<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
[_]Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From to Commission file number 1-12716
KOPPERS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1588399
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
436 SEVENTH AVENUE
PITTSBURGH, PENNSYLVANIA 15219
(412) 227-2001
(Addresses of principal executive offices)
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Voting and Non-Voting Common Stock, par value $.01 per share, outstanding at
April 10, 1997 amounted to 6,322,493 and 3,628,200 shares, respectively.
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share figures)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Net sales................................................. $ 133,980 $ 126,701
Operating expenses:
Cost of sales........................................... 115,222 111,247
Depreciation and amortization........................... 5,902 4,943
Selling, general and administrative..................... 6,755 6,256
--------- ---------
Total operating expenses.............................. 127,879 122,446
--------- ---------
Operating profit.......................................... 6,101 4,255
Equity in earnings of affiliates........................ 1,990 1,791
Litigation charges...................................... -- 10,946
--------- ---------
Income (loss) before interest expense and provision for
income taxes............................................. 8,091 (4,900)
Interest expense.......................................... 4,145 3,734
--------- ---------
Income (loss) before income tax provision (benefit)....... 3,946 (8,634)
Income tax provision (benefit)............................ 556 (894)
--------- ---------
Net income (loss)......................................... $ 3,390 $ (7,740)
========= =========
Earnings (loss) per share of common stock................. $ 0.37 $ (0.78)
========= =========
</TABLE>
See accompanying notes.
2
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996*
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 3,808 $ 1,526
Accounts receivable less allowance for doubtful
accounts
of $165 in 1997 and $164 in 1996................... 68,710 72,229
Inventories:
Raw materials..................................... 38,920 33,635
Work in process................................... 3,049 3,168
Finished goods.................................... 44,698 44,090
LIFO reserve...................................... (8,570) (7,971)
--------- ---------
Total inventories............................... 78,097 72,922
Other............................................... 12,588 13,589
--------- ---------
Total current assets.............................. 163,203 160,266
Investments........................................... 54,545 55,373
Fixed assets.......................................... 299,882 296,688
Less: accumulated depreciation...................... (128,886) (123,468)
--------- ---------
Net fixed assets.................................. 170,996 173,220
Other assets.......................................... 23,643 22,321
--------- ---------
Total assets...................................... $ 412,387 $ 411,180
========= =========
</TABLE>
- - --------
*Summarized from audited fiscal year 1996 balance sheet.
See accompanying notes.
3
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands except shares figures)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996*
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 36,440 $ 37,255
Accrued liabilities................................. 33,157 38,174
Current portion of term loans....................... 12,149 7,149
-------- --------
Total current liabilities......................... 81,746 82,578
Long-term debt:
Revolving credit.................................... 45,500 43,000
Term loans.......................................... 49,698 49,735
Senior Notes........................................ 110,000 110,000
-------- --------
Total long-term debt.............................. 205,198 202,735
Other long-term reserves.............................. 47,537 47,804
-------- --------
Total liabilities................................. 334,481 333,117
Common stock subject to redemption.................... 23,568 23,957
Voting common stock, $.01 par value: 10,000,000 shares
authorized,
6,707,952 shares issued in 1997 and 1996............. 67 67
Non-voting common stock $.01 par value: 10,000,000
shares authorized,
3,628,200 shares issued and outstanding in 1997 and
1996................................................. 36 36
Capital in excess of par value........................ 11,675 11,675
Retained earnings..................................... 48,663 45,813
Cumulative translation adjustment..................... (732) 2,181
Treasury stock, at cost, 1,510,459 shares in 1997 and
1,531,511 shares in 1996............................. (5,371) (5,666)
-------- --------
Total liabilities and stockholders' equity........ $412,387 $411,180
======== ========
</TABLE>
- - --------
*Summarized from audited fiscal year 1996 balance sheet.
See accompanying notes.
