Koppers Holdings(KOP) - 2021 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This part presents Koppers Holdings Inc.'s unaudited condensed consolidated financial statements and management's discussion for the periods ended June 30, 2021 Financial Statements This section presents Koppers Holdings Inc.'s unaudited condensed consolidated financial statements, including the Statement of Operations, Balance Sheet, and Cash Flows, with detailed notes for the periods ended June 30, 2021 and 2020 Condensed Consolidated Statement of Operations and Comprehensive Income This statement details Koppers' net sales, operating profit, net income, and earnings per diluted common share for the three and six months ended June 30, 2021 and 2020 | Indicator (in millions USD) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $441.0 | $436.6 | $848.5 | $838.5 | | Operating profit | $44.3 | $49.7 | $88.2 | $63.3 | | Net income attributable to Koppers | $26.9 | $29.2 | $52.8 | $27.8 | | Earnings per diluted common share | $1.22 | $1.39 | $2.40 | $1.32 | Condensed Consolidated Balance Sheet This balance sheet provides a snapshot of Koppers' assets, liabilities, and shareholders' equity as of June 30, 2021, and December 31, 2020 | Indicator (in millions USD) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $609.8 | $564.5 | | Total assets | $1,674.0 | $1,598.6 | | Long-term debt | $799.1 | $765.8 | | Total liabilities | $1,257.9 | $1,252.6 | | Total Koppers shareholders' equity | $411.8 | $341.7 | Condensed Consolidated Statement of Cash Flows This statement outlines Koppers' cash flows from operating, investing, and financing activities for the six months ended June 30, 2021 and 2020 | Indicator (in millions USD) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $36.1 | $22.2 | | Net cash used in investing activities | ($55.8) | ($26.4) | | Net cash provided by financing activities | $29.0 | $3.9 | | Net increase in cash and cash equivalents | $8.0 | $0.7 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of Koppers' accounting policies, recent restructuring, discontinued operations, debt structure, derivative instruments, and ongoing legal and environmental liabilities - The company is restructuring its Carbon Materials and Chemicals (CMC) segment, including the sale of a Dutch subsidiary and a closed West Virginia facility, while the Railroad Utility Products and Services (RUPS) segment discontinued Denver plant production in Q3 2020[14][15] - The sale of Koppers (Jiangsu) Carbon Chemical Company Limited (KJCC) in September 2020 is classified as discontinued operations, representing a strategic shift[16][17] Debt Instrument | Debt Instrument (in millions USD) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Term Loan | $7.1 | $12.2 | | Revolving Credit Facility | $306.0 | $272.0 | | Senior Notes due 2025 | $500.0 | $500.0 | | Total Debt | $813.1 | $784.2 | - Koppers uses copper swap contracts to manage commodity price risk, with a net fair value asset of $88.3 million as of June 30, 2021, and $39.9 million of unrealized gains expected to be reclassified into earnings within twelve months[72][74] - Koppers is a defendant in 32 lawsuits related to coal tar pitch exposure, seeking compensatory and punitive damages, with no reserves established due to undeterminable outcomes[79][80][81] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Koppers' financial performance for Q2 and H1 2021, covering segment results, liquidity, capital resources, debt covenants, and non-GAAP reconciliations Results of Operations – Q2 2021 vs Q2 2020 This section analyzes Koppers' consolidated and segment-level net sales and operating profit for the second quarter of 2021 compared to 2020, highlighting key drivers Segment Sales | Segment Sales (in millions USD) | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Railroad and Utility Products and Services | $195.5 | $209.9 | -7% | | Performance Chemicals | $145.6 | $137.1 | 6% | | Carbon Materials and Chemicals | $99.9 | $89.6 | 11% | | Total | $441.0 | $436.6 | 1% | Segment Operating Profit | Segment Operating Profit (in millions USD) | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Railroad and Utility Products and