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Item 1. Financial Statements

2023-05-05 compared with 2022-11-04 · 277 added, 407 removed, 688 unchanged (50% of the section changed)

1 unchanged sentence

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

Three Months Ended September 30,

Nine Months Ended September 30,

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

Three Months Ended March 31,

(Dollars in millions, except per share amounts)

2 unchanged sentences

(Gain) on sale of assets

Impairment and restructuring charges

Selling, general and administrative expenses

Operating profit

Other income, net

Other (loss) income, net

Interest expense

2 unchanged sentences

Income from continuing operations

Gain (loss) on sale of discontinued operations, net of tax

benefit of $ 0.0 , $ 0.2 , $ 0.3 and $ 0.0

Net loss attributable to noncontrolling interests

Loss on sale of discontinued operations

Net income attributable to noncontrolling interests

Net income attributable to Koppers

Earnings (loss) per common share attributable to

Koppers common shareholders:

Earnings (loss) per common share attributable to Koppers common shareholders:

Continuing operations

4 unchanged sentences

Earnings per diluted common share

Comprehensive (loss) income

Comprehensive loss attributable to noncontrolling interests

Comprehensive (loss) income attributable to Koppers

Comprehensive income

Comprehensive income attributable to noncontrolling interests

Comprehensive income attributable to Koppers

Weighted average shares outstanding (in thousands):

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEET

September 30,

(Dollars in millions, except per share amounts)

Cash and cash equivalents, including restricted cash (Note 4)

Accounts receivable, net of allowance of $ 3.3

Cash and cash equivalents

Accounts receivable, net of allowance of $ 3.7 and $ 3.5

Inventories, net

9 unchanged sentences

Current operating lease liabilities

Current maturities of long-term debt

Total current liabilities

22 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

14 unchanged sentences

Other working capital

Net cash provided by operating activities

Net cash used in operating activities

Cash (used in) provided by investing activities:

12 unchanged sentences

Effect of exchange rate changes on cash

Net (decrease) increase in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

4 unchanged sentences

Right-of-use assets obtained in exchange for new operating lease liabilities

Supplemental disclosure of cash flow information:

Non-cash investing activities

Accrued capital expenditures

18 unchanged sentences

This ASU amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in financial statements.

2022-01 is effective for periods beginning after December 15, 2022, and earlier adoption is permitted.

The adoption of this ASU will not have a material impact on our financial statements as we principally utilize cash flow hedges.

Plant Closures and Divestitures

We have restructured our Carbon Materials and Chemicals (“CMC”) segment in order to concentrate our facilities in regions where we believe we hold key competitive advantages to better serve our global customers.

The recent restructuring activities which had an impact on our reported results include:

In February 2021, we sold our closed Follansbee, West Virginia coal tar distillation facility and we recorded a gain on sale of $ 5.7 million, consisting of $ 2.6 million from cash proceeds in addition to the assumption of certain liabilities by the buyer.

In September 2020, we sold Koppers (Jiangsu) Carbon Chemical Company Limited ("KJCC").

Refer to Note 4 - "Discontinued Operations" for more details.

In October 2018, we sold our closed Clairton, Pennsylvania coal tar distillation facility.

In the first quarter of 2021, certain post-sale conditions were achieved and the buyer of the property released cash held in escrow to us resulting in a gain on sale of $ 1.8 million.

Other closure and divestiture activity relates to our Railroad and Utility Products and Services (“RUPS”) segment, including:

In March 2022, we sold our utility pole treating facility in Sweetwater, Tennessee and recorded a gain on sale of $ 2.5 million.

In October 2021, we sold our closed Denver, Colorado crosstie treating facility and recorded a gain on sale of $ 23.4 million.

Discontinued Operations

On September 30, 2020, we sold KJCC to Fangda Carbon New Material Co., Ltd and C-Chem Co., Ltd., a subsidiary of Nippon Steel Chemical & Material Co., Ltd.

(the “Buyers”).

KJCC was located in Pizhou, Jiangsu Province, China and was a 75 percent-owned coal tar distillation company which was part of our CMC segment.

On December 23, 2021 and March 31, 2022, the Buyers issued various claims, which, after negotiation, were settled in April 2022 for $ 0.9 million, of which our share is $ 0.7 million.

These claims were paid out of amounts held in escrow and the remaining escrow amount of $ 1.5 million was fully released in August 2022.

In the third quarter of 2022, we recorded a charge of $ 0.5 million related to a tax indemnity claim from the Buyers which was paid in the fourth quarter of 2022.

The sale of KJCC represented a strategic shift that had a major effect on our operations and accordingly is classified as discontinued operations in our condensed consolidated financial statements and notes.

2022-01 is effective for periods beginning after December 15, 2022.

The adoption of this ASU did not have a material impact on our financial statements as we principally utilize cash flow hedges.

Fair Value Measurements

Carrying amounts and the related estimated fair values of our financial instruments as of September 30, 2022 and December 31, 2021 are as follows:

September 30, 2022

Carrying amounts and the related estimated fair values of our financial instruments as of March 31, 2023 and December 31, 2022 are as follows:

March 31, 2023

December 31, 2022

3 unchanged sentences

Financial liabilities:

Long-term debt (including current portion)

Long-term debt

Investments and other assets –

3 unchanged sentences

The fair value of our long-term debt is estimated based on the market prices for the same or similar issuances or on the current rates offered to us for debt of the same remaining maturities (Level 2).

The fair value of our Credit Facility approximates carrying value due to the variable rate nature of this instrument.

Comprehensive (Loss) Income and Equity

Total comprehensive (loss) income for the three and nine months ended September 30, 2022 and 2021 is summarized in the table below:

Three Months Ended September 30,

Nine Months Ended September 30,

The fair value of our Credit Facility (as defined in Note 12 –

"Debt") approximates carrying value due to the variable rate nature of this instrument.

Comprehensive Income and Equity

Total comprehensive income for the three months ended March 31, 2023 and 2022 is summarized in the table below:

Three Months Ended March 31,

(Dollars in millions)

Changes in other comprehensive (loss) income:

Changes in other comprehensive income:

Currency translation adjustment

Unrealized (loss) on cash flow hedges,

net of tax benefit of $ 4.9 , $ 6.1 , $ 21.1 and $ 1.2

Unrecognized pension net loss, net of tax

expense of $ 0.1 , $ 0.1 , $ 0.2 and $ 0.3

Total comprehensive (loss) income

Comprehensive loss attributable to

noncontrolling interests

Comprehensive (loss) income attributable to Koppers

Unrealized gain (loss) on cash flow hedges, net of tax

(expense) benefit of $( 1.9 ) and $ 2.1

Unrecognized pension net loss, net of tax expense of $( 0.1 ) and $( 0.1 )

Comprehensive income

Comprehensive income attributable to noncontrolling interests

Comprehensive income attributable to Koppers

Amounts reclassified from accumulated other comprehensive loss to net income consist of amounts shown for changes in or amortization of unrecognized pension net loss.

1 unchanged sentence

“Pensions and Post-Retirement Benefit Plans.”

Other amounts reclassified from accumulated other comprehensive loss related to derivative financial instruments of $ 5.8 million and $ 27.0 million for the three and nine months ended September 30, 2022, and $ 11.1 million and $ 31.0 million for the three and nine months ended September 30, 2021, respectively.

Other amounts reclassified from accumulated other comprehensive loss related to derivative financial instruments of $ 1.7 million for the three months ended March 31, 2023 , and $ 10.1 million for the three months ended March 31, 2022.

The amounts in the preceding sentence are net of tax.

The following tables present the change in equity for the three months ended September 30, 2022 and 2021, respectively:

(Dollars in millions)

Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Noncontrolling

Balance at June 30, 2022

Issuance of common stock

Employee stock plans

Other comprehensive

(loss) income

Currency translation

Unrealized loss on

cash flow hedges

Unrecognized pension

Balance at September 30, 2022

(Dollars in millions)

Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Noncontrolling

Balance at June 30,

Net income (loss)

Issuance of common stock

Repurchases of common

Employee stock plans

Other comprehensive

(loss) income

Currency translation

Unrealized loss on

cash flow hedges

Unrecognized pension

Balance at September 30,

The following tables present the change in equity for the nine months ended September 30, 2022 and 2021, respectively:

The following tables present the change in equity for the three months ended March 31, 2023 and 2022, respectively:

(Dollars in millions)

8 unchanged sentences

Other comprehensive

(loss) income

Currency translation

Unrealized loss on

Unrealized gain on

cash flow hedges

Unrecognized pension

Balance at September 30, 2022

Balance at March 31,

(Dollars in millions)

4 unchanged sentences

Balance at December 31,

Net income (loss)

Issuance of common stock

4 unchanged sentences

Currency translation

Cumulative translation

adjustment loss on

sale of subsidiary

Unrealized loss on

1 unchanged sentence

Unrecognized pension

Balance at September 30,

On November 3, 2022 , we declared a quarterly dividend of $ 0.05 per common share, payable on December 12, 2022 to shareholders of record as of November 25, 2022 .

Balance at March 31,

On May 4, 2023 , we declared a quarterly dividend of $ 0.06 per common share, payable on June 12, 2023 to shareholders of record as of May 26, 2023 .

Earnings per Common Share

3 unchanged sentences

The following table sets forth the computation of basic and diluted earnings per common share:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions, except share amounts, in thousands)

Net income attributable to Koppers

Gain (loss) on sale of discontinued operations,

net of tax of $ 0.0

Loss on sale of discontinued operations

Income from continuing operations attributable to Koppers

5 unchanged sentences

Diluted earnings per common share

Antidilutive securities excluded from computation of

diluted earnings per common share

Antidilutive securities excluded from computation of diluted earnings

per common share

Stock-based Compensation

5 unchanged sentences

Compensation expense for non-vested stock units is recorded over the vesting period based on the fair value at the date of grant.