4
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Cash used in operating activities.......................... $ (360) $ (5,428)
Cash used in investing activities:
Capital expenditures..................................... (3,492) (6,647)
Other.................................................... 60 (107)
-------- --------
Net cash used in investing activities.................. (3,432) (6,754)
Cash provided by (used in) financing activities:
Borrowings from revolving credit......................... 36,250 65,500
Repayments of revolving credit........................... (28,750) (26,500)
Repayment of long-term debt.............................. (37) (10,000)
Payment of deferred financing costs...................... (103) --
Net purchases of voting common stock..................... (540) (532)
Purchase of non-voting common stock...................... -- (12,250)
Dividends on common stock................................ (746) (838)
-------- --------
Net cash provided by financing activities.............. 6,074 15,380
-------- --------
Net increase (decrease) in cash............................ 2,282 3,198
Cash at beginning of period................................ 1,526 1,618
-------- --------
Cash at end of period...................................... $ 3,808 $ 4,816
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 6,260 $ 15,843
Income taxes........................................... $ 968 $ 2,315
</TABLE>
See accompanying notes.
5
<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 which follows these notes 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 annual
report on Form 10-K for the fiscal year ended December 31, 1996 includes
additional information about the Company, its operations, and its financial
position, and should be read in conjunction with this quarterly report on Form
10-Q.
(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) On April 1, 1996 the Company completed the acquisition of the coal
chemical business of Aristech Chemical Corporation, which included a coal tar
processing facility in Clairton, Pennsylvania. See Note 3 of the Notes to
Consolidated Financial Statements on page 45 of the Company's 1996 Form 10-K.
(5) The Company has a 50% investment in Koppers Australia Pty. Limited
("Koppers Australia") and accounts for this investment using the equity method.
This investment is considered to be a significant subsidiary as defined by
applicable SEC regulations. The following summarizes the income statement of
this unconsolidated company:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1997 1996
------- -------
(In thousands)
<S> <C> <C>
Net sales..................................................... $31,245 $28,469
Costs and expenses:
Cost of sales............................................... 24,655 21,652
General and administrative.................................. 2,552 2,680
------- -------
27,707 24,332
Interest expense.............................................. 215 201
Equity income................................................. (964) 810
Income taxes.................................................. 675 1,881
Minority interest............................................. 333 313
------- -------
Net income.................................................... $ 1,852 $ 2,552
======= =======
Company's share of net income................................. $ 1,138 $ 1,100
======= =======
</TABLE>
(6) COMMITMENTS AND CONTINGENCIES
Environmental Indemnity and Guarantee (See Note 11 of the Notes to
Consolidated Financial Statements on page 53 of the Company's 1996 Form 10-K)
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 among the management investors, Beazer
Inc. and Koppers Australia at the formation of the Company in 1988 (the "Asset
Purchase Agreement") Beazer East, Inc. ("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
(the "Indemnity").
6
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Unaudited)
Beazer Limited unconditionally guaranteed Beazer East's performance of the
indemnity pursuant to a guarantee (the "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 Indemnity 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.
Beazer East and Beazer Limited are indirect subsidiaries of Hanson PLC. The
largest and smallest group in which the results of these companies are
consolidated is that headed by Hanson PLC. Beazer East is an operating company
which had revenues of approximately $600 million for each of the last three
fiscal years ended September 28, 1996 and had total assets of $1.7 billion as
of September 28, 1996. The Beazer East unaudited consolidated balance sheet at
September 28, 1996 reflects negative net worth of $64 million (including an
intercompany liability of $1.4 billion). This negative net worth is in large
measure the result of the adoption of SFAS 121, which resulted in pre-tax
charges for asset write downs of $4.4 billion during fiscal year 1996.
Furthermore, Beazer East had a negative cash flow from operations in the fiscal
year ended September 28, 1996 and required funding from other Hanson
subsidiaries to meet its obligations. According to the Directors' Report and
draft accounts for the year ended September 30, 1996 Beazer Limited is a
holding company. While the balance sheet at September 30, 1996 expects to show
a negative shareholder funds balance of (Pounds)10.4bn, the accounts are
prepared under the going concern concept because a fellow subsidiary
undertaking provides financial support to enable Beazer Limited to meet its
liabilities as they fall due. The Company has been informed that Beazer East
and Beazer Limited will remain wholly-owned indirect subsidiaries of Hanson
PLC. Management believes that Beazer East and Beazer Limited will continue to
fulfill their obligations as they have for the last 8 years.
