<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 June 30, 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
(Address 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
August 1, 1997 amounted to 6,289,758 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
1997 1996 1997 1996
--------- --------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales................................ $ 157,559 $ 156,887 $291,539 $283,588
Operating expenses:
Cost of sales.......................... 132,311 130,173 247,533 241,421
Depreciation and amortization.......... 6,005 5,647 11,907 10,590
Selling, general and administrative.... 7,895 7,206 14,650 13,462
--------- --------- -------- --------
Total operating expenses............. 146,211 143,026 274,090 265,473
--------- --------- -------- --------
Operating profit......................... 11,348 13,861 17,449 18,115
Equity in earnings of affiliates....... 1,360 2,619 3,351 4,411
Other expense.......................... 1,414 -- 1,414 10,946
--------- --------- -------- --------
Income before interest expense and
provision for income taxes.............. 11,294 16,480 19,386 11,580
Interest expense......................... 4,188 4,624 8,333 8,358
--------- --------- -------- --------
Income before provision for income taxes. 7,106 11,856 11,053 3,222
Provision for income taxes............... 760 1,133 1,316 239
--------- --------- -------- --------
Net income............................... $ 6,346 $ 10,723 $ 9,737 $ 2,983
========= ========= ======== ========
Earnings per share of common stock....... $ 0.69 $ 1.14 $ 1.05 $ 0.30
========= ========= ======== ========
</TABLE>
See accompanying notes.
2
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996*
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 2,789 $ 1,526
Accounts receivable less allowance for doubtful
accounts
of $165 in 1997 and $164 in 1996................... 79,164 72,229
Inventories:
Raw materials..................................... 29,814 33,635
Work in process................................... 2,983 3,168
Finished goods.................................... 46,914 44,090
LIFO reserve...................................... (9,510) (7,971)
--------- ---------
Total inventories............................... 70,201 72,922
Other............................................... 13,466 13,589
--------- ---------
Total current assets.............................. 165,620 160,266
Investments........................................... 50,894 55,373
Fixed assets.......................................... 303,931 296,688
Less: accumulated depreciation...................... (134,099) (123,468)
--------- ---------
Net fixed assets.................................. 169,832 173,220
Other assets.......................................... 22,259 22,321
--------- ---------
Total assets...................................... $ 408,605 $ 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>
JUNE 30, DECEMBER 31,
1997 1996*
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 32,882 $ 37,255
Accrued liabilities................................. 42,923 38,174
Current portion of term loans....................... 8,150 7,149
-------- --------
Total current liabilities......................... 83,955 82,578
Long-term debt:
Revolving credit.................................... 40,250 43,000
Term loans.......................................... 45,659 49,735
Senior Notes........................................ 110,000 110,000
-------- --------
Total long-term debt.............................. 195,909 202,735
Other long-term reserves.............................. 46,375 47,804
-------- --------
Total liabilities................................. 326,239 333,117
Common stock subject to redemption.................... 23,427 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..................................... 54,353 45,813
Cumulative translation adjustment..................... (1,678) 2,181
Treasury stock, at cost, 1,521,599 shares in 1997 and
1,531,511 shares in 1996............................. (5,514) (5,666)
-------- --------
Total liabilities and stockholders' equity........ $408,605 $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>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Cash provided by operating activities....................... $ 17,789 $ 11,216
Cash used in investing activities:
Acquisitions and related capital expenditures............. -- (39,174)
Capital expenditures...................................... (8,117) (11,404)
Other..................................................... 109 --
-------- --------
Net cash used in investing activities................... (8,008) (50,578)
Cash provided by (used in) financing activities:
Borrowings from revolving credit.......................... 67,000 99,750
Repayments of revolving credit............................ (69,750) (66,750)
Repayment of long-term debt............................... (3,075) (12,000)
Proceeds from long-term debt.............................. -- 35,000
Payment of deferred financing costs....................... (466) (620)
Purchases of voting common stock.......................... (732) (1,824)
Purchase of non-voting common stock....................... -- (12,250)
Dividends on common stock................................. (1,495) (1,579)
-------- --------
Net cash provided by (used in) financing activities..... (8,518) 39,727
-------- --------
Net increase in cash........................................ 1,263 365
Cash at beginning of period................................. 1,526 1,618
-------- --------
Cash at end of period....................................... $ 2,789 $ 1,983
======== ========
</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) Second quarter 1997 results include a $1.4 million charge to other
expense for the write-off of deferred expenses related to an Initial Public
Offering which was withdrawn in the second quarter.