The fair value of restricted stock units is the market price of the underlying common stock on the date of grant and the fair value of performance stock units is determined using a Monte Carlo valuation model.

For grants to most employees, the restricted stock units vest in four equal annual installments.

The fair value of restricted stock units is the market price of the underlying common stock on the date of grant.

The fair value of performance stock units is determined using the market price of the underlying common stock on the date of grant for units with a performance condition and a Monte Carlo valuation model for units with a market condition.

For grants to most employees prior to 2023, the restricted stock units vest in four equal annual installments.

Starting in 2023, most grants of restricted stock units vest in three years .

Restricted stock units that have one-year vesting periods are also issued under the LTIP to members of the board of directors in connection with annual director compensation and, from time to time, are issued to employees in connection with employee compensation with vesting periods of typically two years or less.

Performance stock units have vesting based upon a market condition.

These performance stock units have multi-year performance objectives and a three-year period for vesting (if the applicable performance objectives are achieved).

The applicable performance objective is based on our total shareholder return relative to the Standard & Poor’s SmallCap 600 Materials Index.

Performance stock units have vesting based upon either a performance condition or a market condition.

Performance stock units granted with a performance condition have a cumulative three-year performance objective based on adjusted EBITDA (see Note 7 - Segment Information).

For performance stock units granted with a market condition, which applies to all performance stock unit grants prior to 2023, the applicable objective is based on our total shareholder return relative to the Standard & Poor’s SmallCap 600 Materials Index and has multi-year performance objectives.

Both types of performance stock units have a three-year period for vesting (if the applicable performance objectives are achieved).

The number of performance stock units granted represents the target award and participants have the ability to earn between zero and 200 percent of the target award based upon actual performance.

1 unchanged sentence

We have the discretion to settle the award in cash rather than shares, although we currently expect that all awards will be settled by the issuance of shares.

We calculated the fair value of the performance stock unit awards on the date of grant using the assumptions listed below:

We calculated the fair value of the performance stock unit awards with a market condition on the date of grant using the assumptions listed below:

January 2023 Grant

January 2022 Grant

March 2020 Grant

January 2021 Grant

Grant date price per share of performance

Expected dividend yield per share

Expected volatility

6 unchanged sentences

There are special vesting provisions for the stock units related to a change in control.

The following table shows a summary of the performance stock units as of September 30, 2022:

The following table shows a summary of the performance stock units as of March 31, 2023:

Performance Period

Market Condition Units

2021 –

1 unchanged sentence

2023 –

The following table shows a summary of the status and activity of non-vested stock units for the nine months ended September 30, 2022:

Performance Condition Units

2023 –

The following table shows a summary of the status and activity of non-vested stock units for the three months ended March 31, 2023:

Weighted Average

2 unchanged sentences

Non-vested at December 31, 2022

Performance share adjustment

Non-vested at September 30, 2022

Credited from dividends

Non-vested at March 31, 2023

Stock Options

5 unchanged sentences

Compensation expense for non-vested stock options is recorded over the vesting period based on the fair value at the date of grant.

No stock options have been issued in 2023.

We calculated the fair value of stock options on the date of grant using the Black-Scholes-Merton model and the assumptions listed below:

2 unchanged sentences

March 2020 Grant

March 2019 Grant

Grant date price per share of stock

7 unchanged sentences

The expected life in years is based on historical exercise data of options previously granted by us.

Expected volatility is based on the historical volatility of our common stock and the historical volatility of certain other similar public companies.

The risk-free interest rate is based on U.S.

Expected volatility is based on the historical volatility of our common stock and the risk-free interest rate is based on U.S.

Treasury bill rates for the expected life of the option.

The following table shows a summary of the status and activity of stock options for the nine months ended September 30, 2022:

The following table shows a summary of the status and activity of stock options for the three months ended March 31, 2023:

Weighted Average

5 unchanged sentences

Outstanding at December 31, 2022

Outstanding at September 30, 2022

Exercisable at September 30, 2022

Outstanding at March 31, 2023

Exercisable at March 31, 2023

Stock Compensation Expense

Total stock-based compensation expense recognized under our LTIP and employee stock purchase plan for the three and nine months ended September 30, 2022 and 2021 is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Total stock-based compensation expense recognized under our LTIP and employee stock purchase plan for the three months ended March 31, 2023 and 2022 is as follows:

Three Months Ended March 31,

(Dollars in millions)

5 unchanged sentences

Cash received from the exercise of stock options

As of September 30, 2022, total future compensation expense related to non-vested stock-based compensation arrangements is expected to total $ 21.6 million and the weighted-average period over which this expense is expected to be recognized is approximately 27 months .

As of March 31, 2023 , total future compensation expense related to non-vested stock-based compensation arrangements is expected to total $ 28.2 million and the weighted-average period over which this expense is expected to be recognized is approximately 28 months .

Segment Information

We have three reportable segments:

RUPS, Performance Chemicals (“PC”) and CMC.

Railroad and Utility Products and Services ("RUPS"), Performance Chemicals (“PC”) and Carbon Materials and Chemicals ("CMC").

Our reportable segments contain multiple aggregated business units since management believes the long-term financial performance of these business units is affected by similar economic conditions.

3 unchanged sentences

Utility products include transmission and distribution poles and pilings.

The segment also operates a railroad services business that conducts engineering, design, repair and inspection services for railroad bridges, a business related to the recovery of used crossties and a business related to the inspection of utility poles.

The segment also operates a railroad services business that conducts engineering, design, repair and inspection services for railroad bridges, a business related to the recovery of used crossties and utility poles and a business related to the inspection of utility poles.

Our PC segment develops, manufactures, and markets wood preservation chemicals and wood treatment technologies and services a diverse range of end-markets including infrastructure, residential and commercial construction, and agriculture.

1 unchanged sentence

Creosote is used in the treatment of wood and carbon black feedstock is used in the production of carbon black.

Carbon pitch is used in the production of aluminum and steel in electric arc furnaces.

Carbon pitch is a critical raw material used in the production of aluminum and for the production of steel in electric arc furnaces.

Naphthalene is used for the production of phthalic anhydride and as a surfactant in the production of concrete.

5 unchanged sentences

For these reasons, we believe that adjusted EBITDA represents the most relevant measure of segment profit and loss.

Consolidated adjusted EBITDA is reconciled to net income, the most directly comparable financial measure determined and reported in accordance with U.S.

Adjusted EBITDA is reconciled to net income on a consolidated basis, the most directly comparable financial measure determined and reported in accordance with U.S.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

2 unchanged sentences

The timing of revenue recognition results in both billed accounts receivable and unbilled receivables, both classified as accounts receivable, net of allowance within the condensed consolidated balance sheet.

Contract assets of $ 8.4 million and $ 7.9 million are recorded within accounts receivable, net of allowance within the condensed consolidated balance sheet as of September 30, 2022 and December 31, 2021, respectively.

Contract assets of $ 9.2 million and $ 8.3 million are recorded within accounts receivable, net of allowance within the condensed consolidated balance sheet as of March 31, 2023 and December 31, 2022, respectively.

The following table sets forth certain sales and operating data, net of all intersegment transactions, for our segments for the periods indicated:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

14 unchanged sentences

Carbon Materials and Chemicals

Items excluded from the determination of segment

Impairment, restructuring and plant closure

(costs) benefits

Items excluded from the determination of segment profit:

Impairment, restructuring and plant closure costs

Gain on sale of assets

Mark-to-market commodity hedging losses

Corporate unallocated

LIFO expense (1)

Mark-to-market commodity hedging gains (losses)

Interest expense

2 unchanged sentences

Discontinued operations

(1) The LIFO expense adjustment removes the entire impact of LIFO and effectively reflects the results as if we were on a FIFO inventory basis .

The following table sets forth revenues for significant product lines, net of all intersegment transactions, for our segments for the periods indicated:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

10 unchanged sentences

Phthalic anhydride and other chemicals

Creosote and distillates

Carbon black feedstock and distillates

Other products

The following table sets forth assets and goodwill allocated to each of our segments as of the dates indicated:

September 30,

(Dollars in millions)

10 unchanged sentences

Entities that have historical pre-tax losses and current year estimated pre-tax losses that are not projected to generate a future benefit are excluded from the estimated annual effective income tax rate.

The estimated annual effective income tax rate, excluding discrete items, was 36.1 percent and 26.8 percent for the nine months ended September 30, 2022 and 2021, respectively.

The estimated annual effective income tax rate, excluding discrete items, was 28.4 percent and 32.9 percent for the three months ended March 31, 2023 and 2022 , respectively.

The estimated annual effective income tax rate differs from the U.S.

federal statutory tax rate due to:

September 30,

Federal income tax rate

Foreign earnings taxed at different rates

Interest expense deduction limitation

Nondeductible expenses

State income taxes, net of federal tax benefit

Change in tax contingency reserves

GILTI inclusion, net of foreign tax credits

Change in tax contingency reserves

Interest expense deduction limitation

Estimated annual effective income tax rate

The interest expense deduction limitation is limited to 30.0 percent of adjusted taxable income as defined under the tax regulations.

Starting January 1, 2022, the calculation of adjusted taxable income excludes an addback for depreciation and amortization whereas previous years’

determination of adjusted taxable income included an addback for depreciation and amortization.

This change in the determination of adjusted taxable income has decreased the amount of interest expense we can deduct and has had a significant unfavorable impact on our estimated annual effective income tax rate for the current year.

Income taxes as a percentage of pretax income were 41.0 percent for the three months ended September 30, 2022.

This is higher than the estimated annual effective income tax rate of 36.1 percent due to additional tax expense recognized in the current quarter as a result of increasing the estimated annual effective income tax rate utilized in the previous quarter.

