What changed in this filing

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Item 1. Financial Statements

2023-08-03 compared with 2023-05-05 · 308 added, 223 removed, 742 unchanged (42% of the section changed)

1 unchanged sentence

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

Three Months Ended March 31,

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions, except per share amounts)

4 unchanged sentences

Operating profit

Other (loss) income, net

Other income, net

Interest expense

3 unchanged sentences

Loss on sale of discontinued operations

Net income attributable to noncontrolling interests

Net income (loss) attributable to noncontrolling interests

Net income attributable to Koppers

6 unchanged sentences

Earnings per diluted common share

Comprehensive income

Comprehensive income attributable to noncontrolling interests

Comprehensive income attributable to Koppers

Comprehensive income (loss)

Comprehensive income (loss) attributable to noncontrolling interests

Comprehensive income (loss) attributable to Koppers

Weighted average shares outstanding (in thousands):

16 unchanged sentences

Current operating lease liabilities

Current maturities of long-term debt

Total current liabilities

22 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(Dollars in millions)

14 unchanged sentences

Other working capital

Net cash used in operating activities

Net cash (used in) provided by operating activities

Cash (used in) provided by investing activities:

5 unchanged sentences

Net increase in credit facility borrowings

Borrowings of long-term debt

Repayments of long-term debt

5 unchanged sentences

Effect of exchange rate changes on cash

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

20 unchanged sentences

New Accounting Pronouncements

In March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU No.

In March 2022, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No.

2022-01 , “Derivatives and Hedging (Topic 815):

1 unchanged sentence

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.

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

The adoption of this ASU in the first quarter of 2023 did no t 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 March 31, 2023 and December 31, 2022 are as follows:

March 31, 2023

The following table presents the carrying amounts and the related estimated fair values of our financial instruments:

June 30, 2023

December 31, 2022

8 unchanged sentences

Debt –

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 Term Loan B (as defined in Note 12 –

"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 (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,

As of December 31, 2022, the fair value of our fixed-rate long-term debt was 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).

See Note 15 –

“Derivative Financial Instruments”, for the fair value of our derivative financial instruments.

Comprehensive Income (Loss) and Equity

The following table presents total comprehensive income (loss):

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

Changes in other comprehensive income:

Changes in other comprehensive income (loss):

Currency translation adjustment

1 unchanged sentence

(expense) benefit of $ 1.5 , $ 12.6 , $( 0.4 ) and $ 15.0

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

Unrecognized pension net loss, net of tax expense of

$ 0.0 , $ 0.0 , $ 0.1 and $ 0.1

Comprehensive income (loss)

Comprehensive income (loss) attributable to noncontrolling interests

Comprehensive income (loss) 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 $ 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 March 31, 2023 and 2022, respectively:

Other amounts reclassified from accumulated other comprehensive income (loss) related to derivative financial instruments, net of tax, were $ 0.6 million and $ 11.1 million during the three months ended June 30, 2023 and 2022, respectively, and $ 2.3 million and $ 21.2 million during the six months ended June 30, 2023 and 2022, respectively.

The following tables present the changes in equity:

(Dollars in millions)

3 unchanged sentences

Noncontrolling

Balance at March 31, 2023

Net income (loss)

Dividends ($ 0.06 per share)

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 June 30, 2023

(Dollars in millions)

Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Noncontrolling

Balance at March 31, 2022

Dividends ($ 0.05 per share)

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 June 30, 2022

(Dollars in millions)

Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Noncontrolling

Balance at December 31, 2022

Dividends ($ 0.12 per share)

Issuance of common stock

2 unchanged sentences

Other comprehensive

(loss) income

Currency translation

2 unchanged sentences

Unrecognized pension

Balance at March 31,

Balance at June 30, 2023

(Dollars in millions)

4 unchanged sentences

Balance at December 31, 2021

Net income (loss)

Dividends ($ 0.10 per share)

Issuance of common stock

7 unchanged sentences

Unrecognized pension

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 .