(5) Second quarter 1997 results include $0.8 million of severance charges
related to the resignation of the President and Chief Executive Officer of the
Company (see Item 5).
(6) The Company has a 50% investment in Koppers Australia Pty. Limited 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------- ---------------
1997 1996 1997 1996
------- ------- ------- -------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net sales..................................... $32,210 $34,824 $63,455 $63,293
Costs and expenses:
Cost of sales................................. 24,804 24,996 49,459 46,649
General and administrative.................... 3,226 2,814 5,778 5,493
------- ------- ------- -------
Total costs and expenses.................... 28,030 27,810 55,237 52,142
Interest expense.............................. 71 218 286 419
Equity income................................. 1,737 (774) 773 36
Income taxes.................................. 1,903 2,248 2,578 4,129
Other......................................... 698 -- 698 --
Minority interest............................. 398 374 731 688
------- ------- ------- -------
Net income.................................. $ 2,847 $ 3,400 $ 4,698 $ 5,951
======= ======= ======= =======
Company's share of net income............... $ 629 $ 1,172 $ 1,767 $ 2,978
======= ======= ======= =======
</TABLE>
Environmental Indemnity and Guarantee
(7) 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
6
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Unaudited)
between Koppers Industries, Inc. and Koppers Company, Inc., (now known as
Beazer East, Inc.) 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"). 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.
7
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Unaudited)
Other Environmental Matters
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 Facility") during the period May 26, 1992 through
March 1, 1996. Additionally, the Company had previously notified Jefferson
County, the State of Alabama and the United States Environmental Protection
Agency ("EPA") that certain benzene abatement equipment had not been
operational for several months. The Company and Jefferson County have
negotiated a settlement agreement, pursuant to which the Company will be
required to install monitoring and control equipment. The settlement agreement
also requires the Company to pay a civil penalty in the amount of $450,000 in
full settlement of both the coke oven and benzene equipment violations. As
regards both violations, the Company has been implementing corrective actions,
and the facility is currently operating as required. However, 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.
Counsel and independent investigators have conducted a complete and thorough
examination at the Woodward Facility. The investigation determined 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; however, 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") previously
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 modifying existing
equipment and investigating additional methods to improve boiler performance,
as well as discussing 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.
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -------------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
NET SALES (Dollars in
thousands):
Carbon Materials & Chemicals.. $ 64,778 $ 66,301 $123,055 $110,579
Railroad & Utility Products... 67,626 66,004 121,142 120,209
Coke Products................. 25,155 24,582 47,342 52,800
--------- --------- -------- --------
Total....................... $ 157,559 $ 156,887 $291,539 $283,588
SEGMENT SALES AS PERCENTAGE OF
TOTAL:
Carbon Materials & Chemical... 41.1% 42.2% 42.2% 39.0%
Railroad & Utility Products... 42.9% 42.1% 41.6% 42.4%
Coke Products................. 16.0% 15.7% 16.2% 18.6%
--------- --------- -------- --------
Total....................... 100.0% 100.0% 100.0% 100.0%
GROSS MARGIN BY SEGMENT:
Carbon Materials & Chemicals.. 22.1% 22.2% 20.6% 19.1%
Railroad & Utility Products... 14.8% 14.9% 14.4% 13.6%
Coke Products................. 3.7% 9.0% 2.7% 8.9%
--------- --------- -------- --------
Total....................... 16.0% 17.0% 15.1% 14.9%
OPERATING MARGIN BY SEGMENT:
Carbon Materials & Chemicals.. 15.0% 15.5% 13.3% 11.5%
Railroad & Utility Products... 9.7% 9.6% 8.6% 7.6%
Coke Products................. (4.7%) 1.3% (6.4%) 1.7%
Corporate Unallocated
Overhead..................... (2.4%) (1.8%) (2.2%) (1.5%)
--------- --------- -------- --------
Total....................... 7.2% 10.0% 6.0% 6.4%
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997
AND 1996.