Income taxes as a percentage of pretax income were 37.3 percent for the nine months ended September 30, 2022.

This was higher than the estimated annual effective income tax rate of 36.1 percent due to forecasted pre-tax losses of certain foreign subsidiaries that are not expected to generate a future benefit.

Income taxes as a percentage of pretax income were 27.4 percent for the three months ended March 31, 2023 and 33.4 percent for the three months ended March 31, 2022 .

Both periods were slightly different than the estimated annual effective income tax rate of 28.4 percent and 32.9 percent, respectively, due to various discrete items, which were not material in the aggregate or individually.

During the year, management regularly updates estimates of pre-tax income and income tax expense based on changes in pre-tax income projections by taxable jurisdiction, repatriation of foreign earnings, unrecognized tax benefits and other tax matters.

To the extent that actual results vary from these estimates, the actual annual effective income tax rate at the end of the year could be materially different from the estimated annual effective income tax rate as of September 30, 2022.

Unrecognized Tax Benefits

7 unchanged sentences

income tax examinations by tax authorities for years prior to 2017.

Unrecognized tax benefits totaled $ 1.4 million and $ 1.5 million as of September 30, 2022 and December 31, 2021.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate, was approximately $ 1.4 million and $ 1.5 million as of September 30, 2022 and December 31, 2021.

Unrecognized tax benefits totaled $ 1.4 million as of March 31, 2023 and December 31, 2022 .

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate, was approximately $ 1.4 million as of March 31, 2023 and December 31, 2022.

We recognize interest expense and any related penalties from unrecognized tax benefits in income tax expense.

As of September 30, 2022 and December 31, 2021, we had accrued approximately $ 0.4 million for interest and penalties.

For the three months ended March 31, 2023 we recognized $ 0.1 million in interest and penalties.

For the year ended December 31, 2022 , we recognized income of $( 0.1 ) million in interest and penalties.

We do not anticipate material changes to the amount of unrecognized tax benefits within the next twelve months.

Net inventories as of September 30, 2022 and December 31, 2021 are summarized in the table below:

September 30,

Net inventories as of March 31, 2023 and December 31, 2022 are summarized in the table below:

(Dollars in millions)

4 unchanged sentences

Property, Plant and Equipment

Property, plant and equipment as of September 30, 2022 and December 31, 2021 are summarized in the table below:

September 30,

Property, plant and equipment as of March 31, 2023 and December 31, 2022 are summarized in the table below:

(Dollars in millions)

3 unchanged sentences

We maintain a number of defined benefit and defined contribution plans to provide retirement benefits for employees in the United States, as well as employees outside the United States.

These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”), local statutory law or as determined by the board of directors.

These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”) or local law, as applicable.

The defined benefit pension plans generally provide benefits based upon years of service and compensation.

Pension plans are funded except for three domestic non-qualified defined benefit pension plans for certain key executives.

In the United States, all qualified and two of the non-qualified defined benefit pension plans for salaried and hourly employees have been frozen and are closed to new participants.

In the United States, all qualified and two of the non-qualified defined benefit pension plans for salaried and hourly employees have been closed to new participants and have been frozen.

Accordingly, these pension plans no longer accrue additional years of service or recognize future increases in compensation for benefit purposes.

With respect to our defined benefit pension plan in the United Kingdom, in 2021 we entered into a buy-in bulk annuity insurance policy in exchange for a premium payment of $ 67.8 million, which is subject to adjustment as a result of subsequent data cleansing activities.

Under the terms of this buy-in insurance policy, the insurer is liable to pay the benefits of our defined benefit pension plan in the United Kingdom, but the plan still retains full legal responsibility to pay the benefits to the members of the plan using the insurance payments.

In connection with our defined benefit pension plan in the United Kingdom, in 2021, we entered into a buy-in bulk annuity insurance policy in exchange for a premium payment of $ 67.8 million, which is subject to adjustment as a result of subsequent data cleansing activities.

Under the terms of this buy-in insurance policy, the insurer is liable to pay the benefits of the plan, but the plan still retains full legal responsibility to pay the benefits to members using the insurance payments.

The buy-in policy will be treated as a plan asset going forward until such time as the buy-in policy is converted to a buy-out policy, which is when individual insurance policies will be assigned to each member of the plan and the plan will no longer have legal responsibility to pay the benefits to the members.

The data cleansing effort is expected to be completed in mid-2023 at which time the pension obligation will be irrevocably settled.

The data cleansing effort was substantially completed in late 2022 and by late 2023, the pension obligation is expected to be irrevocably settled.

Upon that event, we will recognize a pre-tax pension settlement loss of approximately $ 20 million.

3 unchanged sentences

For salaried employees, the retiree medical and retiree life insurance plans have been closed to new participants.

The following table provides the components of net periodic benefit cost for the pension plans for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table provides the components of net periodic benefit cost for the pension plans for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

(Dollars in millions)

4 unchanged sentences

Defined contribution plan expense

Debt as of September 30, 2022 and December 31, 2021 was as follows:

Debt as of March 31, 2023 and December 31, 2022 was as follows:

Interest Rate

September 30,

(Dollars in millions)

Revolving Credit Facility

Senior Notes due 2025

Less short-term debt and current maturities of long-term debt

Less unamortized debt issuance costs

1 unchanged sentence

Revolving Credit Facility

In June 2022, we entered into an $ 800.0 million revolving credit agreement (the “Credit Facility”) with a consortium of banks which replaced our previous $ 600.0 million senior secured revolving credit facility and $ 100.0 million senior secured term loan facility (the latter having been fully repaid as of March 31, 2022).

In June 2022, we entered into an $ 800.0 million revolving credit agreement (the “Credit Facility”) with a consortium of banks.

The Credit Facility also provides for a $ 50.0 million swingline facility and provides for the ability to incur one or more uncommitted incremental revolving or term loan facilities in an aggregate amount of at least $ 730.0 million, subject to applicable financial covenants.

The maturity date of the Credit Facility is in June 2027 subject to a springing maturity in the event the 2025 Notes (as defined below) are not repurchased, redeemed or refinanced prior to November 15, 2024.

The interest rate on the Credit Facility is variable and may be based on the Secured Overnight Financing Rate (“SOFR”), which is the applicable benchmark for current borrowings, or an alternative benchmark depending on the borrowing type.

5 unchanged sentences

and its restricted subsidiaries to meet certain financial ratios.

As of September 30, 2022, we had approximately $ 400 million of unused revolving credit availability after restrictions from certain letter of credit commitments and other covenants.

As of September 30, 2022, $ 7.8 million of commitments were utilized by outstanding undrawn letters of credit.

As of March 31, 2023 , we had approximately $ 400 million of unused revolving credit availability for working capital purposes after restrictions from certain letter of credit commitments and other covenants.

As of March 31, 2023 , approximately $ 18 million of commitments were utilized by outstanding letters of credit.

Senior Notes due 2025

3 unchanged sentences

We are entitled to redeem all or a portion of the 2025 Senior Notes at a redemption price of 101.5 percent of principal value as of February 15, 2022 until April 15, 2023 when the 2025 Notes are redeemable at principal value.

The indenture governing the 2025 Senior Notes includes customary covenants that restrict, among other things, the ability of Koppers Inc.

The indenture governing the 2025 Notes includes customary covenants that restrict, among other things, the ability of Koppers Inc.

and its restricted subsidiaries to incur additional debt, pay dividends or make certain other restricted payments, incur liens, merge or sell all or substantially all of the assets of Koppers Inc.

or its subsidiaries or enter into various transactions with affiliates.

Subsequent Events

On April 10, 2023, we entered into Amendment No.

1 to the Credit Facility ("Amendment No.

1") which added a new class of senior secured term loans under the Credit Facility in an aggregate principal amount of $ 400.0 million (the "Term Loan B"), among other modifications.

The Term Loan B was issued at 97 percent of face value, resulting in $ 388.0 million of net proceeds, before debt financing costs.

The interest rate on the Term Loan B is variable and is based on, at our option, adjusted Term SOFR Rate or adjusted Daily Simple SOFR, in each case plus 4.00 percent with a floor of 0.50 percent.

The principal balance of the Term Loan B will be repayable in quarterly installments of $ 1.0 million each quarter beginning with the third quarter of 2023, with the balance due at maturity on April 10, 2030 .

On April 11, 2023, we used the proceeds from the Term Loan B, cash on hand and available borrowing capacity under our existing Credit Facility to redeem all of the outstanding 2025 Notes and to pay any fees and expenses incurred in connection with the issuance of the Term Loan B and the redemption of the 2025 Notes.

During the first quarter of 2023, we entered into an interest rate swap agreement with an aggregate notional value of $ 100.0 million in anticipation of the issuance of the Term Loan B in April 2023.

The interest rate swap effectively converts the variable rate to a fixed rate of 7.478 percent for that portion of the loan.

The swap agreement expires in April 2027 .

Asset Retirement Obligations

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The following table reflects changes in the carrying values of asset retirement obligations:

September 30,

(Dollars in millions)

Asset retirement obligation at beginning of year

Balance at beginning of year

Accretion expense

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Cash expenditures

Currency translation

Balance at end of period

Balance at end of year

We recognize lease obligations and associated right-of-use assets for existing non-cancelable leases.

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Variable lease expense is recognized in the period in which the obligation for those payments is incurred.

Operating lease costs were $ 7.1 million and $ 21.8 million during the three and nine months ended September 30, 2022, respectively, and $ 7.5 million and $ 22.8 million during the three and nine months ended September 30, 2021, respectively.

Variable lease costs were $ 0.9 million and $ 2.2 million during the three and nine months ended September 30, 2022, respectively, and $ 0.8 million and $ 2.7 million during the three and nine months ended September 30, 2021, respectively.