Balance at June 30, 2022

On August 2, 2023 , we declared a quarterly dividend of $ 0.06 per common share, payable on September 11, 2023 to shareholders of record as of August 25, 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

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

8 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

We have outstanding stock-based compensation awards that were granted under the amended and restated 2005 Long-Term Incentive Plan (the “2005 LTIP”), the 2018 Long-Term Incentive Plan (the “2018 LTIP”) and the 2020 Long-Term Incentive Plan, as amended (the “2020 LTIP”).

The 2005 LTIP, the 2018 LTIP and the 2020 LTIP are collectively referred to as the “LTIP”.

The LTIP provides for the grant to eligible persons of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance awards, dividend equivalents and other stock-based awards, which are collectively referred to as the “awards.”

6 unchanged sentences

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.

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 with vesting periods of typically two years or less.

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).

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 made 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.

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.

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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 March 31, 2023:

The following table shows a summary of the performance stock units as of June 30, 2023:

Performance Period

5 unchanged sentences

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:

The following table shows a summary of the status and activity of non-vested stock units:

Weighted Average

3 unchanged sentences

Credited from dividends

Non-vested at March 31, 2023

Non-vested at June 30, 2023

Stock Options

21 unchanged sentences

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 three months ended March 31, 2023:

The following table shows a summary of the status and activity of stock options:

Weighted Average

5 unchanged sentences

Outstanding at December 31, 2022

Outstanding at March 31, 2023

Exercisable at March 31, 2023

Outstanding at June 30, 2023

Exercisable at June 30, 2023

Stock Compensation Expense

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,

The following table presents total stock-based compensation expense recognized under our LTIP and employee stock purchase plan:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

5 unchanged sentences

Cash received from the exercise of stock options

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 .

As of June 30, 2023, total future compensation expense related to non-vested stock-based compensation arrangements is expected to total $ 25.4 million and the weighted-average period over which this expense is expected to be recognized is approximately 25 months .

Segment Information

16 unchanged sentences

This presentation is consistent with how our chief operating decision maker evaluates the results of operations and makes strategic decisions about the business.

In addition, adjusted EBITDA is the primary measure used to determine the level of achievement of management’s short-term incentive goals and related payout.

In addition, adjusted EBITDA is the primary measure used to determine the level of achievement of management’s short-term incentive goals and related payout, as well as one of the measures used to determine performance and related payouts for certain performance share units granted to management.

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

4 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 $ 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 March 31,

Contract assets of $ 6.8 million and $ 8.3 million are recorded within accounts receivable, net of allowance within the condensed consolidated balance sheet as of June 30, 2023 and December 31, 2022, respectively.

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

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

15 unchanged sentences

Items excluded from the determination of segment profit:

Impairment, restructuring and plant closure costs

Impairment, restructuring and plant closure (costs) benefits

Gain on sale of assets

LIFO expense (1)

Mark-to-market commodity hedging gains (losses)

Mark-to-market commodity hedging losses

Interest expense

3 unchanged sentences

(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 March 31,

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

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

12 unchanged sentences

Other products

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

The following table sets forth assets and goodwill allocated to each of our segments:

(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 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.

8 unchanged sentences

Estimated annual effective income tax rate

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.

Income taxes as a percentage of pretax income were 28.9 and 28.1 percent for the three and six months ended June 30, 2023 , and 37.0 and 34.8 percent for the three and six months ended June 30, 2022, respectively.

The effective income tax rates for the periods mentioned were slightly higher than their respective estimated annual effective income tax rates 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 for the three months ended March 31, 2023.

Unrecognized Tax Benefits

7 unchanged sentences

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

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.

Unrecognized tax benefits totaled $ 1.5 million and $ 1.4 million as of June 30, 2023 and December 31, 2022 , respectively.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate, was approximately $ 1.5 million and $ 1.4 million as of June 30, 2023 and December 31, 2022, respectively.