Net Sales. Net sales for the three months ended June 30, 1997 were 0.4%
higher than the same period in 1996. Net sales for Carbon Materials &
Chemicals decreased by 2.3% due primarily to the expiration of a light oil
sales agreement in 1997. The effect of the elimination of light oil sales was
offset to some extent by increases in volumes and pricing for phthalic
anhydride ("PAA"). Net sales for Railroad & Utility Products increased by 2.5%
compared to the prior year quarter due to a 3.8% increase in sales volumes for
railroad crossties. Net sales for Coke Products increased by 2.3% as lower
sales at the Woodward Facility as a result of capacity rationalization in 1997
were more than offset by the suspension of shipments to certain customers in
1996.
Gross Profit. As a percent of net sales, gross profit decreased to 16.0% in
the second quarter of 1997 from 17.0% for the same period last year. This
decrease was due primarily to a decrease in gross margins to 3.7% from 9.0%
for Coke Products due to lower production at the Woodward Facility as the
result of capacity rationalization, coupled with credits issued to customers
related to quality problems for prior periods. Additionally, pricing for coke
decreased 2.1% compared to the prior year quarter. Gross margins decreased
slightly to 22.1% from 22.2% for Carbon Materials & Chemicals, as a 2.6%
reduction in volumes for carbon
9
<PAGE>
KOPPERS INDUSTRIES, INC.
pitch was offset by increases in volumes and pricing for PAA of 12.3% and
5.0%, respectively. Gross margin decreased slightly to 14.8% from 14.9% for
Railroad & Utility Products due in part to a reduction in volumes of 7.4% for
utility poles as compared to the prior year, resulting in higher unit costs
due to fixed cost absorption.
Depreciation and Amortization. The increase in depreciation and amortization
for 1997 as compared to the prior year was due to the normal incremental
effect of the Company's ongoing capital expenditure program.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the three months ended June 30, 1997 increased to
5.0% of net sales from 4.6% of net sales in the same period last year
primarily as a result of $0.8 million of severance charges in 1997.
Equity in Earnings of Affiliates. Equity earnings for the second quarter of
1997 were $1.2 million lower than the prior year period primarily as a result
of lower earnings from Koppers Australia Pty. Limited.
Other Expense. Other expense for the second quarter of 1997 consisted of the
write-off of deferred expenses related to an Initial Public Offering ("IPO")
which was withdrawn in the second quarter.
Interest Expense. Interest expense decreased $0.4 million in the second
quarter of 1997 as compared to the prior year as the result of lower interest
rates and debt levels as compared to 1996.
Income Taxes. The Company's effective income tax rate for the three months
ended June 30, 1997 remained relatively stable at 10.7% as compared to 9.6% in
the prior year period, with the difference from the statutory rate due
primarily to projected tax credits for the Monessen, Pennsylvania coke
facility.
Net Income. Net income for the three months ended June 30, 1997 compared to
the same period last year decreased as the result of $1.9 million in severance
and IPO cost write-offs, lower profit for the Coke Products business, and a
$1.4 million reduction in equity income as compared to the prior year.
Earnings per Share. Earnings per share for the three months ended June 30,
1997 amounted to $0.69 as compared to $1.14 in the prior year period as lower
earnings in 1997 more than offset the reduction in shares outstanding
resulting from the Company's purchase of 1,050,000 shares of common stock in
1996. See Note 5 on page 47 of the Notes to Consolidated Financial Statements
in the Company's 1996 Form 10-K.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996.
Net Sales. Net sales for the six months ended June 30, 1997 were 2.8% higher
than the same period in 1996. Net sales for Carbon Materials & Chemicals
increased by 11.3% due primarily to sales from the Clairton, Pennsylvania
facility acquired in April, 1996 coupled with increases in volumes and prices
for PAA of 10.3% and 6.4%, respectively. The increase in net sales of 0.8% for
Railroad & Utility Products was due to higher railroad crosstie revenues,
which more than offset a 5.8% reduction in sales volumes for utility poles.
Net sales for Coke Products decreased by 4.9% due to lower production and
shipments primarily as the result of capacity rationalization at the Woodward
Facility.