The following table presents information about the amount and timing of cash flows arising from our operating leases as of September 30, 2022:

Operating lease costs were $ 6.7 million and $ 7.5 million during the three months ended March 31, 2023 and 2022 , respectively.

Variable lease costs were $ 0.9 million and $ 0.8 million during the three months ended March 31, 2023 and 2022, respectively.

The following table presents information about the amount and timing of cash flows arising from our operating leases as of March 31, 2023:

(Dollars in millions)

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Supplemental condensed consolidated balance sheet information related to leases is as follows:

September 30,

(Dollars in millions)

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We utilize derivative instruments to manage exposures to risks that have been identified, measured and are capable of being mitigated.

The primary risks that we manage by using derivative instruments are commodity price risk associated with copper and foreign currency exchange risk associated with a number of currencies, principally the U.S.

dollar, the Euro and British pounds.

The primary risks that we manage by using derivative instruments are commodity price risk associated with copper, foreign currency exchange risk associated with a number of currencies, principally the U.S.

dollar and New Zealand dollar and interest rate risk associated with variable rate borrowings.

Swap contracts on copper are used to manage the price risk associated with forecasted purchases of materials used in our manufacturing processes.

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We enter into foreign currency forward contracts to manage foreign currency risk associated with our receivable and payable balances in addition to foreign-denominated sales.

We also enter into interest rate swaps to effectively convert portions of our variable interest debt into fixed rate debt.

Our objective in using interest rate swaps is to add stability to interest expense and to manage our exposure to interest rate movements .

Generally, we enter into master netting arrangements with the counterparties and offset net derivative positions with the same counterparties.

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The Company recognizes all derivative instruments as either assets or liabilities at fair value on the balance sheet.

The derivative instruments are classified as current or noncurrent based upon the expected timing of cash flows and are subject to offset under our master netting arrangements.

A derivative instrument's fair value is determined using significant other observable inputs, a Level 2 fair value measurement.

We designate certain of our commodity swaps as cash flow hedges of forecasted purchases of commodities.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive (loss) income and is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

We also designate our interest rate swaps as cash flow hedges on interest payments.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Gains and losses on the derivative instruments representing hedge ineffectiveness are recognized in current earnings.

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These amounts are classified in cost of sales in the condensed consolidated statement of operations.

As of September 30, 2022 and December 31, 2021, we had outstanding copper swap contracts of the following amounts:

As of March 31, 2023 and December 31, 2022, we had outstanding copper swap contracts of the following amounts:

Units Outstanding (in Pounds)

Net Fair Value - Asset (in Dollars)

September 30,

(Amounts in millions)

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Contracts where hedge accounting was not

As of September 30, 2022 and December 31, 2021, the fair value of the outstanding copper swap contracts is recorded in the balance sheet as follows:

September 30,

As of March 31, 2023 and December 31, 2022, the fair value of the outstanding copper swap contracts is recorded in the balance sheet as follows:

(Dollars in millions)

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Accrued liabilities

Other long-term liabilities

Net asset on balance sheet

Accumulated other comprehensive gain, net of tax

We estimate that $ 3.9 million of unrealized gains, net of tax, related to commodity price hedging will be reclassified from other comprehensive (loss) income into earnings over the next twelve months .

We estimate that $ 5.3 million of unrealized gains, net of tax, related to commodity price hedging will be reclassified from other comprehensive income into earnings over the next twelve months .

See Note 4 –

“Comprehensive (Loss) Income and Equity”, for amounts recorded in other comprehensive loss and for amounts reclassified from accumulated other comprehensive loss into net income for the periods specified below.

For the three and nine months ended September 30, 2022 and 2021, the unrealized (loss) gain from contracts where hedge accounting was not elected is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

“Comprehensive Income and Equity”, for amounts recorded in other comprehensive income and for amounts reclassified from accumulated other comprehensive loss into net income.

For the three months ended March 31, 2023 and 2022, the unrealized (loss) gain from contracts where hedge accounting was not elected is as follows:

Three Months Ended March 31,

(Dollars in millions)

(Loss) from contracts where hedge accounting was

Gain (loss) from contracts where hedge accounting was not elected

The fair value associated with forward contracts related to foreign currency that are not designated as hedges are immediately charged to earnings.

These amounts are classified in cost of sales in the condensed consolidated statement of operations and comprehensive (loss) income.

As of September 30, 2022 and December 31, 2021, the fair value of outstanding foreign currency forward contracts is recorded in the balance sheet as follows:

September 30,

These amounts are classified in cost of sales in the condensed consolidated statement of operations and comprehensive income.

As of March 31, 2023 and December 31, 2022, the fair value of outstanding foreign currency forward contracts is recorded in the balance sheet as follows:

(Dollars in millions)

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Net liability on balance sheet

As of September 30, 2022 and December 31, 2021, the net currency units outstanding for these contracts were:

September 30,

As of March 31, 2023 and December 31, 2022, the net currency units outstanding for these contracts were:

(In millions)

New Zealand Dollars

United States Dollars

During the first quarter of 2023, we entered into an interest rate swap agreement with an aggregate notional value of $ 100 million in anticipation of the issuance of our Term Loan B in April 2023 (see Note 12 –

"Debt"), which effectively converts the variable rate to a fixed rate for that portion of the loan.

The swap agreement expires in April 2027 .

The interest rate swap has been designated as a cash flow hedge and involves the receipt of variable amounts from a counterparty in exchange for us making fixed rate payments over the life of the agreements without exchange of the underlying notional amount.

As of March 31, 2023, the fair value of the outstanding interest rate swap is recorded in the balance sheet as follows:

(Dollars in millions)

Derivative contracts

Other long-term liabilities

Net asset on balance sheet

Accumulated other comprehensive gain, net of tax

We estimate that $ 0.8 million of unrealized gains, net of tax, related to interest rate swaps will be reclassified from other comprehensive income into earnings over the next twelve months .

Commitments and Contingent Liabilities

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is one of several defendants in lawsuits filed in two states in which the plaintiffs claim they suffered a variety of illnesses (including cancer) as a result of exposure to coal tar pitch sold by the defendants.

There were 53 plaintiffs in 28 cases pending as of September 30, 2022, compared to 59 plaintiffs in 31 cases pending as of December 31, 2021.

As of September 30, 2022, there were 27 cases pending in the Court of Common Pleas of Allegheny County, Pennsylvania, and one case pending in the Circuit Court of Knox County, Tennessee.

There were 51 plaintiffs in 27 cases pending as of March 31, 2023 and as of December 31, 2022.

As of March 31, 2023 , there were 26 cases pending in the Court of Common Pleas of Allegheny County, Pennsylvania, and one case pending in the Circuit Court of Knox County, Tennessee.

The plaintiffs in all 27 pending cases seek to recover compensatory damages.

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against certain liabilities, damages, losses and costs, including, with certain limited exceptions, liabilities under and costs to comply with environmental laws to the extent attributable to acts or omissions occurring prior to the Acquisition and liabilities related to products sold by Beazer East prior to the Acquisition (the “Indemnity”).

Beazer Limited, the parent company of Beazer East, unconditionally guaranteed Beazer East’s performance of the Indemnity pursuant to a guarantee (the “Guarantee”).

Beazer Limited, the parent company of Beazer East, unconditionally guaranteed Beazer East’s performance of the Indemnity pursuant to a guarantee.

The Indemnity provides different mechanisms, subject to certain limitations, by which Beazer East is obligated to indemnify Koppers Inc.

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To date, the parties that retained, assumed and/or agreed to indemnify us against the liabilities referred to above, including Beazer East, have performed their obligations in all material respects.

We believe that, for the last three years ended December 31, 2021, amounts paid by Beazer East as a result of its environmental remediation obligations under the Indemnity have averaged, in total, approximately $ 6.4 million per year.

Periodically, issues have arisen between Koppers Inc.

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At that time, the net present value and undiscounted costs of the selected remedy as estimated in the ROD were approximately $ 1.1 billion and $ 1.7 billion, respectively.

These costs may increase given the remedy will not be implemented for several years.

Responsibility for implementing and funding that work will be decided in the separate private allocation process which is ongoing.

These costs are likely to increase given recent submissions to EPA regarding remedy design and because the remedy will not be implemented for several years.

Responsibility for implementing and funding that work is yet to be determined.

The funding of that work amongst the PRPs is the subject of a separate private allocation process which is ongoing.

Additionally, Koppers Inc.

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is a de minimis party at this site.

We have accrued the estimated costs of participating in the PRP group at the Portland Harbor and Newark Bay CERCLA sites and estimated de minimis contributor settlement amounts at the sites totaling $ 3.3 million as of September 30, 2022.

The actual cost could be materially higher as there has not been a determination of how those costs will be allocated among the PRPs at the sites.

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There are two plant sites related to the Performance Chemicals business and one plant site related to the Utility and Industrial Products business in the United States where we have recorded environmental remediation liabilities for soil and groundwater contamination which occurred prior to our acquisition of the businesses.

As of September 30, 2022, our estimated environmental remediation liability for these acquired sites totals $ 3.9 million.

As of March 31, 2023 , our estimated environmental remediation liability for these acquired sites totals $ 3.9 million.

Foreign Environmental Matters .

There is one plant site related to the Performance Chemicals business located in Australia where we have recorded an environmental remediation liability for soil and groundwater contamination which occurred prior to the acquisition of the business.

As of September 30, 2022, our estimated environmental remediation liability for the acquired site totals $ 1.2 million.

As of March 31, 2023 , our estimated environmental remediation liability for the acquired site totals $ 1.3 million.

Environmental Reserves Rollforward.

The following table reflects changes in the accrual for environmental remediation.