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

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

For the six months ended June 30, 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 March 31, 2023 and December 31, 2022 are summarized in the table below:

Inventories, net

The following table presents net inventories:

(Dollars in millions)

4 unchanged sentences

Property, Plant and Equipment

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

The following table presents property, plant and equipment:

(Dollars in millions)

17 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 months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following table provides the components of net periodic benefit cost for the pension plans:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

4 unchanged sentences

Defined contribution plan expense

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

The following table summarizes debt:

Interest Rate

(Dollars in millions)

Revolving Credit Facility

Credit Facility

Senior Notes due 2025

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

Less unamortized debt issuance costs

Long-term debt

Revolving Credit Facility

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

Credit Facility

We have 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.

6 unchanged sentences

and its restricted subsidiaries to meet certain financial ratios.

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

Koppers Inc.’s $ 500 million Senior Notes due 2025 (the “2025 Notes”) are senior obligations of Koppers Inc., are unsecured and are guaranteed by Koppers Holdings Inc.

and certain of Koppers Inc.’s domestic subsidiaries.

The 2025 Notes pay interest semi-annually in arrears on February 15 and August 15 and will mature on February 15, 2025 unless earlier redeemed or repurchased.

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 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

As of June 30, 2023, we had approximately $ 301 million of unused revolving credit availability after restrictions from certain letter of credit commitments and other covenants.

As of June 30, 2023, $ 7.8 million of commitments were utilized by outstanding letters of credit.

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

4 unchanged sentences

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 .

During the six months ended June 30, 2023 , we entered into interest rate swap agreements with an aggregate notional value of $ 150.0 million related to the Term Loan B.

The interest rate swaps effectively convert the variable rate to a weighted average fixed rate of 7.45 percent for that portion of the loan.

All swap agreements expire in April 2027 .

Senior Notes due 2025

Koppers Inc.’s $ 500 million Senior Notes due 2025 (the “2025 Notes”) were unsecured senior obligations of Koppers Inc.

and were guaranteed by Koppers Holdings Inc.

and certain of Koppers Inc.’s domestic subsidiaries.

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 at face value 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.

Subsequent Events

During the third quarter of 2023, we entered into an additional interest rate swap with an aggregate notional value of $ 100.0 million related to the Term Loan B.

As of July 31, 2023, the interest rate swaps collectively convert the variable rate to a weighted average fixed rate of 7.73 percent for the notional value of $ 250.0 million.

All swap agreements expire in April 2027 .

Asset Retirement Obligations

2 unchanged sentences

cleaning and dismantling costs for owned railcars;

cleaning costs for leased rail-cars and barges;

cleaning costs for leased railcars and barges;

and site demolition, when required by governmental authorities or by contract.

17 unchanged sentences

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

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:

The following table presents operating and variable lease costs:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

Operating lease costs

Variable lease costs

The following table presents information about the amount and timing of cash flows arising from our operating leases as of June 30, 2023:

(Dollars in millions)

Total lease payments

12 unchanged sentences

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.

dollar and Australian 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.

12 unchanged sentences

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

For those commodity swaps where hedge accounting is not elected, the fair value of the commodity swap is recognized as an asset or liability on the consolidated balance sheet and the related gain or loss on the derivative is reported in current earnings.

For those commodity swaps where hedge accounting is not elected, the fair value of the commodity swap is recognized as an asset or liability on the condensed consolidated balance sheet and the related gain or loss on the derivative is reported in current earnings.

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

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

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 income (loss).

See Note 4 –

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

As of June 30, 2023 and December 31, 2022 , w e had outstanding copper swap contracts of the following amounts:

Units Outstanding (in Pounds)

Net Fair Value - Asset (in Dollars)

Net Fair Value - Asset (Liability)

(Amounts in millions)

1 unchanged sentence

Contracts where hedge accounting was not

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:

The unrealized loss from contracts where hedge accounting was not elected is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

Derivative contracts

Accrued liabilities

Net asset on balance sheet

Accumulated other comprehensive gain, net of tax

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 .

