Goodwill 1,573
--------
TOTAL ASSETS $147,116
========
Creditors 14,262
Short Term Loans 3,456
Other Current Liabilities 13,903
Long Term Loans 13,500
Other Non-Current Liabilities 4,323
--------
TOTAL LIABILITIES $ 49,444
========
Share Capital 14,559
Reserves 4,826
Profit & Loss Appropriation 70,442
Minority Interest 7,845
--------
TOTAL SHARE CAPITAL $ 97,672
========
</TABLE>
See accompanying notes.
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
(ACN 000 566 629)
-----------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(In thousands of Australian dollars)
SIX MONTHS ENDED 31 DECEMBER 1995
---------------------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
(Unaudited)
CASH FROM OPERATIONS $ 20,132 $14,377
(INCREASE)/DECREASE IN WORKING CAPITAL (5,593) 2,624
CAPITAL EXPENDITURES (11,266) (3,967)
CASH TAXES (3,480) (2,849)
DIVIDENDS RECEIVED 2,248 788
-------- -------
CASH SURPLUS $ 2,041 $10,973
======== =======
</TABLE>
See accompanying notes.
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
(1) The audited financial statements of Koppers Australia Pty. Limited
("Koppers Australia") for the Fiscal years ended June 30, 1995 and 1994
include additional information about Koppers Australia, its operations,
and its financial position, and should be read in conjunction with these
unaudited interim financial statements.
(2) The results for the interim periods are not necessarily indicative of
the results to be expected for the full year.
(3) In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included.
(4) Capital expenditures for Fiscal 1995 include approximately $7 million
related to the purchase of 49% of Continental Carbon Australia Pty.
Limited, resulting in 100% ownership by Koppers Australia.