A total of $ 2.4 million and $ 2.8 million are classified as current liabilities as of September 30, 2022 and December 31, 2021:

September 30,

A total of $ 2.5 million and $ 2.5 million are classified as current liabilities as of March 31, 2023 and December 31, 2022:

(Dollars in millions)

Balance at beginning of year

Reversal of reserves

Cash expenditures

Currency translation

Balance at end of period

Subsequent Events

In October 2022, we acquired substantially all of the assets of Gross & Janes Co.

for approximately $ 15 million.

Gross & Janes, headquartered in Kirkwood, Missouri, is the largest independent supplier of untreated railroad crossties in North America, with operations in Missouri, Arkansas and Texas.

Balance at end of year

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Adjusted items typically include certain expenses associated with impairment, restructuring and plant closure costs, significant gains and losses on asset disposals or business combinations, LIFO and mark-to-market commodity hedging and other unusual items.

We adjust for LIFO to reflect operating results on a FIFO basis.

Adjusted EBITDA is the primary measure of profitability we use to evaluate our businesses.

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Our businesses and results of operations are affected by various competitive and other factors including (i) the impact of global economic conditions on demand for our products, including the impact of imported products from competitors in certain regions where we operate;

(ii) raw material pricing and availability, in particular the cost and availability of hardwood lumber for railroad crossties, softwood lumber for utility poles, scrap copper prices, and the cost and amount of coal tar available in global markets, which is negatively affected by reductions in blast furnace steel production and currently by the Russian invasion of Ukraine;

(ii) raw material pricing and availability, in particular the cost and availability of hardwood lumber for railroad crossties and softwood lumber for utility poles, scrap copper prices, and the cost and amount of coal tar available in global markets, which is negatively affected by reductions in blast furnace steel production;

(iii) volatility in oil prices, which impacts the cost of coal tar and certain other raw materials, as well as selling prices and margins for certain of our products including carbon black feedstock, phthalic anhydride, and naphthalene;

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and (v) changes in foreign exchange rates.

The Infrastructure Investment and Jobs Act, which was signed into law on November 15, 2021, will usher in more than a trillion dollars in new spending across eight years to improve the nation's roads, bridges, rail, internet, water systems and more.

As a global leader in water- and oil-borne preservatives serving many end markets with our wood-treatment technologies, we believe we are well-positioned to benefit from the new legislation.

Our products are used in multiple infrastructure applications, including utility poles, railroad ties, highway and construction concrete, steel, aluminum, and wood for construction projects.

Railroad and Utility Products and Services

Historically, North American demand for crossties had been in the range of 18 million to 22 million crossties annually.

However, the crosstie replacement market has been significantly lower in recent years.

According to the Railway Tie Association (“RTA”), the estimated total crosstie installations in 2022 were approximately 18.7 million, of which 14.6 million were for Class I railroads.

Throughout the pandemic, some sawmills were operating at 50 percent or less of their production capacity.

Sawmills provide raw materials to several industries beyond the wood crosstie market and as demand and pricing for construction lumber increased significantly throughout 2021 and continuing into 2022, overall crosstie production output thus far has been lower than forecasted, but is beginning to show improvement.

Crosstie prices increased significantly as a result of limited supply and railroad customers are deferring their purchases.

Given continuing economic uncertainties such as a tight labor market, the RTA is forecasting a slight decrease in 2022 of 0.8 percent, or 18.6 million crossties, primarily from lower Class I volumes while the commercial market is expected to have slightly higher demand levels.

In 2023, the outlook reflects a modest overall increase of 1.1 percent, or 18.8 million crossties, with increases from Class I as well as commercial railroads.

According to the Association of American Railroads (“AAR”), rail traffic for the first nine months of 2022 was unfavorable compared with the prior year period.

In the aggregate, spending by railroads is projected to be somewhat higher in 2023 in nominal terms;

however, will be marginally lower in real terms due to higher input costs for labor, crossties and other materials.

In terms of the supply of crossties, the demand for pallet lumber has eased, which has improved crosstie availability, and the price has moderated on slowing consumer spending.

As a result of the weakening demand for board roads and mats, availability for crosstie production by sawmills is improving which is encouraging for the railroads as their inventory-to-sales ratio has been depressed for many months, mainly because of low crosstie inventories.

Nevertheless, the RTA demand forecast predicts slightly lower crosstie demand of 1.3 percent in 2023, or total demand of 18.4 million crossties.

For 2024, the economy is estimated to grow by 1.4 percent and crosstie demand is expected to recover modestly, with an increase of 0.9 percent, or total demand of 18.6 million crossties.

According to the Association of American Railroads (“AAR”), rail traffic in 2022 was lower than in 2021 for most categories.

Compared to the prior year, total U.S.

carload traffic increased 0.1 percent, while intermodal units declined by 5.1 percent for the year-to-date period through September 30, 2022.

The combined U.S.

traffic for carloads and intermodal units was lower than the prior year by 2.7 percent.

The data reflects that consumers are continuing to shift toward services and away from goods, as well as certain underlying factors that have helped to magnify this trend for railroads.

These consist of retailers holding substantial inventories of unsold goods and significantly lower internet buying from its pandemic peak, which negatively impacts replacement demand and rail volumes for packaged goods.

With respect to our utility products business, the installed base for wood distribution poles in the U.S.

is approximately 150 million and nearly half of this total are 40 years old.

Industry demand has historically been in the range of two million to three million poles annually.

carload traffic for the year-to-date period through March 31, 2023 declined 0.3 percent, and intermodal units were lower by 10.3 percent.

For 2023 to-date, total combined U.S.

traffic decreased by 5.6 percent compared to last year.

According to the AAR, rail volumes are being negatively influenced by broader economic trends, including slowdowns in industrial output, high inventory levels at many retailers, lower port activity and less robust consumer spending.

With respect to our utility products business, the installed base for wood distribution poles in the United States is approximately 150 million and nearly half are 40 years old.

Industry demand has historically been in the range of approximately two to four million poles annually.

On an overall basis, we believe that the rate at which utilities purchase utility poles will grow as they continue replacement programs within their service territories.

As a whole, the key factors that drive growth in the utility pole market include growing global energy consumption as well as expansion of the global telecommunication industry.

Generally, utilities need to maintain their infrastructure to avoid interruptions in service due to extreme weather events that are occurring more frequently along with aging electrical grid systems across the U.S.

At the same time, the need for digital connectivity remains strong given that portions of the population are continuing to work remotely.

As long as there are not any extended supply chain disruptions, we anticipate that 2022 demand for pole replacements will be relatively stable to slightly higher, as the overall industry is trending toward expanded and upgraded transmission networks.

In addition, the higher incidence of extreme climate conditions along with a growing frequency of natural disasters including floods, hurricanes, storms, wildfires and tornadoes have affected the industry.

As a result, there is a developing trend in the industry for utilities to maintain some additional inventory to prepare for potential damaging climate events.

With respect to raw materials, wood supply remains relatively stable, however we are experiencing pricing pressures based on higher freight and transportation costs.

This negatively affects the price of pole material delivered to our pole peeling locations from the forest.

As a result of these inflationary factors, we are implementing more real-time price increases to pass on higher costs to end customers.

Now more than ever, utilities need to maintain their infrastructure to avoid interruptions in service as portions of the population work remotely.

As long as there are not any extended supply chain disruptions, we anticipate that 2023 demand for pole replacements will be higher, as the overall industry is trending toward expanded and upgraded transmission networks.

In addition, we believe there is a developing trend in the industry for utilities to maintain some additional inventory to prepare for potentially damaging storms.

With respect to raw materials, we expect the availability of poles to be affected as lumber demand continues to be relatively strong and, consequently, results in increased costs for pole material.

Also, transportation costs, which include fuel costs, could experience some upward pressure and may affect the price of pole material delivered to the pole peelers from the forest.

At the same time, utilities are working through various supply constraints by adjusting their ordering patterns and moving away from single-source supply, which may represent additional growth opportunities to gain market share.

Longer term, we are evaluating opportunities to potentially expand our market presence in the United States as well as certain overseas markets.

We believe there remains an overall need for sustained investment in infrastructure and capacity expansion and with our vertical integration capabilities in wood treatment and strong customer relationships, we will ultimately benefit from increased demand.

For the overall segment, we believe a positive development involves the Infrastructure Investment and Jobs Act, which was signed into law on November 15, 2021, and will usher in more than a trillion dollars in new spending across eight years to improve the nation's roads, bridges, rail, Internet, water systems and more.

As a global leader in water- and oil-borne preservatives serving many end markets with our wood-treatment technologies, we believe we are well-positioned to benefit from the new legislation.

Our products are used in multiple infrastructure applications, including utility poles, railroad ties, highway and construction concrete, steel, aluminum, and wood for construction projects.

As part of optimizing our business, we continue to evaluate a number of opportunities to improve efficiencies in our operational processes, people and facilities.

With our 14 North American RUPS treating facilities operating at less than full utilization, our goal is to either capture more volume through the existing facilities or consolidate our operating footprint.

In January 2022, we began curtailing operations at our Sweetwater, Tennessee plant.

We sold the plant in March 2022 and recorded a gain of $2.5 million on the sale.

During 2021, we exited the Texas Electric Cooperatives’

Jasper, Texas facility and relocated the production of utility products to our Somerville, Texas plant.

Separately, in the third quarter of 2020, we permanently closed our Denver, Colorado wood treatment facility.

Concurrent with the decision to close the Denver facility, we announced our plan to modernize and upgrade parts of our treating network, specifically at our facility in North Little Rock, Arkansas, which would be primarily funded through proceeds from the sale of non-core assets, including the Denver facility.

In October 2021, we sold our closed Denver, Colorado crosstie treating facility and recorded a gain on sale of $23.4 million.