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. The Company has been informed
by Beazer East that for the last three years amounts paid by Beazer East under
the Indemnity have averaged approximately $13 million per year. The requirement
to pay 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 matters covered by the Indemnity on its balance sheet the result
could be that the Company would have significant negative net worth.
In addition, Beazer East 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
Asset Purchase Agreement and, in any event, are within the scope of the
Indemnity.
The Jefferson County Department of Health ("Jefferson County") issued a
notice of violation in March 1996 in connection with various alleged violations
of Jefferson County's air pollution control regulations for emissions from coke
oven batteries at the Company's Woodward, Alabama coke facility (the "Woodward
7
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Unaudited)
Facility") during the period May 26, 1992 through March 1, 1996. The Company
and Jefferson County are currently negotiating a settlement agreement,
pursuant to which the Company might be required to install monitoring and
control equipment and institute operational changes. The present draft of the
settlement agreement also proposes that the Company pay a civil penalty in the
amount of $300,000, although the Company has not agreed to such amount. In
addition, the Company has decided that it will permanently shut down Batteries
No. 4A and No. 4B and idle one-half of Battery No. 5 at the Woodward Facility,
resulting in a loss of approximately one-third of the production capacity.
Recently, the United States Environmental Protection Agency ("EPA") sent a
notice of violation to the Company covering the same issues that are being
addressed in the settlement agreement negotiations. There can be no assurance
that the resolution of this matter, including additional actions or penalties
that might be required by the EPA, if any, will not have a material adverse
effect on the business, financial condition and results of operations of the
Company.
The Company recently discovered that certain benzene abatement equipment at
the Company's Woodward Facility has not been operational for several months.
Following a preliminary investigation the Company also discovered that certain
reports and records contained incomplete and inaccurate information and that
certain reports and certifications were not filed when required. The Company
has notified Jefferson County, the State of Alabama and the EPA of the
environmental irregularities. Counsel and independent investigators have been
retained to conduct a complete and thorough investigation. While the Company
believes that the costs to repair such equipment will not exceed $300,000, the
Company could be subject to significant liability in connection with these
matters, including fines and civil and criminal penalties and the risk of
third party litigation and there can be no assurances that the resolution of
these matters will not have a material adverse effect on the business,
financial condition and results of operations of the Company.
The Pennsylvania Department of Environmental Protection ("PADEP") recently
issued a notice of violation alleging that the boilers at the Monessen
Facility are emitting greater quantities of nitrogen oxides than allowed under
a plan approved by PADEP. The Company is currently installing additional
equipment, modifying existing equipment and investigating additional methods
to improve boiler performance. If these measures are not successful, the
Company may have to install post-combustion control equipment and/or discuss
plan approval modifications with PADEP. Resolution of the matter could have a
negative effect on the business, financial condition and results of operations
of the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Environmental Matters".
8
<PAGE>
KOPPERS INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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
ENDED
MARCH 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
NET SALES (In thousands):
Carbon Materials & Chemicals............................ $ 58,277 $ 44,278
Railroad & Utility Products............................. 53,516 54,205
Coke Products........................................... 22,187 28,218
-------- --------
Total................................................. $133,980 $126,701
======== ========
SEGMENT SALES AS PERCENTAGE OF TOTAL:
Carbon Materials & Chemicals............................ 43.5% 34.9%
Railroad & Utility Products............................. 39.9% 42.8%
Coke Products........................................... 16.6% 22.3%
-------- --------
Total................................................. 100.0% 100.0%
GROSS MARGIN BY SEGMENT:
Carbon Materials & Chemicals............................ 18.9% 14.5%
Railroad & Utility Products............................. 13.9% 12.1%
Coke Products........................................... 1.5% 8.8%
-------- --------
Total................................................. 14.0% 12.2%
OPERATING MARGIN BY SEGMENT:
Carbon Materials & Chemicals............................ 11.3% 5.5%
Railroad & Utility Products............................. 7.4% 5.2%
Coke Products........................................... (8.4%) 2.1%
Corporate Unallocated Overhead.......................... (1.9%) (1.3%)
-------- --------
Total................................................. 4.6% 3.4%
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1996.
