The Securities and Exchange Commission (SEC) has settled charges against Koppers Holdings for failure to disclose material information.
The material information was regarding two non-GAAP financial measures that company highlighted regarding its debt reduction efforts.
The Commission’s order finds that Koppers failed to disclose that it achieved its debt reduction targets by withholding substantial past-due vendor payments in its 2019 fiscal year.
The order finds that throughout its fiscal year 2019, Koppers emphasised the importance of debt reduction and used two non-GAAP financial measures – net debt and net leverage ratio – to measure its progress.
For 2019, Koppers announced that it intended to reduce its net debt by at least $80m and its net leverage ratio to approximately 4 times trailing twelve month adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). Notwithstanding missing its earnings guidance for the year, Koppers announced that it had met its debt reduction goals.
However, Koppers did not disclose that to achieve these targets, the company delayed making material amounts of overdue payments to its vendors. At fiscal year-end 2019, Koppers withheld approximately $72m in past due vendor payments, which corresponded to over 85% of its reported $81.6m net debt reduction.
Koppers then paid those past due invoices the week after the end of the reporting period through a drawdown of its revolving line of credit, thereby reversing most of its reported 2019 net debt reduction. Koppers’ net debt reduction therefore was only temporary and reversed soon after the close of each reporting period of 2019. Without these actions, Koppers would not have achieved the 2019 year-end debt reduction goal it had highlighted to investors.
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