Actions we have taken over the past three years include the purchase of a 105-acre property in Leesville, Louisiana, which will host a facility providing additional peeling and drying capacity for utility poles and is expected to become operational in mid-2023, the sale of our Sweetwater, Tennessee plant, exiting the Texas Electric Cooperatives’

Jasper, Texas facility and relocating the production of utility products to our existing Somerville, Texas plant and the permanent closure of our Denver, Colorado wood treatment facility.

Concurrent with the decision to close the Denver facility, we announced our plan to modernize and upgrade parts of our treating network, specifically at our facility in North Little Rock, Arkansas, which has been partly funded through proceeds from the sale of non-core assets, including the Denver facility.

Performance Chemicals

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Product demand for our PC business has historically been closely associated with consumer spending on home repair and remodeling projects in North America, and therefore, trends in existing home sales serve as a leading indicator.

In 2022, the market for existing homes seems to be slowing.

According to the National Association of Realtors® (“NAR”), total existing-home sales decreased in September by 1.5 percent compared with August and 23.8 percent compared with the prior year, marking eight consecutive months of declines.

Three out of the four major U.S.

regions experienced month-over-month sales contractions, while the Western region held steady.

On a year-over-year basis, sales dropped in all regions.

In addition, the housing market is expected to be impacted by rising interest rates and inflation, which in turn, continue to have unfavorable effects on purchasing power.

According to the Leading Indicator of Remodeling Activity (“LIRA”) reported by the Joint Center for Housing Studies of Harvard University, home renovation and repair expenditures increased by 17.8 percent year-over-year in the third quarter of 2022.

The LIRA projects year-over-year gains in remodeling expenditures to owner-occupied homes will decelerate from 16.1 percent in 2022 to 6.5 percent by the third quarter of 2023.

Housing and remodeling markets are slowing from the high growth rates that were driven by the pandemic-induced demand and spending for home improvements will continue to face challenges from declining home sales, rising interest rates, and the increasing costs of contractor labor and building materials.

By contrast, the Center’s Remodeling Futures Program steering committee, comprised of executives from leading corporations involved in the housing sector, anticipates that energy-efficiency retrofits incentivized by the Inflation Reduction Act of 2022, as well as disaster repairs and mitigation projects following Hurricane Ian are expected to further support expansion of the home remodeling market to nearly $450 billion in 2023.

The Conference Board Consumer Confidence Index® was 102.5 in October, down from 107.8 in September.

The Index decreased in October after back-to-back monthly gains in August and September.

Notably, concerns about inflation—which had been receding since July—picked up again, with both gas and food prices serving as main drivers.

According to the Conference Board, the decline in confidence suggests that economic growth may be slowing for the remainder of 2022 and recession risks appear to be rising.

According to the National Association of Realtors® (“NAR”), total existing-home sales in March were 2.4 percent lower than February.

Month-over-month sales decreased in three out of four major U.S.

regions, while sales in the Northeast remained steady.

On a year-over-year basis, all regions declined and March existing home sales were lower by 22 percent.

The NAR reported that the market is unique in that while home sales are trying to recover and are highly sensitive to changes in mortgage rates, multiple offers on starter homes are quite common, implying more supply will be needed to fully satisfy demand.

According to the Leading Indicator of Remodeling Activity (“LIRA”) reported by the Joint Center for Housing Studies of Harvard University, after more than a decade of continuous growth, annual spending on improvements and repairs to owner-occupied homes is expected to decline by early 2024.

The LIRA projects that year-over-year expenditures for homeowner improvements and maintenance will post a modest decline of 2.8 percent through the first quarter of 2024.

The forecast for sluggish remodeling activity next year is driven by higher interest rates and sharp downturns in homebuilding and existing home sales.

Overall, homeowner improvement and maintenance spending is expected to reach $458 billion in the coming year, compared with market spending of $471 billion during the past twelve months.

The Conference Board Consumer Confidence Index® decreased to 101.3 in April, down from 104.0 in March.

In April, consumers indicated a more favorable assessment of the current business environment;

however, their forward expectations declined, which may signal a recession in the short-term.

At the same time, consumer inflation expectations regarding the next twelve months remain essentially unchanged from March but are still elevated.

Carbon Materials and Chemicals

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As the global steel industry, excluding Asia, has reduced the production of steel using metallurgical coke, the volumes of coal tar have been reduced.

Coal tar raw material supply remains constrained globally due to reductions in blast furnace steel capacity in addition to near term supply restrictions resulting from the Russian invasion of Ukraine in March 2022.

Our European CMC business historically received approximately 20 percent of its annual coal tar requirements from Russia and Ukraine.

We have ceased purchasing coal tar from Russian suppliers and we are currently unable to purchase normal volumes of coal tar from Ukrainian suppliers due to the conflict.

Currently, the financial impact of volume reductions in our coal tar supply have been offset by higher prices in our end markets for that region and are not expected to negatively impact operating results during 2022.

For the external markets served by our CMC business, we anticipate some slowdown in manufacturing.

According to IHS Markit Automotive Group (IHS), the global auto industry continues to be influenced by near-term challenges of navigating ongoing supply chain pressures coupled with economic headwinds.

While semiconductor availability has improved, it remains a key factor in the ability to accelerate production growth.

Therefore, IHS has adjusted its forecast for macro deterioration and in the longer term, vehicle pricing will be a key consideration and a potential headwind to demand.

The IHS forecast update, provided in September 2022, reflects near-to-intermediate term downward revisions, particularly focused on Europe and North America.

We are actively working to mitigate the impacts of declining coal tar supply by gaining market acceptance for blended alternative products.

We are also investing in projects to increase distillation yields and balance raw material supply and cost with customer demand and pricing.

For the external markets served by our CMC business, we anticipate relative stability in manufacturing overall as well as in the steel, aluminum and carbon black industries.

According to S&P Global Mobility (formerly IHS Markit Automotive Group), U.S.

light vehicle production levels are forecasted to increase even as economic conditions are expected to deteriorate.

The advancing production levels, along with reports of sustained retail order books, recovering stock of vehicles, and a fleet sector that remains low on product should provide some benefits to automotive demand levels.

For 2023, S&P projects U.S.

production volumes of 14.8 million units, a seven percent increase from the estimated 2022 production level.

Globally, the auto industry continues to navigate supply chain challenges while impacted by several markets facing deteriorating economic conditions and fading demand.

As the ongoing issue of semiconductor availability continues to be addressed, the global light vehicle market is expected to slowly recover and vehicle sales are anticipated to reach nearly 83.6 million units in 2023, a 5.6 percent increase year-over-year.

Recently, auto production is beginning to show some sustained signs of improvement.

In March 2023, North American production results were estimated to total 1.5 million units, translating into 15.8 million units produced on a seasonally adjusted annual rate basis, which is the highest level in 30 months.

However, the auto sales environment is dealing with mixed signals of mildly advancing production, improving inventory and attractive incentives on one hand, and rising affordability concerns and uncertain consumer confidence levels on the other.

Therefore, subject to the uncertainty in the overall economy, we believe it is likely that month-to-month volatility lies ahead.

Seasonality and Effects of Weather on Operations

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Results of Operations –

Comparison of Three Months Ended September 30, 2022 and 2021

Comparison of Three Months Ended March 31, 2023 and 2022

Consolidated Results

Net sales for the three months ended September 30, 2022 and 2021 are summarized by segment in the following table:

Three Months Ended September 30,

Net sales for the three months ended March 31, 2023 and 2022 are summarized by segment in the following table:

Three Months Ended March 31,

(Dollars in millions)

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RUPS net sales increased by $29.7 million, or 16 percent, compared to the prior year period.

The sales increase was largely related to pricing increases across multiple markets, particularly crossties and utility poles, and activity increases in our railroad bridge services business.

These increases were offset, in part, by volume decreases in our utility pole business mostly due to capacity and transportation issues driven by the current labor shortage.

The sales increase was largely related to a net $21.2 million of pricing increases across multiple markets, particularly for crossties and domestic utility poles.

Volume increases for untreated crossties also contributed to the increase.

Foreign currency changes compared to the prior year period had an unfavorable impact on sales in the current year period of $0.8 million, mainly from our Australian utility pole business.

PC net sales increased by $37.9 million, or 33 percent, compared to the prior year period.

The sales increase was primarily due to a 31% volume increase in the Americas and global price increases in the current year period for our copper-based preservatives.

In the prior year period, volumes in the Americas decreased as high lumber prices and a temporary change in consumer spending habits tempered customer demand for treated lumber products.

The increases were offset, in part, by volume decreases for wood treatment preservatives within our European markets.

PC net sales increased by $10.5 million, or eight percent, compared to the prior year period.

Sales increased as a result of global price increases of $24.7 million, or 18 percent in the current year period, particularly in the Americas for our copper-based preservatives.

The pricing increases were offset, in part, by $11.7 million of volume decreases for wood treatment preservatives across most markets, primarily Europe and Australasia.

Volumes in the Americas were down four percent compared to the prior year period.

Foreign currency changes compared to the prior year period had an unfavorable impact on sales in the current year period of $2.5 million.

CMC net sales increased by $52.6 million, or 43 percent, compared to the prior year period due mainly to higher sales prices for carbon pitch, phthalic anhydride, carbon black feedstock and naphthalene driven by strong demand for our products and a higher raw material price environment, partly offset by volume decreases of $8.1 million.

CMC net sales increased by $13.9 million, or 10 percent, compared to the prior year period due mainly to $37.1 million of higher sales prices, primarily for carbon pitch driven by strong end markets and constrained raw material supply, partly offset by volume decreases of phthalic anhydride, carbon pitch and carbon black feedstock.

Foreign currency changes compared to the prior year period from our international markets had an unfavorable impact on sales in the current year period of $4.6 million.