Net Sales. Net sales for the three months ended March 31, 1997 were 5.7%
higher than the same period in 1996, as higher net sales for Carbon Materials
& Chemicals were partially offset by lower net sales for Coke Products. Net
sales for Carbon Materials & Chemicals increased by 31.6% due to the
acquisition of the Clairton facility in April 1996 coupled with an increase of
7.7% in phthalic anhydride ("PAA") prices in the first quarter of 1997. Net
sales for Railroad & Utility Products decreased by 1.3% compared to the prior
year quarter due to reductions in sales volumes of utility poles as well as a
decline in sales volumes for crossties sold to commercial markets. Net sales
for Coke Products decreased by 21.4% compared to the prior year period due to
a significant reduction in sales volumes at the Woodward Facility primarily as
the result of continued cutbacks in production and the shutdown of Battery No.
4 and the idling of one-half of Battery No. 5 in March 1997 (See "--Liquidity
and Capital Resources--Environmental Matters").
9
<PAGE>
KOPPERS INDUSTRIES, INC.
Gross Profit. As a percent of net sales, gross profit increased to 14.0% in
the first quarter of 1997 from 12.2% for the same period last year. This
increase was due to increases in gross margin to 18.9% from 14.5% for Carbon
Materials & Chemicals and to 13.9% from 12.1% for Railroad & Utility Products,
partly offset by a decrease in gross margin to 1.5% from 8.8% for Coke
Products. The increase in gross margin for Carbon Materials & Chemicals was
the result of the acquisition of the Clairton facility coupled with a 7.7%
increase in PAA prices. The increase in gross margin for Railroad & Utility
Products was primarily due to the absence of expenses related to severe
weather and labor disruptions which occurred in the first quarter of 1996. The
reduction in gross margin for Coke Products was primarily the result of
significantly higher costs per ton of coke produced at the Woodward Facility
as the result of reduced volumes.
Depreciation and Amortization. The increase in depreciation and amortization
for the three months ended March 31, 1997 as compared to the prior year period
was due primarily to the acquisition of the Clairton facility in April 1996.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the three months ended March 31, 1997 increased
slightly to 5.0% of net sales from 4.9% of net sales in the same period last
year, as higher expenses for employee benefits were offset by lower salary,
consulting and legal expenses in 1997 as compared to the prior year period.
Equity in Earnings of Affiliates. Equity in earnings of affiliates increased
to $2.0 million for the three months ended March 31, 1997 from $1.8 million in
the prior year period due primarily to higher earnings from KSA Limited
Partnership, the Company's joint venture which produces railroad crossties
made of concrete, as compared to the prior year period.
Interest Expense. Interest expense increased $0.4 million in the first
quarter of 1997 as compared to the prior year due to additional indebtedness
related to the acquisition of the Clairton facility in April 1996.
Income Taxes. The Company's effective income tax rate for the three months
ended March 31, 1997 was 14.1% as compared to a benefit of (10.4)% in the
prior year period primarily as the result of a net loss in the first quarter
of 1996 due to litigation charges.
Net Income. Net income for the three months ended March 31, 1997 compared to
the same period last year increased by $11.1 million as the result of an $11
million pre-tax litigation charge in 1996, along with overall stronger
business performance in 1997 as noted above.
Earnings Per Share. Earnings per share of common stock for the three months
ended March 31, 1997 were $0.37 compared to a loss per share of $(0.78) in the
prior year period as the result of higher earnings in the first quarter of
1997 coupled with a reduction in weighted average common shares outstanding of
approximately 670,000 shares as the result of purchases by the Company of its
common stock.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997 the Company had cash and cash equivalents of $3.8
million and $41.0 million of availability under the revolving credit facility
for working capital purposes, subject to restrictions imposed under various
debt covenants and the indenture related to the Company's long-term bonds.