Loss from contracts where hedge accounting was not elected

The net currency units outstanding for contracts were:

(In millions)

Australian Dollars

United States Dollars

See Note 12 –

“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)

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 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:

"Debt" for discussion of the interest rate swap agreements, which effectively convert the variable rate to a fixed rate for portions of the Term Loan B.

The interest rate swaps have been designated as cash flow hedges and involve 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.

The fair value of the outstanding derivative contracts recorded in the balance sheet are as follows:

Foreign Currency

Forward Contracts

Interest Rate

Swap Contracts

(Dollars in millions)

1 unchanged sentence

Accrued liabilities

Net liability on balance sheet

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:

Other long-term liabilities

Net asset (liability) on balance sheet

Accumulated other comprehensive (loss) gain,

Foreign Currency

Forward Contracts

Interest Rate

Swap Contracts

(Dollars in millions)

Derivative contracts

Other long-term liabilities

Accrued 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 .

We estimate that unrealized gains, net of tax, for commodity price hedging and interest rate swaps of $ 2.1 million 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 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.

There were 51 plaintiffs in 27 cases pending as of June 30, 2023 and December 31, 2022.

As of June 30, 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.

3 unchanged sentences

The other defendants in these lawsuits vary from case to case and include companies such as Beazer East, Inc.

(“Beazer East”), Honeywell International Inc., Graftech International Holdings, Dow Chemical Company, UCAR Carbon Company, Inc., and SGL Carbon Corporation.

(“Beazer East”), Honeywell International Inc., Graftech International Holdings, UCAR Carbon Company, Inc., and SGL Carbon Corporation.

Discovery is proceeding in these cases.

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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 $ 4.0 million as of March 31, 2023.

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.

1 unchanged sentence

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

As of June 30, 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 March 31, 2023 , our estimated environmental remediation liability for the acquired site totals $ 1.3 million.

As of June 30, 2023, our estimated environmental remediation liability for the acquired site totals $ 1.2 million.

Environmental Reserves Rollforward.

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

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

As of June 30, 2023 and December 31, 2022, $ 2.5 million is classified as current liabilities .

(Dollars in millions)

Balance at beginning of year

Balance at beginning of period

Cash expenditures

Currency translation

Balance at end of year

Balance at end of period

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

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The exclusion of certain items permits evaluation and a comparison between periods of results for business operations, and it is on this basis that our management internally assesses our performance.

In addition, our board of directors and executive management team use adjusted EBITDA as a performance measure under the company’s annual incentive plans.

In addition, our board of directors and executive management team use adjusted EBITDA as a performance measure under the company’s annual incentive plans for certain performance share units granted to management.

Although we believe that these non-GAAP financial measures enhance investors’

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

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.

According to the Railway Tie Association (“RTA”), total crosstie installations in 2022 were down 1.9 percent from the prior year, to approximately 18.4 million, of which 14.8 million were for Class I railroads.

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.

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

Nevertheless, the RTA demand forecast predicts slightly lower crosstie demand of 1.3 percent in 2023, or total industry demand of 18.2 million crossties.

For 2024, the economy is estimated to grow and crosstie demand is expected to recover, with an increase of 2.4 percent, or total industry demand of 18.6 million crossties.

According to the Association of American Railroads (“AAR”), compared to the prior year, U.S.

carload traffic for the year-to-date period through June 30, 2023 was up 0.6 percent and intermodal units were down 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.

traffic decreased 5.3 percent compared to last year.

The recent rail traffic patterns demonstrate the contrasts in the broader economy.

Rail intermodal is largely consumer goods, and recent spending on goods has cooled considerably.

On the other hand, rail carloads of industrial products are performing much better, reflecting relative strength in automotive, mineral extraction, and other sectors.

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.

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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.