Cost of sales as a percentage of net sales was 82 percent for the quarters ended September 30, 2022 and 2021 as global price increases across our businesses have offset an increase in raw material costs, fuel costs, shipping costs and other operating expenses as a result of rising inflation in the current year period.

Depreciation and amortization charges for the quarter ended September 30, 2022 were $3.5 million higher when compared to the prior year period due mainly to an increase in depreciation associated with an asset retirement obligation within our European CMC business.

Selling, general and administrative expenses for the quarter ended September 30, 2022 were $1.1 million lower when compared to the prior year period due mainly to a decrease in self-insured workers compensation and medical liabilities, as well as consulting and other professional services in the current year period.

Interest expense for the quarter ended September 30, 2022 was $1.2 million higher when compared to the prior year period due to higher interest rates.

Income tax expense for the quarter ended September 30, 2022 increased due to higher pre-tax earnings and a higher estimated annual effective income tax rate of 36.1 percent when compared to the prior year period rate of 26.8 percent.

This increase in the estimated annual effective income tax rate is attributable to the geographical mix of earnings as well as an increase in the interest expense deduction limitation due to a tax law change that went into effect January 1, 2022.

Segment Results.

Segment adjusted EBITDA and adjusted EBITDA margin for the three months ended September 30, 2022 and 2021 is summarized in the following table:

Three Months Ended September 30,

(Dollars in millions)

Adjusted EBITDA:

Railroad and Utility Products and Services

Performance Chemicals

Carbon Materials and Chemicals

Corporate unallocated

Total Adjusted EBITDA

Adjusted EBITDA margin as a percentage of GAAP sales:

Railroad and Utility Products and Services

Performance Chemicals

Carbon Materials and Chemicals

Total Adjusted EBITDA margin

RUPS adjusted EBITDA increased by $4.8 million compared to the prior year period.

Adjusted EBITDA as a percentage of net sales increased to 7.5 percent from 5.7 percent in the prior year period and was favorably impacted by improvements in our utility pole and maintenance of way businesses primarily as a result of price increases and favorable absorption, partly offset by higher raw material and operating costs as a result of rising inflation in the current year period.

PC adjusted EBITDA decreased by $3.5 million compared to the prior year period.

Adjusted EBITDA as a percentage of net sales decreased to 10.9 percent from 17.5 percent in the prior year period.

Higher overall raw material costs, which were exacerbated by working through higher cost inventory in a falling copper price environment, more than offset higher volumes in the Americas and global price increases.

CMC adjusted EBITDA increased by $14.1 million compared to the prior year period.

Adjusted EBITDA as a percentage of net sales increased to 20.9 percent from 18.3 percent in the prior year period due to a favorable pricing environment partly offset by an increase in raw material and other operating costs compared to the prior year period.

Foreign currency changes from our international markets had an unfavorable impact on profitability in the current year period of $3.1 million.

Results of Operations –

Comparison of Nine Months Ended September 30, 2022 and 2021

Consolidated Results

Net sales for the nine months ended September 30, 2022 and 2021 are summarized by segment in the following table:

Nine Months Ended September 30,

(Dollars in millions)

Railroad and Utility Products and Services

Performance Chemicals

Carbon Materials and Chemicals

RUPS net sales increased by $21.0 million or four percent compared to the prior year period.

The increase was primarily a result of pricing increases across multiple markets, particularly crossties and utility poles, and activity increases in our railroad bridge services business.

These increases were offset by volume decreases in our utility pole business due to transitioning production from the Texas Electric Cooperatives’

Jasper, Texas plant to our Somerville, Texas plant.

In addition, a decrease in purchasing activity of untreated crossties by our customers during the first half of the current period was a result of decreased supply due to increased demand for lumber driven by strong construction markets.

Foreign currency changes compared to the prior year period had an unfavorable impact on sales in the current year period of $2.2 million, mainly from our Australian utility pole business.

PC net sales increased by $54.7 million or 14 percent compared to the prior year period.

The sales increase was primarily due to global price increases in the current year period for most preservatives in our portfolio of products and a 9% volume increase in the Americas.

In the prior year period, volumes in the Americas decreased as high lumber prices and a temporary change in consumer spending habits tempered customer demand for treated wood products.

The increases were offset, in part, by volume decreases for preservatives within our European markets.

Foreign currency changes compared to the prior year period had an unfavorable impact on sales in the current year period of $7.0 million.

CMC net sales increased by $148.9 million or 47 percent compared to the prior year period due mainly to higher sales prices and volumes for carbon pitch and phthalic anhydride, along with higher sales prices for carbon black feedstock and naphthalene driven by strong demand for our products coupled with limited supply in the current year period.

Foreign currency changes from our international markets had an unfavorable impact on sales in the current year period of $28.9 million.

Cost of sales as a percentage of net sales was 82 percent for the nine months ended September 30, 2022 compared to 79 percent in the prior year period.

Gross margin was unfavorably impacted in the current year period primarily by an increase in raw material costs, fuel costs, shipping costs and other operating expenses across our businesses as a result of inflationary pressures in the current year period that outpaced price increases to our customers especially earlier in the year.

Depreciation and amortization charges for the nine months ended September 30, 2022 were consistent with the prior year period.

Gain on sale of assets for the nine months ended September 30, 2022 was related to the sale of our utility pole treating facility in Sweetwater, Tennessee while the gain on sale of assets for the prior year period was related to the sales of two previously decommissioned plants as described in Note 3 –

“Plant Closures and Divestitures”.

Impairment and restructuring charges for the nine months ended September 30, 2021 included demolition and other plant closure period costs related to the closure of our Denver, Colorado facility.

Selling, general and administrative expenses for the nine months ended September 30, 2022 were $5.8 million higher when compared to the prior year period due mainly to an increase of $4.1 million in travel, entertainment and advertising expenses and $1.9 million for consulting and other professional services.

Interest expense for the nine months ended September 30, 2022 was $1.8 million higher when compared to the prior year period due to higher interest rates.

Income tax expense for the nine months ended September 30, 2022 increased due to a higher estimated annual effective income tax rate of 36.1 percent when compared to the prior year period rate of 26.8 percent.

Cost of sales as a percentage of net sales was 80 percent for the quarter ended March 31, 2023, compared to 81 percent in the prior year period as global price increases have outpaced increased raw material and operating costs on a consolidated basis and across most of our businesses.

Significant items impacting cost of sales in individual operating segments are discussed as part of "Segment adjusted EBITDA and adjusted EBITDA margin" herein.

Depreciation and amortization charges for the quarter ended March 31, 2023 were consistent with the prior year period.

Gain on sale of assets for the quarter ended March 31, 2023 was related to a sale of assets of our former coal tar distillation facility located in China while the gain on sale of assets in the prior year was related to the sale of our utility pole treating facility in Sweetwater, Tennessee.

Selling, general and administrative expenses for the quarter ended March 31, 2023 were $2.5 million higher when compared to the prior year period due mainly to an increase in travel, entertainment and corporate events along with an increase in compensation related costs.

Interest expense for the quarter ended March 31, 2023 was $4.2 million higher when compared to the prior year period due to higher interest rates.

Income tax expense for the quarter ended March 31, 2023 increased due to higher income from continuing operations before income taxes when compared to the prior year period.

This increase was partially offset by a lower estimated annual effective income tax rate when compared to the prior year period.

The higher effective tax rate in the prior year period was driven by higher estimated non-deductible expenses, notably interest expense.

Segment Results.

Segment adjusted EBITDA and adjusted EBITDA margin for the nine months ended September 30, 2022 and 2021 is summarized in the following table:

Nine Months Ended September 30,

Segment adjusted EBITDA and adjusted EBITDA margin for the three months ended March 31, 2023 and 2022 is summarized in the following table:

Three Months Ended March 31,

(Dollars in millions)

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Carbon Materials and Chemicals

Corporate unallocated

Total Adjusted EBITDA

3 unchanged sentences

Carbon Materials and Chemicals

Total Adjusted EBITDA margin

RUPS adjusted EBITDA increased by $4.2 million compared to the prior year period.

Adjusted EBITDA as a percentage of net sales remained at 6.8 percent compared to the prior year period as improvements in our utility pole and maintenance of way businesses, price increases and favorable absorption were substantially offset by higher raw material and operating costs as a result of rising inflation in the current year period.

PC adjusted EBITDA decreased by $24.6 million compared to the prior year period.

Adjusted EBITDA as a percentage of net sales decreased to 13.2 percent from 21.5 percent in the prior year period.

Higher overall raw material costs, which were exacerbated by working through higher cost inventory in a falling copper price environment, more than offset global price increases and higher volumes in the Americas.

CMC adjusted EBITDA increased by $26.3 million compared to the prior year period.

Adjusted EBITDA as a percentage of net sales increased to 16.8 percent from 16.4 percent in the prior year period due to a favorable pricing environment partly offset by an increase in raw material and other operating costs compared to the prior year period.

Adjusted EBITDA as a percentage of net sales increased to 7.4 percent from 6.3 percent in the prior year period due primarily to price increases, partly offset by cost increases, including $19.2 million of higher raw material and operating costs in our crosstie and maintenance of way businesses in the current year period.

PC adjusted EBITDA increased by $5.4 million compared to the prior year period.

Adjusted EBITDA as a percentage of net sales increased to 17.9 percent from 15.3 percent as renegotiated customer contracts allowed us to increase prices to recapture prior year cost increases.

These price increases more than offset $10.9 million of raw material cost increases and an 8.6 percent global volume decrease on wood treatment preservatives from the prior year period.

CMC adjusted EBITDA decreased by $0.7 million compared to the prior year period.

Adjusted EBITDA as a percentage of net sales decreased to 12.6 percent from 14.4 percent in the prior year period due to an increase of $39.8 million in raw material costs, particularly in North America and Europe, partly offset by higher pricing compared to the prior year period.

