Koppers Holdings(KOP) - 2023 Q1 - Quarterly Report

Part I - Financial Information Comprehensive financial data including statements, management's analysis, market risk disclosures, and internal controls Financial Statements Presents unaudited condensed consolidated financial statements for Q1 2023, showing significant growth in net sales and income, supported by detailed accounting notes Condensed Consolidated Financial Statements Highlights Q1 2023 financial performance with increased net sales and income, alongside changes in assets and cash flow from operations Condensed Consolidated Statement of Operations | (Dollars in millions, except per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net sales | $513.4 | $459.3 | | Operating profit | $50.3 | $38.2 | | Net income attributable to Koppers | $25.5 | $18.8 | | Diluted earnings per common share | $1.19 | $0.87 | Condensed Consolidated Balance Sheet Highlights | (Dollars in millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $710.6 | $636.8 | | Total assets | $1,800.6 | $1,711.4 | | Long-term debt | $881.0 | $817.7 | | Total liabilities | $1,365.7 | $1,308.4 | | Total equity | $434.9 | $403.0 | Condensed Consolidated Statement of Cash Flows | (Dollars in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($15.3) | ($8.0) | | Net cash used in investing activities | ($28.5) | ($22.0) | | Net cash provided by financing activities | $56.8 | $33.4 | | Net increase in cash and cash equivalents | $13.1 | $3.7 | Notes to Condensed Consolidated Financial Statements Details accounting policies, segment performance, debt refinancing, derivative activities, and contingent liabilities, including environmental remediation and litigation - Subsequent to the quarter end, on April 10, 2023, the company entered into a new $400 million Term Loan B, using the proceeds to redeem all outstanding 2025 Senior Notes[61][62] - The company utilizes derivative instruments to manage commodity price risk (copper), foreign currency risk, and interest rate risk, with the net fair value of outstanding copper swap contracts being a $10.1 million asset as of March 31, 2023[69][74] - The company is involved in 27 pending lawsuits with 51 plaintiffs regarding alleged illnesses from exposure to coal tar pitch, with no reserve provided as the outcome is not reasonably determinable[79][81] - As of March 31, 2023, the company has accrued $10.8 million for environmental remediation liabilities, with $4.0 million related to the Portland Harbor and Newark Bay CERCLA sites[94][97] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Analyzes Q1 2023 financial performance, focusing on sales drivers, segment profitability, market trends, liquidity, capital resources, and debt covenant compliance - The company is a global provider of treated wood products, wood preservation chemicals, and carbon compounds, serving railroad, utility, construction, and chemical industries[100][101][102] - Key market trends affecting the business include raw material pricing (coal tar, copper, lumber), oil price volatility, and global economic conditions impacting demand in end-markets like steel and aluminum[107] - The company expects 2023 capital expenditures to be approximately $110 to $120 million, funded by cash from operations[144] Results of Operations Details Q1 2023 consolidated net sales and adjusted EBITDA growth, driven by price increases across segments, with varying profitability trends Net Sales by Segment (Q1 2023 vs Q1 2022) | Segment | 2023 Sales ($M) | 2022 Sales ($M) | % Change | | :--- | :--- | :--- | :--- | | Railroad and Utility Products and Services | $213.1 | $183.4 | 16% | | Performance Chemicals | $146.9 | $136.4 | 8% | | Carbon Materials and Chemicals | $153.4 | $139.5 | 10% | | Total | $513.4 | $459.3 | 12% | Adjusted EBITDA by Segment (Q1 2023 vs Q1 2022) | Segment | 2023 Adj. EBITDA ($M) | 2022 Adj. EBITDA ($M) | % Change | | :--- | :--- | :--- | :--- | | Railroad and Utility Products and Services | $15.8 | $11.6 | 36% | | Performance Chemicals | $26.3 | $20.9 | 26% | | Carbon Materials and Chemicals | $19.4 | $20.1 | -3% | | Total | $61.5 | $52.6 | 17% | - RUPS profitability increased due to price increases that offset $19.2 million in higher raw material and operating costs[132] - PC profitability grew as price increases from renegotiated contracts more than offset $10.9 million in raw material cost increases and an 8.6% global volume decrease[133] - CMC profitability decreased due to a $39.8 million increase in raw material costs, particularly in North America and Europe, which was not fully offset by higher pricing[134] Liquidity and Capital Resources Examines cash flow from operations, available liquidity, debt covenant compliance, and the impact of post-quarter debt refinancing activities - Net cash used in operating activities increased to $15.3 million from $8.0 million in the prior year, mainly due to a $11.6 million increase in working capital usage[138] - As of March 31, 2023, the company had approximately $400 million of unused revolving credit availability and was in compliance with all debt covenants[143][146] - Post-quarter end, the company redeemed its 2025 Notes using proceeds from a new $400M Term Loan B, cash on hand, and additional borrowings under its revolving Credit Facility[143] Quantitative and Qualitative Disclosures About Market Risk Assesses market risk, primarily interest rate exposure, detailing the impact of variable-rate debt and mitigation strategies like interest rate swaps - Following the redemption of the fixed-rate 2025 Notes in April 2023, all of the company's debt consists of variable rate debt[151] - A one percentage point increase in interest rates would decrease annual earnings and cash flows by approximately $8.0 million, holding other variables constant[151] - The company entered into a $100 million interest rate swap to convert a portion of its variable-rate debt to a fixed rate of 7.478%, expiring in April 2027[151] Controls and Procedures Confirms the effectiveness of disclosure controls and procedures, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[152] Part II - Other Information Presents additional disclosures including legal proceedings, updated risk factors, and details on share repurchase activities Legal Proceedings and Risk Factors Incorporates legal proceedings by reference and introduces a new risk factor related to potential financial institution failures - Legal proceedings disclosures from Note 16 are incorporated by reference[153] - A new risk factor was added regarding the failure of financial institutions, which could adversely affect the company's liquidity and financial condition due to uninsured deposits and counterparty risk on credit agreements and derivatives[155][156] Share Repurchases Details Q1 2023 share repurchase activity, including the number of shares bought back and remaining authorization Share Repurchase Activity (Q1 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Value Remaining ($M) | | :--- | :--- | :--- | :--- | | March 1 - March 31 | 112,705 | $32.39 | $68.3 | | Total Q1 2023 | 112,705 | $32.39 | $68.3 |