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

As a whole, the key factors that drive growth in the utility pole market include higher global energy consumption, expansion of the electric vehicle charging network, and investments in the global telecommunications industry.

Now more than ever, utilities need to maintain and strengthen their infrastructure, referred to as hardening the electrical grid, 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.

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 that occur throughout the year.

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.

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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.

Our products are used in multiple infrastructure applications, including utility poles, railroad ties 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.

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’

Actions taken in the past include the purchase of a 105-acre property in Leesville, Louisiana, to host a facility providing additional peeling and drying capacity for utility poles, 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.

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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.

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.

According to the National Association of Realtors® (“NAR”), total existing-home sales in June declined 3.3 percent from May and on a year-over-year basis, sales were lower by 18.9 percent.

While existing-home sales declined, pending home sales in June registered a modest increase of 0.3 percent from the prior month.

Home prices have held firm in most parts of the country as housing inventory remains low, and the limited supply is leading to multiple-offer situations, with one-third of homes being sold above the list price in June.

The NAR projects that the market can easily absorb a doubling of housing inventory and if mortgage rates and inventory move favorably, pent-up demand could be realized in the near term.

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 expenditures for improvements and repairs to owner-occupied homes are expected to decline at an accelerating rate through the first half of 2024.

The LIRA projects that year-over-year spending on homeowner improvements and maintenance will decline by 2.7 percent through the first quarter of 2024 and by 5.9 percent through mid-2024.

Home remodeling activity continues to face strong headwinds from high interest rates, softening house price appreciation, and sluggish home sales.

Annual spending on home improvements and repairs is expected to decrease from $486 billion through the second quarter of this year to $457 billion over the coming twelve months.

Reductions in household moves will likely result in a decline in the remodeling and repair activity;

however, the magnitude of the impact may be offset if homeowners with ultra-low mortgage rates continue to “upgrade-in-place”

and renovate their current homes.

In addition, since pressure-treated lumber prices are approximately 50-60 percent lower year-over-year at big-box retailers, outdoor residential projects are significantly more affordable than this time a year ago.

The Conference Board Consumer Confidence Index® increased in June to 110.1 and again in July to 117.0, which is the second straight month of gains and reflects the highest confidence level since July 2021.

Despite rising interest rates, consumers are more upbeat, likely reflecting softening inflation as well as a favorable outlook on a labor market that continues to outperform expectations.

As a result, consumer expectations for the next six months improved materially, indicating greater confidence about future business conditions and job availability.

Carbon Materials and Chemicals

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The availability of coal tar, the primary raw material for our CMC business, is linked to levels of metallurgical coke production.

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

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

Currently, we are seeing weakening end market demand, which is allowing more availability of coal tar in the near term.

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

We are actively working to mitigate the impacts of long-term decline of coal tar supply by gaining market acceptance for petroleum blended 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.

For the external markets served by our CMC business, we anticipate a slowdown in the near-term in manufacturing overall as well as in the steel, aluminum and carbon black industries.

The June 2023 S&P Global Mobility (formerly IHS Markit Automotive Group) forecast sees global light-vehicle sales increasing by 5.6 percent from the prior year and reaching 83.6 million units globally in 2023, recovering from sales declines in 2021 and 2022 that were driven by production constraints rather than by a lack of consumer demand or willingness to buy.

As for global light-vehicle production, the output is forecast to reach 85.6 million units in 2023 as supply chain issues are approaching a more normalized situation.

However, the near-term outlook remains unclear as the new vehicle sales environment will be defined in the second half of the year by auto consumers pressured by potential vehicle affordability issues (rising interest rates, credit tightening, high vehicle prices) and production advances that could build back inventory more quickly than anticipated.

Seasonality and Effects of Weather on Operations

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Results of Operations –

Comparison of Three Months Ended March 31, 2023 and 2022

Comparison of Three Months Ended June 30, 2023 and 2022

Consolidated Results

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,

Net sales are summarized by segment in the following table:

Three Months Ended June 30,

(Dollars in millions)

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Carbon Materials and Chemicals

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

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.