Restructuring and litigation charges incurred in 1996 resulted in restrictions
at March 31, 1997 which limited availability under the revolving credit
facility to $9.7 million.
As of March 31, 1997 $8.5 million of commitments were utilized by
outstanding standby letters of credit and there were $50.5 million in
outstanding borrowings for working capital purposes.
10
<PAGE>
KOPPERS INDUSTRIES, INC.
Cash used by operating activities totaled $0.4 million for the three months
ended March 31, 1997 compared to $5.4 million for the same period last year, as
higher net income of $11.1 million in 1997 was partially offset by an increase
in working capital in 1997 which was $4.8 million higher than the increase in
working capital in the prior year.
Capital expenditures were $3.5 million for the three months ended March 31,
1997 compared to $6.6 million for the same period last year, with the
expenditures in 1996 due primarily to capital improvements at the Stickney PAA
plant and the Monessen coke facility.
Financing activities provided $6.1 million in cash for the three months ended
March 31, 1997 compared to $15.4 million for the same period last year. Cash
supplied by financing activities in 1996 reflects borrowings related to a $12.3
million purchase of non-voting common stock. See Note 5 of the Notes to
Financial Statements on page 47 of the Company's 1996 Form 10-K.
Environmental Matters
From time to time, the Company is served with notices of violations and
requests for information relating to environmental compliance matters at the
various facilities it owns and operates. On June 12, 1996, PADEP issued a
notice of violation in connection with alleged noncompliance with the terms of
a consent order and agreement related to the Company's coke facility in
Monessen, PA, alleging that the Company had not implemented the corrective
actions required under the agreement in a timely fashion. PADEP has calculated
that a stipulated penalty in the amount of $261,000 may be requested for the
alleged untimely actions. The Company has completed the implementation of the
corrective actions at issue and is in the process of conducting settlement
negotiations with PADEP to agree upon the amount of the stipulated penalty
which PADEP will request.
Additionally, PADEP recently issued a notice of violation alleging that the
boilers at the Monessen facility are emitting greater quantities of nitrogen
oxides than allowed under a plan approved by PADEP. The Company is currently
installing additional equipment, modifying existing equipment and investigating
additional methods to improve boiler performance. If these measures are not
successful, the Company may have to install post-combustion control equipment
and/or discuss plan approval modifications with PADEP. Resolution of the matter
could have a negative effect on the business, financial condition and results
of operations of the Company.
On October 21, 1996 the Company was served with an information request
pursuant to Section 308 of the Clean Water Act from the EPA requesting
information on waste water discharges from all facilities owned or operated by
the Company. Although the Company responded to this request on November 20,
1996, there can be no assurance that the EPA will not require additional
actions in connection with this request.
In September 1996 the Company was served with a notice of violation from the
Illinois Environmental Protection Agency ("IEPA") relating to 15 releases of
hazardous materials which occurred at or from its facility located in Stickney,
Illinois between January 24, 1990 and May 3, 1996. The Company has entered into
negotiations with the IEPA to investigate four of the releases which had the
potential to cause groundwater or off-site contamination. Although the Company
believes that all such releases were remediated when they occurred and intends
to enter into negotiations with the IEPA to resolve this matter, there can be
no assurance that the IEPA will not require additional actions in connection
with this matter.
Jefferson County issued a notice of violation in March 1996 in connection
with various alleged violations of Jefferson County's air pollution control
regulations for emissions from coke oven batteries at the Company's Woodward
Facility. The Company and Jefferson County are currently negotiating a
settlement agreement,
11
<PAGE>
KOPPERS INDUSTRIES, INC.
pursuant to which the Company might be required to install monitoring and
control equipment and institute operational changes. The present draft of the
settlement agreement also proposes that the Company pay a civil penalty in the
amount of $300,000, although the Company has not agreed to such amount. In
addition, the Company has permanently shut down Battery No. 4 and has idled
one-half of Battery No. 5, resulting in a loss of approximately one-third of
production capacity. Recently, the EPA sent a notice of violation to the
Company covering the same issues that are being addressed in the settlement
agreement negotiations. There can be no assurance that the resolution of this
matter, including additional actions or penalties that might be required by the
EPA, if any, will not have a material adverse effect on the business, financial
condition and results of operations of the Company.
The Company recently discovered that certain benzene abatement equipment at
the Company's Woodward Facility has not been operational for several months.
Following a preliminary investigation the Company also discovered that certain
reports and records contained incomplete and inaccurate information and that
certain reports and certifications were not filed when required. The Company
has notified Jefferson County, the State of Alabama and the EPA of the
environmental irregularities. Counsel and independent investigators have been
retained to conduct a complete and thorough investigation. While the Company
believes that the costs to repair such equipment will not exceed $300,000, the
Company could be subject to significant liability in connection with these
matters, including fines and civil and criminal penalties and the risk of third
party litigation and there can be no assurances that the resolution of these
matters will not have a material adverse effect on the business, financial
condition and results of operations of the Company.
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 or successors pursuant to indemnity
agreements between such entities and the Company. Although the Company believes
that the sellers or their predecessors or successors 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 Note
11 of the Notes to Financial Statements on page 53 of the Company's 1996 Form
10-K.
While Beazer East has retained and accepted responsibility for cleanup and
remedial activities relating to pre-Closing contamination (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.
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. The Company has been informed
by Beazer East that for the last three years amounts paid by Beazer East under
the Indemnity have averaged approximately $13 million per year. The requirement
to pay 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 matters covered by the Indemnity on its balance sheet the result
could be that the Company would have significant negative net worth.
12
<PAGE>
KOPPERS INDUSTRIES, INC.
On April 15, 1997, the Company received notice of the resignation of non-
voting director Peter J. Statile ("Mr. Statile"). Mr. Statile's resignation
was contained in a letter which stated that Mr. Statile was resigning,
effective immediately, due to a disagreement about certain disclosures
concerning the environmental Indemnity given by Beazer East and the Guarantee
given by Beazer Limited of Beazer East's obligations under the Indemnity set
forth in the Company's 1996 Form 10-K. In his letter Mr. Statile states that
the information in the Form 10-K "misleadingly minimizes the financial risks
to Koppers". Mr. Statile's letter, a copy of which is filed as an Exhibit to
this Form 10-Q, should be read in conjunction with additional information
provided in the Company's 1996 Form 10-K. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Environmental
Matters". See also Note 11 of the Notes to Financial Statements on Page 53 of
the Company's 1996 Form 10-K.
13
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes in the status of legal proceedings as
previously reported.
ITEM 5. OTHER INFORMATION
Resignation of Registrant's Director.
On April 15, 1997, Koppers Industries, Inc. (the "Company") received notice
of the resignation of non-voting director Peter J. Statile ("Mr. Statile").
Mr. Statile's resignation was contained in a letter which stated that Mr.
Statile was resigning, effective immediately, due to a disagreement about
certain disclosures concerning the environmental Indemnity given by Beazer
East and the Guarantee given by Beazer Limited of Beazer East's obligations
under the Indemnity set forth in the Company's 1996 Form 10-K. In his letter
Mr. Statile states that the information in the Form 10-K "misleadingly
minimizes the financial risks to Koppers". Mr. Statile's letter, a copy of
which is filed as an Exhibit to this Form 10-Q, should be read in conjunction
with additional information provided in the Company's 1996 Form 10-K. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Environmental Matters". See also Note 11 of the Notes to Financial
Statements on Page 53 of the Company's 1996 Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<C> <S>
(a) Exhibits:
11. Statement Regarding Computation of Per Share Earnings.
27.1 Financial Data Schedule
99. Letter of resignation from non-voting director Peter J. Statile dated
April 15, 1997.
(b) Reports on Form 8-K
</TABLE>
No reports on Form 8-K were filed during the quarter ended March 31, 1997.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KOPPERS INDUSTRIES, INC.