Gross Profit. As a percent of net sales, gross profit increased to 15.1% for
the six months ended June 30, 1997 from 14.9% for the same period last year.
Gross margin for Carbon Materials & Chemicals increased to 20.1% from 19.6% in
the prior year primarily as the result of increases in volumes and pricing of
PAA in 1997 as noted above. Gross margin for Railroad & Utility Products
increased to 14.4% from 13.6% in the prior year primarily as the result of
higher revenues for railroad crossties. Gross margin for Coke Products
decreased to 2.7% from 8.9% due to higher unit costs incurred as the result of
reduced production at the Woodward Facility, coupled with costs associated
with quality problems resulting in returned material and credits issued to
customers.
10
<PAGE>
KOPPERS INDUSTRIES, INC.
Depreciation and Amortization. The increase in depreciation and amortization
for the six months ended June 30, 1997 as compared to the prior year was due
primarily to the acquisition of the Clairton tar distillation facility in
April 1996.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the six months ended June 30, 1997 increased to
5.0% of net sales from 4.7% of net sales in the same period last year as lower
expenses for legal and consulting services were more than offset by increases
in employee benefits and severance charges in 1997.
Equity in Earnings of Affiliates. Equity earnings for the six months ended
June 30, 1997 were $1.0 million lower than the prior year period primarily as
a result of lower earnings from Koppers Australia Pty. Limited.
Other Expense. Other expense for the six months ended June 30, 1997
consisted of the write-off of deferred expenses related to an IPO which was
withdrawn in the second quarter. Other expense for the prior year period
consisted of a litigation charge related to products sold by the Company's
predecessor. See Note 11 on page 55 of the Notes to Consolidated Financial
Statements in the Company's 1996 Form 10-K.
Income Taxes. The Company's effective income tax rate for the six months
ended June 30, 1997 was 11.9% as compared to 7.4% in the prior year period due
to lower income in 1996 as the result of litigation charges.
Net Income. Net income for the six months ended June 30, 1997 as compared to
the prior year increased by $6.7 million due primarily to a pretax charge of
approximately $11 million related to litigation in the first quarter of 1996.
Earnings per Share. Earnings per share for the six months ended June 30,
1997 amounted to $1.05 as compared to $0.30 in the prior year period as the
result of higher earnings in 1997 combined with the reduction in shares
outstanding resulting from the Company's purchase of 1,050,000 shares of
common stock in 1996. See Note 5 on page 47 of the Notes to Consolidated
Financial Statements in the Company's 1996 Form 10-K. Excluding the write-off
of IPO costs and the severance charges in 1997, and the litigation charges in
1996, earnings per share would have been $1.25 in 1997 compared to $1.21 in
1996.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997 the Company had cash and cash equivalents of $2.8
million and $51.3 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.
However, restructuring charges incurred in 1996 resulted in restrictions at
June 30, 1997 limiting availability under the revolving credit facility to
$4.5 million. As of June 30, 1997, $8.5 million of commitments were utilized
by outstanding standby letters of credit and there were $40.3 million in
outstanding borrowings for working capital purposes.
Cash provided by operating activities totaled $17.8 million for the six
months ended June 30, 1997 compared to $11.2 million for the same period last
year due to a net decrease in working capital of $8.9 million as compared to
the prior year, excluding the effect of an $11.0 million provision for a legal
judgment in 1996.
Capital expenditures were $8.1 million for the six months ended June 30,
1997 versus $11.4 million (excluding acquisitions) for the same period last
year, with the decrease in 1997 due primarily to significant 1996 capital
improvements at the Stickney PAA plant and the Monessen coke facility. In
April 1996 the Company purchased the coal chemical business of Aristech
Chemical Corporation located in Clairton, Pennsylvania for approximately $40
million cash and the assumption of certain liabilities. See Note 3 on page 45
of the Notes to Consolidated Financial Statements in the Company's 1996 Form
10-K.
11
<PAGE>
KOPPERS INDUSTRIES, INC.
Financing activities utilized $8.5 million in cash for the six months ended
June 30, 1997 compared to providing $39.7 million for the same period last
year. Cash used in 1997 included approximately $6 million of debt repayment;
cash supplied by financing activities in 1996 was the result of the $35.0
million term loan for the Clairton acquisition coupled with a net increase of
$33.0 million in the revolving credit facility, used in part to provide for a
$12.0 million term loan repayment and a $12.3 million purchase of non-voting
common stock of the Company. See Note 5 on page 47 of the Notes to
Consolidated Financial Statements in 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, Pennsylvania, 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
modifying existing equipment and investigating additional methods to improve
boiler performance, as well as discussing 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
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 conduct a
limited investigation regarding four of the releases to determine whether
there were environmental impacts as a result of these releases. Although the
Company believes that all such releases were remediated when they occurred and
has entered 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 during the period May 26, 1992 through March 1, 1996. Additionally,
the Company had previously notified Jefferson County, the State of Alabama and
the EPA that certain benzene abatement equipment had not been operational for
several months. The Company and Jefferson County have negotiated a settlement
agreement, pursuant to which the Company will be required to install
monitoring and control equipment. The settlement agreement also requires the
Company to pay a civil penalty in the amount of $450,000 in full settlement of
both the coke oven and benzene emissions violations. As regards both types of
emissions, the Company has been implementing corrective actions, and the
facility is currently operating as required. However, 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.
12
<PAGE>
KOPPERS INDUSTRIES, INC.
Counsel and independent investigators have conducted a complete and thorough
examination at the Woodward Facility. The investigation determined 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; however, 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 has recently taken steps to improve its environmental compliance
program, including an increase in the frequency and scope of environmental
audits, as well as additional staffing. The Company believes these steps will
reduce the magnitude and frequency of environmental problems in the future.
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 Consolidated 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.
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
13
<PAGE>
KOPPERS INDUSTRIES, INC.
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.
To the extent that such investigative and cleanup costs are being paid for
by the sellers and their predecessors or successors, the Company does not
anticipate that such costs will have a material impact on liquidity. The
Company does not believe that costs for environmental investigation and
remediation for which there are no indemnification arrangements will
materially adversely affect liquidity, although there can be no assurances
that such costs will not increase in the future.
Status of Restructuring Reserves
Reserves related to restructuring charges of $15.5 million in 1996 amounted
to $9.5 million at June 30, 1997, comprised of $3.6 million of machinery &
equipment write-downs, $1.6 million of severance charges and $4.3 million of
tank cleaning, dismantling and other expenses related to plant closings.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share", which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of Statement 128
on the calculation of earnings per share for the six months ended June 30,
1997 and June 30, 1996 is not expected to be material.
14
<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
On June 10, 1997 Donald P. Traviss, President and Chief Executive Officer,
resigned from the Company. In July 1997 Mr. Traviss received a lump sum
payment of approximately $0.8 million in lieu of salary, vacation pay, pension
benefit and all other benefits as part of his agreement with the Company. In
addition, the Company redeemed all of Mr. Traviss' common stock and stock
options, which amounted to an additional payment of approximately $0.4
million. Robert K. Wagner, Chairman of the Board of Directors and former
President and Chief Executive Officer, has been appointed as interim Chief
Executive Officer until the Company names a replacement for Mr. Traviss.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<C> <S>
(a) Exhibits:
10.28 Agreement Letter from Counsel to Donald P. Traviss
11. Statement Regarding Computation of Per Share Earnings.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
</TABLE>
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
15
<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 8/14/97 /s/ Donald E. Davis
------------------- -------------------------------------
Donald E. Davis,
Chief Financial Officer
(Principal Financial Officer,
Principal Accounting Officer)
16
<PAGE>
EXHIBIT 10.28
LAW OFFICES OF
DICKIE, McCAMEY & CHILCOTE
A PROFESSIONAL CORPORATION
TWO PPG PLACE, SUITE 400
PITTSBURGH, PENNSYLVANIA
15222-5402
TEL. 412/281-7272 FAX. 412/392-5367
CLAYTON A. SWEENEY DIRECT DIAL
ATTORNEY-AT-LAW 412/392-5368
E-MAIL
[email protected]
June 11, 1997
Via Fax/Mail 741-1323
- ---------------------
Mr. Donald P. Traviss
2 Beaver Street
Sewickley, PA 15143
Dear Don:
This letter will confirm the understanding which Bob Wagner and I,
acting on behalf of the Board of Directors, reached with you on June 10,
1997.
In lieu of all salary, vacation pay, pension payments or other benefits
the company will pay you 23 months of your current monthly salary ($33,541.67)
for a total of $771,458.41.
The company will purchase your options totaling 45,000 for the net
amount of the difference between the current fair market value ($14.00)
and the exercise price ($10.56) for a total of $154,800.00.
The company will repurchase the shares of stock you own in the company
totaling 20,300 shares at the fair market value ($14.00) for a total of
$284,620.
The total amount of all of the above payments is $1,210,878.41. From
that amount will be deducted the outstanding loan balance of $4,023.88 leaving
a total net amount of $1,206,854.53.
In addition, the company will provide you with premium out placement
services. The provider of such services is to be chosen by you.
It is our understanding that you will be in touch with me after
consulting with your financial advisors to provide the company with directions
concerning the method and timing of payments to you. I am forwarding a copy
of this letter to you at your home fax number 741-1323 and will be mailing
an original and a copy with a self addressed stamped envelope. Once you
have reviewed this, I would appreciate your signing the second copy and
returning it to me in the envelope provided for our records.
<PAGE>
Mr. Donald P. Traviss
June 11, 1997
Page 2
If you have any questions, please don't hesitate to call.
Sincerely,
/s/ CLAYTON A. SWEENEY
-------------------------------------
Clayton A. Sweeney
/lp
Enclosure
cc: Mr. Robert K. Wagner
Mr. Joseph Boan
- ----------------------------------------
Donald P. Traviss
<PAGE>
EXHIBIT 11
KOPPERS INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Voting common stock outstanding.... 5,191,892 5,273,242 5,178,007 5,296,374
Non-Voting common stock
outstanding....................... 3,628,200 3,628,200 3,628,200 4,109,931
Common stock equivalents........... 442,679 469,315 445,992 470,941
---------- ---------- ---------- ----------
Common stock outstanding, including
convertible securities............ 9,262,771 9,370,757 9,252,199 9,877,246
Net income to common stockholders
(000's)......................... $ 6,346 $ 10,723 $ 9,737 $ 2,983
Primary earnings per common share.. $ 0.69 $ 1.14 $ 1.05 $ 0.30
========== ========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE:
Voting common stock outstanding.... 5,191,892 5,273,242 5,178,007 5,296,374
Non-Voting common stock
outstanding....................... 3,628,200 3,628,200 3,628,200 4,109,931
Common stock equivalents........... 442,679 469,315 445,992 470,941
---------- ---------- ---------- ----------
Common stock outstanding, including
convertible securities............ 9,262,771 9,370,757 9,252,199 9,877,246
Net income to common stockholders
(000's)......................... $ 6,346 $ 10,723 $ 9,737 $ 2,983
Fully diluted earnings per common
share............................. $ 0.69 $ 1.14 $ 1.05 $ 0.30
========== ========== ========== ==========
</TABLE>
Common stock equivalents include stock options granted to management. Stock
options awarded to management give the holder the right to purchase an equal
amount of common stock at the listed exercise price and become exercisable in
the amount of one-third per year over a three-year vesting period.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 0 2,789
<SECURITIES> 0 0
<RECEIVABLES> 0 79,329
<ALLOWANCES> 0 165
<INVENTORY> 0 70,201
<CURRENT-ASSETS> 0 165,620
<PP&E> 0 303,931
<DEPRECIATION> 0 (134,099)
<TOTAL-ASSETS> 0 408,605
<CURRENT-LIABILITIES> 0 83,955
<BONDS> 0 110,000
0 0
0 0
<COMMON> 0 103
<OTHER-SE> 0 58,836
<TOTAL-LIABILITY-AND-EQUITY> 0 408,605
<SALES> 157,559 291,539
<TOTAL-REVENUES> 157,559 291,539
<CGS> 132,311 247,533
<TOTAL-COSTS> 146,211 274,090
<OTHER-EXPENSES> 54 (1,937)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,188 8,333
<INCOME-PRETAX> 7,106 11,053
<INCOME-TAX> 760 1,316
<INCOME-CONTINUING> 6,346 9,737
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,346 9,737
<EPS-PRIMARY> $0.69 $1.05
<EPS-DILUTED> 0 0
</TABLE>