RUPS net sales increased largely due to a net $20.3 million of pricing increases across multiple markets, particularly for crossties and domestic utility poles.

Volume increases for crossties and utility poles 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 $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.

PC net sales increased as a result of global price increases of $21.0 million, or 14 percent in the current period, particularly in the Americas for our copper-based preservatives, along with volume increases of eight percent globally driven by the Americas and offset by Europe and Australasia.

Foreign currency changes compared to the prior year period had an unfavorable impact on sales in the current year period of $2.3 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.

CMC net sales increased mainly due to $7.2 million of higher sales prices, primarily for carbon pitch driven by strong end markets and constrained raw material supply, along with volume increases of refined tar in North America.

These increases were partly offset by price decreases for certain other products and volume decreases of phthalic anhydride in North America.

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 $1.3 million.

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.

Cost of sales as a percentage of net sales was 81 percent for the quarter ended June 30, 2023, compared to 83 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.

Selling, general and administrative expenses for the quarter ended June 30, 2023 were $3.1 million higher when compared to the prior year period due mainly to an increase in compensation related costs along with an increase in travel, entertainment and advertising.

These increases were partly offset by a reduction in professional services and insurance costs.

Interest expense for the quarter ended June 30, 2023 was $9.2 million higher when compared to the prior year period due to higher interest rates and a $1.6 million increase in write-off of debt issuance costs related to the repayment of the 2025 Notes as described in Note 12 –

Income tax expense for the quarter ended June 30, 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.

The higher effective tax rate in the prior year period was driven by higher estimated non-deductible expenses, notably interest expense, as discussed in Note 8 –

"Income Taxes."

Segment Results

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,

Segment adjusted EBITDA and adjusted EBITDA margin is summarized in the following table:

Three Months Ended June 30,

(Dollars in millions)

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Carbon Materials and Chemicals

RUPS adjusted EBITDA increased by $4.2 million 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.

RUPS adjusted EBITDA increased due primarily to net sales price increases and $6.5 million from improved plant utilization, partly offset by higher raw material and operating costs of $23.2 million in our crosstie, utility pole and maintenance of way businesses in the current year period.

PC adjusted EBITDA increased as renegotiated customer contracts allowed us to increase prices to recapture prior year raw material and other operating cost increases, along with a global volume increase for wood treatment preservatives.

These price increases more than offset $12.5 million of raw material cost increases from the prior year period.

CMC adjusted EBITDA decreased due to an increase of $17.2 million in raw material costs, particularly in Europe and North America, partly offset by higher pricing and higher volumes, which also improved plant utilization in North America compared to the prior year period.

Results of Operations –

Comparison of Six Months Ended June 30, 2023 and 2022

Consolidated Results

Net sales are summarized by segment in the following table:

Six Months Ended June 30,

(Dollars in millions)

Railroad and Utility Products and Services

Performance Chemicals

Carbon Materials and Chemicals

RUPS net sales increased largely due to a net $44.0 million of pricing increases across multiple markets, particularly for crossties and domestic utility poles.

Volume increases for crossties and higher activity in our crosstie recovery business 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 $1.5 million, mainly from our Australian utility pole business.

PC net sales increased as a result of global price increases of $46.0 million, or 16 percent in the current year period, particularly in the Americas for our copper-based preservatives, along with $16.2 million of volume increases in the Americas.

These increases were offset, in part, by $15.8 million of volume decreases for wood treatment preservatives across most international markets, primarily Europe and Australasia.

Foreign currency changes compared to the prior year period had an unfavorable impact on sales in the current year period of $4.7 million.

CMC net sales increased due mainly to $50.9 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 and carbon pitch.

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 $5.6 million.

Cost of sales as a percentage of net sales was 80 percent for the six months ended June 30, 2023, compared to 82 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.