(Registrant)
Date April 22, 1997 /s/ Donald E. Davis
--------------------- -------------------------------------
Donald E. Davis,
Chief Financial Officer
(Principal Financial Officer,
Principal Accounting Officer)
15
<PAGE>
EXHIBIT 11
KOPPERS INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Voting common stock outstanding......................... 5,163,968 5,319,540
Non-Voting common stock outstanding..................... 3,628,200 4,591,662
Common stock equivalents................................ 449,342 --
---------- ----------
Common stock outstanding................................ 9,241,509 9,911,202
Net income (loss) to common stockholders (000's)........ $ 3,390 $ (7,740)
Primary earnings per common share....................... $ 0.37 $ (0.78)
========== ==========
FULLY DILUTED EARNINGS PER SHARE:
Voting common stock outstanding......................... 5,163,968 5,319,540
Non-Voting common stock outstanding..................... 3,628,200 4,591,662
Common stock equivalents................................ 449,342 --
---------- ----------
Common stock outstanding................................ 9,241,509 9,911,202
Net income to common stockholders (000's)............... $ 3,390 $ (7,740)
Fully diluted earnings per common share................. $ 0.37 $ (0.78)
========== ==========
</TABLE>
Common stock equivalents include stock options granted to management. 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. For the three months ended March
31, 1996 common stock equivalents are anti-dilutive and are therefore excluded
from the calculation of common stock outstanding and earnings per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,808
<SECURITIES> 0
<RECEIVABLES> 68,875
<ALLOWANCES> 165
<INVENTORY> 78,097
<CURRENT-ASSETS> 163,203
<PP&E> 299,882
<DEPRECIATION> 128,886
<TOTAL-ASSETS> 412,387
<CURRENT-LIABILITIES> 81,746
<BONDS> 110,000
0
0
<COMMON> 103
<OTHER-SE> 77,803
<TOTAL-LIABILITY-AND-EQUITY> 412,387
<SALES> 133,980
<TOTAL-REVENUES> 133,980
<CGS> 115,222
<TOTAL-COSTS> 127,879
<OTHER-EXPENSES> (1,190)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,145
<INCOME-PRETAX> 3,946
<INCOME-TAX> 556
<INCOME-CONTINUING> 3,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,390
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99
[HANSON NORTH AMERICA, INC. letterhead]
Hanson North American, Inc.
581 Main Street, Woodbridge, NJ 07095
Telephone (908) 726-2600
Fax (908) 726-9290
April 15, 1997
Sent Via Facsimile and Regular Mail
Mr. Robert K. Wagner
Chairman
Koppers Industries, Inc.
436 Seventh Avenue
Pittsburgh, Pennsylvania
Re: Koppers Industries, Inc. ("Koppers") -
Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1996 (the "1996 10-K")
-------------------------------------------
Dear Mr. Wagner:
I am writing to memorialize Brian Beazer's and my strong disagreement with
certain disclosure in Koppers' 1996 10-K concerning the environmental Indemnity
given by Beazer East and the Guarantee given by Beazer Limited of Beazer East's
obligations under the Indemnity. Although we actively commented on all the
drafts of the 1996 10-K that we received, we were unable to persuade you and
other directors and officers of Koppers to correct the disclosure. Therefore,
as you know, Mr. Beazer and I did not sign, and do not endorse, the 1996 10-K
as filed.
By way of background, the Indemnity and the Guarantee were given to Koppers
at the closing of its acquisition of certain assets from a subsidiary of Beazer
Limited (then known as Beazer PLC). The closing took place in December
1988--nearly three years prior to Hanson PLC's acquisition of Beazer Limited.
Neither at the time of its acquisition of Beazer Limited nor at any time
thereafter did Hanson PLC make any commitment to Koppers that it would provide
financial support to enable Beazer East and/or Beazer Limited to meet their
respective obligations under the Indemnity and the Guarantee.
Until the 1996 10-K, Koppers' registration statements and annual reports on
Form 10-K never contained any implication to the contrary. For example, all the
prior filings correctly stated the following: "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."
