Business Context and Reporting Period
This Form 8-K Current Report was filed by Koppers Holdings Inc. on April 10, 2018. The filing discloses the completion of a material acquisition and the amendment of the company's credit facilities to fund the transaction.
Key Financial Metrics and Transaction Details
- Acquisition Price: Approximately $200 million in cash for the acquisition of Cox Industries, Inc.
- Escrow Amount: $10 million held to secure post-closing adjustments and indemnification obligations.
- Debt Financing: The purchase price was funded by borrowings under the company's Credit Agreement.
- New Term Loan: A $100 million term loan component was added to the Credit Agreement with 10% annual amortization.
- Accordion Provision: Reset to allow increases in credit commitments by up to an aggregate of $100 million.
Material Changes Versus Prior Period
The primary material change is the expansion of Koppers' operations through the acquisition of Cox Industries, Inc., a manufacturer and distributor of outdoor wood products for commercial, industrial, and utility markets. Additionally, the company's capital structure was altered through the Second Amendment to its Credit Agreement, which introduced a new term loan, revised financial covenants, and extended the facility termination date to the fifth anniversary of the amendment's effective date.
Outlook, Risks, and Unusual Items
- Tax Strategy: Both parties filed a 338(h)(10) tax election to establish a new tax basis for acquired assets and secure future tax amortization benefits.
- Indemnification: Selling shareholders indemnify Koppers for certain liabilities, subject to deductibles, caps, and time limits. Koppers also purchased a representations and warranties insurance policy.
- Covenant Revisions: The Credit Agreement was amended to increase exclusions from Capital Expenditures and revise the definition of Consolidated EBITDA to permit add-backs for non-recurring charges and transaction expenses related to acquisitions.
- Future Filings: Financial statements of the acquired business and pro forma financial information are not included in this filing but will be submitted via amendment within 71 calendar days.
Investor Verification Checklist
- Verify the final purchase price after post-closing adjustments are calculated.
- Review the upcoming Form 10-Q for the quarter ended March 31, 2018, for the full text of the Merger Agreement and Second Amendment.
- Monitor the upcoming filing (within 71 days) for pro forma financial information to assess the impact of the acquisition on earnings and leverage.
- Confirm the specific terms of the representations and warranties insurance policy exclusions and retention amounts.