Services | $4.3 | $16.2 | -73% | | Performance Chemicals | $28.7 | $32.6 | -12% | | Carbon Materials and Chemicals | $13.4 | $1.5 | 793% | | Total | $44.3 | $49.7 | -11% | Results of Operations – H1 2021 vs H1 2020 This section reviews Koppers' consolidated and segment-level net sales and operating profit for the first six months of 2021 compared to 2020, detailing performance drivers Segment Sales | Segment Sales (in millions USD) | H1 2021 | H1 2020 | % Change | | :--- | :--- | :--- | :--- | | Railroad and Utility Products and Services | $387.4 | $399.9 | -3% | | Performance Chemicals | $269.2 | $248.5 | 8% | | Carbon Materials and Chemicals | $191.9 | $190.1 | 1% | | Total | $848.5 | $838.5 | 1% | Segment Operating Profit | Segment Operating Profit (in millions USD) | H1 2021 | H1 2020 | % Change | | :--- | :--- | :--- | :--- | | Railroad and Utility Products and Services | $13.0 | $25.4 | -49% | | Performance Chemicals | $53.5 | $36.7 | 46% | | Carbon Materials and Chemicals | $24.2 | $2.2 | 1000% | | Total | $88.2 | $63.3 | 39% | Cash Flow This section analyzes Koppers' cash flows from operating, investing, and financing activities for the first six months of 2021, noting changes from the prior year - Net cash provided by operating activities increased by $13.9 million year-over-year for the six months ended June 30, 2021, driven by a $28.9 million increase in net income, partially offset by higher working capital usage[162] - Capital expenditures increased by $34.4 million in H1 2021 compared to H1 2020, resulting in higher net cash usage in investing activities[163] Liquidity and Capital Resources This section details Koppers' liquidity position, capital expenditure plans, share repurchase program, and compliance with debt covenants as of June 30, 2021 Total Estimated Liquidity | Component (in millions USD) | June 30, 2021 | | :--- | :--- | | Cash and cash equivalents | $44.2 | | Amount available under Credit Facility | $286.3 | | Total estimated liquidity | $330.5 | - The board of directors approved a new $100 million share repurchase program on August 5, 2021, replacing the previous program[170] - Koppers is in compliance with debt covenants, reporting a Fixed Charge Coverage Ratio of 2.18 (limit > 1.10) and a Total Leverage Ratio of 3.30 (limit < 5.00) as of June 30, 2021[171] Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP measures, including EBITDA, Adjusted EBITDA, and Net Leverage Ratio, for Q2 and H1 2021 Adjusted EBITDA | Indicator (in millions USD) | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income | $26.9 | $29.4 | $52.7 | $26.9 | | Adjusted EBITDA | $65.6 | $59.6 | $120.7 | $97.2 | Net Leverage Ratio | Indicator | June 30, 2021 | June 30, 2020 | | :--- | :--- | :--- | | Net Debt (in millions USD) | $759.7 | $874.1 | | Adjusted EBITDA (LTM, in millions USD) | $234.5 | $194.2 | | Net Leverage Ratio | 3.2x | 4.5x | Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to Koppers' market risk disclosures since its 2020 Annual Report on Form 10-K - There are no material changes to the market risk disclosure from Koppers' 2020 Annual Report on Form 10-K[190] Controls and Procedures Management concluded that Koppers' disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting - The CEO and CFO concluded that Koppers' disclosure controls and procedures were effective as of the end of the reporting period[191] - No material changes to internal control over financial reporting occurred during the quarter[191] PART II—OTHER INFORMATION This part covers other information, including legal proceedings and risk factors, for Koppers Holdings Inc Legal Proceedings This section incorporates by reference information on Koppers' legal proceedings from Note 18 of the Condensed Consolidated Financial Statements - Information regarding legal proceedings is incorporated by reference from Note 18 to the Condensed Consolidated Financial Statements[192] Risk Factors This section states that there have been no material changes to the Risk Factors previously disclosed in Koppers' 2020 Annual Report on Form 10-K - There have been no material changes to the Risk Factors previously disclosed in Koppers' 2020 Annual Report on Form 10-K[193]