<PAGE>
We agree with the 1996 10-K insofar as it repeats the strong cautionary
language quoted above about Beazer East's and Beazer Limited's ability to
perform under the Indemnity and the Guarantee. We also agree with the 1996 10-K
insofar as it augments the cautionary language by presenting financial
information about the negative net worth and negative cash flow of Beazer East
and the negative shareholders funds balance of Beazer Limited. In fact, we
strongly recommended that this information be included in the 1996 10-K because
Beazer East's financial condition had materially worsened since the filing of
the 1995 10-K principally as a result of Beazer East's required adoption of
Financial Accounting Standard 121 ("Accounting for the Impairment of Long
Lived Assets"), which necessitated a $4.4 billion pre-tax write down in the
carrying value of its assets.
Unfortunately, and in disregard of our comments, the balance of the
disclosure about the Indemnity and the Guarantee in the 1996 10-K misleadingly
minimizes the financial risks to Koppers:
. The 1996 10-K states that a "fellow subsidiary undertaking provides
financial support to enable Beazer Limited to meet its liabilities as
they fall due." This disclosure implies that a formal agreement exists
on the part of a sister subsidiary of Beazer Limited to continue to
provide financial support indefinitely. In fact, a sister subsidiary
has given a letter of support stating the subsidiary's intention to
---------
provide financial support to Beazer Limited "in the absence of
unforeseen circumstances". This letter does not create a legally binding
obligation under U.K. law, which governs the letter.
. The 1996 10-K states that Koppers "has been informed that Beazer
East ... and Beazer Limited will remain wholly-owned indirect
subsidiaries of Hanson PLC." This is misleading in two respects.
First, Koppers was not informed that Beazer East and Beazer Limited
---
would remain subsidiaries of Hanson PLC indefinitely, as the statement
implies. Rather, Mr. Beazer simply clarified that Beazer East and Beazer
Limited were remaining with Hanson PLC rather than being transferred to
one of the companies being spun off to Hanson PLC shareholders. As we
previously informed you, this clarification was not intended as and could
not fairly have been construed as a commitment that Beazer East and
Beazer Limited would remain subsidiaries of Hanson PLC indefinitely.
Although Hanson PLC has no present plan or intention to dispose of
Beazer East or Beazer Limited, readers of Koppers' 1996 10-K must
understand that Hanson PLC is free to do so at any time. The second
misleading aspect of the disclosure is the implication that Hanson PLC's
retention of Beazer East and Beazer Limited as subsidiaries would
somehow be beneficial to Koppers when, in fact, Hanson PLC has no
obligation to provide them any financial support whatsoever. Disclaimer
should have been made in the 10-K.
2
<PAGE>
. The 1996 10-K quotes a portion of a Hanson PLC descriptive brochure and
misleadingly implies that the quotation provides a reasonable basis for
the following statement: "Management believes that Beazer East and
Beazer Limited will continue to fulfill their obligations as they have
for the last 8 years." In fact, the quotation merely makes clear that
(i) the environmental liabilities relating to Koppers' sites arose
prior to Hanson PLC's acquisition of Beazer Limited and (ii) the
liabilities are being actively managed by working with the relevant
regulatory authorities to create acceptable and cost effective
remediation plans as well as pursuing legal remedies against insurers
and other responsible parties.
Hanson PLC's balance sheet is prepared on a consolidated basis. Therefore,
because Beazer East and Beazer Limited are wholly-owned subsidiaries of Hanson
PLC, their liabilities are reflected as consolidated liabilities of the Hanson
group. While this is the correct accounting presentation of the liabilities, it
does not alter the fact that, as a legal matter, the liabilities of Beazer East
and Beazer Limited under the Indemnity and the Guarantee are imposed on, and
will be borne by, these legal entities alone.
As a result of the significant disagreement about the disclosure described
above, I hereby resign, with immediate effect, from the Board of Directors of
Koppers and request that Koppers promptly disclose the disagreement and this
letter as required by Form 8-K.
Very truly yours,
Peter J. Statile
cc: Robert K. Wagner
Donald P. Traviss
Donald E. Davis
Clayton A. Sweeney (c/o Randall D. Collins)
Brooks C. Wilson (c/o Randall D. Collins)
N. H. Prater (c/o Randall D. Collins)
3