Gain on sale of assets for the six months ended June 30, 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 six months ended June 30, 2023 were $5.6 million higher when compared to the prior year period due mainly to an increase in compensation related costs along with an increase in travel, entertainment and advertising.

These increases were partly offset by a reduction in professional services and insurance costs.

Interest expense for the six months ended June 30, 2023 was $13.4 million higher when compared to the prior year period due to higher interest rates and a $1.6 million increase in write-off of debt issuance costs related to the repayment of the 2025 Notes as described in Note 12 –

Income tax expense for the six months ended June 30, 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, as discussed in Note 8 –

"Income Taxes."

Segment Results

Segment adjusted EBITDA and adjusted EBITDA margin is summarized in the following table:

Six Months Ended June 30,

(Dollars in millions)

Adjusted EBITDA:

Railroad and Utility Products and Services

Performance Chemicals

Carbon Materials and Chemicals

Total Adjusted EBITDA

Adjusted EBITDA margin as a percentage of GAAP sales:

Railroad and Utility Products and Services

Performance Chemicals

Carbon Materials and Chemicals

RUPS adjusted EBITDA increased due primarily to net sales price increases and $10.4 million from improved plant utilization, partly offset by higher raw material and operating costs of $44.4 million in our crosstie, utility pole and maintenance of way businesses in the current year period.

PC adjusted EBITDA increased as renegotiated customer contracts allowed us to increase prices to recapture prior year raw material and other operating cost increases, along with a 7.1 percent volume increase in the Americas for wood treatment preservatives.

These price increases more than offset $25.4 million of raw material and selling, general and administrative cost increases from the prior year period.

CMC adjusted EBITDA decreased due to an increase of $60.5 million in raw material costs, particularly in North America and Europe, partly offset by higher pricing globally and lower operating costs in North America 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 $0.9 million.

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 March 31,

Adjusted EBITDA Reconciliation.

The following table reconciles net income to adjusted EBITDA on a consolidated basis:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

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Adjustments to arrive at adjusted EBITDA:

Impairment, restructuring and plant closure costs (1)

Impairment, restructuring and plant closure costs (benefits) (1)

(Gain) on sale of assets

LIFO expense (2)

Mark-to-market commodity hedging (gains) losses

Mark-to-market commodity hedging losses

Total adjustments

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(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.

Net cash used in operating activities for the six months ended June 30, 2023 was $2.1 million compared to net cash provided by operating activities of $21.2 million in the prior year.

The decrease is primarily the result of higher working capital usage of $36.6 million, which more than offset the cash impact of the increase in net income in the current year period.

The increase in working capital during the current year period is consistent with higher costs combined with a reduction in accounts payable as a result of the timing of purchases and related vendor payments.

Net cash used in investing activities for the six months ended June 30, 2023 was $60.6 million compared to net cash used in investing activities of $51.1 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 yield enhancement project at our CMC facility in Nyborg, Denmark.

Net cash provided by financing activities for the six months ended June 30, 2023 was $78.6 million compared to $28.5 million of net cash provided by financing activities in the prior year.

Cash provided by financing activities in the six months ended June 30, 2023 reflected net borrowings of $90.1 million partly offset by payments of debt issuance costs, repurchases of common stock and dividends paid.

The cash provided by financing activities in the prior year period primarily reflected net borrowings of debt of $53.0 million partly offset by repurchases of common stock, payments of debt issuance costs and dividends paid.

Liquidity and Capital Resources

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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 percent of market capitalization.

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 June 30, 2023, the maximum amount available under the Credit Facility considering restrictions from debt covenants was approximately $301 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.

5 unchanged sentences

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

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

As of June 30, 2023, approximately 90 percent of accounts payable was current and 10 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.

3 unchanged sentences

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 total net leverage ratio as of June 30, 2023 was 3.3.

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.

The cash interest coverage ratio as of June 30, 2023 was 4.7.

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 at least the next twelve months.

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 needs over at least the next twelve months.

Legal Matters

10 unchanged sentences

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