Foreign currency changes from our international markets had an unfavorable impact on profitability in the current year period of $0.7 million.

In addition, the prior year period margin was favorably impacted by a $2.9 million insurance recovery.

The following table reconciles net income to adjusted EBITDA on a consolidated basis as calculated by us for the periods indicated below:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

1 unchanged sentence

Depreciation and amortization

Depreciation in impairment and restructuring charges

Income tax provision

2 unchanged sentences

Impairment, restructuring and plant closure costs (1)

(benefits) (1)

(Gain) on sale of assets

Mark-to-market commodity hedging losses

LIFO expense (2)

Mark-to-market commodity hedging (gains) losses

Total adjustments

Adjusted EBITDA

(1) Includes costs associated with restructuring, sales and closures of certain RUPS and CMC facilities as described in Note 3 –

“Plant Closures and Divestitures”.

Net cash provided by operating activities for the nine months ended September 30, 2022 was $67.4 million compared to net cash provided by operating activities of $59.6 million in the prior year.

The increase is primarily the result of lower working capital usage of $5.8 million in the current year period.

Net cash used in investing activities for the nine months ended September 30, 2022 was $75.1 million compared to net cash used in investing activities of $78.7 million in the prior year period driven primarily by capital expenditures.

Capital expenditures for both periods include increased investment in growth projects, primarily in our crosstie business, such as the expansion of our RUPS facility in North Little Rock, Arkansas.

Net cash provided by financing activities was $12.3 million for the nine months ended September 30, 2022 compared to $28.3 million of net cash provided by financing activities in the prior year.

The cash provided by financing activities in the nine months ended September 30, 2022 reflected net borrowings of $37.9 million partly offset by repurchases of common stock, dividends paid and payments of debt issuance costs.

The cash provided by financing activities in the prior year period primarily reflected net borrowings of debt of $29.5 million partly offset by repurchases of common stock of $3.3 million related to long-term incentive compensation plans.

(1) Includes costs associated with restructuring, sales and closures of certain RUPS and CMC facilities.

(2) The LIFO expense adjustment removes the entire impact of LIFO and effectively reflects the results as if we were on a FIFO inventory basis.

Net cash used in operating activities for the three months ended March 31, 2023 was $15.3 million compared to net cash used in operating activities of $8.0 million in the prior year.

The increase is primarily the result of higher working capital usage of $11.6 million in the current year period driven in part by an increase in inventories from higher raw material costs.

Net cash used in investing activities for the three months ended March 31, 2023 was $28.5 million compared to net cash used in investing activities of $22.0 million in the prior year period driven primarily by capital expenditures.

Capital expenditures for both periods include increased investment in growth projects, such as the expansion of our RUPS facility in North Little Rock, Arkansas and a capacity enhancement project at our CMC facility in Nyborg, Denmark.

Net cash provided by financing activities was $56.8 million for the three months ended March 31, 2023 compared to $33.4 million of net cash provided by financing activities in the prior year.

Cash provided by financing activities in the three months ended March 31, 2023 reflected net borrowings of $63.5 million partly offset by repurchases of common stock, dividends paid and payments of debt issuance costs.

The cash provided by financing activities in the prior year period primarily reflected net borrowings of debt of $45.4 million partly offset by repurchases of common stock and dividends paid.

Liquidity and Capital Resources

Our Credit Facility is described in Note 14 “Debt.”

Our Credit Facility is described in Note 12 –

“Debt.”

Restrictions on Dividends to Koppers Holdings

2 unchanged sentences

The Credit Facility permits Koppers Inc.

to make dividend payments to Koppers Holdings if certain conditions are met, including, among other permitted dividend payments, the ability to fund the payment of regularly scheduled dividends on and repurchases of Koppers Holdings common stock, in an aggregate amount per year not to exceed the greater of $50.0 million in any fiscal year, with unused amounts in any fiscal year being carried over to the succeeding fiscal year, and 6.0% of market capitalization.

The indenture governing the 2025 Notes restricts Koppers Inc.’s ability to finance our payment of dividends if a default has occurred or would result from such financing, Koppers Inc.

is not able to incur additional indebtedness (as defined in the indenture), or the sum of all restricted payments (as defined in the indenture) have exceeded the permitted amount (which we refer to as the “basket”) at such point in time.

At September 30, 2022, the basket totaled $297.5 million.

Notwithstanding such restrictions, the indenture governing the 2025 Notes permits an additional aggregate amount of $0.30 per share each fiscal quarter to finance dividends on the capital stock of Koppers Holdings, whether or not there is any basket availability, provided that at the time of such payment, no default in the indenture has occurred or would result from financing the dividends.

As of September 30, 2022, the maximum amount available under the Credit Facility considering restrictions from debt covenants was approximately $400 million.

The indenture governing the 2025 Notes restricted Koppers Inc.’s ability to finance our payment of dividends if a default had occurred or would have resulted from such financing, Koppers Inc.

would not have been able to incur additional indebtedness (as defined in the indenture), or the sum of all restricted payments (as defined in the indenture) would have exceeded the permitted amount (which we refer to as the “basket”) at such point in time.

At March 31, 2023, the basket totaled $314.6 million.

Notwithstanding such restrictions, the indenture governing the 2025 Notes permitted an additional aggregate amount of $0.30 per share each fiscal quarter to finance dividends on the capital stock of Koppers Holdings, whether or not there was any basket availability, provided that at the time of such payment, no default in the indenture had occurred or would have resulted from financing the dividends.

The indenture governing the 2025 Notes was discharged in accordance with its terms upon our redemption of the 2025 Notes on April 11, 2023, as described in "Subsequent Events" in Note 12 –

“Debt.”

As of March 31, 2023, the maximum amount available under the Credit Facility considering restrictions from debt covenants was approximately $400 million.

As of December 31, 2022, the maximum amount available under the Credit Facility was approximately $412 million.

On April 11, 2023, we redeemed our 2025 Notes using the proceeds of a $400.0 million face value Term Loan B, cash on hand and additional borrowings of approximately $100.0 million under our existing $800.0 million revolving Credit Facility.

Such additional borrowings reduced the maximum amount available under the Credit Facility by a commensurate amount.

The maximum amount available under the Credit Facility is increased by the amount of cash held by certain subsidiaries as defined by the Credit Facility.

At December 31, 2021, the maximum amount available under the previous credit agreement which contained different covenants was approximately $300 million.

Our need for cash in the next twelve months relates primarily to contractual obligations which include acquisitions, debt service, pension plan funding, purchase commitments and operating leases, as well as working capital, capital maintenance programs, the funding of plant consolidation and rationalizations, dividends and share repurchases.

Our need for cash in the next twelve months relates primarily to contractual obligations which includes debt service, pension plan funding, purchase commitments and operating leases, as well as working capital, capital maintenance programs, the funding of plant consolidation and rationalizations, dividends and share repurchases.

We may also use cash to pursue other potential strategic acquisitions or voluntary pension plan contributions.

In addition, we continually monitor debt and capital markets.

We may, from time to time, pursue one or more transactions to refinance all or a portion of the 2025 Notes, which may include, among other things, the purchase of 2025 Notes in the open market.

We would expect to cancel any 2025 Notes which are purchased.

Capital expenditures in 2022, excluding acquisitions, if any, are expected to total approximately $95 million and are expected to be funded by cash from operations.

We anticipate that our liquidity will continue to be adequate to fund our cash requirements for the next twelve months.

Capital expenditures in 2023, excluding acquisitions, if any, are expected to total approximately $110 to $120 million and are expected to be funded by cash from operations.

We anticipate that our liquidity will continue to be adequate to fund our cash requirements for at least the next twelve months.

We manage our working capital to increase our flexibility to pay down debt.

Debt will fluctuate throughout any operating period based upon the timing of receipts from customers and payments to vendors.

As of September 30, 2022, approximately 85 percent of accounts payable was current and 15 percent was 1-30 days past due.

As of September 30, 2021, approximately 75 percent of accounts payable was current, 20 percent was 1-30 days past due and five percent was greater than 30 days past due.

As of March 31, 2023, approximately 85 percent of accounts payable was current and 15 percent was 1-30 days past due.

As of December 31, 2022, approximately 80 percent of accounts payable was current and 20 percent was 1-30 days past due.

Debt Covenants

The covenants under the Credit Facility, including the following financial covenants, may affect availability of the facility:

The total net leverage ratio, calculated as of the last day of each fiscal quarter (commencing with the fiscal quarter ending September 30, 2022), is not permitted to exceed 5.0.

The total net leverage ratio as of September 30, 2022 was 3.33.

The cash interest coverage ratio, calculated as of the last day of each fiscal quarter (commencing with the fiscal quarter ending September 30, 2022), is not permitted to be less than 2.0.

The cash interest coverage ratio as of September 30, 2022 was 5.68.

The covenants that affect availability of the Credit Facility and which may restrict the ability of Koppers Inc.

to pay dividends include the following financial ratios:

The total net leverage ratio, calculated as of the last day of each fiscal quarter, is not permitted to exceed 5.0.

The total net leverage ratio as of March 31, 2023 was 3.4.

The cash interest coverage ratio, calculated as of the last day of each fiscal quarter, is not permitted to be less than 2.0.

The cash interest coverage ratio as of March 31, 2023 was 5.2.

We are currently in compliance with all covenants governing the Credit Facility.

Our continued ability to meet these financial covenants can be affected by events beyond our control;

however, we currently expect that our net cash flows from operating activities and funds available from our Credit Facility will be sufficient to provide for our working capital needs and capital spending requirements over the next twelve months.

Legal Matters

9 unchanged sentences

included in Item 1 of this Part I is incorporated herein by reference.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There are no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements